<PAGE>
FILED PURSUANT TO RULE 485(B)
REGISTRATION NO. 2-71299
811-3153
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 46 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 46 /X/
------------------------
FRANK RUSSELL INVESTMENT COMPANY
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
909 A STREET, TACOMA, WASHINGTON 98402
(Address of Principal Executive Office) (ZIP Code)
</TABLE>
Registrant's Telephone Number, including area code: 253/627-7001
<TABLE>
<S> <C>
Gregory J. Lyons, Associate General Counsel Steven M. Felsenstein, Esq.
Frank Russell Investment Company Stradley, Ronon, Stevens & Young
909 A Street 2600 One Commerce Square
Tacoma, Washington 98402 Philadelphia, PA 19103
253-596-2406 215-564-8074
</TABLE>
(Name and Address of Agent for Service)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICAL AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
------------------------
It is proposed that this filing will become effective (check appropriate
box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on December 1, 1999 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/X/ on May 1, 2000 pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
LIFEPOINTS-Registered Trademark- FUNDS
FRANK RUSSELL INVESTMENT COMPANY
LifePoints-Registered Trademark- Funds
PROSPECTUS
CLASS C SHARES:
CONSERVATIVE STRATEGY FUND
MODERATE STRATEGY FUND
BALANCED STRATEGY FUND
AGGRESSIVE STRATEGY FUND
EQUITY AGGRESSIVE STRATEGY FUND
MAY 1, 2000
909 A STREET, TACOMA, WA 98402 - 800-787-7354 - 253-627-7001
As with all mutual funds, the Securities and Exchange
Commission has neither determined that the information
in this Prospectus is accurate or complete, nor approved
or disapproved of these securities. It is a criminal
offense to state otherwise.
[Russell LOGO]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary......................................... 3
Investment Objective.................................... 3
Principal Investment Strategies......................... 4
Principal Risks......................................... 5
Performance............................................. 6
Fees and Expenses....................................... 12
Summary Comparison of the Funds............................. 14
The Purpose of the Funds--Multi-Style, Multi-Manager
Diversification........................................... 16
Management of the Underlying Funds and the LifePoints
Funds..................................................... 17
The Money Managers for the Underlying Funds................. 20
Investment Objective and Principal Investment Strategies of
the Underlying Funds...................................... 21
Principal Risks............................................. 35
Dividends and Distributions................................. 41
Taxes....................................................... 42
How Net Asset Value Is Determined........................... 42
Distribution and Shareholder Servicing Arrangements......... 43
How to Purchase Shares...................................... 44
Exchange Privilege.......................................... 46
How to Redeem Shares........................................ 47
Payment of Redemption Proceeds.............................. 48
Written Instructions........................................ 48
Account Policies............................................ 49
Financial Highlights........................................ 51
Money Manager Information................................... 56
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
<TABLE>
<S> <C>
CONSERVATIVE seeks to achieve moderate total rate of return through low
STRATEGY FUND capital appreciation and reinvestment of a high level of
current income.
MODERATE STRATEGY seeks to achieve moderate long-term capital appreciation
FUND with high current income, while recognizing the possibility
of moderate fluctuations in year-to-year market values.
BALANCED STRATEGY seeks to achieve a moderate level of current income and,
FUND over time, above-average capital appreciation with moderate
risk.
AGGRESSIVE STRATEGY seeks to achieve high, long-term capital appreciation with
FUND low current income, while recognizing the possibility of
substantial fluctuations in year-to-year market values.
EQUITY AGGRESSIVE seeks to achieve high, long-term capital appreciation, while
STRATEGY FUND recognizing the possibility of high fluctuations in
year-to-year market values.
</TABLE>
3
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
Each of the Frank Russell Investment Company (FRIC) Funds described in this
Prospectus (LifePoints Fund) is a "fund of funds," and diversifies its assets by
investing, at present, in the Class S Shares of several other FRIC Funds
(Underlying Funds). Each LifePoints Fund seeks to achieve a specific investment
objective by investing in different combinations of the Underlying Funds.
Each LifePoints Fund allocates its assets by investing in shares of a
diversified group of Underlying Funds. The Underlying Funds in which each
LifePoints Fund invests are shown in the table below and illustrated by pie
charts appearing later in this Prospectus. The LifePoints Funds intend their
strategy of investing in combinations of Underlying Funds to result in
investment diversification that an investor could otherwise achieve only by
holding numerous individual investments.
<TABLE>
<CAPTION>
EQUITY
CONSERVATIVE MODERATE BALANCED AGGRESSIVE AGGRESSIVE
STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
UNDERLYING FUND FUND FUND FUND FUND FUND
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Diversified Equity Fund.................... 5% 11% 16% 21% 30%
Special Growth Fund........................ -- 2% 5% 11% 10%
Quantitative Equity Fund................... 6% 11% 16% 21% 30%
International Securities Fund.............. 5% 9% 14% 19% 20%
Diversified Bond Fund...................... 18% 27% 25% -- --
Short Term Bond Fund....................... 60% 33% -- -- --
Multistrategy Bond Fund.................... -- -- 16% 18% --
Real Estate Securities Fund................ 5% 5% 5% 5% 5%
Emerging Markets Fund...................... 1% 2% 3% 5% 5%
</TABLE>
Each LifePoints Fund intends to be fully invested at all times. Although the
LifePoints Funds, like all other mutual funds, maintain liquidity reserves (i.e.
cash awaiting investment or held to meet redemption requests), the Funds expose
these reserves to the performance of appropriate equity markets by investing in
stock futures contracts. This causes the Funds to perform as though their cash
reserves were actually invested in those markets. Additionally, the Funds invest
their liquidity reserves in one or more FRIC money market funds.
A LifePoints Fund can change the allocation of its assets among Underlying
Funds at any time, if the LifePoints Funds' investment adviser, Frank Russell
Investment Management Company (FRIMCo) believes that doing so would better
enable the LifePoints Fund to pursue its investment objective. From time to
time, each LifePoints Fund adjusts its investments within set limits based on
FRIMCo's outlook for the economy, financial markets generally and relative
market valuation of the asset classes represented by each Underlying Fund.
Additionally, each LifePoints Fund may deviate from set limits when, in FRIMCo's
opinion, it is necessary to do so to pursue the LifePoints Fund's investment
objective. However, The LifePoints Funds expect that amounts they allocate to
each Underlying Fund will generally vary only within 10% of the ranges specified
in the table above.
4
<PAGE>
DIVERSIFICATION
Each LifePoints Fund is a "nondiversified" investment company for purposes
of the Investment Company Act of 1940 because it invests in the securities of a
limited number of issuers (i.e., the Underlying Funds). Each of the Underlying
Funds in which the LifePoints Funds invest is a diversified investment company.
PRINCIPAL RISKS
You should consider the following factors before investing in the LifePoints
Funds:
- An investment in the LifePoints Funds, like any investment, has risks. The
value of each LifePoints Fund fluctuates, and you could lose money.
- Since the assets of each LifePoints Fund is invested primarily in shares
of the Underlying Funds, the investment performance of each LifePoints
Fund is directly related to the investment performance of the Underlying
Funds in which it invests.
- The policy of each LifePoints Fund is to allocate its assets among the
Underlying Funds within certain ranges. Therefore, the LifePoints Funds
may have less flexibility to invest than a mutual fund without such
constraints.
- A LifePoints Fund is exposed to the same risks as the Underlying Funds in
direct proportion to the allocation of its assets among the Underlying
Funds. These risks include the risks associated with a multi-manager
approach to investing, as well as those associated with investing in
equity securities, fixed income securities, and international securities.
For further detail on the risks summarized here, please refer to the
section "Principal Risks".
- An investment in any of the LifePoints Funds is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
- The officers, Trustees, and FRIMCo presently serve as officers, Trustees
and investment manager of the Underlying Funds. Therefore, conflicts may
arise as those persons and FRIMCo fulfill their fiduciary responsibilities
to the LifePoints Funds and to the Underlying Funds.
5
<PAGE>
PERFORMANCE
The following bar charts illustrate the risks of investing in the LifePoints
Funds by showing how the performance of each LifePoints Fund's Class C Shares
varies over the life of each LifePoints Fund. The highest and lowest quarterly
returns during the periods shown in the bar charts for the LifePoints Funds'
Class C Shares are set forth below the bar charts.
The tables accompanying the bar charts further illustrate the risks of
investing in the LifePoints Funds by showing how each LifePoints Fund's average
annual returns for one year and since the beginning of operations of such
LifePoints Fund compare with the returns of certain indexes that measure broad
market performance.
The Equity Aggressive Strategy, Moderate Strategy and Conservative Strategy
Funds first issued Class C Shares on February 11, 1999. The Aggressive Strategy
and Balanced Strategy Funds first issued Class C Shares on January 29, 1999.
Performance shown for Class C Shares prior to those dates is the performance of
the LifePoints Funds' Class E Shares, and does not reflect deduction of the Rule
12b-1 distribution fees that apply to Class C Shares. Had it done so, the
returns shown would have been lower.
Past performance is no indication of future results.
6
<PAGE>
- --------------------------------------------------------------------------------
CONSERVATIVE STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS C
<S> <C>
1998 7.70%
1999 4.77%
</TABLE>
BEST QUARTER: 3.56% (1Q/98)
WORST QUARTER: (0.86)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Conservative Strategy Fund Class C....... 4.77% 6.35%
Merrill Lynch 1-2.99 Year Treasury
Index**................................. 3.06 5.07
Lehman Brothers Aggregate Bond Index..... (0.82) 4.23
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Conservative Strategy Composite Index#... 5.62 7.34
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations on November 7, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-month Treasury Bill Index. The Fund believes the
Merrill Lynch 1-2.99 Year Treasury Index is more broadly representative
of the securities and strategies likely to be employed by the Fund and
provides more useful information as a comparative basis for evaluation
of the Fund's performance.
# The Conservative Strategy Composite Index is comprised of the following
indices: 60% Merrill Lynch 1-2.99 Year Treasury Index, 18% Lehman
Brothers Aggregate Bond Index, 11% Russell 1000-Registered Trademark-
Index, 5% Salomon Smith Barney BMI Ex-US, 5% NAREIT Equity REIT Index
and 1% IFC Investable Composite Index.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
MODERATE STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS C
<S> <C>
1998 10.19%
1999 8.03%
</TABLE>
BEST QUARTER: 6.73% (4Q/98)
WORST QUARTER: (3.82)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Moderate Strategy Fund Class C........... 8.03% 7.91%
Merrill Lynch 1-2.99 Year Treasury
Index**................................. 3.06 5.22
Lehman Brothers Aggregate Bond Index..... (0.82) 4.73
Russell 1000 Index....................... 20.91 22.61
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Moderate Strategy Composite Index#....... 9.13 9.38
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations by issuing Class E Shares on October 2, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-month Treasury Bill Index. The Fund believes the
Merrill Lynch 1-2.99 Year Treasury Index is more broadly representative
of the securities and strategies likely to be employed by the Fund and
provides more useful information as a comparative basis for evaluation
of the Fund's performance.
# The Moderate Strategy Composite Index is comprised of the following
indices: 33% Merrill Lynch 1-2.99 Year Treasury Index, 27% Lehman
Brothers Aggregate Bond Index, 22% Russell 1000 Index, 9% Salomon Smith
Barney BMI Ex-US, 5% NAREIT Equity REIT Index, 2% Russell 2500-TM-
Index and 2% IFC Investable Composite Index.
-----------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
BALANCED STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS C
<S> <C>
1998 11.66%
1999 10.94%
</TABLE>
BEST QUARTER: 10.49% (4Q/98)
WORST QUARTER: (7.20)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Balanced Strategy Fund Class C........... 10.94% 10.24%
Lehman Brothers Aggregate Bond Index**... (0.82) 4.73
Russell 1000 Index....................... 20.91 22.61
Salomon Smith Barney BMI Ex-US Index..... 28.73 15.90
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Balanced Strategy Composite Index#....... 12.75 11.73
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations by issuing Class E Shares on September 16, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-Month Treasury Bill Index. The Fund believes the
Lehman Brothers Aggregate Bond Index is more broadly representative of
the securities and strategies likely to be employed by the Fund and
provides more useful information as a comparative basis for evaluation
of the Fund's performance.
# The Balanced Strategy Composite Index is comprised of the following
indices: 41% Lehman Brothers Aggregate Bond Index, 32% Russell 1000
Index, 14% Salomon Smith Barney BMI Ex-US, 5% Russell 2500-TM- Index,
5% NAREIT Equity REIT Index and 3% IFC Investable Composite Index.
-----------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
AGGRESSIVE STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS C
<S> <C>
1998 11.69%
1999 17.06%
</TABLE>
BEST QUARTER: 14.33% (4Q/98)
WORST QUARTER: (11.63)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Aggressive Strategy Fund Class C......... 17.06% 12.25%
Russell 1000 Index**..................... 20.91 22.61
Salomon Smith Barney BMI Ex-US Index..... 28.73 15.90
Lehman Brothers Aggregate Bond Index..... (0.82) 4.73
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Aggressive Strategy Composite Index#..... 19.34 14.27
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations by issuing Class E Shares on September 16, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-month Treasury Bill Index. The Fund believes the
Russell 1000 Index is more broadly representative of the securities and
strategies likely to be employed by the Fund and provides more useful
information as a comparative basis for evaluation of the Fund's
performance.
# The Aggressive Strategy Composite Index is comprised of the following
indices: 42% Russell 1000 Index, 19% Salomon Smith Barney BMI Ex-US,
18% Lehman Brothers Aggregate Bond Index, 11% Russell 2500-TM- Index,
5% IFC Investable Composite Index and 5% NAREIT Equity REIT Index.
-----------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
EQUITY AGGRESSIVE STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS C
<S> <C>
1998 13.75%
1999 21.14%
</TABLE>
BEST QUARTER: 17.51% (4Q/98)
WORST QUARTER: (13.85)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Equity Aggressive Strategy Fund
Class C................................. 21.14% 14.02%
Russell 1000-Registered Trademark-
Index**................................. 20.91 22.61
Salomon Smith Barney BMI Ex-US Index..... 28.73 15.90
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Equity Aggressive Strategy Composite
Index#.................................. 23.58 17.36
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations by issuing Class E Shares on September 30, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-Month Treasury Bill Index. The Fund believes the
Russell 1000 Index is more broadly representative of the securities and
strategies likely to be employed by the Fund and provides more useful
information as a comparative basis for evaluation of the Fund's
performance.
# The Equity Aggressive Strategy Composite Index is comprised of the
following indices: 60% Russell 1000 Index, 20% Salomon Smith Barney BMI
Ex-US, 10% Russell 2500-TM- Index, 5% IFC Investable Composite Index
and 5% NAREIT Equity REIT Index.
- --------------------------------------------------------------------------------
11
<PAGE>
FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold Shares of the LifePoints Funds.
SHAREHOLDER FEES
(FEE PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES
MAXIMUM SALES CHARGE (LOAD)
CHARGE (LOAD) MAXIMUM IMPOSED ON
IMPOSED ON DEFERRED SALES REINVESTED REDEMPTION EXCHANGE
PURCHASES CHARGE (LOAD) DIVIDENDS FEES FEES
--------- ------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
All Funds, Class C...................... None None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT WERE DEDUCTED FROM FUND ASSETS)
(% OF NET ASSETS)
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL GROSS TOTAL NET
(REFLECTING ANNUAL FUND EXPENSE WAIVERS ANNUAL FUND
ADVISORY DISTRIBUTION SHAREHOLDER OPERATING AND OPERATING
FEE (12B-1) FEES* SERVICING FEES)** EXPENSES**+ REIMBURSEMENTS# EXPENSES
--- ------------- ----------------- ----------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
Conservative Strategy Fund... 0.20% 0.75% 0.25% 1.20% (0.20)% 1.00%
Moderate Strategy Fund....... 0.20% 0.75% 0.25% 1.20% (0.20)% 1.00%
Balanced Strategy Fund....... 0.20% 0.75% 0.25% 1.20% (0.20)% 1.00%
Aggressive Strategy Fund..... 0.20% 0.75% 0.25% 1.20% (0.20)% 1.00%
Equity Aggressive Strategy
Fund....................... 0.20% 0.75% 0.25% 1.20% (0.20)% 1.00%
</TABLE>
- ------------------------
* Pursuant to the rules of the National Association of Securities Dealers,
Inc. ("NASD"), the aggregate initial sales charges, deferred sales charges
and asset-based sales charges on shares of the Funds may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation is
imposed on all Class C Shares of the Funds as a group rather than on a per
shareholder basis. Therefore, long-term shareholders of the Class C Shares
may pay more than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
** The Fund expenses shown in this table do not include the pro-rata expenses
of the Underlying Funds, which are shown in the next two tables. For
purposes of this table, Other Expenses for Class C Shares reflects a
shareholder services fee of up to 0.25% of average daily net assets.
# FRIMCo has contractually agreed to waive, at least through February 28, 2001,
its 0.20% advisory fee for each LifePoints Fund. Certain LifePoints Funds
operating expenses will be paid by the Underlying Funds and/or FRIMCo, as
more fully described below.
+ If you purchase any class of Shares of a LifePoints Fund through a Financial
Intermediary, such as a bank or an investment adviser, you may also pay
additional fees to the intermediary for services provided by the
intermediary which, in turn, may pay fees to FRIMCo for services FRIMCo
provides to the Financial Intermediary. You should contact your financial
intermediary for information concerning what additional fees, if any, will
be charged.
12
<PAGE>
DIRECT EXPENSES
No Lifepoints Fund will bear any direct operating expenses. Those operating
expenses include those arising from accounting, administrative (FRIMco has
waived its receipt of administrative fees through November 30, 2000), custody,
auditing, legal and transfer agent services. They do not include expenses
attributable to advisory fees (which are currently waived by FRIMCo through
February 28, 2001), any Rule 12b-1 distribution fee, any shareholder service
fees, or any nonrecurring extraordinary expenses, which will be borne by the
LifePoints Funds or their appropriate classes of shares.
A LifePoints Fund's direct operating expenses are borne either by the
Underlying Funds in which the LifePoints Fund invests pursuant to Special
Servicing Agreements or by FRIMCo pursuant to a Letter Agreement. The Special
Servicing Agreements are entered into on a yearly basis and must be re-approved
annually by FRIC's Board of Trustees. The Letter Agreement currently extends
through April 30, 2001 and may be renewed thereafter.
INDIRECT EXPENSES
Shareholders in a LifePoints Fund bear indirectly the proportionate expenses
of the Underlying Funds in which the LifePoints Fund invests. The following
table provides the expense ratios for each of the Underlying Funds in which the
LifePoints Funds may invest (based on information as of December 31, 1999). As
explained at the beginning of this Prospectus, each LifePoints Fund intends to
invest in some, but not all, of the Underlying Funds.
<TABLE>
<CAPTION>
TOTAL NET OPERATING
UNDERLYING FUND (CLASS S SHARES) EXPENSE RATIOS
- -------------------------------- --------------
<S> <C>
Diversified Equity Fund.................................... 0.93%
Special Growth Fund........................................ 1.24%
Quantitative Equity Fund................................... 0.93%
International Securities Fund.............................. 1.30%
Diversified Bond Fund...................................... 0.61%
Short Term Bond Fund....................................... 0.74%
Multistrategy Bond Fund.................................... 0.86%
Real Estate Securities Fund................................ 1.14%
Emerging Markets Fund...................................... 1.91%
</TABLE>
Based on these expense ratios, the total direct and indirect operating
expense ratios of each class of Shares of each LifePoints Fund (calculated as a
percentage of average net assets) are expected to be as follows:
<TABLE>
<CAPTION>
CLASS C
-------
<S> <C>
Conservative Strategy...................................... 1.80%
Moderate Strategy.......................................... 1.85%
Balanced Strategy.......................................... 1.95%
Aggressive Strategy........................................ 2.08%
Equity Aggressive Strategy................................. 2.09%
</TABLE>
13
<PAGE>
Each LifePoints Fund's total expense ratio is based on its total direct
operating expense ratio plus a weighted average of the expense ratios of the
Underlying Funds in which it was invested as of December 31, 1999. These total
expense ratios may be higher or lower depending on the allocation of a
LifePoints Fund's assets among the Underlying Funds, the actual expenses of the
Underlying Funds and the actual expenses of the LifePoints Funds.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
LIFEPOINTS FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
The example assumes that you invest $10,000 in a LifePoints Fund for the
time periods indicated and then redeem all of your Shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year, and that operating expenses, which include the indirect expenses of the
Underlying Funds, remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS C: ------ ------- ------- --------
<S> <C> <C> <C> <C>
Conservative Strategy Fund........................... $183 $619 $1,081 $2,360
Moderate Strategy Fund............................... 188 634 1,106 2,411
Balanced Strategy Fund............................... 198 664 1,157 2,515
Aggressive Strategy Fund............................. 211 703 1,222 2,646
Equity Aggressive Strategy Fund...................... 212 707 1,228 2,657
</TABLE>
SUMMARY COMPARISON OF THE FUNDS
The investment objectives of the LifePoints Funds are summarized below in a
chart that illustrates the degree to which each LifePoints Fund seeks to obtain
capital appreciation, income, and stability of principal:
<TABLE>
<CAPTION>
CAPITAL POSSIBILITY OF
LIFEPOINTS FUND APPRECIATION INCOME FLUCTUATION
- -------------------------------------------------- ------------ ------ -----------
<S> <C> <C> <C>
Conservative Strategy Fund........................ Low High Low
Moderate Strategy Fund............................ Moderate High Moderate
Balanced Strategy Fund............................ Moderate Moderate Moderate
Aggressive Strategy Fund.......................... High Low High
Equity Aggressive Strategy Fund................... High Low High
</TABLE>
14
<PAGE>
The allocation of each LifePoints Fund's investment in the Underlying Funds
is illustrated in the following charts:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 5%
Quantitative Equity 6%
International Securities 5%
Emerging Markets 1%
Real Estate Securities 5%
Diversified Bond 18%
Short Term Bond 60%
Convservative Strategy Fund
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 11%
Special Growth 2%
Quantitative Equity 11%
International
Securities 9%
Emerging Markets 2%
Real Estate Securities 5%
Diversified Bond 27%
Short Term Bond 33%
Moderate Strategy Fund
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 16%
Special Growth 5%
Quantitative Equity 16%
International
Securities 14%
Emerging Markets 3%
Real Estate Securities 5%
Diversified Bond 25%
Multistrategy Bond 16%
Balanced Strategy Fund
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 21%
Special Growth 11%
Quantitative Equity 21%
International Securities 19%
Emerging Markets 5%
Real Estate Securities 5%
Multistrategy Bond 18%
Aggressive Strategy Fund
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 30%
Special Growth 10%
Quantitative Equity 30%
International Securities 20%
Emerging Markets 5%
Real Estate Securities 5%
Equity Aggressive Strategy Fund
</TABLE>
15
<PAGE>
THE PURPOSE OF THE FUNDS--MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION
The LifePoints Funds are offered through certain bank trust departments,
registered investment advisers, broker-dealers and other financial services
organizations that have been selected by the LifePoints Funds' adviser or
distributor (Financial Intermediaries). The LifePoints Funds offer investors the
opportunity to invest in a diversified mutual fund investment allocation program
and are designed to provide a means for investors to use FRIMCo's and Frank
Russell Company's (Russell) "multi-style, multi-manager diversification"
investment method and to obtain FRIMCo's and Russell's money manager evaluation
services.
Three functions form the core of Russell's consulting services:
- OBJECTIVE SETTING: Defining appropriate investment objectives and desired
investment returns, based on a client's unique situation and risk
tolerance.
- ASSET ALLOCATION: Allocating a client's assets among different asset
classes--such as common stocks, fixed-income securities, international
securities, temporary cash investments and real estate--in a way most
likely to achieve the client's objectives and desired returns.
- MONEY MANAGER RESEARCH: Evaluating and recommending professional
investment advisory and management organizations ("money managers") to
make specific portfolio investments for each asset class, according to
designated investment objectives, styles and strategies.
When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.
The LifePoints Funds believe investors should seek to hold fully diversified
portfolios that reflect both their own individual investment time horizons and
their ability to accept risk. The LifePoints Funds believe that for many, this
can be accomplished through strategically purchasing shares in one or more of
the Underlying Funds which have been structured to provide access to specific
asset classes employing a multi-style, multi-manager approach.
Capital market history shows that asset classes with greater risk will
generally outperform lower risk asset classes over time. For instance, corporate
equities, over the past 50 years, have outperformed corporate debt in absolute
terms. However, what is generally true of performance over extended periods will
not necessarily be true at any given time during a market cycle, and from time
to time asset classes with greater risk may also underperform lower risk asset
classes, on either a risk adjusted or absolute basis. Investors should select a
mix of asset classes that reflects their overall ability to withstand market
fluctuations over their investment horizons.
Studies have shown that no one investment style within an asset class will
consistently outperform competing styles. For instance, investment styles
favoring securities with growth characteristics may outperform styles favoring
income producing securities, and vice versa. For this reason, no single manager
has consistently outperformed the market over extended periods. Although
performance cycles tend to repeat themselves, they do not do so predictably.
The LifePoints Funds believe, however, that it is possible to select
managers who have shown a consistent ability to achieve superior results within
subsets or styles of specific asset classes and investment styles by employing a
unique combination of qualitative and quantitative measurements. The
16
<PAGE>
Underlying Funds in which the LifePoints Funds invest combine these select
managers with other managers within the same asset class who employ
complementary styles. By combining complementary investment styles within an
asset class, investors are better able to reduce their exposure to the risk of
any one investment style going out of favor.
By strategically selecting from among a variety of investments by asset
class, each of which has been constructed using these multi-style, multi-manager
principles, investors are able to design portfolios that meet their specific
investment needs.
The LifePoints Funds have a greater potential than most mutual funds for
diversification among investment styles and money managers since the LifePoints
Funds invest in shares of several Underlying Funds. The LifePoints Funds were
created to provide a mutual fund investor with a simple but effective means of
structuring a diversified mutual fund investment program suited to meet the
investor's individual needs. FRIMCo has long stressed the value of
diversification in an investment program, and has offered its advisory expertise
in assisting investors on how to design their individual investment program.
The LifePoints Funds and Underlying Funds conduct their business through a
number of service providers, who act on behalf of the Funds. FRIMCo, the Funds'
administrator and investment adviser, performs the Funds' day to day corporate
management and oversees the Funds' money managers. Each of the Underlying Funds'
money managers makes all investment decisions for the portion of the Underlying
Fund assigned to it by FRIMCo. The Funds' custodian, State Street Bank,
maintains custody of all of the Funds' assets. FRIMCo, in its capacity as the
Funds' transfer agent, is responsible for maintaining the Funds' shareholder
records and carrying out shareholder transactions. When a Fund acts in one of
these areas, it does so through the service provider responsible for that area.
MANAGEMENT OF THE UNDERLYING FUNDS
AND THE LIFEPOINTS FUNDS
The LifePoints Funds' investment adviser is FRIMCo, 909 A Street, Tacoma,
Washington 98402. FRIMCo pioneered the "multi-style, multi-manager" investment
method in mutual funds and manages over $17 billion in more than 30 mutual fund
portfolios. FRIMCo was established in 1982 to serve as the investment management
arm of Russell.
Russell, which acts as consultant to the LifePoints Funds and the Underlying
Funds, was founded in 1936 and has been providing comprehensive asset management
consulting services for over 30 years to institutional investors, principally
large corporate employee benefit plans. Russell provides the LifePoints Funds,
the Underlying Funds and FRIMCo with the asset management consulting services
that it provides to its other consulting clients. Neither the LifePoints Funds
nor the Underlying Funds compensate Russell for these services. Russell and its
affiliates have offices around the world, in Tacoma, New York, Toronto, London,
Paris, Sydney, Auckland, Singapore and Tokyo.
Russell is a subsidiary of The Northwestern Mutual Life Insurance Company.
Founded in 1857, Northwestern Mutual is a mutual life insurance corporation
headquartered in Milwaukee, Wisconsin. It leads the US in both individual life
insurance sold annually and individual life insurance in force.
17
<PAGE>
FRIMCo recommends money managers to the Underlying Funds, allocates
Underlying Fund assets among them, oversees them, and evaluates their results.
FRIMCo also oversees the management of the Underlying Funds' liquidity reserves.
The Underlying Funds' money managers select the individual portfolio securities
for the assets in the Underlying Funds assigned to them.
James A. Jornlin is responsible for the day to day decisions regarding the
investment and reinvestment of the LifePoints Funds within their target
allocation strategy percentages. Mr. Jornlin also oversees certain other funds
as described below.
FRIMCo's officers and employees who oversee the money managers of the
Underlying Funds are:
- Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
June 1989.
- Mark D. Amberson, who has been a Portfolio Manager of FRIMCo since January
1998. From 1991 to 1997, Mr. Amberson was a Portfolio Manager in Russell's
Money Market Trading Group. Mr. Amberson has, jointly with Mr. Burge,
primary responsibility for management of the Fixed Income I, Diversified
Bond, Short Term Bond, Fixed Income III, Tax Exempt Bond and Multistrategy
Bond Funds.
- Randal C. Burge, who has been Director of Global Fixed Income since
January 2000. From 1995 to 1999, Mr. Burge was a Portfolio Manager of
FRIMCo. From 1990 to 1995, Mr. Burge was a Client Executive for Frank
Russell Australia. Mr. Burge has, jointly with Mr. Amberson, primary
responsibility for management of the Fixed Income I, Fixed Income III,
Diversified Bond, Short Term Bond, Tax Exempt Bond and Multistrategy Bond
Funds.
- Jean Carter, who has been Director of Global Equities since January 2000.
From 1994 to 1999, Ms. Carter was a Portfolio Manager of FRIMCo.
- Ann Duncan, who has been a Portfolio Manager of FRIMCo since January 1998.
From 1996 to 1997, Ms. Duncan was a Senior Equity Research Analyst with
Russell. From 1992 to 1995, Ms. Duncan was an equity analyst and portfolio
manager with Avatar Associates. Ms. Duncan has, jointly with Mr. Jornlin,
primary responsibility for management of the International and
International Securities Funds.
- James M. Imhof, Director of FRIMCo's Portfolio Trading, manages the Funds'
liquidity portfolios on a day to day basis and has been responsible for
ongoing analysis and monitoring of the money managers since 1989.
- James A. Jornlin, who has been a Portfolio Manager of FRIMCo since January
2000. From 1995 to 1999, Mr. Jornlin was a Senior Investment Officer of
FRIMCo. From 1991 to 1995, Mr. Jornlin was employed as a Senior Research
Analyst with Russell. Mr. Jornlin has primary responsibility for
management of the Tax-Managed Global Equity, Equity Aggressive Strategy,
Aggressive Strategy, Balanced Strategy, Moderate Strategy and Conservative
Strategy Funds, has, jointly with Mr. Ogard, primary responsibility for
the management of the Real Estate Securities Fund has, jointly with Ms.
Duncan, primary responsibility for the management of the International and
International Securities Funds and has, jointly with Mr. Parish, primary
responsibility for the management of the Emerging Markets Fund.
18
<PAGE>
- Eric W. Ogard, who has been a Portfolio Manager of FRIMCo since
March 2000. Mr. Ogard was a Research Analyst for FRIMCo from 1995 to 1997
and a Senior Research Analyst for FRIMCo from 1997 to 2000. Mr. Ogard has,
jointly with Mr. Trittin and Mr. Tipple, primary responsibility for the
management of the Equity I, Equity II, Equity III, Equity Q, Tax-Managed
Large Cap, Tax-Managed Small Cap, Diversified Equity, Quantitative Equity,
Special Growth and Equity Income Funds and has, jointly with Mr. Jornlin,
primary responsibility for the management of the Real Estate Securities
Fund.
- Symon Parish, who has been an Associate Portfolio Manager of Frank Russell
Company Limited, an affiliate of FRIMCo, since 1996. From 1994 to 1996,
Mr. Parish was a client service executive in Russell's Auckland office.
Mr. Parish has, jointly with Mr. Jornlin, primary responsibility for the
Emerging Markets Fund.
- Brian C. Tipple, who has been a Portfolio Manager of FRIMCo since July
1999. From 1991 to 1999, Mr. Tipple was a Client Executive with Frank
Russell Trust Company. Mr. Tipple has, jointly with Mr. Ogard and Mr.
Trittin, primary responsibility for the management of the Equity I,
Equity II, Equity III, Equity Q, Tax-Managed Large Cap, Tax-Managed Small
Cap, Diversified Equity, Quantitative Equity, Special Growth and Equity
Income Funds.
- Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of US Equity
Manager Research Department with Russell. Mr. Trittin has, jointly with
Mr. Ogard and Mr. Tipple, primary responsibility for management of the
Equity I, Equity II, Equity III, Equity Q, Tax-Managed Large Cap,
Tax-Managed Small Cap, Diversified Equity, Quantitative Equity, Special
Growth and Equity Income Funds.
FRIMco receives an annual 0.20% advisory fee and an annual 0.05%
administrative fee from each LifePoints Fund based on the average daily net
assets of each LifePoints Fund. These fees are payable to FRIMCo monthly on a
pro rata basis. FRIMCo has voluntarily agreed to waive the advisory fee through
February 28, 2001 and the administrative fee through November 30, 2000.
In addition to the advisory and administrative fees payable by the
LifePoints Funds, the LifePoints Funds will bear indirectly a proportionate
share of operating expenses that include the advisory and administrative fees
paid by the Underlying Funds in which they invest. While a shareholder of a
LifePoints Fund will also bear a proportionate part of advisory and
administrative fees paid by an Underlying Fund, each of the advisory and
administrative fees paid is based upon the services received by the respective
LifePoints Fund. From the advisory fee that it receives from each Underlying
Fund, FRIMCo pays the Underlying Fund's money managers for their investment
selection services. FRIMCo retains any remainder as compensation for the
services described above and to pay expenses. The aggregate annual rate of the
advisory and administrative fees, payable to FRIMCo monthly on a pro rata basis,
are the following percentages of the average daily net assets of each Underlying
Fund: Diversified Equity Fund 0.78%, Special Growth Fund 0.95%, Quantitative
Equity Fund 0.78%, International Securities Fund 0.95%, Diversified Bond Fund
0.45%, Short Term Bond Fund 0.50%,
Multistrategy Bond Fund 0.65%, Real Estate Securities Fund 0.85% and Emerging
Markets Fund 1.20%. Of this aggregate amount, 0.05% is attributable to
administrative services.
19
<PAGE>
THE MONEY MANAGERS FOR THE UNDERLYING FUNDS
Each Underlying Fund allocates its assets among the money managers listed
under "Money Manager Information" at the end of this Prospectus. FRIMCo, as the
Underlying Funds' advisor, may change the allocation of an Underlying Fund's
assets among money managers at any time. The Underlying Funds received an
exemptive order from the Securities and Exchange Commission (SEC) that permits
an Underlying Fund to engage or terminate a money manager at any time, subject
to the approval by the Underlying Fund's Board of Trustees (Board), without a
shareholder vote. An Underlying Fund notifies its shareholders within 60 days of
when a money manager begins providing services. The Underlying Funds select
money managers based primarily upon the research and recommendations of FRIMCo
and Russell. FRIMCo and Russell evaluate quantitatively and qualitatively the
money manager's skills and results in managing assets for specific asset
classes, investment styles and strategies. Short-term investment performance, by
itself, is not a controlling factor in any Underlying Fund's selection or
termination of a money manager.
Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of an Underlying Fund. At the same time, however,
each money manager must operate within the Underlying Fund's investment
objectives, restrictions and policies. Additionally, each manager must operate
within more specific constraints developed from time to time by FRIMCo. FRIMCo
develops such constraints for each manager based on FRIMCo's assessment of the
manager's expertise and investment style. By assigning more specific constraints
to each money manager, FRIMCo intends to capitalize on the strengths of each
money manager and to combine their investment activities in a complementary
fashion. Although the money managers' activities are subject to general
oversight by the Board and the Underlying Funds' officers, neither the Board,
the officers, FRIMCo nor Russell evaluate the investment merits of the money
managers' individual security selections.
20
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT
STRATEGIES OF THE UNDERLYING FUNDS
The objective and principal strategies of each Underlying Fund are described
in this section. Further information about the Underlying Funds is contained in
the Statement of Additional Information as well as in the Prospectuses of the
Underlying Funds. Because the LifePoints Funds invest in the Underlying Funds,
investors of the LifePoints Funds will be affected by the Underlying Funds'
investment strategies in direct proportion to the amount of assets each
LifePoints Fund allocates to the Underlying Fund pursuing such policies. To
request a copy of a Prospectus for an Underlying Fund, contact FRIC at
800/787-7354 (in Washington, 253/627-7001).
DIVERSIFIED EQUITY FUND
- ---------------------------
<TABLE>
<S> <C>
INVESTMENT To provide income and capital growth by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Diversified Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies most of
STRATEGIES which are US-based.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial, and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
Additionally, the Fund is diversified by equity substyle.
For example, within the Growth Style, the Fund expects to
employ both an Earnings Momentum substyle (concentrating on
companies with more volatile and accelerating growth rates)
and a Consistent Growth substyle (concentrating on companies
with stable earnings growth over an economic cycle).
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
substyle and its performance record, as well as the
characteristics of the money manager's typical portfolio
investments. These characteristics include capitalization
size, growth and profitability measures, valuation ratios,
economic sector weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more Frank Russell Investment
Company (FRIC) money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
SPECIAL GROWTH FUND
- ------------------------
<TABLE>
<S> <C>
INVESTMENT To maximize total return primarily through capital
OBJECTIVE appreciation and assuming a higher level of volatility than
the Diversified Equity Fund.
PRINCIPAL The Special Growth Fund invests primarily in common stocks
INVESTMENT of small
STRATEGIES and medium capitalization companies most of which are US
based. The Fund's investments may include companies that
have been publicly traded for less than five years and
smaller companies, such as companies not listed in the
Russell 2000-Registered Trademark- Index.
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record, as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
QUANTITATIVE EQUITY FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell
1000-Registered Trademark- Index over a market cycle of four
to six years) while maintaining volatility and
diversification similar to the Index.
PRINCIPAL The Quantitative Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies which
STRATEGIES are predominately
US based. The Fund generally pursues a market-oriented style
of security selection, which incorporates both a growth
style and a value style, based on quantitative investment
models which are mathematical formulas based on statistical
analyses. This style emphasizes investments in companies
that appear to be undervalued relative to their growth
prospects.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record as well as the characteristics of the money manager's
typical portfolio investments. These characteristics include
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment returns correlate with one another.
Each of the Fund's money managers use quantitative models to
rank securities based upon their expected ability to
outperform the total return of the Russell 1000 Index. Once
a money manager has ranked the securities, it then selects
the securities most likely to outperform and constructs, for
its segment of the Fund, a portfolio that has risks similar
to the Russell 1000 Index. Each money manager performs this
process independently from each other money manager.
The Russell 1000 Index consists of the 1,000 largest US
companies by capitalization (i.e., market price per share
times the number of shares outstanding). The smallest
company in the Index at December 31, 1999 had a
capitalization of approximately $1.1 billion.
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
The Fund's money managers typically use a variety of
quantitative models, ranking securities within each model
and on a composite basis using proprietary weighting
formulas. Examples of those quantitative models are dividend
discount models, price/cash flow models, price/earnings
models, earnings surprise and earnings estimate revisions
models and price momentum models.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
INTERNATIONAL SECURITIES FUND
- -----------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.
PRINCIPAL The International Securities Fund invests primarily in
INVESTMENT equity securities issued by companies domiciled outside the
STRATEGIES US and in depository receipts which represent ownership of
securities of non-US companies. The Fund's investments span
most of the developed nations of the world (particularly
Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. Because
international equity investment performance has a reasonably
low correlation to US equity performance, this Fund may be
appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
The Fund may seek to protect its investments against adverse
currency exchange rate changes by purchasing forward
currency contracts. These contracts enable the Fund to "lock
in" the US dollar price of a security that it plans to buy
or sell. The Fund may not accurately predict currency
movements.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector. A
variation of this style maintains investments that
replicate country and sector weightings of a broad
international market index.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
DIVERSIFIED BOND FUND
- -------------------------
<TABLE>
<S> <C>
INVESTMENT To provide effective diversification against equities and a
OBJECTIVE stable level of cash flow by investing in fixed-income
securities.
PRINCIPAL The Diversified Bond Fund invests primarily in investment
INVESTMENT grade fixed- income securities. In particular, the Fund
STRATEGIES holds debt securities issued or guaranteed by the US
government and, to a lesser extent by non-US governments, or
by their respective agencies and instrumentalities. It also
holds mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. In seeking investments
that will produce cash flow, the Fund's money managers also
identify sectors of the fixed-income market that they
believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
28
<PAGE>
SHORT TERM BOND FUND
- --------------------------
<TABLE>
<S> <C>
INVESTMENT The preservation of capital and the generation of current
OBJECTIVE income consistent with preservation of capital by investing
primarily in fixed-income securities with low-volatility
characteristics.
PRINCIPAL The Short Term Bond Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
The Fund may invest up to 10% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by the
Fund to be of comparable quality. These securities are
commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 15% of the average weighted duration
of the Merrill Lynch 1-2.99 Years Treasury Index, which was
1.6 years on December 31, 1999, but may vary up to 50% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes, as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Merrill Lynch 1-2.99 Years Treasury
Index.
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
MULTISTRATEGY BOND FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return, primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from broad fixed-income market
portfolios.
PRINCIPAL The Multistrategy Bond Fund invests primarily in
INVESTMENT fixed-income securities. In particular, the Fund holds debt
STRATEGIES securities issued or guaranteed by the US government and, to
a lesser extent by non-US governments, or by their
respective agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
The Fund may invest up to 25% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by a
Fund money manager to be of comparable quality. These
securities are commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
31
<PAGE>
REAL ESTATE SECURITIES FUND
- --------------------------------
<TABLE>
<S> <C>
INVESTMENT To generate a high level of total return through above
OBJECTIVE average current income while maintaining the potential for
capital appreciation.
PRINCIPAL The Fund seeks to achieve its objective by concentrating its
INVESTMENT investments in equity securities of issuers whose value is
STRATEGIES derived primarily from development, management and market
pricing of underlying real estate properties.
The Fund invests primarily in securities of companies, known
as real estate investment trusts (REITs), that own and/or
manage properties. REITs may be composed of anywhere from
two to over 1,000 properties. The Fund may also invest in
equity and debt securities of other types of real estate-
related companies. The Fund invests in companies which are
predominately US based, although the Fund may invest a
limited portion of its assets in non-US firms from time to
time.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, property type and
geographic weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
Although the Fund, like any mutual fund, maintains liquidity
reserves (i.e., cash awaiting investment or held to meet
redemption requests), the Fund may expose these reserves to
the performance of appropriate equity markets by investing
in stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market Funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
EMERGING MARKETS FUND
- ----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from developed market
international portfolios by investing primarily in equity
securities.
PRINCIPAL The Emerging Markets Fund will primarily invest in equity
INVESTMENT securities of companies that are located in countries with
STRATEGIES emerging markets or that derive a majority of their revenues
from operations in such countries. These companies are
referred to as "Emerging Market Companies." For purposes of
the Fund's operations, an "emerging market" country is a
country having an economy and market that the World Bank or
the United Nations consider to be emerging or developing.
These countries generally include every country in the world
except the United States, Canada, Japan, Australia and most
countries located in Western Europe.
The Fund seeks to maintain a broadly diversified exposure to
emerging market countries and ordinarily will invest in the
securities of issuers in at least three different emerging
market countries.
The Fund invests in common stocks of Emerging Market
Companies and in depository receipts which represent
ownership of securities of non-US companies. The Fund may
also invest in rights, warrants and convertible fixed-income
securities. The Fund's securities are denominated primarily
in foreign currencies and may be held outside the US.
Some emerging markets countries do not permit foreigners to
participate directly in their securities markets or
otherwise present difficulties for efficient foreign
investment. Therefore, when it believes it is appropriate to
do so, the Fund may invest in pooled investment vehicles,
such as other investment companies, which enjoy broader or
more efficient access to shares of Emerging Market Companies
in certain countries but may include a further layering of
expenses.
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record, as well as the characteristics of the money
manager's typical portfolio investments (e.g.,
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics). The Fund also considers
the manner in which money managers' historical and expected
investment returns correlate with one another.
The Fund may agree to purchase securities for a fixed price
at a future date beyond customary settlement time. This kind
of agreement is known as a "forward commitment" or as a
"when-issued" transaction.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. A Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
34
<PAGE>
PRINCIPAL RISKS
The following table describes principal types of risks the LifePoints Funds
are subject to, based on the investments made by the Underlying Funds, and lists
next to each description the Underlying and LifePoints Funds most likely to be
affected by the risk. Other Underlying and LifePoints Funds that are not listed
may be subject to one or more of the risks, based on the allocation of assets
among the Underlying Funds, but will not do so in a way that is expected to
principally affect the performance of the LifePoints or Underlying Fund as a
whole. Please refer to the LifePoints Funds' Statement of Additional Information
for a discussion of risks associated with types of securities held by the
Underlying Funds and the investment practices employed by the individual
Underlying Funds.
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
MULTI-MANAGER The investment styles employed by a Fund's money All Funds
APPROACH managers may not be complementary. The interplay
of the various strategies employed by a Fund's (ALL UNDERLYING FUNDS)
multiple money managers may result in a Fund
holding a concentration of certain types of
securities. This concentration may be beneficial
or detrimental to a Fund's performance depending
upon the performance of those securities and the
overall economic environment. The multi-manager
approach could result in a high level of
portfolio turnover, resulting in higher Fund
brokerage expenses and increased tax liability
from a Fund's realization of capital gains.
EQUITY SECURITIES The value of equity securities will rise and fall Equity Aggressive
in response to the activities of the company that Strategy
issued the stock, general market conditions Aggressive Strategy
and/or economic conditions. Balanced Strategy
Moderate Strategy
(UNDERLYING FUNDS:
DIVERSIFIED EQUITY
SPECIAL GROWTH
QUANTITATIVE EQUITY
INTERNATIONAL SECURITIES
REAL ESTATE SECURITIES
EMERGING MARKETS)
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
- -Value Stocks Investments in value stocks are subject to risks Equity Aggressive
that (i) their intrinsic values may never be Strategy
realized by the market or (ii) such stock may Aggressive Strategy
turn out not to have been undervalued. Balanced Strategy
Moderate Strategy
(UNDERLYING FUNDS:
DIVERSIFIED EQUITY
SPECIAL GROWTH
QUANTITATIVE EQUITY
INTERNATIONAL SECURITIES)
- -Growth Stocks Growth company stocks may provide minimal Equity Aggressive
dividends which could otherwise cushion stock Strategy
prices in a market decline. The value of growth Aggressive Strategy
company stocks may rise and fall significantly Balanced Strategy
based, in part, on investors' perceptions of the Moderate Strategy
company, rather than on fundamental analysis of
the stocks. (UNDERLYING FUNDS:
DIVERSIFIED EQUITY
SPECIAL GROWTH
INTERNATIONAL SECURITIES)
- -Market-Oriented Market-oriented investments are generally subject Equity Aggressive
Investments to the risks associated with growth and value Strategy
stocks. Aggressive Strategy
Balanced Strategy
Moderate Strategy
(UNDERLYING FUNDS:
DIVERSIFIED EQUITY
SPECIAL GROWTH
QUANTITATIVE EQUITY
INTERNATIONAL SECURITIES)
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
- -Securities of small Investments in smaller companies may involve Equity Aggressive
capitalization greater risks because these companies generally Strategy
companies have a limited track record. Smaller companies Aggressive Strategy
often have narrower markets and more limited Balanced Strategy
managerial and financial resources than larger, Moderate Strategy
more established companies. As a result, their
performance can be more volatile, which may (UNDERLYING FUND:
increase the volatility of a Fund's portfolio. SPECIAL GROWTH)
FIXED-INCOME Prices of fixed-income securities rise and fall Balanced Strategy
SECURITIES in response to interest rate changes. Generally, Moderate Strategy
when interest rates rise, prices of fixed-income Conservative Strategy
securities fall. The longer the duration of the
security, the more sensitive the security is to (UNDERLYING FUNDS:
this risk. A 1% increase in interest rates would DIVERSIFIED BOND
reduce the value of a $100 note by approximately MULTISTRATEGY BOND
one dollar if it had a one-year duration, but SHORT TERM BOND)
would reduce its value by approximately fifteen
dollars if it had a 15-year duration. There is
also a risk that one or more of the securities
will be downgraded in credit rating or go into
default. Lower-rated bonds generally have higher
credit risks.
- -Non-investment grade Although lower rated debt securities generally Aggressive Strategy
fixed-income offer a higher yield than higher rated debt Balanced Strategy
securities securities, they involve higher risks. They are
especially subject to: (UNDERLYING FUNDS:
-adverse changes in general economic conditions MULTISTRATEGY BOND
and in the industries in which their issuers are SHORT TERM BOND)
engaged,
-changes in the financial condition of their
issuers and
-price fluctuations in response to changes in
interest rates.
As a result, issuers of lower rated debt
securities are more likely than other issuers to
miss principal and interest payments or to
default which could result in a loss to a Fund.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
INTERNATIONAL A Fund's return and net asset value may be Equity Aggressive
SECURITIES significantly affected by political or economic Strategy
conditions and regulatory requirements in a Aggressive Strategy
particular country. Foreign markets, economies Balanced Strategy
and political systems may be less stable than US
markets, and changes in exchange rates of foreign (UNDERLYING FUNDS:
currencies can affect the value of a Fund's INTERNATIONAL SECURITIES
foreign assets. Foreign laws and accounting MULTISTRATEGY BOND
standards typically are not as strict as they are EMERGING MARKETS
in the US and there may be less public SHORT TERM BOND)
information available about foreign companies.
Foreign securities markets may be less liquid and
have fewer transactions than US securities
markets. Additionally, international markets may
experience delays and disruptions in securities
settlement procedures for a Fund's portfolio
securities.
- -Non-US debt A Fund's foreign debt securities are typically Aggressive Strategy
securities obligations of sovereign governments. These Balanced Strategy
securities are particularly subject to a risk of
default from political instability. (UNDERLYING FUNDS:
MULTISTRATEGY BOND
SHORT TERM BOND)
- -Emerging market Investments in emerging or developing markets (UNDERLYING FUND:
countries involve exposure to economic structures that are EMERGING MARKETS)
generally less diverse and mature, and to
political systems which have less stability than
those of more developed countries. Emerging
market securities are subject to currency
transfer restrictions and may experience delays
and disruptions in securities settlement
procedures for the Fund's portfolio securities.
- -Instruments of US Non-US corporations and banks issuing dollar Balanced Strategy
and foreign banks denominated instruments in the US are not Moderate Strategy
and branches and necessarily subject to the same regulatory Conservative Strategy
foreign requirements that apply to US corporations and
corporations, banks, such as accounting, auditing and (UNDERLYING FUNDS:
including Yankee recordkeeping standards, the public availability DIVERSIFIED BOND
Bonds of information and, for banks, reserve MULTISTRATEGY BOND
requirements, loan limitations and examinations. SHORT TERM BOND)
This increases the possibility that a non-US
corporation or bank may become insolvent or
otherwise unable to fulfill its obligations on
these instruments.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
DERIVATIVES (E.G. If a Fund incorrectly forecasts interest rates in Balanced Strategy
FUTURES CONTRACTS, using derivatives, the Fund could lose money. Moderate Strategy
OPTIONS ON FUTURES, Price movements of a futures contract, option or Conservative Strategy
INTEREST RATE SWAPS) structured note may not be identical to price
movements of portfolio securities or a securities (UNDERLYING FUNDS:
index resulting in the risk that, when a Fund DIVERSIFIED BOND
buys a futures contract or option as a hedge, the MULTISTRATEGY BOND
hedge may not be completely effective. SHORT TERM BOND)
REAL ESTATE Just as real estate values go up and down, the (UNDERLYING FUND:
SECURITIES value of the securities of companies involved in REAL ESTATE SECURITIES)
the industry, and in which a Fund invests, also
fluctuates. A Fund that invests in real estate
securities is also subject to the risks
associated with direct ownership of real estate.
Additional risks include declines in the value of
real estate, changes in general and local
economic conditions, increases in property taxes
and changes in tax laws and interest rates. The
value of securities of companies that service the
real estate industry may also be affected by such
risks.
- -REITs REITs may be affected by changes in the value of (UNDERLYING FUND:
the underlying properties owned by the REITs and REAL ESTATE SECURITIES)
by the quality of any credit extended. Moreover,
the underlying portfolios of REITs may not be
diversified, and therefore are subject to the
risk of financing a single or a limited number of
projects. REITs are also dependent upon
management skills and are subject to heavy cash
flow dependency, defaults by borrowers,
self-liquidation and the possibility of failing
either to qualify for tax-free pass through of
income under federal tax laws or to maintain
their exemption from certain federal securities
laws.
MUNICIPAL OBLIGATIONS Municipal obligations are affected by economic, Balanced Strategy
business or political developments. These Moderate Strategy
securities may be subject to provisions of Conservative Strategy
litigation, bankruptcy and other laws affecting
the rights and remedies of creditors, or may (UNDERLYING FUNDS:
become subject to future laws extending the time DIVERSIFIED BOND
for payment of principal and/or interest, or MULTISTRATEGY BOND
limiting the rights of municipalities to levy SHORT TERM BOND)
taxes.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
REPURCHASE AGREEMENTS Under a repurchase agreement, a bank or broker (UNDERLYING FUNDS:
sells securities to a Fund and agrees to DIVERSIFIED BOND
repurchase them at the Fund's cost plus interest. SHORT TERM BOND
If the value of the securities declines and the MULTISTRATEGY BOND)
bank or broker defaults on its repurchase
obligation, a Fund could incur a loss.
EXPOSING LIQUIDITY By exposing its liquidity reserves to the equity All Funds
RESERVES TO EQUITY market principally by use of equity futures, a
MARKETS Fund's performance tends to correlate more (UNDERLYING FUNDS:
closely to the performance of the market as a DIVERSIFIED EQUITY
whole. Although this increases a Fund's SPECIAL GROWTH
performance if equity markets rise, it reduces a QUANTITATIVE EQUITY
Fund's performance if equity markets decline. INTERNATIONAL SECURITIES
REAL ESTATE SECURITIES)
SECURITIES LENDING If a borrower of a Fund's securities fails (ALL UNDERLYING FUNDS)
financially, the Fund's recovery of the loaned
securities may be delayed or the Fund may lose
its rights to the collateral which could result
in a loss to a Fund.
</TABLE>
40
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
INCOME DIVIDENDS
Each LifePoints Fund distributes substantially all of its net investment
income and net capital gains to shareholders each year. The amount and frequency
of distributions are not guaranteed, all distributions are at the Board's
discretion. Currently, the Board intends to declare dividends from net
investment income, if any, for each LifePoints Fund on a quarterly basis, with
payment being made in April, July, October and December.
CAPITAL GAINS DISTRIBUTIONS
The Board intends to declare capital gain distributions (both short-term and
long-term) once a year in mid-December to reflect any net short-term and net
long-term capital gains realized by a LifePoints Fund as of October 31 of the
current fiscal year. A LifePoints Fund may be required to make an additional
distribution if necessary, in any year for operational or other reasons.
Distributions that are declared in October, November, or December to
shareholders of record in such months, and paid in January of the following
year, will be treated for tax purposes as if received on December 31 of the year
in which they were declared.
In addition, the LifePoints Funds receive capital gains distributions from
the Underlying Funds. Consequently, capital gains distributions may be expected
to vary considerably from year to year. Also, the LifePoints Funds may generate
capital gains through rebalancing the portfolios to meet the LifePoints Funds'
allocation percentages.
BUYING A DIVIDEND
If you purchase Shares just before a distribution, you will pay the full
price for the Shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." Unless your account is
a tax-deferred account, dividends paid to you would be included in your gross
income for tax purposes even though you may not have participated in the
increase of the net asset value of a LifePoints Fund, regardless of whether you
reinvested the dividends. To avoid "buying a dividend," check a Fund's
distribution dates before you invest.
AUTOMATIC REINVESTMENT
Your dividends and other distributions are automatically reinvested at the
closing net asset value on the record date, in additional shares of the
appropriate LifePoints Fund, unless you elect to have the dividends or
distributions paid in cash or invested in another Fund. You may change your
election by delivering written notice no later than ten days prior to the
payment date to the LifePoints Funds at Frank Russell Investment Company, c/o
Boston Financial Data Services, 2 Heritage Drive, N. Quincy, MA 02171.
41
<PAGE>
TAXES
In general, distributions from a LifePoints Fund are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest your
distributions in additional shares of the LifePoints Fund or receive them in
cash. Any long-term capital gains distributed by a LifePoints Fund are taxable
to you as long-term capital gains no matter how long you have owned your shares.
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell or exchange your shares of a LifePoints Fund, you may have a
capital gain or loss. The tax rate on any gain from the sale or exchange of your
shares depends on how long you have held your shares.
The LifePoints Funds make no representation as to the amount or variability
of each Funds capital gain distributions which may vary as a function of several
variables including, but not limited to, prevailing dividend yield levels,
general market conditions, shareholders redemption patterns and Fund cash
equitization activity.
LifePoints Fund distributions and gains from the sale or exchange of your
shares will generally be subject to state and local income tax. Non-US investors
may be subject to US withholding and estate tax. You should consult your tax
professional about federal, state, local or foreign tax consequences in holding
shares of a LifePoints Fund.
By law, a LifePoints Fund must withhold 31% of your distributions and
proceeds if you do not provide your correct taxpayer identification number, or
certify that such number is correct, or if the IRS instructs the LifePoints Fund
to do so.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN A
LIFEPOINTS FUND.
Additional information on these and other tax matters relating to the
LifePoints Funds and their shareholders is included in the section entitled
"Taxes" in the LifePoints Funds' Statement of Additional Information.
HOW NET ASSET VALUE IS DETERMINED
NET ASSET VALUE PER SHARE
The net asset value per share is calculated for Shares of each class of each
LifePoints Fund on each business day on which Shares are offered or redemption
orders are tendered. For all LifePoints Funds, a business day is one on which
the New York Stock Exchange (NYSE) is open for trading. The NYSE is not open on
national holidays or Good Friday. All Underlying Funds and LifePoints Funds
determine net asset value at 4:00 p.m. Eastern Time or as of the close of the
NYSE, whichever is earlier. The determination is made by appraising each
LifePoints Fund's underlying investments on each business day (i.e., the
Underlying Funds at the current net asset value per share of such Underlying
Fund).
42
<PAGE>
VALUATION OF PORTFOLIO SECURITIES
Securities held by the Underlying Funds are typically priced using market
quotations or pricing services when the prices are believed to be reliable, that
is, when the prices reflect the fair market value of the securities. The
Underlying Funds value securities for which market quotations are not readily
available at "fair value," as determined in good faith and in accordance with
procedures established by the Board. If you hold Shares in a LifePoints Fund
that invests in an Underlying Fund, such as the International Securities Fund,
that holds portfolio securities listed primarily on foreign exchanges, the net
asset value of both that Underlying Fund's and that LifePoints Fund's Shares may
change on a day when you will not be able to purchase or redeem LifePoints Fund
Shares. This is because the value of those portfolio securities may change on
weekends or other days when the LifePoints Fund does not price its shares.
DISTRIBUTION AND SHAREHOLDER
SERVICING ARRANGEMENTS
The LifePoints Funds offer multiple classes of Shares: Class C Shares,
Class D Shares, Class E Shares and Class S Shares.
CLASS C SHARES participate in the Funds' Rule 12b-1 distribution plan
and in the LifePoints Funds' shareholder services plan. Under the
distribution plan, Class C Shares pay distribution fees of 0.75% annually
for the sale and distribution of Class C Shares. Under the shareholder
services plan, the Class C Shares pay shareholder services fees of 0.25% on
an annualized basis for services provided to Class C shareholders. Because
both of these fees are paid out of the Class C Share assets on an ongoing
basis, over time these fees will increase the cost of an investment in Class
C Shares in the LifePoints Funds, and the distribution fee may cost an
investor more than paying other types of sales charges.
CLASS D SHARES participate in the Funds' Rule 12b-1 distribution plan
and in the LifePoints Funds' shareholder services plan. Under the
distribution plan, the Class D shares pay distribution fees of 0.25%
annually for the sale and distribution of Class D Shares. Under the
shareholder services plan, the Class D Shares pay shareholder services fees
of 0.25% on an annualized basis for services provided to Class D
shareholders. Because both of these fees are paid out of the Class D Share
assets on an ongoing basis, over time these fees will increase the cost of a
Class D share investment in the LifePoints Funds, and the distribution fee
may cost an investor more than paying other types of sales charges.
CLASS E SHARES participate in the Funds' shareholder services plan.
Under the shareholder services plan, the Class E Shares pay shareholder
services fees of 0.25% on an annualized basis for services provided to Class
E shareholders. The shareholder services fees are paid out of the Class E
Share assets on an ongoing basis, and over time will increase the cost of
your investment in the LifePoints Funds.
CLASS S SHARES do not participate in either the Funds' distribution plan
or the Funds' shareholder services plan.
43
<PAGE>
HOW TO PURCHASE SHARES
LifePoints Funds are generally available only through a select network of
qualified Financial Intermediaries. If you are not currently working with one of
these Financial Intermediaries, please call Russell Investor Services at (800)
RUSSEL4 (800-787-7354) for assistance in contacting an investment professional
near you.
For Class C Shares, there is a $1,000 required minimum investment for each
account in each LifePoints Fund. Each LifePoints Fund reserves the right to
change the categories of investors eligible to purchase its shares or the
required minimum investment amount. You may be eligible to purchase Shares of
the LifePoints Funds if you do not meet the required initial minimum investment.
You should consult your Financial Intermediary for details, which are summarized
in the LifePoints Funds' Statement of Additional Information.
Financial Intermediaries may charge their customers a fee for providing
investment-related services. Financial Intermediaries that maintain omnibus
accounts with the Funds may receive administrative fees from the Funds or their
transfer agent. Financial Intermediaries may receive shareholder servicing
compensation and/or distribution compensation with respect to Class C Shares of
the LifePoints Funds.
PAYING FOR SHARES
You may purchase Shares of the LifePoints Funds through a Financial
Intermediary on any business day the Funds are open. Purchase orders are
processed at the next net asset value per share calculated after the LifePoints
Funds' receive your order in proper form (defined in the "Written Instructions"
section), and accept the order.
All purchases must be made in US dollars. Checks and other negotiable bank
drafts must be drawn on US banks and made payable to "Frank Russell Investment
Company." The LifePoints Funds reserve the right to reject any purchase order
for any reason including, but not limited to, receiving a check which does not
clear the bank or a payment which does not arrive in proper form by settlement
date. You will be responsible for any resulting loss to the Funds. An overdraft
charge may also be applied. Cash, third party checks and checks drawn on credit
card accounts generally will not be accepted. However, exceptions may be made by
prior special arrangement with certain Financial Intermediaries.
OFFERING DATES AND TIMES
Orders must be received by the LifePoints Funds prior to 4:00 p.m. Eastern
Time or the close of the NYSE, whichever is earlier. Purchases can be made on
any day when LifePoints Fund shares are offered. Because Financial
Intermediaries' processing time may vary, please ask your Financial Intermediary
representative when your account will be credited.
44
<PAGE>
ORDER AND PAYMENT PROCEDURES
Generally, you must place purchase orders for Shares through a Financial
Intermediary. You may pay for your purchase by mail or electronic funds
transfer. Initial purchases require a completed and signed Application for each
new account regardless of the investment method. Specific payment arrangements
should be made with your Financial Intermediary.
BY MAIL
For new accounts, please mail the completed Application to your Financial
Intermediary. Payment for orders may be made by check or other negotiable bank
draft and sent to the LifePoints Funds' Transfer Agent. Certified checks are not
necessary, but checks are accepted subject to collection at full face value in
US funds. Third party checks will not be accepted. Checks should be made payable
to "Frank Russell Investment Company."
BY FEDERAL FUNDS WIRE
You can pay for orders by wiring federal funds to the LifePoints Funds'
Custodian, State Street Bank and Trust Company. All wires must include your
account registration and account number for identification. Inability to
properly identify a wire transfer may prevent or delay timely settlement of your
purchase.
BY AUTOMATED CLEARING HOUSE ("ACH")
You can make initial or subsequent investments through ACH to the Funds'
Custodian, State Street Bank and Trust Company.
AUTOMATED INVESTMENT PROGRAM
You can make regular investments (minimum $50) in the LifePoints Funds in an
established account on a monthly, quarterly, semiannual or annual basis by
automatic electronic funds transfer from a bank account. You must make a
separate transfer for each LifePoints Fund in which you purchase Shares. You may
change the amount or stop the automatic purchase at any time. Contact your
Financial Intermediary for further information on this program and an enrollment
form.
THREE-DAY SETTLEMENT PROGRAM
The LifePoints Funds will accept orders at the next computed net asset value
through Financial Intermediaries to purchase Shares of the LifePoints Funds for
settlement on the third business day following the receipt of the order. These
orders are paid for by a federal funds wire if the Financial Intermediary has
enrolled in the program and agreed in writing to indemnify the LifePoints Funds
against any losses resulting from non-receipt of payment.
45
<PAGE>
EXCHANGE PRIVILEGE
BY MAIL OR TELEPHONE
Through your Financial Intermediary, you may exchange Shares of any
LifePoints Fund you own for shares of any other LifePoints Fund offered by this
Prospectus on the basis of the current net asset value per share at the time of
the exchange. Shares of a LifePoints Fund offered by this Prospectus may only be
exchanged for shares of a fund offered by FRIC through another Prospectus under
certain conditions and only in states where the exchange may be legally made.
For additional information, including Prospectuses for other funds, contact your
Financial Intermediary.
Exchanges may be made by mail or by telephone if the registration of the two
accounts is identical. Contact your Financial Intermediary for assistance in
exchanging Shares and, because Financial Intermediaries' processing time may
vary, to find out when your account will be credited or debited. To request an
exchange in writing, please follow the procedures in the "Written Instructions"
section before mailing to your Financial Intermediary.
An exchange involves the redemption of Shares, which is treated as a sale
for income tax purposes. Thus, capital gain or loss may be realized. Please
consult your tax adviser for more information. The Shares to be acquired will be
purchased when the proceeds from the redemption become available (up to seven
days from the receipt of the request) at the next net asset value per share
calculated after the Funds received the exchange request in good order.
IN-KIND EXCHANGE OF SECURITIES
FRIMCo, in its capacity as the LifePoints Funds' investment advisor, may, at
its discretion, permit you to acquire Shares in exchange for securities you
currently own. Any securities exchanged must meet the investment objective,
policies and limitations of the applicable LifePoints Fund, have a readily
ascertainable market value, be liquid, not be subject to restrictions on resale
and have a market value, plus any cash, equal to at least $100,000.
Shares purchased in exchange for securities generally may not be redeemed or
exchanged for 15 days following the purchase by exchange or until the transfer
has settled, whichever comes first. If you are a taxable investor, you will
generally realize a gain or loss for federal income tax purposes on the
exchange. If you are contemplating an in-kind exchange you should consult your
tax adviser.
The price at which the exchange will take place will depend upon the
relative net asset value of the Shares purchased and securities exchanged.
Securities accepted by a LifePoints Fund will be valued in the same way the
LifePoints Fund values its assets. Any interest earned on the securities
following their delivery to the LifePoints Funds and prior to the exchange will
be considered in valuing the securities. All interest, dividends, subscription
or other rights attached to the securities becomes the property of the
LifePoints Fund, along with the securities. Please contact your Financial
Intermediary for further information.
46
<PAGE>
HOW TO REDEEM SHARES
Shares of the LifePoints Funds may be redeemed through your Financial
Intermediary on any business day the LifePoints Funds are open at the next net
asset value per share calculated after the Funds' Transfer Agent receives an
order in proper form (defined in the "Written Instructions" section). Payment
will ordinarily be made within seven days after receipt of your request in
proper form. Shares recently purchased by check may not be available for
redemption for 15 days following the purchase or until the check clears,
whichever occurs first, to assure payment has been collected.
REDEMPTION DATES AND TIMES
Redemption requests must be placed through a Financial Intermediary and
received by the LifePoints Funds prior to 4:00 p.m. Eastern Time or the close of
the NYSE, whichever is earlier. Because Financial Intermediaries' processing
times may vary, please ask your Financial Intermediary representative when your
account will be debited. Requests can be made by mail or telephone on any day
when LifePoints Fund shares are offered, or through the Systematic Withdrawal
Program described below.
BY MAIL OR TELEPHONE
You may redeem your shares by calling or writing to your Financial
Intermediary. Written requests to sell shares are in proper form when the
instructions are signed by all registered owners, with a signature guarantee if
necessary.
SYSTEMATIC WITHDRAWAL PROGRAM
The LifePoints Funds offer a systematic withdrawal program which allows you
to redeem your Shares and receive regular payments from your account on a
monthly, quarterly, semiannual or annual basis. If you would like to establish a
systematic withdrawal program, please complete the proper section of the account
application and indicate how you would like to receive your payments. You will
generally receive your payment by the end of the month in which a payment is
scheduled. When you redeem your shares under a systematic withdrawal program, it
is a taxable transaction.
You may choose to have the payments mailed to you or directed to your bank
account by ACH transfer. You may discontinue the systematic withdrawal program,
or change the amount and timing of withdrawal payments by contacting your
Financial Intermediary.
ACCOUNTS IN STREET NAME
Many brokers, employee benefit plans and bank trusts combine their client's
holdings in a single omnibus account held in the brokers', plans', or bank
trusts' own name or "street name." Therefore, if you hold LifePoints Fund shares
through a brokerage account, employee benefit plan or bank trust fund, the
LifePoints Funds may have records only of the omnibus account. In this case,
your broker, employee benefit plan or bank is responsible for keeping track of
your account information. This means that you may not be able to request
transactions in your Shares directly through the Funds, but can do so only
through your broker, plan administrator or bank. Ask your Financial Intermediary
for information on whether your LifePoints Fund shares are held in an omnibus
account.
47
<PAGE>
PAYMENT OF REDEMPTION PROCEEDS
BY CHECK
When you redeem your Shares, a check for the redemption proceeds will be
sent to the shareholder(s) of record at the address of record within seven days
after the LifePoints Funds receive a redemption request in proper form.
BY WIRE
If you have established the electronic redemption option, your redemption
proceeds can be wired to your predesignated bank account on the next bank
business day after the LifePoints Funds receive your redemption request. The
LifePoints Funds may charge a fee to cover the cost of sending a wire transfer
for redemptions less than $1,000, and your bank may charge an additional fee to
receive the wire. Wire transfers can be sent to US commercial banks that are
members of the Federal Reserve System.
WRITTEN INSTRUCTIONS
PROPER FORM: Written instructions must be in proper form. They must include:
A description of the request
The name of the Fund(s)
The class of shares, if applicable
The account number(s)
The amount of money or number of shares being purchased, exchanged,
transferred or redeemed
The name(s) on the account(s)
The signature(s) of all registered account owners
For exchanges, the name of the Fund you are exchanging into
Your daytime telephone number
48
<PAGE>
SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
<TABLE>
<CAPTION>
ACCOUNT TYPE REQUIREMENTS FOR WRITTEN REQUESTS
<S> <C>
Individual, Joint Tenants, Tenants in Written instructions must be signed by each
Common shareholder, exactly as the names appear in the
account registration.
UGMA or UTMA (custodial accounts for Written instructions must be signed by the
minors) custodian in his/her capacity as it appears in
the account registration.
Corporation, Association Written instructions must be signed by authorized
person(s), stating his/her capacity as indicated
by the corporate resolution to act on the account
and a copy of the corporate resolution, certified
within the past 90 days, authorizing the signer
to act.
Estate, Trust, Pension, Profit Sharing Written instructions must be signed by all
Plan trustees. If the name of the trustee(s) does not
appear in the account registration, please
provide a copy of the trust document certified
within the last 60 days.
Joint tenancy shareholders whose Written instructions must by signed by the
co-tenants are deceased surviving tenant(s). A certified copy of the
death certificate must accompany the request.
</TABLE>
SIGNATURE GUARANTEE
The LifePoints Funds reserve the right to require a signature guarantee
under certain circumstances. A signature guarantee verifies the authenticity of
your signature. You should be able to obtain a signature guarantee from a bank,
broker, credit union, savings association, clearing agency, or securities
exchange or association, but not a notary public. Call your financial
institution to see if it has the ability to guarantee a signature.
ACCOUNT POLICIES
THIRD PARTY TRANSACTIONS
If you purchase Shares as part of a program of services offered by a
Financial Intermediary, you may be required to pay additional fees. You should
contact your Financial Intermediary for information concerning what additional
fees, if any, may be charged.
REDEMPTION IN-KIND
A Fund may pay for any portion of the redemption amount in excess of
$250,000 by a distribution in-kind of securities from the Fund's portfolio,
instead of in cash. If you receive an in-kind distribution of portfolio
securities, and choose to sell them, you will incur brokerage charges and
continue to be subject to tax consequences and market risk pending any sale.
49
<PAGE>
STALE CHECKS
For the protection of shareholders and the LifePoints Funds, if a check
issued for the payment of a redemption or distribution is not cashed for more
than 180 days from issuance, it will not be honored. The LifePoints Funds have
adopted procedures described in the statement of additional information
regarding the treatment of stale checks, or you may contact your Financial
Intermediary for additional information.
50
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you
understand the LifePoints Funds' financial performance for the past 5 years (or,
if a LifePoints Fund or Class has not been in operation for 5 years, since the
beginning of operations for that LifePoints Fund or Class). Certain information
reflects financial results for a single LifePoints Fund share throughout each
year or period ended December 31. The total returns in the table represent how
much your investment in a LifePoints Fund would have increased (or decreased)
during each period, assuming reinvestment of all dividends and distributions.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the LifePoints Fund's financial statements, are included in the
Funds' annual reports, which are available upon request. The information in the
tables below represents the financial highlights for each of the LifePoints
Fund's Class C Shares for the periods shown.
<TABLE>
<CAPTION>
CONSERVATIVE STRATEGY FUND--CLASS C
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.26
-------
INCOME FROM OPERATIONS
Net investment income (a)(d).............................. .43
Net realized and unrealized gain (loss)................... .04
-------
Total income from operations............................ .47
-------
DISTRIBUTIONS
From net investment income................................ (.56)
From net realized gain.................................... (.05)
-------
Total distributions..................................... (.61)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.12
=======
TOTAL RETURN (%)(b)......................................... 4.67
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 1,697
Ratios to average net assets (%):.......................
Operating expenses, net (c)............................. 1.00
Operating expenses, gross (c)........................... 1.25
Net investment income (b)............................... 4.77
Portfolio turnover rate (%)............................... 125.01
</TABLE>
- ------------------------
* For the period February 11, 1999 (commencement of sale) to December 31,
1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
(d) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
51
<PAGE>
<TABLE>
<CAPTION>
MODERATE STRATEGY FUND--CLASS C
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.15
-------
INCOME FROM OPERATIONS
Net investment income (a)(d).............................. .32
Net realized and unrealized gain (loss)................... .48
-------
Total income from operations............................ .80
-------
DISTRIBUTIONS
From net investment income................................ (.40)
From net realized gain.................................... (.09)
-------
Total distributions..................................... (.49)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.46
=======
TOTAL RETURN (%)(b)......................................... 8.03
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 4,139
Ratios to average net assets (%):
Operating expenses, net (c)............................. 1.00
Operating expenses, gross (c)........................... 1.25
Net investment income (b)............................... 3.35
Portfolio turnover rate (%)............................... 120.04
</TABLE>
- ------------------------
* For the period February 11, 1999 (commencement of sale) to December 31,
1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
(d) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
52
<PAGE>
<TABLE>
<CAPTION>
BALANCED STRATEGY FUND--CLASS C
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.26
-------
INCOME FROM OPERATIONS
Net investment income (a)(d).............................. .25
Net realized and unrealized gain (loss)................... .70
-------
Total income from operations............................ .95
-------
DISTRIBUTIONS
From net investment income................................ (.37)
From net realized gain.................................... (.12)
-------
Total distributions..................................... (.49)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.72
=======
TOTAL RETURN (%)(b)......................................... 9.53
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 39,325
Ratios to average net assets (%):
Operating expenses, net (c)............................. 1.00
Operating expenses, gross (c)........................... 1.25
Net investment income (b)............................... 2.96
Portfolio turnover rate (%)............................... 64.63
</TABLE>
- ------------------------
* For the period January 29, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
(d) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
53
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE STRATEGY FUND--CLASS C
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.11
-------
INCOME FROM OPERATIONS
Net investment income (a)(d).............................. .13
Net realized and unrealized gain (loss)................... 1.36
-------
Total income from operations............................ 1.49
-------
DISTRIBUTIONS
From net investment income................................ (.29)
From net realized gain.................................. (.16)
-------
Total distributions..................................... (.45)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 11.15
=======
TOTAL RETURN (%)(b)......................................... 15.21
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 29,365
Ratios to average net assets (%):
Operating expenses, net (c)............................. 1.00
Operating expenses, gross (c)........................... 1.25
Net investment income (b)............................... 1.50
Portfolio turnover rate (%)............................... 71.44
</TABLE>
- ------------------------
* For the period January 29, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
(d) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
54
<PAGE>
<TABLE>
<CAPTION>
EQUITY AGGRESSIVE STRATEGY FUND--CLASS C
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.80
-------
INCOME FROM OPERATIONS
Net investment income (a)(d).............................. .06
Net realized and unrealized gain (loss)................... 1.98
-------
Total income from operations............................ 2.04
-------
DISTRIBUTIONS
From net investment income................................ (.30)
From net realized gain.................................... (.16)
-------
Total distributions..................................... (.46)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 11.38
=======
TOTAL RETURN (%)(b)......................................... 21.26
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 15,860
Ratios to average net assets (%):
Operating expenses, net (c)............................. 1.00
Operating expenses, gross (c)........................... 1.25
Net investment income (b)............................... .59
Portfolio turnover rate (%)............................... 76.20
</TABLE>
- ------------------------
* For the period February 11, 1999 (commencement of sale) to December 31,
1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
(d) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
55
<PAGE>
MONEY MANAGER INFORMATION
The money managers have no affiliations with the LifePoints Funds or the
LifePoints Funds' service providers other than their management of Underlying
Fund assets. Each money manager has been in business for at least three years,
and is principally engaged in managing institutional investment accounts. These
managers may also serve as managers or advisers to other Funds in FRIC, or to
other clients of FRIMCo or of Frank Russell Company, including Frank Russell
Company's wholly-owned subsidiary, Frank Russell Trust Company.
This section identifies the money managers for the Underlying Funds in which
the LifePoints Funds invest.
DIVERSIFIED EQUITY FUND
ALLIANCE CAPITAL MANAGEMENT L.P., US Bank Place, 601 2nd Ave. South, Suite
5000, Minneapolis, MN 55402-4322.
BARCLAYS GLOBAL FUND ADVISORS, 45 Fremont Street, 17th Floor, San Francisco,
CA 94105.
EQUINOX CAPITAL MANAGEMENT, LLC, 590 Madison Avenue, 41st Floor, New York,
NY 10022.
JACOBS LEVY EQUITY MANAGEMENT, INC., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.
MARSICO CAPITAL MANAGEMENT COMPANY, LLC, 1200 17th Street, Suite 1300,
Denver, CO 80202.
PEACHTREE ASSET MANAGEMENT, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308.
SANFORD C. BERNSTEIN & CO., INC., 767 Fifth Avenue, 21st Floor, New York, NY
10153-0185.
STRONG CAPITAL MANAGEMENT, INC., 100 Heritage Reserve, Menomonee Falls, WI
53051.
SUFFOLK CAPITAL MANAGEMENT, INC., 1633 Broadway, 40th Floor, New York, NY
10019.
TURNER INVESTMENT PARTNERS INC., 1235 Westlakes Drive, Suite 350, Berwyn, PA
19312.
WESTPEAK INVESTMENT ADVISORS, L.P., 1011 Walnut Street, Suite 400, Boulder,
CO 80302.
SPECIAL GROWTH FUND
CAPITALWORKS INVESTMENT PARTNERS, LLC, 401 West "A" Street, Suite 1675, San
Diego, CA 92101.
DELPHI MANAGEMENT, INC., 50 Rowes Wharf, Suite 440, Boston, MA 02110.
FIDUCIARY TRUST COMPANY INTERNATIONAL, INC., 2 World Trade Center, New York,
NY 10048-0772.
GLOBEFLEX CAPITAL, L.P., 4365 Executive Drive, Suite 720, San Diego, CA
92121.
JACOBS LEVY EQUITY MANAGEMENT, INC., See: Diversified Equity Fund.
SIRACH CAPITAL MANAGEMENT, INC., One Union Square, Suite 3323, 600
University Street, Seattle, WA 98101.
56
<PAGE>
WESTPEAK INVESTMENT ADVISORS, L.P. See: Diversified Equity Fund.
QUANTITATIVE EQUITY FUND
BARCLAYS GLOBAL FUND ADVISORS, See: Diversified Equity Fund.
FRANKLIN PORTFOLIO ASSOCIATES LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., 522 Fifth Ave., 6th Floor, New
York, NY 10036.
JACOBS LEVY EQUITY MANAGEMENT, INC., See: Diversified Equity Fund.
INTERNATIONAL SECURITIES FUND
DELAWARE INTERNATIONAL ADVISERS LTD., 80 Cheapside, 3rd Floor, London
EC2V6EE England.
FIDELITY MANAGEMENT TRUST COMPANY, 82 Devonshire Street, Boston, MA 02109.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., See: Quantitative Equity Fund.
MASTHOLM ASSET MANAGEMENT, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue,
WA 98004.
MONTGOMERY ASSET MANAGEMENT, LLC, 101 California Street, 35th Floor, San
Francisco, CA 94111
OECHSLE INTERNATIONAL ADVISORS, LLC, One International Place, 23rd Floor,
Boston, MA 02110.
SANFORD C. BERNSTEIN & CO., INC., See: Diversified Equity Fund.
THE BOSTON COMPANY ASSET MANAGEMENT, INC., One Boston Place, 14th Floor,
Boston, MA 02108-4402.
EMERGING MARKETS FUND
FOREIGN & COLONIAL EMERGING MARKETS LIMITED, Exchange House, Primrose
Street, London, England EC2A 2NY.
GENESIS ASSET MANAGERS LIMITED, 21 Knightsbridge, London SW1X 7LY England.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, 600 W. Broadway 29th Floor, San
Diego, CA 92101.
SANFORD C. BERNSTEIN & CO. INC., See: Diversified Equity Fund.
SCHRODERS INVESTMENT MANAGEMENT NORTH AMERICA LIMITED, 31 Greshman Street,
London EC2V 7QA England.
REAL ESTATE SECURITIES FUND
AEW CAPITAL MANAGEMENT, L.P., 225 Franklin Street, Boston, MA 02110-2803.
COHEN & STEERS CAPITAL MANAGEMENT, 757 Third Avenue, New York, NY 10017.
SECURITY CAPITAL GLOBAL CAPITAL MANAGEMENT GROUP INCORPORATED, 11 South La
Salle Street, 2nd Floor, Chicago, IL 60603.
57
<PAGE>
DIVERSIFIED BOND FUND
LINCOLN CAPITAL MANAGEMENT COMPANY, See: Diversified Equity Fund.
PACIFIC INVESTMENT MANAGEMENT COMPANY, 840 Newport Center Drive, Suite 360,
P.O. Box 6430, Newport Beach, CA 92658-6430.
STANDISH, AYER & WOOD, INC., One Financial Center, Boston, MA 02111.
MULTISTRATEGY BOND FUND
LAZARD ASSET MANAGEMENT, 30 Rockefeller Plaza, New York, NY 10112-6300.
MILLER, ANDERSON & SHERRERD, LLP, One Tower Bridge, W. Conshohocken, PA
19428.
PACIFIC INVESTMENT MANAGEMENT COMPANY, See: Diversified Bond Fund.
STANDISH, AYER & WOOD, INC., See: Diversified Bond Fund.
SHORT TERM BOND FUND
BLACKROCK FINANCIAL MANAGEMENT, INC., 345 Park Ave., 29th Floor, New York,
NY 10154.
STANDISH, AYER & WOOD, INC., See: Diversified Bond Fund.
STW FIXED INCOME MANAGEMENT LTD., 200 East Carrillo Street, Suite 100, Santa
Barbara, CA 93101-2143.
WHEN CONSIDERING AN INVESTMENT IN THE LIFEPOINTS FUNDS, DO NOT RELY ON ANY
INFORMATION UNLESS IT IS CONTAINED IN THIS PROSPECTUS OR IN THE LIFEPOINTS
FUNDS' STATEMENT OF ADDITIONAL INFORMATION. THE LIFEPOINTS FUNDS HAVE NOT
AUTHORIZED ANYONE TO ADD ANY INFORMATION OR TO MAKE ANY ADDITIONAL STATEMENTS
ABOUT THE LIFEPOINTS FUNDS. THE LIFEPOINTS FUNDS MAY NOT BE AVAILABLE IN SOME
JURISDICTIONS OR TO SOME PERSONS. THE FACT THAT YOU HAVE RECEIVED THIS
PROSPECTUS SHOULD NOT, IN ITSELF, BE TREATED AS AN OFFER TO SELL LIFEPOINTS FUND
SHARES TO YOU. CHANGES IN THE AFFAIRS OF THE LIFEPOINTS FUNDS OR IN THE
UNDERLYING FUNDS' MONEY MANAGERS MAY OCCUR AFTER THE DATE ON THE COVER PAGE OF
THIS PROSPECTUS. THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED TO REFLECT ANY
MATERIAL CHANGES TO THE INFORMATION IT CONTAINS.
58
<PAGE>
For more information about the LifePoints Funds, the following
documents are available without charge:
ANNUAL/SEMIANNUAL REPORTS: Additional information about the LifePoints
Funds' investments is available in the LifePoints Funds' annual and
semiannual reports to shareholders. In each LifePoints Fund's annual
report, you will find a discussion of the market conditions and
investment strategies that significantly affected the LifePoints
Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more
detailed information about the LifePoints Funds.
The annual report for each LifePoints Fund and the SAI are incorporated
into this Prospectus by reference. You may obtain free copies of the
reports and the SAI, and may request other information, by contacting
your Financial Intermediary or the
LifePoints Funds at:
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
800-787-7354
Fax: 253-591-3495
Website: russell.com
You can review and copy information about the LifePoints Funds (including the
SAI) at the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. You can obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. You can obtain
copies of this information upon paying a duplicating fee by writing to the
Public Reference Section of the Commission, Washington, D.C. 20549-6009.
Reports and other information about the LifePoints Funds are also available
on the Commission's Internet website at sec.gov.
FRANK RUSSELL INVESTMENT COMPANY
Class C Shares:
Conservative Strategy Fund
Moderate Strategy Fund
Balanced Strategy Fund
Aggressive Strategy Fund
Equity Aggressive Strategy Fund
Distributor: Russell Fund Distributors, Inc.
SEC File No. 811-3153
36-08-066 (05/00)
[Russell LOGO]
<PAGE>
LIFEPOINTS-REGISTERED TRADEMARK- FUNDS
FRANK RUSSELL INVESTMENT COMPANY
PROSPECTUS
CLASS D SHARES:
CONSERVATIVE STRATEGY FUND
MODERATE STRATEGY FUND
BALANCED STRATEGY FUND
AGGRESSIVE STRATEGY FUND
EQUITY AGGRESSIVE STRATEGY FUND
MAY 1, 2000
909 A STREET, TACOMA, WA 98402 . 800-787-7354 . 253-627-7001
As with all mutual funds, the Securities and Exchange Commission has neither
determined that the information in this Prospectus is accurate or complete,
nor approved or disapproved of these securities. It is a criminal offense to
state otherwise.
[RUSSELL LOGO]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary......................................... 3
Investment Objective.................................... 3
Principal Investment Strategies......................... 4
Principal Risks......................................... 5
Performance............................................. 6
Fees and Expenses....................................... 12
Summary Comparison of the Funds............................. 14
The Purpose of the Funds--Multi-Style, Multi-Manager
Diversification........................................... 16
Management of the Underlying Funds and the LifePoints
Funds..................................................... 17
The Money Managers for the Underlying Funds................. 20
Investment Objective and Principal Investment Strategies of
the Underlying Funds...................................... 21
Principal Risks............................................. 35
Dividends and Distributions................................. 41
Taxes....................................................... 42
How Net Asset Value Is Determined........................... 42
Distribution and Shareholder Servicing Arrangements......... 43
How to Purchase Shares...................................... 44
Exchange Privilege.......................................... 46
How to Redeem Shares........................................ 47
Payment of Redemption Proceeds.............................. 48
Written Instructions........................................ 48
Account Policies............................................ 49
Financial Highlights........................................ 51
Money Manager Information................................... 56
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
<TABLE>
<S> <C>
CONSERVATIVE seeks to achieve moderate total rate of return through low
STRATEGY FUND capital appreciation and reinvestment of a high level of
current income.
MODERATE STRATEGY seeks to achieve moderate long-term capital appreciation
FUND with high current income, while recognizing the possibility
of moderate fluctuations in year-to-year market values.
BALANCED STRATEGY seeks to achieve a moderate level of current income and,
FUND over time, above-average capital appreciation with moderate
risk.
AGGRESSIVE STRATEGY seeks to achieve high, long-term capital appreciation with
FUND low current income, while recognizing the possibility of
substantial fluctuations in year-to-year market values.
EQUITY AGGRESSIVE seeks to achieve high, long-term capital appreciation, while
STRATEGY FUND recognizing the possibility of high fluctuations in
year-to-year market values.
</TABLE>
3
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
Each of the Frank Russell Investment Company (FRIC) Funds described in this
Prospectus (LifePoints Fund) is a "fund of funds," and diversifies its assets by
investing, at present, in the Class S Shares of several other FRIC Funds
(Underlying Funds). Each LifePoints Fund seeks to achieve a specific investment
objective by investing in different combinations of the Underlying Funds.
Each LifePoints Fund allocates its assets by investing in shares of a
diversified group of Underlying Funds. The Underlying Funds in which each
LifePoints Fund invests are shown in the table below and illustrated by pie
charts appearing later in this Prospectus. The LifePoints Funds intend their
strategy of investing in combinations of Underlying Funds to result in
investment diversification that an investor could otherwise achieve only by
holding numerous individual investments.
<TABLE>
<CAPTION>
EQUITY
CONSERVATIVE MODERATE BALANCED AGGRESSIVE AGGRESSIVE
STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
UNDERLYING FUND FUND FUND FUND FUND FUND
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Diversified Equity Fund.................... 5% 11% 16% 21% 30%
Special Growth Fund........................ -- 2% 5% 11% 10%
Quantitative Equity Fund................... 6% 11% 16% 21% 30%
International Securities Fund.............. 5% 9% 14% 19% 20%
Diversified Bond Fund...................... 18% 27% 25% -- --
Short Term Bond Fund....................... 60% 33% -- -- --
Multistrategy Bond Fund.................... -- -- 16% 18% --
Real Estate Securities Fund................ 5% 5% 5% 5% 5%
Emerging Markets Fund...................... 1% 2% 3% 5% 5%
</TABLE>
Each LifePoints Fund intends to be fully invested at all times. Although the
LifePoints Funds, like all other mutual funds, maintain liquidity reserves (i.e.
cash awaiting investment or held to meet redemption requests), the Funds expose
these reserves to the performance of appropriate equity markets by investing in
stock futures contracts. This causes the Funds to perform as though their cash
reserves were actually invested in those markets. Additionally, the Funds invest
their liquidity reserves in one or more FRIC money market funds.
A LifePoints Fund can change the allocation of its assets among Underlying
Funds at any time, if the LifePoints Funds' investment adviser, Frank Russell
Investment Management Company (FRIMCo) believes that doing so would better
enable the LifePoints Fund to pursue its investment objective. From time to
time, each LifePoints Fund adjusts its investments within set limits based on
FRIMCo's outlook for the economy, financial markets generally and relative
market valuation of the asset classes represented by each Underlying Fund.
Additionally, each LifePoints Fund may deviate from set limits when, in FRIMCo's
opinion, it is necessary to do so to pursue the LifePoints Fund's investment
objective. However, The LifePoints Funds expect that amounts they allocate to
each Underlying Fund will generally vary only within 10% of the ranges specified
in the table above.
4
<PAGE>
DIVERSIFICATION
Each LifePoints Fund is a "nondiversified" investment company for purposes
of the Investment Company Act of 1940 because it invests in the securities of a
limited number of issuers (i.e., the Underlying Funds). Each of the Underlying
Funds in which the LifePoints Funds invest is a diversified investment company.
PRINCIPAL RISKS
You should consider the following factors before investing in the LifePoints
Funds:
- An investment in the LifePoints Funds, like any investment, has risks. The
value of each LifePoints Fund fluctuates, and you could lose money.
- Since the assets of each LifePoints Fund is invested primarily in shares
of the Underlying Funds, the investment performance of each LifePoints
Fund is directly related to the investment performance of the Underlying
Funds in which it invests.
- The policy of each LifePoints Fund is to allocate its assets among the
Underlying Funds within certain ranges. Therefore, the LifePoints Funds
may have less flexibility to invest than a mutual fund without such
constraints.
- A LifePoints Fund is exposed to the same risks as the Underlying Funds in
direct proportion to the allocation of its assets among the Underlying
Funds. These risks include the risks associated with a multi-manager
approach to investing, as well as those associated with investing in
equity securities, fixed income securities, and international securities.
For further detail on the risks summarized here, please refer to the
section "Principal Risks".
- An investment in any of the LifePoints Funds is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
- The officers, Trustees, and FRIMCo presently serve as officers, Trustees
and investment manager of the Underlying Funds. Therefore, conflicts may
arise as those persons and FRIMCo fulfill their fiduciary responsibilities
to the LifePoints Funds and to the Underlying Funds.
5
<PAGE>
PERFORMANCE
The following bar charts illustrate the risks of investing in the LifePoints
Funds by showing how the performance of each LifePoints Fund's Class D Shares
varies over the life of each LifePoints Fund. The highest and lowest quarterly
returns during the periods shown in the bar charts for the LifePoints Funds'
Class D Shares are set forth below the bar charts.
The tables accompanying the bar charts further illustrate the risks of
investing in the LifePoints Funds by showing how each LifePoints Fund's average
annual returns for one year and since the beginning of operations of such
LifePoints Fund compare with the returns of certain indexes that measure broad
market performance.
Each LifePoints Fund first issued Class D Shares on March 24, 1998.
Performance shown for Class D Shares prior to that date is the performance of
the Class E Shares, and does not reflect deduction of the Rule 12b-1
distribution fees that apply to Class D Shares. Had it done so, the returns
shown would have been lower.
Past performance is no indication of future results.
6
<PAGE>
- --------------------------------------------------------------------------------
CONSERVATIVE STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS D
<S> <C>
1998 7.70%
1999 5.18%
</TABLE>
BEST QUARTER: 3.56% (1Q/98)
WORST QUARTER: (0.86)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Conservative Strategy Fund Class D....... 5.18% 6.54%
Merrill Lynch 1-2.99 Year Treasury
Index**................................. 3.06 5.07
Lehman Brothers Aggregate Bond Index..... (0.82) 4.23
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Conservative Strategy Composite Index#... 5.62 7.34
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations on November 7, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-month Treasury Bill Index. The Fund believes the
Merrill Lynch 1-2.99 Year Treasury Index is more broadly representative
of the securities and strategies likely to be employed by the Fund and
provides more useful information as a comparative basis for evaluation
of the Fund's performance.
# The Conservative Strategy Composite Index is comprised of the following
indices: 60% Merrill Lynch 1-2.99 Year Treasury Index, 18% Lehman Brothers
Aggregate Bond Index, 11% Russell 1000-Registered Trademark- Index, 5%
Salomon Smith Barney BMI Ex-US, 5% NAREIT Equity REIT Index and 1% IFC
Investable Composite Index.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
MODERATE STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS D
<S> <C>
1998 10.19%
1999 8.40%
</TABLE>
BEST QUARTER: 6.73% (4Q/98)
WORST QUARTER: (3.82)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Moderate Strategy Fund Class D........... 8.40% 8.08%
Merrill Lynch 1-2.99 Year Treasury
Index**................................. 3.06 5.22
Lehman Brothers Aggregate Bond Index..... (0.82) 4.73
Russell 1000 Index....................... 20.91 22.61
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Moderate Strategy Composite Index#....... 9.13 9.38
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations by issuing Class E Shares on October 2, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-month Treasury Bill Index. The Fund believes the
Merrill Lynch 1-2.99 Year Treasury Index is more broadly representative
of the securities and strategies likely to be employed by the Fund and
provides more useful information as a comparative basis for evaluation
of the Fund's performance.
# The Moderate Strategy Composite Index is comprised of the following indices:
33% Merrill Lynch 1-2.99 Year Treasury Index, 27% Lehman Brothers Aggregate
Bond Index, 22% Russell 1000 Index, 9% Salomon Smith Barney BMI Ex-US, 5%
NAREIT Equity REIT Index, 2% Russell 2500-TM- Index and 2% IFC Investable
Composite Index.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
BALANCED STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS D
<S> <C>
1998 11.66%
1999 11.64%
</TABLE>
BEST QUARTER: 10.49% (4Q/98)
WORST QUARTER: (7.20)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Balanced Strategy Fund Class D........... 11.64% 10.55%
Lehman Brothers Aggregate Bond Index**... (0.82) 4.73
Russell 1000 Index....................... 20.91 22.61
Salomon Smith Barney BMI Ex-US Index..... 28.73 15.90
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Balanced Strategy Composite Index#....... 12.75 11.73
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations by issuing Class E Shares on September 16, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-Month Treasury Bill Index. The Fund believes the
Lehman Brothers Aggregate Bond Index is more broadly representative of
the securities and strategies likely to be employed by the Fund and
provides more useful information as a comparative basis for evaluation
of the Fund's performance.
# The Balanced Strategy Composite Index is comprised of the following
indices: 41% Lehman Brothers Aggregate Bond Index, 32% Russell 1000
Index, 14% Salomon Smith Barney BMI Ex-US, 5% Russell 2500-TM- Index,
5% NAREIT Equity REIT Index and 3% IFC Investable Composite Index.
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
AGGRESSIVE STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS D
<S> <C>
1998 11.69%
1999 17.69%
</TABLE>
BEST QUARTER: 14.33% (4Q/98)
WORST QUARTER: (11.63)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Aggressive Strategy Fund Class D......... 17.69% 12.51%
Russell 1000 Index**..................... 20.91 22.61
Salomon Smith Barney BMI Ex-US Index..... 28.73 15.90
Lehman Brothers Aggregate Bond Index..... (0.82) 4.73
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Aggressive Strategy Composite Index#..... 19.34 14.27
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations by issuing Class E Shares on September 16, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-month Treasury Bill Index. The Fund believes the
Russell 1000 Index is more broadly representative of the securities and
strategies likely to be employed by the Fund and provides more useful
information as a comparative basis for evaluation of the Fund's
performance.
# The Aggressive Strategy Composite Index is comprised of the following
indices: 42% Russell 1000 Index, 19% Salomon Smith Barney BMI Ex-US, 18%
Lehman Brothers Aggregate Bond Index, 11% Russell 2500-TM- Index, 5% IFC
Investable Composite Index and 5% NAREIT Equity REIT Index.
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
EQUITY AGGRESSIVE STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS D
<S> <C>
1998 13.75%
1999 21.58%
</TABLE>
BEST QUARTER: 17.51% (4Q/98)
WORST QUARTER: (13.85)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Equity Aggressive Strategy Fund Class
D....................................... 21.58% 14.21%
Russell 1000-Registered Trademark-
Index**................................. 20.91 22.61
Salomon Smith Barney BMI Ex-US Index..... 28.73 15.90
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Equity Aggressive Strategy Composite
Index#.................................. 23.58 17.36
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations by issuing Class E Shares on September 30, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-Month Treasury Bill Index. The Fund believes the
Russell 1000 Index is more broadly representative of the securities and
strategies likely to be employed by the Fund and provides more useful
information as a comparative basis for evaluation of the Fund's
performance.
# The Equity Aggressive Strategy Composite Index is comprised of the following
indices: 60% Russell 1000 Index, 20% Salomon Smith Barney BMI Ex-US, 10%
Russell 2500-TM- Index, 5% IFC Investable Composite Index and 5% NAREIT
Equity REIT Index.
- --------------------------------------------------------------------------------
11
<PAGE>
FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold Shares of the LifePoints Funds.
SHAREHOLDER FEES
(FEE PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES
MAXIMUM SALES CHARGE (LOAD)
CHARGE (LOAD) MAXIMUM IMPOSED ON
IMPOSED ON DEFERRED SALES REINVESTED REDEMPTION EXCHANGE
PURCHASES CHARGE (LOAD) DIVIDENDS FEES FEES
--------- ------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
All Funds, Class D...................... None None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT WERE DEDUCTED FROM FUND ASSETS)
(% OF NET ASSETS)
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL GROSS TOTAL NET
(REFLECTING ANNUAL FUND EXPENSE WAIVERS ANNUAL FUND
ADVISORY DISTRIBUTION SHAREHOLDER OPERATING AND OPERATING
FEE (12B-1) FEES* SERVICING FEES)** EXPENSES**+ REIMBURSEMENTS# EXPENSES
--- ------------- ----------------- ----------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS D SHARES
Conservative Strategy Fund... 0.20% 0.25% 0.25% 0.70% (0.20)% 0.50%
Moderate Strategy Fund....... 0.20% 0.25% 0.25% 0.70% (0.20)% 0.50%
Balanced Strategy Fund....... 0.20% 0.25% 0.25% 0.70% (0.20)% 0.50%
Aggressive Strategy Fund..... 0.20% 0.25% 0.25% 0.70% (0.20)% 0.50%
Equity Aggressive Strategy
Fund....................... 0.20% 0.25% 0.25% 0.70% (0.20)% 0.50%
</TABLE>
- ------------------------
* Pursuant to the rules of the National Association of Securities Dealers,
Inc. ("NASD"), the aggregate initial sales charges, deferred sales charges
and asset-based sales charges on shares of the Funds may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation is
imposed on all Class D Shares of the Funds as a group rather than on a per
shareholder basis. Therefore, long-term shareholders of the Class D Shares
may pay more than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
** The Fund expenses shown in this table do not include the pro-rata expenses
of the Underlying Funds, which are shown in the next two tables. For
purposes of this table, Other Expenses for Class D reflects a shareholder
services fee of up to 0.25% of average daily net assets.
# FRIMCo has contractually agreed to waive, at least through February 28, 2001,
its 0.20% advisory fee for each LifePoints Fund. Certain LifePoints Funds
operating expenses will be paid by the Underlying Funds and/or FRIMCo, as
more fully described below.
+ If you purchase any class of Shares of a LifePoints Fund through a Financial
Intermediary, such as a bank or an investment adviser, you may also pay
additional fees to the intermediary for services provided by the
intermediary which, in turn, may pay fees to FRIMCo for services FRIMCo
provides to the Financial Intermediary. You should contact your financial
intermediary for information concerning what additional fees, if any, will
be charged.
12
<PAGE>
DIRECT EXPENSES
No Lifepoints Fund will bear any direct operating expenses. Those operating
expenses include those arising from accounting, administrative (FRIMCo has
waived its receipt of administrative fees through November 30, 2000), custody,
auditing, legal and transfer agent services. They do not include expenses
attributable to advisory fees (which are currently waived by FRIMCo through
February 28, 2001), any Rule 12b-1 distribution fee, any shareholder service
fees, or any nonrecurring extraordinary expenses, which will be borne by the
LifePoints Funds or their appropriate classes of shares.
A LifePoints Fund's direct operating expenses are borne either by the
Underlying Funds in which the LifePoints Fund invests pursuant to Special
Servicing Agreements or by FRIMCo pursuant to a Letter Agreement. The Special
Servicing Agreements are entered into on a yearly basis and must be re-approved
annually by FRIC's Board of Trustees. The Letter Agreement currently extends
through April 30, 2001 and may be renewed thereafter.
INDIRECT EXPENSES
Shareholders in a LifePoints Fund bear indirectly the proportionate expenses
of the Underlying Funds in which the LifePoints Fund invests. The following
table provides the expense ratios for each of the Underlying Funds in which the
LifePoints Funds may invest (based on information as of December 31, 1999). As
explained at the beginning of this Prospectus, each LifePoints Fund intends to
invest in some, but not all, of the Underlying Funds.
<TABLE>
<CAPTION>
TOTAL NET OPERATING
UNDERLYING FUND (CLASS S SHARES) EXPENSE RATIOS
- -------------------------------- --------------
<S> <C>
Diversified Equity Fund.................................... 0.93%
Special Growth Fund........................................ 1.24%
Quantitative Equity Fund................................... 0.93%
International Securities Fund.............................. 1.30%
Diversified Bond Fund...................................... 0.61%
Short Term Bond Fund....................................... 0.74%
Multistrategy Bond Fund.................................... 0.86%
Real Estate Securities Fund................................ 1.14%
Emerging Markets Fund...................................... 1.91%
</TABLE>
Based on these expense ratios, the total direct and indirect operating
expense ratios of each class of Shares of each LifePoints Fund (calculated as a
percentage of average net assets) are expected to be as follows:
<TABLE>
<CAPTION>
CLASS D
-------
<S> <C>
Conservative Strategy....................................... 1.30%
Moderate Strategy........................................... 1.35%
Balanced Strategy........................................... 1.45%
Aggressive Strategy......................................... 1.58%
Equity Aggressive Strategy.................................. 1.59%
</TABLE>
13
<PAGE>
Each LifePoints Fund's total expense ratio is based on its total direct
operating expense ratio plus a weighted average of the expense ratios of the
Underlying Funds in which it was invested as of December 31, 1999. These total
expense ratios may be higher or lower depending on the allocation of a
LifePoints Fund's assets among the Underlying Funds, the actual expenses of the
Underlying Funds and the actual expenses of the LifePoints Funds.
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
LIFEPOINTS FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
The example assumes that you invest $10,000 in a LifePoints Fund for the
time periods indicated and then redeem all of your Shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year, and that operating expenses, which include the indirect expenses of the
Underlying Funds, remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS D: ------ ------- ------- --------
<S> <C> <C> <C> <C>
Conservative Strategy Fund............................ $132 $465 $821 $1,824
Moderate Strategy Fund................................ 137 480 846 1,877
Balanced Strategy Fund................................ 148 512 900 1,988
Aggressive Strategy Fund.............................. 161 551 967 2,128
Equity Aggressive Strategy Fund....................... 162 554 972 2,138
</TABLE>
SUMMARY COMPARISON OF THE FUNDS
The investment objectives of the LifePoints Funds are summarized below in a
chart that illustrates the degree to which each LifePoints Fund seeks to obtain
capital appreciation, income, and stability of principal:
<TABLE>
<CAPTION>
CAPITAL POSSIBILITY OF
LIFEPOINTS FUND APPRECIATION INCOME FLUCTUATION
- -------------------------------------------------- ------------ ------ -----------
<S> <C> <C> <C>
Conservative Strategy Fund........................ Low High Low
Moderate Strategy Fund............................ Moderate High Moderate
Balanced Strategy Fund............................ Moderate Moderate Moderate
Aggressive Strategy Fund.......................... High Low High
Equity Aggressive Strategy Fund................... High Low High
</TABLE>
14
<PAGE>
The allocation of each LifePoints Fund's investment in the Underlying Funds
is illustrated in the following charts:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 5%
Quantitative Equity 6%
International Securities 5%
Emerging Markets 1%
Real Estate Securities 5%
Diversified Bond 18%
Short Term Bond 60%
Conservative Strategy Fund
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 11%
Special Growth 2%
Quantitative Equity 11%
International
Securities 9%
Emerging Markets 2%
Real Estate Securities 5%
Diversified Bond 27%
Short Term Bond 33%
Moderate Strategy Fund
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 16%
Special Growth 5%
Quantitative Equity 16%
International
Securities 14%
Emerging Markets 3%
Real Estate Securities 5%
Diversified Bond 25%
Multistrategy Bond 16%
Balanced Strategy Fund
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 21%
Special Growth 11%
Quantitative Equity 21%
International Securities 19%
Emerging Markets 5%
Real Estate Securities 5%
Multistrategy Bond 18%
Aggressive Strategy Fund
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 30%
Special Growth 10%
Quantitative Equity 30%
International Securities 20%
Emerging Markets 5%
Real Estate Securities 5%
Equity Aggressive Strategy Fund
</TABLE>
15
<PAGE>
THE PURPOSE OF THE FUNDS--MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION
The LifePoints Funds are offered through certain bank trust departments,
registered investment advisers, broker-dealers and other financial services
organizations that have been selected by the LifePoints Funds' adviser or
distributor (Financial Intermediaries). The LifePoints Funds offer investors the
opportunity to invest in a diversified mutual fund investment allocation program
and are designed to provide a means for investors to use FRIMCo's and Frank
Russell Company's (Russell) "multi-style, multi-manager diversification"
investment method and to obtain FRIMCo's and Russell's money manager evaluation
services.
Three functions form the core of Russell's consulting services:
- OBJECTIVE SETTING: Defining appropriate investment objectives and desired
investment returns, based on a client's unique situation and risk
tolerance.
- ASSET ALLOCATION: Allocating a client's assets among different asset
classes--such as common stocks, fixed-income securities, international
securities, temporary cash investments and real estate--in a way most
likely to achieve the client's objectives and desired returns.
- MONEY MANAGER RESEARCH: Evaluating and recommending professional
investment advisory and management organizations ("money managers") to
make specific portfolio investments for each asset class, according to
designated investment objectives, styles and strategies.
When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.
The LifePoints Funds believe investors should seek to hold fully diversified
portfolios that reflect both their own individual investment time horizons and
their ability to accept risk. The LifePoints Funds believe that for many, this
can be accomplished through strategically purchasing shares in one or more of
the Underlying Funds which have been structured to provide access to specific
asset classes employing a multi-style, multi-manager approach.
Capital market history shows that asset classes with greater risk will
generally outperform lower risk asset classes over time. For instance, corporate
equities, over the past 50 years, have outperformed corporate debt in absolute
terms. However, what is generally true of performance over extended periods will
not necessarily be true at any given time during a market cycle, and from time
to time asset classes with greater risk may also underperform lower risk asset
classes, on either a risk adjusted or absolute basis. Investors should select a
mix of asset classes that reflects their overall ability to withstand market
fluctuations over their investment horizons.
Studies have shown that no one investment style within an asset class will
consistently outperform competing styles. For instance, investment styles
favoring securities with growth characteristics may outperform styles favoring
income producing securities, and vice versa. For this reason, no single manager
has consistently outperformed the market over extended periods. Although
performance cycles tend to repeat themselves, they do not do so predictably.
16
<PAGE>
The LifePoints Funds believe, however, that it is possible to select
managers who have shown a consistent ability to achieve superior results within
subsets or styles of specific asset classes and investment styles by employing a
unique combination of qualitative and quantitative measurements. The Underlying
Funds in which the LifePoints Funds invest combine these select managers with
other managers within the same asset class who employ complementary styles. By
combining complementary investment styles within an asset class, investors are
better able to reduce their exposure to the risk of any one investment style
going out of favor.
By strategically selecting from among a variety of investments by asset
class, each of which has been constructed using these multi-style, multi-manager
principles, investors are able to design portfolios that meet their specific
investment needs.
The LifePoints Funds have a greater potential than most mutual funds for
diversification among investment styles and money managers since the LifePoints
Funds invest in shares of several Underlying Funds. The LifePoints Funds were
created to provide a mutual fund investor with a simple but effective means of
structuring a diversified mutual fund investment program suited to meet the
investor's individual needs. FRIMCo has long stressed the value of
diversification in an investment program, and has offered its advisory expertise
in assisting investors on how to design their individual investment program.
The LifePoints Funds and Underlying Funds conduct their business through a
number of service providers, who act on behalf of the Funds. FRIMCo, the Funds'
administrator and investment adviser, performs the Funds' day to day corporate
management and oversees the Funds' money managers. Each of the Underlying Funds'
money managers makes all investment decisions for the portion of the Underlying
Fund assigned to it by FRIMCo. The Funds' custodian, State Street Bank,
maintains custody of all of the Funds' assets. FRIMCo, in its capacity as the
Funds' transfer agent, is responsible for maintaining the Funds' shareholder
records and carrying out shareholder transactions. When a Fund acts in one of
these areas, it does so through the service provider responsible for that area.
MANAGEMENT OF THE UNDERLYING FUNDS
AND THE LIFEPOINTS FUNDS
The LifePoints Funds' investment adviser is FRIMCo, 909 A Street, Tacoma,
Washington 98402. FRIMCo pioneered the "multi-style, multi-manager" investment
method in mutual funds and manages over $17 billion in more than 30 mutual fund
portfolios. FRIMCo was established in 1982 to serve as the investment management
arm of Russell.
Russell, which acts as consultant to the LifePoints Funds and the Underlying
Funds, was founded in 1936 and has been providing comprehensive asset management
consulting services for over 30 years to institutional investors, principally
large corporate employee benefit plans. Russell provides the LifePoints Funds,
the Underlying Funds and FRIMCo with the asset management consulting services
that it provides to its other consulting clients. Neither the LifePoints Funds
nor the Underlying Funds compensate Russell for these services. Russell and its
affiliates have offices around the world, in Tacoma, New York, Toronto, London,
Paris, Sydney, Auckland, Singapore and Tokyo.
17
<PAGE>
Russell is a subsidiary of The Northwestern Mutual Life Insurance Company.
Founded in 1857, Northwestern Mutual is a mutual life insurance corporation
headquartered in Milwaukee, Wisconsin. It leads the US in both individual life
insurance sold annually and individual life insurance in force.
FRIMCo recommends money managers to the Underlying Funds, allocates
Underlying Fund assets among them, oversees them, and evaluates their results.
FRIMCo also oversees the management of the Underlying Funds' liquidity reserves.
The Underlying Funds' money managers select the individual portfolio securities
for the assets in the Underlying Funds assigned to them.
James A. Jornlin is responsible for the day to day decisions regarding the
investment and reinvestment of the LifePoints Funds within their target
allocation strategy percentages. Mr. Jornlin also oversees certain other funds
as described below.
FRIMCo's officers and employees who oversee the money managers of the
Underlying Funds are:
- Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
June 1989.
- Mark D. Amberson, who has been a Portfolio Manager of FRIMCo since January
1998. From 1991 to 1997, Mr. Amberson was a Portfolio Manager in Russell's
Money Market Trading Group. Mr. Amberson has, jointly with Mr. Burge,
primary responsibility for management of the Fixed Income I, Diversified
Bond, Short Term Bond, Fixed Income III, Tax Exempt Bond and Multistrategy
Bond Funds.
- Randal C. Burge, who has been Director of Global Fixed Income since
January 2000. From 1995 to 1999, Mr. Burge was a Portfolio Manager of
FRIMCo. From 1990 to 1995, Mr. Burge was a Client Executive for Frank
Russell Australia. Mr. Burge has, jointly with Mr. Amberson, primary
responsibility for management of the Fixed Income I, Fixed Income III,
Diversified Bond, Short Term Bond, Tax Exempt Bond and Multistrategy Bond
Funds.
- Jean Carter, who has been Director of Global Equities since January 2000.
From 1994 to 1999, Ms. Carter was a Portfolio Manager of FRIMCo.
- Ann Duncan, who has been a Portfolio Manager of FRIMCo since January 1998.
From 1996 to 1997, Ms. Duncan was a Senior Equity Research Analyst with
Russell. From 1992 to 1995, Ms. Duncan was an equity analyst and portfolio
manager with Avatar Associates. Ms. Duncan has, jointly with Mr. Jornlin,
primary responsibility for management of the International and
International Securities Funds.
- James M. Imhof, Director of FRIMCo's Portfolio Trading, manages the Funds'
liquidity portfolios on a day to day basis and has been responsible for
ongoing analysis and monitoring of the money managers since 1989.
- James A. Jornlin, who has been a Portfolio Manager of FRIMCo since January
2000. From 1995 to 1999, Mr. Jornlin was a Senior Investment Officer of
FRIMCo. From 1991 to 1995, Mr. Jornlin was employed as a Senior Research
Analyst with Russell. Mr. Jornlin has primary responsibility for
management of the Tax-Managed Global Equity, Equity Aggressive Strategy,
Aggressive Strategy, Balanced Strategy, Moderate Strategy and Conservative
Strategy Funds, has, jointly with Mr. Ogard, primary responsibility for
the management of the Real Estate Securities
18
<PAGE>
Fund, has, jointly with Ms. Duncan, primary responsibility for the
management of the International and International Securities Funds and
has, jointly with Mr. Parish, primary responsibility for the management of
the Emerging Markets Fund.
- Eric W. Ogard, who has been a Portfolio Manager of FRIMCo since March
2000. Mr. Ogard was a Research Analyst for FRIMCo from 1995 to 1997 and a
Senior Research Analyst for FRIMCo from 1997 to 2000. Mr. Ogard has,
jointly with Mr. Trittin and Mr. Tipple, primary responsibility for the
management of the Equity I, Equity II, Equity III, Equity Q, Tax-Managed
Large Cap, Tax-Managed Small Cap, Diversified Equity, Quantitative Equity,
Special Growth and Equity Income Funds and has, jointly with Mr. Jornlin,
primary responsibility for the management of the Real Estate Securities
Fund.
- Symon Parish, who has been an Associate Portfolio Manager of Frank Russell
Company Limited, an affiliate of FRIMCo, since 1996. From 1994 to 1996,
Mr. Parish was a client service executive in Russell's Auckland office.
Mr. Parish has, jointly with Mr. Jornlin, primary responsibility for the
Emerging Markets Fund.
- Brian C. Tipple, who has been a Portfolio Manager of FRIMCo since July
1999. From 1991 to 1999, Mr. Tipple was a Client Executive with Frank
Russell Trust Company. Mr. Tipple has, jointly with Mr. Ogard and Mr.
Trittin, primary responsibility for the management of the Equity I,
Equity II, Equity III, Equity Q, Tax-Managed Large Cap, Tax-Managed Small
Cap, Diversified Equity, Quantitative Equity, Special Growth and Equity
Income Funds.
- Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of US Equity
Manager Research Department with Russell. Mr. Trittin has, jointly with
Mr. Ogard and Mr. Tipple, primary responsibility for management of the
Equity I, Equity II, Equity III, Equity Q, Tax-Managed Large Cap,
Tax-Managed Small Cap, Diversified Equity, Quantitative Equity, Special
Growth and Equity Income Funds.
FRIMCo receives an annual 0.20% advisory fee and an annual 0.05%
administrative fee from each LifePoints Fund based on the average daily net
assets of each LifePoints Fund. Those fees are payable to FRIMCo monthly on a
pro rata basis. FRIMCo has voluntarily agreed to waive the advisory fee through
February 28, 2001 and the administrative fee through November 30, 2000.
In addition to the advisory and administrative fees payable by the
LifePoints Funds, the LifePoints Funds will bear indirectly a proportionate
share of operating expenses that include the advisory and administrative fees
paid by the Underlying Funds in which they invest. While a shareholder of a
LifePoints Fund will also bear a proportionate part of advisory and
administrative fees paid by an Underlying Fund, each of the advisory and
administrative fees paid is based upon the services received by the respective
LifePoints Fund. From the advisory fee that it receives from each Underlying
Fund, FRIMCo pays the Underlying Fund's money managers for their investment
selection services. FRIMCo retains any remainder as compensation for the
services described above and to pay expenses. The aggregate annual rate of the
advisory and administrative fees, payable to FRIMCo monthly on a pro rata basis,
are the following percentages of the average daily net assets of each Underlying
Fund: Diversified Equity Fund 0.78%, Special Growth Fund 0.95%, Quantitative
Equity Fund 0.78%, International Securities Fund 0.95%, Diversified Bond Fund
0.45%, Short Term Bond Fund 0.50%,
Multistrategy Bond Fund 0.65%, Real Estate Securities Fund 0.85% and Emerging
Markets Fund 1.20%. Of this aggregate amount, 0.05% is attributable to
administrative services.
19
<PAGE>
THE MONEY MANAGERS FOR THE UNDERLYING FUNDS
Each Underlying Fund allocates its assets among the money managers listed
under "Money Manager Information" at the end of this Prospectus. FRIMCo, as the
Underlying Funds' advisor, may change the allocation of an Underlying Fund's
assets among money managers at any time. The Underlying Funds received an
exemptive order from the Securities and Exchange Commission (SEC) that permits
an Underlying Fund to engage or terminate a money manager at any time, subject
to the approval by the Underlying Fund's Board of Trustees (Board), without a
shareholder vote. An Underlying Fund notifies its shareholders within 60 days of
when a money manager begins providing services. The Underlying Funds select
money managers based primarily upon the research and recommendations of FRIMCo
and Russell. FRIMCo and Russell evaluate quantitatively and qualitatively the
money manager's skills and results in managing assets for specific asset
classes, investment styles and strategies. Short-term investment performance, by
itself, is not a controlling factor in any Underlying Fund's selection or
termination of a money manager.
Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of an Underlying Fund. At the same time, however,
each money manager must operate within the Underlying Fund's investment
objectives, restrictions and policies. Additionally, each manager must operate
within more specific constraints developed from time to time by FRIMCo. FRIMCo
develops such constraints for each manager based on FRIMCo's assessment of the
manager's expertise and investment style. By assigning more specific constraints
to each money manager, FRIMCo intends to capitalize on the strengths of each
money manager and to combine their investment activities in a complementary
fashion. Although the money managers' activities are subject to general
oversight by the Board and the Underlying Funds' officers, neither the Board,
the officers, FRIMCo nor Russell evaluate the investment merits of the money
managers' individual security selections.
20
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT
STRATEGIES OF THE UNDERLYING FUNDS
The objective and principal strategies of each Underlying Fund are described
in this section. Further information about the Underlying Funds is contained in
the Statement of Additional Information as well as in the Prospectuses of the
Underlying Funds. Because the LifePoints Funds invest in the Underlying Funds,
investors of the LifePoints Funds will be affected by the Underlying Funds'
investment strategies in direct proportion to the amount of assets each
LifePoints Fund allocates to the Underlying Fund pursuing such policies. To
request a copy of a Prospectus for an Underlying Fund, contact FRIC at
800/787-7354 (in Washington, 253/627-7001).
DIVERSIFIED EQUITY FUND
- ---------------------------
<TABLE>
<S> <C>
INVESTMENT To provide income and capital growth by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Diversified Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies most of
STRATEGIES which are US-based.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial, and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
Additionally, the Fund is diversified by equity substyle.
For example, within the Growth Style, the Fund expects to
employ both an Earnings Momentum substyle (concentrating on
companies with more volatile and accelerating growth rates)
and a Consistent Growth substyle (concentrating on companies
with stable earnings growth over an economic cycle).
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
substyle and its performance record, as well as the
characteristics of the money manager's typical portfolio
investments. These characteristics include capitalization
size, growth and profitability measures, valuation ratios,
economic sector weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more Frank Russell Investment
Company (FRIC) money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
SPECIAL GROWTH FUND
- ------------------------
<TABLE>
<S> <C>
INVESTMENT To maximize total return primarily through capital
OBJECTIVE appreciation and assuming a higher level of volatility than
the Diversified Equity Fund.
PRINCIPAL The Special Growth Fund invests primarily in common stocks
INVESTMENT of small and medium capitalization companies most of which
STRATEGIES are US based. The Fund's investments may include companies
that have been publicly traded for less than five years and
smaller companies, such as companies not listed in the
Russell 2000-Registered Trademark- Index.
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record, as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
QUANTITATIVE EQUITY FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell
1000-Registered Trademark- Index over a market cycle of four
to six years) while maintaining volatility and
diversification similar to the Index.
PRINCIPAL The Quantitative Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies which
STRATEGIES are predominately US based. The Fund generally pursues a
market-oriented style of security selection, which
incorporates both a growth style and a value style, based on
quantitative investment models which are mathematical
formulas based on statistical analyses. This style
emphasizes investments in companies that appear to be
undervalued relative to their growth prospects.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record as well as the characteristics of the money manager's
typical portfolio investments. These characteristics include
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment returns correlate with one another.
Each of the Fund's money managers use quantitative models to
rank securities based upon their expected ability to
outperform the total return of the Russell 1000 Index. Once
a money manager has ranked the securities, it then selects
the securities most likely to outperform and constructs, for
its segment of the Fund, a portfolio that has risks similar
to the Russell 1000 Index. Each money manager performs this
process independently from each other money manager.
The Russell 1000 Index consists of the 1,000 largest US
companies by capitalization (i.e., market price per share
times the number of shares outstanding). The smallest
company in the Index at December 31, 1999 had a
capitalization of approximately $1.1 billion.
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
The Fund's money managers typically use a variety of
quantitative models, ranking securities within each model
and on a composite basis using proprietary weighting
formulas. Examples of those quantitative models are dividend
discount models, price/cash flow models, price/earnings
models, earnings surprise and earnings estimate revisions
models and price momentum models.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
INTERNATIONAL SECURITIES FUND
- -----------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.
PRINCIPAL The International Securities Fund invests primarily in
INVESTMENT equity securities issued by companies domiciled outside the
STRATEGIES US and in depository receipts which represent ownership of
securities of non-US companies. The Fund's investments span
most of the developed nations of the world (particularly
Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. Because
international equity investment performance has a reasonably
low correlation to US equity performance, this Fund may be
appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.
The Fund may seek to protect its investments against adverse
currency exchange rate changes by purchasing forward
currency contracts. These contracts enable the Fund to "lock
in" the US dollar price of a security that it plans to buy
or sell. The Fund may not accurately predict currency
movements.
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector. A
variation of this style maintains investments that
replicate country and sector weightings of a broad
international market index.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
DIVERSIFIED BOND FUND
- -------------------------
<TABLE>
<S> <C>
INVESTMENT To provide effective diversification against equities and a
OBJECTIVE stable level of cash flow by investing in fixed-income
securities.
PRINCIPAL The Diversified Bond Fund invests primarily in investment
INVESTMENT grade fixed- income securities. In particular, the Fund
STRATEGIES holds debt securities issued or guaranteed by the US
government and, to a lesser extent by non-US governments, or
by their respective agencies and instrumentalities. It also
holds mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. In seeking investments
that will produce cash flow, the Fund's money managers also
identify sectors of the fixed-income market that they
believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
SHORT TERM BOND FUND
- --------------------------
<TABLE>
<S> <C>
INVESTMENT The preservation of capital and the generation of current
OBJECTIVE income consistent with preservation of capital by investing
primarily in fixed-income securities with low-volatility
characteristics.
PRINCIPAL The Short Term Bond Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
The Fund may invest up to 10% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by the
Fund to be of comparable quality. These securities are
commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 15% of the average weighted duration
of the Merrill Lynch 1-2.99 Years Treasury Index, which was
1.6 years on December 31, 1999, but may vary up to 50% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes, as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Merrill Lynch 1-2.99 Years Treasury
Index.
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
MULTISTRATEGY BOND FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return, primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from broad fixed-income market
portfolios.
PRINCIPAL The Multistrategy Bond Fund invests primarily in
INVESTMENT fixed-income securities. In particular, the Fund holds debt
STRATEGIES securities issued or guaranteed by the US government and, to
a lesser extent by non-US governments, or by their
respective agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
The Fund may invest up to 25% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by a
Fund money manager to be of comparable quality. These
securities are commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
REAL ESTATE SECURITIES FUND
- --------------------------------
<TABLE>
<S> <C>
INVESTMENT To generate a high level of total return through above
OBJECTIVE average current income while maintaining the potential for
capital appreciation.
PRINCIPAL The Fund seeks to achieve its objective by concentrating its
INVESTMENT investments in equity securities of issuers whose value is
STRATEGIES derived primarily from development, management and market
pricing of underlying real estate properties.
The Fund invests primarily in securities of companies, known
as real estate investment trusts (REITs), that own and/or
manage properties. REITs may be composed of anywhere from
two to over 1,000 properties. The Fund may also invest in
equity and debt securities of other types of real estate-
related companies. The Fund invests in companies which are
predominately US based, although the Fund may invest a
limited portion of its assets in non-US firms from time to
time.
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, property type and
geographic weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
Although the Fund, like any mutual fund, maintains liquidity
reserves (i.e., cash awaiting investment or held to meet
redemption requests), the Fund may expose these reserves to
the performance of appropriate equity markets by investing
in stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market Funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
32
<PAGE>
EMERGING MARKETS FUND
- ----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from developed market
international portfolios by investing primarily in equity
securities.
PRINCIPAL The Emerging Markets Fund will primarily invest in equity
INVESTMENT securities of companies that are located in countries with
STRATEGIES emerging markets or that derive a majority of their revenues
from operations in such countries. These companies are
referred to as "Emerging Market Companies." For purposes of
the Fund's operations, an "emerging market" country is a
country having an economy and market that the World Bank or
the United Nations consider to be emerging or developing.
These countries generally include every country in the world
except the United States, Canada, Japan, Australia and most
countries located in Western Europe.
The Fund seeks to maintain a broadly diversified exposure to
emerging market countries and ordinarily will invest in the
securities of issuers in at least three different emerging
market countries.
The Fund invests in common stocks of Emerging Market
Companies and in depository receipts which represent
ownership of securities of non-US companies. The Fund may
also invest in rights, warrants and convertible fixed-income
securities. The Fund's securities are denominated primarily
in foreign currencies and may be held outside the US.
Some emerging markets countries do not permit foreigners to
participate directly in their securities markets or
otherwise present difficulties for efficient foreign
investment. Therefore, when it believes it is appropriate to
do so, the Fund may invest in pooled investment vehicles,
such as other investment companies, which enjoy broader or
more efficient access to shares of Emerging Market Companies
in certain countries but may include a further layering of
expenses.
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record, as well as the characteristics of the money
manager's typical portfolio investments (e.g.,
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics). The Fund also considers
the manner in which money managers' historical and expected
investment returns correlate with one another.
The Fund may agree to purchase securities for a fixed price
at a future date beyond customary settlement time. This kind
of agreement is known as a "forward commitment" or as a
"when-issued" transaction.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. A Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
34
<PAGE>
PRINCIPAL RISKS
The following table describes principal types of risks the LifePoints Funds
are subject to, based on the investments made by the Underlying Funds, and lists
next to each description the Underlying and LifePoints Funds most likely to be
affected by the risk. Other Underlying and LifePoints Funds that are not listed
may be subject to one or more of the risks, based on the allocation of assets
among the Underlying Funds, but will not do so in a way that is expected to
principally affect the performance of the LifePoints or Underlying Fund as a
whole. Please refer to the LifePoints Funds' Statement of Additional Information
for a discussion of risks associated with types of securities held by the
Underlying Funds and the investment practices employed by the individual
Underlying Funds.
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
MULTI-MANAGER The investment styles employed by a Fund's money All Funds
APPROACH managers may not be complementary. The interplay
of the various strategies employed by a Fund's (ALL UNDERLYING FUNDS)
multiple money managers may result in a Fund
holding a concentration of certain types of
securities. This concentration may be beneficial
or detrimental to a Fund's performance depending
upon the performance of those securities and the
overall economic environment. The multi-manager
approach could result in a high level of
portfolio turnover, resulting in higher Fund
brokerage expenses and increased tax liability
from a Fund's realization of capital gains.
EQUITY SECURITIES The value of equity securities will rise and fall Equity Aggressive
in response to the activities of the company that Strategy
issued the stock, general market conditions Aggressive Strategy
and/or economic conditions. Balanced Strategy
Moderate Strategy
(UNDERLYING FUNDS:
DIVERSIFIED EQUITY
SPECIAL GROWTH
QUANTITATIVE EQUITY
INTERNATIONAL SECURITIES
REAL ESTATE SECURITIES
EMERGING MARKETS)
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
- -Value Stocks Investments in value stocks are subject to risks Equity Aggressive
that (i) their intrinsic values may never be Strategy
realized by the market or (ii) such stock may Aggressive Strategy
turn out not to have been undervalued. Balanced Strategy
Moderate Strategy
(UNDERLYING FUNDS:
DIVERSIFIED EQUITY
SPECIAL GROWTH
QUANTITATIVE EQUITY
INTERNATIONAL SECURITIES)
- -Growth Stocks Growth company stocks may provide minimal Equity Aggressive
dividends which could otherwise cushion stock Strategy
prices in a market decline. The value of growth Aggressive Strategy
company stocks may rise and fall significantly Balanced Strategy
based, in part, on investors' perceptions of the Moderate Strategy
company, rather than on fundamental analysis of
the stocks. (UNDERLYING FUNDS:
DIVERSIFIED EQUITY
SPECIAL GROWTH
INTERNATIONAL SECURITIES)
- -Market-Oriented Market-oriented investments are generally subject Equity Aggressive
Investments to the risks associated with growth and value Strategy
stocks. Aggressive Strategy
Balanced Strategy
Moderate Strategy
(UNDERLYING FUNDS:
DIVERSIFIED EQUITY
SPECIAL GROWTH
QUANTITATIVE EQUITY
INTERNATIONAL SECURITIES)
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
- -Securities of small Investments in smaller companies may involve Equity Aggressive
capitalization greater risks because these companies generally Strategy
companies have a limited track record. Smaller companies Aggressive Strategy
often have narrower markets and more limited Balanced Strategy
managerial and financial resources than larger, Moderate Strategy
more established companies. As a result, their
performance can be more volatile, which may (UNDERLYING FUND:
increase the volatility of a Fund's portfolio. SPECIAL GROWTH)
FIXED-INCOME Prices of fixed-income securities rise and fall Balanced Strategy
SECURITIES in response to interest rate changes. Generally, Moderate Strategy
when interest rates rise, prices of fixed-income Conservative Strategy
securities fall. The longer the duration of the
security, the more sensitive the security is to (UNDERLYING FUNDS:
this risk. A 1% increase in interest rates would DIVERSIFIED BOND
reduce the value of a $100 note by approximately MULTISTRATEGY BOND
one dollar if it had a one-year duration, but SHORT TERM BOND)
would reduce its value by approximately fifteen
dollars if it had a 15-year duration. There is
also a risk that one or more of the securities
will be downgraded in credit rating or go into
default. Lower-rated bonds generally have higher
credit risks.
- -Non-investment grade Although lower rated debt securities generally Aggressive Strategy
fixed-income offer a higher yield than higher rated debt Balanced Strategy
securities securities, they involve higher risks. They are
especially subject to: (UNDERLYING FUNDS:
-adverse changes in general economic conditions MULTISTRATEGY BOND
and in the industries in which their issuers are SHORT TERM BOND)
engaged,
-changes in the financial condition of their
issuers and
-price fluctuations in response to changes in
interest rates.
As a result, issuers of lower rated debt
securities are more likely than other issuers to
miss principal and interest payments or to
default which could result in a loss to a Fund.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
INTERNATIONAL A Fund's return and net asset value may be Equity Aggressive
SECURITIES significantly affected by political or economic Strategy
conditions and regulatory requirements in a Aggressive Strategy
particular country. Foreign markets, economies Balanced Strategy
and political systems may be less stable than US
markets, and changes in exchange rates of foreign (UNDERLYING FUNDS:
currencies can affect the value of a Fund's INTERNATIONAL SECURITIES
foreign assets. Foreign laws and accounting MULTISTRATEGY BOND
standards typically are not as strict as they are EMERGING MARKETS
in the US and there may be less public SHORT TERM BOND)
information available about foreign companies.
Foreign securities markets may be less liquid and
have fewer transactions than US securities
markets. Additionally, international markets may
experience delays and disruptions in securities
settlement procedures for a Fund's portfolio
securities.
- -Non-US debt A Fund's foreign debt securities are typically Aggressive Strategy
securities obligations of sovereign governments. These Balanced Strategy
securities are particularly subject to a risk of
default from political instability. (UNDERLYING FUNDS:
MULTISTRATEGY BOND
SHORT TERM BOND)
- -Emerging market Investments in emerging or developing markets (UNDERLYING FUND:
countries involve exposure to economic structures that are EMERGING MARKETS)
generally less diverse and mature, and to
political systems which have less stability than
those of more developed countries. Emerging
market securities are subject to currency
transfer restrictions and may experience delays
and disruptions in securities settlement
procedures for the Fund's portfolio securities.
- -Instruments of US Non-US corporations and banks issuing dollar Balanced Strategy
and foreign banks denominated instruments in the US are not Moderate Strategy
and branches and necessarily subject to the same regulatory Conservative Strategy
foreign requirements that apply to US corporations and
corporations, banks, such as accounting, auditing and (UNDERLYING FUNDS:
including Yankee recordkeeping standards, the public availability DIVERSIFIED BOND
Bonds of information and, for banks, reserve MULTISTRATEGY BOND
requirements, loan limitations and examinations. SHORT TERM BOND)
This increases the possibility that a non-US
corporation or bank may become insolvent or
otherwise unable to fulfill its obligations on
these instruments.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
DERIVATIVES (E.G. If a Fund incorrectly forecasts interest rates in Balanced Strategy
FUTURES CONTRACTS, using derivatives, the Fund could lose money. Moderate Strategy
OPTIONS ON FUTURES, Price movements of a futures contract, option or Conservative Strategy
INTEREST RATE SWAPS) structured note may not be identical to price
movements of portfolio securities or a securities (UNDERLYING FUNDS:
index resulting in the risk that, when a Fund DIVERSIFIED BOND
buys a futures contract or option as a hedge, the MULTISTRATEGY BOND
hedge may not be completely effective. SHORT TERM BOND)
REAL ESTATE Just as real estate values go up and down, the (UNDERLYING FUND:
SECURITIES value of the securities of companies involved in REAL ESTATE SECURITIES)
the industry, and in which a Fund invests, also
fluctuates. A Fund that invests in real estate
securities is also subject to the risks
associated with direct ownership of real estate.
Additional risks include declines in the value of
real estate, changes in general and local
economic conditions, increases in property taxes
and changes in tax laws and interest rates. The
value of securities of companies that service the
real estate industry may also be affected by such
risks.
- -REITs REITs may be affected by changes in the value of (UNDERLYING FUND:
the underlying properties owned by the REITs and REAL ESTATE SECURITIES)
by the quality of any credit extended. Moreover,
the underlying portfolios of REITs may not be
diversified, and therefore are subject to the
risk of financing a single or a limited number of
projects. REITs are also dependent upon
management skills and are subject to heavy cash
flow dependency, defaults by borrowers,
self-liquidation and the possibility of failing
either to qualify for tax-free pass through of
income under federal tax laws or to maintain
their exemption from certain federal securities
laws.
MUNICIPAL OBLIGATIONS Municipal obligations are affected by economic, Balanced Strategy
business or political developments. These Moderate Strategy
securities may be subject to provisions of Conservative Strategy
litigation, bankruptcy and other laws affecting
the rights and remedies of creditors, or may (UNDERLYING FUNDS:
become subject to future laws extending the time DIVERSIFIED BOND
for payment of principal and/or interest, or MULTISTRATEGY BOND
limiting the rights of municipalities to levy SHORT TERM BOND)
taxes.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
REPURCHASE AGREEMENTS Under a repurchase agreement, a bank or broker (UNDERLYING FUNDS:
sells securities to a Fund and agrees to DIVERSIFIED BOND
repurchase them at the Fund's cost plus interest. SHORT TERM BOND
If the value of the securities declines and the MULTISTRATEGY BOND)
bank or broker defaults on its repurchase
obligation, a Fund could incur a loss.
EXPOSING LIQUIDITY By exposing its liquidity reserves to the equity All Funds
RESERVES TO EQUITY market principally by use of equity futures, a
MARKETS Fund's performance tends to correlate more (UNDERLYING FUNDS:
closely to the performance of the market as a DIVERSIFIED EQUITY
whole. Although this increases a Fund's SPECIAL GROWTH
performance if equity markets rise, it reduces a QUANTITATIVE EQUITY
Fund's performance if equity markets decline. INTERNATIONAL SECURITIES
REAL ESTATE SECURITIES)
SECURITIES LENDING If a borrower of a Fund's securities fails (ALL UNDERLYING FUNDS)
financially, the Fund's recovery of the loaned
securities may be delayed or the Fund may lose
its rights to the collateral which could result
in a loss to a Fund.
</TABLE>
40
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
INCOME DIVIDENDS
Each LifePoints Fund distributes substantially all of its net investment
income and net capital gains to shareholders each year. The amount and frequency
of distributions are not guaranteed, all distributions are at the Board's
discretion. Currently, the Board intends to declare dividends from net
investment income, if any, for each LifePoints Fund on a quarterly basis, with
payment being made in April, July, October and December.
CAPITAL GAINS DISTRIBUTIONS
The Board intends to declare capital gain distributions (both short-term and
long-term) once a year in mid-December to reflect any net short-term and net
long-term capital gains realized by a LifePoints Fund as of October 31 of the
current fiscal year. A LifePoints Fund may be required to make an additional
distribution if necessary, in any year for operational or other reaons.
Distributions that are declared in October, November, or December to
shareholders of record in such months, and paid in January of the following
year, will be treated for tax purposes as if received on December 31 of the year
in which they were declared.
In addition, the LifePoints Funds receive capital gains distributions from
the Underlying Funds. Consequently, capital gains distributions may be expected
to vary considerably from year to year. Also, the LifePoints Funds may generate
capital gains through rebalancing the portfolios to meet the LifePoints Funds'
allocation percentages.
BUYING A DIVIDEND
If you purchase Shares just before a distribution, you will pay the full
price for the Shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." Unless your account is
a tax-deferred account, dividends paid to you would be included in your gross
income for tax purposes even though you may not have participated in the
increase of the net asset value of a LifePoints Fund, regardless of whether you
reinvested the dividends. To avoid "buying a dividend," check a Fund's
distribution dates before you invest.
AUTOMATIC REINVESTMENT
Your dividends and other distributions are automatically reinvested at the
closing net asset value on the record date, in additional shares of the
appropriate LifePoints Fund, unless you elect to have the dividends or
distributions paid in cash or invested in another Fund. You may change your
election by delivering written notice no later than ten days prior to the
payment date to the LifePoints Funds at Frank Russell Investment Company, c/o
Boston Financial Data Services, 2 Heritage Drive, N. Quincy, MA 02171.
41
<PAGE>
TAXES
In general, distributions from a LifePoints Fund are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest your
distributions in additional shares of the LifePoints Fund or receive them in
cash. Any long-term capital gains distributed by a LifePoints Fund are taxable
to you as long-term capital gains no matter how long you have owned your shares.
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell or exchange your shares of a LifePoints Fund, you may have a
capital gain or loss. The tax rate on any gain from the sale or exchange of your
shares depends on how long you have held your shares.
The LifePoints Funds make no representation as to the amount or variability
of each Funds capital gain distributions which may vary as a function of several
variables including, but not limited to, prevailing dividend yield levels,
general market conditions, shareholders redemption patterns and Fund cash
equitization activity.
LifePoints Fund distributions and gains from the sale or exchange of your
shares will generally be subject to state and local income tax. Non-US investors
may be subject to US withholding and estate tax. You should consult your tax
professional about federal, state, local or foreign tax consequences in holding
shares of a LifePoints Fund.
By law, a LifePoints Fund must withhold 31% of your distributions and
proceeds if you do not provide your correct taxpayer identification number, or
certify that such number is correct, or if the IRS instructs the LifePoints Fund
to do so.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN A
LIFEPOINTS FUND.
Additional information on these and other tax matters relating to the
LifePoints Funds and their shareholders is included in the section entitled
"Taxes" in the LifePoints Funds' Statement of Additional Information.
HOW NET ASSET VALUE IS DETERMINED
NET ASSET VALUE PER SHARE
The net asset value per share is calculated for Shares of each class of each
LifePoints Fund on each business day on which Shares are offered or redemption
orders are tendered. For all LifePoints Funds, a business day is one on which
the New York Stock Exchange (NYSE) is open for trading. The NYSE is not open on
national holidays or Good Friday. All Underlying Funds and LifePoints Funds
determine net asset value at 4:00 p.m. Eastern Time or as of the close of the
NYSE, whichever is earlier. The determination is made by appraising each
LifePoints Fund's underlying investments on each business day (i.e., the
Underlying Funds at the current net asset value per share of such Underlying
Fund).
42
<PAGE>
VALUATION OF PORTFOLIO SECURITIES
Securities held by the Underlying Funds are typically priced using market
quotations or pricing services when the prices are believed to be reliable, that
is, when the prices reflect the fair market value of the securities. The
Underlying Funds value securities for which market quotations are not readily
available at "fair value," as determined in good faith and in accordance with
procedures established by the Board. If you hold Shares in a LifePoints Fund
that invests in an Underlying Fund, such as the International Securities Fund,
that holds portfolio securities listed primarily on foreign exchanges, the net
asset value of both that Underlying Fund's and that LifePoints Fund's Shares may
change on a day when you will not be able to purchase or redeem LifePoints Fund
Shares. This is because the value of those portfolio securities may change on
weekends or other days when the LifePoints Fund does not price its shares.
DISTRIBUTION AND SHAREHOLDER
SERVICING ARRANGEMENTS
The LifePoints Funds offer multiple classes of Shares: Class C Shares,
Class D Shares, Class E Shares and Class S Shares.
CLASS C SHARES participate in the Funds' Rule 12b-1 distribution plan
and in the LifePoints Funds' shareholder services plan. Under the
distribution plan, Class C Shares pay distribution fees of 0.75% annually
for the sale and distribution of Class C Shares. Under the shareholder
services plan, the Class C Shares pay shareholder services fees of 0.25% on
an annualized basis for services provided to Class C shareholders. Because
both of these fees are paid out of the Class C Share assets on an ongoing
basis, over time these fees will increase the cost of an investment in Class
C Shares in the LifePoints Funds, and the distribution fee may cost an
investor more than paying other types of sales charges.
CLASS D SHARES participate in the Funds' Rule 12b-1 distribution plan
and in the LifePoints Funds' shareholder services plan. Under the
distribution plan, the Class D shares pay distribution fees of 0.25%
annually for the sale and distribution of Class D Shares. Under the
shareholder services plan, the Class D Shares pay shareholder services fees
of 0.25% on an annualized basis for services provided to Class D
shareholders. Because both of these fees are paid out of the Class D Share
assets on an ongoing basis, over time these fees will increase the cost of a
Class D share investment in the LifePoints Funds, and the distribution fee
may cost an investor more than paying other types of sales charges.
CLASS E SHARES participate in the Funds' shareholder services plan.
Under the shareholder services plan, the Class E Shares pay shareholder
services fees of 0.25% on an annualized basis for services provided to Class
E shareholders. The shareholder services fees are paid out of the Class E
Share assets on an ongoing basis, and over time will increase the cost of
your investment in the LifePoints Funds.
CLASS S SHARES do not participate in either the Funds' distribution plan
or the Funds' shareholder services plan.
43
<PAGE>
HOW TO PURCHASE SHARES
LifePoints Funds are generally available only through a select network of
qualified Financial Intermediaries. If you are not currently working with one of
these Financial Intermediaries, please call Russell Investor Services at (800)
RUSSEL4 (800-787-7354) for assistance in contacting an investment professional
near you.
For Class D Shares, there is a $250,000 required minimum investment for each
account in each LifePoints Fund. Each LifePoints Fund reserves the right to
change the categories of investors eligible to purchase its shares. You may be
eligible to purchase Shares of the LifePoints Funds if you do not meet the
required initial minimum investment. You should consult your Financial
Intermediary for details, which are summarized in the LifePoints Funds'
statement of additional information.
Financial Intermediaries may charge their customers a fee for providing
investment-related services. Financial Intermediaries that maintain omnibus
accounts with the Funds may receive administrative fees from the Funds or their
transfer agent. Financial Intermediaries may receive shareholder servicing
compensation and/or distribution compensation with respect to Class D Shares of
the LifePoints Funds.
PAYING FOR SHARES
You may purchase Shares of the LifePoints Funds through a Financial
Intermediary on any business day the Funds are open. Purchase orders are
processed at the next net asset value per share calculated after the LifePoints
Funds' receive your order in proper form (defined in the "Written Instructions"
section), and accept the order.
All purchases must be made in US dollars. Checks and other negotiable bank
drafts must be drawn on US banks and made payable to "Frank Russell Investment
Company." The LifePoints Funds reserve the right to reject any purchase order
for any reason including, but not limited to, receiving a check which does not
clear the bank or a payment which does not arrive in proper form by settlement
date. You will be responsible for any resulting loss to the Funds. An overdraft
charge may also be applied. Cash, third party checks and checks drawn on credit
card accounts generally will not be accepted. However, exceptions may be made by
prior special arrangement with certain Financial Intermediaries.
OFFERING DATES AND TIMES
Orders must be received by the LifePoints Funds prior to 4:00 p.m. Eastern
Time or the close of the NYSE, whichever is earlier. Purchases can be made on
any day when LifePoints Fund shares are offered. Because Financial
Intermediaries' processing time may vary, please ask your Financial Intermediary
representative when your account will be credited.
ORDER AND PAYMENT PROCEDURES
Generally, you must place purchase orders for Shares through a Financial
Intermediary. You may pay for your purchase by mail or electronic funds
transfer. Initial purchases require a completed and
44
<PAGE>
signed Application for each new account regardless of the investment method.
Specific payment arrangements should be made with your Financial Intermediary.
BY MAIL
For new accounts, please mail the completed Application to your Financial
Intermediary. Payment for orders may be made by check or other negotiable bank
draft and sent to the LifePoints Funds' Transfer Agent. Certified checks are not
necessary, but checks are accepted subject to collection at full face value in
US funds. Third party checks will not be accepted. Checks should be made payable
to "Frank Russell Investment Company."
BY FEDERAL FUNDS WIRE
You can pay for orders by wiring federal funds to the LifePoints Funds'
Custodian, State Street Bank and Trust Company. All wires must include your
account registration and account number for identification. Inability to
properly identify a wire transfer may prevent or delay timely settlement of your
purchase.
BY AUTOMATED CLEARING HOUSE ("ACH")
You can make initial or subsequent investments through ACH to the Funds'
Custodian, State Street Bank and Trust Company.
AUTOMATED INVESTMENT PROGRAM
You can make regular investments (minimum $50) in the LifePoints Funds in an
established account on a monthly, quarterly, semiannual or annual basis by
automatic electronic funds transfer from a bank account. You must make a
separate transfer for each LifePoints Fund in which you purchase Shares. You may
change the amount or stop the automatic purchase at any time. Contact your
Financial Intermediary for further information on this program and an enrollment
form.
THREE-DAY SETTLEMENT PROGRAM
The LifePoints Funds will accept orders at the next computed net asset value
through Financial Intermediaries to purchase Shares of the LifePoints Funds for
settlement on the third business day following the receipt of the order. These
orders are paid for by a federal funds wire if the Financial Intermediary has
enrolled in the program and agreed in writing to indemnify the LifePoints Funds
against any losses resulting from non-receipt of payment.
45
<PAGE>
EXCHANGE PRIVILEGE
BY MAIL OR TELEPHONE
Through your Financial Intermediary, you may exchange Shares of any
LifePoints Fund you own for shares of any other LifePoints Fund offered by this
Prospectus on the basis of the current net asset value per share at the time of
the exchange. Shares of a LifePoints Fund offered by this Prospectus may only be
exchanged for shares of a fund offered by FRIC through another Prospectus under
certain conditions and only in states where the exchange may be legally made.
For additional information, including Prospectuses for other funds, contact your
Financial Intermediary.
Exchanges may be made by mail or by telephone if the registration of the two
accounts is identical. Contact your Financial Intermediary for assistance in
exchanging Shares and, because Financial Intermediaries' processing time may
vary, to find out when your account will be credited or debited. To request an
exchange in writing, please follow the procedures in the "Written Instructions"
section before mailing to your Financial Intermediary.
An exchange involves the redemption of Shares, which is treated as a sale
for income tax purposes. Thus, capital gain or loss may be realized. Please
consult your tax adviser for more information. The Shares to be acquired will be
purchased when the proceeds from the redemption become available (up to seven
days from the receipt of the request) at the next net asset value per share
calculated after the Funds received the exchange request in good order.
IN-KIND EXCHANGE OF SECURITIES
FRIMCo, in its capacity as the LifePoints Funds' investment advisor, may, at
its discretion, permit you to acquire Shares in exchange for securities you
currently own. Any securities exchanged must meet the investment objective,
policies and limitations of the applicable LifePoints Fund, have a readily
ascertainable market value, be liquid, not be subject to restrictions on resale
and have a market value, plus any cash, equal to at least $100,000.
Shares purchased in exchange for securities generally may not be redeemed or
exchanged for 15 days following the purchase by exchange or until the transfer
has settled, whichever comes first. If you are a taxable investor, you will
generally realize a gain or loss for federal income tax purposes on the
exchange. If you are contemplating an in-kind exchange you should consult your
tax adviser.
The price at which the exchange will take place will depend upon the
relative net asset value of the Shares purchased and securities exchanged.
Securities accepted by a LifePoints Fund will be valued in the same way the
LifePoints Fund values its assets. Any interest earned on the securities
following their delivery to the LifePoints Funds and prior to the exchange will
be considered in valuing the securities. All interest, dividends, subscription
or other rights attached to the securities becomes the property of the
LifePoints Fund, along with the securities. Please contact your Financial
Intermediary for further information.
46
<PAGE>
HOW TO REDEEM SHARES
Shares of the LifePoints Funds may be redeemed through your Financial
Intermediary on any business day the LifePoints Funds are open at the next net
asset value per share calculated after the Funds' Transfer Agent receives an
order in proper form (defined in the "Written Instructions" section). Payment
will ordinarily be made within seven days after receipt of your request in
proper form. Shares recently purchased by check may not be available for
redemption for 15 days following the purchase or until the check clears,
whichever occurs first, to assure payment has been collected.
REDEMPTION DATES AND TIMES
Redemption requests must be placed through a Financial Intermediary and
received by the LifePoints Funds prior to 4:00 p.m. Eastern Time or the close of
the NYSE, whichever is earlier. Because Financial Intermediaries' processing
times may vary, please ask your Financial Intermediary representative when your
account will be debited. Requests can be made by mail or telephone on any day
when LifePoints Fund shares are offered, or through the Systematic Withdrawal
Program described below.
BY MAIL OR TELEPHONE
You may redeem your shares by calling or writing to your Financial
Intermediary. Written requests to sell shares are in proper form when the
instructions are signed by all registered owners, with a signature guarantee if
necessary.
SYSTEMATIC WITHDRAWAL PROGRAM
The LifePoints Funds offer a systematic withdrawal program which allows you
to redeem your Shares and receive regular payments from your account on a
monthly, quarterly, semiannual or annual basis. If you would like to establish a
systematic withdrawal program, please complete the proper section of the account
application and indicate how you would like to receive your payments. You will
generally receive your payment by the end of the month in which a payment is
scheduled. When you redeem your shares under a systematic withdrawal program, it
is a taxable transaction.
You may choose to have the payments mailed to you or directed to your bank
account by ACH transfer. You may discontinue the systematic withdrawal program,
or change the amount and timing of withdrawal payments by contacting your
Financial Intermediary.
ACCOUNTS IN STREET NAME
Many brokers, employee benefit plans and bank trusts combine their client's
holdings in a single omnibus account held in the brokers', plans', or bank
trusts' own name or "street name." Therefore, if you hold LifePoints Fund shares
through a brokerage account, employee benefit plan or bank trust fund, the
LifePoints Funds may have records only of the omnibus account. In this case,
your broker, employee benefit plan or bank is responsible for keeping track of
your account information. This means that you may not be able to request
transactions in your Shares directly through the Funds, but can do so only
through your broker, plan administrator or bank. Ask your Financial Intermediary
for information on whether your LifePoints Fund shares are held in an omnibus
account.
47
<PAGE>
PAYMENT OF REDEMPTION PROCEEDS
BY CHECK
When you redeem your Shares, a check for the redemption proceeds will be
sent to the shareholder(s) of record at the address of record within seven days
after the LifePoints Funds receive a redemption request in proper form.
BY WIRE
If you have established the electronic redemption option, your redemption
proceeds can be wired to your predesignated bank account on the next bank
business day after the LifePoints Funds receive your redemption request. The
LifePoints Funds may charge a fee to cover the cost of sending a wire transfer
for redemptions less than $1,000, and your bank may charge an additional fee to
receive the wire. Wire transfers can be sent to US commercial banks that are
members of the Federal Reserve System.
WRITTEN INSTRUCTIONS
PROPER FORM: Written instructions must be in proper form. They must include:
A description of the request
The name of the Fund(s)
The class of shares, if applicable
The account number(s)
The amount of money or number of shares being purchased, exchanged,
transferred or redeemed
The name(s) on the account(s)
The signature(s) of all registered account owners
For exchanges, the name of the Fund you are exchanging into
Your daytime telephone number
48
<PAGE>
SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
<TABLE>
<CAPTION>
ACCOUNT TYPE REQUIREMENTS FOR WRITTEN REQUESTS
<S> <C>
Individual, Joint Tenants, Tenants in Written instructions must be signed by each
Common shareholder, exactly as the names appear in the
account registration.
UGMA or UTMA (custodial accounts for Written instructions must be signed by the
minors) custodian in his/her capacity as it appears in
the account registration.
Corporation, Association Written instructions must be signed by authorized
person(s), stating his/her capacity as indicated
by the corporate resolution to act on the account
and a copy of the corporate resolution, certified
within the past 90 days, authorizing the signer
to act.
Estate, Trust, Pension, Profit Sharing Written instructions must be signed by all
Plan trustees. If the name of the trustee(s) does not
appear in the account registration, please
provide a copy of the trust document certified
within the last 60 days.
Joint tenancy shareholders whose Written instructions must by signed by the
co-tenants are deceased surviving tenant(s). A certified copy of the
death certificate must accompany the request.
</TABLE>
SIGNATURE GUARANTEE
The LifePoints Funds reserve the right to require a signature guarantee
under certain circumstances. A signature guarantee verifies the authenticity of
your signature. You should be able to obtain a signature guarantee from a bank,
broker, credit union, savings association, clearing agency, or securities
exchange or association, but not a notary public. Call your financial
institution to see if it has the ability to guarantee a signature.
ACCOUNT POLICIES
THIRD PARTY TRANSACTIONS
If you purchase Shares as part of a program of services offered by a
Financial Intermediary, you may be required to pay additional fees. You should
contact your Financial Intermediary for information concerning what additional
fees, if any, may be charged.
REDEMPTION IN-KIND
A Fund may pay for any portion of the redemption amount in excess of
$250,000 by a distribution in-kind of securities from the Fund's portfolio,
instead of in cash. If you receive an in-kind distribution of portfolio
securities, and choose to sell them, you will incur brokerage charges and
continue to be subject to tax consequences and market risk pending any sale.
49
<PAGE>
STALE CHECKS
For the protection of shareholders and the LifePoints Funds, if a check
issued for the payment of a redemption or distribution is not cashed for more
than 180 days from issuance, it will not be honored. The LifePoints Funds have
adopted procedures described in the statement of additional information
regarding the treatment of stale checks, or you may contact your Financial
Intermediary for additional information.
50
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you
understand the LifePoints Funds' financial performance for the past 5 years (or,
if a LifePoints Fund or Class has not been in operation for 5 years, since the
beginning of operations for that LifePoints Fund or Class). Certain information
reflects financial results for a single LifePoints Fund share throughout each
year or period ended December 31. The total returns in the table represent how
much your investment in a LifePoints Fund would have increased (or decreased)
during each period, assuming reinvestment of all dividends and distributions.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the LifePoints Fund's financial statements, are included in the
Funds' annual reports, which are available upon request. The information in the
tables below represents the financial highlights for each of LifePoints Fund's
Class D Shares for the periods shown.
<TABLE>
<CAPTION>
CONSERVATIVE STRATEGY FUND--CLASS D
YEARS ENDED
DECEMBER 31,
-------------------
1999 1998*
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.25 $ 10.20
------- -------
INCOME FROM OPERATIONS:
Net investment income (a)(d).............................. .44 .32
Net realized and unrealized gain (loss)................... .08 .06
------- -------
Total income from operations............................ .52 .38
------- -------
DISTRIBUTIONS
From net investment income................................ (.56) (.33)
From net realized gain.................................... (.05) --
------- -------
Total distributions..................................... (.61) (.33)
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.16 $ 10.25
------- -------
TOTAL RETURN (%)(b)......................................... 5.18 3.77
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 1,001 618
Ratios to average net assets (%):
Operating expenses, net (c)............................. .50 .50
Operating expenses, gross (c)........................... .75 1.73
Net investment income (b)............................... 4.24 3.09
Portfolio turnover rate (%)............................... 125.01 169.79
</TABLE>
- ------------------------
* For the period March 24, 1998 (commencement of sale) to December 31, 1998.
(a) Average month-end shares outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
(d) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
51
<PAGE>
<TABLE>
<CAPTION>
MODERATE STRATEGY FUND--CLASS D
YEARS ENDED
DECEMBER 31,
-------------------
1999 1998*
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.15 $ 10.18
------- -------
INCOME FROM OPERATIONS
Net investment income (a)(d).............................. .33 .26
Net realized and unrealized gain (loss)................... .50 .09
------- -------
Total income from operations............................ .83 .35
------- -------
DISTRIBUTIONS
From net investment income................................ (.40) (.37)
From net realized gain.................................... (.09) (.01)
------- -------
Total distributions..................................... (.49) (.38)
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.49 $ 10.15
======= =======
TOTAL RETURN (%)(b)......................................... 8.40 3.57
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 1,367 1,780
Ratios to average net assets (%):
Operating expenses, net (c)............................. .50 .50
Operating expenses, gross (c)........................... .75 1.01
Net investment income (b)............................... 3.28 2.65
Portfolio turnover rate (%)............................... 120.04 175.58
</TABLE>
- ------------------------
* For the period March 24, 1998 (commencement of sale) to December 31, 1998.
(a) Average month-end shares outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
(d) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
52
<PAGE>
<TABLE>
<CAPTION>
BALANCED STRATEGY FUND--CLASS D
YEARS ENDED
DECEMBER 31,
-------------------
1999 1998*
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.13 $10.22
------ ------
INCOME FROM OPERATIONS
Net investment income (a)(d).............................. .30 .24
Net realized and unrealized gain (loss)................... .84 .07
------ ------
Total income from operations............................ 1.14 .31
------ ------
DISTRIBUTIONS
From net investment income................................ (.38) (.37)
From net realized gain.................................... (.12) (.03)
------ ------
Total distributions..................................... (.50) (.40)
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $10.77 $10.13
====== ======
TOTAL RETURN (%)(b)......................................... 11.64 3.23
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 9,075 4,953
Ratios to average net assets (%):
Operating expenses, net (c)............................. .50 .50
Operating expenses, gross (c)........................... .75 .86
Net investment income (b)............................... 3.07 2.46
Portfolio turnover rate (%)............................... 64.63 78.85
</TABLE>
- ------------------------
* For the period March 24, 1998 (commencement of sale) to December 31, 1998.
(a) Average month-end shares outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
(d) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
53
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE STRATEGY FUND--CLASS D
YEARS ENDED
DECEMBER 31,
-------------------
1999 1998*
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.95 $10.09
------ ------
INCOME FROM OPERATIONS
Net investment income (a)(d).............................. .15 .13
Net realized and unrealized gain (loss)................... 1.57 (.05)
------ ------
Total income from operations............................ 1.72 .08
------ ------
DISTRIBUTIONS
From net investment income................................ (.31) (.21)
From net realized gain.................................... (.16) (.01)
------ ------
Total distributions..................................... (.47) (.22)
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $11.20 $ 9.95
====== ======
TOTAL RETURN (%)(b)......................................... 17.69 .96
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 6,096 3,649
Ratios to average net assets (%):
Operating expenses, net (c)............................. .50 .50
Operating expenses, gross (c)........................... .75 .93
Net investment income (b)............................... 1.48 1.35
Portfolio turnover rate (%)............................... 71.44 93.08
</TABLE>
- ------------------------
* For the period March 24, 1998 (commencement of sale) to December 31, 1998.
(a) Average month-end shares outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for the periods less than one year are annualized.
(d) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
54
<PAGE>
<TABLE>
<CAPTION>
EQUITY AGGRESSIVE STRATEGY FUND--CLASS D
YEARS ENDED
DECEMBER 31,
-------------------
1999 1998*
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.81 $ 9.92
------ ------
INCOME FROM OPERATIONS
Net investment income (a)(d).............................. .06 .01
Net realized and unrealized gain (loss)................... 2.01 .10
------ ------
Total income from operations............................ 2.07 .11
------ ------
DISTRIBUTIONS
From net investment income................................ (.29) (.17)
From net realized gain.................................... (.16) (.05)
------ ------
Total Distributions..................................... (.45) (.22)
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $11.43 $ 9.81
====== ======
TOTAL RETURN (%)(b)......................................... 21.58 1.17
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 3,732 4,923
Ratios to average net assets (%):
Operating expenses, net (c)............................. .50 .50
Operating expenses, gross (c)........................... .75 .89
Net investment income (b)............................... .64 .01
Portfolio turnover rate (%)............................... 76.20 73.95
</TABLE>
- ------------------------
* For the period March 24, 1998 (commencement of sale) to December 31, 1998.
(a) Average month-end shares outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
(d) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
55
<PAGE>
MONEY MANAGER INFORMATION
The money managers have no affiliations with the LifePoints Funds or the
LifePoints Funds' service providers other than their management of Underlying
Fund assets. Each money manager has been in business for at least three years,
and is principally engaged in managing institutional investment accounts. These
managers may also serve as managers or advisers to other Funds in FRIC, or to
other clients of FRIMCo or of Frank Russell Company, including Frank Russell
Company's wholly-owned subsidiary, Frank Russell Trust Company.
This section identifies the money managers for the Underlying Funds in which
the LifePoints Funds invest.
DIVERSIFIED EQUITY FUND
ALLIANCE CAPITAL MANAGEMENT L.P., US Bank Place, 601 2nd Ave. South, Suite
5000, Minneapolis, MN 55402-4322.
BARCLAYS GLOBAL FUND ADVISORS, 45 Fremont Street, 17th Floor, San Francisco,
CA 94105.
EQUINOX CAPITAL MANAGEMENT, INC., 590 Madison Avenue, 41st Floor, New York,
NY 10022.
JACOBS LEVY EQUITY MANAGEMENT, LLC, 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.
MARSICO CAPITAL MANAGEMENT COMPANY, LLC, 1200 17th Street, Suite 1300,
Denver, CO 80202.
PEACHTREE ASSET MANAGEMENT, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308.
SANFORD C. BERNSTEIN & CO., INC., 767 Fifth Avenue, 21st Floor, New York, NY
10153-0185.
STRONG CAPITAL MANAGEMENT, INC., 100 Heritage Reserve, Menomonee Falls, WI
53051.
SUFFOLK CAPITAL MANAGEMENT, INC., 1633 Broadway, 40th Floor, New York, NY
10019.
TURNER INVESTMENT PARTNERS, INC., 1235 Westlakes Drive, Suite 350, Berwyn,
PA 19312.
WESTPEAK INVESTMENT ADVISORS, L.P., 1011 Walnut Street, Suite 400, Boulder,
CO 80302.
SPECIAL GROWTH FUND
CAPITALWORKS INVESTMENT PARTNERS, LLC, 401 West "A" Street, Suite 1675, San
Diego, CA 92101.
DELPHI MANAGEMENT, INC., 50 Rowes Wharf, Suite 440, Boston, MA 02110.
FIDUCIARY TRUST COMPANY INTERNATIONAL, INC., 2 World Trade Center, New York,
NY 10048-0772.
GLOBEFLEX CAPITAL, L.P., 4365 Executive Drive, Suite 720, San Diego, CA
92121.
JACOBS LEVY EQUITY MANAGEMENT, INC., See: Diversified Equity Fund.
SIRACH CAPITAL MANAGEMENT, INC., One Union Square, Suite 3323, 600
University Street, Seattle, WA 98101.
WESTPEAK INVESTMENT ADVISORS, L.P. See: Diversified Equity Fund.
56
<PAGE>
QUANTITATIVE EQUITY FUND
BARCLAYS GLOBAL FUND ADVISORS, See: Diversified Equity Fund.
FRANKLIN PORTFOLIO ASSOCIATES LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., 522 Fifth Ave., 6th Floor, New
York, NY 10036.
JACOBS LEVY EQUITY MANAGEMENT, INC., See: Diversified Equity Fund.
INTERNATIONAL SECURITIES FUND
DELAWARE INTERNATIONAL ADVISERS LTD., 80 Cheapside, 3rd Floor, London
EC2V6EE England.
FIDELITY MANAGEMENT TRUST COMPANY, 82 Devonshire Street, Boston, MA 02109.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., See: Quantitative Equity Fund.
MASTHOLM ASSET MANAGEMENT, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue,
WA 98004.
MONTGOMERY ASSET MANAGEMENT, LLC, 101 California Street, 35th Floor, San
Francisco, CA 94111
OECHSLE INTERNATIONAL ADVISORS, LLC, One International Place, 23rd Floor,
Boston, MA 02110.
SANFORD C. BERNSTEIN & CO., INC., See: Diversified Equity Fund.
THE BOSTON COMPANY ASSET MANAGEMENT, INC., One Boston Place, 14th Floor,
Boston, MA 02108-4402.
EMERGING MARKETS FUND
FOREIGN & COLONIAL EMERGING MARKETS LIMITED, Exchange House, Primrose
Street, London, England EC2A 2NY.
GENESIS ASSET MANAGERS LIMITED, 21 Knightsbridge, London SW1X 7LY England.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, 600 W. Broadway 29th Floor, San
Diego, CA 92101.
SANFORD C. BERNSTEIN & CO. INC., See: Diversified Equity Fund.
SCHRODERS INVESTMENT MANAGEMENT NORTH AMERICA LIMITED, 31 Greshman Street,
London EC2V 7QA England.
REAL ESTATE SECURITIES FUND
AEW CAPITAL MANAGEMENT, L.P., 225 Franklin Street, Boston, MA 02110-2803.
COHEN & STEERS CAPITAL MANAGEMENT, 757 Third Avenue, New York, NY 10017.
SECURITY CAPITAL GLOBAL CAPITAL MANAGEMENT GROUP INCORPORATED, 11 South
LaSalle Street, 2nd Floor, Chicago, IL 60603.
57
<PAGE>
DIVERSIFIED BOND FUND
LINCOLN CAPITAL MANAGEMENT COMPANY, See: Diversified Equity Fund.
PACIFIC INVESTMENT MANAGEMENT COMPANY, 840 Newport Center Drive, Suite 360,
P.O. Box 6430, Newport Beach, CA 92658-6430.
STANDISH, AYER & WOOD, INC., One Financial Center, Boston, MA 02111.
MULTISTRATEGY BOND FUND
LAZARD ASSET MANAGEMENT, 30 Rockefeller Plaza, New York, NY 10112-6300.
MILLER, ANDERSON & SHERRERD, LLP, One Tower Bridge, W. Conshohocken, PA
19428.
PACIFIC INVESTMENT MANAGEMENT COMPANY, See: Diversified Bond Fund.
STANDISH, AYER & WOOD, INC., See: Diversified Bond Fund.
SHORT TERM BOND FUND
BLACKROCK FINANCIAL MANAGEMENT, INC., 345 Park Ave., 29th Floor, New York,
NY 10154.
STANDISH, AYER & WOOD, INC., See: Diversified Bond Fund.
STW FIXED INCOME MANAGEMENT LTD., 200 East Carrillo Street, Suite 100, Santa
Barbara, CA 93101-2143.
WHEN CONSIDERING AN INVESTMENT IN THE LIFEPOINTS FUNDS, DO NOT RELY ON ANY
INFORMATION UNLESS IT IS CONTAINED IN THIS PROSPECTUS OR IN THE LIFEPOINTS
FUNDS' STATEMENT OF ADDITIONAL INFORMATION. THE LIFEPOINTS FUNDS HAVE NOT
AUTHORIZED ANYONE TO ADD ANY INFORMATION OR TO MAKE ANY ADDITIONAL STATEMENTS
ABOUT THE LIFEPOINTS FUNDS. THE LIFEPOINTS FUNDS MAY NOT BE AVAILABLE IN SOME
JURISDICTIONS OR TO SOME PERSONS. THE FACT THAT YOU HAVE RECEIVED THIS
PROSPECTUS SHOULD NOT, IN ITSELF, BE TREATED AS AN OFFER TO SELL LIFEPOINTS FUND
SHARES TO YOU. CHANGES IN THE AFFAIRS OF THE LIFEPOINTS FUNDS OR IN THE
UNDERLYING FUNDS' MONEY MANAGERS MAY OCCUR AFTER THE DATE ON THE COVER PAGE OF
THIS PROSPECTUS. THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED TO REFLECT ANY
MATERIAL CHANGES TO THE INFORMATION IT CONTAINS.
58
<PAGE>
For more information about the LifePoints Funds, the following documents are
available without charge:
ANNUAL/SEMIANNUAL REPORTS: Additional information about the LifePoints Funds'
investments is available in the LifePoints Funds' annual and semiannual
reports to shareholders. In each LifePoints Fund's annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the LifePoints Fund's performance during its last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the LifePoints Funds.
The annual report for each LifePoints Fund and the SAI are incorporated into
this Prospectus by reference. You may obtain free copies of the reports and
the SAI, and may request other information, by contacting your Financial
Intermediary or the LifePoints Funds at:
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
800-787-7354
Fax: 253-591-3495
Website: russell.com
You can review and copy information about the LifePoints Funds (including the
SAI) at the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. You can obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. You can obtain
copies of this information upon paying a duplicating fee by writing to the
Public Reference Section of the Commission, Washington, D.C. 20549-6009.
Reports and other information about the LifePoints Funds are also available
on the Commission's Internet website at sec.gov.
FRANK RUSSELL INVESTMENT COMPANY
Class D Shares:
Conservative Strategy Fund
Moderate Strategy Fund
Balanced Strategy Fund
Aggressive Strategy Fund
Equity Aggressive Strategy Fund
[RUSSELL LOGO] Distributor: Russell Fund Distributors, Inc.
SEC File No. 811-3153
36-08-058 (05/00)
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
[GRAPHIC]
LIFEPOINTS-Registered Trademark-FUNDS
PROSPECTUS
CLASS E AND S SHARES
CONSERVATIVE STRATEGY FUND
MODERATE STRATEGY FUND
BALANCED STRATEGY FUND
AGGRESSIVE STRATEGY FUND
EQUITY AGGRESSIVE STRATEGY FUND
MAY 1, 2000
909 A STREET, TACOMA, WA 98402 - 800-787-7354 - 253-627-7001
As with all mutual funds, the Securities and Exchange Commission has neither
determined that the information in this prospectus is accurate or complete, nor
approved or disapproved of these securities. It is a criminal offense to state
otherwise.
[LOGO]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary......................................... 3
Investment Objective.................................... 3
Principal Investment Strategies......................... 4
Principal Risks......................................... 5
Performance............................................. 6
Fees and Expenses....................................... 12
Summary Comparison of the Funds............................. 15
The Purpose of the Funds--Multi-Style, Multi-Manager
Diversification........................................... 17
Management of the Underlying Funds and the LifePoints
Funds..................................................... 18
The Money Managers for the Underlying Funds................. 21
Investment Objective and Principal Investment Strategies of
the Underlying Funds...................................... 22
Principal Risks............................................. 36
Dividends and Distributions................................. 42
Taxes....................................................... 43
How Net Asset Value Is Determined........................... 43
Distribution and Shareholder Servicing Arrangements......... 44
How to Purchase Shares...................................... 45
Exchange Privilege.......................................... 47
How to Redeem Shares........................................ 48
Payment of Redemption Proceeds.............................. 49
Written Instructions........................................ 49
Account Policies............................................ 50
Financial Highlights........................................ 52
Money Manager Information................................... 57
</TABLE>
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
<TABLE>
<S> <C>
CONSERVATIVE seeks to achieve moderate total rate of return through low
STRATEGY FUND capital appreciation and reinvestment of a high level of
current income.
MODERATE STRATEGY seeks to achieve moderate long-term capital appreciation
FUND with high current income, while recognizing the possibility
of moderate fluctuations in year-to-year market values.
BALANCED STRATEGY seeks to achieve a moderate level of current income and,
FUND over time, above-average capital appreciation with moderate
risk.
AGGRESSIVE STRATEGY seeks to achieve high, long-term capital appreciation with
FUND low current income, while recognizing the possibility of
substantial fluctuations in year-to-year market values.
EQUITY AGGRESSIVE seeks to achieve high, long-term capital appreciation, while
STRATEGY FUND recognizing the possibility of high fluctuations in
year-to-year market values.
</TABLE>
3
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
Each of the Frank Russell Investment Company (FRIC) Funds described in this
Prospectus
(LifePoints Fund) is a "fund of funds," and diversifies its assets by investing,
at present, in the Class S Shares of several other FRIC Funds (Underlying
Funds). Each LifePoints Fund seeks to achieve a specific investment objective by
investing in different combinations of the Underlying Funds.
Each LifePoints Fund allocates its assets by investing in shares of a
diversified group of Underlying Funds. The Underlying Funds in which each
LifePoints Fund invests are shown in the table below and illustrated by pie
charts appearing later in this Prospectus. The LifePoints Funds intend their
strategy of investing in combinations of Underlying Funds to result in
investment diversification that an investor could otherwise achieve only by
holding numerous individual investments.
<TABLE>
<CAPTION>
EQUITY
CONSERVATIVE MODERATE BALANCED AGGRESSIVE AGGRESSIVE
STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
UNDERLYING FUND FUND FUND FUND FUND FUND
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Diversified Equity Fund.................... 5% 11% 16% 21% 30%
Special Growth Fund........................ -- 2% 5% 11% 10%
Quantitative Equity Fund................... 6% 11% 16% 21% 30%
International Securities Fund.............. 5% 9% 14% 19% 20%
Diversified Bond Fund...................... 18% 27% 25% -- --
Short Term Bond Fund....................... 60% 33% -- -- --
Multistrategy Bond Fund.................... -- -- 16% 18% --
Real Estate Securities Fund................ 5% 5% 5% 5% 5%
Emerging Markets Fund...................... 1% 2% 3% 5% 5%
</TABLE>
Each LifePoints Fund intends to be fully invested at all times. Although the
LifePoints Funds, like all other mutual funds, maintain liquidity reserves (i.e.
cash awaiting investment or held to meet redemption requests), the Funds expose
these reserves to the performance of appropriate equity markets by investing in
stock futures contracts. This causes the Funds to perform as though their cash
reserves were actually invested in those markets. Additionally, the Funds invest
their liquidity reserves in one or more FRIC money market funds.
A LifePoints Fund can change the allocation of its assets among Underlying
Funds at any time, if the LifePoints Funds' investment adviser, Frank Russell
Investment Management Company (FRIMCo) believes that doing so would better
enable the LifePoints Fund to pursue its investment objective. From time to
time, each LifePoints Fund adjusts its investments within set limits based on
FRIMCo's outlook for the economy, financial markets generally and relative
market valuation of the asset classes represented by each Underlying Fund.
Additionally, each LifePoints Fund may deviate from set limits when, in FRIMCo's
opinion, it is necessary to do so to pursue the LifePoints Fund's investment
objective. However, The LifePoints Funds expect that amounts they allocate to
each Underlying Fund will generally vary only within 10% of the ranges specified
in the table above.
4
<PAGE>
DIVERSIFICATION
Each LifePoints Fund is a "nondiversified" investment company for purposes
of the Investment Company Act of 1940 because it invests in the securities of a
limited number of issuers (i.e., the Underlying Funds). Each of the Underlying
Funds in which the LifePoints Funds invest is a diversified investment company.
PRINCIPAL RISKS
You should consider the following factors before investing in the LifePoints
Funds:
- An investment in the LifePoints Funds, like any investment, has risks. The
value of each LifePoints Fund fluctuates, and you could lose money.
- Since the assets of each LifePoints Fund is invested primarily in shares
of the Underlying Funds, the investment performance of each LifePoints
Fund is directly related to the investment performance of the Underlying
Funds in which it invests.
- The policy of each LifePoints Fund is to allocate its assets among the
Underlying Funds within certain ranges. Therefore, the LifePoints Funds
may have less flexibility to invest than a mutual fund without such
constraints.
- A LifePoints Fund is exposed to the same risks as the Underlying Funds in
direct proportion to the allocation of its assets among the Underlying
Funds. These risks include the risks associated with a multi-manager
approach to investing, as well as those associated with investing in
equity securities, fixed income securities, and international securities.
For further detail on the risks summarized here, please refer to the
section "Principal Risks".
- An investment in any of the LifePoints Funds is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
- The officers, Trustees, and FRIMCo presently serve as officers, Trustees
and investment manager of the Underlying Funds. Therefore, conflicts may
arise as those persons and FRIMCo fulfill their fiduciary responsibilities
to the LifePoints Funds and to the Underlying Funds.
5
<PAGE>
PERFORMANCE
The following bar charts illustrate the risks of investing in the LifePoints
Funds by showing how the performance of each LifePoints Fund's Class E Shares
varies over the life of each LifePoints Fund. The return for other classes of
Shares offered by this Prospectus will differ from the Class E returns shown in
the bar charts, depending upon the fees and expenses of that class. The highest
and lowest quarterly returns during the periods shown in the bar charts for the
LifePoints Funds' Class E Shares are set forth below the bar charts.
The tables accompanying the bar charts further illustrate the risks of
investing in the LifePoints Funds by showing how each LifePoints Fund's average
annual returns for one year and since the beginning of operations of such
LifePoints Fund compare with the returns of certain indexes that measure broad
market performance. The returns for the other class of shares offered by this
Prospectus may differ from the Class E returns shown in the bar chart, to the
extent that the fees and expenses of that class differ from those of Class E.
No returns are shown for the Class S Shares of any LifePoints Fund because
those Shares were not issued during the periods shown.
Past performance is no indication of future results.
6
<PAGE>
- --------------------------------------------------------------------------------
CONSERVATIVE STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS E
<S> <C>
1998 7.70%
1999 5.54%
</TABLE>
BEST QUARTER: 3.62% (4Q/98)
WORST QUARTER: (0.80)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Conservative Strategy Fund Class E....... 5.54% 6.82%
Merrill Lynch 1-2.99 Year Treasury
Index**................................. 3.06 5.07
Lehman Brothers Aggregate Bond Index..... (0.82) 4.23
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Conservative Strategy Composite Index#... 5.62 7.34
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations on November 7, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-month Treasury Bill Index. The Fund believes the
Merrill Lynch 1-2.99 Year Treasury Index is more broadly representative
of the securities and strategies likely to be employed by the Fund and
provides more useful information as a comparative basis for evaluation
of the Fund's performance.
# The Conservative Strategy Composite Index is comprised of the following
indices: 60% Merrill Lynch 1-2.99 Year Treasury Index, 18% Lehman
Brothers Aggregate Bond Index, 11% Russell 1000-Registered Trademark-
Index, 5% Salomon Smith Barney BMI Ex-US, 5% NAREIT Equity REIT Index
and 1% IFC Investable Composite Index.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
MODERATE STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS E
<S> <C>
1998 10.19%
1999 8.65%
</TABLE>
BEST QUARTER: 6.82% (4Q/98)
WORST QUARTER: (3.76)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Moderate Strategy Fund Class E........... 8.65% 8.31%
Merrill Lynch 1-2.99 Year Treasury
Index**................................. 3.06 5.22
Lehman Brothers Aggregate Bond Index..... (0.82) 4.73
Russell 1000 Index....................... 20.91 22.61
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Moderate Strategy Composite Index#....... 9.13 9.38
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations by issuing Class E Shares on October 2, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-month Treasury Bill Index. The Fund believes the
Merrill Lynch 1-2.99 Year Treasury Index is more broadly representative
of the securities and strategies likely to be employed by the Fund and
provides more useful information as a comparative basis for evaluation
of the Fund's performance.
# The Moderate Strategy Composite Index is comprised of the following
indices: 33% Merrill Lynch 1-2.99 Year Treasury Index, 27% Lehman
Brothers Aggregate Bond Index, 22% Russell 1000 Index, 9% Salomon Smith
Barney BMI Ex-US, 5% NAREIT Equity REIT Index, 2% Russell 2500-TM-
Index and 2% IFC Investable Composite Index.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
BALANCED STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS E
<S> <C>
1998 11.66%
1999 11.80%
</TABLE>
BEST QUARTER: 10.55% (4Q/98)
WORST QUARTER: (7.15)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Balanced Strategy Fund Class E........... 11.80% 10.67%
Lehman Brothers Aggregate Bond Index**... (0.82) 4.73
Russell 1000 Index....................... 20.91 22.61
Salomon Smith Barney BMI Ex-US Index..... 28.73 15.90
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Balanced Strategy Composite Index#....... 12.75 11.73
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations by issuing Class E Shares on September 16, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-Month Treasury Bill Index. The Fund believes the
Lehman Brothers Aggregate Bond Index is more broadly representative of
the securities and strategies likely to be employed by the Fund and
provides more useful information as a comparative basis for evaluation
of the Fund's performance.
# The Balanced Strategy Composite Index is comprised of the following
indices: 41% Lehman Brothers Aggregate Bond Index, 32% Russell 1000
Index, 14% Salomon Smith Barney BMI Ex-US, 5% Russell 2500-TM- Index,
5% NAREIT Equity REIT Index and 3% IFC Investable Composite Index.
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
AGGRESSIVE STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS E
<S> <C>
1998 11.69%
1999 17.95%
</TABLE>
BEST QUARTER: 14.31% (4Q/98)
WORST QUARTER: (11.56)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Aggressive Strategy Fund Class E......... 17.95% 12.70%
Russell 1000 Index**..................... 20.91 22.61
Salomon Smith Barney BMI Ex-US Index..... 28.73 15.90
Lehman Brothers Aggregate Bond Index..... (0.82) 4.73
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Aggressive Strategy Composite Index#..... 19.34 14.27
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations by issuing Class E Shares on September 16, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-month Treasury Bill Index. The Fund believes the
Russell 1000 Index is more broadly representative of the securities and
strategies likely to be employed by the Fund and provides more useful
information as a comparative basis for evaluation of the Fund's
performance.
# The Aggressive Strategy Composite Index is comprised of the following
indices: 42% Russell 1000 Index, 19% Salomon Smith Barney BMI Ex-US,
18% Lehman Brothers Aggregate Bond Index, 11% Russell 2500-TM- Index,
5% IFC Investable Composite Index and 5% NAREIT Equity REIT Index.
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
EQUITY AGGRESSIVE STRATEGY FUND
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS CLASS E
<S> <C>
1998 13.75%
1999 21.96%
</TABLE>
BEST QUARTER: 17.69% (4Q/98)
WORST QUARTER: (14.03)% (3Q/98)
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Equity Aggressive Strategy Fund Class
E....................................... 21.96% 14.39%
Russell 1000-Registered Trademark-
Index**................................. 20.91 22.61
Salomon Smith Barney BMI Ex-US Index..... 28.73 15.90
Salomon Smith Barney 3-Month Treasury
Bill Index.............................. 4.74 6.49
Equity Aggressive Strategy Composite
Index#.................................. 23.58 17.36
----------------------------------------------------------------
</TABLE>
----------------------------
* Commenced operations by issuing Class E Shares on September 30, 1997.
** Prior to November 1, 1999, the comparative index for the Fund was the
Salomon Smith Barney 3-Month Treasury Bill Index. The Fund believes the
Russell 1000 Index is more broadly representative of the securities and
strategies likely to be employed by the Fund and provides more useful
information as a comparative basis for evaluation of the Fund's
performance.
# The Equity Aggressive Strategy Composite Index is comprised of the
following indices: 60% Russell 1000 Index, 20% Salomon Smith Barney BMI
Ex-US, 10% Russell 2500-TM- Index, 5% IFC Investable Composite Index
and 5% NAREIT Equity REIT Index.
- --------------------------------------------------------------------------------
11
<PAGE>
FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold Shares of the LifePoints Funds.
SHAREHOLDER FEES
(FEE PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES
MAXIMUM SALES CHARGE (LOAD)
CHARGE (LOAD) MAXIMUM IMPOSED ON
IMPOSED ON DEFERRED SALES REINVESTED REDEMPTION EXCHANGE
PURCHASES CHARGE (LOAD) DIVIDENDS FEES FEES
--------- ------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
All Funds, Classes E and S.............. None None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT WERE DEDUCTED FROM FUND ASSETS)
(% OF NET ASSETS)
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL GROSS TOTAL NET
(REFLECTING ANNUAL FUND EXPENSE WAIVERS ANNUAL FUND
ADVISORY SHAREHOLDER OPERATING AND OPERATING
FEE SERVICING FEES)* EXPENSES*+ REIMBURSEMENTS# EXPENSES
--- ---------------- ---------- --------------- --------
<S> <C> <C> <C> <C> <C>
CLASS E SHARES
Conservative Strategy Fund............. 0.20% 0.25% 0.45% 0.20% 0.25%
Moderate Strategy Fund................. 0.20% 0.25% 0.45% 0.20% 0.25%
Balanced Strategy Fund................. 0.20% 0.25% 0.45% 0.20% 0.25%
Aggressive Strategy Fund............... 0.20% 0.25% 0.45% 0.20% 0.25%
Equity Aggressive Strategy Fund........ 0.20% 0.25% 0.45% 0.20% 0.25%
CLASS S SHARES
Conservative Strategy Fund............. 0.20% 0.00% 0.20% (0.20)% 0.00%
Moderate Strategy Fund................. 0.20% 0.00% 0.20% (0.20)% 0.00%
Balanced Strategy Fund................. 0.20% 0.00% 0.20% (0.20)% 0.00%
Aggressive Strategy Fund............... 0.20% 0.00% 0.20% (0.20)% 0.00%
Equity Aggressive Strategy Fund........ 0.20% 0.00% 0.20% (0.20)% 0.00%
</TABLE>
- ------------------------
* The Fund expenses shown in this table do not include the pro-rata expenses
of the Underlying Funds, which are shown in the next two tables. For
purposes of this table, Other Expenses for Class E Shares reflects a
shareholder services fee of up to 0.25% of average daily net assets. Annual
Operating Expenses for Class S Shares are based on average net assets
expected to be invested during the fiscal year ending October 31, 2000.
During the course of this period, expenses may be more or less than the
amount shown.
# FRIMCo has contractually agreed to waive, at least through February 28, 2001,
its 0.20% advisory fee for each LifePoints Fund. Certain LifePoints Funds
operating expenses will be paid by the Underlying Funds and/or FRIMCo, as
more fully described below.
+ If you purchase any class of Shares of a LifePoints Fund through a Financial
Intermediary, such as a bank or an investment adviser, you may also pay
additional fees to the intermediary for services provided by the
intermediary which, in turn, may pay fees to FRIMCo for services FRIMCo
provides to the Financial Intermediary. You should contact your financial
intermediary for information concerning what additional fees, if any, will
be charged.
12
<PAGE>
DIRECT EXPENSES
No Lifepoints Fund will bear any direct operating expenses. Those operating
expenses include those arising from accounting, administrative (FRIMCo has
waived its receipt of administrative fees through November 30, 2000), custody,
auditing, legal and transfer agent services. They do not include expenses
attributable to advisory fees (which are currently waived by FRIMCo through
February 28, 2001), any Rule 12b-1 distribution fee, any shareholder service
fees, or any nonrecurring extraordinary expenses, which will be borne by the
LifePoints Funds or their appropriate classes of shares.
A LifePoints Fund's direct operating expenses are borne either by the
Underlying Funds in which the LifePoints Fund invests pursuant to Special
Servicing Agreements or by FRIMCo pursuant to a Letter Agreement. The Special
Servicing Agreements are entered into on a yearly basis and must be re-approved
annually by FRIC's Board of Trustees. The Letter Agreement currently extends
through April 30, 2001 and may be renewed thereafter.
INDIRECT EXPENSES
Shareholders in a LifePoints Fund bear indirectly the proportionate expenses
of the Underlying Funds in which the LifePoints Fund invests. The following
table provides the expense ratios for each of the Underlying Funds in which the
LifePoints Funds may invest (based on information as of December 31, 1999). As
explained at the beginning of this Prospectus, each LifePoints Fund intends to
invest in some, but not all, of the Underlying Funds.
<TABLE>
<CAPTION>
TOTAL NET OPERATING
UNDERLYING FUND (CLASS S SHARES) EXPENSE RATIOS
- -------------------------------- --------------
<S> <C>
Diversified Equity Fund.................................... 0.93%
Special Growth Fund........................................ 1.24%
Quantitative Equity Fund................................... 0.93%
International Securities Fund.............................. 1.30%
Diversified Bond Fund...................................... 0.61%
Short Term Bond Fund....................................... 0.74%
Multistrategy Bond Fund.................................... 0.86%
Real Estate Securities Fund................................ 1.14%
Emerging Markets Fund...................................... 1.91%
</TABLE>
13
<PAGE>
Based on these expense ratios, the total direct and indirect operating
expense ratios of each class of Shares of each LifePoints Fund (calculated as a
percentage of average net assets) are expected to be as follows:
<TABLE>
<CAPTION>
CLASS E CLASS S
------- -------
<S> <C> <C>
Conservative Strategy....................................... 1.05% 0.80%
Moderate Strategy........................................... 1.10% 0.85%
Balanced Strategy........................................... 1.20% 0.95%
Aggressive Strategy......................................... 1.33% 1.08%
Equity Aggressive Strategy.................................. 1.34% 1.09%
</TABLE>
Each LifePoints Fund's total expense ratio is based on its total direct
operating expense ratio plus a weighted average of the expense ratios of the
Underlying Funds in which it was invested as of December 31, 1999. These total
expense ratios may be higher or lower depending on the allocation of a
LifePoints Fund's assets among the Underlying Funds, the actual expenses of the
Underlying Funds and the actual expenses of the LifePoints Funds.
14
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
LIFEPOINTS FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
The example assumes that you invest $10,000 in a LifePoints Fund for the
time periods indicated and then redeem all of your Shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year, and that operating expenses, which include the indirect expenses of the
Underlying Funds, remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS E: ------ ------- ------- --------
<S> <C> <C> <C> <C>
Conservative Strategy Fund........................... $107 $388 $ 690 $1,547
Moderate Strategy Fund............................... 112 403 715 1,602
Balanced Strategy Fund............................... 122 434 768 1,713
Aggressive Strategy Fund............................. 135 474 836 1,857
Equity Aggressive Strategy Fund...................... 136 477 841 1,867
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS S: ------ ------- ------- --------
<S> <C> <C> <C> <C>
Conservative Strategy Fund........................... $ 82 $310 $ 556 $1,260
Moderate Strategy Fund............................... 87 325 582 1,318
Balanced Strategy Fund............................... 97 356 635 1,431
Aggressive Strategy Fund............................. 110 397 705 1,521
Equity Aggressive Strategy Fund...................... 111 400 710 1,591
</TABLE>
SUMMARY COMPARISON OF THE FUNDS
The investment objectives of the LifePoints Funds are summarized below in a
chart that illustrates the degree to which each LifePoints Fund seeks to obtain
capital appreciation, income, and stability of principal:
<TABLE>
<CAPTION>
CAPITAL POSSIBILITY OF
LIFEPOINTS FUND APPRECIATION INCOME FLUCTUATION
- -------------------------------------------------- ------------ ------ -----------
<S> <C> <C> <C>
Conservative Strategy Fund........................ Low High Low
Moderate Strategy Fund............................ Moderate High Moderate
Balanced Strategy Fund............................ Moderate Moderate Moderate
Aggressive Strategy Fund.......................... High Low High
Equity Aggressive Strategy Fund................... High Low High
</TABLE>
15
<PAGE>
The allocation of each LifePoints Fund's investment in the Underlying Funds
is illustrated in the following charts:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 5%
Quantitative Equity 6%
International Securities 5%
Emerging Markets 1%
Real Estate Securities 5%
Diversified Bond 18%
Short Term Bond 60%
Conservative Strategy Fund
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 11%
Special Growth 2%
Quantitative Equity 11%
International
Securities 9%
Emerging Markets 2%
Real Estate Securities 5%
Diversified Bond 27%
Short Term Bond 33%
Moderate Strategy Fund
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 16%
Special Growth 5%
Quantitative Equity 16%
International
Securities 14%
Emerging Markets 3%
Real Estate Securities 5%
Diversified Bond 25%
Multistrategy Bond 16%
Balanced Strategy Fund
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 21%
Special Growth 11%
Quantitative Equity 21%
International Securities 19%
Emerging Markets 5%
Real Estate Securities 5%
Multistrategy Bond 18%
Aggressive Strategy Fund
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified Equity 30%
Special Growth 10%
Quantitative Equity 30%
International Securities 20%
Emerging Markets 5%
Real Estate Securities 5%
Equity Aggressive Strategy Fund
</TABLE>
16
<PAGE>
THE PURPOSE OF THE FUNDS--MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION
The LifePoints Funds are offered through certain bank trust departments,
registered investment advisers, broker-dealers and other financial services
organizations that have been selected by the LifePoints Funds' adviser or
distributor (Financial Intermediaries). The LifePoints Funds offer investors the
opportunity to invest in a diversified mutual fund investment allocation program
and are designed to provide a means for investors to use FRIMCo's and Frank
Russell Company's (Russell) "multi-style, multi-manager diversification"
investment method and to obtain FRIMCo's and Russell's money manager evaluation
services.
Three functions form the core of Russell's consulting services:
- OBJECTIVE SETTING: Defining appropriate investment objectives and desired
investment returns, based on a client's unique situation and risk
tolerance.
- ASSET ALLOCATION: Allocating a client's assets among different asset
classes--such as common stocks, fixed-income securities, international
securities, temporary cash investments and real estate--in a way most
likely to achieve the client's objectives and desired returns.
- MONEY MANAGER RESEARCH: Evaluating and recommending professional
investment advisory and management organizations ("money managers") to
make specific portfolio investments for each asset class, according to
designated investment objectives, styles and strategies.
When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.
The LifePoints Funds believe investors should seek to hold fully diversified
portfolios that reflect both their own individual investment time horizons and
their ability to accept risk. The LifePoints Funds believe that for many, this
can be accomplished through strategically purchasing shares in one or more of
the Underlying Funds which have been structured to provide access to specific
asset classes employing a multi-style, multi-manager approach.
Capital market history shows that asset classes with greater risk will
generally outperform lower risk asset classes over time. For instance, corporate
equities, over the past 50 years, have outperformed corporate debt in absolute
terms. However, what is generally true of performance over extended periods will
not necessarily be true at any given time during a market cycle, and from time
to time asset classes with greater risk may also underperform lower risk asset
classes, on either a risk adjusted or absolute basis. Investors should select a
mix of asset classes that reflects their overall ability to withstand market
fluctuations over their investment horizons.
Studies have shown that no one investment style within an asset class will
consistently outperform competing styles. For instance, investment styles
favoring securities with growth characteristics may outperform styles favoring
income producing securities, and vice versa. For this reason, no single manager
has consistently outperformed the market over extended periods. Although
performance cycles tend to repeat themselves, they do not do so predictably.
The LifePoints Funds believe, however, that it is possible to select
managers who have shown a consistent ability to achieve superior results within
subsets or styles of specific asset classes and investment styles by employing a
unique combination of qualitative and quantitative measurements. The Underlying
Funds in which the LifePoints Funds invest combine these select managers with
other
17
<PAGE>
managers within the same asset class who employ complementary styles. By
combining complementary investment styles within an asset class, investors are
better able to reduce their exposure to the risk of any one investment style
going out of favor.
By strategically selecting from among a variety of investments by asset
class, each of which has been constructed using these multi-style, multi-manager
principles, investors are able to design portfolios that meet their specific
investment needs.
The LifePoints Funds have a greater potential than most mutual funds for
diversification among investment styles and money managers since the LifePoints
Funds invest in shares of several Underlying Funds. The LifePoints Funds were
created to provide a mutual fund investor with a simple but effective means of
structuring a diversified mutual fund investment program suited to meet the
investor's individual needs. FRIMCo has long stressed the value of
diversification in an investment program, and has offered its advisory expertise
in assisting investors on how to design their individual investment program.
The LifePoints Funds and Underlying Funds conduct their business through a
number of service providers, who act on behalf of the Funds. FRIMCo, the Funds'
administrator and investment adviser, performs the Funds' day to day corporate
management and oversees the Funds' money managers. Each of the Underlying Funds'
money managers makes all investment decisions for the portion of the Underlying
Fund assigned to it by FRIMCo. The Funds' custodian, State Street Bank,
maintains custody of all of the Funds' assets. FRIMCo, in its capacity as the
Funds' transfer agent, is responsible for maintaining the Funds' shareholder
records and carrying out shareholder transactions. When a Fund acts in one of
these areas, it does so through the service provider responsible for that area.
MANAGEMENT OF THE UNDERLYING FUNDS
AND THE LIFEPOINTS FUNDS
The LifePoints Funds' investment adviser is FRIMCo, 909 A Street, Tacoma,
Washington 98402. FRIMCo pioneered the "multi-style, multi-manager" investment
method in mutual funds and manages over $17 billion in more than 30 mutual fund
portfolios. FRIMCo was established in 1982 to serve as the investment management
arm of Russell.
Russell, which acts as consultant to the LifePoints Funds and the Underlying
Funds, was founded in 1936 and has been providing comprehensive asset management
consulting services for over 30 years to institutional investors, principally
large corporate employee benefit plans. Russell provides the LifePoints Funds,
the Underlying Funds and FRIMCo with the asset management consulting services
that it provides to its other consulting clients. Neither the LifePoints Funds
nor the Underlying Funds compensate Russell for these services. Russell and its
affiliates have offices around the world, in Tacoma, New York, Toronto, London,
Paris, Sydney, Auckland, Singapore and Tokyo.
Russell is a subsidiary of The Northwestern Mutual Life Insurance Company.
Founded in 1857, Northwestern Mutual is a mutual life insurance corporation
headquartered in Milwaukee, Wisconsin. It leads the US in both individual life
insurance sold annually and individual life insurance in force.
FRIMCo recommends money managers to the Underlying Funds, allocates
Underlying Fund assets among them, oversees them, and evaluates their results.
FRIMCo also oversees the management of the
18
<PAGE>
Underlying Funds' liquidity reserves. The Underlying Funds' money managers
select the individual portfolio securities for the assets in the Underlying
Funds assigned to them.
James A. Jornlin is responsible for the day to day decisions regarding the
investment and reinvestment of the LifePoints Funds within their target
allocation strategy percentages. Mr. Jornlin also oversees certain other funds
as described below.
FRIMCo's officers and employees who oversee the money managers of the
Underlying Funds are:
- Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
June 1989.
- Mark D. Amberson, who has been a Portfolio Manager of FRIMCo since January
1998. From 1991 to 1997, Mr. Amberson was a Portfolio Manager in Russell's
Money Market Trading Group. Mr. Amberson has, jointly with Mr. Burge,
primary responsibility for management of the Fixed Income I, Diversified
Bond, Short Term Bond, Fixed Income III, Tax Exempt Bond and Multistrategy
Bond Funds.
- Randal C. Burge, who has been Director of Global Fixed Income since
January 2000. From 1995 to 1999, Mr. Burge was a Portfolio Manager of
FRIMCo. From 1990 to 1995, Mr. Burge was a Client Executive for Frank
Russell Australia. Mr. Burge has, jointly with Mr. Anderson, primary
responsibility for management of the Fixed Income I, Fixed Income III,
Diversified Bond, Short Term Bond, Tax Exempt Bond and Multistrategy Bond
Funds.
- Jean Carter, who has been Director of Global Equities since January 2000.
From 1994 to 1999, Ms. Carter was a Portfolio Manager of FRIMCo.
- Ann Duncan, who has been a Portfolio Manager of FRIMCo since January 1998.
From 1996 to 1997, Ms. Duncan was a Senior Equity Research Analyst with
Russell. From 1992 to 1995, Ms. Duncan was an equity analyst and portfolio
manager with Avatar Associates. Ms. Duncan has, jointly with Mr. Jornlin,
primary responsibility for management of the International and
International Securities Funds.
- James M. Imhof, Director of FRIMCo's Portfolio Trading, manages the Funds'
liquidity portfolios on a day to day basis and has been responsible for
ongoing analysis and monitoring of the money managers since 1989.
- James A. Jornlin, who has been a Portfolio Manager of FRIMCo since January
2000. From 1995 to 1999, Mr. Jornlin was a Senior Investment Officer of
FRIMCo. From 1991 to 1995, Mr. Jornlin was employed as a Senior Research
Analyst with Russell. Mr. Jornlin has primary responsibility for
management of the Tax-Managed Global Equity, Equity Aggressive Strategy,
Aggressive Strategy, Balanced Strategy, Moderate Strategy and Conservative
Strategy Funds, has, jointly with Mr. Ogard, primary responsibility for
the management of the Real Estate Securities Fund, has, jointly with
Ms. Duncan, primary responsibility for the management of the International
and International Securities Funds and has, jointly with Mr. Parish,
primary responsibility for the management of the Emerging Markets Fund.
- Eric W. Ogard, who has been a Portfolio Manager of FRIMCo since March
2000. Mr. Ogard was a Research Analyst for FRIMCo from 1995 to 1997 and a
Senior Research Analyst for FRIMCo from 1997 to 2000. Mr. Ogard has,
jointly with Mr. Trittin and Mr. Tipple, primary responsibility for the
management of the Equity I, Equity II, Equity III, Equity Q, Tax-Managed
19
<PAGE>
Large Cap, Tax-Managed Small Cap, Diversified Equity, Quantitative Equity,
Special Growth and Equity Income Funds and has, jointly with Mr. Jornlin,
primary responsibility for the management of the Real Estate Securities
Fund.
- Symon Parish, who has been an Associate Portfolio Manager of Frank Russell
Company Limited, an affiliate of FRIMCo, since 1996. From 1994 to 1996,
Mr. Parish was a client service executive in Russell's Auckland office.
Mr. Parish has, jointly with Mr. Jornlin, primary responsibility for the
Emerging Markets Fund.
- Brian C. Tipple, who has been a Portfolio Manager of FRIMCo since July
1999. From 1991 to 1999, Mr. Tipple was a Client Executive with Frank
Russell Trust Company. Mr. Tipple has, jointly with Mr. Ogard and
Mr. Trittin, primary responsibility for the management of the Equity I,
Equity II, Equity III, Equity Q, Tax-Managed Large Cap, Tax-Managed Small
Cap, Diversified Equity, Quantitative Equity, Special Growth and Equity
Income Funds.
- Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of US Equity
Manager Research Department with Russell. Mr. Trittin has, jointly with
Mr. Ogard and Mr. Tipple, primary responsibility for management of the
Equity I, Equity II, Equity III, Equity Q, Tax-Managed Large Cap,
Tax-Managed Small Cap, Diversified Equity, Quantitative Equity, Special
Growth and Equity Income Funds.
FRIMCo receives an annual 0.20% advisory fee and an annual 0.05%
administrative fee from each LifePoints Fund based on the average daily net
assets of each LifePoints Fund. Those fees are payable to FRIMCo monthly on a
pro rata basis. FRIMCo has voluntarily agreed to waive the advisory fee through
February 28, 2001 and the administrative fee through November 30, 2000.
In addition to the advisory and administrative fees payable by the
LifePoints Funds, the LifePoints Funds will bear indirectly a proportionate
share of operating expenses that include the advisory and administrative fees
paid by the Underlying Funds in which they invest. While a shareholder of a
LifePoints Fund will also bear a proportionate part of advisory and
administrative fees paid by an Underlying Fund, each of the advisory and
administrative fees paid is based upon the services received by the respective
LifePoints Fund. From the advisory fee that it receives from each Underlying
Fund, FRIMCo pays the Underlying Fund's money managers for their investment
selection services. FRIMCo retains any remainder as compensation for the
services described above and to pay expenses. The aggregate annual rate of the
advisory and administrative fees, payable to FRIMCo monthly on a pro rata basis,
are the following percentages of the average daily net assets of each Underlying
Fund: Diversified Equity Fund 0.78%, Special Growth Fund 0.95%, Quantitative
Equity Fund 0.78%, International Securities Fund 0.95%, Diversified Bond Fund
0.45%, Short Term Bond Fund 0.50%,
Multistrategy Bond Fund 0.65%, Real Estate Securities Fund 0.85% and Emerging
Markets Fund 1.20%. Of this aggregate amount, 0.05% is attributable to
administrative services.
20
<PAGE>
THE MONEY MANAGERS FOR THE UNDERLYING FUNDS
Each Underlying Fund allocates its assets among the money managers listed
under "Money Manager Information" at the end of this Prospectus. FRIMCo, as the
Underlying Funds' advisor, may change the allocation of an Underlying Fund's
assets among money managers at any time. The Underlying Funds received an
exemptive order from the Securities and Exchange Commission (SEC) that permits
an Underlying Fund to engage or terminate a money manager at any time, subject
to the approval by the Underlying Fund's Board of Trustees (Board), without a
shareholder vote. An Underlying Fund notifies its shareholders within 60 days of
when a money manager begins providing services. The Underlying Funds select
money managers based primarily upon the research and recommendations of FRIMCo
and Russell. FRIMCo and Russell evaluate quantitatively and qualitatively the
money manager's skills and results in managing assets for specific asset
classes, investment styles and strategies. Short-term investment performance, by
itself, is not a controlling factor in any Underlying Fund's selection or
termination of a money manager.
Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of an Underlying Fund. At the same time, however,
each money manager must operate within the Underlying Fund's investment
objectives, restrictions and policies. Additionally, each manager must operate
within more specific constraints developed from time to time by FRIMCo. FRIMCo
develops such constraints for each manager based on FRIMCo's assessment of the
manager's expertise and investment style. By assigning more specific constraints
to each money manager, FRIMCo intends to capitalize on the strengths of each
money manager and to combine their investment activities in a complementary
fashion. Although the money managers' activities are subject to general
oversight by the Board and the Underlying Funds' officers, neither the Board,
the officers, FRIMCo nor Russell evaluate the investment merits of the money
managers' individual security selections.
21
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT
STRATEGIES OF THE UNDERLYING FUNDS
The objective and principal strategies of each Underlying Fund are described
in this section. Further information about the Underlying Funds is contained in
the Statement of Additional Information as well as in the Prospectuses of the
Underlying Funds. Because the LifePoints Funds invest in the Underlying Funds,
investors of the LifePoints Funds will be affected by the Underlying Funds'
investment strategies in direct proportion to the amount of assets each
LifePoints Fund allocates to the Underlying Fund pursuing such policies. To
request a copy of a Prospectus for an Underlying Fund, contact FRIC at
800/787-7354 (in Washington, 253/627-7001).
DIVERSIFIED EQUITY FUND
- ---------------------------
<TABLE>
<S> <C>
INVESTMENT To provide income and capital growth by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Diversified Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies most of
STRATEGIES which are US-based.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial, and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
Additionally, the Fund is diversified by equity substyle.
For example, within the Growth Style, the Fund expects to
employ both an Earnings Momentum substyle (concentrating on
companies with more volatile and accelerating growth rates)
and a Consistent Growth substyle (concentrating on companies
with stable earnings growth over an economic cycle).
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
substyle and its performance record, as well as the
characteristics of the money manager's typical portfolio
investments. These characteristics include capitalization
size, growth and profitability measures, valuation ratios,
economic sector weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more Frank Russell Investment
Company (FRIC) money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
SPECIAL GROWTH FUND
- ------------------------
<TABLE>
<S> <C>
INVESTMENT To maximize total return primarily through capital
OBJECTIVE appreciation and assuming a higher level of volatility than
the Diversified Equity Fund.
PRINCIPAL The Special Growth Fund invests primarily in common stocks
INVESTMENT of small
STRATEGIES and medium capitalization companies most of which are US
based. The Fund's investments may include companies that
have been publicly traded for less than five years and
smaller companies, such as companies not listed in the
Russell 2000-Registered Trademark- Index.
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record, as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
QUANTITATIVE EQUITY FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell
1000-Registered Trademark- Index over a market cycle of four
to six years) while maintaining volatility and
diversification similar to the Index.
PRINCIPAL The Quantitative Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies which
STRATEGIES are predominately
US based. The Fund generally pursues a market-oriented style
of security selection, which incorporates both a growth
style and a value style, based on quantitative investment
models which are mathematical formulas based on statistical
analyses. This style emphasizes investments in companies
that appear to be undervalued relative to their growth
prospects.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record as well as the characteristics of the money manager's
typical portfolio investments. These characteristics include
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment returns correlate with one another.
Each of the Fund's money managers use quantitative models to
rank securities based upon their expected ability to
outperform the total return of the Russell 1000 Index. Once
a money manager has ranked the securities, it then selects
the securities most likely to outperform and constructs, for
its segment of the Fund, a portfolio that has risks similar
to the Russell 1000 Index. Each money manager performs this
process independently from each other money manager.
The Russell 1000 Index consists of the 1,000 largest US
companies by capitalization (i.e., market price per share
times the number of shares outstanding). The smallest
company in the Index at December 31, 1999 had a
capitalization of approximately $1.1 billion.
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
The Fund's money managers typically use a variety of
quantitative models, ranking securities within each model
and on a composite basis using proprietary weighting
formulas. Examples of those quantitative models are dividend
discount models, price/cash flow models, price/earnings
models, earnings surprise and earnings estimate revisions
models and price momentum models.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
INTERNATIONAL SECURITIES FUND
- -----------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.
PRINCIPAL The International Securities Fund invests primarily in
INVESTMENT equity securities issued by companies domiciled outside the
STRATEGIES US and in depository receipts which represent ownership of
securities of non-US companies. The Fund's investments span
most of the developed nations of the world (particularly
Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. Because
international equity investment performance has a reasonably
low correlation to US equity performance, this Fund may be
appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.
The Fund may seek to protect its investments against adverse
currency exchange rate changes by purchasing forward
currency contracts. These contracts enable the Fund to "lock
in" the US dollar price of a security that it plans to buy
or sell. The Fund may not accurately predict currency
movements.
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector. A
variation of this style maintains investments that
replicate country and sector weightings of a broad
international market index.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
DIVERSIFIED BOND FUND
- -------------------------
<TABLE>
<S> <C>
INVESTMENT To provide effective diversification against equities and a
OBJECTIVE stable level of cash flow by investing in fixed-income
securities.
PRINCIPAL The Diversified Bond Fund invests primarily in investment
INVESTMENT grade fixed- income securities. In particular, the Fund
STRATEGIES holds debt securities issued or guaranteed by the US
government and, to a lesser extent by non-US governments, or
by their respective agencies and instrumentalities. It also
holds mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. In seeking investments
that will produce cash flow, the Fund's money managers also
identify sectors of the fixed-income market that they
believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
SHORT TERM BOND FUND
- --------------------------
<TABLE>
<S> <C>
INVESTMENT The preservation of capital and the generation of current
OBJECTIVE income consistent with preservation of capital by investing
primarily in fixed-income securities with low-volatility
characteristics.
PRINCIPAL The Short Term Bond Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
The Fund may invest up to 10% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by the
Fund to be of comparable quality. These securities are
commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 15% of the average weighted duration
of the Merrill Lynch 1-2.99 Years Treasury Index, which was
1.6 years on December 31, 1999, but may vary up to 50% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes, as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Merrill Lynch 1-2.99 Years Treasury
Index.
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
MULTISTRATEGY BOND FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return, primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from broad fixed-income market
portfolios.
PRINCIPAL The Multistrategy Bond Fund invests primarily in
INVESTMENT fixed-income securities. In particular, the Fund holds debt
STRATEGIES securities issued or guaranteed by the US government and, to
a lesser extent by non-US governments, or by their
respective agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
The Fund may invest up to 25% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by a
Fund money manager to be of comparable quality. These
securities are commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
REAL ESTATE SECURITIES FUND
- --------------------------------
<TABLE>
<S> <C>
INVESTMENT To generate a high level of total return through above
OBJECTIVE average current income while maintaining the potential for
capital appreciation.
PRINCIPAL The Fund seeks to achieve its objective by concentrating its
INVESTMENT investments in equity securities of issuers whose value is
STRATEGIES derived primarily from development, management and market
pricing of underlying real estate properties.
The Fund invests primarily in securities of companies, known
as real estate investment trusts (REITs), that own and/or
manage properties. REITs may be composed of anywhere from
two to over 1,000 properties. The Fund may also invest in
equity and debt securities of other types of real estate-
related companies. The Fund invests in companies which are
predominately US based, although the Fund may invest a
limited portion of its assets in non-US firms from time to
time.
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, property type and
geographic weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
Although the Fund, like any mutual fund, maintains liquidity
reserves (i.e., cash awaiting investment or held to meet
redemption requests), the Fund may expose these reserves to
the performance of appropriate equity markets by investing
in stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market Funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
33
<PAGE>
EMERGING MARKETS FUND
- ----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from developed market
international portfolios by investing primarily in equity
securities.
PRINCIPAL The Emerging Markets Fund will primarily invest in equity
INVESTMENT securities of companies that are located in countries with
STRATEGIES emerging markets or that derive a majority of their revenues
from operations in such countries. These companies are
referred to as "Emerging Market Companies." For purposes of
the Fund's operations, an "emerging market" country is a
country having an economy and market that the World Bank or
the United Nations consider to be emerging or developing.
These countries generally include every country in the world
except the United States, Canada, Japan, Australia and most
countries located in Western Europe.
The Fund seeks to maintain a broadly diversified exposure to
emerging market countries and ordinarily will invest in the
securities of issuers in at least three different emerging
market countries.
The Fund invests in common stocks of Emerging Market
Companies and in depository receipts which represent
ownership of securities of non-US companies. The Fund may
also invest in rights, warrants and convertible fixed-income
securities. The Fund's securities are denominated primarily
in foreign currencies and may be held outside the US.
Some emerging markets countries do not permit foreigners to
participate directly in their securities markets or
otherwise present difficulties for efficient foreign
investment. Therefore, when it believes it is appropriate to
do so, the Fund may invest in pooled investment vehicles,
such as other investment companies, which enjoy broader or
more efficient access to shares of Emerging Market Companies
in certain countries but may include a further layering of
expenses.
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record, as well as the characteristics of the money
manager's typical portfolio investments (e.g.,
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics). The Fund also considers
the manner in which money managers' historical and expected
investment returns correlate with one another.
The Fund may agree to purchase securities for a fixed price
at a future date beyond customary settlement time. This kind
of agreement is known as a "forward commitment" or as a
"when-issued" transaction.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. A Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
35
<PAGE>
PRINCIPAL RISKS
The following table describes principal types of risks the LifePoints Funds
are subject to, based on the investments made by the Underlying Funds, and lists
next to each description the Underlying and LifePoints Funds most likely to be
affected by the risk. Other Underlying and LifePoints Funds that are not listed
may be subject to one or more of the risks, based on the allocation of assets
among the Underlying Funds, but will not do so in a way that is expected to
principally affect the performance of the LifePoints or Underlying Fund as a
whole. Please refer to the LifePoints Funds' Statement of Additional Information
for a discussion of risks associated with types of securities held by the
Underlying Funds and the investment practices employed by the individual
Underlying Funds.
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
MULTI-MANAGER The investment styles employed by a Fund's money All Funds
APPROACH managers may not be complementary. The interplay
of the various strategies employed by a Fund's (ALL UNDERLYING FUNDS)
multiple money managers may result in a Fund
holding a concentration of certain types of
securities. This concentration may be beneficial
or detrimental to a Fund's performance depending
upon the performance of those securities and the
overall economic environment. The multi-manager
approach could result in a high level of
portfolio turnover, resulting in higher Fund
brokerage expenses and increased tax liability
from a Fund's realization of capital gains.
EQUITY SECURITIES The value of equity securities will rise and fall Equity Aggressive
in response to the activities of the company that Strategy
issued the stock, general market conditions Aggressive Strategy
and/or economic conditions. Balanced Strategy
Moderate Strategy
(UNDERLYING FUNDS:
DIVERSIFIED EQUITY
SPECIAL GROWTH
QUANTITATIVE EQUITY
INTERNATIONAL SECURITIES
REAL ESTATE SECURITIES
EMERGING MARKETS)
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
- -Value Stocks Investments in value stocks are subject to risks Equity Aggressive
that (i) their intrinsic values may never be Strategy
realized by the market or (ii) such stock may Aggressive Strategy
turn out not to have been undervalued. Balanced Strategy
Moderate Strategy
(UNDERLYING FUNDS:
DIVERSIFIED EQUITY
SPECIAL GROWTH
QUANTITATIVE EQUITY
INTERNATIONAL SECURITIES)
- -Growth Stocks Growth company stocks may provide minimal Equity Aggressive
dividends which could otherwise cushion stock Strategy
prices in a market decline. The value of growth Aggressive Strategy
company stocks may rise and fall significantly Balanced Strategy
based, in part, on investors' perceptions of the Moderate Strategy
company, rather than on fundamental analysis of
the stocks. (UNDERLYING FUNDS:
DIVERSIFIED EQUITY
SPECIAL GROWTH
INTERNATIONAL SECURITIES)
- -Market-Oriented Market-oriented investments are generally subject Equity Aggressive
Investments to the risks associated with growth and value Strategy
stocks. Aggressive Strategy
Balanced Strategy
Moderate Strategy
(UNDERLYING FUNDS:
DIVERSIFIED EQUITY
SPECIAL GROWTH
QUANTITATIVE EQUITY
INTERNATIONAL SECURITIES)
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
- -Securities of small Investments in smaller companies may involve Equity Aggressive
capitalization greater risks because these companies generally Strategy
companies have a limited track record. Smaller companies Aggressive Strategy
often have narrower markets and more limited Balanced Strategy
managerial and financial resources than larger, Moderate Strategy
more established companies. As a result, their
performance can be more volatile, which may (UNDERLYING FUND:
increase the volatility of a Fund's portfolio. SPECIAL GROWTH)
FIXED-INCOME Prices of fixed-income securities rise and fall Balanced Strategy
SECURITIES in response to interest rate changes. Generally, Moderate Strategy
when interest rates rise, prices of fixed-income Conservative Strategy
securities fall. The longer the duration of the
security, the more sensitive the security is to (UNDERLYING FUNDS:
this risk. A 1% increase in interest rates would DIVERSIFIED BOND
reduce the value of a $100 note by approximately MULTISTRATEGY BOND
one dollar if it had a one-year duration, but SHORT TERM BOND)
would reduce its value by approximately fifteen
dollars if it had a 15-year duration. There is
also a risk that one or more of the securities
will be downgraded in credit rating or go into
default. Lower-rated bonds generally have higher
credit risks.
- -Non-investment grade Although lower rated debt securities generally Aggressive Strategy
fixed-income offer a higher yield than higher rated debt Balanced Strategy
securities securities, they involve higher risks. They are
especially subject to: (UNDERLYING FUNDS:
-adverse changes in general economic conditions MULTISTRATEGY BOND
and in the industries in which their issuers are SHORT TERM BOND)
engaged,
-changes in the financial condition of their
issuers and
-price fluctuations in response to changes in
interest rates.
As a result, issuers of lower rated debt
securities are more likely than other issuers to
miss principal and interest payments or to
default which could result in a loss to a Fund.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
INTERNATIONAL A Fund's return and net asset value may be Equity Aggressive
SECURITIES significantly affected by political or economic Strategy
conditions and regulatory requirements in a Aggressive Strategy
particular country. Foreign markets, economies Balanced Strategy
and political systems may be less stable than US
markets, and changes in exchange rates of foreign (UNDERLYING FUNDS:
currencies can affect the value of a Fund's INTERNATIONAL SECURITIES
foreign assets. Foreign laws and accounting MULTISTRATEGY BOND
standards typically are not as strict as they are EMERGING MARKETS
in the US and there may be less public SHORT TERM BOND)
information available about foreign companies.
Foreign securities markets may be less liquid and
have fewer transactions than US securities
markets. Additionally, international markets may
experience delays and disruptions in securities
settlement procedures for a Fund's portfolio
securities.
- -Non-US debt A Fund's foreign debt securities are typically Aggressive Strategy
securities obligations of sovereign governments. These Balanced Strategy
securities are particularly subject to a risk of
default from political instability. (UNDERLYING FUNDS:
MULTISTRATEGY BOND
SHORT TERM BOND)
- -Emerging market Investments in emerging or developing markets (UNDERLYING FUND:
countries involve exposure to economic structures that are EMERGING MARKETS)
generally less diverse and mature, and to
political systems which have less stability than
those of more developed countries. Emerging
market securities are subject to currency
transfer restrictions and may experience delays
and disruptions in securities settlement
procedures for the Fund's portfolio securities.
- -Instruments of US Non-US corporations and banks issuing dollar Balanced Strategy
and foreign banks denominated instruments in the US are not Moderate Strategy
and branches and necessarily subject to the same regulatory Conservative Strategy
foreign requirements that apply to US corporations and
corporations, banks, such as accounting, auditing and (UNDERLYING FUNDS:
including Yankee recordkeeping standards, the public availability DIVERSIFIED BOND
Bonds of information and, for banks, reserve MULTISTRATEGY BOND
requirements, loan limitations and examinations. SHORT TERM BOND)
This increases the possibility that a non-US
corporation or bank may become insolvent or
otherwise unable to fulfill its obligations on
these instruments.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
DERIVATIVES (E.G. If a Fund incorrectly forecasts interest rates in Balanced Strategy
FUTURES CONTRACTS, using derivatives, the Fund could lose money. Moderate Strategy
OPTIONS ON FUTURES, Price movements of a futures contract, option or Conservative Strategy
INTEREST RATE SWAPS) structured note may not be identical to price
movements of portfolio securities or a securities (UNDERLYING FUNDS:
index resulting in the risk that, when a Fund DIVERSIFIED BOND
buys a futures contract or option as a hedge, the MULTISTRATEGY BOND
hedge may not be completely effective. SHORT TERM BOND)
REAL ESTATE Just as real estate values go up and down, the (UNDERLYING FUND:
SECURITIES value of the securities of companies involved in REAL ESTATE SECURITIES)
the industry, and in which a Fund invests, also
fluctuates. A Fund that invests in real estate
securities is also subject to the risks
associated with direct ownership of real estate.
Additional risks include declines in the value of
real estate, changes in general and local
economic conditions, increases in property taxes
and changes in tax laws and interest rates. The
value of securities of companies that service the
real estate industry may also be affected by such
risks.
- -REITs REITs may be affected by changes in the value of (UNDERLYING FUND:
the underlying properties owned by the REITs and REAL ESTATE SECURITIES)
by the quality of any credit extended. Moreover,
the underlying portfolios of REITs may not be
diversified, and therefore are subject to the
risk of financing a single or a limited number of
projects. REITs are also dependent upon
management skills and are subject to heavy cash
flow dependency, defaults by borrowers,
self-liquidation and the possibility of failing
either to qualify for tax-free pass through of
income under federal tax laws or to maintain
their exemption from certain federal securities
laws.
MUNICIPAL OBLIGATIONS Municipal obligations are affected by economic, Balanced Strategy
business or political developments. These Moderate Strategy
securities may be subject to provisions of Conservative Strategy
litigation, bankruptcy and other laws affecting
the rights and remedies of creditors, or may (UNDERLYING FUNDS:
become subject to future laws extending the time DIVERSIFIED BOND
for payment of principal and/or interest, or MULTISTRATEGY BOND
limiting the rights of municipalities to levy SHORT TERM BOND)
taxes.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
REPURCHASE AGREEMENTS Under a repurchase agreement, a bank or broker (UNDERLYING FUNDS:
sells securities to a Fund and agrees to DIVERSIFIED BOND
repurchase them at the Fund's cost plus interest. SHORT TERM BOND
If the value of the securities declines and the MULTISTRATEGY BOND)
bank or broker defaults on its repurchase
obligation, a Fund could incur a loss.
EXPOSING LIQUIDITY By exposing its liquidity reserves to the equity All Funds
RESERVES TO EQUITY market principally by use of equity futures, a
MARKETS Fund's performance tends to correlate more (UNDERLYING FUNDS:
closely to the performance of the market as a DIVERSIFIED EQUITY
whole. Although this increases a Fund's SPECIAL GROWTH
performance if equity markets rise, it reduces a QUANTITATIVE EQUITY
Fund's performance if equity markets decline. INTERNATIONAL SECURITIES
REAL ESTATE SECURITIES)
SECURITIES LENDING If a borrower of a Fund's securities fails (ALL UNDERLYING FUNDS)
financially, the Fund's recovery of the loaned
securities may be delayed or the Fund may lose
its rights to the collateral which could result
in a loss to a Fund.
</TABLE>
41
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
INCOME DIVIDENDS
Each LifePoints Fund distributes substantially all of its net investment
income and net capital gains to shareholders each year. The amount and frequency
of distributions are not guaranteed, all distributions are at the Board's
discretion. Currently, the Board intends to declare dividends from net
investment income, if any, for each LifePoints Fund on a quarterly basis, with
payment being made in April, July, October and December.
CAPITAL GAINS DISTRIBUTIONS
The Board intends to declare capital gain distributions (both short-term and
long-term) once a year in mid-December to reflect any net short-term and net
long-term capital gains realized by a LifePoints Fund as of October 31 of the
current fiscal year. A LifePoints Fund may be required to make an additional
distribution if necessary, in any year for operational or other reaons.
Distributions that are declared in October, November, or December to
shareholders of record in such months, and paid in January of the following
year, will be treated for tax purposes as if received on December 31 of the year
in which they were declared.
In addition, the LifePoints Funds receive capital gains distributions from
the Underlying Funds. Consequently, capital gains distributions may be expected
to vary considerably from year to year. Also, the LifePoints Funds may generate
capital gains through rebalancing the portfolios to meet the LifePoints Funds'
allocation percentages.
BUYING A DIVIDEND
If you purchase Shares just before a distribution, you will pay the full
price for the Shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." Unless your account is
a tax-deferred account, dividends paid to you would be included in your gross
income for tax purposes even though you may not have participated in the
increase of the net asset value of a LifePoints Fund, regardless of whether you
reinvested the dividends. To avoid "buying a dividend," check a Fund's
distribution dates before you invest.
AUTOMATIC REINVESTMENT
Your dividends and other distributions are automatically reinvested at the
closing net asset value on the record date, in additional shares of the
appropriate LifePoints Fund, unless you elect to have the dividends or
distributions paid in cash or invested in another Fund. You may change your
election by delivering written notice no later than ten days prior to the
payment date to the LifePoints Funds at Frank Russell Investment Company, c/o
Boston Financial Data Services, 2 Heritage Drive, N. Quincy, MA 02171.
42
<PAGE>
TAXES
In general, distributions from a LifePoints Fund are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest your
distributions in additional shares of the LifePoints Fund or receive them in
cash. Any long-term capital gains distributed by a LifePoints Fund are taxable
to you as long-term capital gains no matter how long you have owned your shares.
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell or exchange your shares of a LifePoints Fund, you may have a
capital gain or loss. The tax rate on any gain from the sale or exchange of your
shares depends on how long you have held your shares.
The LifePoints Funds make no representation as to the amount or variability
of each Funds capital gain distributions which may vary as a function of several
variables including, but not limited to, prevailing dividend yield levels,
general market conditions, shareholders redemption patterns and Fund cash
equitization activity.
LifePoints Fund distributions and gains from the sale or exchange of your
shares will generally be subject to state and local income tax. Non-US investors
may be subject to US withholding and estate tax. You should consult your tax
professional about federal, state, local or foreign tax consequences in holding
shares of a LifePoints Fund.
By law, a LifePoints Fund must withhold 31% of your distributions and
proceeds if you do not provide your correct taxpayer identification number, or
certify that such number is correct, or if the IRS instructs the LifePoints Fund
to do so.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN A
LIFEPOINTS FUND.
Additional information on these and other tax matters relating to the
LifePoints Funds and their shareholders is included in the section entitled
"Taxes" in the LifePoints Funds' Statement of Additional Information.
HOW NET ASSET VALUE IS DETERMINED
NET ASSET VALUE PER SHARE
The net asset value per share is calculated for Shares of each class of each
LifePoints Fund on each business day on which Shares are offered or redemption
orders are tendered. For all LifePoints Funds, a business day is one on which
the New York Stock Exchange (NYSE) is open for trading. The NYSE is not open on
national holidays or Good Friday. All Underlying Funds and LifePoints Funds
determine net asset value at 4:00 p.m. Eastern Time or as of the close of the
NYSE, whichever is earlier. The determination is made by appraising each
LifePoints Fund's underlying investments on each business day (i.e., the
Underlying Funds at the current net asset value per share of such Underlying
Fund).
43
<PAGE>
VALUATION OF PORTFOLIO SECURITIES
Securities held by the Underlying Funds are typically priced using market
quotations or pricing services when the prices are believed to be reliable, that
is, when the prices reflect the fair market value of the securities. The
Underlying Funds value securities for which market quotations are not readily
available at "fair value," as determined in good faith and in accordance with
procedures established by the Board. If you hold Shares in a LifePoints Fund
that invests in an Underlying Fund, such as the International Securities Fund,
that holds portfolio securities listed primarily on foreign exchanges, the net
asset value of both that Underlying Fund's and that LifePoints Fund's Shares may
change on a day when you will not be able to purchase or redeem LifePoints Fund
Shares. This is because the value of those portfolio securities may change on
weekends or other days when the LifePoints Fund does not price its shares.
DISTRIBUTION AND SHAREHOLDER
SERVICING ARRANGEMENTS
The LifePoints Funds offer multiple classes of Shares: Class C Shares,
Class D Shares, Class E Shares and Class S Shares.
CLASS C SHARES participate in the Funds' Rule 12b-1 distribution plan
and in the LifePoints Funds' shareholder services plan. Under the
distribution plan, Class C Shares pay distribution fees of 0.75% annually
for the sale and distribution of Class C Shares. Under the shareholder
services plan, the Class C Shares pay shareholder services fees of 0.25% on
an annualized basis for services provided to Class C shareholders. Because
both of these fees are paid out of the Class C Share assets on an ongoing
basis, over time these fees will increase the cost of an investment in Class
C Shares in the LifePoints Funds, and the distribution fee may cost an
investor more than paying other types of sales charges.
CLASS D SHARES participate in the Funds' Rule 12b-1 distribution plan
and in the LifePoints Funds' shareholder services plan. Under the
distribution plan, the Class D shares pay distribution fees of 0.25%
annually for the sale and distribution of Class D Shares. Under the
shareholder services plan, the Class D Shares pay shareholder services fees
of 0.25% on an annualized basis for services provided to Class D
shareholders. Because both of these fees are paid out of the Class D Share
assets on an ongoing basis, over time these fees will increase the cost of a
Class D share investment in the LifePoints Funds, and the distribution fee
may cost an investor more than paying other types of sales charges.
CLASS E SHARES participate in the Funds' shareholder services plan.
Under the shareholder services plan, the Class E Shares pay shareholder
services fees of 0.25% on an annualized basis for services provided to Class
E shareholders. The shareholder services fees are paid out of the Class E
Share assets on an ongoing basis, and over time will increase the cost of
your investment in the LifePoints Funds.
CLASS S SHARES do not participate in either the Funds' distribution plan
or the Funds' shareholder services plan.
44
<PAGE>
HOW TO PURCHASE SHARES
LifePoints Funds are generally available only through a select network of
qualified Financial Intermediaries. If you are not currently working with one of
these Financial Intermediaries, please call Russell Investor Services at (800)
RUSSEL4 (800-787-7354) for assistance in contacting an investment professional
near you.
For Class E and Class S Shares, there is a $2,500 required minimum
investment for each account in each LifePoints Fund. Each LifePoints Fund
reserves the right to change the categories of investors eligible to purchase
its shares or the required minimum investment amount. You may be eligible to
purchase Shares of the LifePoints Funds if you do not meet the required initial
minimum investment. You should consult your Financial Intermediary for details,
which are summarized in the LifePoints Funds' statement of additional
information.
Financial Intermediaries may charge their customers a fee for providing
investment-related services. Financial Intermediaries that maintain omnibus
accounts with the Funds may receive administrative fees from the Funds or their
transfer agent. Financial Intermediaries may receive shareholder servicing
compensation with respect to Class E Shares of the LifePoints Funds.
PAYING FOR SHARES
You may purchase Shares of the LifePoints Funds through a Financial
Intermediary on any business day the Funds are open. Purchase orders are
processed at the next net asset value per share calculated after the LifePoints
Funds' receive your order in proper form (defined in the "Written Instructions"
section), and accept the order.
All purchases must be made in US dollars. Checks and other negotiable bank
drafts must be drawn on US banks and made payable to "Frank Russell Investment
Company." The LifePoints Funds reserve the right to reject any purchase order
for any reason including, but not limited to, receiving a check which does not
clear the bank or a payment which does not arrive in proper form by settlement
date. You will be responsible for any resulting loss to the Funds. An overdraft
charge may also be applied. Cash, third party checks and checks drawn on credit
card accounts generally will not be accepted. However, exceptions may be made by
prior special arrangement with certain Financial Intermediaries.
OFFERING DATES AND TIMES
Orders must be received by the LifePoints Funds prior to 4:00 p.m. Eastern
Time or the close of the NYSE, whichever is earlier. Purchases can be made on
any day when LifePoints Fund shares are offered. Because Financial
Intermediaries' processing time may vary, please ask your Financial Intermediary
representative when your account will be credited.
ORDER AND PAYMENT PROCEDURES
Generally, you must place purchase orders for Shares through a Financial
Intermediary. You may pay for your purchase by mail or electronic funds
transfer. Initial purchases require a completed and
45
<PAGE>
signed Application for each new account regardless of the investment method.
Specific payment arrangements should be made with your Financial Intermediary.
BY MAIL
For new accounts, please mail the completed Application to your Financial
Intermediary. Payment for orders may be made by check or other negotiable bank
draft and sent to the LifePoints Funds' Transfer Agent. Certified checks are not
necessary, but checks are accepted subject to collection at full face value in
US funds. Third party checks will not be accepted. Checks should be made payable
to "Frank Russell Investment Company."
BY FEDERAL FUNDS WIRE
You can pay for orders by wiring federal funds to the LifePoints Funds'
Custodian, State Street Bank and Trust Company. All wires must include your
account registration and account number for identification. Inability to
properly identify a wire transfer may prevent or delay timely settlement of your
purchase.
BY AUTOMATED CLEARING HOUSE ("ACH")
You can make initial or subsequent investments through ACH to the Funds'
Custodian, State Street Bank and Trust Company.
AUTOMATED INVESTMENT PROGRAM
You can make regular investments (minimum $50) in the LifePoints Funds in an
established account on a monthly, quarterly, semiannual or annual basis by
automatic electronic funds transfer from a bank account. You must make a
separate transfer for each LifePoints Fund in which you purchase Shares. You may
change the amount or stop the automatic purchase at any time. Contact your
Financial Intermediary for further information on this program and an enrollment
form.
THREE-DAY SETTLEMENT PROGRAM
The LifePoints Funds will accept orders at the next computed net asset value
through Financial Intermediaries to purchase Shares of the LifePoints Funds for
settlement on the third business day following the receipt of the order. These
orders are paid for by a federal funds wire if the Financial Intermediary has
enrolled in the program and agreed in writing to indemnify the LifePoints Funds
against any losses resulting from non-receipt of payment.
46
<PAGE>
EXCHANGE PRIVILEGE
BY MAIL OR TELEPHONE
Through your Financial Intermediary, you may exchange Shares of any
LifePoints Fund you own for shares of any other LifePoints Fund offered by this
Prospectus on the basis of the current net asset value per share at the time of
the exchange. Shares of a LifePoints Fund offered by this Prospectus may only be
exchanged for shares of a fund offered by FRIC through another Prospectus under
certain conditions and only in states where the exchange may be legally made.
For additional information, including Prospectuses for other funds, contact your
Financial Intermediary.
Exchanges may be made by mail or by telephone if the registration of the two
accounts is identical. Contact your Financial Intermediary for assistance in
exchanging Shares and, because Financial Intermediaries' processing time may
vary, to find out when your account will be credited or debited. To request an
exchange in writing, please follow the procedures in the "Written Instructions"
section before mailing to your Financial Intermediary.
An exchange involves the redemption of Shares, which is treated as a sale
for income tax purposes. Thus, capital gain or loss may be realized. Please
consult your tax adviser for more information. The Shares to be acquired will be
purchased when the proceeds from the redemption become available (up to seven
days from the receipt of the request) at the next net asset value per share
calculated after the Funds received the exchange request in good order.
IN-KIND EXCHANGE OF SECURITIES
FRIMCo, in its capacity as the LifePoints Funds' investment advisor, may, at
its discretion, permit you to acquire Shares in exchange for securities you
currently own. Any securities exchanged must meet the investment objective,
policies and limitations of the applicable LifePoints Fund, have a readily
ascertainable market value, be liquid, not be subject to restrictions on resale
and have a market value, plus any cash, equal to at least $100,000.
Shares purchased in exchange for securities generally may not be redeemed or
exchanged for 15 days following the purchase by exchange or until the transfer
has settled, whichever comes first. If you are a taxable investor, you will
generally realize a gain or loss for federal income tax purposes on the
exchange. If you are contemplating an in-kind exchange you should consult your
tax adviser.
The price at which the exchange will take place will depend upon the
relative net asset value of the Shares purchased and securities exchanged.
Securities accepted by a LifePoints Fund will be valued in the same way the
LifePoints Fund values its assets. Any interest earned on the securities
following their delivery to the LifePoints Funds and prior to the exchange will
be considered in valuing the securities. All interest, dividends, subscription
or other rights attached to the securities becomes the property of the
LifePoints Fund, along with the securities. Please contact your Financial
Intermediary for further information.
47
<PAGE>
HOW TO REDEEM SHARES
Shares of the LifePoints Funds may be redeemed through your Financial
Intermediary on any business day the LifePoints Funds are open at the next net
asset value per share calculated after the Funds' Transfer Agent receives an
order in proper form (defined in the "Written Instructions" section). Payment
will ordinarily be made within seven days after receipt of your request in
proper form. Shares recently purchased by check may not be available for
redemption for 15 days following the purchase or until the check clears,
whichever occurs first, to assure payment has been collected.
REDEMPTION DATES AND TIMES
Redemption requests must be placed through a Financial Intermediary and
received by the LifePoints Funds prior to 4:00 p.m. Eastern Time or the close of
the NYSE, whichever is earlier. Because Financial Intermediaries' processing
times may vary, please ask your Financial Intermediary representative when your
account will be debited. Requests can be made by mail or telephone on any day
when LifePoints Fund shares are offered, or through the Systematic Withdrawal
Program described below.
BY MAIL OR TELEPHONE
You may redeem your shares by calling or writing to your Financial
Intermediary. Written requests to sell shares are in proper form when the
instructions are signed by all registered owners, with a signature guarantee if
necessary.
SYSTEMATIC WITHDRAWAL PROGRAM
The LifePoints Funds offer a systematic withdrawal program which allows you
to redeem your Shares and receive regular payments from your account on a
monthly, quarterly, semiannual or annual basis. If you would like to establish a
systematic withdrawal program, please complete the proper section of the account
application and indicate how you would like to receive your payments. You will
generally receive your payment by the end of the month in which a payment is
scheduled. When you redeem your shares under a systematic withdrawal program, it
is a taxable transaction.
You may choose to have the payments mailed to you or directed to your bank
account by ACH transfer. You may discontinue the systematic withdrawal program,
or change the amount and timing of withdrawal payments by contacting your
Financial Intermediary.
ACCOUNTS IN STREET NAME
Many brokers, employee benefit plans and bank trusts combine their client's
holdings in a single omnibus account held in the brokers', plans', or bank
trusts' own name or "street name." Therefore, if you hold LifePoints Fund shares
through a brokerage account, employee benefit plan or bank trust fund, the
LifePoints Funds may have records only of the omnibus account. In this case,
your broker, employee benefit plan or bank is responsible for keeping track of
your account information. This means that you may not be able to request
transactions in your Shares directly through the Funds, but can do so only
through your broker, plan administrator or bank. Ask your Financial Intermediary
for information on whether your LifePoints Fund shares are held in an omnibus
account.
48
<PAGE>
PAYMENT OF REDEMPTION PROCEEDS
BY CHECK
When you redeem your Shares, a check for the redemption proceeds will be
sent to the shareholder(s) of record at the address of record within seven days
after the LifePoints Funds receive a redemption request in proper form.
BY WIRE
If you have established the electronic redemption option, your redemption
proceeds can be wired to your predesignated bank account on the next bank
business day after the LifePoints Funds receive your redemption request. The
LifePoints Funds may charge a fee to cover the cost of sending a wire transfer
for redemptions less than $1,000, and your bank may charge an additional fee to
receive the wire. Wire transfers can be sent to US commercial banks that are
members of the Federal Reserve System.
WRITTEN INSTRUCTIONS
PROPER FORM: Written instructions must be in proper form. They must include:
A description of the request
The name of the Fund(s)
The class of shares, if applicable
The account number(s)
The amount of money or number of shares being purchased, exchanged,
transferred or redeemed
The name(s) on the account(s)
The signature(s) of all registered account owners
For exchanges, the name of the Fund you are exchanging into
Your daytime telephone number
49
<PAGE>
SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
<TABLE>
<CAPTION>
ACCOUNT TYPE REQUIREMENTS FOR WRITTEN REQUESTS
<S> <C>
Individual, Joint Tenants, Tenants in Written instructions must be signed by each
Common shareholder, exactly as the names appear in the
account registration.
UGMA or UTMA (custodial accounts for Written instructions must be signed by the
minors) custodian in his/her capacity as it appears in
the account registration.
Corporation, Association Written instructions must be signed by authorized
person(s), stating his/her capacity as indicated
by the corporate resolution to act on the account
and a copy of the corporate resolution, certified
within the past 90 days, authorizing the signer
to act.
Estate, Trust, Pension, Profit Sharing Written instructions must be signed by all
Plan trustees. If the name of the trustee(s) does not
appear in the account registration, please
provide a copy of the trust document certified
within the last 60 days.
Joint tenancy shareholders whose Written instructions must by signed by the
co-tenants are deceased surviving tenant(s). A certified copy of the
death certificate must accompany the request.
</TABLE>
SIGNATURE GUARANTEE
The LifePoints Funds reserve the right to require a signature guarantee
under certain circumstances. A signature guarantee verifies the authenticity of
your signature. You should be able to obtain a signature guarantee from a bank,
broker, credit union, savings association, clearing agency, or securities
exchange or association, but not a notary public. Call your financial
institution to see if it has the ability to guarantee a signature.
ACCOUNT POLICIES
THIRD PARTY TRANSACTIONS
If you purchase Shares as part of a program of services offered by a
Financial Intermediary, you may be required to pay additional fees. You should
contact your Financial Intermediary for information concerning what additional
fees, if any, may be charged.
REDEMPTION IN-KIND
A Fund may pay for any portion of the redemption amount in excess of
$250,000 by a distribution in-kind of securities from the Fund's portfolio,
instead of in cash. If you receive an in-kind distribution of portfolio
securities, and choose to sell them, you will incur brokerage charges and
continue to be subject to tax consequences and market risk pending any sale.
50
<PAGE>
STALE CHECKS
For the protection of shareholders and the LifePoints Funds, if a check
issued for the payment of a redemption or distribution is not cashed for more
than 180 days from issuance, it will not be honored. The LifePoints Funds have
adopted procedures described in the statement of additional information
regarding the treatment of stale checks, or you may contact your Financial
Intermediary for additional information.
51
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you
understand the LifePoints Funds' financial performance for the past 5 years (or,
if a LifePoints Fund or Class has not been in operation for 5 years, since the
beginning of operations for that LifePoints Fund or Class). Certain information
reflects financial results for a single LifePoints Fund share throughout each
year or period ended December 31. The total returns in the table represent how
much your investment in a LifePoints Fund would have increased (or decreased)
during each period, assuming reinvestment of all dividends and distributions.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the LifePoints Fund's financial statements, are included in the
Funds' annual reports, which are available upon request. The information in the
tables below represents the financial highlights for each of the LifePoints
Fund's Class E Shares for the periods shown. No Class S Shares were issued
during the periods shown.
<TABLE>
<CAPTION>
CONSERVATIVE STRATEGY FUND--CLASS E SHARES
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997*
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.24 $ 9.88 $10.00
------- ------ ------
INCOME FROM OPERATIONS
Net investment income (a)(e).............................. .49 .46 .07
Net realized and unrealized gain (loss)................... .06 .29 .07
------- ------ ------
Total income from operations............................ .55 .75 .14
------- ------ ------
DISTRIBUTIONS
From net investment income................................ (.60) (.39) (.10)
From net realized gain.................................... (.05) -- (.16)
------- ------ ------
Total distributions..................................... (.65) (.39) (.26)
------- ------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.14 $10.24 $ 9.88
======= ====== ======
TOTAL RETURN (%)(b)......................................... 5.54 7.70 1.36
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 16,875 4,411 23
Ratios to average net assets (%):
Operating expenses, net (c)............................. .25 .25 .25
Operating expenses, gross (d)........................... .50 2.50 --
Net investment income (b)............................... 4.76 4.41 .67
Portfolio turnover rate (%)............................... 125.01 169.79 0.00
</TABLE>
- ------------------------
* For the period November 7, 1997 (commencement of operations) to
December 31, 1997.
(a) For periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
(d) The ratio for the period ended December 31, 1997 is not meaningful due to
the Class's short period of operation.
(e) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
52
<PAGE>
<TABLE>
<CAPTION>
MODERATE STRATEGY FUND--CLASS E SHARES
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997*
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.15 $ 9.61 $10.00
------- ------- ------
INCOME FROM OPERATIONS
Net investment income (a)(e).............................. .40 .39 .07
Net realized and unrealized gain (loss)................... .46 .57 (.08)
------- ------- ------
Total income from operations............................ .86 .96 (.01)
------- ------- ------
DISTRIBUTIONS
From net investment income................................ (.46) (.41) (.14)
From net realized gain.................................... (.09) (.01) (.24)
------- ------- ------
Total distributions..................................... (.55) (.42) (.38)
------- ------- ------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.46 $ 10.15 $ 9.61
======= ======= ======
TOTAL RETURN (%)(b)......................................... 8.65 10.19 (.06)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 45,350 18,573 385
Ratios to average net assets (%):
Operating expenses, net (c)............................. .25 .25 .25
Operating expenses, gross (d)........................... .50 .94 --
Net investment income (b)............................... 3.87 3.71 1.01
Portfolio turnover rate (%)............................... 120.04 175.58 9.66
</TABLE>
- ------------------------
* For the period October 2, 1997 (commencement of operations) to December 31,
1997.
(a) For periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
(d) The ratio for the period ended December 31, 1997 is not meaningful due to
the Class's short period of operation.
(e) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
53
<PAGE>
<TABLE>
<CAPTION>
BALANCED STRATEGY FUND--CLASS E SHARES
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997*
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.12 $ 9.46 $10.00
-------- -------- ------
INCOME FROM OPERATIONS
Net investment income (a)(e).............................. .30 .31 .09
Net realized and unrealized gain (loss)................... .86 .78 .02
-------- -------- ------
Total income from operations............................ 1.16 1.09 .11
-------- -------- ------
DISTRIBUTIONS
From net investment income................................ (.42) (.40) (.24)
From net realized gain.................................... (.12) (.03) (.41)
-------- -------- ------
Total distributions..................................... (.54) (.43) (.65)
-------- -------- ------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.74 $ 10.12 $ 9.46
======== ======== ======
TOTAL RETURN (%)(b)......................................... 11.80 11.66 1.04
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 295,542 161,108 3,554
Ratios to average net assets (%):
Operating expenses, net (c)............................. .25 .25 .25
Operating expenses, gross (d)........................... .50 .61 --
Net investment income (b)............................... 2.89 3.05 1.30
Portfolio turnover rate (%)............................... 64.63 78.85 29.58
</TABLE>
- ------------------------
* For the period September 16, 1997 (commencement of operations) to December
31, 1997.
(a) For periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for the period less than one year are annualized.
(d) The ratio for the period ended December 31, 1997 is not meaningful due to
the Class's short period of operation.
(e) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
54
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE STRATEGY FUND--CLASS E SHARES
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997*
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.94 $ 9.14 $10.00
-------- ------- ------
INCOME FROM OPERATIONS
Net investment income (a)(e).............................. .18 .19 .10
Net realized and unrealized gain (loss)................... 1.56 .87 (.11)
-------- ------- ------
Total income from operations............................ 1.74 1.06 (.01)
-------- ------- ------
DISTRIBUTIONS
From net investment income................................ (.35) (.25) (.31)
From net realized gain.................................... (.16) (.01) (.54)
-------- ------- ------
Total distributions..................................... (.51) (.26) (.85)
-------- ------- ------
NET ASSET VALUE, END OF PERIOD.............................. $ 11.17 $ 9.94 $ 9.14
======== ======= ======
TOTAL RETURN (%)(b)......................................... 17.95 11.69 (.19)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 167,677 62,188 5,307
Ratios to average net assets (%):
Operating expenses, net (c)............................. .25 .25 .25
Operating expenses, gross (d)........................... .50 .66 --
Net investment income (b)............................... 1.73 1.88 .97
Portfolio turnover rate (%)............................... 71.44 93.08 56.88
</TABLE>
- ------------------------
* For the period September 16, 1997 (commencement of operations) to December
31, 1997.
(a) For periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for the periods less than one year are annualized.
(d) The ratio for the period ended December 31, 1997 is not meaningful due to
the Class's short period of operation.
(e) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
55
<PAGE>
<TABLE>
<CAPTION>
EQUITY AGGRESSIVE STRATEGY FUND--CLASS E SHARES
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997*
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.80 $ 8.83 $10.00
-------- ------- ------
INCOME FROM OPERATIONS
Net investment income (a)(e).............................. .10 .03 .09
Net realized and unrealized gain (loss)................... 2.00 1.18 (.33)
-------- ------- ------
Total income from operations............................ 2.10 1.21 (.24)
-------- ------- ------
DISTRIBUTIONS
From net investment income................................ (.35) (.19) (.33)
From net realized gain.................................... (.16) (.05) (.60)
-------- ------- ------
Total distributions..................................... (.51) (.24) (.93)
-------- ------- ------
NET ASSET VALUE, END OF PERIOD.............................. $ 11.39 $ 9.80 $ 8.83
======== ======= ======
TOTAL RETURN (%)(b)......................................... 21.96 13.75 (2.42)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 202,066 91,459 2,985
Ratios to average net assets (%):
Operating expenses, net (c)............................. .25 .25 .25
Operating expenses, gross (d)........................... .50 .62 --
Net investment income (b)............................... .99 .28 .45
Portfolio turnover rate (%)............................... 76.20 73.95 48.30
</TABLE>
- ------------------------
* For the period September 30, 1997 (commencement of operations) to December
31, 1997.
(a) For periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
(d) The ratio for the period ended December 31, 1997 is not meaningful due to
the Class's short period of operation.
(e) Recognition of net investment income by the Fund is affected by the timing
of the declaration of dividends by the underlying companies in which the
Fund invests.
56
<PAGE>
MONEY MANAGER INFORMATION
The money managers have no affiliations with the LifePoints Funds or the
LifePoints Funds' service providers other than their management of Underlying
Fund assets. Each money manager has been in business for at least three years,
and is principally engaged in managing institutional investment accounts. These
managers may also serve as managers or advisers to other Funds in FRIC, or to
other clients of FRIMCo or of Frank Russell Company, including Frank Russell
Company's wholly-owned subsidiary, Frank Russell Trust Company.
This section identifies the money managers for the Underlying Funds in which
the LifePoints Funds invest.
DIVERSIFIED EQUITY FUND
ALLIANCE CAPITAL MANAGEMENT L.P., US Bank Place, 601 2nd Ave. South, Suite
5000, Minneapolis, MN 55402-4322.
BARCLAYS GLOBAL FUND ADVISORS, 45 Fremont Street, 17th Floor, San Francisco,
CA 94105.
EQUINOX CAPITAL MANAGEMENT, LLC, 590 Madison Avenue, 41st Floor, New York,
NY 10022.
JACOBS LEVY EQUITY MANAGEMENT, INC., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.
MARSICO CAPITAL MANAGEMENT COMPANY, LLC, 1200 17th Street, Suite 1300,
Denver, CO 80202.
PEACHTREE ASSET MANAGEMENT, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308.
SANFORD C. BERNSTEIN & CO., INC., 767 Fifth Avenue, 21st Floor, New York, NY
10153-0185.
STRONG CAPITAL MANAGEMENT, INC., 100 Heritage Reserve, Menomonee Falls, WI
53051.
SUFFOLK CAPITAL MANAGEMENT, INC., 1633 Broadway, 40th Floor, New York, NY
10019.
TURNER INVESTMENT PARTNERS, INC., 1235 Westlakes Drive, Suite 350, Berwyn,
PA 19312.
WESTPEAK INVESTMENT ADVISORS, L.P., 1011 Walnut Street, Suite 400, Boulder,
CO 80302.
SPECIAL GROWTH FUND
CAPITALWORKS INVESTMENT PARTNERS, LLC, 401 West "A" Street, Suite 1675, San
Diego, CA 92101.
DELPHI MANAGEMENT, INC., 50 Rowes Wharf, Suite 440, Boston, MA 02110.
FIDUCIARY TRUST COMPANY INTERNATIONAL, INC., 2 World Trade Center, New York,
NY 10048-0772.
GLOBEFLEX CAPITAL, L.P., 4365 Executive Drive, Suite 720, San Diego, CA
92121.
JACOBS LEVY EQUITY MANAGEMENT, INC., See: Diversified Equity Fund.
57
<PAGE>
SIRACH CAPITAL MANAGEMENT, INC., One Union Square, Suite 3323, 600
University Street, Seattle, WA 98101.
WESTPEAK INVESTMENT ADVISORS, L.P. See: Diversified Equity Fund.
QUANTITATIVE EQUITY FUND
BARCLAYS GLOBAL FUND ADVISORS, See: Diversified Equity Fund.
FRANKLIN PORTFOLIO ASSOCIATES LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., 522 Fifth Ave., 6th Floor, New
York, NY 10036.
JACOBS LEVY EQUITY MANAGEMENT, INC., See: Diversified Equity Fund.
INTERNATIONAL SECURITIES FUND
DELAWARE INTERNATIONAL ADVISERS LTD., 80 Cheapside, 3rd Floor, London
EC2V6EE England.
FIDELITY MANAGEMENT TRUST COMPANY, 82 Devonshire Street, Boston, MA 02109.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., See: Quantitative Equity Fund.
MASTHOLM ASSET MANAGEMENT, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue,
WA 98004.
MONTGOMERY ASSET MANAGEMENT, LLC, 101 California Street, 35th Floor, San
Francisco, CA 94111
OECHSLE INTERNATIONAL ADVISORS, LLC, One International Place, 23rd Floor,
Boston, MA 02110.
SANFORD C. BERNSTEIN & CO., INC., See: Diversified Equity Fund.
THE BOSTON COMPANY ASSET MANAGEMENT, INC., One Boston Place, 14th Floor,
Boston, MA 02108-4402.
EMERGING MARKETS FUND
FOREIGN & COLONIAL EMERGING MARKETS LIMITED, Exchange House, Primrose
Street, London, England EC2A 2NY.
GENESIS ASSET MANAGERS LIMITED, 21 Knightsbridge, London SW1X 7LY England.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, 600 W. Broadway 29th Floor, San
Diego, CA 92101.
SANFORD C. BERNSTEIN & CO. INC., See: Diversified Equity Fund.
SCHRODERS INVESTMENT MANAGEMENT NORTH AMERICA LIMITED, 31 Greshman Street,
London EC2V 7QA England.
REAL ESTATE SECURITIES FUND
AEW CAPITAL MANAGEMENT, L.P., 225 Franklin Street, Boston, MA 02110-2803.
58
<PAGE>
COHEN & STEERS CAPITAL MANAGEMENT, 757 Third Avenue, New York, NY 10017.
SECURITY CAPITAL GLOBAL CAPITAL MANAGEMENT GROUP INCORPORATED, 11 South
LaSalle Street, 2nd Floor, Chicago, IL 60603.
DIVERSIFIED BOND FUND
LINCOLN CAPITAL MANAGEMENT COMPANY, See: Diversified Equity Fund.
PACIFIC INVESTMENT MANAGEMENT COMPANY, 840 Newport Center Drive, Suite 360,
P.O. Box 6430, Newport Beach, CA 92658-6430.
STANDISH, AYER & WOOD, INC., One Financial Center, Boston, MA 02111.
MULTISTRATEGY BOND FUND
LAZARD ASSET MANAGEMENT, 30 Rockefeller Plaza, New York, NY 10112-6300.
MILLER, ANDERSON & SHERRERD, LLP, One Tower Bridge, W. Conshohocken, PA
19428.
PACIFIC INVESTMENT MANAGEMENT COMPANY, See: Diversified Bond Fund.
STANDISH, AYER & WOOD, INC., See: Diversified Bond Fund.
SHORT TERM BOND FUND
BLACKROCK FINANCIAL MANAGEMENT, INC., 345 Park Ave., 29th Floor, New York,
NY 10154.
STANDISH, AYER & WOOD, INC., See: Diversified Bond Fund.
STW FIXED INCOME MANAGEMENT LTD., 200 East Carrillo Street, Suite 100, Santa
Barbara, CA 93101-2143.
WHEN CONSIDERING AN INVESTMENT IN THE LIFEPOINTS FUNDS, DO NOT RELY ON ANY
INFORMATION UNLESS IT IS CONTAINED IN THIS PROSPECTUS OR IN THE LIFEPOINTS
FUNDS' STATEMENT OF ADDITIONAL INFORMATION. THE LIFEPOINTS FUNDS HAVE NOT
AUTHORIZED ANYONE TO ADD ANY INFORMATION OR TO MAKE ANY ADDITIONAL STATEMENTS
ABOUT THE LIFEPOINTS FUNDS. THE LIFEPOINTS FUNDS MAY NOT BE AVAILABLE IN SOME
JURISDICTIONS OR TO SOME PERSONS. THE FACT THAT YOU HAVE RECEIVED THIS
PROSPECTUS SHOULD NOT, IN ITSELF, BE TREATED AS AN OFFER TO SELL LIFEPOINTS FUND
SHARES TO YOU. CHANGES IN THE AFFAIRS OF THE LIFEPOINTS FUNDS OR IN THE
UNDERLYING FUNDS' MONEY MANAGERS MAY OCCUR AFTER THE DATE ON THE COVER PAGE OF
THIS PROSPECTUS. THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED TO REFLECT ANY
MATERIAL CHANGES TO THE INFORMATION IT CONTAINS.
59
<PAGE>
For more information about the LifePoints Funds, the following
documents are available without charge:
ANNUAL/SEMIANNUAL REPORTS: Additional information about the LifePoints Funds'
investments is available in the LifePoints Funds' annual and semiannual
reports to shareholders. In each LifePoints Fund's annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the LifePoints Fund's performance during its last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the LifePoints Funds.
The annual report for each LifePoints Fund and the SAI are incorporated into
this Prospectus by reference. You may obtain free copies of the reports and
the SAI, and may request other information, by contacting the LifePoints
Funds at:
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
800-787-7354
Fax: 253-591-3495
Website: russell.com
You can review and copy information about the LifePoints Funds (including the
SAI) at the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. You can obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. You can obtain
copies of this information upon paying a duplicating fee by writing to the
Public Reference Section of the Commission, Washington, D.C. 20549-6009.
Reports and other information about the LifePoints Funds are also available
on the Commission's Internet website at sec.gov.
FRANK RUSSELL INVESTMENT COMPANY
Class E and S Shares:
Conservative Strategy Fund
Moderate Strategy Fund
Balanced Strategy Fund
Aggressive Strategy Fund
Equity Aggressive Strategy Fund
[RUSSELL LOGO] Distributor: Russell Fund Distributors, Inc.
SEC File No. 811-3153
36-08-090 (05/00)
<PAGE>
INSTITUTIONAL FUNDS
FRANK RUSSELL INVESTMENT COMPANY
INSTITUTIONAL FUNDS
PROSPECTUS
CLASS E AND I SHARES:
EQUITY I FUND
EQUITY II FUND
EQUITY III FUND
EQUITY Q FUND
INTERNATIONAL FUND
FIXED INCOME I FUND
FIXED INCOME III FUND
CLASS E AND S SHARES:
EMERGING MARKETS FUND
REAL ESTATE SECURITIES FUND
SHORT TERM BOND FUND
MAY 1, 2000
909 A STREET, TACOMA, WA 98402 . 800-787-7354 . 253-627-7001
As with all mutual funds, the Securities and Exchange Commission has neither
determined that the information in this Prospectus is accurate or complete,
nor approved or disapproved of these securities. It is a criminal offense to
state otherwise.
[RUSSELL LOGO]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary......................................... 3
Investment Objective, Principal Investment Strategies
and Principal Risks.................................... 3
Performance............................................. 10
Fees and Expenses....................................... 21
Summary Comparison of the Funds............................. 24
The Purpose of the Funds--Multi-Style, Multi-Manager
Diversification........................................... 24
Investment Objective and Principal Investment Strategies.... 26
Risks....................................................... 42
Management of the Funds..................................... 47
The Money Managers.......................................... 49
Portfolio Turnover.......................................... 50
Dividends and Distributions................................. 50
Taxes....................................................... 51
How Net Asset Value Is Determined........................... 52
Distribution and Shareholder Servicing Arrangements......... 52
How to Purchase Shares...................................... 53
Exchange Privilege.......................................... 55
How to Redeem Shares........................................ 56
Payment of Redemption Proceeds.............................. 57
Written Instructions........................................ 57
Account Policies............................................ 58
Financial Highlights........................................ 60
Money Manager Information................................... 80
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS
EQUITY I FUND
- ---------------
<TABLE>
<S> <C>
INVESTMENT To provide income and capital growth by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Equity I Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies, most of which are
STRATEGIES US based.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another: a Growth Style, a Value Style and a
Market-Oriented Style. The Fund intends to be fully invested
at all times.
PRINCIPAL RISKS An investment in the Equity I Fund, like any investment, has
risks. The value of the Fund fluctuates and you could lose
money. The principal risks of investing in the Fund are
those associated with investing in equity securities, using
a multi-manager approach, securities lending and exposing
liquidity reserves to equity markets. Please refer to the
"Risks" section later in this Prospectus for further
details.
</TABLE>
EQUITY II FUND
- ----------------
<TABLE>
<S> <C>
INVESTMENT To maximize total return primarily through capital
OBJECTIVE appreciation and assuming a higher level of volatility than
the Equity I Fund.
PRINCIPAL The Equity II Fund invests primarily in common stocks of
INVESTMENT small and medium capitalization companies, most of which are
STRATEGIES US based. The Fund's investments may include companies that
have been publicly traded for less than five years and
smaller companies, such as companies not listed in the
Russell 2000-Registered Trademark- Index.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another: a Growth Style, a Value Style and a
Market-Oriented Style. The Fund intends to be fully invested
at all times. A portion of the Fund's net assets may be
"illiquid" securities (i.e., securities that do not have a
readily available market or that are subject to resale
restrictions).
PRINCIPAL RISKS An investment in the Equity II Fund, like any investment,
has risks. The value of the Fund fluctuates and you could
lose money. The principal risks
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
of investing in the Fund are those associated with investing
in equity securities, particularly securities of small
capitalization companies, using a multi-manager approach,
securities lending and exposing liquidity reserves to equity
markets. Please refer to the "Risks" section later in this
Prospectus for further details.
</TABLE>
EQUITY III FUND
- ----------------
<TABLE>
<S> <C>
INVESTMENT To achieve a high level of current income while maintaining
OBJECTIVE the potential for capital appreciation.
PRINCIPAL The Equity III Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies, most of which are
STRATEGIES US based. Because the Fund's investment objective is
primarily to provide a high level of current income, the
Fund generally pursues a value style of securities
selection.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses two principal investment styles intended to
complement one another: a Yield Substyle and a Low
Price/Earnings Ratio Substyle. The Fund intends to be fully
invested at all times.
PRINCIPAL RISKS An investment in the Equity III Fund, like any investment,
has risks. The value of the Fund fluctuates and you could
lose money. The principal risks of investing in the Fund are
those associated with investing in equity securities,
particularly in using a value style of security selection,
using a multi-manager approach, securities lending and
exposing liquidity reserves to equity markets. Please refer
to the "Risks" section later in this Prospectus for further
details on these risks.
</TABLE>
EQUITY Q FUND
- ----------------
<TABLE>
<S> <C>
INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell
1000-Registered Trademark- Index over a market cycle of four
to six years) while maintaining volatility and
diversification similar to the Russell 1000 Index.
PRINCIPAL The Equity Q Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies which are
STRATEGIES predominately US based. The Fund generally pursues a
market-oriented style of security selection, which
incorporates both a growth style and a value style, based on
quantitative investment formulas which are mathematical
models based on statistical analysis. This style emphasizes
investments in companies that appear to be undervalued
relative to their growth prospects.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended another. Each of the Fund's money
managers use quantitative models to rank securities based
upon their expected ability to outperform the total return
of the Russell 1000-Registered Trademark- Index. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets.
PRINCIPAL RISKS An investment in the Equity Q Fund, like any investment, has
risks. The value of the Fund fluctuates and you could lose
money. The principal risks of investing in the Fund are
those associated with investing in equity securities,
particularly in using a market-oriented style of security
selection, using a multi-manager approach, securities
lending and exposing liquidity reserves to equity markets.
Please refer to the "Risks" section later in this Prospectus
for further details on these risks.
</TABLE>
INTERNATIONAL FUND
- ----------------------
<TABLE>
<S> <C>
INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.
PRINCIPAL The International Fund invests primarily in equity
INVESTMENT securities issued by companies domiciled outside the US and
STRATEGIES in depository receipts, which represent ownership of
securities of non-US companies. The Fund's investments span
most of the developed nations of the world (particularly
Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. This Fund
may be appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another: a Growth Style, a Value Style and a
Market-Oriented Style. The Fund intends to be fully invested
at all times. A portion of the Fund's net assets may be
"illiquid" securities (i.e., securities that do not have a
readily available market or that are subject to resale
restrictions).
PRINCIPAL RISKS An investment in the International Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in international securities, using
a multi-manager
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
approach, securities lending and exposing liquidity reserves
to equity markets. Please refer to the "Risks" section later
in this Prospectus for further details on these risks.
</TABLE>
EMERGING MARKETS FUND
- ----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return, primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from developed market
international portfolios by investing primarily in equity
securities.
PRINCIPAL The Emerging Markets Fund will primarily invest in equity
INVESTMENT securities of companies that are located in countries with
STRATEGIES emerging markets or that derive a majority of their revenues
from operations in such countries. These countries generally
include every country in the world except the United States,
Canada, Japan, Australia and most countries located in
Western Europe. The Fund seeks to maintain a broadly
diversified exposure to emerging market countries and
ordinarily will invest in the securities of issuers in at
least three different emerging market countries.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. A portion
of the Fund's net assets may be "illiquid" securities (i.e.,
securities that do not have a readily available market or
that are subject to resale restrictions).
PRINCIPAL RISKS An investment in the Emerging Markets Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in international and emerging
markets securities and using a multi-manager approach.
Please refer to the "Risks" section later in this Prospectus
for further details on these risks.
</TABLE>
6
<PAGE>
REAL ESTATE SECURITIES FUND
- --------------------------------
<TABLE>
<S> <C>
INVESTMENT To generate a high level of total return through above
OBJECTIVE average current income while maintaining the potential for
capital appreciation.
PRINCIPAL The Real Estate Securities Fund seeks to achieve its
INVESTMENT objective by concentrating its investments in equity
STRATEGIES securities of issuers whose value is derived primarily from
development, management and market pricing of underlying
real estate properties. The Fund invests primarily in
securities of companies known as real estate investment
trusts (REITs) that own and/or manage properties. REITs may
be composed of anywhere from two to over 1,000 properties.
The Fund may also invest in equity and debt securities of
other types of real estate-related companies. The Fund
invests in companies which are predominately US based.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another.
The Fund intends to be fully invested at all times. A
portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions).
PRINCIPAL RISKS An investment in the Real Estate Securities Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in securities of companies
concentrated in the real estate market, using a
multi-manager approach, securities lending and exposing
liquidity reserves to equity markets. Please refer to the
"Risks" section later in this Prospectus for further
details.
</TABLE>
SHORT TERM BOND FUND
- --------------------------
<TABLE>
<S> <C>
INVESTMENT The preservation of capital and the generation of current
OBJECTIVE income consistent with preservation of capital by investing
primarily in fixed-income securities with low-volatility
characteristics.
PRINCIPAL The Short Term Bond Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
The Fund may invest up to 10% of its assets in debt
securities that are rated below
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
investment grade. These securities are commonly referred to
as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 15% of the average weighted duration
of the Merrill Lynch 1-2.99 Years Treasury Index, which was
1.6 years as of December 31, 1999, but may vary up to 50%
from the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund employs
multiple money managers, each with its own expertise in the
fixed-income markets.
PRINCIPAL RISKS An investment in the Short Term Bond Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in fixed-income
securities, including non-investment grade fixed-income
securities, investing in municipal obligations, repurchase
agreements and international securities, employing
derivatives and using a multi-manager approach. Please refer
to the "Risks" section later in this Prospectus for further
details on these risks.
</TABLE>
FIXED INCOME I FUND
- -----------------------
<TABLE>
<S> <C>
INVESTMENT To provide effective diversification against equities and a
OBJECTIVE stable level of cash flow by investing in fixed-income
securities.
PRINCIPAL The Fixed Income I Fund invests primarily in investment
INVESTMENT grade fixed- income securities. In particular, the Fund
STRATEGIES holds debt securities issued or guaranteed by the US
government and, to a lesser extent by non-US governments, or
by their respective agencies and instrumentalities. It also
holds mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds).
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was
5.0 years as of December 31, 1999, but may vary up to 25%
from the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund employs
multiple money managers, each with its own expertise in the
fixed-income markets.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL RISKS An investment in the Fixed Income I Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in fixed-
income securities, municipal obligations, repurchase
agreements and international securities, employing
derivatives and using a multi-manager approach. Please refer
to the "Risks" section later in this Prospectus for further
details on these risks.
</TABLE>
FIXED INCOME III FUND
- ------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return, primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from broad fixed-income market
portfolios.
PRINCIPAL The Fixed Income III Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). The
Fund may invest up to 25% of its assets in debt securities
that are rated below investment grade. These securities are
commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was
5.0 years as of December 31, 1999, but may vary up to 25%
from the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund employs
multiple money managers, each with its own expertise in the
fixed-income markets.
PRINCIPAL RISKS An investment in the Fixed Income III Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in fixed-
income securities, including non-investment grade
fixed-income securities, investing in municipal obligations
and international securities, employing derivatives and
using a multi-manager approach. Please refer to the "Risks"
section later in this Prospectus for further details.
</TABLE>
9
<PAGE>
PERFORMANCE
The following bar charts illustrate the risks of investing in the Funds by
showing how the performance of Class I Shares of the Equity I, Equity II, Equity
III, Equity Q, International, Fixed Income I and Fixed Income III Funds and of
Class S Shares of the Emerging Markets, Real Estate Securities and Short Term
Bond Funds varies from year to year over a 10-year period (or, if a Fund has not
been in operation for 10 years, since the beginning of such Fund's operations).
For periods prior to April 1, 1995, performance results for each of the Funds,
other than the Real Estate Securities Fund, do not reflect deduction of
investment management fees. The return for Class E Shares may be lower than the
Class I or Class S returns shown in the bar chart, depending upon the fees and
expenses of that class. The highest and lowest quarterly returns during the
period shown in the bar charts for the Funds' Class I Shares or Class S Shares,
as applicable, are set forth below the bar charts.
The tables accompanying the bar charts further illustrate the risks of
investing in the Funds by showing how each Fund's average annual returns for 1,
5 and 10 years (or, if a Fund has not been in operation for 10 years, since the
beginning of operations of such Fund) compare with the returns of certain
indexes that measure broad market performance.
Returns for Class E Shares of each Fund prior to the date each Fund first
issued Class E Shares are those of the Fund's Class I or Class S Shares and
therefore do not reflect deduction of shareholder servicing fees. Each Fund
commenced operations of its Class E Shares on the following dates: Emerging
Markets Fund--September 22, 1998; Real Estate Securities Fund--November 4, 1996;
Short Term Bond Fund--February 18, 1999; and all other Funds--May 14, 1999.
The returns shown for the Class E Shares of the Real Estate Securities Fund
reflect the deduction of Rule 12b-1 distribution fees from the date that Fund's
Class E Shares were first issued, which is identified above, until May 18, 1998.
Effective May 18, 1998, Class E Shares of the Real Estate Securities Fund no
longer charged Rule 12b-1 distribution fees, which had reduced returns prior to
that date. The results shown have not been increased to reflect the effect of
the elimination of those fees.
For periods prior to April 1, 1995, performance results for each Fund,
except the Real Estate Securities Fund, do not reflect deduction of investment
management fees.
Past performance is no indication of future results.
10
<PAGE>
- --------------------------------------------------------------------------------
EQUITY I FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -5.64%
1991 31.22%
1992 9.02%
1993 11.61%
1994 0.79%
1995 35.94%
1996 23.58%
1997 32.02%
1998 25.10%
1999 18.98%
</TABLE>
BEST QUARTER: 22.53% (4Q/98)
WORST QUARTER: (14.93)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E................................................... 18.81% 26.93% 17.47%
Class I................................................... 18.98 26.96 17.48
Russell 1000-Registered Trademark- Index.................. 20.91 28.05 18.13
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
EQUITY II FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -14.76%
1991 42.40%
1992 13.31%
1993 16.70%
1994 -2.60%
1995 28.67%
1996 18.51%
1997 28.66%
1998 0.70%
1999 22.60%
</TABLE>
BEST QUARTER: 21.20% (1Q/91)
WORST QUARTER: (22.61)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E................................................... 22.41% 19.30% 14.21%
Class I................................................... 22.60 19.34 14.23
Russell 2500-TM- Index.................................... 24.15 19.43 15.05
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
EQUITY III FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -5.73%
1991 27.86%
1992 12.30%
1993 14.95%
1994 1.16%
1995 35.96%
1996 20.90%
1997 33.13%
1998 11.53%
1999 0.25%
</TABLE>
BEST QUARTER: 16.54% (1Q/91)
WORST QUARTER: (15.28)% (3Q/90)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E.................................................... 0.10% 19.55% 14.41%
Class I.................................................... 0.25 19.58 14.43
Russell 1000-Registered Trademark- Value Index............. 7.35 23.07 15.60
-------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
EQUITY Q FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -4.81%
1991 32.14%
1992 9.97%
1993 13.80%
1994 0.99%
1995 37.91%
1996 23.67%
1997 33.07%
1998 25.98%
1999 21.96%
</TABLE>
BEST QUARTER: 23.00% (4Q/98)
WORST QUARTER: (14.37)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E................................................... 21.85% 28.34% 18.66%
Class I................................................... 21.96 28.36 18.67
Russell 1000-Registered Trademark- Index.................. 20.91 28.05 18.13
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -15.94%
1991 13.47%
1992 -6.11%
1993 35.56%
1994 5.38%
1995 10.71%
1996 7.98%
1997 0.58%
1998 13.52%
1999 30.46%
</TABLE>
BEST QUARTER: 18.77% (4Q/99)
WORST QUARTER: (18.43)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E................................................... 30.26% 12.19% 8.56%
Class I................................................... 30.46 12.22 8.58
MSCI EAFE Index........................................... 27.30 13.15 7.34
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 -5.83%
1995 -8.21%
1996 12.26%
1997 -3.45%
1998 -27.57%
1999 49.03%
</TABLE>
BEST QUARTER: 27.94% (4Q/99)
WORST QUARTER: (21.64)% (3Q/98)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS INCEPTION*
--------------------------------------- ------ ------- ----------
<S> <C> <C> <C>
Class E................................................... 48.71% 1.38% 5.31%
Class S................................................... 49.03 1.44 5.35
IFC Investable Composite Index............................ 67.11 2.17 8.58
--------------------------------------------------------------------------------------------
</TABLE>
----------------------------
* The Emerging Markets Fund commenced operations on January 29, 1993.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -15.92%
1991 37.08%
1992 17.29%
1993 17.42%
1994 7.24%
1995 10.87%
1996 36.81%
1997 18.99%
1998 -15.94%
1999 0.55%
</TABLE>
BEST QUARTER: 24.69% (1Q/91)
WORST QUARTER: (14.24)% (3Q/90)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E*................................................... 0.30% 8.50% 9.85%
Class S.................................................... 0.55 8.81 10.01
NAREIT Equity REIT Index................................... (4.62) 8.09 9.12
-------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM BOND FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 9.71%
1991 12.31%
1992 2.74%
1993 6.98%
1994 0.82%
1995 9.95%
1996 4.76%
1997 6.02%
1998 6.09%
1999 3.03%
</TABLE>
BEST QUARTER: 3.90% (4Q/91)
WORST QUARTER: (0.72)% (1Q/94)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E..................................................... 2.81% 5.90% 6.16%
Class S..................................................... 3.03 5.94 6.18
Merrill Lynch 1-2.99 Years Treasury Index................... 3.06 6.51 6.59
<CAPTION>
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
-------------------------------------------------- --------
<S> <C> <C> <C>
Class E..................................................... 5.81%
Class S..................................................... 6.13
--------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
To obtain current 30-day yield information, please call 1-800-787-7354.
18
<PAGE>
- --------------------------------------------------------------------------------
FIXED INCOME I FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 8.60%
1991 16.01%
1992 7.26%
1993 10.46%
1994 -2.97%
1995 18.03%
1996 3.75%
1997 9.42%
1998 8.37%
1999 -1.04%
</TABLE>
BEST QUARTER: 5.78% (2Q/95)
WORST QUARTER: (2.75)% (1Q/94)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E..................................................... (1.17)% 7.49% 7.59%
Class I..................................................... (1.04) 7.52 7.60
Lehman Brothers Aggregate Bond Index........................ (0.82) 7.73 7.70
<CAPTION>
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
-------------------------------------------------- --------
<S> <C> <C> <C>
Class E..................................................... 6.39%
Class I..................................................... 6.61
--------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
To obtain current 30-day yield information, please call 1-800-787-7354.
19
<PAGE>
- --------------------------------------------------------------------------------
FIXED INCOME III FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 -3.89%
1995 17.99%
1996 4.88%
1997 9.64%
1998 6.80%
1999 -0.29%
</TABLE>
BEST QUARTER: 6.10% (2Q/95)
WORST QUARTER: (3.12)% (1Q/94)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS INCEPTION*
--------------------------------------- ------ ------- ----------
<S> <C> <C> <C>
Class E................................................... (0.38)% 7.62% 6.33%
Class I................................................... (0.29) 7.63 6.34
Lehman Brothers Aggregate Bond Index...................... (0.82) 7.73 6.21
<CAPTION>
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
-------------------------------------------------- --------
<S> <C> <C> <C>
Class E................................................... 6.47%
Class I................................................... 6.34
--------------------------------------------------------------------------------------------
</TABLE>
----------------------------
* The Fixed Income III Fund commenced operations on January 29, 1993.
- --------------------------------------------------------------------------------
To obtain current 30-day yield information, please call 1-800-787-7354.
20
<PAGE>
FEES AND EXPENSES
The following tables describes the fees and expenses that you may pay if you
buy and hold Shares of the Funds.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES
MAXIMUM SALES CHARGE (LOAD)
CHARGE (LOAD) IMPOSED ON MAXIMUM
IMPOSED ON REINVESTED DEFERRED SALES REDEMPTION EXCHANGE
PURCHASES DIVIDENDS CHARGE (LOAD) FEES FEES
--------- --------- ------------- ---- ----
<S> <C> <C> <C> <C> <C>
All Funds, Classes E, I and S.......... None None None None None
</TABLE>
If you purchase any class of Shares of certain Funds, you or your Financial
Intermediary may pay an annual shareholder investment services fee directly to
FRIMCo pursuant to a separate agreement with FRIMCo. The fee is calculated as a
percentage of the amount you or your Financial Intermediary have invested in the
Funds and may range from .00% to .40% of the amount invested.
21
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(% OF NET ASSETS)
<TABLE>
<CAPTION>
OTHER EXPENSES
(INCLUDING
ADMINISTRATIVE
FEES AND TOTAL ANNUAL
ADVISORY SHAREHOLDER FUND OPERATING
FEE* SERVICING FEES)# EXPENSE+
---- ---------------- --------
<S> <C> <C> <C>
CLASS E SHARES
Equity I Fund........................................ 0.55% 0.41% 0.96%
Equity II Fund....................................... 0.70% 0.48% 1.18%
Equity III Fund...................................... 0.55% 0.49% 1.04%
Equity Q Fund........................................ 0.55% 0.42% 0.97%
International Fund................................... 0.70% 0.58% 1.28%
Fixed Income I Fund.................................. 0.25% 0.41% 0.66%
Fixed Income III Fund................................ 0.50% 0.45% 0.95%
Emerging Markets Fund................................ 1.15% 1.01% 2.16%
Real Estate Securities Fund.......................... 0.80% 0.59% 1.39%
Short Term Bond Fund................................. 0.45% 0.54% 0.99%
CLASS I SHARES
Equity I Fund........................................ 0.55% 0.14% 0.69%
Equity II Fund....................................... 0.70% 0.22% 0.92%
Equity III Fund...................................... 0.55% 0.24% 0.79%
Equity Q Fund........................................ 0.55% 0.14% 0.69%
International Fund................................... 0.70% 0.30% 1.00%
Fixed Income I Fund.................................. 0.25% 0.14% 0.39%
Fixed Income III Fund................................ 0.50% 0.19% 0.69%
CLASS S SHARES
Emerging Markets Fund................................ 1.15% 0.76% 1.91%
Real Estate Securities Fund.......................... 0.80% 0.34% 1.14%
Short Term Bond Fund................................. 0.45% 0.29% 0.74%
</TABLE>
- ------------------------------
* Each Fund may also pay, in addition to the fee set forth above, a fee which
compensates the Funds' advisor, Frank Russell Investment Management Company
(FRIMCo) for managing collateral which the Funds have received in securities
lending and certain other portfolio transactions which are not treated as
net assets of that Fund ("additional assets") in determining the Fund's net
asset value per share. The additional fee payable to FRIMCo will equal an
amount of up to 0.07% of each Fund's additional assets on an annualized
basis.
# "Other Expenses" for Class E Shares have been restated to reflect current
expenses and include a shareholder servicing fee of 0.25% of average daily
net assets of the Funds' Class E Shares.
+ If you purchase any class of Shares of a Fund through a Financial
Intermediary, such as a bank or an investment adviser, you may also pay
additional fees to the intermediary for services provided by the
intermediary which, in turn, may pay fees to FRIMCo for services FRIMCo
provides to the intermediary. You should contact your financial intermediary
for information concerning what additional fees, if any, will be charged.
22
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your Shares at the end of the period. The
example also assumes your investment has a 5% return each year and that
operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS E:
Equity I Fund............................................. $ 98 $ 306 $ 531 $1,177
Equity II Fund............................................ 120 375 650 1,433
Equity III Fund........................................... 106 331 574 1,271
Equity Q Fund............................................. 99 309 536 1,189
International Fund........................................ 130 405 701 1,544
Fixed Income I Fund....................................... 67 210 367 822
Fixed Income III Fund..................................... 97 303 526 1,167
Emerging Markets Fund..................................... 219 676 1,159 2,493
Real Estate Securities Fund............................... 142 441 761 1,669
Short Term Bond Fund...................................... 101 315 547 1,213
CLASS I:
Equity I Fund............................................. $ 70 $ 221 $ 384 $ 859
Equity II Fund............................................ 94 294 510 1,132
Equity III Fund........................................... 81 253 439 978
Equity Q Fund............................................. 70 221 384 859
International Fund........................................ 102 318 552 1,224
Fixed Income I Fund....................................... 40 126 220 494
Fixed Income III Fund..................................... 70 221 384 859
CLASS S:
Emerging Markets Fund..................................... $ 194 $ 600 $1,032 $2,233
Real Estate Securities Fund............................... 116 362 627 1,384
Short Term Bond Fund...................................... 76 237 412 919
</TABLE>
23
<PAGE>
SUMMARY COMPARISON OF THE FUNDS
<TABLE>
<CAPTION>
ANTICIPATED MAXIMUM
EQUITY DEBT
FUND EXPOSURE EXPOSURE FOCUS
- ------------------------------------ ----------- -------- --------------------------------------
<S> <C> <C> <C>
Equity I Fund....................... 65-100% 35% Income and capital growth
Equity II Fund...................... 65-100% 35% Maximum total return primarily through
capital appreciation
Equity III Fund..................... 65-100% 35% Current income
Equity Q Fund....................... 100% 0% Total return
International Fund.................. 65-100% 35% Total return
Fixed Income I Fund................. 0-35% 100% Current income and diversification
Fixed Income III Fund............... 0% 100% Maximum total return primarily through
capital appreciation
Emerging Markets Fund............... 65-100% 35% Maximum total return primarily through
capital appreciation
Real Estate Securities Fund......... 65-100% 35% Total return
Short Term Bond Fund................ 0-35% 100% Preservation of capital and generation
of current income
</TABLE>
THE PURPOSE OF THE FUNDS--MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION
The Frank Russell Investment Company (FRIC) Funds (Funds) are offered
through certain bank trust departments, registered investment advisers,
broker-dealers or other financial services organizations that have been selected
by the Funds' adviser or distributor (Financial Intermediaries). The Funds are
designed to provide a means for investors to use Frank Russell Investment
Management Company's (FRIMCo) and Frank Russell Company's (Russell)
"multi-style, multi-manager diversification" investment method and to obtain
FRIMCo's and Russell's money manager evaluation services. Unlike most investment
companies that have a single organization that acts as both administrator and
investment adviser, the Funds divide responsibility for corporate management and
investment advice between FRIMCo and a number of different money managers.
Three functions form the core of Russell's consulting services:
- OBJECTIVE SETTING: Defining appropriate investment objectives and desired
investment returns, based on a client's unique situation and risk
tolerance.
- ASSET ALLOCATION: Allocating a client's assets among different asset
classes--such as common stocks, fixed-income securities, international
securities, temporary cash investments and real estate--in a way most
likely to achieve the client's objectives and desired returns.
- MONEY MANAGER RESEARCH: Evaluating and recommending professional
investment advisory and management organizations ("money managers") to
make specific portfolio investments for each asset class, according to
designated investment objectives, styles and strategies.
24
<PAGE>
When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.
The Funds believe investors should seek to hold fully diversified portfolios
that reflect both their own individual investment time horizons and their
ability to accept risk. The Funds believe that for many, this can be
accomplished through strategically purchasing shares in one or more of the Funds
which have been structured to provide access to specific asset classes employing
a multi-style, multi-manager approach.
Capital market history shows that asset classes with greater risk will
generally outperform lower risk asset classes over time. For instance, corporate
equities, over the past 50 years, have outperformed corporate debt in absolute
terms. However, what is generally true of performance over extended periods will
not necessarily be true at any given time during a market cycle, and from time
to time asset classes with greater risk may also underperform lower risk asset
classes, on either a risk adjusted or absolute basis. Investors should select a
mix of asset classes that reflects their overall ability to withstand market
fluctuations over their investment horizons.
Studies have shown that no one investment style within an asset class will
consistently outperform competing styles. For instance, investment styles
favoring securities with growth characteristics may outperform styles favoring
income producing securities, and vice versa. For this reason, no single manager
has consistently outperformed the market over extended periods. Although
performance cycles tend to repeat themselves, they do not do so predictably.
The Funds believe, however, that it is possible to select managers who have
shown a consistent ability to achieve superior results within subsets or styles
of specific asset classes and investment styles by employing a unique
combination of qualitative and quantitative measurements. The Funds combine
these select managers with other managers within the same asset class who employ
complementary styles. By combining complementary investment styles within an
asset class, investors are better able to reduce their exposure to the risk of
any one investment style going out of favor.
By strategically selecting from among a variety of investments by asset
class, each of which has been constructed using these multi-style, multi-manager
principles, investors are able to design portfolios that meet their specific
investment needs.
The Funds conduct their business through a number of service providers, who
act on behalf of the Funds. FRIMCo, the Funds' administrator and investment
adviser, performs the Funds' day to day corporate management and oversees the
Funds' money managers. Each of the Funds' money managers makes all investment
decisions for the portion of the Fund assigned to it by FRIMCo. The Funds'
custodian, State Street Bank, maintains custody of all of the Funds' assets.
FRIMCo, in its capacity as the Funds' transfer agent, is responsible for
maintaining the Funds' shareholder records and carrying out shareholder
transactions. When a Fund acts in one of these areas, it does so through the
service provider responsible for that area.
25
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
EQUITY I FUND
- ---------------
<TABLE>
<S> <C>
INVESTMENT To provide income and capital growth by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Equity I Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies most of which are
STRATEGIES US based.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
Additionally, the Fund is diversified by equity substyle.
For example, within the Growth Style, the Fund expects to
employ both an Earnings Momentum substyle (concentrating on
companies with more volatile and accelerating growth rates)
and a Consistent Growth substyle (concentrating on companies
with stable earnings growth over an economic cycle).
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
substyle and its performance record, as well as the
characteristics of the money manager's typical portfolio
investments. These characteristics include capitalization
size, growth and profitability measures, valuation ratios,
economic sector weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
EQUITY II FUND
- ----------------
<TABLE>
<S> <C>
INVESTMENT To maximize total return primarily through capital
OBJECTIVE appreciation and assuming a higher level of volatility than
the Equity I Fund.
PRINCIPAL The Equity II Fund invests primarily in common stocks of
INVESTMENT small and medium capitalization companies most of which are
STRATEGIES US based. The Fund's investments may include companies that
have been publicly traded for less than five years and
smaller companies, such as companies not listed in the
Russell 2000-Registered Trademark- Index.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct, investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record, as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
28
<PAGE>
EQUITY III FUND
- ----------------
<TABLE>
<S> <C>
INVESTMENT To achieve a high level of current income while maintaining
OBJECTIVE the potential for capital appreciation.
PRINCIPAL The Equity III Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies, most of which are
STRATEGIES US-based. Because the Fund's investment objective is
primarily to provide a high level of current income, the
Fund generally pursues a value style of securities
selection, emphasizing investments in common stocks of
companies that appear to be undervalued relative to their
corporate worth, based on earnings, book or asset value,
revenues or cash flow.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses two principal investment styles intended to
complement one another:
- YIELD SUBSTYLE emphasizes investments in equity
securities with above-average yield relative to the
market. Generally, these securities are issued by
companies in the financial and utilities industries
and, to a lesser extent, other industries.
- LOW PRICE/EARNINGS RATIO SUBSTYLE emphasizes
investments in equity securities of companies that are
considered undervalued relative to their corporate
worth, based on earnings, book or asset value,
revenues or cash flow. These companies are generally
found among industrial, financial and utilities
sectors. From time to time, this substyle may also
include investments in companies with above-average
earnings growth prospects, if they appear to be
undervalued in relation to their securities'
historical price levels.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment substyle and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
EQUITY Q FUND
- ----------------
<TABLE>
<S> <C>
INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell
1000-Registered Trademark- Index over a market cycle of four
to six years) while maintaining volatility and
diversification similar to the Index.
PRINCIPAL The Equity Q Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies which are
STRATEGIES predominately US based. The Fund generally pursues a
market-oriented style of security selection, which
incorporates both a growth style and a value style, based on
quantitative investment models which are mathematical
formulas based on statistical analysis. This style
emphasizes investments in companies that appear to be
undervalued relative to their growth prospects.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record as well as the characteristics of the money manager's
typical portfolio investments. These characteristics include
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment returns correlate with one another.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
Each of the Fund's money managers use quantitative models to
rank securities based upon their expected ability to
outperform the total return of the Russell
1000-Registered Trademark- Index. Once a money manager has
ranked the securities, it then selects the securities most
likely to outperform and constructs, for its segment of the
Fund, a portfolio that has risks similar to the Russell
1000-Registered Trademark- Index. Each money manager
performs this process independently from each other money
manager.
The Russell 1000-Registered Trademark- Index consists of the
1,000 largest US companies by capitalization (i.e., market
price per share times the number of shares outstanding). The
smallest company in the Index at December 31, 1999 had a
capitalization of approximately $1.1 billion.
The Fund's money managers typically use a variety of
quantitative models, ranking securities within each model
and on a composite basis using proprietary weighting
formulas. Examples of those quantitative models are dividend
discount models, price/cash flow models, price/earnings
models, earnings surprise and earnings estimate revisions
models and price momentum models.
The Fund intends to be fully invested at all time. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
31
<PAGE>
INTERNATIONAL FUND
- ----------------------
<TABLE>
<S> <C>
INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.
PRINCIPAL The International Fund invests primarily in equity
INVESTMENT securities issued by companies domiciled outside the US and
STRATEGIES in depository receipts which represent ownership of
securities of non-US companies. The Fund's investments span
most of the developed nations of the world (particularly
Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. Because
international equity investment performance has a reasonably
low correlation to US equity performance, this Fund may be
appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.
The Fund may seek to protect its investments against adverse
currency exchange rate changes by purchasing forward
currency contracts. These contracts enable the Fund to "lock
in" the US dollar price of a security that it plans to buy
or sell. The Fund may not accurately predict currency
movements.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector. A
variation of this style maintains investments that
replicate country and sector weightings of a broad
international market index.
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
33
<PAGE>
EMERGING MARKETS FUND
- ----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from developed market
international portfolios by investing primarily in equity
securities.
PRINCIPAL The Emerging Markets Fund will primarily invest in equity
INVESTMENT securities of companies that are located in countries with
STRATEGIES emerging markets or that derive a majority of their revenues
from operations in such countries. These companies are
referred to as "Emerging Market Companies." For purposes of
the Fund's operations, an "emerging market" country is a
country having an economy and market that the World Bank or
the United Nations consider to be emerging or developing.
These countries generally include every country in the world
except the United States, Canada, Japan, Australia and most
countries located in Western Europe.
The Fund seeks to maintain a broadly diversified exposure to
emerging market countries and ordinarily will invest in the
securities of issuers in at least three different emerging
market countries.
The Fund invests in common stocks of Emerging Market
Companies and in depository receipts which represent
ownership of securities of non-US companies. The Fund may
also invest in rights, warrants and convertible fixed-income
securities. The Fund's securities are denominated primarily
in foreign currencies and may be held outside the US.
Some emerging markets countries do not permit foreigners to
participate directly in their securities markets or
otherwise present difficulties for efficient foreign
investment. Therefore, when it believes it is appropriate to
do so, the Fund may invest in pooled investment vehicles,
such as other investment companies, which enjoy broader or
more efficient access to shares of Emerging Market Companies
in certain countries but which may include a further
layering of expenses.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another.
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record, as well as the characteristics of the
money manager's typical portfolio investments (e.g.,
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics). The Fund also considers
the manner in which money managers' historical and expected
investment returns correlate with one another.
The Fund may agree to purchase securities for a fixed price
at a future date beyond customary settlement time. This kind
of agreement is known as a "forward commitment" or as a
"when-issued" transaction.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. A Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
REAL ESTATE SECURITIES FUND
- --------------------------------
<TABLE>
<S> <C>
INVESTMENT To generate a high level of total return through above
OBJECTIVE average current income while maintaining the potential for
capital appreciation.
PRINCIPAL The Fund seeks to achieve its objective by concentrating its
INVESTMENT investments in equity securities of issuers whose value is
STRATEGIES derived primarily from development, management and market
pricing of underlying real estate properties.
The Fund invests primarily in securities of companies, known
as real estate investment trusts (REITs), that own and/or
manage properties. REITs may be composed of anywhere from
two to over 1,000 properties. The Fund may also invest in
equity and debt securities of other types of real estate-
related companies. The Fund invests in companies which are
predominately US based, although the Fund may invest a
limited portion of its assets in non-US firms from time to
time.
</TABLE>
35
<PAGE>
<TABLE>
<S> <C>
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, property type and
geographic weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
Although the Fund, like any mutual fund, maintains liquidity
reserves (i.e., cash awaiting investment or held to meet
redemption requests), the Fund may expose these reserves to
the performance of appropriate equity markets by investing
in stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
36
<PAGE>
SHORT TERM BOND FUND
- --------------------------
<TABLE>
<S> <C>
INVESTMENT The preservation of capital and the generation of current
OBJECTIVE income consistent with preservation of capital by investing
primarily in fixed-income securities with low-volatility
characteristics.
PRINCIPAL The Short Term Bond Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
The Fund may invest up to 10% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by the
Fund to be of comparable quality. These securities are
commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 15% of the average weighted duration
of the Merrill Lynch 1-2.99 Years Treasury Index, which was
1.6 years on December 31, 1999, but may vary up to 50% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes, as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Merrill Lynch 1-2.99 Years Treasury
Index.
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
FIXED INCOME I FUND
- -----------------------
<TABLE>
<S> <C>
INVESTMENT To provide effective diversification against equities and a
OBJECTIVE stable level of cash flow by investing in fixed-income
securities.
PRINCIPAL The Fixed Income I Fund invests primarily in investment
INVESTMENT grade fixed- income securities. In particular, the Fund
STRATEGIES holds debt securities issued or guaranteed by the US
government and, to a lesser extent by non-US governments, or
by their respective agencies and instrumentalities. It also
holds mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. In seeking investments
that will produce cash flow, the Fund's money managers also
identify sectors of the fixed-income market that they
believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
39
<PAGE>
FIXED INCOME III FUND
- ------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from broad fixed-income market
portfolios.
PRINCIPAL The Fixed Income III Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time the Fund may invest in municipal debt
obligations.
The Fund may invest up to 25% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by a
Fund money manager to be of comparable quality. These
securities are commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
41
<PAGE>
RISKS
An investment in the Funds, like any investment, has risks. The value of
each Fund fluctuates, and you could lose money. The following table describes
principal types of risks that the Funds are subject to and lists next to each
description those Funds most likely to be affected by the risk. Other Funds that
are not listed may hold portfolio investments that are subject to one or more of
the risks, but will not do so in a way that is expected to principally affect
the performance of the Fund as a whole. Please refer to the Funds' Statement of
Additional Information for a discussion of risks associated with types of
securities held by the Funds and the investment practices employed by the
individual Funds.
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
MULTI-MANAGER The investment styles employed by a Fund's Money Managers All Funds
APPROACH may not be complementary. The interplay of the various
strategies employed by a Fund's multiple Money Managers may
result in a Fund holding a concentration of certain types of
securities. This concentration may be beneficial or
detrimental to a Fund's performance depending upon the
performance of those securities and the overall economic
environment. The multi-manager approach could result in a
high level of portfolio turnover, resulting in higher Fund
brokerage expenses and increased tax liability from a Fund's
realization of capital gains.
EQUITY SECURITIES The value of equity securities will rise and fall in Equity I
response to the activities of the company that issued the Equity II
stock, general market conditions and/or economic conditions. Equity III
Equity Q
International
Emerging
Markets
Real Estate
Securities
- -Value Stocks Investments in value stocks are subject to risks that Equity I
(i) their intrinsic values may never be realized by the Equity II
market or (ii) such stock may turn out not to have been Equity III
undervalued. Equity Q
International
- -Growth Stocks Growth company stocks may provide minimal dividends which Equity I
could otherwise cushion stock prices in a market decline. Equity II
The value of growth company stocks may rise and fall Equity Q
significantly based, in part, on investors' perceptions of International
the company, rather than on fundamental analysis of the
stocks.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
- -Market-Oriented Market-oriented investments are generally subject to the Equity I
Investments risks associated with growth and value stocks. Equity II
Equity Q
International
- -Securities of Small Investments in smaller companies may involve greater risks Equity II
Capitalization because these companies generally have a limited track
Companies record. Smaller companies often have narrower markets and
more limited managerial and financial resources than larger,
more established companies. As a result, their performance
can be more volatile, which may increase the volatility of a
Fund's portfolio.
FIXED-INCOME Prices of fixed-income securities rise and fall in response Short Term
SECURITIES to interest rate changes. Generally, when interest rates Bond
rise, prices of fixed-income securities fall. The longer the Fixed Income I
duration of the security, the more sensitive the security is Fixed Income III
to this risk. A 1% increase in interest rates would reduce
the value of a $100 note by approximately one dollar if it
had a one-year duration, but would reduce its value by
approximately fifteen dollars if it had a 15-year duration.
There is also a risk that one or more of the securities will
be downgraded in credit rating or go into default.
Lower-rated bonds generally have higher credit risks.
- -Non-investment Although lower rated debt securities generally offer a
Grade Fixed-income higher yield than higher rated debt securities, they involve
Securities higher risks. They are especially subject to:
- adverse changes in general economic conditions and in the
industries in which their issuers are engaged,
- changes in the financial condition of their issuers and
- price fluctuations in response to changes in interest
rates.
As a result, issuers of lower rated debt securities are more Short Term
likely than other issuers to miss principal and interest Bond
payments or to default which could result in a loss to a Fixed Income III
Fund.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
INTERNATIONAL A Fund's return and net asset value may be significantly International
SECURITIES affected by political or economic conditions and regulatory Emerging
requirements in a particular country. Foreign markets, Markets
economies and political systems may be less stable than US Short Term
markets, and changes in exchange rates of foreign currencies Bond
can affect the value of a Fund's foreign assets. Foreign Fixed Income I
laws and accounting standards typically are not as strict as Fixed Income III
they are in the US and there may be less public information
available about foreign companies. Foreign securities
markets may be less liquid and have fewer transactions than
US securities markets. Additionally, international markets
may experience delays and disruptions in securities
settlement procedures for a Fund's portfolio securities.
- -Non-US Debt A Fund's foreign debt securities are typically obligations Short Term
Securities of sovereign governments and corporations. These securities Bond
are particularly subject to a risk of default from political Fixed Income I
instability. Fixed Income III
- -Emerging Market Investments in emerging or developing markets involve Emerging
Countries exposure to economic structures that are generally less Markets
diverse and mature, and to political systems which have less
stability than those of more developed countries. Emerging
market securities are subject to currency transfer
restrictions and may experience delays and disruptions in
securities settlement procedures for a Fund's portfolio
securities.
- -Instruments of US Non-US corporations and banks issuing dollar denominated Short Term
and Foreign Banks instruments in the US are not necessarily subject to the Bond
and Branches and same regulatory requirements that apply to US corporations Fixed Income I
Foreign and banks, such as accounting, auditing and recordkeeping Fixed Income III
Corporations, standards, the public availability of information and, for
Including Yankee banks, reserve requirements, loan limitations and
Bonds examinations. This increases the possibility that a non-US
corporation or bank may become insolvent or otherwise unable
to fulfill its obligations on these instruments.
DERIVATIVES (E.G. Price movements of a futures contract, option or structured Short Term
FUTURES CONTRACTS, note may not be identical to price movements of portfolio Bond
OPTIONS ON FUTURES, securities or a securities index resulting in the risk that, Fixed Income I
INTEREST RATE SWAPS) when a Fund buys a futures contract or option as a hedge, Fixed Income III
the hedge may not be completely effective.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
REAL ESTATE Just as real estate values go up and down, the value of the Real Estate
SECURITIES securities of companies involved in the industry, and in Securities
which a Fund invests, also fluctuates. A Fund that invests
in real estate securities is also subject to the risks
associated with direct ownership of real estate. Additional
risks include declines in the value of real estate, changes
in general and local economic conditions, increases in
property taxes and changes in tax laws and interest rates.
The value of securities of companies that service the real
estate industry may also be affected by such risks.
- -REITs REITs may be affected by changes in the value of the Real Estate
underlying properties owned by the REITs and by the quality Securities
of any credit extended. Moreover, the underlying portfolios
of REITs may not be diversified, and therefore are subject
to the risk of financing a single or a limited number of
projects. REITs are also dependent upon management skills
and are subject to heavy cash flow dependency, defaults by
borrowers, self-liquidation and the possibility of failing
either to qualify for tax-free pass through of income under
federal tax laws or to maintain their exemption from certain
federal securities laws.
MUNICIPAL Municipal obligations are affected by economic, business or Fixed Income I
OBLIGATIONS political developments. These securities may be subject to Fixed Income III
provisions of litigation, bankruptcy and other laws Short Term
affecting the rights and remedies of creditors, or may Bond
become subject to future laws extending the time for payment
of principal and/or interest, or limiting the rights of
municipalities to levy taxes.
REPURCHASE Under a repurchase agreement, a bank or broker sells Fixed Income I
AGREEMENTS securities to a Fund and agrees to repurchase them at the Fixed Income III
Fund's cost plus interest. If the value of the securities Short Term
declines and the bank or broker defaults on its repurchase Bond
obligation, a Fund could incur a loss.
EXPOSING LIQUIDITY By exposing its liquidity reserves to the equity market, Equity I
RESERVES TO EQUITY principally by use of equity futures, a Fund's performance Equity II
MARKETS tends to correlate more closely to the performance of the Equity III
market as a whole. Although this increases a Fund's Equity Q
performance if equity markets rise, it reduces a Fund's International
performance if equity markets decline. Real Estate
Securities
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
SECURITIES LENDING If a borrower of a Fund's securities fails financially, the All Funds
Fund's recovery of the loaned securities may be delayed or
the Fund may lose its rights to the collateral which could
result in a loss to a Fund.
</TABLE>
AN INVESTMENT IN ANY OF THE FUNDS IS NOT A BANK DEPOSIT AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
46
<PAGE>
MANAGEMENT OF THE FUNDS
The Funds' investment adviser is FRIMCo, 909 A Street, Tacoma, Washington
98402. FRIMCo pioneered the "multi-style, multi-manager" investment method in
mutual funds and manages over $17 billion in more than 30 mutual fund
portfolios. FRIMCo was established in 1982 to serve as the investment management
arm of Russell.
Russell, which acts as consultant to the Funds, was founded in 1936 and has
been providing comprehensive asset management consulting services for over 30
years to institutional investors, principally large corporate employee benefit
plans. Russell provides the Funds and FRIMCo with the asset management
consulting services that it provides to its other consulting clients. The Funds
do not compensate Russell for these services. Russell and its affiliates have
offices around the world, in Tacoma, New York, Toronto, London, Paris, Sydney,
Auckland, Singapore, Singapore and Tokyo.
Russell is a subsidiary of The Northwestern Mutual Life Insurance Company.
Founded in 1857, Northwestern Mutual is a mutual life insurance corporation
headquartered in Milwaukee, Wisconsin. It leads the US in both individual life
insurance sold annually and individual life insurance in force.
FRIMCo recommends money managers to the Funds, allocates Fund assets among
them, oversees them, and evaluates their results. FRIMCo also oversees the
management of the Funds' liquidity reserves. The Funds' money managers select
the individual portfolio securities for the assets assigned to them.
FRIMCo's officers and employees who oversee the money managers are:
- Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
June 1989.
- Mark D. Amberson, who has been a Portfolio Manager of FRIMCo since January
1998. From 1991 to 1997, Mr. Amberson was a Portfolio Manager in Russell's
Money Market Trading Group. Mr. Amberson has, jointly with Mr. Burge,
primary responsibility for management of the Fixed Income I, Diversified
Bond, Short Term Bond, Fixed Income III, Tax Exempt Bond and Multistrategy
Bond Funds.
- Randal C. Burge, who has been Director of Global Fixed Income since
January 2000. From 1995 to 1999, Mr. Burge was a Portfolio Manager of
FRIMCo. From 1990 to 1995, Mr. Burge was a Client Executive for Frank
Russell Australia. Mr. Burge has, jointly with Mr. Amberson, primary
responsibility for management of the Fixed Income I, Fixed Income III,
Diversified Bond, Short Term Bond, Tax Exempt Bond and Multistrategy Bond
Funds.
- Jean Carter, who has been Director of Global Equities since January 2000.
From 1994 to 1999, Ms. Carter was a Portfolio Manager of FRIMCo.
- Ann Duncan, who has been a Portfolio Manager of FRIMCo since January 1998.
From 1996 to 1997, Ms. Duncan was a Senior Equity Research Analyst with
Russell. From 1992 to 1995, Ms. Duncan was an equity analyst and portfolio
manager with Avatar Associates. Ms. Duncan has, jointly with Mr. Jornlin,
primary responsibility for management of the International and
International Securities Funds.
- James M. Imhof, Director of FRIMCo's Portfolio Trading, manages the Funds'
liquidity portfolios on a day to day basis and has been responsible for
ongoing analysis and monitoring of the money managers since 1989.
47
<PAGE>
- James A. Jornlin, who has been a Portfolio Manager of FRIMCo since January
2000. From 1995 to 1999, Mr. Jornlin was a Senior Investment Officer of
FRIMCo. From 1991 to 1995, Mr. Jornlin was a Senior Research Analyst with
Russell. Mr. Jornlin has, jointly with Mr. Parish, primary responsibility
for management of the Emerging Markets Fund, has, jointly Ms. Duncan,
primary responsibility for the management of the International and
International Securities Funds and has, jointly with Mr. Ogard, primary
responsibility for the management of the Real Estate Securities Fund.
- Eric W. Ogard, who has been a Portfolio Manager of FRIMCo since March
2000. Mr. Ogard was a Research Analyst for FRIMCo from 1995 to 1997 and a
Senior Research Analyst for FRIMCo from 1997 to 2000. Mr. Ogard has,
jointly with Mr. Trittin and Mr. Tipple, primary responsibility for the
management of the Equity I, Equity II, Equity III, Equity Q, Tax-Managed
Large Cap, Tax-Managed Small Cap, Diversified Equity, Quantitative Equity,
Special Growth and Equity Income Funds and has, jointly with Mr. Jornlin,
primary responsibility for the management of the Real Estate Securities
Fund.
- Symon Parish, who has been an Associate Portfolio Manager of Frank Russell
Company Limited, an affiliate of FRIMCo, since 1996. From 1994 to 1996,
Mr. Parish was a client service executive in Russell's Auckland office.
Mr. Parish has, jointly with Mr. Jornlin, primary responsibility for the
Emerging Markets Fund.
- Brian C. Tipple, who has been a Portfolio Manager of FRIMCo since July
1999. From 1991 to 1999, Mr. Tipple was a Client Executive with Frank
Russell Trust Company. Mr. Tipple has, jointly with Mr. Ogard and
Mr. Trittin, primary responsibility for the management of the Equity I,
Equity II, Equity III, Equity Q, Tax-Managed Large Cap, Tax-Managed Small
Cap, Diversified Equity, Quantitative Equity, Special Growth and Equity
Income Funds.
- Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of US Equity
Manager Research Department with Russell. Mr. Trittin has, jointly with
Mr. Ogard and Mr. Tipple, primary responsibility for management of the
Equity I, Equity II, Equity III, Equity Q, Tax-Managed Large Cap,
Tax-Managed Small Cap, Diversified Equity, Quantitative Equity, Special
Growth and Equity Income Funds.
The aggregate annual rate of advisory and administrative fees, payable to
FRIMCo monthly on a pro rata basis, are the following percentages of each Fund's
average daily net assets: Equity I Fund, 0.60%; Equity II Fund, 0.75%;
Equity III Fund, 0.60%; Equity Q Fund, 0.60%; International Fund, 0.75%; Fixed
Income I Fund, 0.30%; Fixed Income III Fund, 0.55%; Emerging Markets Fund,
1.20%; Real Estate Securities Fund, 0.85%; and Short Term Bond Fund, 0.50%. Of
these aggregate amounts 0.05% is attributable to administrative services. Each
Fund may also pay, in addition to the aggregate fees set forth above, a fee
which compensates FRIMCo for managing collateral which the Funds have received
in securities lending and certain other portfolio transactions which are not
treated as net assets of that Fund ("additional assets") in determining the
Fund's net asset value per share. The additional fee payable to FRIMCo will
equal an amount of up to 0.07% of each Fund's additional assets on an annualized
basis.
48
<PAGE>
THE MONEY MANAGERS
Each Fund allocates its assets among the money managers listed under "Money
Manager Information" at the end of this Prospectus. FRIMCo, as the Funds'
advisor, may change the allocation of a Fund's assets among money managers at
any time. The Funds received an exemptive order from the Securities and Exchange
Commission (SEC) that permits a Fund to engage or terminate a money manager at
any time, subject to the approval by the Fund's Board of Trustees (Board),
without a shareholder vote. A Fund notifies its shareholders within 60 days of
when a money manager begins providing services. The Funds select money managers
based primarily upon the research and recommendations of FRIMCo and Russell.
FRIMCo and Russell evaluate quantitatively and qualitatively the money manager's
skills and results in managing assets for specific asset classes, investment
styles and strategies. Short-term investment performance, by itself, is not a
controlling factor in any Fund's selection or termination of a money manager.
Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund. At the same time, however, each money
manager must operate within the Fund's investment objectives, restrictions and
policies. Additionally, each manager must operate within more specific
constraints developed from time to time by FRIMCo. FRIMCo develops such
constraints for each manager based on FRIMCo's assessment of the manager's
expertise and investment style. By assigning more specific constraints to each
money manager, FRIMCo intends to capitalize on the strengths of each money
manager and to combine their investment activities in a complementary fashion.
Although the money managers' activities are subject to general oversight by the
Board and the Funds' officers, neither the Board, the officers, FRIMCo nor
Russell evaluate the investment merits of the money managers' individual
security selections.
49
<PAGE>
PORTFOLIO TURNOVER
The portfolio turnover rates for certain Funds are likely to be somewhat
higher than the rates for comparable mutual funds with a single money manager.
Each of the Funds' money managers makes decisions to buy or sell securities
independently from other managers. Thus, one money manager for a Fund may be
selling a security when another money manager for the Fund (or for another Fund)
is purchasing the same security. Also, when a Fund replaces a money manager the
new money manager may significantly restructure the investment portfolio. These
practices may increase the Funds' portfolio turnover rates, realization of gains
or losses, brokerage commissions and other transaction costs. When a Fund
realizes capital gains upon selling portfolio securities, your tax liability
increases. The annual portfolio turnover rates for each of the Funds are shown
in the Financial Highlights tables in this Prospectus.
DIVIDENDS AND DISTRIBUTIONS
INCOME DIVIDENDS
Each Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The amount and frequency of
distributions are not guaranteed, all distributions are at the Board's
discretion. Currently, the Board intends to declare dividends from net
investment income (if any), according to the following schedule:
<TABLE>
<CAPTION>
DECLARED PAYABLE FUNDS
- -------- ------- -----
<S> <C> <C>
Quarterly............... Mid: April, July, October and December Equity I, Equity II, Equity III,
Equity Q, Real Estate Securities, Short
Term Bond, Fixed Income I and Fixed
Income III Funds
Annually................ Mid-December International and Emerging Markets
Funds
</TABLE>
CAPITAL GAINS DISTRIBUTIONS
The Board intends to declare capital gain distributions (both short-term and
long-term) once a year in mid-December to reflect any net short-term and net
long-term capital gains realized by a Fund as of October 31 of the current
fiscal year. A Fund may be required to make an additional distribution if
necessary, in any year for operational or other reasons. Distributions that are
declared in October, November, or December to shareholders of record in such
months, and paid in January of the following year, will be treated for tax
purposes as if received on December 31 of the year in which they were declared.
BUYING A DIVIDEND
If you purchase shares just before a distribution, you will pay the full
price for the Shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." Unless your account is
a tax-deferred account, dividends paid to you would be included in your
50
<PAGE>
gross income for tax purposes even though you may not have participated in the
increase of the net asset value of a Fund, regardless of whether you reinvested
the dividends. To avoid "buying a dividend," check a Fund's distribution dates
before you invest.
AUTOMATIC REINVESTMENT
Your dividends and other distributions are automatically reinvested at the
closing net asset value on the record date, in additional Shares of the
appropriate Fund, unless you elect to have the dividends or distributions paid
in cash or invested in another Fund. You may change your election by delivering
written notice no later than ten days prior to the payment date to the Funds at
Frank Russell Investment Company, c/o Boston Financial Data Services,
2 Heritage Drive, N. Quincy, MA 02171.
TAXES
In general, distributions from a Fund are taxable to you as either ordinary
income or capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Any long-term capital
gains distributed by a Fund are taxable to you as long-term capital gains no
matter how long you have owned your shares. Every January, you will receive a
statement that shows the tax status of distributions you received for the
previous year. Distributions declared in December but paid in January are
taxable as if they were paid in December.
When you sell or exchange your shares of a Fund, you may have a capital gain
or loss. Any loss incurred on the sale or exchange of a Fund's Shares, held for
six months or less, will be treated as a long-term capital loss to the extent of
capital gains dividends received with respect to such Shares. The tax rate on
any gain from the sale or exchange of your shares depends on how long you have
held your shares.
Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-US investors may be
subject to US withholding and estate tax. You should consult your tax
professional about federal, state, local or foreign tax consequences of holding
shares of a Fund.
When a Fund invests in securities of certain foreign countries, the Fund may
have taxes withheld on the income received from these securities. If more than
50% of the total fair market value of a Fund's assets is made up of foreign
securities, the Fund may elect to pass through such taxes to shareholders as a
foreign tax credit.
If you are a corporate investor, a portion of the dividends from net
investment income paid by Equity I, Equity II, Equity III, Equity Q and Real
Estate Securities Funds may generally qualify, in part, for the corporate
dividends-received deduction. However, the portion of the dividends so qualified
depends on the aggregate qualifying dividend income received by each Fund from
domestic (US) sources. Certain holding period and debt financing restrictions
may apply to corporate investors seeking to claim the deduction. You should
consult your tax professional with respect to the applicability of these rules.
51
<PAGE>
By law, a Fund must withhold 31% of your distributions and proceeds if you
do not provide your correct taxpayer identification number, or certify that such
number is correct, or if the IRS instructs the Fund to do so.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN A FUND.
Additional information on these and other tax matters relating to the Funds
and their shareholders is included in the section entitled "Taxes" in the Funds'
Statement of Additional Information.
HOW NET ASSET VALUE IS DETERMINED
NET ASSET VALUE PER SHARE
The net asset value per Share is calculated for Shares of each class of each
Fund on each business day on which Shares are offered or redemption orders are
tendered. For all Funds, a business day is one on which the New York Stock
Exchange (NYSE) is open for trading. The NYSE is not open on national holidays
or Good Friday. All Funds determine net asset value at 4:00 p.m. Eastern Time or
as of the close of the NYSE, whichever is earlier.
VALUATION OF PORTFOLIO SECURITIES
Securities held by the Funds are typically priced using market quotations or
pricing services when the prices are believed to be reliable, that is, when the
prices reflect the fair market value of the securities. The Funds value
securities for which market quotations are not readily available at "fair
value," as determined in good faith and in accordance with procedures
established by the Board. If you hold Shares in a Fund, such as the
International or Emerging Markets Funds, that holds portfolio securities that
are listed primarily on foreign exchanges, the net asset value of that Fund's
Shares may change on a day when you will not be able to purchase or redeem that
Fund's Shares. This is because the value of those portfolio securities may
change on weekends or other days when that Fund does not price its Shares.
DISTRIBUTION AND SHAREHOLDER
SERVICING ARRANGEMENTS
The Equity I, Equity II, Equity III, Equity Q, International, Fixed
Income I and Fixed Income III Funds offer multiple classes of Shares: Class E
Shares and Class I Shares. The Emerging Markets, Real Estate Securities and
Short Term Bond Funds offer multiples classes of shares: Class E Shares and
Class S Shares.
CLASS E SHARES participate in the Funds' shareholder servicing plan.
Under the shareholder servicing plan, the Funds' Class E Shares pay daily
fees equal to 0.25% on an annualized basis for services provided to Class E
shareholders. The shareholder servicing fees are paid out of the Funds'
Class E share assets on an ongoing basis, and over time will increase the
cost of your investment in the Funds.
CLASS I AND CLASS S SHARES do not participate in the shareholder
servicing plan.
52
<PAGE>
HOW TO PURCHASE SHARES
Funds are generally available only through a select network of qualified
Financial Intermediaries. If you are not currently working with one of these
Financial Intermediaries, please call Russell Investor Services at (800) RUSSEL4
(800-787-7354) for assistance in contacting an investment professional near you.
MINIMUM INVESTMENT FOR THE EQUITY I, EQUITY II, EQUITY III, EQUITY Q,
INTERNATIONAL, FIXED INCOME I AND FIXED INCOME III FUNDS. For each of the
Class E and Class I Shares of these Funds, there is a $250,000 minimum initial
investment for each account in each Fund.
MINIMUM INVESTMENT FOR THE EMERGING MARKETS, REAL ESTATE SECURITIES AND
SHORT TERM BOND FUNDS. For each of the Class E and Class S Shares of these
Funds, there is a minimum initial investment of $2,500 for each account in each
Fund.
Each Fund reserves the right to change the categories of investors eligible
to purchase its shares or the required minimum investment amount. You may be
eligible to purchase Fund shares if you do not meet the required initial minimum
investment. You should consult your Financial Intermediary for details, which
are summarized in the Funds' statement of additional information.
Financial Intermediaries may charge their customers a fee for providing
investment-related services. Financial Intermediaries that maintain omnibus
accounts with the Funds may receive administrative fees from the Funds or their
transfer agent. Financial Intermediaries may receive shareholder servicing
compensation from the Funds' Distributor with respect to Class E Shares of the
Funds.
PAYING FOR SHARES
You may purchase shares of the Funds through a Financial Intermediary on any
business day the Funds are open. Purchase orders are processed at the next net
asset value per share calculated after the Funds' receive your order in proper
form (defined in the "Written Instructions" section), and accept the order.
All purchases must be made in US dollars. Checks and other negotiable bank
drafts must be drawn on US banks and made payable to "Frank Russell Investment
Company." The Funds reserve the right to reject any purchase order for any
reason including, but not limited to, receiving a check which does not clear the
bank or a payment which does not arrive in proper form by settlement date. You
will be responsible for any resulting loss to the Funds. An overdraft charge may
also be applied. Cash, third party checks and checks drawn on credit card
accounts generally will not be accepted. However, exceptions may be made by
prior special arrangement with certain Financial Intermediaries.
OFFERING DATES AND TIMES
Orders must be received by the Funds prior to 4:00 p.m. Eastern Time or the
close of the NYSE, whichever is earlier. Purchases can be made on any day when
Fund shares are offered. Because Financial Intermediaries' processing time may
vary, please ask your Financial Intermediary representative when your account
will be credited.
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<PAGE>
ORDER AND PAYMENT PROCEDURES
Generally, you must place purchase orders for Shares of the Funds through a
Financial Intermediary. You may pay for your purchase by mail or electronic
funds transfer. Initial purchases require a completed and signed Application for
each new account regardless of the investment method. Specific payment
arrangements should be made with your Financial Intermediary.
BY MAIL
For new accounts, please mail the completed Application to your Financial
Intermediary. Payment for orders may be made by check or other negotiable bank
draft and sent to the Funds' Transfer Agent. Certified checks are not necessary,
but checks are accepted subject to collection at full face value in US funds.
Third party checks will not be accepted. Checks should be made payable to "Frank
Russell Investment Company."
BY FEDERAL FUNDS WIRE
You can pay for orders by wiring federal funds to the Funds' Custodian,
State Street Bank and Trust Company. All wires must include your account
registration and account number for identification. Inability to properly
identify a wire transfer may prevent or delay timely settlement of your
purchase.
BY AUTOMATED CLEARING HOUSE ("ACH")
You can make initial or subsequent investments through ACH to the Funds'
Custodian, State Street Bank and Trust Company.
AUTOMATED INVESTMENT PROGRAM
You can make regular investments (minimum $50) in the Funds in an
established account on a monthly, quarterly, semiannual or annual basis by
automatic electronic funds transfer from a bank account. You must make a
separate transfer for each Fund in which you purchase Shares. You may change the
amount or stop the automatic purchase at any time. Contact your Financial
Intermediary for further information on this program and an enrollment form.
THREE-DAY SETTLEMENT PROGRAM
The Funds will accept orders at the next computed net asset value from
Financial Intermediaries to purchase Shares of the Funds for settlement on the
third business day following the receipt of the order. These orders are paid for
by a federal funds wire if the Financial Intermediary has enrolled in the
program and agreed in writing to indemnify the Funds against any losses
resulting from non-receipt of payment.
54
<PAGE>
EXCHANGE PRIVILEGE
BY MAIL OR TELEPHONE
Through your Financial Intermediary, you may exchange Shares of any Fund you
own for shares of any other Fund on the basis of the current net asset value per
share at the time of the exchange. Shares of a Fund offered by this Prospectus
may only be exchanged for Shares of a Fund offered by FRIC through another
Prospectus under certain conditions and only in states where the exchange may be
legally made. For additional information, including Prospectuses for other
Funds, contact your Financial Intermediary.
Exchanges may be made by mail or by telephone if the registration of the two
accounts is identical. Contact your Financial Intermediary for assistance in
exchanging Shares and, because Financial Intermediaries' processing time may
vary, to find out when your account will be credited or debited. To request an
exchange in writing, please follow the procedures in the "Written Instructions"
section before mailing to your Financial Intermediary.
An exchange involves the redemption of Shares, which is treated as a sale
for income tax purposes. Thus, capital gain or loss may be realized. Please
consult your tax adviser for more information. The Shares to be acquired will be
purchased when the proceeds from the redemption become available (up to seven
days from the receipt of the request) at the next net asset value per share
calculated after the Funds received the exchange request in good order.
IN-KIND EXCHANGE OF SECURITIES
FRIMCo, in its capacity as the Funds' investment advisor, may, at its
discretion, permit you to acquire Shares in exchange for securities you
currently own. Any securities exchanged must meet the investment objective,
policies and limitations of the applicable Fund, have a readily ascertainable
market value, be liquid, not be subject to restrictions on resale and have a
market value, plus any cash, equal to at least $100,000.
Shares purchased in exchange for securities generally may not be redeemed or
exchanged for 15 days following the purchase by exchange or until the transfer
has settled, whichever comes first. If you are a taxable investor, you will
generally realize a gain or loss for federal income tax purposes on the
exchange. If you are contemplating an in-kind exchange you should consult your
tax adviser.
The price at which the exchange will take place will depend upon the
relative net asset value of the Shares purchased and securities exchanged.
Securities accepted by a Fund will be valued in the same way the Fund values its
assets. Any interest earned on the securities following their delivery to the
Funds and prior to the exchange will be considered in valuing the securities.
All interest, dividends, subscription or other rights attached to the securities
becomes the property of the Fund, along with the securities. Please contact your
Financial Intermediary for further information.
55
<PAGE>
HOW TO REDEEM SHARES
Shares of the Funds may be redeemed through your Financial Intermediary on
any business day the Funds are open at the next net asset value per share
calculated after the Funds' Transfer Agent receives an order in proper form
(defined in the "Written Instructions" section). Payment will ordinarily be made
within seven days after receipt of your request in proper form. Shares recently
purchased by check may not be available for redemption for 15 days following the
purchase or until the check clears, whichever occurs first, to assure payment
has been collected.
REDEMPTION DATES AND TIMES
Redemption requests must be placed through a Financial Intermediary and
received by the Funds prior to 4:00 p.m. Eastern Time or the close of the NYSE,
whichever is earlier. Because Financial Intermediaries' processing times may
vary, please ask your Financial Intermediary representative when your account
will be debited. Requests can be made by mail or telephone on any day when Fund
shares are offered, or through the Systematic Withdrawal Program described
below.
BY MAIL OR TELEPHONE
You may redeem your shares by calling or writing to your Financial
Intermediary. Written requests to sell shares are in proper form when the
instructions are signed by all registered owners, with a signature guarantee if
necessary.
SYSTEMATIC WITHDRAWAL PROGRAM
The Funds offer a systematic withdrawal program which allows you to redeem
your Shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. If you would like to establish a
systematic withdrawal program, please complete the proper section of the account
application and indicate how you would like to receive your payments. You will
generally receive your payment by the end of the month in which a payment is
scheduled. When you redeem your shares under a systematic withdrawal program, it
is a taxable transaction.
You may choose to have the payments mailed to you or directed to your bank
account by ACH transfer. You may discontinue the systematic withdrawal program,
or change the amount and timing of withdrawal payments by contacting your
Financial Intermediary.
ACCOUNTS IN STREET NAME
Many brokers, employee benefit plans and bank trusts combine their client's
Fund holdings in a single omnibus account with the Funds held in the brokers',
plans', or bank trusts' own name or "street name." Therefore, if you hold Fund
shares through a brokerage account, employee benefit plan or bank trust fund,
the Funds may have records only of the omnibus account. In this case, your
broker, employee benefit plan or bank is responsible for keeping track of your
account information. This means that you may not be able to request transactions
in your Shares directly through the Funds, but can do so only through your
broker, plan administrator or bank. Ask your Financial Intermediary for
information on whether your Shares are held in an omnibus account.
56
<PAGE>
PAYMENT OF REDEMPTION PROCEEDS
BY CHECK
When you redeem your Shares, a check for the redemption proceeds will be
sent to the shareholder(s) of record at the address of record within seven days
after the Funds receive a redemption request in proper form.
BY WIRE
If you have established the electronic redemption option, your redemption
proceeds can be wired to your predesignated bank account on the next bank
business day after the Funds receive your redemption request. The Funds may
charge a fee to cover the cost of sending a wire transfer for redemptions less
than $1,000, and your bank may charge an additional fee to receive the wire.
Wire transfers can be sent to US commercial banks that are members of the
Federal Reserve System.
WRITTEN INSTRUCTIONS
PROPER FORM: Written instructions must be in proper form. They must include:
A description of the request
The name of the Fund(s)
The class of shares, if applicable
The account number(s)
The amount of money or number of shares being purchased, exchanged,
transferred or redeemed
The name(s) on the account(s)
The signature(s) of all registered account owners
For exchanges, the name of the Fund you are exchanging into
Your daytime telephone number
57
<PAGE>
SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
<TABLE>
<CAPTION>
ACCOUNT TYPE REQUIREMENTS FOR WRITTEN REQUESTS
<S> <C>
Individual, Joint Tenants, Written instructions must be signed by each shareholder,
Tenants in Common exactly as the names appear in the account registration.
UGMA or UTMA (custodial accounts Written instructions must be signed by the custodian in
for minors) his/her capacity as it appears in the account
registration.
Corporation, Association Written instructions must be signed by authorized person(s),
stating his/her capacity as indicated by the corporate
resolution to act on the account and a copy of the
corporate resolution, certified within the past 90 days,
authorizing the signer to act.
Estate, Trust, Pension, Profit Written instructions must be signed by all trustees. If the
Sharing Plan name of the trustee(s) does not appear in the account
registration, please provide a copy of the trust document
certified within the last 60 days.
Joint tenancy shareholders whose Written instructions must by signed by the surviving
co-tenants are deceased tenant(s). A certified copy of the death certificate must
accompany the request.
</TABLE>
SIGNATURE GUARANTEE
The Funds reserve the right to require a signature guarantee under certain
circumstances. A signature guarantee verifies the authenticity of your
signature. You should be able to obtain a signature guarantee from a bank,
broker, credit union, savings association, clearing agency, or securities
exchange or association, but not a notary public. Call your financial
institution to see if it has the ability to guarantee a signature.
ACCOUNT POLICIES
THIRD PARTY TRANSACTIONS
If you purchase Shares as part of a program of services offered by a
Financial Intermediary, you may be required to pay additional fees. You should
contact your Financial Intermediary for information concerning what additional
fees, if any, may be charged.
REDEMPTION IN-KIND
A Fund may pay for any portion of the redemption amount in excess of
$250,000 by a distribution in-kind of securities from the Fund's portfolio,
instead of in cash. If you receive an in-kind distribution of portfolio
securities, and choose to sell them, you will incur brokerage charges and
continue to be subject to tax consequences and market risk pending any sale.
58
<PAGE>
STALE CHECKS
For the protection of shareholders and the Funds, if a check issued for the
payment of a redemption or distribution is not cashed for more than 180 days
from issuance, it will not be honored. The Funds have adopted procedures
described in the statement of additional information regarding the treatment of
stale checks, or you may contact your Financial Intermediary for additional
information.
59
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you
understand the Funds' financial performance for the past 5 years (or, if a Fund
or Class has not been in operation for 5 years, since the beginning of
operations for that Fund or Class). Certain information reflects financial
results for a single Fund share throughout each year or period ended
December 31. The total returns in the table represent how much your investment
in a Fund would have increased (or decreased) during each period, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Funds'
financial statements, are included in the Funds' annual reports, which are
available upon request.
EQUITY I FUND--CLASS E SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 38.01
-------
INCOME FROM OPERATIONS
Net investment income (a)................................. .13
Net realized and unrealized gain (loss)................... 3.11
-------
Total income from operations............................ 3.24
-------
DISTRIBUTIONS
From net investment income................................ (.12)
From net realized gain.................................... (3.62)
-------
Total distributions..................................... (3.74)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 37.51
=======
TOTAL RETURN (%)(b)......................................... 8.97
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 49,284
Ratios to average net assets (%)(c):
Operating expenses...................................... .95
Net investment income................................... .57
Portfolio turnover rate (%)............................... 111.56
</TABLE>
- --------------------------
* For the period May 14, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
60
<PAGE>
EQUITY I FUND--CLASS I SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 35.17 $ 30.51 $ 30.34 $ 28.00 $ 23.32
---------- ---------- ---------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a).................... .27 .27 .34 .42 .52
Net realized and unrealized gain (loss)...... 6.18 7.10 8.89 5.96 7.71
---------- ---------- ---------- -------- --------
Total income from operations............... 6.45 7.37 9.23 6.38 8.23
---------- ---------- ---------- -------- --------
DISTRIBUTIONS
From net investment income................... (.28) (.27) (.34) (.42) (.52)
From net realized gain....................... (3.88) (2.44) (8.72) (3.62) (3.03)
---------- ---------- ---------- -------- --------
Total distributions........................ (4.16) (2.71) (9.06) (4.04) (3.55)
---------- ---------- ---------- -------- --------
NET ASSET VALUE, END OF PERIOD................. $ 37.46 $ 35.17 $ 30.51 $ 30.34 $ 28.00
========== ========== ========== ======== ========
TOTAL RETURN (%)(b)............................ 18.98 25.10 32.02 23.58 35.94
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)..... 1,632,783 1,381,704 1,136,373 961,953 751,497
Ratios to average net assets (%)(b):
Operating expenses......................... .69 .70 .70 .71 .59
Net investment income...................... .72 .82 .96 1.38 1.91
Portfolio turnover rate (%).................. 111.56 100.68 110.75 99.51 92.04
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
61
<PAGE>
EQUITY II FUND--CLASS E SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 31.37
-------
INCOME FROM OPERATIONS
Net investment income (a)................................. .02
Net realized and unrealized gain (loss)................... 5.99
-------
Total income from operations............................ 6.01
-------
DISTRIBUTIONS
From net investment income................................ (.01)
From net realized gain.................................... (1.66)
-------
Total distributions..................................... (1.67)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 35.71
=======
TOTAL RETURN (%)(b)......................................... 19.55
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 33,525
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.17
Net investment income................................... .09
Portfolio turnover rate (%)............................... 111.89
</TABLE>
- --------------------------
* For the period May 14, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
62
<PAGE>
EQUITY II FUND--CLASS I SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 30.94 $ 32.96 $ 30.05 $ 28.88 $ 25.00
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)........................ .10 .09 .11 .16 .27
Net realized and unrealized gain (loss).......... 6.68 .04 8.11 4.96 6.80
-------- -------- -------- -------- --------
Total income from operations................... 6.78 .13 8.22 5.12 7.07
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income....................... (.10) (.10) (.11) (.16) (.29)
From net realized gain........................... (1.91) (2.05) (5.20) (3.79) (2.90)
-------- -------- -------- -------- --------
Total distributions............................ (2.01) (2.15) (5.31) (3.95) (3.19)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD..................... $ 35.71 $ 30.94 $ 32.96 $ 30.05 $ 28.88
======== ======== ======== ======== ========
TOTAL RETURN (%)(b)................................ 22.60 .70 28.66 18.51 28.67
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)......... 752,530 533,819 482,159 365,955 279,566
Ratios to average net assets (%)(b):
Operating expenses............................. .92 .91 .92 .95 .83
Net investment income.......................... .31 .29 .35 .52 .97
Portfolio turnover rate (%)...................... 111.89 128.87 103.00 120.78 89.31
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment service fees.
63
<PAGE>
EQUITY III FUND--CLASS E SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 30.27
--------
INCOME FROM OPERATIONS
Net investment income (a)................................. .21
Net realized and unrealized gain (loss)................... (2.12)
--------
Total income from operations............................ (1.91)
--------
DISTRIBUTIONS
From net investment income................................ (.25)
From net realized gain.................................... (1.93)
--------
Total distributions..................................... (2.18)
--------
NET ASSET VALUE, END OF PERIOD.............................. $ 26.18
========
TOTAL RETURN (%)(b)......................................... (6.13)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 7,927
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.03
Net investment income................................... 1.25
Portfolio turnover rate (%)............................... 146.28
</TABLE>
- --------------------------
* For the period May 14, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
64
<PAGE>
EQUITY III FUND--CLASS I SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 29.12 $ 29.80 $ 29.68 $ 29.11 $ 24.18
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)........................ .40 .47 .60 .70 .82
Net realized and unrealized gain (loss).......... (.41) 2.75 8.69 5.10 7.73
-------- -------- -------- -------- --------
Total income from operations................... (.01) 3.22 9.29 5.80 8.55
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income....................... (.40) (.47) (.61) (.71) (.83)
From net realized gain........................... (2.53) (3.43) (8.56) (4.52) (2.79)
-------- -------- -------- -------- --------
Total distributions............................ (2.93) (3.90) (9.17) (5.23) (3.62)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD..................... $ 26.18 $ 29.12 $ 29.80 $ 29.68 $ 29.11
======== ======== ======== ======== ========
TOTAL RETURN (%)(b)................................ .25 11.53 33.13 20.90 35.96
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)......... 168,361 210,491 242,112 221,778 222,541
Ratios to average net assets (%)(b):
Operating expenses............................. .79 .74 .78 .79 .65
Net investment income.......................... 1.39 1.54 1.77 2.23 2.90
Portfolio turnover rate (%)...................... 146.28 135.53 128.86 100.78 103.40
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
65
<PAGE>
EQUITY Q FUND--CLASS E SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 42.99
--------
INCOME FROM OPERATIONS
Net investment income (a)................................. .14
Net realized and unrealized gain (loss)................... 4.35
--------
Total income from operations............................ 4.49
--------
DISTRIBUTIONS
From net investment income................................ (.24)
From net realized gain.................................... (5.66)
--------
Total distributions..................................... (5.90)
--------
NET ASSET VALUE, END OF PERIOD.............................. $ 41.58
========
TOTAL RETURN (%)(b)......................................... 11.01
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 30,746
Ratios to average net assets (%)(c):
Operating expenses...................................... .94
Net investment income................................... .55
Portfolio turnover rate (%)............................... 90.16
</TABLE>
- --------------------------
* For the period May 14, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
66
<PAGE>
EQUITY Q FUND--CLASS I SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 40.22 $ 35.90 $ 32.94 $ 30.40 $ 24.43
---------- ---------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)..................... .34 .32 .44 .58 .59
Net realized and unrealized gain (loss)....... 8.03 8.53 10.01 6.33 8.52
---------- ---------- -------- -------- --------
Total income from operations................ 8.37 8.85 10.45 6.91 9.11
---------- ---------- -------- -------- --------
DISTRIBUTIONS
From net investment income.................... (.38) (.32) (.44) (.59) (.61)
From net realized gain........................ (6.66) (4.21) (7.05) (3.78) (2.53)
---------- ---------- -------- -------- --------
Total distributions......................... (7.04) (4.53) (7.49) (4.37) (3.14)
---------- ---------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.................. $ 41.55 $ 40.22 $ 35.90 $ 32.94 $ 30.40
========== ========== ======== ======== ========
TOTAL RETURN (%)(b)............................. 21.96 25.98 33.07 23.67 37.91
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)...... 1,363,336 1,175,900 987,760 818,281 620,259
Ratios to average net assets (%)(b):
Operating expenses.......................... .69 .69 .68 .71 .58
Net investment income....................... .80 .85 1.17 1.80 2.07
Portfolio turnover rate (%)................... 90.16 74.56 94.89 74.59 74.00
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
67
<PAGE>
INTERNATIONAL FUND--CLASS E SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 39.07
--------
INCOME FROM OPERATIONS
Net investment income (a)................................. .24
Net realized and unrealized gain (loss)................... 9.73
--------
Total income from operations............................ 9.97
--------
DISTRIBUTIONS
From net investment income................................ (.38)
From net realized gain.................................... (1.98)
--------
Total distributions..................................... (2.36)
--------
NET ASSET VALUE, END OF PERIOD.............................. $ 46.68
========
TOTAL RETURN (%)(b)......................................... 25.87
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 30,541
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.27
Net investment income................................... .92
Portfolio turnover rate (%)............................... 118.99
</TABLE>
- --------------------------
* For the period May 14, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
68
<PAGE>
INTERNATIONAL FUND--CLASS I SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $ 38.03 $ 34.60 $ 37.39 $ 36.26 $ 34.28
---------- ---------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a).......................... .43 .52 .46 .44 .48
Net realized and unrealized gain (loss)............ 10.93 4.10 (.28) 2.41 3.16
---------- ---------- -------- -------- --------
Total income from operations..................... 11.36 4.62 .18 2.85 3.64
---------- ---------- -------- -------- --------
DISTRIBUTIONS
From net investment income......................... (.48) (.59) (.55) (.35) (.72)
From net realized gain............................. (2.24) (.60) (2.42) (1.37) (.94)
---------- ---------- -------- -------- --------
Total distributions.............................. (2.72) (1.19) (2.97) (1.72) (1.66)
---------- ---------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD....................... $ 46.67 $ 38.03 $ 34.60 $ 37.39 $ 36.26
========== ========== ======== ======== ========
TOTAL RETURN (%)(b).................................. 30.46 13.52 .58 7.98 10.71
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)........... 1,263,676 1,013,679 972,735 944,380 796,777
Ratios to average net assets (%)(b):
Operating expenses, net.......................... 1.00 .98 1.00 1.04 .88
Operating expenses, gross........................ 1.00 .98 1.00 1.05 .89
Net investment income............................ 1.07 1.38 1.14 1.20 1.41
Portfolio turnover rate (%)........................ 118.99 64.47 79.45 42.69 36.78
</TABLE>
- --------------------------
(a) For periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
69
<PAGE>
EMERGING MARKETS FUND--CLASS E SHARES
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1999 1998*
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 8.48 $ 7.37
------ ------
INCOME FROM OPERATIONS
Net investment income (loss)(a)........................... (.04) (.02)
Net realized and unrealized gain (loss)................... 4.14 1.13
------ ------
Total income from operations............................ 4.10 1.11
------ ------
DISTRIBUTIONS
From net investment income................................ (.07) --
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $12.51 $ 8.48
====== ======
TOTAL RETURN (%)(b)......................................... 48.71 15.06
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 6,314 39
Ratios to average net assets (%)(c)(d):
Operating expenses...................................... 2.17 --
Net investment income (loss)............................ (.40) --
Portfolio turnover rate (%)............................... 94.85 59.35
</TABLE>
- --------------------------
* For the period September 22, 1998 (commencement of sale) to December 31,
1998.
(a) Average month-end shares outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
(d) The ratios for the period ended December 31, 1998 are not meaningful due to
the Class's short period of operation.
70
<PAGE>
EMERGING MARKETS FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 8.48 $ 11.79 $ 12.35 $ 11.16 $ 12.25
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)............................. .03 .12 .14 .10 .11
Net realized and unrealized gain (loss)............... 4.10 (3.35) (.56) 1.26 (1.12)
-------- -------- -------- -------- --------
Total income from operations........................ 4.13 (3.23) (.42) 1.36 (1.01)
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income............................ (.09) (.08) (.14) (.17) (.05)
From net realized gain................................ -- -- -- -- (.03)
-------- -------- -------- -------- --------
Total distributions................................. (.09) (.08) (.14) (.17) (.08)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......................... $ 12.52 $ 8.48 $ 11.79 $ 12.35 $ 11.16
======== ======== ======== ======== ========
TOTAL RETURN (%)(b)..................................... 49.03 (27.57) (3.45) 12.26 (8.21)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).............. 430,794 294,349 333,052 271,490 172,673
Ratios to average net assets (%)(b):
Operating expenses, net............................. 1.91 1.75 1.64 1.71 1.75
Operating expenses, gross........................... 1.91 1.75 1.64 1.72 1.80
Net investment income............................... .26 1.20 .87 .77 .88
Portfolio turnover rate (%)........................... 94.85 59.35 50.60 34.62 71.16
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
71
<PAGE>
REAL ESTATE SECURITIES FUND--CLASS E SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997 1996*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $24.27 $31.02 $29.18 $26.67
------ ------ ------ ------
INCOME FROM OPERATIONS
Net investment income (a)................................. 1.28 1.26 1.14 .24
Net realized and unrealized gain (loss)................... (1.24) (6.12) 3.95 3.85
------ ------ ------ ------
Total income from operations.......................... .04 (4.86) 5.09 4.09
------ ------ ------ ------
DISTRIBUTIONS
From net investment income................................ (1.55) (1.43) (1.04) (.32)
From net realized gain.................................... -- (.46) (2.21) (1.26)
------ ------ ------ ------
Total distributions................................... (1.55) (1.89) (3.25) (1.58)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD.............................. $22.76 $24.27 $31.02 $29.18
====== ====== ====== ======
TOTAL RETURN (%)(b)......................................... .30 (16.25) 18.20 15.75
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 7,134 843 388 101
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.39 1.47 1.71 1.77
Net investment income................................... 5.42 4.90 3.94 5.31
Portfolio turnover rate (%)............................... 42.69 42.58 49.40 51.75
</TABLE>
- --------------------------
* For the period November 4, 1996 (commencement of sale) to December 31, 1996.
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are not annualized.
72
<PAGE>
REAL ESTATE SECURITIES FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 24.44 $ 30.86 $ 29.19 $ 23.51 $ 22.53
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)........................ 1.30 1.34 1.36 1.39 1.32
Net realized and unrealized gain (loss).......... (1.20) (6.13) 3.93 6.89 1.03
-------- -------- -------- -------- --------
Total income from operations................. .10 (4.79) 5.29 8.28 2.35
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income....................... (1.68) (1.17) (1.41) (1.34) (1.35)
From net realized gain........................... -- (.46) (2.21) (1.26) (.02)
-------- -------- -------- -------- --------
Total distributions.......................... (1.68) (1.63) (3.62) (2.60) (1.37)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD..................... $ 22.86 $ 24.44 $ 30.86 $ 29.19 $ 23.51
======== ======== ======== ======== ========
TOTAL RETURN (%)................................... .55 (15.94) 18.99 36.81 10.87
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)......... 589,300 576,326 615,483 445,619 290,990
Ratios to average net assets (%):
Operating expenses............................. 1.14 1.05 1.02 1.04 1.04
Net investment income.......................... 5.41 4.93 4.57 5.64 6.10
Portfolio turnover rate (%)...................... 42.69 42.58 49.40 51.75 23.49
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
73
<PAGE>
SHORT TERM BOND FUND--CLASS E SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 18.51
--------
INCOME FROM OPERATIONS
Net investment income (a)................................. .80
Net realized and unrealized gain (loss)................... (.34)
--------
Total income from operations............................ .46
--------
DISTRIBUTIONS
From net investment income................................ (.89)
--------
NET ASSET VALUE, END OF PERIOD.............................. $ 18.08
========
TOTAL RETURN (%)(b) 2.53
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 8,693
Ratios to average net assets (%)(c):
Operating expenses...................................... .97
Net investment income................................... 5.05
Portfolio turnover rate (%)............................... 177.08
</TABLE>
- --------------------------
* For the period February 18, 1999 (commencement of sale) to December 31,
1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
74
<PAGE>
SHORT TERM BOND FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 18.46 $ 18.35 $ 18.36 $ 18.55 $ 17.98
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)........................ .90 .99 1.08 1.04 1.16
Net realized and unrealized gain (loss).......... (.36) .11 -- (.19) .59
-------- -------- -------- -------- --------
Total income from operations................. .54 1.10 1.08 .85 1.75
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income....................... (.97) (.99) (1.09) (1.04) (1.18)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD..................... $ 18.03 $ 18.46 $ 18.35 $ 18.36 $ 18.55
======== ======== ======== ======== ========
TOTAL RETURN (%)(b)................................ 3.03 6.09 6.02 4.76 9.95
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......... 447,590 260,539 229,470 222,983 183,577
Ratios to average net assets (%)(b):
Operating expenses............................. .74 .66 .66 .70 .58
Net investment income.......................... 5.22 5.37 5.70 5.70 6.41
Portfolio turnover rate (%)...................... 177.08 129.85 213.14 264.40 269.31
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
75
<PAGE>
FIXED INCOME I FUND--CLASS E SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 21.25
-------
INCOME FROM OPERATIONS
Net investment income (a)................................. .74
Net realized and unrealized gain (loss)................... (.81)
-------
Total income from operations............................ (.07)
-------
DISTRIBUTIONS
From net investment income................................ (.88)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 20.30
=======
TOTAL RETURN (%)(b)......................................... (.32)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 35,950
Ratios to average net assets (%)(c):
Operating expenses...................................... .66
Net investment income................................... 5.79
Portfolio turnover rate (%)............................... 138.69
</TABLE>
- --------------------------
* For the period May 14, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
76
<PAGE>
FIXED INCOME I FUND--CLASS I SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 21.76 $ 21.51 $ 20.99 $ 21.59 $ 19.59
---------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)............................ 1.28 1.32 1.37 1.38 1.42
Net realized and unrealized gain (loss) on
investments........................................ (1.50) .45 .54 (.62) 2.02
---------- -------- -------- -------- --------
Total income from operations....................... (.22) 1.77 1.91 .76 3.44
---------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income........................... (1.25) (1.31) (1.39) (1.36) (1.44)
From net realized gain............................... (.02) (.21) -- -- --
---------- -------- -------- -------- --------
Total distributions................................ (1.27) (1.52) (1.39) (1.36) (1.44)
---------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD......................... $ 20.27 $ 21.76 $ 21.51 $ 20.99 $ 21.59
========== ======== ======== ======== ========
TOTAL RETURN (%)(b).................................... (1.04) 8.37 9.42 3.75 18.03
RATIOS (%)/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)............. 1,051,362 978,491 798,252 662,899 638,317
Ratios to average net assets (%)(b):
Operating expenses................................. .39 .39 .42 .42 .35
Net investment income.............................. 6.05 6.03 6.54 6.57 6.82
Portfolio turnover rate (%).......................... 138.69 226.70 165.81 147.31 138.05
</TABLE>
- --------------------------
(a) For periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
77
<PAGE>
FIXED INCOME III FUND--CLASS E SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.12
-------
INCOME FROM OPERATIONS
Net investment income (a)................................. .35
Net realized and unrealized gain (loss)................... (.43)
-------
Total income from operations............................ (.08)
-------
DISTRIBUTIONS
From net investment income................................ (.43)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.61
=======
TOTAL RETURN(%)(b).......................................... (.83)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 2,367
Ratios to average net assets (%)(c):
Operating expenses...................................... .94
Net investment income................................... 5.63
Portfolio turnover rate (%)............................... 131.38
</TABLE>
- --------------------------
* For the period May 14, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
78
<PAGE>
FIXED INCOME III FUND--CLASS I SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 10.22 $ 10.42 $ 10.17 $ 10.34 $ 9.37
---------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)............................ .59 .62 .63 .64 .67
Net realized and unrealized gain (loss).............. (.62) .08 .32 (.16) .97
---------- -------- -------- -------- --------
Total income from operations....................... (.03) .70 .95 .48 1.64
---------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income........................... (.60) (.62) (.64) (.65) (.67)
From net realized gain............................... -- (.28) (.06) -- --
---------- -------- -------- -------- --------
Total distributions................................ (.60) (.90) (.70) (.65) (.67)
---------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD......................... $ 9.59 $ 10.22 $ 10.42 $ 10.17 $ 10.34
========== ======== ======== ======== ========
TOTAL RETURN (%)....................................... (.29) 6.80 9.64 4.88 17.99
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)............. 467,268 462,190 382,433 292,077 252,465
Ratios to average net assets (%):
Operating expenses................................. .69 .67 .70 .73 .61
Net investment income.............................. 5.91 5.91 6.13 6.32 6.83
Portfolio turnover rate (%).......................... 131.38 342.49 274.84 144.26 141.37
</TABLE>
- --------------------------
(a) For periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
79
<PAGE>
MONEY MANAGER INFORMATION
The money managers have no affiliations with the Funds or the Funds' service
providers other than their management of Fund assets. Each money manager has
been in business for at least three years, and is principally engaged in
managing institutional investment accounts. These managers may also serve as
managers or advisers to other Funds in FRIC, or to other clients of FRIMCo or of
Frank Russell Company, including Frank Russell Company's wholly owned
subsidiary, Frank Russell Trust Company.
EQUITY I FUND
ALLIANCE CAPITAL MANAGEMENT L.P., US Bank Place, 601 2nd Ave. South,
Suite 5000, Minneapolis, MN 55402-4322.
BARCLAYS GLOBAL FUND ADVISORS, 45 Fremont Street, 17th Floor, San Francisco,
CA 94105.
EQUINOX CAPITAL MANAGEMENT, LLC, 590 Madison Avenue, 41st Floor, New York,
NY 10022.
JACOBS LEVY EQUITY MANAGEMENT, INC., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.
MARSICO CAPITAL MANAGEMENT, LLC, 1200 17th Street, Suite 1300, Denver, CO
80202.
PEACHTREE ASSET MANAGEMENT, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308.
SANFORD C. BERNSTEIN & CO., INC., 767 Fifth Avenue, 21st Floor, New York, NY
10153-0185.
STRONG CAPITAL MANAGEMENT, INC., 100 Heritage Reserve, Menomonee Falls, WI
53051.
SUFFOLK CAPITAL MANAGEMENT, INC., 1633 Broadway, 40th Floor, New York, NY
10019.
TURNER INVESTMENT PARTNERS, INC., 1235 Westlakes Drive, Suite 350, Berwyn,
PA 19312.
WESTPEAK INVESTMENT ADVISORS, L.P., 1011 Walnut Street, Suite 400, Boulder,
CO 80302.
EQUITY II FUND
CAPITALWORKS INVESTMENT PARTNERS, LLC, 401 West "A" Street, Suite 1675, San
Diego, CA 92101.
DELPHI MANAGEMENT, INC., 50 Rowes Wharf, Suite 440, Boston, MA 02110.
FIDUCIARY TRUST COMPANY INTERNATIONAL, INC., 2 World Trade Center, New York,
NY 10048.
GLOBEFLEX CAPITAL, L.P., 4365 Executive Drive, Suite 720, San Diego, CA
92121.
JACOBS LEVY EQUITY MANAGEMENT, INC., See: Equity I Fund.
SIRACH CAPITAL MANAGEMENT, INC., One Union Square, Suite 3323, 600
University Street, Seattle, WA 98101.
WESTPEAK INVESTMENT ADVISORS, L.P., See Equity I Fund.
80
<PAGE>
EQUITY III FUND
BARCLAYS GLOBAL FUND ADVISORS, See: Equity I Fund.
EQUINOX CAPITAL MANAGEMENT, INC., See: Equity I Fund.
WESTPEAK INVESTMENT ADVISORS, L.P., See: Equity I Fund.
EQUITY Q FUND
BARCLAYS GLOBAL FUND ADVISORS, See: Equity I Fund.
FRANKLIN PORTFOLIO ASSOCIATES LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104.
JACOBS LEVY EQUITY MANAGEMENT, INC. See: Equity I Fund.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., 522 Fifth Ave., 6th Floor, New
York, NY 10036.
INTERNATIONAL FUND
DELAWARE INTERNATIONAL ADVISERS LTD., 80 Cheapside, 3rd Floor, London
EC2V6EE England.
FIDELITY MANAGEMENT TRUST COMPANY, 82 Devonshire Street, Boston, MA 02109.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., See: Equity Q Fund.
MASTHOLM ASSET MANAGEMENT, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue,
WA 98004.
MONTGOMERY ASSET MANAGEMENT, LLC, 101 California Street, 35th Floor, San
Francisco, CA 94111.
OECHSLE INTERNATIONAL ADVISORS, LLC, One International Place, 23rd Floor,
Boston, MA 02110.
SANFORD C. BERNSTEIN & CO., INC., See: Equity I Fund.
THE BOSTON COMPANY ASSET MANAGEMENT, INC., One Boston Place, 14th Floor,
Boston, MA 02108-4402.
EMERGING MARKETS FUND
FOREIGN & COLONIAL EMERGING MARKETS LIMITED, Exchange House, Primrose
Street, London EC2A 2NY England.
GENESIS ASSET MANAGERS LIMITED, 21 Knightsbridge, London SW1X 7LY England.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, 600 W. Broadway, 29th Floor, San
Diego, CA 92101.
SANFORD C. BERNSTEIN & CO., INC., See: Equity I Fund.
SCHRODERS INVESTMENT MANAGEMENT NORTH AMERICA LIMITED, 31 Greshman Street,
London EC2V 7QA England.
81
<PAGE>
REAL ESTATE SECURITIES FUND
AEW CAPITAL MANAGEMENT, L.P., 225 Franklin Street, Boston, MA 02110-2803.
COHEN & STEERS CAPITAL MANAGEMENT, 757 Third Avenue, New York, NY 10017.
SECURITY CAPITAL GLOBAL CAPITAL MANAGEMENT GROUP INCORPORATED, 11 South
LaSalle Street, 2nd Floor, Chicago, IL 60603.
SHORT TERM BOND FUND
BLACKROCK FINANCIAL MANAGEMENT, INC., 345 Park Ave., 29th Floor, New York,
NY 10154.
STANDISH, AYER & WOOD, INC., One Financial Center, Boston, MA 02111.
STW FIXED INCOME MANAGEMENT LTD., 200 East Carrillo Street, Suite 100, Santa
Barbara, CA 93101-2143.
FIXED INCOME I FUND
LINCOLN CAPITAL MANAGEMENT COMPANY, See: Equity I Fund.
PACIFIC INVESTMENT MANAGEMENT COMPANY, 840 Newport Center Drive, Suite 360,
P.O. Box 6430, Newport Beach, CA 92658-6430.
STANDISH, AYER & WOOD, INC., See: Short Term Bond Fund.
FIXED INCOME III FUND
LAZARD ASSET MANAGEMENT, 30 Rockefeller Plaza, New York, NY 10112-6300.
MILLER, ANDERSON & SHERRERD, LLP, One Tower Bridge, W. Conshohocken, PA
19428.
PACIFIC INVESTMENT MANAGEMENT COMPANY, See: Fixed Income I Fund.
STANDISH, AYER & WOOD, INC., See: Short Term Bond Fund.
WHEN CONSIDERING AN INVESTMENT IN THE FUNDS, DO NOT RELY ON ANY INFORMATION
UNLESS IT IS CONTAINED IN THIS PROSPECTUS OR IN THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION. THE FUNDS HAVE NOT AUTHORIZED ANYONE TO ADD ANY
INFORMATION OR TO MAKE ANY ADDITIONAL STATEMENTS ABOUT THE FUNDS. THE FUNDS MAY
NOT BE AVAILABLE IN SOME JURISDICTIONS OR TO SOME PERSONS. THE FACT THAT YOU
HAVE RECEIVED THIS PROSPECTUS SHOULD NOT, IN ITSELF, BE TREATED AS AN OFFER TO
SELL FUND SHARES TO YOU. CHANGES IN THE AFFAIRS OF THE FUNDS OR IN THE FUNDS'
MONEY MANAGERS MAY OCCUR AFTER THE DATE ON THE COVER PAGE OF THIS PROSPECTUS.
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED TO REFLECT ANY MATERIAL CHANGES
TO THE INFORMATION IT CONTAINS.
82
<PAGE>
For more information about the Funds, the following documents are available
without charge:
ANNUAL/SEMIANNUAL REPORTS: Additional information about the Funds'
investments is available in the Funds' annual and semiannual reports to
shareholders. In each Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds.
The annual report for each Fund and the SAI are incorporated into this
Prospectus by reference. You may obtain free copies of the reports and
the SAI, and may request other information, by contacting your Financial
Intermediary or the Funds at:
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
Telephone: 1-800-787-7354
Fax: 253-591-3495
Website: russell.com
You can review and copy information about the Funds (including the SAI) at
the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. You can obtain information on the operation of the Public Reference Room
by calling the Commission at 1-800-SEC-0330. You can obtain copies of this
information upon paying a duplicating fee by writing to the Public Reference
Section of the Commission, Washington, D.C. 20549-6009. Reports and other
information about the Funds are also available on the Commission's Internet
website at sec.gov.
FRANK RUSSELL INVESTMENT COMPANY
CLASS E AND I SHARES:
Equity I Fund
Equity II Fund
Equity III Fund
Equity Q Fund
International Fund
Fixed Income I Fund
Fixed Income III Fund
CLASSES E AND S SHARES:
Emerging Markets Fund
Real Estate Securities Fund
Short Term Bond Fund
[RUSSELL LOGO] Distributor: Russell Fund Distributors, Inc.
SEC File No. 811-3153
36-08-057 (05/00)
<PAGE>
INSTITUTIONAL FUNDS
FRANK RUSSELL INVESTMENT COMPANY
INSTITUTIONAL FUNDS
PROSPECTUS
CLASS Y SHARES:
EQUITY I FUND
EQUITY II FUND
EQUITY III FUND
EQUITY Q FUND
INTERNATIONAL FUND
FIXED INCOME I FUND
FIXED INCOME III FUND
CLASS S SHARES:
EMERGING MARKETS FUND
REAL ESTATE SECURITIES FUND
SHORT TERM BOND FUND
MAY 1, 2000
909 A STREET, TACOMA, WA 98402 . 800-787-7354 . 253-627-7001
As with all mutual funds, the Securities and Exchange Commission has neither
determined that the information in this Prospectus is accurate or complete,
nor approved or disapproved of these securities. It is a criminal offense to
state otherwise.
[RUSSELL LOGO]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary......................................... 3
Investment Objectives, Principal Investment Strategies
and Principal Risks.................................... 3
Performance............................................. 10
Fees and Expenses....................................... 21
Summary Comparison of the Funds............................. 23
The Purpose of the Funds--Multi-Style, Multi-Manager
Diversification........................................... 23
Investment Objective and Principal Investment Strategies.... 25
Risks....................................................... 40
Management of the Funds..................................... 45
The Money Managers.......................................... 47
Portfolio Turnover.......................................... 47
Dividends and Distributions................................. 48
Taxes....................................................... 49
How Net Asset Value Is Determined........................... 50
How to Purchase Shares...................................... 51
Exchange Privilege.......................................... 53
How to Redeem Shares........................................ 54
Payment of Redemption Proceeds.............................. 55
Written Instructions........................................ 55
Account Policies............................................ 56
Financial Highlights........................................ 58
Money Manager Information................................... 68
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS
EQUITY I FUND
- ---------------
<TABLE>
<S> <C>
INVESTMENT To provide income and capital growth by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Equity I Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies, most of which are
STRATEGIES US based.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another: a Growth Style, a Value Style and a
Market-Oriented Style. The Fund intends to be fully invested
at all times.
PRINCIPAL RISKS An investment in the Equity I Fund, like any investment, has
risks. The value of the Fund fluctuates and you could lose
money. The principal risks of investing in the Fund are
those associated with investing in equity securities, using
a multi-manager approach, securities lending and exposing
liquidity reserves to equity markets. Please refer to the
"Risks" section later in this Prospectus for further
details.
</TABLE>
EQUITY II FUND
- ----------------
<TABLE>
<S> <C>
INVESTMENT To maximize total return primarily through capital
OBJECTIVE appreciation and assuming a higher level of volatility than
the Equity I Fund.
PRINCIPAL The Equity II Fund invests primarily in common stocks of
INVESTMENT small and medium capitalization companies, most of which are
STRATEGIES US based. The Fund's investments may include companies that
have been publicly traded for less than five years and
smaller companies, such as companies not listed in the
Russell 2000-Registered Trademark- Index.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another: a Growth Style, a Value Style and a
Market-Oriented Style. The Fund intends to be fully invested
at all times. A portion of the Fund's net assets may be
"illiquid" securities (i.e., securities that do not have a
readily available market or that are subject to resale
restrictions).
PRINCIPAL RISKS An investment in the Equity II Fund, like any investment,
has risks. The value of the Fund fluctuates and you could
lose money. The principal risks
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
of investing in the Fund are those associated with investing
in equity securities, particularly securities of small
capitalization companies, using a multi-manager approach,
securities lending and exposing liquidity reserves to equity
markets. Please refer to the "Risks" section later in this
Prospectus for further details.
</TABLE>
EQUITY III FUND
- ----------------
<TABLE>
<S> <C>
INVESTMENT To achieve a high level of current income while maintaining
OBJECTIVE the potential for capital appreciation.
PRINCIPAL The Equity III Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies, most of which are
STRATEGIES US based. Because the Fund's investment objective is
primarily to provide a high level of current income, the
Fund generally pursues a value style of securities
selection.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses two principal investment styles intended to
complement one another: a Yield Substyle and a Low
Price/Earnings Ratio Substyle. The Fund intends to be fully
invested at all times.
PRINCIPAL RISKS An investment in the Equity III Fund, like any investment,
has risks. The value of the Fund fluctuates and you could
lose money. The principal risks of investing in the Fund are
those associated with investing in equity securities,
particularly in using a value style of security selection,
using a multi-manager approach, securities lending and
exposing liquidity reserves to equity markets. Please refer
to the "Risks" section later in this Prospectus for further
details.
</TABLE>
EQUITY Q FUND
- ----------------
<TABLE>
<S> <C>
INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell
1000-Registered Trademark- Index over a market cycle of four
to six years) while maintaining volatility and
diversification similar to the Russell 1000 Index.
PRINCIPAL The Equity Q Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies, which are
STRATEGIES predominately US based. The Fund generally pursues a
market-oriented style of security selection, which
incorporates both a growth style and a value style, based on
quantitative investment formulas which are mathematical
models based on statistical analysis. This style emphasizes
investments in companies that appear to be undervalued
relative to their growth prospects.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. Each of
the Fund's money managers use quantitative models to rank
securities based upon their expected ability to outperform
the total return of the Russell 1000-Registered Trademark-
Index. Although the Fund, like any mutual fund, maintains
liquidity reserves (i.e., cash awaiting investment or held
to meet redemption requests), the Fund exposes these
reserves to the performance of appropriate equity markets by
investing in stock index futures contracts. This causes the
Fund to perform as though its cash reserves were actually
invested in those markets.
PRINCIPAL RISKS An investment in the Equity Q Fund, like any investment, has
risks. The value of the Fund fluctuates and you could lose
money. The principal risks of investing in the Fund are
those associated with investing in equity securities,
particularly in using a market-oriented style of security
selection, using a multi-manager approach, securities
lending and exposing liquidity reserves to equity markets.
Please refer to the "Risks" section later in this Prospectus
for further details.
</TABLE>
INTERNATIONAL FUND
- ----------------------
<TABLE>
<S> <C>
INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.
PRINCIPAL The International Fund invests primarily in equity
INVESTMENT securities issued by companies domiciled outside the US and
STRATEGIES in depository receipts, which represent ownership of
securities of non-US companies. The Fund's investments span
most of the developed nations of the world (particularly
Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. This Fund
may be appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another: a Growth Style, a Value Style and a
Market-Oriented Style. The Fund intends to be fully invested
at all times. A portion of the Fund's net assets may be
"illiquid" securities (i.e., securities that do not have a
readily available market or that are subject to resale
restrictions).
PRINCIPAL RISKS An investment in the International Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in international securities, using
a multi-manager
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
approach, securities lending and exposing liquidity reserves
to equity markets. Please refer to the "Risks" section later
in this Prospectus for further details.
</TABLE>
EMERGING MARKETS FUND
- ----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return, primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from developed market
international portfolios by investing primarily in equity
securities.
PRINCIPAL The Emerging Markets Fund will primarily invest in equity
INVESTMENT securities of companies that are located in countries with
STRATEGIES emerging markets or that derive a majority of their revenues
from operations in such countries. These countries generally
include every country in the world except the United States,
Canada, Japan, Australia and most countries located in
Western Europe. The Fund seeks to maintain a broadly
diversified exposure to emerging market countries and
ordinarily will invest in the securities of issuers in at
least three different emerging market countries.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. A portion
of the Fund's net assets may be "illiquid" securities (i.e.,
securities that do not have a readily available market or
that are subject to resale restrictions).
PRINCIPAL RISKS An investment in the Emerging Markets Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in international and emerging
markets securities and using a multi-manager approach.
Please refer to the "Risks" section later in this Prospectus
for further details.
</TABLE>
REAL ESTATE SECURITIES FUND
- --------------------------------
<TABLE>
<S> <C>
INVESTMENT To generate a high level of total return through above
OBJECTIVE average current income while maintaining the potential for
capital appreciation.
PRINCIPAL The Real Estate Securities Fund seeks to achieve its
INVESTMENT objective by concentrating its investments in equity
STRATEGIES securities of issuers whose value is derived primarily from
development, management and market pricing of underlying
real estate properties. The Fund invests primarily in
securities of companies known as real estate investment
trusts (REITs) that own and/or manage properties. REITs may
be composed of anywhere from two to over 1,000 properties.
The Fund may also invest in equity and debt securities of
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
other types of real estate-related companies. The Fund
invests in companies which are predominately US based.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another.
The Fund intends to be fully invested at all times. A
portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions).
PRINCIPAL RISKS An investment in the Real Estate Securities Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in securities of companies
concentrated in the real estate market, using a
multi-manager approach, securities lending and exposing
liquidity reserves to equity markets. Please refer to the
"Risks" section later in this Prospectus for further
details.
</TABLE>
SHORT TERM BOND FUND
- --------------------------
<TABLE>
<S> <C>
INVESTMENT The preservation of capital and the generation of current
OBJECTIVE income consistent with preservation of capital by investing
primarily in fixed-income securities with low-volatility
characteristics.
PRINCIPAL The Short Term Bond Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
The Fund may invest up to 10% of its assets in debt
securities that are rated below investment grade. These
securities are commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 15% of the average weighted duration
of the Merrill Lynch 1-2.99 Years Treasury Index, which was
1.6 years as of December 31, 1999, but may vary up to 50%
from the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund employs
multiple money managers, each with its own expertise in the
fixed-income markets.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL RISKS An investment in the Short Term Bond Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in fixed-income
securities, investing in municipal obligations, repurchase
agreements and international securities including
non-investment grade fixed-income securities, employing
derivatives and using a multi-manager approach. Please refer
to the "Risks" section later in this Prospectus for further
details.
</TABLE>
FIXED INCOME I FUND
- -----------------------
<TABLE>
<S> <C>
INVESTMENT To provide effective diversification against equities and a
OBJECTIVE stable level of cash flow by investing in fixed-income
securities.
PRINCIPAL The Fixed Income I Fund invests primarily in investment
INVESTMENT grade fixed- income securities. In particular, the Fund
STRATEGIES holds debt securities issued or guaranteed by the US
government and, to a lesser extent by non-US governments, or
by their respective agencies and instrumentalities. It also
holds mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds).
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund employs
multiple money managers, each with its own expertise in the
fixed-income markets.
PRINCIPAL RISKS An investment in the Fixed Income I Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in fixed-
income securities, municipal obligations, repurchase
agreements and international securities, employing
derivatives and using a multi-manager approach. Please refer
to the "Risks" section later in this Prospectus for further
details.
</TABLE>
8
<PAGE>
FIXED INCOME III FUND
- ------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return, primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from broad fixed-income market
portfolios.
PRINCIPAL The Fixed Income III Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). The
Fund may invest up to 25% of its assets in debt securities
that are rated below investment grade. These securities are
commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund employs
multiple money managers, each with its own expertise in the
fixed-income markets.
PRINCIPAL RISKS An investment in the Fixed Income III Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in fixed-
income securities, including non-investment grade
fixed-income securities, investing in municipal obligations
and international securities, employing derivatives and
using a multi-manager approach. Please refer to the "Risks"
section later in this Prospectus for further details.
</TABLE>
9
<PAGE>
PERFORMANCE
The following bar charts illustrate the risks of investing in the Funds by
showing how the performance of the Class I Shares of the Equity I, Equity II,
Equity III, Equity Q, International, Fixed Income I and Fixed Income III Funds
and of the Class S Shares of the Emerging Markets, Real Estate Securities and
Short Term Bond Funds, varies from year to year over a 10-year period (or, if a
Fund has not been in operation for 10 years, since the beginning of such Fund's
operations). For periods prior to April 1, 1995, performance results for each of
the Funds, other than the Real Estate Securities Fund, do not reflect deduction
of investment management fees. The highest and lowest quarterly returns during
the period shown in the bar charts for the Funds' Class I Shares or Class S
Shares, as applicable, are set forth below the bar charts.
The tables accompanying the bar charts further illustrate the risks of
investing in the Funds by showing how each Fund's average annual returns for 1,
5 and 10 years (or, if a Fund has not been in operation for 10 years, since the
beginning of operations of such Fund) compare with the returns of certain
indexes that measure broad market performance.
Class I Shares are not offered in this Prospectus. For the periods shown, no
Class Y Shares of the Equity I, Equity II, Equity III, Equity Q, International,
Fixed Income I or Fixed Income III Funds were issued. Class I Shares and Class Y
Shares will have substantially similar annual returns because the shares of each
class are invested in the same portfolio of securities; annual returns for each
class will differ only to the extent that the Class I Shares and Class Y Shares
do not have the same expenses. Class Y expenses generally are expected to be
lower than Class I expenses.
Past performance is no indication of future results.
10
<PAGE>
- --------------------------------------------------------------------------------
EQUITY I FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -5.64%
1991 31.22%
1992 9.02%
1993 11.61%
1994 0.79%
1995 35.94%
1996 23.58%
1997 32.02%
1998 25.10%
1999 18.98%
</TABLE>
BEST QUARTER: 22.53% (4Q/98)
WORST QUARTER: (14.93)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class I................................................... 18.98% 26.96% 17.48%
Russell 1000-Registered Trademark- Index.................. 20.91 28.05 18.13
------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
EQUITY II FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -14.76%
1991 42.40%
1992 13.31%
1993 16.70%
1994 -2.60%
1995 28.67%
1996 18.51%
1997 28.66%
1998 0.70%
1999 22.60%
</TABLE>
BEST QUARTER: 21.20% (1Q/91)
WORST QUARTER: (22.61)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class I................................................... 22.60% 19.34% 14.23%
Russell 2500-TM- Index.................................... 24.15 19.43 15.05
------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
EQUITY III FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -5.73%
1991 27.86%
1992 12.30%
1993 14.95%
1994 1.16%
1995 35.96%
1996 20.90%
1997 33.13%
1998 11.53%
1999 0.25%
</TABLE>
BEST QUARTER: 16.54% (1Q/91)
WORST QUARTER: (15.28)% (3Q/90)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class I.................................................... 0.25% 19.58% 14.43%
Russell 1000-Registered Trademark- Value Index............. 7.35 23.07 15.60
-------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
EQUITY Q FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -4.81%
1991 32.14%
1992 9.97%
1993 13.80%
1994 0.99%
1995 37.91%
1996 23.67%
1997 33.07%
1998 25.98%
1999 21.96%
</TABLE>
BEST QUARTER: 23.00% (4Q/98)
WORST QUARTER: (14.37)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class I................................................... 21.96% 28.36% 18.67%
Russell 1000-Registered Trademark- Index.................. 20.91 28.05 18.13
------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -15.94%
1991 13.47%
1992 -6.11%
1993 35.56%
1994 5.38%
1995 10.71%
1996 7.98%
1997 0.58%
1998 13.52%
1999 30.46%
</TABLE>
BEST QUARTER: 18.77% (4Q/99)
WORST QUARTER: (18.43)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class I................................................... 30.46% 12.22% 8.58%
MSCI EAFE Index........................................... 27.30 13.15 7.34
------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 -5.83%
1995 -8.21%
1996 12.26%
1997 -3.45%
1998 -27.57%
1999 49.03%
</TABLE>
BEST QUARTER: 27.94% (4Q/99)
WORST QUARTER: (21.64)% (3Q/98)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS INCEPTION*
--------------------------------------- ------ ------- ----------
<S> <C> <C> <C>
Class S................................................... 49.03% 1.44% 5.35%
IFC Investable Composite Index............................ 67.11 2.17 8.58
--------------------------------------------------------------------------------------------
</TABLE>
----------------------------
* The Emerging Markets Fund commenced operations on January 29, 1993.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -15.92%
1991 37.08%
1992 17.29%
1993 17.42%
1994 7.24%
1995 10.87%
1996 36.81%
1997 18.99%
1998 -15.94%
1999 0.55%
</TABLE>
BEST QUARTER: 24.69% (1Q/91)
WORST QUARTER: (14.24)% (3Q/90)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class S.................................................... 0.55% 8.81% 10.01%
NAREIT Equity REIT Index................................... (4.62) 8.09 9.12
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM BOND FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 9.71%
1991 12.31%
1992 2.74%
1993 6.98%
1994 0.82%
1995 9.95%
1996 4.76%
1997 6.02%
1998 6.09%
1999 3.03%
</TABLE>
BEST QUARTER: 3.90% (4Q/91)
WORST QUARTER: (0.72)% (1Q/94)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class S..................................................... 3.03% 5.94% 6.18%
Merrill Lynch 1-2.99 Years Treasury Index................... 3.06 6.51 6.59
<CAPTION>
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
-------------------------------------------------- --------
<S> <C> <C> <C>
Class S..................................................... 6.13%
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
To obtain current 30-day yield information, please call 1-800-787-7354.
18
<PAGE>
- --------------------------------------------------------------------------------
FIXED INCOME I FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 8.60%
1991 16.01%
1992 7.26%
1993 10.46%
1994 -2.97%
1995 18.03%
1996 3.75%
1997 9.42%
1998 8.37%
1999 -1.04%
</TABLE>
BEST QUARTER: 5.78% (2Q/95)
WORST QUARTER: (2.75)% (1Q/94)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class I................................................... (1.04)% 7.52% 7.60%
Lehman Brothers Aggregate Bond Index...................... (0.82) 7.73 7.70
<CAPTION>
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
-------------------------------------------------- --------
<S> <C> <C> <C>
Class I................................................... 6.61%
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
To obtain current 30-day yield information, please call 1-800-787-7354.
19
<PAGE>
- --------------------------------------------------------------------------------
FIXED INCOME III FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS I
]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 -3.89%
1995 17.99%
1996 4.88%
1997 9.64%
1998 6.80%
1999 -0.29%
</TABLE>
BEST QUARTER: 6.10% (2Q/95)
WORST QUARTER: (3.12)% (1Q/94)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS INCEPTION*
--------------------------------------- ------ ------- ----------
<S> <C> <C> <C>
Class I................................................... (0.29)% 7.63% 6.34%
Lehman Brothers Aggregate Bond Index...................... (0.82) 7.73 6.21
<CAPTION>
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
-------------------------------------------------- --------
<S> <C> <C> <C>
Class I................................................... 6.34%
--------------------------------------------------------------------------------------------
</TABLE>
----------------------------
* The Fixed Income III Fund commenced operations on January 29, 1993.
- --------------------------------------------------------------------------------
To obtain current 30-day yield information, please call 1-800-787-7354.
20
<PAGE>
FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold Shares of the Funds.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES
MAXIMUM SALES CHARGE (LOAD)
CHARGE (LOAD) IMPOSED ON MAXIMUM
IMPOSED ON REINVESTED DEFERRED SALES REDEMPTION EXCHANGE
PURCHASES DIVIDENDS CHARGE (LOAD) FEES FEES
--------- --------- ------------- ---- ----
<S> <C> <C> <C> <C> <C>
All Funds (Classes S and Y)............ None None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(% OF NET ASSETS)
<TABLE>
<CAPTION>
OTHER
EXPENSES
(INCLUDING
ADMINISTRATIVE
FEES AND
SHAREHOLDER TOTAL ANNUAL
ADVISORY SERVICING FUND OPERATING
FEE* FEES) EXPENSES**
---- ----- ----------
<S> <C> <C> <C>
CLASS Y SHARES
Equity I Fund............................................ 0.55% 0.06% 0.61%
Equity II Fund........................................... 0.70% 0.10% 0.80%
Equity III Fund.......................................... 0.55% 0.14% 0.69%
Equity Q Fund............................................ 0.55% 0.05% 0.60%
International Fund....................................... 0.70% 0.21% 0.91%
Fixed Income I Fund...................................... 0.25% 0.06% 0.31%
Fixed Income III Fund.................................... 0.50% 0.08% 0.58%
CLASS S SHARES
Emerging Markets Fund.................................... 1.15% 0.76% 1.91%
Real Estate Securities Fund.............................. 0.80% 0.34% 1.14%
Short Term Bond Fund..................................... 0.45% 0.29% 0.74%
</TABLE>
- ------------------------
* Each Fund may also pay, in addition to the fee set forth above, a fee which
compensates the Funds' advisor, Frank Russell Investment Management Company
(FRIMCo) for managing collateral which the Funds have received in securities
lending and certain other portfolio transactions which are not treated as
net assets of that Fund ("additional assets") in determining the Fund's net
asset value per share. The additional fee payable to FRIMCo will equal an
amount of up to 0.07% of each Fund's additional assets on an annualized
basis.
** If you purchase any class of Shares of the Fund through a Financial
Intermediary, such as a bank or an investment adviser, you may also pay
additional fees to the intermediary for services provided by the
intermediary. You should contact your financial intermediary for information
concerning what additional fees, if any, will be charged.
21
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated, and then redeem all of your Shares at the end of the period. The
example also assumes your investment has a 5% return each year and that
operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS Y:
Equity I Fund............................................... $ 62 $195 $ 340 $ 762
Equity II Fund.............................................. 82 256 444 990
Equity III Fund............................................. 70 221 384 859
Equity Q Fund............................................... 61 192 335 750
International Fund.......................................... 93 291 505 1,120
Fixed Income I Fund......................................... 32 100 174 394
Fixed Income III Fund....................................... 59 186 324 726
CLASS S:
Emerging Markets Fund....................................... $194 $600 $1,032 $2,233
Real Estate Securities Fund................................. 116 362 627 1,384
Short Term Bond Fund........................................ 76 237 412 919
</TABLE>
22
<PAGE>
SUMMARY COMPARISON OF THE FUNDS
<TABLE>
<CAPTION>
ANTICIPATED MAXIMUM
EQUITY DEBT
FUND EXPOSURE EXPOSURE FOCUS
- -------------------------------- ----------- --------- --------------------------------------
<S> <C> <C> <C>
Equity I Fund................... 65-100% 35% Income and capital growth
Equity II Fund.................. 65-100% 35% Maximum total return primarily through
capital appreciation
Equity III Fund................. 65-100% 35% Current income
Equity Q Fund................... 100% 0% Total return
International Fund.............. 65-100% 35% Total return
Fixed Income I Fund............. 0-35% 100% Current income and diversification
Fixed Income III Fund........... 0% 100% Maximum total return primarily through
capital appreciation
Emerging Markets Fund........... 65-100% 35% Maximum total return primarily through
capital appreciation
Real Estate Securities Fund..... 65-100% 35% Total return
Short Term Bond Fund............ 0-35% 100% Preservation of capital and generation
of current income
</TABLE>
THE PURPOSE OF THE FUNDS--MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION
The Frank Russell Investment Company (FRIC) Funds (Funds) are offered
through certain bank trust departments, registered investment advisers,
broker-dealers or other financial services organizations that have been selected
by the Funds' adviser or distributor (Financial Intermediaries). The Funds are
designed to provide a means for investors to use Frank Russell Investment
Management Company's (FRIMCo) and Frank Russell Company's (Russell)
"multi-style, multi-manager diversification" investment method and to obtain
FRIMCo's and Russell's money manager evaluation services. Unlike most investment
companies that have a single organization that acts as both administrator and
investment adviser, the Funds divide responsibility for corporate management and
investment advice between FRIMCo and a number of different money managers.
Three functions form the core of Russell's consulting services:
- OBJECTIVE SETTING: Defining appropriate investment objectives and desired
investment returns, based on a client's unique situation and risk
tolerance.
- ASSET ALLOCATION: Allocating a client's assets among different asset
classes--such as common stocks, fixed-income securities, international
securities, temporary cash investments and real estate--in a way most
likely to achieve the client's objectives and desired returns.
- MONEY MANAGER RESEARCH: Evaluating and recommending professional
investment advisory and management organizations ("money managers") to
make specific portfolio investments for each asset class, according to
designated investment objectives, styles and strategies.
23
<PAGE>
When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.
The Funds believe investors should seek to hold fully diversified portfolios
that reflect both their own individual investment time horizons and their
ability to accept risk. The Funds believe that for many, this can be
accomplished through strategically purchasing shares in one or more of the Funds
which have been structured to provide access to specific asset classes employing
a multi-style, multi-manager approach.
Capital market history shows that asset classes with greater risk will
generally outperform lower risk asset classes over time. For instance, corporate
equities, over the past 50 years, have outperformed corporate debt in absolute
terms. However, what is generally true of performance over extended periods will
not necessarily be true at any given time during a market cycle, and from time
to time asset classes with greater risk may also underperform lower risk asset
classes, on either a risk adjusted or absolute basis. Investors should select a
mix of asset classes that reflects their overall ability to withstand market
fluctuations over their investment horizons.
Studies have shown that no one investment style within an asset class will
consistently outperform competing styles. For instance, investment styles
favoring securities with growth characteristics may outperform styles favoring
income producing securities, and vice versa. For this reason, no single manager
has consistently outperformed the market over extended periods. Although
performance cycles tend to repeat themselves, they do not do so predictably.
The Funds believe, however, that it is possible to select managers who have
shown a consistent ability to achieve superior results within subsets or styles
of specific asset classes and investment styles by employing a unique
combination of qualitative and quantitative measurements. The Funds combine
these select managers with other managers within the same asset class who employ
complementary styles. By combining complementary investment styles within an
asset class, investors are better able to reduce their exposure to the risk of
any one investment style going out of favor.
By strategically selecting from among a variety of investments by asset
class, each of which has been constructed using these multi-style, multi-manager
principles, investors are able to design portfolios that meet their specific
investment needs.
The Funds conduct their business through a number of service providers, who
act on behalf of the Funds. FRIMCo, the Funds' administrator and investment
adviser, performs the Funds' day to day corporate management and oversees the
Funds' money managers. Each of the Funds' money managers makes all investment
decisions for the portion of the Fund assigned to it by FRIMCo. The Funds'
custodian, State Street Bank, maintains custody of all of the Funds' assets.
FRIMCo, in its capacity as the Funds' transfer agent, is responsible for
maintaining the Funds' shareholder records and carrying out shareholder
transactions. When a Fund acts in one of these areas, it does so through the
service provider responsible for that area.
24
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
EQUITY I FUND
- ---------------
<TABLE>
<S> <C>
INVESTMENT To provide income and capital growth by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Equity I Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies most of which are
STRATEGIES US based.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
Additionally, the Fund is diversified by equity substyle.
For example, within the Growth Style, the Fund expects to
employ both an Earnings Momentum substyle (concentrating on
companies with more volatile and accelerating growth rates)
and a Consistent Growth substyle (concentrating on companies
with stable earnings growth over an economic cycle).
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
substyle and its performance record, as well as the
characteristics of the money manager's typical portfolio
investments. These characteristics include capitalization
size, growth and profitability measures, valuation ratios,
economic sector weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
EQUITY II FUND
- ----------------
<TABLE>
<S> <C>
INVESTMENT To maximize total return primarily through capital
OBJECTIVE appreciation and assuming a higher level of volatility than
the Equity I Fund.
PRINCIPAL The Equity II Fund invests primarily in common stocks of
INVESTMENT small and medium capitalization companies most of which are
STRATEGIES US-based. The Fund's investments may include companies that
have been publicly traded for less than five years and
smaller companies, such as companies not listed in the
Russell 2000-Registered Trademark- Index.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record, as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
27
<PAGE>
EQUITY III FUND
- ----------------
<TABLE>
<S> <C>
INVESTMENT To achieve a high level of current income while maintaining
OBJECTIVE the potential for capital appreciation.
PRINCIPAL The Equity III Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies, most of which are
STRATEGIES US based. Because the Fund's investment objective is
primarily to provide a high level of current income, the
Fund generally pursues a value style of securities
selection, emphasizing investments in common stocks of
companies that appear to be undervalued relative to their
corporate worth, based on earnings, book or asset value,
revenues, or cash flow.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses two principal investment styles intended to
complement one another:
- YIELD SUBSTYLE emphasizes investments in equity
securities with above-average yield relative to the
market. Generally, these securities are issued by
companies in the financial and utilities industries
and, to a lesser extent, other industries.
- LOW PRICE/EARNINGS RATIO SUBSTYLE emphasizes
investments in equity securities of companies that are
considered undervalued relative to their corporate
worth, based on earnings, book or asset value,
revenues or cash flow. These companies are generally
found among industrial, financial and utilities
sectors. From time to time, this substyle may also
include investments in companies with above-average
earnings growth prospects, if they appear to be
undervalued in relation to their securities'
historical price levels.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment substyle and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
EQUITY Q FUND
- ----------------
<TABLE>
<S> <C>
INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell
1000-Registered Trademark- Index over a market cycle of four
to six years) while maintaining volatility and
diversification similar to the Index.
PRINCIPAL The Equity Q Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies which are
STRATEGIES predominately US based. The Fund generally pursues a
market-oriented style of security selection, which
incorporates both a growth style and a value style, based on
quantitative investment models which are mathematical
formulas based on statistical analysis. This style
emphasizes investments in companies that appear to be
undervalued relative to their growth prospects.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record as well as the characteristics of the money manager's
typical portfolio investments. These characteristics include
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment returns correlate with one another.
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
Each of the Fund's money managers use quantitative models to
rank securities based upon their expected ability to
outperform the total return of the Russell
1000-Registered Trademark- Index. Once a money manager has
ranked the securities, it then selects the securities most
likely to outperform and constructs, for its segment of the
Fund, a portfolio that has risks similar to the Russell
1000-Registered Trademark- Index. Each money manager
performs this process independently from each other money
manager.
The Russell 1000-Registered Trademark- Index consists of the
1,000 largest US companies by capitalization (i.e., market
price per share times the number of shares outstanding). The
smallest company in the Index at December 31, 1999 had a
capitalization of approximately $1.1 billion.
The Fund's money managers typically use a variety of
quantitative models, ranking securities within each model
and on a composite basis using proprietary weighting
formulas. Examples of those quantitative models are dividend
discount models, price/cash flow models, price/earnings
models, earnings surprise and earnings estimate revisions
models and price momentum models.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
30
<PAGE>
INTERNATIONAL FUND
- ----------------------
<TABLE>
<S> <C>
INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.
PRINCIPAL The International Fund invests primarily in equity
INVESTMENT securities issued by companies domiciled outside the US and
STRATEGIES in depository receipts which represent ownership of
securities of non-US companies. The Fund's investments span
most of the developed nations of the world (particularly
Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. Because
international equity investment performance has a reasonably
low correlation to US equity performance, this Fund may be
appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.
The Fund may seek to protect its investments against adverse
currency exchange rate changes by purchasing forward
currency contracts. These contracts enable the Fund to "lock
in" the US dollar price of a security that it plans to buy
or sell. The Fund may not accurately predict currency
movements.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector. A
variation of this style maintains investments that
replicate country and sector weightings of a broad
international market index.
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
EMERGING MARKETS FUND
- ----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from developed market
international portfolios by investing primarily in equity
securities.
PRINCIPAL The Emerging Markets Fund will primarily invest in equity
INVESTMENT securities of companies that are located in countries with
STRATEGIES emerging markets or that derive a majority of their revenues
from operations in such countries. These companies are
referred to as "Emerging Market Companies." For purposes of
the Fund's operations, an "emerging market" country is a
country having an economy and market that the World Bank or
the United Nations consider to be emerging or developing.
These countries generally include every country in the world
except the United States, Canada, Japan, Australia and most
countries located in Western Europe.
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
The Fund seeks to maintain a broadly diversified exposure to
emerging market countries and ordinarily will invest in the
securities of issuers in at least three different emerging
market countries.
The Fund invests in common stocks of Emerging Market
Companies and in depository receipts which represent
ownership of securities of non-US companies. The Fund may
also invest in rights, warrants and convertible fixed-income
securities. The Fund's securities are denominated primarily
in foreign currencies and may be held outside the US.
Some emerging markets countries do not permit foreigners to
participate directly in their securities markets or
otherwise present difficulties for efficient foreign
investment. Therefore, when it believes it is appropriate to
do so, the Fund may invest in pooled investment vehicles,
such as other investment companies, which enjoy broader or
more efficient access to shares of Emerging Market Companies
in certain countries but which may include a further
layering of expenses.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record, as well as the characteristics of the
money manager's typical portfolio investments (e.g.,
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics). The Fund also considers
the manner in which money managers' historical and expected
investment returns correlate with one another.
The Fund may agree to purchase securities for a fixed price
at a future date beyond customary settlement time. This kind
of agreement is known as a "forward commitment" or as a
"when-issued" transaction.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. A Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
33
<PAGE>
REAL ESTATE SECURITIES FUND
- --------------------------------
<TABLE>
<S> <C>
INVESTMENT To generate a high level of total return through above
OBJECTIVE average current income while maintaining the potential for
capital appreciation.
PRINCIPAL The Fund seeks to achieve its objective by concentrating its
INVESTMENT investments in equity securities of issuers whose value is
STRATEGIES derived primarily from development, management and market
pricing of underlying real estate properties.
The Fund invests primarily in securities of companies, known
as real estate investment trusts (REITs), that own and/or
manage properties. REITs may be composed of anywhere from
two to over 1,000 properties. The Fund may also invest in
equity and debt securities of other types of real estate-
related companies. The Fund invests in companies which are
predominately US based, although the Fund may invest a
limited portion of its assets in non-US firms from time to
time.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, property type and
geographic weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
Although the Fund, like any mutual fund, maintains liquidity
reserves (i.e., cash awaiting investment or held to meet
redemption requests), the Fund may expose these reserves to
the performance of appropriate equity markets by investing
in stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash of US government debt obligations as collateral.
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
SHORT TERM BOND FUND
- --------------------------
<TABLE>
<S> <C>
INVESTMENT The preservation of capital and the generation of current
OBJECTIVE income consistent with preservation of capital by investing
primarily in fixed-income securities with low-volatility
characteristics.
PRINCIPAL The Short Term Bond Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
The Fund may invest up to 10% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by the
Fund to be of comparable quality. These securities are
commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 15% of the average weighted duration
of the Merrill Lynch 1-2.99 Years Treasury Index, which was
1.6 years on December 31, 1999, but may vary up to 50% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes, as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Merrill Lynch 1-2.99 Years Treasury
Index.
</TABLE>
35
<PAGE>
<TABLE>
<S> <C>
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts, and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
FIXED INCOME I FUND
- -----------------------
<TABLE>
<S> <C>
INVESTMENT To provide effective diversification against equities and a
OBJECTIVE stable level of cash flow by investing in fixed-income
securities.
PRINCIPAL The Fixed Income I Fund invests primarily in investment
INVESTMENT grade fixed- income securities. In particular, the Fund
STRATEGIES holds debt securities issued or guaranteed by the US
government and, to a lesser extent by non-US governments, or
by their respective agencies and instrumentalities. It also
holds mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was
5.0 years as of December 31, 1999, but
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
may vary up to 25% from the Index's duration. The Fund has
no restrictions on individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. In seeking investments
that will produce cash flow, the Fund's money managers also
identify sectors of the fixed-income market that they
believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
37
<PAGE>
FIXED INCOME III FUND
- ------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from broad fixed-income market
portfolios.
PRINCIPAL The Fixed Income III Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time the Fund may invest in municipal debt
obligations.
The Fund may invest up to 25% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by a
Fund money manager to be of comparable quality. These
securities are commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was
5.0 years as of December 31, 1999, but may vary up to 25%
from the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests in liquidity reserves in one or more FRIC money
market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
39
<PAGE>
RISKS
An investment in the Funds, like any investment, has risks. The value of
each Fund fluctuates, and you could lose money. The following table describes
principal types of risks that the Funds are subject to and lists next to each
description those Funds most likely to be affected by the risk. Other Funds that
are not listed may hold portfolio investments that are subject to one or more of
the risks, but will not do so in a way that is expected to principally affect
the performance of the Fund as a whole. Please refer to the Funds' Statement of
Additional Information for a discussion of risks associated with types of
securities held by the Funds and the investment practices employed by the
individual Funds.
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
- --------------------- ----------- -------------
<S> <C> <C>
MULTI-MANAGER The investment styles employed by a Fund's Money All Funds
APPROACH Managers may not be complementary. The interplay of the
various strategies employed by a Fund's multiple money
managers may result in a Fund holding a concentration
of certain types of securities. This concentration may
be beneficial or detrimental to a Fund's performance
depending upon the performance of those securities and
the overall economic environment. The multi-manager
approach could result in a high level of portfolio
turnover, resulting in higher Fund brokerage expenses
and increased tax liability from a Fund's realization
of capital gains
EQUITY SECURITIES The value of equity securities will rise and fall in Equity I
response to the activities of the company that issued Equity II
the stock, general market conditions and/or economic Equity III
conditions. Equity Q
International
Emerging
Markets
Real Estate
Securities
- -Value Stocks Investments in value stocks are subject to risks that Equity I
(i) their intrinsic values may never be realized by Equity II
the market or (ii) such stock may turn out not to have Equity III
been undervalued. Equity Q
International
- -Growth Stocks Growth company stocks may provide minimal dividends Equity I
which could otherwise cushion stock prices in a market Equity II
decline. The value of growth company stocks may rise Equity Q
and fall significantly based, in part, on investors' International
perceptions of the company, rather than on fundamental
analysis of the stocks.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
- --------------------- ----------- -------------
<S> <C> <C>
- -Market-Oriented Market-oriented investments are generally subject to Equity I
Investments the risks associated with growth and value stocks. Equity II
Equity Q
International
- -Securities of Investments in smaller companies may involve greater Equity II
Small risks because these companies generally have a limited
Capitalization track record. Smaller companies often have narrower
Companies markets and more limited managerial and financial
resources than larger, more established companies. As a
result, their performance can be more volatile, which
may increase the volatility of a Fund's portfolio.
FIXED-INCOME Prices of fixed-income securities rise and fall in Short Term Bond
SECURITIES response to interest rate changes. Generally, when Fixed Income I
interest rates rise, prices of fixed-income securities Fixed Income
fall. The longer the duration of the security, the more III
sensitive the security is to this risk. A 1% increase
in interest rates would reduce the value of a $100 note
by approximately one dollar if it had a one-year
duration, but would reduce its value by approximately
fifteen dollars if it had a 15-year duration. There is
also a risk that one or more of the securities will be
downgraded in credit rating or go into default.
Lower-rated bonds generally have higher credit risks.
- -Non-investment Although lower rated debt securities generally offer a Short Term Bond
Grade Fixed- higher yield than higher rated debt securities, they Fixed Income
Income involve higher risks. They are especially subject to: III
Securities -adverse changes in general economic conditions and in
the industries in which their issuers are engaged,
-changes in the financial condition of their issuers
and
-price fluctuations in response to changes in interest
rates.
As a result, issuers of lower rated debt securities are
more likely than other Issuers to miss principal and
interest payments or to default which could result in a
loss to a Fund .
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
- --------------------- ----------- -------------
<S> <C> <C>
INTERNATIONAL A Fund's return and net asset value may be International
SECURITIES significantly affected by political or economic Emerging
conditions and regulatory requirements in a particular Markets
country. Foreign markets, economies and political Short Term
systems may be less stable than US markets, and changes Bond
in exchange rates of foreign currencies can affect the Fixed Income I
value of a Fund's foreign assets. Foreign laws and Fixed Income
accounting standards typically are not as strict as III
they are in the US and there may be less public
information available about foreign companies. Foreign
securities markets may be less liquid and have fewer
transactions than US securities markets. Additionally,
international markets may experience delays and
disruptions in securities settlement procedures for a
Fund's portfolio securities.
- -Non-US Debt A Fund's foreign debt securities are typically Short Term
Securities obligations of sovereign governments and corporations. Bond
These securities are particularly subject to a risk of Fixed Income I
default from political instability. Fixed Income
III
- -Emerging Investments in emerging or developing markets involve Emerging
Market exposure to economic structures that are generally less Markets
Countries diverse and mature, and to political systems which have
less stability than those of more developed countries.
Emerging market securities are subject to currency
transfer restrictions and may experience delays and
disruptions in securities settlement procedures for a
Fund's portfolio securities.
- -Instruments of Non-US corporations and banks issuing dollar Short Term
US and denominated instruments in the US are not necessarily Bond
Foreign Banks subject to the same regulatory requirements that apply Fixed Income I
and Branches to US corporations and banks, such as accounting, Fixed Income
and Foreign auditing and recordkeeping standards, the public III
Corporations, availability of information and, for banks, reserve
Including requirements, loan limitations, and examinations. This
Yankee Bonds increases the possibility that a non-US corporation or
bank may become insolvent or otherwise unable to
fulfill its obligations on these instruments.
DERIVATIVES (E.G. Price movements of a futures contract, option or Short Term
FUTURES CONTRACTS, structured note may not be identical to price movements Bond
OPTIONS ON FUTURES, of portfolio securities or a securities index resulting Fixed Income I
INTEREST RATE SWAPS) in the risk that, when a Fund buys a futures contract Fixed Income
or option as a hedge, the hedge may not be completely III
effective.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
- --------------------- ----------- -------------
<S> <C> <C>
REAL ESTATE Just as real estate values go up and down, the value of Real Estate
SECURITIES the securities of companies involved in the industry, Securities
and in which a Fund invests, also fluctuates. A Fund
that invests in real estate securities is also subject
to the risks associated with direct ownership of real
estate. Additional risks include declines in the value
of real estate, changes in general and local economic
conditions, increases in property taxes and changes in
tax laws and interest rates. The value of securities of
companies that service the real estate industry may
also be affected by such risks.
- -REITs REITs may be affected by changes in the value of the Real Estate
underlying properties owned by the REITs and by the Securities
quality of any credit extended. Moreover, the
underlying portfolios of REITs may not be diversified,
and therefore are subject to the risk of financing a
single or a limited number of projects. REITs are also
dependent upon management skills and are subject to
heavy cash flow dependency, defaults by borrowers,
self-liquidation and the possibility of failing either
to qualify for tax-free pass through of income under
federal tax laws or to maintain their exemption from
certain federal securities laws.
MUNICIPAL OBLIGATIONS Municipal obligations are affected by economic, Fixed Income I
business or political developments. These securities Fixed Income
may be subject to provisions of litigation, bankruptcy III
and other laws affecting the rights and remedies of Short Term
creditors, or may become subject to future laws Bond
extending the time for payment of principal and/or
interest, or limiting the rights of municipalities to
levy taxes.
REPURCHASE AGREEMENTS Under a repurchase agreement, a bank or broker sells Fixed Income I
securities to a Fund and agrees to repurchase them at Fixed Income
the Fund's cost plus interest. If the value of the III
securities declines and the bank or broker defaults on Short Term
its repurchase obligation, a Fund could incur a loss. Bond
EXPOSING LIQUIDITY By exposing its liquidity reserves to the equity Equity I
RESERVES TO EQUITY market, principally by use of equity futures, a Fund's Equity II
MARKETS performance tends to correlate more closely to the Equity III
performance of the market as a whole. Although this Equity Q
increases a Fund's performance if equity markets rise, International
it reduces a Fund's performance if equity markets Real Estate
decline. Securities
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
- --------------------- ----------- -------------
<S> <C> <C>
SECURITIES LENDING If a borrower of a Fund's securities fails financially, All Funds
the Fund's recovery of the loaned securities may be
delayed or the Fund may lose its rights to the
collateral which could result in a loss to a Fund.
</TABLE>
AN INVESTMENT IN ANY OF THE FUNDS IS NOT A BANK DEPOSIT AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
44
<PAGE>
MANAGEMENT OF THE FUNDS
The Funds' investment adviser is FRIMCo, 909 A Street, Tacoma, Washington
98402. FRIMCo pioneered the "multi-style, multi-manager" investment method in
mutual funds and manages over $17 billion in more than 30 mutual fund
portfolios. FRIMCo was established in 1982 to serve as the investment management
arm of Russell.
Russell, which acts as consultant to the Funds, was founded in 1936 and has
been providing comprehensive asset management consulting services for over 30
years to institutional investors, principally large corporate employee benefit
plans. Russell provides the Funds and FRIMCo with the asset management
consulting services that it provides to its other consulting clients. The Funds
do not compensate Russell for these services. Russell and its affiliates have
offices around the world, in Tacoma, New York, Toronto, London, Paris, Sydney,
Auckland, Singapore and Tokyo.
Russell is a subsidiary of The Northwestern Mutual Life Insurance Company.
Founded in 1857, Northwestern Mutual is a mutual life insurance corporation
headquartered in Milwaukee, Wisconsin. It leads the US in both individual life
insurance sold annually and individual life insurance in force.
FRIMCo recommends money managers to the Funds, allocates Fund assets among
them, oversees them, and evaluates their results. FRIMCo also oversees the
management of the Funds' liquidity reserves. The Funds' money managers select
the individual portfolio securities for the assets assigned to them.
FRIMCo's officers and employees who oversee the money managers are:
- Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
June 1989.
- Mark D. Amberson, who has been a Portfolio Manager of FRIMCo since
January 1998. From 1991 to 1997, Mr. Amberson was a Portfolio Manager in
Russell's Money Market Trading Group. Mr. Amberson has, jointly with Mr.
Burge, primary responsibility for management of the Fixed Income I,
Diversified Bond, Short Term Bond, Fixed Income III, Tax Exempt Bond and
Multistrategy Bond Funds.
- Randal C. Burge, who has been Director of Global Fixed Income since
January 2000. From 1995 to 1999, Mr. Burge was a Portfolio Manager of
FRIMCo. From 1990 to 1995, Mr. Burge was a Client Executive for Frank
Russell Australia. Mr. Burge has, jointly with Mr. Amberson, primary
responsibility for management of the Fixed Income I, Fixed Income III,
Diversified Bond, Short Term Bond, Tax Exempt Bond and Multistrategy Bond
Funds.
- Jean Carter, who has been Director of Global Equities since January 2000.
From 1994 to 1999, Ms. Carter was a Portfolio Manager of FRIMCo.
- Ann Duncan, who has been a Portfolio Manager of FRIMCo since
January 1998. From 1996 to 1997, Ms. Duncan was a Senior Equity Research
Analyst with Russell. From 1992 to 1995, Ms. Duncan was an equity analyst
and portfolio manager with Avatar Associates. Ms. Duncan has, jointly with
Mr. Jornlin, primary responsibility for management of the International
and International Securities Funds.
- James M. Imhof, Director of FRIMCo's Portfolio Trading, manages the Funds'
liquidity portfolios on a day to day basis and has been responsible for
ongoing analysis and monitoring of the money managers since 1989.
45
<PAGE>
- James A. Jornlin, who has been a Portfolio Manager of FRIMCo since January
2000. From 1995 to 1999, Mr. Jornlin was a Senior Investment Officer of
FRIMCo. From 1991 to 1995, Mr. Jornlin was a Senior Research Analyst with
Russell. Mr. Jornlin, has, jointly with Mr. Parish, primary responsibility
for management of the Emerging Markets Fund, has, jointly with Ms. Duncan,
primary responsibility for the management of the International and
International Securities Funds and has, jointly with Mr. Ogard, primary
responsibility for the management of the Real Estate Securities Fund.
- Eric W. Ogard, who has been a Portfolio Manager of FRIMCo since March
2000. Mr. Ogard was a Research Analyst from FRIMCo from 1995 to 1997 and a
Senior Research Analyst for FRIMCo from 1997 to 2000. Mr. Ogard has,
jointly with Mr. Trittin and Mr. Tipple, primary responsibility for the
management of the Equity I, Equity II, Equity III, Equity Q, Tax-Managed
Large Cap, Tax-Managed Small Cap, Diversified Equity, Quantitative Equity,
Special Growth and Equity Income Funds and has, jointly with Mr. Jornlin,
primary responsibility for the management of the Real Estate Securities
Fund.
- Symon Parish who has been an Associate Portfolio Manager of Frank Russell
Company Limited, an affiliate of FRIMCo, since 1996. From 1994 to 1996,
Mr. Parish was a client service executive in Russell's Auckland office.
Mr. Parish has, jointly with Mr. Jornlin, primary responsibility for the
Emerging Markets Fund.
- Brian C. Tipple, who has been a Portfolio Manager of FRIMCo since July
1999. From 1991 to 1999, Mr. Tipple was a Client Executive with Frank
Russell Trust Company. Mr. Tipple has, jointly with Mr. Ogard and Mr.
Trittin, primary responsibility for the management of the Equity I, Equity
II, Equity III, Equity Q, Tax-Managed Large Cap, Tax-Managed Small Cap,
Diversified Equity, Quantitative Equity, Special Growth and Equity Income
Funds.
- Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of US Equity
Manager Research Department with Russell. Mr. Trittin has, jointly with
Mr. Ogard and Mr. Tipple, primary responsibility for management of the
Equity I, Equity II, Equity III, Equity Q, Tax-Managed Large Cap,
Tax-Managed Small Cap, Diversified Equity, Quantitative Equity, Special
Growth and Equity Income Funds.
The aggregate annual rate of advisory and administrative fees, payable to
FRIMCo monthly on a pro rata basis, are the following percentages of each Fund's
average daily net assets: Equity I Fund, 0.60%; Equity II Fund, 0.75%; Equity
III Fund, 0.60%; Equity Q Fund, 0.60%; International Fund, 0.75%; Fixed Income I
Fund, 0.30%; Fixed Income III Fund, 0.55%; Emerging Markets Fund, 1.20%; Real
Estate Securities Fund, 0.85%; and Short Term Bond Fund, 0.50%. Of these
aggregate amounts 0.05% is attributable to administrative services. Each Fund
may also pay, in addition to the aggregate fees set forth above, a fee which
compensates FRIMCo for managing collateral which the Funds have received in
securities lending and certain other portfolio transactions which are not
treated as net assets of that Fund ("additional assets") in determining the
Fund's net asset value per share. The additional fee payable to FRIMCo will
equal an amount of up to 0.07% of each Fund's additional assets on an annualized
basis.
46
<PAGE>
THE MONEY MANAGERS
Each Fund allocates its assets among the money managers listed under "Money
Manager Information" at the end of this Prospectus. FRIMCo, as the Funds'
advisor, may change the allocation of a Fund's assets among money managers at
any time. The Funds received an exemptive order from the Securities and Exchange
Commission (SEC) that permits a Fund to engage or terminate a money manager at
any time, subject to the approval by the Fund's Board of Trustees (Board),
without a shareholder vote. A Fund notifies its shareholders within 60 days of
when a money manager begins providing services. The Funds select money managers
based primarily upon the research and recommendations of FRIMCo and Russell.
FRIMCo and Russell evaluate quantitatively and qualitatively the money manager's
skills and results in managing assets for specific asset classes, investment
styles and strategies. Short-term investment performance, by itself, is not a
controlling factor in any Fund's selection or termination of a money manager.
Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund. At the same time, however, each money
manager must operate within the Fund's investment objectives, restrictions and
policies. Additionally, each manager must operate within more specific
constraints developed from time to time by FRIMCo. FRIMCo develops such
constraints for each manager based on FRIMCo's assessment of the manager's
expertise and investment style. By assigning more specific constraints to each
money manager, FRIMCo intends to capitalize on the strengths of each money
manager and to combine their investment activities in a complementary fashion.
Although the money managers' activities are subject to general oversight by the
Board and the Funds' officers, neither the Board, the officers, FRIMCo nor
Russell evaluate the investment merits of the money managers' individual
security selections.
PORTFOLIO TURNOVER
The portfolio turnover rates for certain Funds are likely to be somewhat
higher than the rates for comparable mutual funds with a single money manager.
Each of the Funds' money managers makes decisions to buy or sell securities
independently from other managers. Thus, one money manager for a Fund may be
selling a security when another money manager for the Fund (or for another Fund)
is purchasing the same security. Also, when a Fund replaces a money manager the
new money manager may significantly restructure the investment portfolio. These
practices may increase the Funds' portfolio turnover rates, realization of gains
or losses, brokerage commissions and other transaction costs. When a Fund
realizes capital gains upon selling portfolio securities, your tax liability
increases. The annual portfolio turnover rates for each of the Funds are shown
in the Financial Highlights tables in this Prospectus.
47
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
INCOME DIVIDENDS
Each Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The amount and frequency of
distributions are not guaranteed, all distributions are at the Board's
discretion. Currently, the Board intends to declare dividends from net
investment income (if any), according to the following schedule:
<TABLE>
<CAPTION>
DECLARED PAYABLE FUNDS
- -------- ------- -----
<S> <C> <C>
Quarterly............... Mid: April, July, October and December Equity I, Equity II, Equity III, Equity
Q, Real Estate Securities, Short Term
Bond, Fixed Income I and Fixed Income
III Funds
Annually................ Mid-December International and Emerging Markets
Funds
</TABLE>
CAPITAL GAINS DISTRIBUTIONS
The Board intends to declare capital gain distributions (both short-term and
long-term) once a year in mid-December to reflect any net short-term and net
long-term capital gains realized by a Fund as of October 31 of the current
fiscal year. A Fund may be required to make an additional distribution if
necessary, in any year for operational or other reasons. Distributions that are
declared in October, November, or December to shareholders of record in such
months, and paid in January of the following year, will be treated for tax
purposes as if received on December 31 of the year in which they were declared.
BUYING A DIVIDEND
If you purchase Shares just before a distribution, you will pay the full
price for the Shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." Unless your account is
a tax-deferred account, dividends paid to you would be included in your gross
income for tax purposes even though you may not have participated in the
increase of the net asset value of a Fund, regardless of whether you reinvested
the dividends. To avoid "buying a dividend," check a Fund's distribution dates
before you invest.
AUTOMATIC REINVESTMENT
Your dividends and other distributions are automatically reinvested at the
closing net asset value on the record date, in additional shares of the
appropriate Fund, unless you elect to have the dividends or distributions paid
in cash or invested in another Fund. You may change your election by delivering
written notice no later than ten days prior to the payment date to the Funds at
Frank Russell Investment Company c/o Boston Financial Date Services, 2 Heritage
Drive, N. Quincy, MA 02171.
48
<PAGE>
TAXES
In general, distributions from a Fund are taxable to you as either ordinary
income or capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Any long-term capital
gains distributed by a Fund are taxable to you as long-term capital gains no
matter how long you have owned your shares. Every January, you will receive a
statement that shows the tax status of distributions you received for the
previous year. Distributions declared in December but paid in January are
taxable as if they were paid in December.
When you sell or exchange your shares of a Fund, you may have a capital gain
or loss. Any loss incurred on the sale or exchange of a Fund's Shares, held for
six months or less, will be treated as a long-term capital loss to the extent of
capital gains dividends received with respect to such Shares. The tax rate on
any gain from the sale or exchange of your shares depends on how long you have
held your shares.
Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-US investors may be
subject to US withholding and estate tax. You should consult your tax
professional about federal, state, local or foreign tax consequences of holding
shares of a Fund.
When a Fund invests in securities of certain foreign countries, the Fund may
have taxes withheld on the income received from these securities. If more than
50% of the total fair market value of a Fund's assets is made up of foreign
securities, the Fund may elect to pass through such taxes to shareholders as a
foreign tax credit.
If you are a corporate investor, a portion of the dividends from net
investment income paid by Equity I, Equity II, Equity III, Equity Q and Real
Estate Securities Funds may generally qualify, in part, for the corporate
dividends-received deduction. However, the portion of the dividends so qualified
depends on the aggregate qualifying dividend income received by each Fund from
domestic (US) sources. Certain holding period and debt financing restrictions
may apply to corporate investors seeking to claim the deduction. You should
consult your tax professional with respect to the applicability of these rules.
By law, a Fund must withhold 31% of your distributions and proceeds if you
do not provide your correct taxpayer identification number, or certify that such
number is correct, or if the IRS instructs the Fund to do so.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN A FUND.
Additional information on these and other tax matters relating to the Funds
and their shareholders is included in the section entitled "Taxes" in the Fund's
Statement of Additional Information.
49
<PAGE>
HOW NET ASSET VALUE IS DETERMINED
NET ASSET VALUE PER SHARE
The net asset value per share is calculated for Shares of each Class of each
Fund on each business day on which Shares are offered or redemption orders are
tendered. For all Funds, a business day is one on which the New York Stock
Exchange (NYSE) is open for trading. The NYSE is not open on national holidays
or Good Friday. All Funds determine net asset value at 4:00 p.m. Eastern Time or
as of the close of the NYSE, whichever is earlier.
VALUATION OF PORTFOLIO SECURITIES
Securities held by the Funds are typically priced using market quotations or
pricing services when the prices are believed to be reliable, that is, when the
prices reflect the fair market value of the securities. The Funds value
securities for which market quotations are not readily available at "fair
value," as determined in good faith and in accordance with procedures
established by the Board. If you hold Shares in a Fund, such as the
International or Emerging Markets Funds, that holds portfolio securities that
are listed primarily on foreign exchanges, the net asset value of that Fund's
Shares may change on a day when you will not be able to purchase or redeem that
Fund's Shares. This is because the value of those portfolio securities may
change on weekends or other days when that Fund does not price its Shares.
50
<PAGE>
HOW TO PURCHASE SHARES
Funds are generally available only through a select network of qualified
Financial Intermediaries. If you are not currently working with one of these
Financial Intermediaries, please call Russell Investor Services at (800) RUSSEL4
(800-787-7354) for assistance in contacting an investment professional near you.
For Class Y Shares, there is a $10 million required minimum initial
investment for each account in each Fund.
For Class S Shares, there is a $2,500 required minimum initial investment
for each account in each Fund.
Financial Intermediaries may charge their customers a fee for providing
investment-related services.
PAYING FOR SHARES
You may purchase shares of the Funds through a Financial Intermediary on any
business day the Funds are open. Purchase orders are processed at the next net
asset value per share calculated after the Funds' receive your order in proper
form (defined in the "Written Instructions" section), and accept the order.
All purchases must be made in US dollars. Checks and other negotiable bank
drafts must be drawn on US banks and made payable to "Frank Russell Investment
Company." The Funds reserve the right to reject any purchase order for any
reason including, but not limited to, receiving a check which does not clear the
bank or a payment which does not arrive in proper form by settlement date. You
will be responsible for any resulting loss to the Funds. An overdraft charge may
also be applied. Cash, third party checks and checks drawn on credit card
accounts generally will not be accepted. However, exceptions may be made by
prior special arrangement with certain Financial Intermediaries.
OFFERING DATES AND TIMES
Orders must be received by the Funds prior to 4:00 p.m. Eastern Time or the
close of the NYSE, whichever is earlier. Purchases can be made on any day when
Fund shares are offered. Because Financial Intermediaries' processing time may
vary, please ask your Financial Intermediary representative when your account
will be credited.
ORDER AND PAYMENT PROCEDURES
Generally, you must place purchase orders for Shares of the Funds through a
Financial Intermediary. You may pay for your purchase by mail or electronic
funds transfer. Initial purchases require a completed and signed Application for
each new account regardless of the investment method. Specific payment
arrangements should be made with your Financial Intermediary.
51
<PAGE>
BY MAIL
For new accounts, please mail the completed Application to your Financial
Intermediary. Payment for orders may be made by check or other negotiable bank
draft and sent to the Funds' Transfer Agent. Certified checks are not necessary,
but checks are accepted subject to collection at full face value in US funds.
Third party checks will not be accepted. Checks should be made payable to "Frank
Russell Investment Company."
BY FEDERAL FUNDS WIRE
You can pay for orders by wiring federal funds to the Funds' Custodian,
State Street Bank and Trust Company. All wires must include your account
registration and account number for identification. Inability to properly
identify a wire transfer may prevent or delay timely settlement of your
purchase.
BY AUTOMATED CLEARING HOUSE ("ACH")
You can make initial or subsequent investments through ACH to the Funds'
Custodian, State Street Bank and Trust Company.
AUTOMATED INVESTMENT PROGRAM
You can make regular investments (minimum $50) in the Funds in an
established account on a monthly, quarterly, semiannual or annual basis by
automatic electronic funds transfer from a bank account. You must make a
separate transfer for each Fund in which you purchase Shares. You may change the
amount or stop the automatic purchase at any time. Contact your Financial
Intermediary for further information on this program and an enrollment form.
THREE-DAY SETTLEMENT PROGRAM
The Funds will accept orders at the next computed net asset value from
Financial Intermediaries to purchase Shares of the Funds for settlement on the
third business day following the receipt of the order. These orders are paid for
by a federal funds wire if the Financial Intermediary has enrolled in the
program and agreed in writing to indemnify the Funds against any losses
resulting from non-receipt of payment.
52
<PAGE>
EXCHANGE PRIVILEGE
BY MAIL OR TELEPHONE
Through your Financial Intermediary, you may exchange Shares of any Fund you
own for shares of any other Fund on the basis of the current net asset value per
share at the time of the exchange. Shares of a Fund offered by this Prospectus
may only be exchanged for Shares of a Fund offered by FRIC through another
Prospectus under certain conditions and only in states where the exchange may be
legally made. For additional information, including Prospectuses for other
Funds, contact your Financial Intermediary.
Exchanges may be made by mail or by telephone if the registration of the two
accounts is identical. Contact your Financial Intermediary for assistance in
exchanging Shares and, because Financial Intermediaries' processing time may
vary, to find out when your account will be credited or debited. To request an
exchange in writing, please follow the procedures in the "Written Instructions"
section before mailing to your Financial Intermediary.
An exchange involves the redemption of Shares, which is treated as a sale
for income tax purposes. Thus, capital gain or loss may be realized. Please
consult your tax adviser for more information. The Shares to be acquired will be
purchased when the proceeds from the redemption become available (up to seven
days from the receipt of the request) at the next net asset value per share
calculated after the Funds received the exchange request in good order.
IN-KIND EXCHANGE OF SECURITIES
FRIMCo, in its capacity as the Funds' investment advisor, may, at its
discretion, permit you to acquire Shares in exchange for securities you
currently own. Any securities exchanged must meet the investment objective,
policies and limitations of the applicable Fund, have a readily ascertainable
market value, be liquid, not be subject to restrictions on resale and have a
market value, plus any cash, equal to at least $100,000.
Shares purchased in exchange for securities generally may not be redeemed or
exchanged for 15 days following the purchase by exchange or until the transfer
has settled, whichever comes first. If you are a taxable investor, you will
generally realize a gain or loss for federal income tax purposes on the
exchange. If you are contemplating an in-kind exchange you should consult your
tax adviser.
The price at which the exchange will take place will depend upon the
relative net asset value of the Shares purchased and securities exchanged.
Securities accepted by a Fund will be valued in the same way the Fund values its
assets. Any interest earned on the securities following their delivery to the
Funds and prior to the exchange will be considered in valuing the securities.
All interest, dividends, subscription or other rights attached to the securities
becomes the property of the Fund, along with the securities. Please contact your
Financial Intermediary for further information.
53
<PAGE>
HOW TO REDEEM SHARES
Shares of the Funds may be redeemed through your Financial Intermediary on
any business day the Funds are open at the next net asset value per share
calculated after the Funds' Transfer Agent receives an order in proper form
(defined in the "Written Instructions" section). Payment will ordinarily be made
within seven days after receipt of your request in proper form. Shares recently
purchased by check may not be available for redemption for 15 days following the
purchase or until the check clears, whichever occurs first, to assure payment
has been collected.
REDEMPTION DATES AND TIMES
Redemption requests must be placed through a Financial Intermediary and
received by the Funds prior to 4:00 p.m. Eastern Time or the close of the NYSE,
whichever is earlier. Because Financial Intermediaries' processing times may
vary, please ask your Financial Intermediary representative when your account
will be debited. Requests can be made by mail or telephone on any day when Fund
shares are offered, or through the Systematic Withdrawal Program described
below.
BY MAIL OR TELEPHONE
You may redeem your shares by calling or writing to your Financial
Intermediary. Written requests to sell shares are in proper form when the
instructions are signed by all registered owners, with a signature guarantee if
necessary.
SYSTEMATIC WITHDRAWAL PROGRAM
The Funds offer a systematic withdrawal program which allows you to redeem
your Shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. If you would like to establish a
systematic withdrawal program, please complete the proper section of the account
application and indicate how you would like to receive your payments. You will
generally receive your payment by the end of the month in which a payment is
scheduled. When you redeem your shares under a systematic withdrawal program, it
is a taxable transaction.
You may choose to have the payments mailed to you or directed to your bank
account by ACH transfer. You may discontinue the systematic withdrawal program,
or change the amount and timing of withdrawal payments by contacting your
Financial Intermediary.
ACCOUNTS IN STREET NAME
Many brokers, employee benefit plans and bank trusts combine their client's
Fund holdings in a single omnibus account with the Funds held in the brokers',
plans', or bank trusts' own name or "street name." Therefore, if you hold Fund
shares through a brokerage account, employee benefit plan or bank trust fund,
the Funds may have records only of the omnibus account. In this case, your
broker, employee benefit plan or bank is responsible for keeping track of your
account information. This means that you may not be able to request transactions
in your Shares directly through the Funds, but can do so only through your
broker, plan administrator or bank. Ask your Financial Intermediary for
information on whether your Fund shares are held in an omnibus account.
54
<PAGE>
PAYMENT OF REDEMPTION PROCEEDS
BY CHECK
When you redeem your Shares, a check for the redemption proceeds will be
sent to the shareholder(s) of record at the address of record within seven days
after the Funds receive a redemption request in proper form.
BY WIRE
If you have established the electronic redemption option, your redemption
proceeds can be wired to your predesignated bank account on the next bank
business day after the Funds receive your redemption request. The Funds may
charge a fee to cover the cost of sending a wire transfer for redemptions less
than $1,000, and your bank may charge an additional fee to receive the wire.
Wire transfers can be sent to US commercial banks that are members of the
Federal Reserve System.
WRITTEN INSTRUCTIONS
PROPER FORM: Written instructions must be in proper form. They must include:
A description of the request
The name of the Fund(s)
The class of shares, if applicable
The account number(s)
The amount of money or number of shares being purchased, exchanged,
transferred or redeemed
The name(s) on the account(s)
The signature(s) of all registered account owners
For exchanges, the name of the Fund you are exchanging into
Your daytime telephone number
55
<PAGE>
SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
<TABLE>
<CAPTION>
ACCOUNT TYPE REQUIREMENTS FOR WRITTEN REQUESTS
<S> <C>
Individual, Joint Tenants, Tenants in Written instructions must be signed by each
Common shareholder, exactly as the names appear in the
account registration.
UGMA or UTMA (custodial accounts for Written instructions must be signed by the
minors) custodian in his/her capacity as it appears in
the account registration.
Corporation, Association Written instructions must be signed by authorized
person(s), stating his/her capacity as indicated
by the corporate resolution to act on the account
and a copy of the corporate resolution, certified
within the past 90 days, authorizing the signer
to act.
Estate, Trust, Pension, Profit Sharing Written instructions must be signed by all
Plan trustees. If the name of the trustee(s) does not
appear in the account registration, please
provide a copy of the trust document certified
within the last 60 days.
Joint tenancy shareholders whose Written instructions must by signed by the
co-tenants are deceased surviving tenant(s). A certified copy of the
death certificate must accompany the request.
</TABLE>
SIGNATURE GUARANTEE
The Funds reserve the right to require a signature guarantee under certain
circumstances. A signature guarantee verifies the authenticity of your
signature. You should be able to obtain a signature guarantee from a bank,
broker, credit union, savings association, clearing agency, or securities
exchange or association, but not a notary public. Call your financial
institution to see if it has the ability to guarantee a signature.
ACCOUNT POLICIES
THIRD PARTY TRANSACTIONS
If you purchase Shares as part of a program of services offered by a
Financial Intermediary, you may be required to pay additional fees. You should
contact your Financial Intermediary for information concerning what additional
fees, if any, may be charged.
REDEMPTION IN-KIND
A Fund may pay for any portion of the redemption amount in excess of
$250,000 by a distribution in-kind of securities from the Fund's portfolio,
instead of in cash. If you receive an in-kind distribution of portfolio
securities, and choose to sell them, you will incur brokerage charges and
continue to be subject to tax consequences and market risk pending any sale.
56
<PAGE>
STALE CHECKS
For the protection of shareholders and the Funds, if a check issued for the
payment of a redemption or distribution is not cashed for more than 180 days
from issuance, it will not be honored. The Funds have adopted procedures
described in the statement of additional information regarding the treatment of
stale checks, or you may contact your Financial Intermediary for additional
information.
57
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus offers Class Y Shares of the Equity I, Equity II, Equity
III, Equity Q, International, Fixed Income I and Fixed Income III Funds, which
had not yet commenced operations during the periods shown below. Although the
information presented reflects the Class I Shares of each Fund, Class Y Shares
have similar fees and charges and would have presented similar results. The
financial highlights table is intended to help you understand the Funds'
financial performance for the past 5 years (or, if a Fund or Class has not been
in operation for 5 years, since the beginning of operations for that Fund or
Class). Certain information reflects financial results for a single Fund share
throughout the year or period ended December 31. The total returns in the table
represent how much your investment in a Fund would have increased (or decreased)
during each period, assuming reinvestment of all dividends and distributions.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Funds' financial statements, are included in the Funds' annual
reports, which are available upon request.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
EQUITY I FUND--CLASS I SHARES ----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 35.17 $ 30.51 $ 30.34 $ 28.00 $ 23.32
---------- ---------- ---------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a).................... .27 .27 .34 .42 .52
Net realized and unrealized gain (loss)...... 6.18 7.10 8.89 5.96 7.71
---------- ---------- ---------- -------- --------
Total Income From Operations............... 6.45 7.37 9.23 6.38 8.23
---------- ---------- ---------- -------- --------
DISTRIBUTIONS
From net investment income................... (.28) (.27) (.34) (.42) (.52)
From net realized gain....................... (3.88) (2.44) (8.72) (3.62) (3.03)
---------- ---------- ---------- -------- --------
Total Distributions........................ (4.16) (2.71) (9.06) (4.04) (3.55)
---------- ---------- ---------- -------- --------
NET ASSET VALUE, END OF PERIOD................. $ 37.46 $ 35.17 $ 30.51 $ 30.34 $ 28.00
========== ========== ========== ======== ========
TOTAL RETURN (%)(b)............................ 18.98 25.10 32.02 23.58 35.94
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)..... 1,632,783 1,381,704 1,136,373 961,953 751,497
Ratios to average net assets (%)(b):
Operating expenses......................... .69 .70 .70 .71 .59
Net investment income...................... .72 .82 .96 1.38 1.91
Portfolio turnover rate (%).................. 111.56 100.68 110.75 99.51 92.04
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
58
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
EQUITY II FUND--CLASS I SHARES --------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $ 30.94 $ 32.96 $ 30.05 $ 28.88 $ 25.00
---------- ---------- ---------- ---------- ----------
INCOME FROM OPERATIONS
Net investment income (a)...................... .10 .09 .11 .16 .27
Net realized and unrealized gain (loss)........ 6.68 .04 8.11 4.96 6.80
---------- ---------- ---------- ---------- ----------
Total Income From Operations................. 6.78 .13 8.22 5.12 7.07
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
From net investment income..................... (.10) (.10) (.11) (.16) (.29)
From net realized gain......................... (1.91) (2.05) (5.20) (3.79) (2.90)
---------- ---------- ---------- ---------- ----------
Total Distributions.......................... (2.01) (2.15) (5.31) (3.95) (3.19)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD................... $ 35.71 $ 30.94 $ 32.96 $ 30.05 $ 28.88
========== ========== ========== ========== ==========
TOTAL RETURN (%)(b).............................. 22.60 .70 28.66 18.51 28.67
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)....... 752,530 533,819 482,159 365,955 279,566
Ratios to average net assets (%)(b):
Operating expenses........................... .92 .91 .92 .95 .83
Net investment income........................ .31 .29 .35 .52 .97
Portfolio turnover rate (%).................... 111.89 128.87 103.00 120.78 89.31
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment service fees.
59
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
EQUITY III FUND--CLASS I SHARES ----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 29.12 $ 29.80 $ 29.68 $ 29.11 $ 24.18
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)............................. .40 .47 .60 .70 .82
Net realized and unrealized gain (loss)............... (.41) 2.75 8.69 5.10 7.73
-------- -------- -------- -------- --------
Total Income From Operations........................ (.01) 3.22 9.29 5.80 8.55
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income............................ (.40) (.47) (.61) (.71) (.83)
From net realized gain................................ (2.53) (3.43) (8.56) (4.52) (2.79)
-------- -------- -------- -------- --------
Total Distributions................................. (2.93) (3.90) (9.17) (5.23) (3.62)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......................... $ 26.18 $ 29.12 $ 29.80 $ 29.68 $ 29.11
======== ======== ======== ======== ========
TOTAL RETURN (%)(b)..................................... .25 11.53 33.13 20.90 35.96
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).............. 168,361 210,491 242,112 221,778 222,541
Ratios to average net assets (%)(b):
Operating expenses.................................. .79 .74 .78 .79 .65
Net investment income............................... 1.39 1.54 1.77 2.23 2.90
Portfolio turnover rate (%)........................... 146.28 135.53 128.86 100.78 103.40
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
60
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
EQUITY Q FUND--CLASS I SHARES --------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $ 40.22 $ 35.90 $ 32.94 $ 30.40 $ 24.43
---------- ---------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a).......................... .34 .32 .44 .58 .59
Net realized and unrealized gain (loss)............ 8.03 8.53 10.01 6.33 8.52
---------- ---------- -------- -------- --------
Total Income From Operations..................... 8.37 8.85 10.45 6.91 9.11
---------- ---------- -------- -------- --------
DISTRIBUTIONS
From net investment income......................... (.38) (.32) (.44) (.59) (.61)
From net realized gain............................. (6.66) (4.21) (7.05) (3.78) (2.53)
---------- ---------- -------- -------- --------
Total Distributions.............................. (7.04) (4.53) (7.49) (4.37) (3.14)
---------- ---------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD....................... $ 41.55 $ 40.22 $ 35.90 $ 32.94 $ 30.40
========== ========== ======== ======== ========
TOTAL RETURN (%)(b).................................. 21.96 25.98 33.07 23.67 37.91
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)........... 1,363,336 1,175,900 987,760 818,281 620,259
Ratios to average net assets (%)(b):
Operating expenses............................... .69 .69 .68 .71 .58
Net investment income............................ .80 .85 1.17 1.80 2.07
Portfolio turnover rate (%)........................ 90.16 74.56 94.89 74.59 74.00
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
61
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
INTERNATIONAL FUND--CLASS I SHARES --------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $ 38.03 $ 34.60 $ 37.39 $ 36.26 $ 34.28
---------- ---------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a).......................... .43 .52 .46 .44 .48
Net realized and unrealized gain (loss)............ 10.93 4.10 (.28) 2.41 3.16
---------- ---------- -------- -------- --------
Total Income From Operations..................... 11.36 4.62 .18 2.85 3.64
---------- ---------- -------- -------- --------
DISTRIBUTIONS
From net investment income......................... (.48) (.59) (.55) (.35) (.72)
From net realized gain............................. (2.24) (.60) (2.42) (1.37) (.94)
---------- ---------- -------- -------- --------
Total Distributions.............................. (2.72) (1.19) (2.97) (1.72) (1.66)
---------- ---------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD....................... $ 46.67 $ 38.03 $ 34.60 $ 37.39 $ 36.26
========== ========== ======== ======== ========
TOTAL RETURN (%)(b).................................. 30.46 13.52 .58 7.98 10.71
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)........... 1,263,676 1,013,679 972,735 944,380 796,777
Ratios to average net assets (%)(b):
Operating expenses, net.......................... 1.00 .98 1.00 1.04 .88
Operating expenses, gross........................ 1.00 .98 1.00 1.05 .89
Net investment income............................ 1.07 1.38 1.14 1.20 1.41
Portfolio turnover rate (%)........................ 118.99 64.47 79.45 42.69 36.78
</TABLE>
- --------------------------
(a) For periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
62
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
EMERGING MARKETS FUND--CLASS S SHARES ----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 8.48 $ 11.79 $ 12.35 $ 11.16 $ 12.25
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)............................. .03 .12 .14 .10 .11
Net realized and unrealized gain (loss)............... 4.10 (3.35) (.56) 1.26 (1.12)
-------- -------- -------- -------- --------
Total Income From Operations........................ 4.13 (3.23) (.42) 1.36 (1.01)
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income............................ (.09) (.08) (.14) (.17) (.05)
From net realized gain................................ -- -- -- -- (.03)
-------- -------- -------- -------- --------
Total Distributions................................. (.09) (.08) (.14) (.17) (.08)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......................... $ 12.52 $ 8.48 $ 11.79 $ 12.35 $ 11.16
======== ======== ======== ======== ========
TOTAL RETURN (%)(b)..................................... 49.03 (27.57) (3.45) 12.26 (8.21)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).............. 430,794 294,349 333,052 271,490 172,673
Ratios to average net assets (%)(b):
Operating expenses, net............................. 1.91 1.75 1.64 1.71 1.75
Operating expenses, gross........................... 1.91 1.75 1.64 1.72 1.80
Net investment income............................... .26 1.20 .87 .77 .88
Portfolio turnover rate (%)........................... 94.85 59.35 50.60 34.62 71.16
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
63
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
REAL ESTATE SECURITIES FUND--CLASS S SHARES ----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 24.44 $ 30.86 $ 29.19 $ 23.51 $ 22.53
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)............................. 1.30 1.34 1.36 1.39 1.32
Net realized and unrealized gain (loss)............... (1.20) (6.13) 3.93 6.89 1.03
-------- -------- -------- -------- --------
Total Income From Operations........................ .10 (4.79) 5.29 8.28 2.35
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income............................ (1.68) (1.17) (1.41) (1.34) (1.35)
From net realized gain................................ -- (.46) (2.21) (1.26) (.02)
-------- -------- -------- -------- --------
Total Distributions................................. (1.68) (1.63) (3.62) (2.60) (1.37)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......................... $ 22.86 $ 24.44 $ 30.86 $ 29.19 $ 23.51
======== ======== ======== ======== ========
TOTAL RETURN (%)........................................ .55 (15.94) 18.99 36.81 10.87
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).............. 589,300 576,326 615,483 445,619 290,990
Ratios to average net assets (%):
Operating expenses.................................. 1.14 1.05 1.02 1.04 1.04
Net investment income............................... 5.41 4.93 4.57 5.64 6.10
Portfolio turnover rate (%)........................... 42.69 42.58 49.40 51.75 23.49
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
64
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SHORT TERM BOND FUND--CLASS S SHARES ----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 18.46 $ 18.35 $ 18.36 $ 18.55 $ 17.98
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)............................. .90 .99 1.08 1.04 1.16
Net realized and unrealized gain (loss)............... (.36) .11 -- (.19) .59
-------- -------- -------- -------- --------
Total Income From Operations........................ 54 1.10 1.08 .85 1.75
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income............................ (.97) (.99) (1.09) (1.04) (1.18)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......................... $ 18.03 $ 18.46 $ 18.35 $ 18.36 $ 18.55
======== ======== ======== ======== ========
TOTAL RETURN (%)(b)..................................... 3.03 6.09 6.02 4.76 9.95
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).............. 447,590 260,539 229,470 222,983 183,577
Ratios to average net assets (%)(b):
Operating expenses.................................. .74 .66 .66 .70 .58
Net investment income............................... 5.22 5.37 5.70 5.70 6.41
Portfolio turnover rate (%)........................... 177.08 129.85 213.14 264.40 269.31
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
65
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
FIXED INCOME I FUND--CLASS I SHARES ------------------------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 21.76 $ 21.51 $ 20.99 $ 21.59 $ 19.59
---------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)............................ 1.28 1.32 1.37 1.38 1.42
Net realized and unrealized gain (loss).............. (1.50) .45 .54 (.62) 2.02
---------- -------- -------- -------- --------
Total Income From Operations....................... (.22) 1.77 1.91 .76 3.44
---------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income........................... (1.25) (1.31) (1.39) (1.36) (1.44)
From net realized gain............................... (.02) (.21) -- -- --
---------- -------- -------- -------- --------
Total Distributions................................ (1.27) (1.52) (1.39) (1.36) (1.44)
---------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD......................... $ 20.27 $ 21.76 $ 21.51 $ 20.99 $ 21.59
========== ======== ======== ======== ========
TOTAL RETURN (%)(b).................................... (1.04) 8.37 9.42 3.75 18.03
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)............. 1,051,362 978,491 798,252 662,899 638,317
Ratios to average net assets (%)(b):
Operating expenses................................. .39 .39 .42 .42 .35
Net investment income.............................. 6.05 6.03 6.54 6.57 6.82
Portfolio turnover rate (%).......................... 138.69 226.70 165.81 147.31 138.05
</TABLE>
- --------------------------
(a) For periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
66
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
FIXED INCOME III FUND--CLASS I SHARES ----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 10.22 $ 10.42 $ 10.17 $ 10.34 $ 9.37
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)............................. .59 .62 .63 .64 .67
Net realized and unrealized gain (loss)............... (.62) .08 .32 (.16) .97
-------- -------- -------- -------- --------
Total Income From Operations........................ (.03) .70 .95 .48 1.64
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income............................ (.60) (.62) (.64) (.65) (.67)
From net realized gain................................ -- (.28) (.06) -- --
-------- -------- -------- -------- --------
Total Distributions................................. (.60) (.90) (.70) (.65) (.67)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......................... $ 9.59 $ 10.22 $ 10.42 $ 10.17 $ 10.34
======== ======== ======== ======== ========
TOTAL RETURN (%)........................................ (.29) 6.80 9.64 4.88 17.99
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).............. 467,268 462,190 382,433 292,077 252,465
Ratios to average net assets (%)
Operating expenses.................................. .69 .67 .70 .73 .61
Net investment income............................... 5.91 5.91 6.13 6.32 6.83
Portfolio turnover rate (%)........................... 131.38 342.49 274.84 144.26 141.37
</TABLE>
- --------------------------
(a) For periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
67
<PAGE>
MONEY MANAGER INFORMATION
The money managers have no affiliations with the Funds or the Funds' service
providers other than their management of Fund assets. Each money manager has
been in business for at least three years, and is principally engaged in
managing institutional investment accounts. These managers may also serve as
managers or advisers to other Funds in FRIC, or to other clients of FRIMCo or of
Frank Russell Company, including Frank Russell Company's wholly owned
subsidiary, Frank Russell Trust Company.
EQUITY I FUND
ALLIANCE CAPITAL MANAGEMENT L.P., US Bank Place, 601 2nd Ave. South,
Suite 5000, Minneapolis, MN 55402-4322.
BARCLAYS GLOBAL FUND ADVISORS, 45 Fremont Street, 17th Floor, San Francisco,
CA 94105.
EQUINOX CAPITAL MANAGEMENT, LLC, 590 Madison Avenue, 41st Floor, New York,
NY 10022.
JACOBS LEVY EQUITY MANAGEMENT, INC., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.
MARSICO CAPITAL MANAGEMENT, LLC, 1200 17th Street, Suite 1300, Denver, CO
80202.
PEACHTREE ASSET MANAGEMENT, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308.
SANFORD C. BERNSTEIN & CO., INC., 767 Fifth Avenue, 21st Floor, New York, NY
10153-0185.
STRONG CAPITAL MANAGEMENT, INC., 100 Heritage Reserve, Menomonee Falls, WI
53051.
SUFFOLK CAPITAL MANAGEMENT, INC., 1633 Broadway, 40th Floor, New York, NY
10019.
TURNER INVESTMENT PARTNERS, 1235 Westlakes Drive, Suite 350, Berwyn, PA
19312.
WESTPEAK INVESTMENT ADVISORS, L.P., 1011 Walnut Street, Suite 400, Boulder,
CO 80302.
EQUITY II FUND
CAPITALWORKS INVESTMENT PARTNERS, LLC, 401 West "A" Street, Suite 1675, San
Diego, CA 92101.
DELPHI MANAGEMENT, INC., 50 Rowes Wharf, Suite 440, Boston, MA 02110.
FIDUCIARY TRUST COMPANY INTERNATIONAL, INC., 2 World Trade Center, New York,
NY 10048.
GLOBEFLEX CAPITAL, L.P., 4365 Executive Drive, Suite 720, San Diego, CA
92121.
JACOBS LEVY EQUITY MANAGEMENT, INC., See: Equity I Fund.
SIRACH CAPITAL MANAGEMENT, INC., One Union Square, Suite 3323, 600
University Street, Seattle, WA 98101.
WESTPEAK INVESTMENT ADVISORS, L.P., See: Equity I Fund.
68
<PAGE>
EQUITY III FUND
BARCLAYS GLOBAL FUND ADVISORS, See: Equity I Fund.
EQUINOX CAPITAL MANAGEMENT, INC., See: Equity I Fund.
WESTPEAK INVESTMENT ADVISORS, L.P., See: Equity I Fund.
EQUITY Q FUND
BARCLAYS GLOBAL FUND ADVISORS, See: Equity I Fund.
FRANKLIN PORTFOLIO ASSOCIATES LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104.
JACOBS LEVY EQUITY MANAGEMENT, INC., See: Equity I Fund.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., 522 Fifth Ave., 6th Floor, New
York, NY 10036.
INTERNATIONAL FUND
DELAWARE INTERNATIONAL ADVISERS LTD., 80 Cheapside, 3rd Floor, London
EC2V6EE England.
FIDELITY MANAGEMENT TRUST COMPANY, 82 Devonshire Street, Boston, MA 02109.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., See: Equity Q Fund.
MASTHOLM ASSET MANAGEMENT, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue,
WA 98004.
MONTGOMERY ASSET MANAGEMENT, LLC, 101 California Street, 35th Floor, San
Francisco, CA 94111.
OECHSLE INTERNATIONAL ADVISORS, LLC, One International Place, 23rd Floor,
Boston, MA 02110.
SANFORD C. BERNSTEIN & CO., INC., See: Equity I Fund.
THE BOSTON COMPANY ASSET MANAGEMENT, INC., One Boston Place, 14th Floor,
Boston, MA 02108-4402.
EMERGING MARKETS FUND
FOREIGN & COLONIAL EMERGING MARKETS LIMITED, Exchange House, Primrose
Street, London EC2A 2NY England.
GENESIS ASSET MANAGERS LIMITED, 21 Knightsbridge, London SW1X 7LY England.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, 600 W. Broadway, 29th Floor, San
Diego, CA 92101.
SANFORD C. BERNSTEIN & CO., INC., See: Equity I Fund.
SCHRODERS INVESTMENT MANAGEMENT NORTH AMERICA LIMITED, 31 Gresham Street,
London EC2V 7QA England.
69
<PAGE>
REAL ESTATE SECURITIES FUND
AEW CAPITAL MANAGEMENT, L.P., 225 Franklin Street, Boston, MA 02110-2803.
COHEN & STEERS CAPITAL MANAGEMENT, 757 Third Avenue, New York, NY 10017.
SECURITY CAPITAL GLOBAL CAPITAL MANAGEMENT GROUP INCORPORATED, 11 South
LaSalle Street, 2nd Floor, Chicago, IL 60603.
SHORT TERM BOND FUND
BLACKROCK FINANCIAL MANAGEMENT, INC., 345 Park Ave., 29th Floor, New York,
NY 10154.
STANDISH, AYER & WOOD, INC., One Financial Center, Boston, MA 02111.
STW FIXED INCOME MANAGEMENT LTD., 200 East Carrillo Street, Suite 100, Santa
Barbara, CA 93101-2143.
FIXED INCOME I FUND
LINCOLN CAPITAL MANAGEMENT COMPANY, See: Equity I Fund.
PACIFIC INVESTMENT MANAGEMENT COMPANY, 840 Newport Center Drive, Suite 360,
P.O. Box 6430, Newport Beach, CA 92658-6430.
STANDISH, AYER & WOOD, INC., See: Short Term Bond Fund.
FIXED INCOME III FUND
LAZARD ASSET MANAGEMENT, 30 Rockefeller Plaza, New York, NY 10112-6300.
MILLER, ANDERSON & SHERRERD, LLP, One Tower Bridge, W. Conshohocken, PA
19428.
PACIFIC INVESTMENT MANAGEMENT COMPANY, See: Fixed Income I Fund.
STANDISH, AYER & WOOD, INC., See: Short Term Bond Fund.
WHEN CONSIDERING AN INVESTMENT IN THE FUNDS, DO NOT RELY ON ANY INFORMATION
UNLESS IT IS CONTAINED IN THIS PROSPECTUS OR IN THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION. THE FUNDS HAVE NOT AUTHORIZED ANYONE TO ADD ANY
INFORMATION OR TO MAKE ANY ADDITIONAL STATEMENTS ABOUT THE FUNDS. THE FUNDS MAY
NOT BE AVAILABLE IN SOME JURISDICTIONS OR TO SOME PERSONS. THE FACT THAT YOU
HAVE RECEIVED THIS PROSPECTUS SHOULD NOT, IN ITSELF, BE TREATED AS AN OFFER TO
SELL FUND SHARES TO YOU. CHANGES IN THE AFFAIRS OF THE FUNDS OR IN THE FUNDS'
MONEY MANAGERS MAY OCCUR AFTER THE DATE ON THE COVER PAGE OF THIS PROSPECTUS.
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED TO REFLECT ANY MATERIAL CHANGES
TO THE INFORMATION IT CONTAINS.
70
<PAGE>
For more information about the Funds, the following documents are available
without charge:
ANNUAL/SEMIANNUAL REPORTS: Additional information about the Funds'
investments is available in the Funds' annual and semiannual reports to
shareholders. In each Fund's annual report, you will find a discussion of
the market conditions and investment strategies that significantly affected
the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds.
The annual report for each Fund and the SAI are incorporated into this
prospectus by reference. You may obtain free copies of the reports and
the SAI, and may request other information, by contacting the Funds at:
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
800-787-7354
Fax: 253-591-4395
Website: russell.com
You can review and copy information about the Funds (including the SAI) at
the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. You can obtain information on the operation of the Public Reference
Room by calling the Commission at 1-800-SEC-0330. You can obtain copies of
this information upon paying a duplicating fee by writing to the Public
Reference Section of the Commission, Washington, D.C. 20549-6009. Reports
and other information about the Funds are also available on the Commission's
Internet website at sec.gov.
FRANK RUSSELL INVESTMENT COMPANY
CLASS Y SHARES:
Equity I Fund
Equity II Fund
Equity III Fund
Equity Q Fund
International Fund
Fixed Income I Fund
Fixed Income III Fund
CLASS S SHARES:
Emerging Markets Fund
Real Estate Securities Fund
Short Term Bond Fund
[RUSSELL LOGO] Distributor: Russell Fund Distributors, Inc.
SEC File No. 811-3153
36-08-062 (5/00)
<PAGE>
RUSSELL FUNDS
FRANK RUSSELL INVESTMENT COMPANY
Russell Funds
PROSPECTUS
CLASS C SHARES:
DIVERSIFIED EQUITY FUND
SPECIAL GROWTH FUND
EQUITY INCOME FUND
QUANTITATIVE EQUITY FUND
INTERNATIONAL SECURITIES FUND
EMERGING MARKETS FUND
REAL ESTATE SECURITIES FUND
SHORT TERM BOND FUND
DIVERSIFIED BOND FUND
MULTISTRATEGY BOND FUND
TAX EXEMPT BOND FUND
TAX-MANAGED LARGE CAP FUND
(formerly Equity T Fund)
TAX-MANAGED SMALL CAP FUND
MAY 1, 2000
909 A STREET, TACOMA, WA 98402 - 800-787-7354 - 253-627-7001
As with all mutual funds, the Securities and Exchange
Commission has neither determined that the information
in this Prospectus is accurate or complete, nor approved
or disapproved of these securities. It is a criminal
offense to state otherwise.
[Russell LOGO]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary......................................... 3
Investment Objective, Principal Investment Strategies
and Principal Risks.................................... 3
Performance............................................. 12
Fees and Expenses....................................... 25
Summary Comparison of the Funds............................. 29
The Purpose of the Funds--Multi-Style, Multi-Manager
Diversification........................................... 29
Investment Objective and Principal Investment Strategies.... 31
Risks....................................................... 52
Management of the Funds..................................... 59
The Money Managers.......................................... 61
Portfolio Turnover.......................................... 62
Dividends and Distributions................................. 62
Taxes....................................................... 63
How Net Asset Value Is Determined........................... 64
Distribution and Shareholder Servicing Arrangements......... 65
How to Purchase Shares...................................... 66
Exchange Privilege.......................................... 67
How to Redeem Shares........................................ 69
Payment of Redemption Proceeds.............................. 70
Written Instructions........................................ 70
Account Policies............................................ 71
Financial Highlights........................................ 73
Money Manager Information................................... 86
</TABLE>
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS
DIVERSIFIED EQUITY FUND
- ---------------------------
<TABLE>
<S> <C>
INVESTMENT To provide income and capital growth by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Diversified Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies, most of
STRATEGIES which are US based.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another: a Growth Style, a Value Style and a
Market-Oriented Style. The Fund intends to be fully invested
at all times.
PRINCIPAL RISKS An investment in the Diversified Equity Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, using a multi-manager approach, securities
lending and exposing liquidity reserves to equity markets.
Please refer to the "Risks" section later in this Prospectus
for further details.
</TABLE>
SPECIAL GROWTH FUND
- ------------------------
<TABLE>
<S> <C>
INVESTMENT To maximize total return primarily through capital
OBJECTIVE appreciation and assuming a higher level of volatility than
the Diversified Equity Fund.
PRINCIPAL The Special Growth Fund invests primarily in common stocks
INVESTMENT of small and medium capitalization companies, most of which
STRATEGIES are US based. The Fund's investments may include companies
that have been publicly traded for less than five years and
smaller companies, such as companies not listed in the
Russell 2000-Registered Trademark- Index.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another: a Growth Style, a Value Style and a
Market-Oriented Style. The Fund intends to be fully invested
at all times. A portion of the Fund's net assets may be
"illiquid" securities (i.e., securities that do not have a
readily available market or that are subject to resale
restrictions).
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL RISKS An investment in the Special Growth Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly securities of small capitalization
companies, using a multi-manager approach, securities
lending and exposing liquidity reserves to equity markets.
Please refer to the "Risks" section later in this Prospectus
for further details.
</TABLE>
EQUITY INCOME FUND
- -----------------------
<TABLE>
<S> <C>
INVESTMENT To achieve a high level of current income while maintaining
OBJECTIVE the potential for capital appreciation.
PRINCIPAL The Equity Income Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies, most of which are
STRATEGIES US based. Because the Fund's investment objective is
primarily to provide a high level of current income, the
Fund generally pursues a value style of securities
selection.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses two principal investment styles intended to
complement one another: a Yield Substyle and a Low
Price/Earnings Ratio Substyle. The Fund intends to be fully
invested at all times.
PRINCIPAL RISKS An investment in the Equity Income Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in using a value style of security
selection, using a multi-manager approach, securities
lending and exposing liquidity reserves to equity markets.
Please refer to the "Risks" section later in this Prospectus
for further details.
</TABLE>
QUANTITATIVE EQUITY FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell
1000-Registered Trademark- Index over a market cycle of four
to six years) while maintaining volatility and
diversification similar to the Russell 1000 Index.
PRINCIPAL The Quantitative Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies which
STRATEGIES are predominately US based. The Fund generally pursues a
market-oriented style of security
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
selection, which incorporates both a growth style and a
value style, based on quantitative investment models which
are mathematical formulas based on statistical analysis.
This style emphasizes investments in companies that appear
to be undervalued relative to their growth prospects.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. Each of
the Fund's money managers use quantitative models to rank
securities based upon their expected ability to outperform
the total return of the Russell 1000-Registered Trademark-
Index. Although the Fund, like any mutual fund, maintains
liquidity reserves (i.e., cash awaiting investment or held
to meet redemption requests), the Fund exposes these
reserves to the performance of appropriate equity markets by
investing in stock index futures contracts. This causes the
Fund to perform as though its cash reserves were actually
invested in those markets.
PRINCIPAL RISKS An investment in the Quantitative Equity Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in using a market-oriented style of
security selection, using a multi-manager approach,
securities lending and exposing liquidity reserves to equity
markets. Please refer to the "Risks" section later in this
Prospectus for further details.
</TABLE>
INTERNATIONAL SECURITIES FUND
- -----------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.
PRINCIPAL The International Securities Fund invests primarily in
INVESTMENT equity securities issued by companies domiciled outside the
STRATEGIES US and in depository receipts, which represent ownership of
securities of non-US companies. The Fund's investments span
most of the developed nations of the world (particularly
Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. This Fund
may be appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another: a Growth Style, a Value Style and a
Market-Oriented Style. The Fund intends to be fully invested
at all times. A portion of the Fund's net assets may be
"illiquid" securities (i.e.,
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
securities that do not have a readily available market or
that are subject to resale restrictions).
PRINCIPAL RISKS An investment in the International Securities Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in international securities, using
a multi-manager approach, securities lending and exposing
liquidity reserves to equity markets. Please refer to the
"Risks" section later in this Prospectus for further
details.
</TABLE>
EMERGING MARKETS FUND
- ----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return, primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from developed market
international portfolios by investing primarily in equity
securities.
PRINCIPAL The Emerging Markets Fund will primarily invest in equity
INVESTMENT securities of companies that are located in countries with
STRATEGIES emerging markets or that derive a majority of their revenues
from operations in such countries. These countries generally
include every country in the world except the United States,
Canada, Japan, Australia and most countries located in
Western Europe. The Fund seeks to maintain a broadly
diversified exposure to emerging market countries and
ordinarily will invest in the securities of issuers in at
least three different emerging market countries.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are to complement one another. A portion of the
Fund's net assets may be "illiquid" securities (i.e.,
securities that do not have a readily available market or
that are subject to resale restrictions).
PRINCIPAL RISKS An investment in the Emerging Markets Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in international and emerging
markets securities and using a multi-manager approach.
Please refer to the "Risks" section later in this Prospectus
for further details.
</TABLE>
6
<PAGE>
REAL ESTATE SECURITIES FUND
- --------------------------------
<TABLE>
<S> <C>
INVESTMENT To generate a high level of total return through above
OBJECTIVE average current income while maintaining the potential for
capital appreciation.
PRINCIPAL The Real Estate Securities Fund seeks to achieve its
INVESTMENT objective by concentrating its investments in equity
STRATEGIES securities of issuers whose value is derived primarily from
development, management and market pricing of underlying
real estate properties. The Fund invests primarily in
securities of companies known as real estate investment
trusts (REITs) that own and/or manage properties. REITs may
be composed of anywhere from two to over 1,000 properties.
The Fund may also invest in equity and debt securities of
other types of real estate-related companies. The Fund
invests in companies which are predominately US based.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers, whose
approaches are intended to complement one another.
The Fund intends to be fully invested at all times. A
portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions).
PRINCIPAL RISKS An investment in the Real Estate Securities Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly securities of companies
concentrated in the real estate market, using a
multi-manager approach, securities lending and exposing
liquidity reserves to equity markets. Please refer to the
"Risks" section later in this Prospectus for further
details.
</TABLE>
SHORT TERM BOND FUND
- --------------------------
<TABLE>
<S> <C>
INVESTMENT The preservation of capital and the generation of current
OBJECTIVE income consistent with preservation of capital by investing
primarily in fixed-income securities with low-volatility
characteristics.
PRINCIPAL The Short Term Bond Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
The Fund may
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
invest up to 10% of its assets in debt securities that are
rated below investment grade. These securities are commonly
referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 15% of the average weighted duration
of the Merrill Lynch 1-2.99 Year Treasury Index, which was
1.6 years as of December 31, 1999, but may vary up to 50%
from the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund employs
multiple money managers, each with its own expertise in the
fixed-income markets.
PRINCIPAL RISKS An investment in the Short Term Bond Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in fixed-income
securities, including non-investment grade fixed-income
securities, investing in municipal obligations, repurchase
agreements and international securities, employing
derivatives and using a multi-manager approach. Please refer
to the "Risks" section later in this Prospectus for further
details.
</TABLE>
DIVERSIFIED BOND FUND
- -------------------------
<TABLE>
<S> <C>
INVESTMENT To provide effective diversification against equities and a
OBJECTIVE stable level of cash flow by investing in fixed-income
securities.
PRINCIPAL The Diversified Bond Fund invests primarily in investment
INVESTMENT grade fixed- income securities. In particular, the Fund
STRATEGIES holds debt securities issued or guaranteed by the US
government and, to a lesser extent by non-US governments, or
by their respective agencies and instrumentalities. It also
holds mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds).
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was
5.0 years as of December 31, 1999, but may vary up to 25%
from the Index's duration. The Fund has no restrictions on
individual security duration.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund employs
multiple money managers, each with its own expertise in the
fixed-income markets.
PRINCIPAL RISKS An investment in the Diversified Bond Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in fixed-
income securities, municipal obligations, repurchase
agreements and international securities, employing
derivatives and using a multi-manager approach. Please refer
to the "Risks" section later in this Prospectus for further
details.
</TABLE>
MULTISTRATEGY BOND FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return, primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from broad fixed-income market
portfolios.
PRINCIPAL The Multistrategy Bond Fund invests primarily in
INVESTMENT fixed-income securities. In particular, the Fund holds debt
STRATEGIES securities issued or guaranteed by the US government and, to
a lesser extent by non-US governments, or by their
respective agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). The
Fund may invest up to 25% of its assets in debt securities
that are rated below investment grade. These securities are
commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund employs
multiple money managers, each with its own expertise in the
fixed-income markets.
PRINCIPAL RISKS An investment in the Multistrategy Bond Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in fixed-income
securities, including non-investment grade fixed-income
securities, investing in municipal obligations and
international securities,
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
employing derivatives and using a multi-manager approach.
Please refer to the "Risks" section later in this Prospectus
for further details.
</TABLE>
TAX-MANAGED LARGE CAP FUND
- ---------------------------------
(FORMERLY EQUITY T FUND)
<TABLE>
<S> <C>
INVESTMENT To provide capital growth on an after-tax basis by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Tax-Managed Large Cap Fund invests primarily in equity
INVESTMENT securities of large capitalization US companies, although
STRATEGIES the Fund may invest a limited amount in non-US firms from
time to time. The Fund generally pursues a market-oriented
style of security selection which incorporates both a growth
style and a value style. The Fund seeks to realize capital
growth while minimizing shareholder tax consequences arising
from the Fund's portfolio management activities. The Fund
attempts to do this through the realization of returns as
capital gains and not as investment income under US tax
laws. The Fund also attempts to minimize its realization of
capital gains and offset any such realization of capital
gains with capital losses. The Fund intends to be fully
invested at all times.
PRINCIPAL RISKS An investment in the Tax-Managed Large Cap Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with tax-sensitive management,
investing in equity securities, securities lending and
exposing liquidity reserves to equity markets. Please refer
to the "Risks" section later in this Prospectus for further
details.
</TABLE>
TAX-MANAGED SMALL CAP FUND
- ---------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide capital growth on an after-tax basis by investing
OBJECTIVE principally in equity securities of small capitalization
companies.
PRINCIPAL The Tax-Managed Small Cap Fund invests primarily in equity
INVESTMENT securities of US companies, although the Fund may invest a
STRATEGIES limited amount in non-US firms from time to time. The Fund
generally pursues a market-oriented style of security
selection which incorporates both a growth style and a value
style. The Fund seeks to realize capital growth while
minimizing shareholder tax consequences arising from the
Fund's portfolio management activities. The Fund attempts to
do this through the realization of returns as capital gains
and not as investment income under US tax laws. The Fund
also attempts to minimize its realization of capital gains
and offset any such realization of capital gains with
capital losses. The Fund intends to be fully invested at all
times.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL RISKS An investment in the Tax-Managed Small Cap Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with tax-sensitive management,
investing in equity securities, investing in securities of
small capitalization companies, securities lending and
exposing liquidity reserves to equity markets. Please refer
to the "Risks" section later in this Prospectus for further
details.
</TABLE>
TAX EXEMPT BOND FUND
- -------------------------
<TABLE>
<S> <C>
INVESTMENT To provide a high level of federal tax-exempt current income
OBJECTIVE by investing primarily in a diversified portfolio of
investment grade municipal securities.
PRINCIPAL The Tax Exempt Bond Fund concentrates its investments in
INVESTMENT investment- grade municipal debt obligations providing
STRATEGIES federal tax-exempt interest income. The average weighted
duration of the Fund's portfolio typically ranges within ten
percent of the average weighted duration of the Lehman
Brothers 1-10 Year Municipal Bond Index, but may vary up to
25% from the Index's duration. The Fund has no restrictions
on individual security duration. The Fund employs multiple
money managers, each with its own expertise in the municipal
bond market.
PRINCIPAL RISKS An investment in the Tax Exempt Bond Fund, like any
investment, has risks. The value of the Fund fluctuates with
interest rates and you could lose money. The principal risks
of investing in the Fund are those associated with investing
in fixed-income securities, investing in municipal
obligations and repurchase agreements, credit and liquidity
enhancements, securities lending and using a multi-manager
approach. Please refer to the "Risks" section later in this
Prospectus for further details.
</TABLE>
11
<PAGE>
PERFORMANCE
The following bar charts illustrate the risks of investing in the Funds by
showing how the performance of each Fund's Class C Shares varies from year to
year over a 10-year period (or, if a Fund has not been in operation for
10 years, since the beginning of such Fund's operations). The highest and lowest
quarterly returns during the period shown in the bar charts for the Funds'
Class C Shares are set forth below the bar charts.
The tables accompanying the bar charts further illustrate the risks of
investing in the Funds by showing how each Fund's average annual returns for 1,
5 and 10 years (or, if a Fund has not been in operation for 10 years, since the
beginning of operations of such Fund) compare with the returns of certain
indexes that measure broad market performance.
Returns for periods prior to the date each Fund first issued Class C Shares
are those of the Fund's Class S Shares, and therefore do not reflect deduction
of Rule 12b-1 distribution or shareholder servicing fees. Except for the Short
Term Bond, Tax-Managed Large Cap, Tax-Managed Small Cap and Tax Exempt Bond
Funds, all Funds first issued Class C Shares on January 27, 1999. The Short Term
Bond Fund first issued Class C Shares on March 3, 1999. The Tax-Managed Large
Cap and Tax-Managed Small Cap Funds first issued Class C Shares on December 1,
1999. The Tax Exempt Bond Fund first issued Class C Shares on March 29, 1999.
Past performance is no indication of future results.
12
<PAGE>
- --------------------------------------------------------------------------------
DIVERSIFIED EQUITY FUND CLASS C
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -7.01%
1991 31.05%
1992 8.32%
1993 10.53%
1994 -0.01%
1995 35.17%
1996 23.29%
1997 31.32%
1998 25.11%
1999 17.23%
</TABLE>
BEST QUARTER: 22.40% (4Q/98)
WORST QUARTER: (15.19)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class C................................................... 17.23% 26.04% 16.59%
Russell 1000-Registered Trademark- Index.................. 20.91 28.05 18.13
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL GROWTH FUND CLASS C
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -14.28%
1991 43.11%
1992 12.52%
1993 15.48%
1994 -3.71%
1995 28.52%
1996 18.65%
1997 28.77%
1998 0.42%
1999 20.41%
</TABLE>
BEST QUARTER: 22.40% (1Q/91)
WORST QUARTER: (22.45)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class C................................................... 20.41% 18.60% 13.67%
Russell 2500-TM- Index.................................... 24.15 19.43 15.05
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
EQUITY INCOME FUND CLASS C
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -6.90%
1991 27.52%
1992 11.51%
1993 13.23%
1994 0.69%
1995 34.76%
1996 21.45%
1997 33.59%
1998 12.99%
1999 -0.61%
</TABLE>
BEST QUARTER: 16.47% (1Q/91)
WORST QUARTER: (15.63)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class C................................................... (0.61)% 19.35% 13.84%
Russell 1000-Registered Trademark- Value Index............ 7.35 23.07 15.60
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
QUANTITATIVE EQUITY FUND CLASS C
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -5.60%
1991 31.70%
1992 8.67%
1993 12.56%
1994 0.19%
1995 37.69%
1996 23.08%
1997 32.70%
1998 24.82%
1999 20.35%
</TABLE>
BEST QUARTER: 22.55% (4Q/98)
WORST QUARTER: (14.38)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class C................................................... 20.35% 27.23% 17.64%
Russell 1000-Registered Trademark- Index.................. 20.91 28.05 18.13
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL SECURITIES FUND CLASS C
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -15.34%
1991 11.99%
1992 -6.94%
1993 33.48%
1994 4.86%
1995 10.20%
1996 7.63%
1997 0.26%
1998 12.90%
1999 29.35%
</TABLE>
BEST QUARTER: 18.71% (4Q/99)
WORST QUARTER: (17.66)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class C................................................... 29.35% 11.41% 7.80%
MSCI EAFE Index........................................... 27.30 13.15 7.34
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND CLASS C
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 -5.83%
1995 -8.21%
1996 12.26%
1997 -3.45%
1998 -27.57%
1999 47.91%
</TABLE>
BEST QUARTER: 27.64% (4Q/99)
WORST QUARTER: (21.64)% (3Q/98)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS* INCEPTION*
--------------------------------------- ------ -------- ----------
<S> <C> <C> <C>
Class C.................................................. 47.91% 1.28% 5.23%
IFC Investable Composite Index........................... 67.11 2.17 8.58
-------------------------------------------------------------------------------------------
</TABLE>
----------------------------
* The Emerging Markets Fund commenced operations on January 29, 1993.
For periods prior to April 1, 1995, performance results for the Fund do
not reflect deduction of investment management fees.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND CLASS C
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -15.92%
1991 37.08%
1992 17.29%
1993 17.42%
1994 7.24%
1995 10.87%
1996 36.81%
1997 18.99%
1998 -15.94%
1999 -0.39%
</TABLE>
BEST QUARTER: 24.69% (1Q/91)
WORST QUARTER: (14.24)% (3Q/90)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class C..................................................... (0.39)% 8.35% 9.77%
NAREIT Equity REIT Index.................................... (4.62) 8.09 9.12
--------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM BOND FUND CLASS C
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 9.71%
1991 12.31%
1992 2.74%
1993 6.98%
1994 0.82%
1995 9.95%
1996 4.76%
1997 6.02%
1998 6.09%
1999 2.19%
</TABLE>
BEST QUARTER: 3.90% (4Q/91)
WORST QUARTER: (0.69)% (4Q/92)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999* 1 YEAR 5 YEARS 10 YEARS
---------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class C..................................................... 2.19% 5.77% 6.10%
Merrill Lynch 1-2.99 Years Treasury Index................... 3.06 6.51 6.59
<CAPTION>
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
-------------------------------------------------- --------
Class C. 4.79
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------
</TABLE>
----------------------------
* For periods prior to April 1, 1995, performance results for the Fund
do not reflect deduction of investment management fees.
- --------------------------------------------------------------------------------
To obtain current 30-day yield information, please call 1-800-787-7354.
20
<PAGE>
- --------------------------------------------------------------------------------
DIVERSIFIED BOND FUND CLASS C
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 7.58%
1991 15.29%
1992 6.57%
1993 10.02%
1994 -3.25%
1995 17.76%
1996 3.43%
1997 9.09%
1998 8.09%
1999 -2.14%
</TABLE>
BEST QUARTER: 5.80% (2Q/95)
WORST QUARTER: (2.79)% (1Q/94)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class C..................................................... (2.14)% 6.78% 6.92%
Lehman Brothers Aggregate Bond Index........................ (0.82) 7.73 7.70
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
------------------------------------------------------------ -----
Class C..................................................... 5.55%
--------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
To obtain current 30-day yield information, please call 1-800-787-7354.
21
<PAGE>
- --------------------------------------------------------------------------------
MULTISTRATEGY BOND FUND CLASS C
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 -4.35%
1995 17.92%
1996 4.97%
1997 9.50%
1998 6.79%
1999 -1.71%
</TABLE>
BEST QUARTER: 6.23% (2Q/95)
WORST QUARTER: (3.44)% (1Q/94)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS INCEPTION*
--------------------------------------- ------ ------- ----------
<S> <C> <C> <C>
Class C................................................... (1.71)% 7.26% 5.79%
Lehman Brothers Aggregate Bond Index...................... (0.82) 7.73 6.21
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
---------------------------------------------------------- -----
Class C................................................... 5.24%
----------------------------------------------------------------------------------------------
</TABLE>
----------------------------
* The Multistrategy Bond Fund commenced operations on January 29, 1993.
- --------------------------------------------------------------------------------
To obtain current 30-day yield information, please call 1-800-787-7354.
22
<PAGE>
- --------------------------------------------------------------------------------
TAX MANAGED LARGE CAP FUND CLASS C
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
<S> <C>
1997 31.73%
1998 32.08%
1999 16.51%
</TABLE>
BEST QUARTER: 23.71% (4Q/98)
WORST QUARTER: (10.12)% (3Q/98)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Tax-Managed Large Cap Fund Class C.......................... 16.51% 26.87%
S&P 500 Composite Stock Price Index......................... 21.14 27.70
-----------------------------------------------------------------------------------
</TABLE>
----------------------------
* The Tax-Managed Large Cap Fund commenced operations on October 7,
1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAX-MANAGED SMALL CAP FUND
Because the Tax-Managed Small Cap Fund had not been in operation for a full
calendar year when this Prospectus was printed, its performance history and
average annual returns are not included. Performance history and average annual
returns will be available for the Tax-Managed Small Cap Fund after the Fund has
been in operation for one calendar year.
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
TAX EXEMPT BOND FUND CLASS C
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 6.12%
1991 7.64%
1992 5.85%
1993 6.58%
1994 -0.54%
1995 7.81%
1996 3.07%
1997 4.92%
1998 4.82%
1999 -1.24%
</TABLE>
BEST QUARTER: 2.79% (4Q/91)
WORST QUARTER: (1.72)% (2Q/99)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Tax Exempt Bond Fund Class C*............................... (1.24)% 3.83% 4.46%
Lehman Brothers Municipal 1-10 Year Index#.................. 0.55 6.21 --
Salomon Smith Barney 3-Month Treasury Bill Index............ 4.74 5.20 5.05
<CAPTION>
YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
------------------------------------------- --------
30-Day Yield
<S> <C> <C> <C>
Class C..................................................... 3.32%
30-Day Tax Equivalent Yield
Class C..................................................... 5.49
--------------------------------------------------------------------------------------------
</TABLE>
----------------------------
* The performance of the Tax Exempt Bond Fund prior to January 1, 1999
reflects a higher advisory fee than is currently borne by the Fund.
# Prior to November 1, 1999, the comparative index for the Tax Exempt
Bond Fund was the Salomon Smith Barney 3-Month Treasury Bill Index. The
Fund believes that the Lehman Brothers Municipal 1-10 Year Index is
more broadly representative of the securities and strategies likely to
be employed by the Tax Exempt Bond Fund and provides more useful
information as a comparative basis for evaluation of the Fund's
performance. The Lehman Brothers Municipal 1-10 Year Index is an index,
with income reinvested, representative of municipal bonds with
maturities ranging from 1-10 years.
- --------------------------------------------------------------------------------
To obtain current yield information, please call 1-800-787-7354.
24
<PAGE>
FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold Shares of the Funds.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES
MAXIMUM SALES CHARGE (LOAD)
CHARGE (LOAD) IMPOSED ON MAXIMUM
IMPOSED ON REINVESTED DEFERRED SALES REDEMPTION EXCHANGE
PURCHASES DIVIDENDS CHARGE (LOAD) FEES FEES
--------- --------- ------------- ---- ----
<S> <C> <C> <C> <C> <C>
All Funds, Class C..................... None None None None None
</TABLE>
25
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(% OF NET ASSETS)
<TABLE>
<CAPTION>
OTHER EXPENSES
(INCLUDING
ADMINISTRATIVE TOTAL GROSS
FEES AND ANNUAL FUND TOTAL NET FUND
ADVISORY DISTRIBUTION SHAREHOLDER OPERATING FEE WAIVERS AND OPERATING
FEE* (12B-1) FEES** SERVICING FEES)*** EXPENSE# REIMBURSEMENTS EXPENSES
---- -------------- ------------------ -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES
Diversified
Equity........... 0.73% 0.75% 0.45% 1.93% 0.00% 1.93%
Special Growth..... 0.90% 0.75% 0.59% 2.24% 0.00% 2.24%
Equity Income...... 0.75% 0.75% 0.61% 2.11% 0.00% 2.11%
Quantitative
Equity........... 0.73% 0.75% 0.45% 1.93% 0.00% 1.93%
International
Securities....... 0.90% 0.75% 0.65% 2.30% 0.00% 2.30%
Emerging Markets... 1.15% 0.75% 1.01% 2.91% 0.00% 2.91%
Real Estate
Securities....... 0.80% 0.75% 0.59% 2.14% 0.00% 2.14%
Short Term Bond.... 0.45% 0.75% 0.54% 1.74% 0.00% 1.74%
Diversified Bond... 0.40% 0.75% 0.46% 1.61% 0.00% 1.61%
Multistrategy
Bond+............ 0.60% 0.75% 0.51% 1.86% (0.00)% 1.86%
Tax Exempt Bond.... 0.30% 0.75% 0.52% 1.57% 0.00% 1.57%
Tax-Managed Large
Cap.............. 0.70% 0.75% 0.40% 1.85% 0.00% 1.85%
Tax-Managed Small
Cap+............. 0.98% 0.75% 0.58% 2.31% (0.06)% 2.25%
</TABLE>
- ------------------------------
* Each Fund may also pay, in addition to the fee set forth above, a fee which
compensates the Funds' advisor, Frank Russell Investment Management Company
(FRIMCo) for managing collateral which the Funds have received in securities
lending and certain other portfolio transactions which are not treated as
net assets of that Fund ("additional assets") in determining the Fund's net
asset value per share. The additional fee payable to FRIMCo will equal an
amount of up to 0.07% of each Fund's additional assets on an annualized
basis.
** Pursuant to the rules of the National Association of Securities Dealers,
Inc. (NASD), the aggregate initial sales charges, deferred sales charges and
asset-based sales charges on Shares of the Funds may not exceed 6.25% of
total gross sales, subject to certain exclusions. This 6.25% limitation is
imposed on all Class C Shares of the Funds as a group rather than on a per
shareholder basis. Therefore, long-term shareholders of the Class C Shares
may pay more than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
26
<PAGE>
*** Annual operating expenses for the Tax-Managed Small Cap Fund are based on
average net assets expected to be invested during the Fund's first
12 months of operation. During the course of that period, expenses may be
more or less than the amount shown. "Other Expenses" for Class C Shares have
been restated to reflect current expenses and include a shareholder
servicing fee of 0.25% of average daily net assets of the Funds' Class C
Shares.
# If you purchase any class of Shares of a Fund through a financial
intermediary, such as a bank or an investment adviser, you may also pay
additional fees to the intermediary for services provided by the
intermediary. You should contact your financial intermediary for information
concerning what additional fees, if any, will be charged.
+ FRIMCo has contractually agreed to waive, at least until February 28, 2001
up to the full amount of its 1.03% combined advisory and administrative fees
for the Tax-Managed Small Cap Fund, and to reimburse the Fund to the extent
that Fund-level expenses exceed 1.25% of the average daily net assets of
that Fund on an annual basis.
27
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
The example assumes that you invest $10,000 in a Fund for the time periods
indicated, and then redeem all of your Shares at the end of the period. The
example also assumes your investment has a 5% return each year and that
operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS C:
Diversified Equity Fund..................................... $196 $606 $1,042 $2,254
Special Growth Fund......................................... 227 700 1,199 2,573
Equity Income Fund.......................................... 214 661 1,134 2,442
Quantitative Equity Fund.................................... 196 606 1,042 2,254
International Securities Fund............................... 233 718 1,229 2,633
Emerging Markets Fund....................................... 294 900 1,532 3,232
Real Estate Securities Fund................................. 217 670 1,149 2,472
Short Term Bond Fund........................................ 177 549 945 2,053
Diversified Bond Fund....................................... 164 508 876 1,911
Multistrategy Bond Fund..................................... 189 585 1,006 2,181
Tax Exempt Bond Fund........................................ 160 496 856 1,868
Tax-Managed Large Cap Fund.................................. 188 582 1,001 2,168
Tax-Managed Small Cap Fund.................................. 228 716 1,230 2,641
</TABLE>
28
<PAGE>
SUMMARY COMPARISON OF THE FUNDS
<TABLE>
<CAPTION>
ANTICIPATED MAXIMUM
EQUITY DEBT
FUND INVESTMENTS INVESTMENTS FOCUS
- ----------------------------------- ----------- ----------- --------------------------------------
<S> <C> <C> <C>
Diversified Equity Fund............ 65-100% 35% Income and capital growth
Special Growth Fund................ 65-100% 35% Maximum total return primarily through
capital appreciation
Equity Income Fund................. 65-100% 35% Current income
Quantitative Equity Fund........... 100% 0% Total return
International Securities Fund...... 65-100% 35% Total return
Emerging Markets Fund.............. 65-100% 35% Maximum total return primarily through
capital appreciation
Real Estate Securities Fund........ 65-100% 35% Total return
Short Term Bond Fund............... 0-35% 100% Preservation of capital and generation
of current income
Diversified Bond Fund.............. 35% 100% Current income and diversification
Multistrategy Bond Fund............ 0% 100% Maximum total return primarily through
capital appreciation
Tax-Exempt Bond Fund............... 0% 100% Maximum current income
Tax-Managed Large Cap Fund......... 65-100% 35% Capital growth
Tax-Managed Small Cap Fund......... 65-100% 35% Capital growth
</TABLE>
THE PURPOSE OF THE FUNDS--MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION
The Frank Russell Investment Company (FRIC) Funds (Funds) are offered
through certain bank trust departments, registered investment advisers,
broker-dealers or other financial services organizations that have been selected
by the Funds' adviser or distributor (Financial Intermediaries). The Funds are
designed to provide a means for investors to use Frank Russell Investment
Management Company's (FRIMCo) and Frank Russell Company's (Russell)
"multi-style, multi-manager diversification" investment method and to obtain
FRIMCo's and Russell's money manager evaluation services. Unlike most investment
companies that have a single organization that acts as both administrator and
investment adviser, the Funds divide responsibility for corporate management and
investment advice between FRIMCo and a number of different money managers.
Three functions form the core of Russell's consulting services:
- OBJECTIVE SETTING: Defining appropriate investment objectives and desired
investment returns, based on a client's unique situation and risk
tolerance.
- ASSET ALLOCATION: Allocating a client's assets among different asset
classes--such as common stocks, fixed-income securities, international
securities, temporary cash investments and real estate--in a way most
likely to achieve the client's objectives and desired returns.
29
<PAGE>
- MONEY MANAGER RESEARCH: Evaluating and recommending professional
investment advisory and management organizations ("money managers") to
make specific portfolio investments for each asset class, according to
designated investment objectives, styles and strategies.
When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.
The Funds believe investors should seek to hold fully diversified portfolios
that reflect both their own individual investment time horizons and their
ability to accept risk. The Funds believe that for many, this can be
accomplished through strategically purchasing shares in one or more of the Funds
which have been structured to provide access to specific asset classes employing
a multi-style, multi-manager approach.
Capital market history shows that asset classes with greater risk will
generally outperform lower risk asset classes over time. For instance, corporate
equities, over the past 50 years, have outperformed corporate debt in absolute
terms. However, what is generally true of performance over extended periods will
not necessarily be true at any given time during a market cycle, and from time
to time asset classes with greater risk may also underperform lower risk asset
classes, on either a risk adjusted or absolute basis. Investors should select a
mix of asset classes that reflects their overall ability to withstand market
fluctuations over their investment horizons.
Studies have shown that no one investment style within an asset class will
consistently outperform competing styles. For instance, investment styles
favoring securities with growth characteristics may outperform styles favoring
income producing securities, and vice versa. For this reason, no single manager
has consistently outperformed the market over extended periods. Although
performance cycles tend to repeat themselves, they do not do so predictably.
The Funds believe, however, that it is possible to select managers who have
shown a consistent ability to achieve superior results within subsets or styles
of specific asset classes and investment styles by employing a unique
combination of qualitative and quantitative measurements. The Funds combine
these select managers with other managers within the same asset class who employ
complementary styles. By combining complementary investment styles within an
asset class, investors are better able to reduce their exposure to the risk of
any one investment style going out of favor.
By strategically selecting from among a variety of investments by asset
class, each of which has been constructed using these multi-style, multi-manager
principles, investors are able to design portfolios that meet their specific
investment needs.
The Funds conduct their business through a number of service providers, who
act on behalf of the Funds. FRIMCo, the Funds' administrator and investment
adviser, performs the Funds' day to day corporate management and also evaluates
and oversees the Funds' money managers. Each of the Funds' money managers makes
all investment decisions for the portion of the Fund assigned to it by FRIMCo.
The Funds' custodian, State Street Bank, maintains custody of all of the Funds'
assets. FRIMCo, in its capacity as the Funds' transfer agent, is responsible for
maintaining the Funds' shareholder records and carrying out shareholder
transactions. When a Fund acts in one of these areas, it does so through the
service provider responsible for that area.
30
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
DIVERSIFIED EQUITY FUND
- ---------------------------
<TABLE>
<S> <C>
INVESTMENT To provide income and capital growth by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Diversified Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies, most of
STRATEGIES which are US based.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
Additionally, the Fund is diversified by equity substyle.
For example, within the Growth Style, the Fund expects to
employ both an Earnings Momentum substyle (concentrating on
companies with more volatile and accelerating growth rates)
and a Consistent Growth substyle (concentrating on companies
with stable earnings growth over an economic cycle).
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
substyle and its performance record, as well as the
characteristics of the money manager's typical portfolio
investments. These characteristics include capitalization
size, growth and profitability measures, valuation ratios,
economic sector weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
SPECIAL GROWTH FUND
- ------------------------
<TABLE>
<S> <C>
INVESTMENT To maximize total return primarily through capital
OBJECTIVE appreciation and assuming a higher level of volatility than
the Diversified Equity Fund.
PRINCIPAL The Special Growth Fund invests primarily in common stocks
INVESTMENT of small and medium capitalization companies most of which
STRATEGIES are US based. The Fund's investments may include companies
that have been publicly traded for less than five years and
smaller companies, such as companies not listed in the
Russell 2000-Registered Trademark- Index.
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record, as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
EQUITY INCOME FUND
- -----------------------
<TABLE>
<S> <C>
INVESTMENT To achieve a high level of current income while maintaining
OBJECTIVE the potential for capital appreciation.
PRINCIPAL The Equity Income Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies, most of which are
STRATEGIES US based. Because the Fund's investment objective is
primarily to provide a high level of current income, the
Fund generally pursues a value style of securities
selection, emphasizing investments in common stocks of
companies that appear to be undervalued relative to their
corporate worth, based on earnings, book or asset value,
revenues or cash flow.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses two principal investment styles intended to
complement one another:
- YIELD SUBSTYLE--emphasizes investments in equity
securities with above-average yield relative to the
market. Generally, these securities are issued by
companies in the financial and utilities industries
and, to a lesser extent, other industries.
- LOW PRICE/EARNINGS RATIO SUBSTYLE--emphasizes
investments in equity securities of companies that are
considered undervalued relative to their corporate
worth, based on earnings, book or asset value,
revenues or cash flow. These companies are generally
found among industrial, financial and utilities
sectors. From time to time, this substyle may also
include investments in companies with above-average
earnings growth prospects, if they appear to be
undervalued in relation to their securities'
historical price levels.
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment substyle and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
QUANTITATIVE EQUITY FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell
1000-Registered Trademark- Index over a market cycle of four
to six years) while maintaining volatility and
diversification similar to the Index.
PRINCIPAL The Quantitative Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies which
STRATEGIES are predominately US based. The Fund generally pursues a
market-oriented style of security selection, which
incorporates both a growth style and a value style, based on
quantitative investment models which are mathematical
formulas based on statistical analysis. This style
emphasizes investments in companies that appear to be
undervalued relative to their growth prospects.
</TABLE>
35
<PAGE>
<TABLE>
<S> <C>
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record as well as the characteristics of the money manager's
typical portfolio investments. These characteristics include
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment returns correlate with one another.
Each of the Fund's money managers use quantitative models to
rank securities based upon their expected ability to
outperform the total return of the Russell
1000-Registered Trademark- Index. Once a money manager has
ranked the securities, it then selects the securities most
likely to outperform and constructs, for its segment of the
Fund, a portfolio that has risks similar to the Russell
1000-Registered Trademark- Index. Each money manager
performs this process independently from each other money
manager.
The Russell 1000-Registered Trademark- Index consists of the
1,000 largest US companies by capitalization (i.e., market
price per share times the number of shares outstanding). The
smallest company in the Index at December 31, 1999 had a
capitalization of approximately $1.1 billion.
The Fund's money managers typically use a variety of
quantitative models, ranking securities within each model
and on a composite basis using proprietary weighting
formulas. Examples of those quantitative models are dividend
discount models, price/cash flow models, price/earnings
models, earnings surprise and earnings estimate revisions
models and price momentum models.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
INTERNATIONAL SECURITIES FUND
- -----------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.
PRINCIPAL The International Securities Fund invests primarily in
INVESTMENT equity securities issued by companies domiciled outside the
STRATEGIES US and in depository receipts which represent ownership of
securities of non-US companies. The Fund's investments span
most of the developed nations of the world (particularly
Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. Because
international equity investment performance has a reasonably
low correlation to US equity performance, this Fund may be
appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.
The Fund may seek to protect its investments against adverse
currency exchange rate changes by purchasing forward
currency contracts. These contracts enable the Fund to "lock
in" the US dollar price of a security that it plans to buy
or sell. The Fund may not accurately predict currency
movements.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector. A
variation of this style maintains investments that
replicate country and sector weightings of a broad
international market index.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
38
<PAGE>
EMERGING MARKETS FUND
- ----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from developed market
international portfolios by investing primarily in equity
securities.
PRINCIPAL The Emerging Markets Fund will primarily invest in equity
INVESTMENT securities of companies that are located in countries with
STRATEGIES emerging markets or that derive a majority of their revenues
from operations in such countries. These companies are
referred to as "Emerging Market Companies." For purposes of
the Fund's operations, an "emerging market" country is a
country having an economy and market that the World Bank or
the United Nations consider to be emerging or developing.
These countries generally include every country in the world
except the United States, Canada, Japan, Australia and most
countries located in Western Europe.
The Fund seeks to maintain a broadly diversified exposure to
emerging market countries and ordinarily will invest in the
securities of issuers in at least three different emerging
market countries.
The Fund invests in common stocks of Emerging Market
Companies and in depository receipts which represent
ownership of securities of non-US companies. The Fund may
also invest in rights, warrants and convertible fixed-income
securities. The Fund's securities are denominated primarily
in foreign currencies and may be held outside the US.
Some emerging markets countries do not permit foreigners to
participate directly in their securities markets or
otherwise present difficulties for efficient foreign
investment. Therefore, when it believes it is appropriate to
do so, the Fund may invest in pooled investment vehicles,
such as other investment companies, which enjoy broader or
more efficient access to shares of Emerging Market Companies
in certain countries but which may involve a further
layering of expenses.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another.
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record, as well as the characteristics of the
money manager's typical portfolio investments (e.g.,
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics). The Fund also considers
the manner in which money managers' historical and expected
investment returns correlate with one another.
The Fund may agree to purchase securities for a fixed price
at a future date beyond customary settlement time. This kind
of agreement is known as a "forward commitment" or as a
"when-issued" transaction.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. A Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
REAL ESTATE SECURITIES FUND
- --------------------------------
<TABLE>
<S> <C>
INVESTMENT To generate a high level of total return through above
OBJECTIVE average current income while maintaining the potential for
capital appreciation.
PRINCIPAL The Real Estate Securities Fund seeks to achieve its
INVESTMENT objective by concentrating its investments in equity
STRATEGIES securities of issuers whose value is derived primarily from
development, management and market pricing of underlying
real estate properties.
The Fund invests primarily in securities of companies, known
as real estate investment trusts (REITs), that own and/or
manage properties. REITs may be composed of anywhere from
two to over 1,000 properties. The Fund may also invest in
equity and debt securities of other types of real estate-
related companies. The Fund invests in companies which are
predominately US based, although the Fund may invest a
limited portion of its assets in non-US firms from time to
time.
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, property type and
geographic weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
Although the Fund, like any mutual fund, maintains liquidity
reserves (i.e., cash awaiting investment or held to meet
redemption requests), the Fund may expose these reserves to
the performance of appropriate equity markets by investing
in stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
41
<PAGE>
SHORT TERM BOND FUND
- --------------------------
<TABLE>
<S> <C>
INVESTMENT The preservation of capital and the generation of current
OBJECTIVE income consistent with preservation of capital by investing
primarily in fixed-income securities with low-volatility
characteristics.
PRINCIPAL The Short Term Bond Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
The Fund may invest up to 10% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by the
Fund to be of comparable quality. These securities are
commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 15% of the average weighted duration
of the Merrill Lynch 1-2.99 Years Treasury Index, which was
1.6 years on December 31, 1999, but may vary up to 50% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes, as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Merrill Lynch 1-2.99 Years Treasury
Index.
</TABLE>
42
<PAGE>
<TABLE>
<S> <C>
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
DIVERSIFIED BOND FUND
- -------------------------
<TABLE>
<S> <C>
INVESTMENT To provide effective diversification against equities and a
OBJECTIVE stable level of cash flow by investing in fixed-income
securities.
PRINCIPAL The Diversified Bond Fund invests primarily in investment
INVESTMENT grade fixed- income securities. In particular, the Fund
STRATEGIES holds debt securities issued or guaranteed by the US
government and, to a lesser extent by non-US governments, or
by their respective agencies and instrumentalities. It also
holds mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. In seeking investments
that will produce cash flow, the Fund's money managers also
identify sectors of the fixed-income market that they
believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
44
<PAGE>
MULTISTRATEGY BOND FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from broad fixed-income market
portfolios.
PRINCIPAL The Multistrategy Bond Fund invests primarily in
INVESTMENT fixed-income securities. In particular, the Fund holds debt
STRATEGIES securities issued or guaranteed by the US government and, to
a lesser extent by non-US governments, or by their
respective agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time the Fund may invest in municipal debt
obligations.
The Fund may invest up to 25% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by a
Fund money manager to be of comparable quality. These
securities are commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
</TABLE>
45
<PAGE>
<TABLE>
<S> <C>
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not be able to achieve its investment
objective during such times.
</TABLE>
46
<PAGE>
TAX-MANAGED LARGE CAP FUND (FORMERLY EQUITY T FUND)
- ---------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide capital growth on an after-tax basis by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Tax-Managed Large Cap Fund invests primarily in equity
INVESTMENT securities of large capitalization US companies, as
STRATEGIES represented by the S&P 500-Registered Trademark- market
index, although the Fund may invest a limited amount in
non-US firms from time to time.
The Fund generally pursues a market-oriented style of
security selection, which incorporates both a growth style
and a value style, based on quantitative investment models
which are mathematical formulas based on statistical
analyses. This style emphasizes investments in large
capitalization companies that, on a long-term basis, appear
to be undervalued relative to their growth prospects, and
may include both growth and value securities. Although it is
not an index fund, under normal market conditions, the Tax-
Managed Large Cap Fund will invest at least 65 percent of
the value of its total assets in securities that are
included in the S&P 500-Registered Trademark- market index.
The Fund seeks to realize capital growth while minimizing
shareholder tax consequences arising from the Fund's
portfolio management activities. In its attention to tax
consequences of its investment decisions, the Fund differs
from most equity mutual funds, which are managed to maximize
pre-tax total return without regard to whether their
portfolio management activities result in taxable
distributions to shareholders.
The Fund is designed for long-term investors who seek to
minimize the impact of taxes on their investment returns.
The Fund is not designed for short-term investors or for
tax-deferred investment vehicles such as IRAs and 401(k)
plans.
The Fund intends to minimize its taxable distributions to
shareholders in two ways:
- First, the Fund strives to realize its returns as
long-term capital gains, and not as investment income,
under US tax laws. To do so, the Fund typically buys
stocks with the intention of holding them long enough
to qualify for capital gain tax treatment.
- Second, the Fund attempts to minimize its realization
of capital gains and to offset any such realization with
capital losses. To do so, when the Fund sells shares
of an appreciated portfolio security, it seeks to
minimize the resulting capital gains by first selling
the shares for which the Fund paid the highest price.
Further, the Fund attempts to offset those capital
gains with matching capital losses by simultaneously
selling shares of depreciated portfolio securities.
</TABLE>
47
<PAGE>
<TABLE>
<S> <C>
If large shareholder redemptions occur unexpectedly, the
Fund could be required to sell portfolio securities
resulting in its realization of net capital gains. This
could temporarily reduce the Fund's tax efficiency. Also, as
the Fund matures, it may hold individual securities that
have appreciated so significantly that it would be difficult
for the Fund to sell them without realizing net capital
gains.
The Fund selects and holds portfolio securities based on its
assessment of their potential for long-term total returns.
The Fund uses a dividend discount model to gauge securities'
anticipated returns relative to their industry peers. This
model forecasts the expected future dividends of individual
securities and calculates the expected return at the current
share price. The Fund identifies securities that exhibit
superior total return prospects. From among those
securities, using a quantitative after-tax model, the Fund
chooses stocks from a variety of economic sectors and
industries, generally in the proportions that those sectors
and industries are represented in the S&P 500 Index.
When the Fund's shares are redeemed, the Fund could be
required to sell portfolio securities resulting in its
realization of net capital gains, impacting all
shareholders. The Fund believes that multiple purchases and
redemptions of Fund shares by individual shareholders could
adversely affect the Fund's strategy of tax-efficiency and
could reduce its ability to contain costs. The Fund further
believes that short-term investments in the Fund are
inconsistent with its long-term strategy. For this reason,
the Fund will apply its general right to refuse any
purchases by rejecting purchase orders from investors whose
patterns of purchases and redemptions in the Fund is
inconsistent with the Fund's strategy.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform generally as though its cash reserves were actually
invested in those markets. The Fund may also invest its
liquidity reserves in one or more FRIC money market funds.
Additionally, the Fund may lend up to one-third of its
portfolio securities to earn income. These loans may be
terminated at any time. The Fund will receive either cash or
US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not be able to achieve its investment
objective during such times.
</TABLE>
48
<PAGE>
TAX-MANAGED SMALL CAP FUND
- ---------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide capital growth on an after-tax basis by investing
OBJECTIVE principally in equity securities of small capitalization
companies.
PRINCIPAL The Tax-Managed Small Cap Fund invests primarily in equity
INVESTMENT securities of US companies, although the Fund may invest a
STRATEGIES limited amount in non-US firms from time to time.
The Fund generally pursues a market-oriented style of
security selection, which incorporates both a growth style
and a value style, based on quantitative investment models
which are mathematical formulas based on statistical
analyses. This style emphasizes investments in small
capitalization companies that, on a long-term basis, appear
to be undervalued relative to their growth prospects, and
may include both growth and value securities. Under normal
market conditions, the Tax-Managed Small Cap Fund will
invest at least 65 percent of its total assets in securities
that are not included in the S&P 500 market index.
The Fund seeks to realize capital growth while minimizing
shareholder tax consequences arising from the Fund's
portfolio management activities. In its attention to tax
consequences of its investment decisions, the Fund differs
from most equity mutual funds, which are managed to maximize
pre-tax total return without regard to whether their
portfolio management activities result in taxable
distributions to shareholders.
The Fund is designed for long-term investors who seek to
minimize the impact of taxes on their investment returns.
The Fund is not designed for short-term investors or for
tax-deferred investment vehicles such as IRAs and 401(k)
plans.
The Fund intends to minimize its taxable distributions to
shareholders in two ways:
- First, the Fund strives to realize its returns as
long-term capital gains, and not as investment income,
under US tax laws. To do so, the Fund typically buys
stocks with the intention of holding them long enough
to qualify for capital gain tax treatment.
</TABLE>
49
<PAGE>
<TABLE>
<S> <C>
- Second, the Fund attempts to minimize its realization
of capital gains and to offset any such realization with
capital losses. To do so, when the Fund sells shares
of an appreciated portfolio security, it seeks to
minimize the resulting capital gains by first selling
the shares for which the Fund paid the highest price.
Further, the Fund attempts to offset those capital
gains with matching capital losses by simultaneously
selling shares of depreciated portfolio securities.
If large shareholder redemptions occur unexpectedly, the
Fund could be required to sell portfolio securities
resulting in its realization of net capital gains. This
could temporarily reduce the Fund's tax efficiency. Also, as
the Fund matures, it may hold individual securities that
have appreciated so significantly that it would be difficult
for the Fund to sell them without realizing net capital
gains.
The Fund selects and holds portfolio securities based on its
assessment of their potential for long-term total returns.
When the Fund's shares are redeemed, the Fund could be
required to sell portfolio securities resulting in its
realization of net capital gains, impacting all
shareholders. The Fund believes that multiple purchases and
redemptions of Fund shares by individual shareholders could
adversely affect the Fund's strategy of tax-efficiency and
could reduce its ability to contain costs. The Fund further
believes that short-term investments in the Fund are
inconsistent with its long-term strategy. For this reason,
the Fund will apply its general right to refuse any
purchases by rejecting purchase orders from investors whose
patterns of purchases and redemptions in the Fund is
inconsistent with the Fund's strategy.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform generally as though its cash reserves were actually
invested in those markets. The Fund may also invest its
liquidity reserves in one or more FRIC money market funds.
Additionally, the Fund may lend up to one-third of its
portfolio securities to earn income. These loans may be
terminated at any time. The Fund will receive either cash or
US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not be able to achieve its investment
objective during such times.
</TABLE>
50
<PAGE>
TAX EXEMPT BOND FUND
- -------------------------
<TABLE>
<S> <C>
INVESTMENT To provide a high level of federal tax-exempt current income
OBJECTIVE by investing primarily in a diversified portfolio of
investment grade municipal securities.
PRINCIPAL The Tax Exempt Bond Fund concentrates its investments in
INVESTMENT investment- grade municipal debt obligations providing
STRATEGIES federal tax-exempt interest income. Specifically, these
obligations are debt obligations issued by states,
territories and possessions of the US and the District of
Columbia and their political subdivisions, agencies and
instrumentalities, or multi-state agencies or authorities to
obtain funds to support special government needs or special
projects. Under normal market conditions, at least 80% of
the Fund's assets will be invested in tax-exempt securities.
The average weighted duration of the Fund's portfolio
typically ranges within ten percent of the average weighted
duration of the Lehman Brothers Municipal 1-10 Year Index,
which was 4.4 years on December 31, 1999, but may vary up to
25% from the Index's duration. The Fund has no restrictions
on individual security duration.
The Fund employs multiple money managers, each with its own
expertise in the municipal bond market. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not be able to achieve its investment
objective during such times.
</TABLE>
51
<PAGE>
RISKS
An investment in the Funds, like any investment, has risks. The value of
each Fund fluctuates, and you could lose money. The following table describes
principal types of risks that the Funds are subject to and lists next to each
description those Funds most likely to be affected by the risk. Other Funds that
are not listed may hold portfolio investments that are subject to one or more of
the risks, but will not do so in a way that is expected to principally affect
the performance of the Fund as a whole. Please refer to the Funds' Statement of
Additional Information for a discussion of risks associated with types of
securities held by the Funds and the investment practices employed by the
individual Funds.
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
MULTI-MANAGER APPROACH The investment styles employed by a Fund's Diversified Equity
money managers may not be complementary. The Special Growth
interplay of the various strategies employed Equity Income
by a Fund's multiple money managers may Quantitative Equity
result in a Fund holding a concentration of International Securities
certain types of securities. This Emerging Markets
concentration may be beneficial or Real Estate Securities
detrimental to a Fund's performance Short Term Bond
depending upon the performance of those Diversified Bond
securities and the overall economic Multistrategy Bond
environment. The multi-manager approach Tax Exempt Bond
could result in a high level of portfolio
turnover, resulting in higher Fund brokerage
expenses and increased tax liability from a
Fund's realization of capital gains.
TAX-SENSITIVE MANAGEMENT A Fund's tax-managed equity investment Tax-Managed Large Cap
strategy may not provide as high a return Tax-Managed Small Cap
before consideration of federal income tax
consequences as other funds. A tax-sensitive
investment strategy involves active
management and a Fund may realize capital
gains.
EQUITY SECURITIES The value of equity securities will rise and Diversified Equity
fall in response to the activities of the Special Growth
company that issued the stock, general Equity Income
market conditions and/ or economic Quantitative Equity
conditions. International Securities
Emerging Markets
Real Estate Securities
Tax-Managed Large Cap
Tax-Managed Small Cap
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
- Value Stocks Investments in value stocks are subject to Diversified Equity
risks that (i) their intrinsic values may Special Growth
never be realized by the market or (ii) such Equity Income
stock may turn out not to have been International Securities
undervalued. Tax-Managed Large Cap
Tax-Managed Small Cap
- Growth Stocks Growth company stocks may provide minimal Diversified Equity
dividends which could otherwise cushion Special Growth
stock prices in a market decline. The value International Securities
of growth company stocks may rise and fall Tax-Managed Large Cap
significantly based, in part, on investors' Tax-Managed Small Cap
perceptions of the company, rather than on
fundamental analysis of the stocks.
- Market-Oriented Market-oriented investments are generally Diversified Equity
Investments subject to the risks associated with growth Special Growth
and value stocks. Quantitative Equity
International Securities
Tax-Managed Large Cap
Tax-Managed Small Cap
- Securities of Investments in smaller companies may involve Special Growth
Small greater risks because these companies Tax-Managed Small Cap
Capitalization generally have a limited track record.
Companies Smaller companies often have narrower
markets and more limited managerial and
financial resources than larger, more
established companies. As a result, their
performance can be more volatile, which may
increase the volatility of a Fund's
portfolio.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
FIXED-INCOME Prices of fixed-income securities rise and Short Term Bond
SECURITIES fall in response to interest rate changes. Diversified Bond
Generally, when interest rates rise, prices Multistrategy Bond
of fixed-income securities fall. The longer Tax Exempt Bond
the duration of the security, the more
sensitive the security is to this risk. A 1%
increase in interest rates would reduce the
value of a $100 note by approximately one
dollar if it had a one-year duration, but
would reduce its value by approximately
fifteen dollars if it had a 15-year
duration. There is also a risk that one or
more of the securities will be downgraded in
credit rating or go into default.
Lower-rated bonds generally have higher
credit risks.
- Non-Investment Although lower rated debt securities Short Term Bond
Grade generally offer a higher yield than higher Multistrategy Bond
Fixed-Income rated debt securities, they involve higher
Securities risks. They are especially subject to:
- Adverse changes in general economic
conditions and in the industries in
which their issuers are engaged,
- Changes in the financial condition of
their issuers and
- Price fluctuations in response to
changes in interest rates.
As a result, issuers of lower rated debt
securities are more likely than other
issuers to miss principal and interest
payments or to default which could result in
a loss to a Fund.
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
INTERNATIONAL SECURITIES A Fund's return and net asset value may be International Securities
significantly affected by political or Emerging Markets
economic conditions and regulatory Short Term Bond
requirements in a particular country. Multistrategy Bond
Foreign markets, economies and political
systems may be less stable than US markets,
and changes in exchange rates of foreign
currencies can affect the value of a Fund's
foreign assets. Foreign laws and accounting
standards typically are not as strict as
they are in the US and there may be less
public information available about foreign
companies. Foreign securities markets may be
less liquid and have fewer transactions than
US securities markets. Additionally,
international markets may experience delays
and disruptions in securities settlement
procedures for a Fund's portfolio
securities.
- -Non-US Debt Securities A Fund's foreign debt securities are Short Term Bond
typically obligations of sovereign Multistrategy Bond
governments and corporations. These
securities are particularly subject to a
risk of default from political instability.
- -Emerging Market Investments in emerging or developing Emerging Markets
Countries markets involve exposure to economic
structures that are generally less diverse
and mature, and to political systems which
have less stability than those of more
developed countries. Emerging market
securities are subject to currency transfer
restrictions and may experience delays and
disruptions in securities settlement
procedures for a Fund's portfolio
securities.
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
- -Instruments of U.S. and Non-US corporations and banks issuing dollar Short Term Bond
Foreign Banks and denominated instruments in the US are not Diversified Bond
Branches and foreign necessarily subject to the same regulatory Multistrategy Bond
Corporations, Including requirements that apply to US corporations
Yankee Bonds and banks, such as accounting, auditing and
recordkeeping standards, the public
availability of information and, for banks,
reserve requirements, loan limitations and
examinations. This increases the possibility
that a non-US corporation or bank may become
insolvent or otherwise unable to fulfill its
obligations on these instruments.
DERIVATIVES (E.G. Price movements of a futures contract, Short Term Bond
FUTURES CONTRACTS, option or structured note may not be Diversified Bond
OPTIONS ON identical to price movements of portfolio Multistrategy Bond
FUTURES, INTEREST RATE securities or a securities index resulting
SWAPS) in the risk that, when a Fund buys a futures
contract or option as a hedge, the hedge may
not be completely effective.
REAL ESTATE SECURITIES Just as real estate values go up and down, Real Estate Securities
the value of the securities of companies
involved in the industry, and in which a
Fund invests, also fluctuates. A Fund that
invests in real estate securities is also
subject to the risks associated with direct
ownership of real estate. Additional risks
include declines in the value of real
estate, changes in general and local
economic conditions, increases in property
taxes and changes in tax laws and interest
rates. The value of securities of companies
that service the real estate industry may
also be affected by such risks.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
- -REITs REITs may be affected by changes in the Real Estate Securities
value of the underlying properties owned by
the REITs and by the quality of any credit
extended. Moreover, the underlying
portfolios of REITs may not be diversified,
and therefore are subject to the risk of
financing a single or a limited number of
projects. REITs are also dependent upon
management skills and are subject to heavy
cash flow dependency, defaults by borrowers,
self-liquidation and the possibility of
failing either to qualify for tax-free pass
through of income under federal tax laws or
to maintain their exemption from certain
federal securities laws.
MUNICIPAL OBLIGATIONS Municipal obligations are affected by Short Term Bond
economic, business or political Diversified Bond
developments. These securities may be Multistrategy Bond
subject to provisions of litigation, Tax Exempt Bond
bankruptcy and other laws affecting the
rights and remedies of creditors, or may
become subject to future laws extending the
time for payment of principal and/or
interest, or limiting the rights of
municipalities to levy taxes.
REPURCHASE AGREEMENTS Under a repurchase agreement, a bank or Diversified Bond
broker sells securities to a Fund and agrees Short Term Bond
to repurchase them at the Fund's cost plus Multistrategy Bond
interest. If the value of the securities
declines and the bank or broker defaults on
its repurchase obligation, a Fund could
incur a loss.
CREDIT AND LIQUIDITY Adverse changes in a guarantor's credit Tax Exempt Bond
ENHANCEMENTS quality if contemporaneous with adverse
changes in the guaranteed security could
cause losses to a Fund and may affect its
net asset value.
EXPOSING LIQUIDITY By exposing its liquidity reserves to the Diversified Equity
RESERVES TO EQUITY equity market, principally by use of equity Special Growth
MARKETS futures, a Fund's performance tends to Equity Income
correlate more closely to the performance of Quantitative Equity
the market as a whole. Although this International Securities
increases a Fund's performance if equity Real Estate Securities
markets rise, it reduces a Fund's Tax-Managed Large Cap
performance if equity markets decline. Tax-Managed Small Cap
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
SECURITIES LENDING If a borrower of a Fund's securities fails All Funds
financially, the Fund's recovery of the
loaned securities may be delayed or the Fund
may lose its rights to the collateral which
could result in a loss to a Fund.
</TABLE>
AN INVESTMENT IN ANY OF THE FUNDS IS NOT A BANK DEPOSIT AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
58
<PAGE>
MANAGEMENT OF THE FUNDS
The Funds' investment adviser is FRIMCo, 909 A Street, Tacoma, Washington
98402. FRIMCo pioneered the "multi-style, multi-manager" investment method in
mutual funds and manages over $17 billion in more than 30 mutual fund
portfolios. FRIMCo was established in 1982 to serve as the investment management
arm of Russell.
Russell, which acts as consultant to the Funds, was founded in 1936 and has
been providing comprehensive asset management consulting services for over 30
years to institutional investors, principally large corporate employee benefit
plans. Russell provides the Funds and FRIMCo with the asset management
consulting services that it provides to its other consulting clients. The Funds
do not compensate Russell for these services. Russell and its affiliates have
offices around the world, in Tacoma, New York, Toronto, London, Paris, Sydney,
Auckland, Singapore and Tokyo.
Russell is a subsidiary of The Northwestern Mutual Life Insurance Company.
Founded in 1857, Northwestern Mutual is a mutual life insurance corporation
headquartered in Milwaukee, Wisconsin. It leads the US in both individual life
insurance sold annually and individual life insurance in force.
FRIMCo recommends money managers to the Funds, allocates Fund assets among
them, oversees them, and evaluates their results. FRIMCo also oversees the
management of the Funds' liquidity reserves. The Funds' money managers select
the individual portfolio securities for the assets assigned to them.
FRIMCo's officers and employees who oversee the money managers are:
- Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
June 1989.
- Mark D. Amberson, who has been a Portfolio Manager of FRIMCo since January
1998. From 1991 to 1997, Mr. Amberson was a Portfolio Manager in Russell's
Money Market Trading Group. Mr. Amberson has, jointly with Mr. Burge,
primary responsibility for management of the Fixed Income I, Diversified
Bond, Short Term Bond, Fixed Income III, Tax Exempt Bond and Multistrategy
Bond Funds.
- Randal C. Burge, who has been Director of Global Fixed Income since
January 2000. From 1995 to 1999, Mr. Burge was a Portfolio Manager of
FRIMCo. From 1990 to 1995, Mr. Burge was a Client Executive for Frank
Russell Australia. Mr. Burge, jointly with Mr. Amberson, has primary
responsibility for management of the Fixed Income I, Fixed Income III,
Diversified Bond, Short Term Bond, Tax Exempt Bond and Multistrategy Bond
Funds.
- Jean Carter, who has been Director of Global Equities since January 2000.
From 1994 to 1999, Ms. Carter was a Portfolio Manager of FRIMCo.
- Ann Duncan, who has been a Portfolio Manager of FRIMCo since January 1998.
From 1996 to 1997, Ms. Duncan was a Senior Equity Research Analyst with
Russell. From 1992 to 1995, Ms. Duncan was an equity analyst and portfolio
manager with Avatar Associates. Ms. Duncan has, jointly with Mr. Jornlin,
primary responsibility for management of the International and
International Securities Funds.
- James M. Imhof, Director of FRIMCo's Portfolio Trading, manages the Funds'
liquidity portfolios on a day to day basis and has been responsible for
ongoing analysis and monitoring of the money managers since 1989.
59
<PAGE>
- James A. Jornlin, who has been a Portfolio Manager of FRIMCo since January
2000. From 1995 to 1999, Mr. Jornlin was a Senior Investment Officer of
FRIMCo. From 1991 to 1995, Mr. Jornlin was a Senior Research Analyst with
Russell. Mr. Jornlin has, jointly with Mr. Parish, primary responsibility
for management of the Emerging Markets Fund, has, jointly with Ms. Duncan,
primary responsibility for the management of the International and
International Securities Funds and has, jointly with Mr. Ogard, primary
responsibility for the management of the Real Estate Securities Fund.
- Erik W. Ogard, who has been a Portfolio Manager of FRIMCo since
March 2000. Mr. Ogard was a Research Analyst for FRIMCo from 1995 to 1997
and a Senior Research Analyst for FRIMCo from 1997 to 2000. Mr. Ogard has,
jointly with Mr. Tipple and Mr. Trittin, primary responsibility for the
management of the Equity I, Equity II, Equity III, Equity Q, Tax-Managed
Large Cap, Tax-Managed Small Cap, Diversified Equity, Special Growth,
Equity Income and Quantitative Equity Funds and has, jointly with Mr.
Jornlin, primary responsibility for the management of the Real Estate
Securities Fund.
- Symon Parish, who has been an Associate Portfolio Manager of Frank Russell
Company Limited, an affiliate of FRIMCo, since 1996. From 1994 to 1996,
Mr. Parish was a client service executive in Russell's Auckland office.
Mr. Parish has, jointly with Mr. Jornlin, primary responsibility for the
Emerging Markets Fund.
- Brian C. Tipple, who has been a Portfolio Manager of FRIMCo since
July 1999. From 1991 to 1999, Mr. Tipple was a Client Executive with Frank
Russell Trust Company. Mr. Tipple has, jointly with Mr. Ogard and Mr.
Trittin, primary responsibility for the management of the Equity I,
Equity II, Equity III, Equity Q, Tax-Managed Large Cap, Tax-Managed Small
Cap, Diversified Equity, Quantitative Equity, Special Growth and Equity
Income Funds.
- Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of US Equity
Manager Research Department with Russell. Mr. Trittin has, jointly with
Mr. Tipple and Mr. Ogard, primary responsibility for management of the
Equity I, Equity II, Equity III, Equity Q, Tax-Managed Large Cap,
Tax-Managed Small Cap, Diversified Equity, Quantitative Equity, Special
Growth and Equity Income Funds.
The aggregate annual rate of advisory and administrative fees, payable to
FRIMCo monthly on a pro rata basis, are the following percentages of each Fund's
average daily net assets: Diversified Equity Fund, 0.78%; Special Growth Fund,
0.95%; Equity Income Fund, 0.80%; Quantitative Equity Fund, 0.78%; International
Securities Fund, 0.95%; Emerging Markets Fund, 1.20%; Real Estate Securities
Fund, 0.85%; Short Term Bond Fund, 0.50%; Diversified Bond Fund, 0.45%;
Multistrategy Bond Fund, 0.65% Tax-Managed Large Cap Fund, 0.75%; Tax-Managed
Small Cap Fund, 1.03%; and Tax Exempt Bond Fund, 0.35%. Of these aggregate
amounts 0.05% is attributable to administrative services. FRIMCo has
contractually agreed to waive, at least until February 28, 2001, a portion of
its 1.03% combined advisory and administrative fees for the Tax-Managed Small
Cap Fund, up to the full amount of those fees for Fund-level expenses that
exceed 1.25% of the average daily net assets of that Fund on an annual basis.
Additionally, FRIMCo has agreed to reimburse the Tax-Managed Small Cap Fund, at
least until April 30, 2001, for all remaining Fund-level expenses that exceed
1.25% of the average daily net assets of the Tax-Managed Small Cap Fund on an
annual basis. Each Fund may also pay, in
60
<PAGE>
addition to the aggregate fees set forth above, a fee which compensates FRIMCo
for managing collateral which the Funds have received in securities lending and
certain other portfolio transactions which are not treated as net assets of that
Fund ("additional assets") in determining the Fund's net asset value per share.
The additional fee payable to FRIMCo will equal an amount of up to 0.07% of each
Fund's additional assets on an annualized basis.
THE MONEY MANAGERS
Each Fund allocates its assets among the money managers listed under "Money
Manager Information" at the end of this Prospectus. FRIMCo, as the Funds'
advisor, may change the allocation of a Fund's assets among money managers at
any time. The Funds received an exemptive order from the Securities and Exchange
Commission (SEC) that permits a Fund to engage or terminate a money manager at
any time, subject to the approval by the Fund's Board of Trustees (Board),
without a shareholder vote. A Fund notifies its shareholders within 60 days of
when a money manager begins providing services. The Funds select money managers
based primarily upon the research and recommendations of FRIMCo and Russell.
FRIMCo and Russell evaluate quantitatively and qualitatively the money manager's
skills and results in managing assets for specific asset classes, investment
styles and strategies. Short-term investment performance, by itself, is not a
controlling factor in any Fund's selection or termination of a money manager.
Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund. At the same time, however, each money
manager must operate within the Fund's investment objectives, restrictions and
policies. Additionally, each manager must operate within more specific
constraints developed from time to time by FRIMCo. FRIMCo develops such
constraints for each manager based on FRIMCo's assessment of the manager's
expertise and investment style. By assigning more specific constraints to each
money manager, FRIMCo intends to capitalize on the strengths of each money
manager and to combine their investment activities in a complementary fashion.
Although the money managers' activities are subject to general oversight by the
Board and the Funds' officers, neither the Board, the officers, FRIMCo nor
Russell evaluate the investment merits of the money managers' individual
security selections.
J.P. Morgan Investment Management, Inc. ("Morgan") manages the Tax-Managed
Large Cap Fund. Robin Chance is the individual responsible for the management of
the Fund. Ms. Chance, Vice President and member of the Structured Equity Group,
has responsibility for tax aware structured equity strategies. Ms. Chance joined
Morgan in 1987. Ms. Chance is a CFA and a graduate of the University of
Pennsylvania's Management and Technology Program, also earning an MBA from New
York University's Stern School of Business.
Geewax, Terker & Company manages the Tax-Managed Small Cap Fund. John Julius
Geewax is the portfolio manager responsible for the management of the Fund. Mr.
Geewax is a graduate of the University of Pennsylvania and has earned a J.D.
from the University of Pennsylvania as well as an MBA and a PhD from the Wharton
School of the University of Pennsylvania. Mr. Geewax co-founded the firm in
1982. He is currently a general partner and portfolio manager responsible for
research and development and trading oversight for all of the firm's investment
services.
61
<PAGE>
PORTFOLIO TURNOVER
The portfolio turnover rates for certain multi-manager Funds are likely to
be somewhat higher than the rates for comparable mutual funds with a single
money manager. Each of the Funds' money managers makes decisions to buy or sell
securities independently from other managers. Thus, one money manager for a Fund
may be selling a security when another money manager for the Fund (or for
another Fund) is purchasing the same security. Also, when a Fund replaces a
money manager, the new money manager may significantly restructure the
investment portfolio. These practices may increase the Funds' portfolio turnover
rates, realization of gains or losses, brokerage commissions and other
transaction costs. When a Fund realizes capital gains upon selling portfolio
securities, your tax liability increases. The annual portfolio turnover rates
for each of the Funds are shown in the Financial Highlights tables in this
Prospectus.
DIVIDENDS AND DISTRIBUTIONS
INCOME DIVIDENDS
Each Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The amount and frequency of
distributions are not guaranteed, all distributions are at the Board's
discretion. Currently, the Board intends to declare dividends from net
investment income (if any), according to the following schedule:
<TABLE>
<CAPTION>
DECLARED PAYABLE FUNDS
- -------- ------- -----
<S> <C> <C>
Monthly................. Early in the following month Tax Exempt Bond, Diversified Bond and
Multistrategy Bond Funds
Quarterly............... Mid: April, July, October and December Diversified Equity, Special Growth,
Equity Income, Quantitative Equity,
Real Estate Securities and Short Term
Bond Funds
Annually................ Mid-December International Securities, Emerging
Markets, Tax Managed Large Cap and
Tax-Managed Small Cap Funds
</TABLE>
CAPITAL GAINS DISTRIBUTIONS
The Board intends to declare capital gain distributions (both short-term and
long-term) once a year in mid-December to reflect any net short-term and net
long-term capital gains realized by a Fund as of October 31 of the current
fiscal year. A Fund may be required to make an additional distribution if
necessary, in any year for operational or other reasons. Distributions that are
declared in October, November or December to shareholders of record in such
months, and paid in January of the following year, will be treated for tax
purposes as if received on December 31 of the year in which they were declared.
62
<PAGE>
BUYING A DIVIDEND
If you purchase shares just before a distribution, you will pay the full
price for the Shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." Unless your account is
a tax-deferred account, dividends paid to you would be included in your gross
income for tax purposes even though you may not have participated in the
increase of the net asset value of a Fund, regardless of whether you reinvested
the dividends. To avoid "buying a dividend," check a Fund's distribution dates
before you invest.
AUTOMATIC REINVESTMENT
Your dividends and other distributions are automatically reinvested at the
closing net asset value on the record date, in additional shares of the
appropriate Fund, unless you elect to have the dividends or distributions paid
in cash or invested in another Fund. You may change your election by delivering
written notice no later than ten days prior to the payment date to the Funds at
Frank Russell Investment Company c/o Boston Financial Data Services, 2 Heritage
Drive, N. Quincy, MA 02171.
TAXES
In general, distributions from a Fund are taxable to you as either ordinary
income or capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Any long-term capital
gains distributed by a Fund are taxable to you as long-term capital gains no
matter how long you have owned your shares. Every January, you will receive a
statement that shows the tax status of distributions you received for the
previous year. Distributions declared in December but paid in January are
taxable as if they were paid in December.
When you sell or exchange your shares of a Fund, you may have a capital gain
or loss. Any loss incurred on the sale or exchange of a Fund's Shares, held for
six months or less, will be treated as a long-term capital loss to the extent of
capital gains dividends received with respect to such Shares. The tax rate on
any gain from the sale or exchange of your shares depends on how long you have
held your shares.
The Funds make no representation as to the amount of variability of each
Funds' capital gain distributions which may vary as a function of several
variables including, but not limited to, prevailing dividend yield levels,
general market conditions, shareholders redemption patterns and Fund cash
equitization activity.
Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-US investors may be
subject to US withholding and estate tax. You should consult your tax
professional about federal, state, local or foreign tax consequences of holding
shares of a Fund.
When a Fund invests in securities of certain foreign countries, the Fund may
have taxes withheld on the income received from these securities. If more than
50% of the total fair market value of the Fund's assets is made up of foreign
securities, then the Fund may elect to pass through such taxes to shareholders
as a foreign tax credit.
If you are a corporate investor, a portion of the dividends from net
investment income paid by Diversified Equity Fund, Special Growth Fund, Equity
Income Fund, Quantitative Equity Fund, Real
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<PAGE>
Estate Securities Fund, Tax-Managed Large Cap Fund or Tax-Managed Small Cap Fund
will generally qualify, in part, for the corporate dividends-received deduction.
However, the portion of the dividends so qualified depends on the aggregate
qualifying dividend income received by each Fund from domestic (US) sources.
Certain holding period and debt financing restrictions may apply to corporate
investors seeking to claim the deduction. You should consult your tax
professional with respect to the applicability of these rules.
Although the Tax-Managed Large Cap and the Tax-Managed Small Cap Funds are
managed to minimize the amount of capital gains realized during a particular
year, the realization of capital gains is not entirely within either Fund's or
its money manager's control. Shareholder purchase and redemption activity, as
well as the Fund's performance, will impact the amount of capital gains
realized. Capital gains distributions by the Tax-Managed Large Cap Fund and
Tax-Managed Small Cap Fund may vary considerably from year to year.
The Tax-Exempt Bond Fund intends to continue to qualify to pay
"exempt-interest dividends" to its shareholders by maintaining, as of the close
of each quarter of its taxable years, at least 50% of the value of its total
assets in municipal obligations. If the Fund satisfies this requirement,
distributions from net investment income to shareholders will be exempt from
federal income taxation, including the alternative minimum tax, to the extent
that net investment income is represented by interest on municipal obligations.
However, to the extent dividends are derived from taxable income from temporary
investments, short-term capital gains, or income derived from the sale of bonds
purchased with market discount, the dividends are treated as ordinary income,
whether paid in cash or reinvested in additional shares. The Fund may invest a
portion of its assets in private activity bonds, the income from which is a
preference item in determining your alternative minimum tax.
By law, a Fund must withhold 31% of your distributions and proceeds if you
do not provide your correct taxpayer identification number, or certify that such
number is correct, or if the IRS instructs the Fund to do so.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
YOU SHOULD CONSULT YOUR OWN TAX ADVISER CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN A FUND.
Additional information on these and other tax matters relating to the Funds
and their shareholders is included in the section entitled "Taxes" in the Funds'
Statement of Additional Information.
HOW NET ASSET VALUE IS DETERMINED
NET ASSET VALUE PER SHARE
The net asset value per share is calculated for Shares of each class of each
Fund on each business day on which Shares are offered or redemption orders are
tendered. For all Funds, a business day is one on which the New York Stock
Exchange (NYSE) is open for trading. The NYSE is not open on national holidays
or Good Friday. All Funds determine net asset value at 4:00 p.m. Eastern Time or
the close of the NYSE, whichever is earlier.
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<PAGE>
VALUATION OF PORTFOLIO SECURITIES
Securities held by the Funds are typically priced using market quotations or
pricing services when the prices are believed to be reliable, that is, when the
prices reflect the fair market value of the securities. The Funds value
securities for which market quotations are not readily available at "fair
value," as determined in good faith and in accordance with procedures
established by the Board. If you hold Shares in a Fund, such as the
International Securities Fund or Emerging Markets Fund, that holds portfolio
securities that are listed primarily on foreign exchanges, the net asset value
of that Fund's Shares may change on a day when you will not be able to purchase
or redeem that Fund's Shares. This is because the value of those portfolio
securities may change on weekends or other days when that Fund does not price
its Shares.
Money market instruments maturing within 60 days of the valuation date that
are held by the Tax-Managed Large Cap, Tax-Managed Small Cap and Tax Exempt Bond
Funds are valued at "amortized cost" unless the Board determines that amortized
cost does not represent fair value. Under this method, a portfolio instrument is
initially valued at cost, and thereafter a constant accretion/amortization to
maturity of any discount or premium is assumed. While amortized cost provides
certainty in valuation, it may result in periods when the value of an instrument
is higher or lower than the price a Fund would receive if it sold the
instrument.
DISTRIBUTION AND SHAREHOLDER
SERVICING ARRANGEMENTS
The Funds offer multiple classes of Shares: Class C Shares, Class E Shares
and Class S Shares.
CLASS C SHARES participate in the Funds' Rule 12b-1 distribution plan
and in the Funds' shareholder servicing plan. Under the distribution plan,
the Funds' Class C Shares pay distribution fees of 0.75% annually for the
sale and distribution of Class C Shares. Under the shareholder servicing
plan, the Funds' Class C Shares pay shareholder servicing fees of 0.25% on
an annualized basis for services provided to Class C shareholders. Because
both of these fees are paid out of the Funds' Class C Share assets on an
ongoing basis, over time these fees will increase the cost of your
investment in Class C Shares of the Funds, and the distribution fee may cost
an investor more than paying other types of sales charges.
CLASS E SHARES participate in the Funds' shareholder servicing plan.
Under the shareholder servicing plan, the Funds' Class E Shares pay
shareholder servicing fees of 0.25% on an annualized basis for services
provided to Class E shareholders. The shareholder servicing fees are paid
out of the Funds' Class E share assets on an ongoing basis, and over time
will increase the cost of your investment in the Funds.
CLASS S SHARES participate in neither the Funds' distribution plan nor
the Funds' shareholder servicing plan.
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<PAGE>
HOW TO PURCHASE SHARES
Funds are generally available only through a select network of qualified
Financial Intermediaries. If you are not currently working with one of these
Financial Intermediaries, please call Russell Investor Services at (800) RUSSEL4
(800-787-7354) for assistance in contacting an investment professional near you.
For Class C Shares, there is a $1,000 required minimum initial investment
for each account in each Fund. Each Fund reserves the right to change the
categories of investors eligible to purchase its shares or the required minimum
investment amount. You may be eligible to purchase Fund shares if you do not
meet the required initial minimum investment. You should consult your Financial
Intermediary for details, which are summarized in the Funds' statement of
additional information.
Financial Intermediaries may charge their customers a fee for providing
investment-related services. Financial Intermediaries may receive shareholder
servicing compensation and/or distribution compensation from the Funds'
Distributor with respect to Class C Shares of the Funds.
PAYING FOR SHARES
You may purchase Shares of the Funds through a Financial Intermediary on any
business day the Funds are open. Purchase orders are processed at the next net
asset value per share calculated after the Funds' receive your order in proper
form (defined in the "Written Instructions" section), and accept the order.
All purchases must be made in US dollars. Checks and other negotiable bank
drafts must be drawn on US banks and made payable to "Frank Russell Investment
Company." The Funds reserve the right to reject any purchase order for any
reason including, but not limited to, receiving a check which does not clear the
bank or a payment which does not arrive in proper form by settlement date. You
will be responsible for any resulting loss to the Funds. An overdraft charge may
also be applied. Cash, third party checks and checks drawn on credit card
accounts generally will not be accepted. However, exceptions may be made by
prior special arrangement with certain Financial Intermediaries.
OFFERING DATES AND TIMES
Orders must be received by the Funds prior to 4:00 p.m. Eastern Time or the
close of the NYSE, whichever is earlier. Purchases can be made on any day when
Fund shares are offered. Because Financial Intermediaries' processing time may
vary, please ask your Financial Intermediary representative when your account
will be credited.
ORDER AND PAYMENT PROCEDURES
Generally, you must place purchase orders for Shares through a Financial
Intermediary. You may pay for your purchase by mail or electronic funds
transfer. Initial purchases require a completed and signed Application for each
new account regardless of the investment method. Specific payment arrangements
should be made with your Financial Intermediary.
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<PAGE>
BY MAIL
For new accounts, please mail the completed Application to your Financial
Intermediary. Payment for orders may be made by check or other negotiable bank
draft and sent to the Funds' Transfer Agent. Certified checks are not necessary,
but checks are accepted subject to collection at full face value in US funds.
Third party checks will not be accepted. Checks should be made payable to "Frank
Russell Investment Company."
BY FEDERAL FUNDS WIRE
You can pay for orders by wiring federal funds to the Funds' Custodian,
State Street Bank and Trust Company. All wires must include your account
registration and account number for identification. Inability to properly
identify a wire transfer may prevent or delay timely settlement of your
purchase.
BY AUTOMATED CLEARING HOUSE ("ACH")
You can make initial or subsequent investments through ACH to the Funds'
Custodian, State Street Bank and Trust Company.
AUTOMATED INVESTMENT PROGRAM
You can make regular investments (minimum $50) in the Funds in an
established account on a monthly, quarterly, semiannual or annual basis by
automatic electronic funds transfer from a bank account. You must make a
separate transfer for each Fund in which you purchase Shares. You may change the
amount or stop the automatic purchase at any time. Contact your Financial
Intermediary for further information on this program and an enrollment form.
THREE-DAY SETTLEMENT PROGRAM
The Funds will accept orders at the next computed net asset value through
Financial Intermediaries to purchase Shares of the Funds for settlement on the
third business day following the receipt of the order. These orders are paid for
by a federal funds wire if the Financial Intermediary has enrolled in the
program and agreed in writing to indemnify the Funds against any losses
resulting from non-receipt of payment.
EXCHANGE PRIVILEGE
BY MAIL OR TELEPHONE
Through your Financial Intermediary, you may exchange Shares of any Fund you
own for shares of any other Fund on the basis of the current net asset value per
share at the time of the exchange. Shares of a Fund offered by this Prospectus
may only be exchanged for Shares of a Fund offered by FRIC through another
Prospectus under certain conditions and only in states where the exchange may be
legally made. For additional information, including Prospectuses for other
Funds, contact your Financial Intermediary.
67
<PAGE>
Exchanges may be made by mail or by telephone if the registration of the two
accounts is identical. Contact your Financial Intermediary for assistance in
exchanging Shares and, because Financial Intermediaries' processing time may
vary, to find out when your account will be credited or debited. To request an
exchange in writing, please follow the procedures in the "Written Instructions"
section before mailing to your Financial Intermediary.
An exchange involves the redemption of Shares, which is treated as a sale
for income tax purposes. Thus, capital gain or loss may be realized. Please
consult your tax adviser for more information. Shares to be acquired will be
purchased when the proceeds from the redemption become available (up to seven
days from the receipt of the request) at the next net asset value per share
calculated after the Funds received the exchange request in good order.
IN-KIND EXCHANGE OF SECURITIES
FRIMCo, in its capacity as the Funds' investment advisor, may, at its
discretion, permit you to acquire Shares in exchange for securities you
currently own. Any securities exchanged must meet the investment objective,
policies and limitations of the applicable Fund, have a readily ascertainable
market value, be liquid, not be subject to restrictions on resale and have a
market value, plus any cash, equal to at least $100,000.
Shares purchased in exchange for securities generally may not be redeemed or
exchanged for 15 days following the purchase by exchange or until the transfer
has settled, whichever comes first. If you are a taxable investor, you will
generally realize a gain or loss for federal income tax purposes on the
exchange. If you are contemplating an in-kind exchange you should consult your
tax adviser.
The price at which the exchange will take place will depend upon the
relative net asset value of the Shares purchased and securities exchanged.
Securities accepted by a Fund will be valued in the same way the Fund values its
assets. Any interest earned on the securities following their delivery to the
Funds and prior to the exchange will be considered in valuing the securities.
All interest, dividends, subscription or other rights attached to the securities
becomes the property of the Fund, along with the securities. Please contact your
Financial Intermediary for further information.
68
<PAGE>
HOW TO REDEEM SHARES
Shares of the Funds may be redeemed through your Financial Intermediary on
any business day the Funds are open at the next net asset value per share
calculated after the Funds' Transfer Agent receives an order in proper form
(defined in the "Written Instructions" section). Payment will ordinarily be made
within seven days after receipt of your request in proper form. Shares recently
purchased by check may not be available for redemption for 15 days following the
purchase or until the check clears, whichever occurs first, to assure payment
has been collected.
REDEMPTION DATES AND TIMES
Redemption requests must be placed through a Financial Intermediary and
received by the Funds prior to 4:00 p.m. Eastern Time or the close of the NYSE,
whichever is earlier. Because Financial Intermediaries' processing times may
vary, please ask your Financial Intermediary representative when your account
will be debited. Requests can be made by mail or telephone on any day when Fund
shares are offered, or through the Systematic Withdrawal Program described
below.
BY MAIL OR TELEPHONE
You may redeem your shares by calling or writing to your Financial
Intermediary. Written requests to sell shares are in proper form when the
instructions are signed by all registered owners, with a signature guarantee if
necessary.
SYSTEMATIC WITHDRAWAL PROGRAM
The Funds, except the Tax-Managed Large Cap and Tax-Managed Small Cap Funds,
offer a systematic withdrawal program which allows you to redeem your Shares and
receive regular payments from your account on a monthly, quarterly, semiannual
or annual basis. If you would like to establish a systematic withdrawal program,
please complete the proper section of the account application and indicate how
you would like to receive your payments. You will generally receive your payment
by the end of the month in which a payment is scheduled. When you redeem your
shares under a systematic withdrawal program, it is a taxable transaction. The
Tax-Managed Large Cap and Tax-Managed Small Cap Funds do not offer a systematic
withdrawal program in view of their portfolio management strategies.
You may choose to have the payments mailed to you or directed to your bank
account by ACH transfer. You may discontinue the systematic withdrawal program,
or change the amount and timing of withdrawal payments by contacting your
Financial Intermediary.
ACCOUNTS IN STREET NAME
Many brokers, employee benefit plans and bank trusts combine their client's
Fund holdings in a single omnibus account with the Funds held in the brokers',
plans', or bank trusts' own name or "street name." Therefore, if you hold Fund
shares through a brokerage account, employee benefit plan or bank trust fund,
the Funds may have records only of the omnibus account. In this case, your
broker, employee benefit plan or bank is responsible for keeping track of your
account information. This means
69
<PAGE>
that you may not be able to request transactions in your Shares directly through
the Funds, but can do so only through your broker, plan administrator or bank.
Ask your Financial Intermediary for information on whether your Fund shares are
held in an omnibus account.
PAYMENT OF REDEMPTION PROCEEDS
BY CHECK
When you redeem your Shares, a check for the redemption proceeds will be
sent to the shareholder(s) of record at the address of record within seven days
after the Funds receive a redemption request in proper form.
BY WIRE
If you have established the electronic redemption option, your redemption
proceeds can be wired to your predesignated bank account on the next bank
business day after the Funds receive your redemption request. The Funds may
charge a fee to cover the cost of sending a wire transfer for redemptions less
than $1,000, and your bank may charge an additional fee to receive the wire.
Wire transfers can be sent to US commercial banks that are members of the
Federal Reserve System.
WRITTEN INSTRUCTIONS
PROPER FORM: Written instructions must be in proper form. They must include:
A description of the request
The name of the Fund(s)
The class of shares, if applicable
The account number(s)
The amount of money or number of shares being purchased, exchanged,
transferred or redeemed
The name(s) on the account(s)
The signature(s) of all registered account owners
For exchanges, the name of the Fund you are exchanging into
Your daytime telephone number
70
<PAGE>
SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
<TABLE>
<CAPTION>
ACCOUNT TYPE REQUIREMENTS FOR WRITTEN REQUESTS
<S> <C>
Individual, Joint Tenants, Tenants in Written instructions must be signed by each
Common shareholder, exactly as the names appear in the
account registration.
UGMA or UTMA (custodial accounts for Written instructions must be signed by the
minors) custodian in his/her capacity as it appears in
the account registration.
Corporation, Association Written instructions must be signed by authorized
person(s), stating his/her capacity as indicated
by the corporate resolution to act on the account
and a copy of the corporate resolution, certified
within the past 90 days, authorizing the signer
to act.
Estate, Trust, Pension, Profit Sharing Written instructions must be signed by all
Plan trustees. If the name of the trustee(s) does not
appear in the account registration, please
provide a copy of the trust document certified
within the last 60 days.
Joint tenancy shareholders whose Written instructions must by signed by the
co-tenants are deceased surviving tenant(s). A certified copy of the
death certificate must accompany the request.
</TABLE>
SIGNATURE GUARANTEE
The Funds reserve the right to require a signature guarantee under certain
circumstances. A signature guarantee verifies the authenticity of your
signature. You should be able to obtain a signature guarantee from a bank,
broker, credit union, savings association, clearing agency, or securities
exchange or association, but not a notary public. Call your financial
institution to see if it has the ability to guarantee a signature.
ACCOUNT POLICIES
THIRD PARTY TRANSACTIONS
If you purchase Shares as part of a program of services offered by a
Financial Intermediary, you may be required to pay additional fees. You should
contact your Financial Intermediary for information concerning what additional
fees, if any, may be charged.
REDEMPTION IN-KIND
A Fund may pay for any portion of the redemption amount in excess of
$250,000 by a distribution in-kind of securities from the Fund's portfolio,
instead of in cash. If you receive an in-kind distribution of portfolio
securities, and choose to sell them, you will incur brokerage charges and
continue to be subject to tax consequences and market risk pending any sale.
71
<PAGE>
STALE CHECKS
For the protection of shareholders and the Funds, if a check issued for the
payment of a redemption or distribution is not cashed for more than 180 days
from issuance, it will not be honored. The Funds have adopted procedures
described in the statement of additional information regarding the treatment of
stale checks, or you may contact your Financial Intermediary for additional
information.
72
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you
understand the Funds' financial performance for the past 5 years (or, if a Fund
or Class has not been in operation for 5 years, since the beginning of
operations for that Fund or Class). Certain information reflects financial
results for a single Fund share throughout each year or period ended
December 31. The total returns in the table represent how much your investment
in a Fund would have increased (or decreased) during each period, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Funds'
financial statements, are included in the Funds' annual reports, which are
available upon request. The information in the following tables represents the
Financial Highlights for the Funds' Class C Shares for the periods shown.
DIVERSIFIED EQUITY FUND--CLASS C SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 52.04
-------
INCOME FROM OPERATIONS
Net investment income (loss) (a).......................... (.20)
Net realized and unrealized gain (loss)................... 8.14
-------
Total income from operations............................ 7.94
-------
DISTRIBUTIONS
From net investment income................................ (.03)
From net realized gain.................................... (5.82)
-------
Total distributions..................................... (5.85)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 54.13
=======
TOTAL RETURN (%)(b)......................................... 15.83
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 14,787
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.94
Net investment income (loss)............................ (.41)
Portfolio turnover rate (%)............................... 110.36
</TABLE>
- --------------------------
* For the period January 27, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
73
<PAGE>
SPECIAL GROWTH FUND--CLASS C SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 42.17
-------
INCOME FROM OPERATIONS
Net investment income (loss)(a)........................... (.45)
Net realized and unrealized gain (loss)................... 9.72
-------
Total income from operations............................ 9.27
-------
DISTRIBUTIONS
From net realized gain.................................... (3.22)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 48.22
=======
TOTAL RETURN (%)(b)......................................... 22.53
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 5,990
Ratios to average net assets (%)(c):
Operating expenses...................................... 2.23
Net investment income (loss)............................ (1.10)
Portfolio turnover rate (%)............................... 111.98
</TABLE>
- --------------------------
* For the period January 27, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
74
<PAGE>
EQUITY INCOME FUND--CLASS C SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 40.38
-------
INCOME FROM OPERATIONS
Net investment income (a)................................. .04
Net realized and unrealized gain (loss)................... .66
-------
Total income from operations............................ .70
-------
DISTRIBUTIONS
From net investment income................................ (.17)
From net realized gain.................................... (3.89)
-------
Total distributions..................................... (4.06)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 37.02
=======
TOTAL RETURN (%)(b)......................................... 2.03
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 995
Ratios to average net assets (%)(c):
Operating expenses...................................... 2.10
Net investment income................................... .10
Portfolio turnover rate (%)............................... 137.94
</TABLE>
- --------------------------
* For the period January 27, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
75
<PAGE>
QUANTITATIVE EQUITY FUND--CLASS C SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 43.02
-------
INCOME FROM OPERATIONS
Net investment income (loss)(a)........................... (.20)
Net realized and unrealized gain (loss)................... 8.00
-------
Total income from operations............................ 7.80
-------
DISTRIBUTIONS
From net investment income................................ (.04)
From net realized gain.................................... (5.84)
-------
Total distributions..................................... (5.88)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 44.94
=======
TOTAL RETURN (%)(b)......................................... 18.89
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 13,613
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.93
Net investment income (loss)............................ (.47)
Portfolio turnover rate (%)............................... 89.52
</TABLE>
- --------------------------
* For the period January 27, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
76
<PAGE>
INTERNATIONAL SECURITIES FUND--CLASS C SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 60.66
-------
INCOME FROM OPERATIONS
Net investment income (loss)(a)........................... (.32)
Net realized and unrealized gain (loss)................... 17.92
-------
Total income from operations............................ 17.60
-------
DISTRIBUTIONS
From net investment income................................ (.17)
From net realized gain.................................... (3.58)
-------
Total distributions..................................... (3.75)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 74.51
=======
TOTAL RETURN (%)(b)......................................... 29.39
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 7,522
Ratios to average net assets (%)(c):
Operating expenses...................................... 2.30
Net investment income (loss)............................ (.51)
Portfolio turnover rate (%)............................... 120.52
</TABLE>
- --------------------------
* For the period January 27, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
77
<PAGE>
EMERGING MARKETS FUND--CLASS C SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 8.07
------
INCOME FROM OPERATIONS
Net investment income (loss)(a)........................... (.12)
Net realized and unrealized gain (loss)................... 4.57
------
Total income from operations............................ 4.45
------
DISTRIBUTIONS
From net investment income................................ (.05)
------
NET ASSET VALUE, END OF PERIOD.............................. $12.47
======
TOTAL RETURN (%)(b)......................................... 55.43
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 1,631
Ratios to average net assets (%)(c):
Operating expenses...................................... 2.91
Net investment income (loss)............................ (1.23)
Portfolio turnover rate (%)............................... 94.85
</TABLE>
- --------------------------
* For the period January 27, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
78
<PAGE>
REAL ESTATE SECURITIES FUND--CLASS C SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $24.13
------
INCOME FROM OPERATIONS
Net investment income (a)................................. 1.08
Net realized and unrealized gain (loss)................... (1.06)
------
Total income from operations............................ .02
------
DISTRIBUTIONS
From net investment income................................ (1.46)
------
NET ASSET VALUE, END OF PERIOD.............................. $22.69
======
TOTAL RETURN (%)(b)......................................... .19
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 1,771
Ratios to average net assets (%)(c):
Operating expenses...................................... 2.14
Net investment income................................... 5.12
Portfolio turnover rate (%)............................... 42.69
</TABLE>
- --------------------------
* For the period January 27, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
79
<PAGE>
SHORT TERM BOND FUND--CLASS C SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 18.36
-------
INCOME FROM OPERATIONS
Net investment income (a)................................. .68
Net realized and unrealized gain (loss)................... (.31)
-------
Total income from operations............................ .37
-------
DISTRIBUTIONS
From net investment income................................ (.60)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 18.13
=======
TOTAL RETURN (%)(b)......................................... 2.02
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 801
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.72
Net investment income................................... 4.41
Portfolio turnover rate (%)............................... 177.08
</TABLE>
- --------------------------
* For the period March 3, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
80
<PAGE>
DIVERSIFIED BOND FUND--CLASS C SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 24.00
-------
INCOME FROM OPERATIONS
Net investment income (a)................................. 1.03
Net realized and unrealized gain (loss)................... (1.61)
-------
Total income from operations............................ (.58)
-------
DISTRIBUTIONS
From net investment income................................ (1.05)
From net realized gain.................................... (.13)
-------
Total distributions..................................... (1.18)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 22.24
=======
TOTAL RETURN (%)(b)......................................... (2.47)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 4,652
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.62
Net investment income................................... 4.88
Portfolio turnover rate (%)............................... 152.23
</TABLE>
- --------------------------
* For the period January 27, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
81
<PAGE>
MULTISTRATEGY BOND FUND--CLASS C SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.14
-------
INCOME FROM OPERATIONS
Net investment income (a)................................. .42
Net realized and unrealized gain (loss)................... (.63)
-------
Total income from operations............................ (.21)
-------
DISTRIBUTIONS
From net investment income................................ (.45)
From net realized gain.................................... (.01)
-------
Total distributions..................................... (.46)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.47
=======
TOTAL RETURN (%)(b)......................................... (2.10)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 6,666
Ratios to average net assets (%)(c):
Operating expenses, net................................. 1.80
Operating expenses, gross............................... 1.84
Net investment income................................... 4.80
Portfolio turnover rate (%)............................... 134.11
</TABLE>
- --------------------------
* For the period January 27, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
82
<PAGE>
TAX-MANAGED LARGE CAP FUND--CLASS C SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 20.92
-------
INCOME FROM OPERATIONS
Net investment income (loss)(a)**......................... --
Net realized and unrealized gain (loss)................... .35
-------
Total income from operations............................ .35
-------
DISTRIBUTIONS
From net investment income................................ (.10)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 21.17
=======
TOTAL RETURN (%)(b)......................................... 2.24
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 308
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.57
Net investment income (loss)............................ (.28)
Portfolio turnover rate (%)............................... 48.35
</TABLE>
- --------------------------
* For the period December 1, 1999 (commencement of sale) to December 31, 1999.
** Less than .01 CENTS per share.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
83
<PAGE>
TAX-MANAGED SMALL CAP FUND--CLASS C SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.00
------
INCOME FROM OPERATIONS
Net investment income (a)**............................... --
Net realized and unrealized gain (loss)................... .71
------
Total income from operations............................ .71
------
NET ASSET VALUE, END OF PERIOD.............................. $10.71
======
TOTAL RETURN (%)(b)......................................... 7.10
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 222
Ratios to average net assets (%)(c):
Operating expenses, net................................. 2.18
Operating expenses, gross............................... 8.78
Net investment income................................... .73
Portfolio turnover rate (%)............................... 3.33
</TABLE>
- --------------------------
* For the period December 1, 1999 (commencement of sale) to December 31, 1999.
** Less than .01 CENTS per share.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
84
<PAGE>
TAX EXEMPT BOND FUND--CLASS C
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 21.38
-------
INCOME FROM OPERATIONS
Net investment income (a)................................. .45
Net realized and unrealized gain (loss)................... (.84)
-------
Total income from operations............................ (.39)
-------
DISTRIBUTIONS
From net investment income................................ (.54)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 20.45
=======
TOTAL RETURN (%)(b)......................................... (1.82)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 474
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.57
Net investment income................................... 3.12
Portfolio turnover rate (%)............................... 119.34
</TABLE>
- --------------------------
* For the period March 29, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
85
<PAGE>
MONEY MANAGER INFORMATION
The money managers have no affiliations with the Funds or the Funds' service
providers other than their management of Fund assets. Each money manager has
been in business for at least three years, and is principally engaged in
managing institutional investment accounts. These managers may also serve as
managers or advisers to other Funds in FRIC, or to other clients of FRIMCo or of
Frank Russell Company, including Frank Russell Company's wholly owned
subsidiary, Frank Russell Trust Company.
DIVERSIFIED EQUITY FUND
ALLIANCE CAPITAL MANAGEMENT L.P., US Bank Place, 601 2nd Ave. South, Suite
5000, Minneapolis, MN 55402-4322.
BARCLAYS GLOBAL FUND ADVISORS, 45 Fremont Street, 17th Floor, San Francisco,
CA 94105.
EQUINOX CAPITAL MANAGEMENT, LLC, 590 Madison Avenue, 41st Floor, New York,
NY 10022.
JACOBS LEVY EQUITY MANAGEMENT, INC., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.
MARSICO CAPITAL MANAGEMENT, LLC, 1200 17th Street, Suite 1300, Denver, CO
80202.
PEACHTREE ASSET MANAGEMENT, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308.
SANFORD C. BERNSTEIN & CO., INC., 767 Fifth Avenue, 21st Floor, New York, NY
10153-0185.
STRONG CAPITAL MANAGEMENT, INC., 100 Heritage Reserve, Menomonee Falls, WI
53051.
SUFFOLK CAPITAL MANAGEMENT, INC., 1633 Broadway, 40th Floor, New York, NY
10019.
TURNER INVESTMENT PARTNERS INC., 1235 Westlakes Drive, Suite 350, Berwyn, PA
19312.
WESTPEAK INVESTMENT ADVISORS, L.P., 1011 Walnut Street, Suite 400, Boulder,
CO 80302.
SPECIAL GROWTH FUND
CAPITALWORKS INVESTMENT PARTNERS, LLC, 401 West "A" Street, Suite 1675, San
Diego, CA 92101.
DELPHI MANAGEMENT, INC., 50 Rowes Wharf, Suite 440, Boston, MA 02110.
FIDUCIARY TRUST COMPANY INTERNATIONAL, INC., 2 World Trade Center, New York,
NY 10048.
GLOBEFLEX CAPITAL, L.P., 4365 Executive Drive, Suite 720, San Diego, CA
92121.
JACOBS LEVY EQUITY MANAGEMENT, INC., See: Diversified Equity Fund.
SIRACH CAPITAL MANAGEMENT, INC., One Union Square, Suite 3323, 600
University Street, Seattle, WA 98101.
WESTPEAK INVESTMENT ADVISORS, L.P., See: Diversified Equity Fund.
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EQUITY INCOME FUND
BARCLAYS GLOBAL FUND ADVISORS, See: Diversified Equity Fund.
EQUINOX CAPITAL MANAGEMENT, INC., See: Diversified Equity Fund.
WESTPEAK INVESTMENT ADVISORS, L.P., See: Diversified Equity Fund.
QUANTITATIVE EQUITY FUND
BARCLAYS GLOBAL FUND ADVISORS, See: Diversified Equity Fund.
FRANKLIN PORTFOLIO ASSOCIATES LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104.
JACOBS LEVY EQUITY MANAGEMENT, INC., See: Diversified Equity Fund.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., 522 Fifth Ave., 6th Floor, New
York, NY 10036.
INTERNATIONAL SECURITIES FUND
DELAWARE INTERNATIONAL ADVISERS LTD., 80 Cheapside, 3rd Floor, London
EC2V6EE England.
FIDELITY MANAGEMENT TRUST COMPANY, 82 Devonshire Street, Boston, MA 02109.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., See: Quantitative Equity Fund.
MASTHOLM ASSET MANAGEMENT, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue,
WA 98004.
MONTGOMERY ASSET MANAGEMENT, LLC, 101 California Street, 35th Floor, San
Francisco, CA 94111.
OECHSLE INTERNATIONAL ADVISORS, LLC, One International Place, 23rd Floor,
Boston, MA 02110.
SANFORD C. BERNSTEIN & CO., INC., See: Diversified Equity Fund.
THE BOSTON COMPANY ASSET MANAGEMENT, INC., One Boston Place, 14th Floor,
Boston, MA 02108-4402.
EMERGING MARKETS FUND
FOREIGN & COLONIAL EMERGING MARKETS LIMITED, Exchange House, Primrose
Street, London, England EC2A 2NY.
GENESIS ASSET MANAGERS LIMITED, 21 Knightsbridge, London SW1X 7LY England.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, 600 W. Broadway, 29th Floor, San
Diego, CA 92101.
SANFORD C. BERNSTEIN & CO., See: Diversified Equity Fund.
SCHRODERS INVESTMENT MANAGEMENT NORTH AMERICA LIMITED, 31 Greshman Street,
London EC2V 7QA England.
REAL ESTATE SECURITIES FUND
AEW CAPITAL MANAGEMENT, L.P., 225 Franklin Street, Boston, MA 02110-2803.
COHEN & STEERS CAPITAL MANAGEMENT, 757 Third Avenue, New York, NY 10017.
SECURITY CAPITAL GLOBAL CAPITAL MANAGEMENT GROUP INCORPORATED, 11 South
LaSalle Street, 2nd Floor, Chicago, IL 60603.
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SHORT TERM BOND FUND
BLACKROCK FINANCIAL MANAGEMENT, INC., 345 Park Ave., 29th Floor, New York,
NY 10154.
STANDISH, AYER & WOOD, INC., One Financial Center, Boston, MA 02111.
STW FIXED INCOME MANAGEMENT LTD., 200 East Carrillo Street, Suite 100, Santa
Barbara, CA 93101-2143.
DIVERSIFIED BOND FUND
LINCOLN CAPITAL MANAGEMENT COMPANY, See: Diversified Equity Fund.
PACIFIC INVESTMENT MANAGEMENT COMPANY, 840 Newport Center Drive, Suite 360,
P.O. Box 6430, Newport Beach, CA 92658-6430.
STANDISH, AYER & WOOD, INC., See: Short Term Bond Fund.
MULTISTRATEGY BOND FUND
LAZARD ASSET MANAGEMENT, 30 Rockefeller Plaza, New York, NY 10112-6300.
MILLER, ANDERSON & SHERRERD, LLP, One Tower Bridge, W. Conshohocken, PA
19428.
PACIFIC INVESTMENT MANAGEMENT COMPANY, See: Diversified Bond Fund.
STANDISH, AYER & WOOD, INC., See: Short Term Bond Fund.
TAX EXEMPT BOND FUND
MFS INSTITUTIONAL ADVISORS, INC., 500 Boylston Street, Boston, MA 02116.
STANDISH, AYER & WOOD, INC., See: Short Term Bond Fund.
TAX-MANAGED LARGE CAP FUND
J.P. MORGAN INVESTMENT MANAGEMENT INC., 522 Fifth Ave., 6th Floor, New York,
New York 10036.
TAX-MANAGED SMALL CAP FUND
GEEWAX, TERKER & COMPANY, 99 Starr Street, Phoenixville, PA 19460.
WHEN CONSIDERING AN INVESTMENT IN THE FUNDS, DO NOT RELY ON ANY INFORMATION
UNLESS IT IS CONTAINED IN THIS PROSPECTUS OR IN THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION. THE FUNDS HAVE NOT AUTHORIZED ANYONE TO ADD ANY
INFORMATION OR TO MAKE ANY ADDITIONAL STATEMENTS ABOUT THE FUNDS. THE FUNDS MAY
NOT BE AVAILABLE IN SOME JURISDICTIONS OR TO SOME PERSONS. THE FACT THAT YOU
HAVE RECEIVED THIS PROSPECTUS SHOULD NOT, IN ITSELF, BE TREATED AS AN OFFER TO
SELL FUND SHARES TO YOU. CHANGES IN THE AFFAIRS OF THE FUNDS OR IN THE FUNDS'
MONEY MANAGERS MAY OCCUR AFTER THE DATE ON THE COVER PAGE OF THIS PROSPECTUS.
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED TO REFLECT ANY MATERIAL CHANGES
TO THE INFORMATION IT CONTAINS.
88
<PAGE>
For more information about the Funds, the following documents
are available without charge:
ANNUAL/SEMIANNUAL REPORTS: Additional information about the Funds'
investments is available in the Funds' annual and semiannual
reports to shareholders. In each Fund's annual report, you will
find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more
detailed information about the Funds.
The annual report for each Fund and the SAI are incorporated into
this Prospectus by reference. You may obtain free copies of the
reports and the SAI, and may request other information, by
contacting your Financial Intermediary or the Funds at:
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
Telephone: 1-800-787-7354
Fax: 253-591-3495
Website: russell.com
You can review and copy information about the Funds (including the SAI)
at the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. You can obtain information on the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330.
You can obtain copies of this information upon paying a duplicating
fee by writing to the Public Reference Section of the Commission,
Washington, D.C. 20549-6009. Reports and other information about
the Funds are also available on the Commission's Internet website
at sec.gov.
FRANK RUSSELL INVESTMENT COMPANY
Class C Shares:
Diversified Equity Fund
Special Growth Fund
Equity Income Fund
Quantitative Equity Fund
International Securities Fund
Emerging Markets Fund
Real Estate Securities Fund
Short Term Bond Fund
Diversified Bond Fund
Multistrategy Bond Fund
Tax Exempt Bond Fund
Tax-Managed Large Cap Fund
Tax-Managed Small Cap Fund
Distributor: Russell Fund Distributors, Inc.
SEC File No. 811-3153
36-08-056 (05/00)
[Russell LOGO]
<PAGE>
RUSSELL FUNDS LOGO
FRANK RUSSELL INVESTMENT COMPANY
RUSSELL FUNDS
PROSPECTUS
CLASS E AND S SHARES:
DIVERSIFIED EQUITY FUND
SPECIAL GROWTH FUND
EQUITY INCOME FUND
QUANTITATIVE EQUITY FUND
INTERNATIONAL SECURITIES FUND
EMERGING MARKETS FUND
REAL ESTATE SECURITIES FUND
SHORT TERM BOND FUND
DIVERSIFIED BOND FUND
MULTISTRATEGY BOND FUND
TAX EXEMPT BOND FUND
CLASS S SHARES:
TAX-MANAGED LARGE CAP FUND
(formerly Equity T Fund)
TAX-MANAGED SMALL CAP FUND
MAY 1, 2000
909 A STREET, TACOMA, WA 98402 . 800-787-7354 . 253-627-7001
As with all mutual funds, the Securities and Exchange Commission has neither
determined that the information in this Prospectus is accurate or complete,
nor approved or disapproved of these securities. It is a criminal offense to
state otherwise.
[RUSSELL LOGO]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary......................................... 3
Investment Objective, Principal Investment Strategies
and Principal Risks.................................... 3
Performance............................................. 12
Fees and Expenses....................................... 25
Summary Comparison of the Funds............................. 29
The Purpose of the Funds--Multi-Style, Multi-Manager
Diversification........................................... 29
Investment Objective and Principal Investment Strategies.... 31
Risks....................................................... 53
Management of the Funds..................................... 60
The Money Managers.......................................... 62
Portfolio Turnover.......................................... 63
Dividends and Distributions................................. 63
Taxes....................................................... 64
How Net Asset Value Is Determined........................... 65
Distribution and Shareholder Servicing Arrangements......... 66
How to Purchase Shares...................................... 67
Exchange Privilege.......................................... 68
How to Redeem Shares........................................ 70
Payment of Redemption Proceeds.............................. 71
Written Instructions........................................ 71
Account Policies............................................ 72
Financial Highlights........................................ 74
Money Manager Information................................... 98
</TABLE>
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(This page has been left blank intentionally.)
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS
DIVERSIFIED EQUITY FUND
- ---------------------------
<TABLE>
<S> <C>
INVESTMENT To provide income and capital growth by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Diversified Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies, most of
which are US based.
STRATEGIES The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another: a Growth Style, a Value Style and a
Market-Oriented Style. The Fund intends to be fully invested
at all times.
PRINCIPAL RISKS An investment in the Diversified Equity Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, using a multi-manager approach, securities
lending and exposing liquidity reserves to equity markets.
Please refer to the "Risks" section later in this Prospectus
for further details.
</TABLE>
SPECIAL GROWTH FUND
- ------------------------
<TABLE>
<S> <C>
INVESTMENT To maximize total return primarily through capital
OBJECTIVE appreciation and assuming a higher level of volatility than
the Diversified Equity Fund.
PRINCIPAL The Special Growth Fund invests primarily in common stocks
INVESTMENT of small and medium capitalization companies, most of which
STRATEGIES are US based. The Fund's investments may include companies
that have been publicly traded for less than five years and
smaller companies, such as companies not listed in the
Russell 2000-Registered Trademark- Index.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another: a Growth Style, a Value Style and a
Market-Oriented Style. The Fund intends to be fully invested
at all times. A portion of the Fund's net assets may be
"illiquid" securities (i.e., securities that do not have a
readily available market or that are subject to resale
restrictions).
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL RISKS An investment in the Special Growth Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly securities of small capitalization
companies, using a multi-manager approach, securities
lending and exposing liquidity reserves to equity markets.
Please refer to the "Risks" section later in this Prospectus
for further details.
</TABLE>
EQUITY INCOME FUND
- -----------------------
<TABLE>
<S> <C>
INVESTMENT To achieve a high level of current income while maintaining
OBJECTIVE the potential for capital appreciation.
PRINCIPAL The Equity Income Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies, most of which are
STRATEGIES US based. Because the Fund's investment objective is
primarily to provide a high level of current income, the
Fund generally pursues a value style of securities
selection.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses two principal investment styles intended to
complement one another: a Yield Substyle and a Low
Price/Earnings Ratio Substyle. The Fund intends to be fully
invested at all times.
PRINCIPAL RISKS An investment in the Equity Income Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in using a value style of security
selection, using a multi-manager approach, securities
lending and exposing liquidity reserves to equity markets.
Please refer to the "Risks" section later in this Prospectus
for further details.
</TABLE>
QUANTITATIVE EQUITY FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell
1000-Registered Trademark- Index over a market cycle of four
to six years) while maintaining volatility and
diversification similar to the Russell 1000 Index.
PRINCIPAL The Quantitative Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies which
STRATEGIES are predominately US based. The Fund generally pursues a
market-oriented style of security
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
selection, which incorporates both a growth style and a
value style, based on quantitative investment models which
are mathematical formulas based on statistical analysis.
This style emphasizes investments in companies that appear
to be undervalued relative to their growth prospects.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. Each of
the Fund's money managers use quantitative models to rank
securities based upon their expected ability to outperform
the total return of the Russell 1000-Registered Trademark-
Index. Although the Fund, like any mutual fund, maintains
liquidity reserves (i.e., cash awaiting investment or held
to meet redemption requests), the Fund exposes these
reserves to the performance of appropriate equity markets by
investing in stock index futures contracts. This causes the
Fund to perform as though its cash reserves were actually
invested in those markets.
PRINCIPAL RISKS An investment in the Quantitative Equity Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in using a market-oriented style of
security selection, using a multi-manager approach,
securities lending and exposing liquidity reserves to equity
markets. Please refer to the "Risks" section later in this
Prospectus for further details.
</TABLE>
INTERNATIONAL SECURITIES FUND
- -----------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.
PRINCIPAL The International Securities Fund invests primarily in
INVESTMENT equity securities issued by companies domiciled outside the
STRATEGIES US and in depository receipts, which represent ownership of
securities of non-US companies. The Fund's investments span
most of the developed nations of the world (particularly
Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. This Fund
may be appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another: a Growth Style, a Value Style and a
Market-Oriented Style. The Fund intends to be fully invested
at all times. A portion of the Fund's net assets may be
"illiquid" securities (i.e.,
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
securities that do not have a readily available market or
that are subject to resale restrictions).
PRINCIPAL RISKS An investment in the International Securities Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in international securities, using
a multi-manager approach, securities lending and exposing
liquidity reserves to equity markets. Please refer to the
"Risks" section later in this Prospectus for further
details.
</TABLE>
EMERGING MARKETS FUND
- ----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return, primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from developed market
international portfolios by investing primarily in equity
securities.
PRINCIPAL The Emerging Markets Fund will primarily invest in equity
INVESTMENT securities of companies that are located in countries with
STRATEGIES emerging markets or that derive a majority of their revenues
from operations in such countries. These countries generally
include every country in the world except the United States,
Canada, Japan, Australia and most countries located in
Western Europe. The Fund seeks to maintain a broadly
diversified exposure to emerging market countries and
ordinarily will invest in the securities of issuers in at
least three different emerging market countries.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are to complement one another. A portion of the
Fund's net assets may be "illiquid" securities (i.e.,
securities that do not have a readily available market or
that are subject to resale restrictions).
PRINCIPAL RISKS An investment in the Emerging Markets Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly in international and emerging
markets securities and using a multi-manager approach.
Please refer to the "Risks" section later in this Prospectus
for further details.
</TABLE>
6
<PAGE>
REAL ESTATE SECURITIES FUND
- --------------------------------
<TABLE>
<S> <C>
INVESTMENT To generate a high level of total return through above
OBJECTIVE average current income while maintaining the potential for
capital appreciation.
PRINCIPAL The Real Estate Securities Fund seeks to achieve its
INVESTMENT objective by concentrating its investments in equity
STRATEGIES securities of issuers whose value is derived primarily from
development, management and market pricing of underlying
real estate properties. The Fund invests primarily in
securities of companies known as real estate investment
trusts (REITs) that own and/or manage properties. REITs may
be composed of anywhere from two to over 1,000 properties.
The Fund may also invest in equity and debt securities of
other types of real estate-related companies. The Fund
invests in companies which are predominately US based.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers, whose
approaches are intended to complement one another.
The Fund intends to be fully invested at all times. A
portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions).
PRINCIPAL RISKS An investment in the Real Estate Securities Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in equity
securities, particularly securities of companies
concentrated in the real estate market, using a
multi-manager approach, securities lending and exposing
liquidity reserves to equity markets. Please refer to the
"Risks" section later in this Prospectus for further
details.
</TABLE>
SHORT TERM BOND FUND
- --------------------------
<TABLE>
<S> <C>
INVESTMENT The preservation of capital and the generation of current
OBJECTIVE income consistent with preservation of capital by investing
primarily in fixed-income securities with low-volatility
characteristics.
PRINCIPAL The Short Term Bond Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
The Fund may
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
invest up to 10% of its assets in debt securities that are
rated below investment grade. These securities are commonly
referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 15% of the average weighted duration
of the Merrill Lynch 1-2.99 Year Treasury Index, which was
1.6 years as of December 31, 1999, but may vary up to 50%
from the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund employs
multiple money managers, each with its own expertise in the
fixed-income markets.
PRINCIPAL RISKS An investment in the Short Term Bond Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in fixed-income
securities, including non-investment grade fixed-income
securities, investing in municipal obligations, repurchase
agreements and international securities, employing
derivatives and using a multi-manager approach. Please refer
to the "Risks" section later in this Prospectus for further
details.
</TABLE>
DIVERSIFIED BOND FUND
- -------------------------
<TABLE>
<S> <C>
INVESTMENT To provide effective diversification against equities and a
OBJECTIVE stable level of cash flow by investing in fixed-income
securities.
PRINCIPAL The Diversified Bond Fund invests primarily in investment
INVESTMENT grade fixed- income securities. In particular, the Fund
STRATEGIES holds debt securities issued or guaranteed by the US
government and, to a lesser extent by non-US governments, or
by their respective agencies and instrumentalities. It also
holds mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds).
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was
5.0 years as of December 31, 1999, but may vary up to 25%
from the Index's duration. The Fund has no restrictions on
individual security duration.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund employs
multiple money managers, each with its own expertise in the
fixed-income markets.
PRINCIPAL RISKS An investment in the Diversified Bond Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in fixed-
income securities, municipal obligations, repurchase
agreements and international securities, employing
derivatives and using a multi-manager approach. Please refer
to the "Risks" section later in this Prospectus for further
details.
</TABLE>
MULTISTRATEGY BOND FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return, primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from broad fixed-income market
portfolios.
PRINCIPAL The Multistrategy Bond Fund invests primarily in
INVESTMENT fixed-income securities. In particular, the Fund holds debt
STRATEGIES securities issued or guaranteed by the US government and, to
a lesser extent by non-US governments, or by their
respective agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). The
Fund may invest up to 25% of its assets in debt securities
that are rated below investment grade. These securities are
commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund employs
multiple money managers, each with its own expertise in the
fixed-income markets.
PRINCIPAL RISKS An investment in the Multistrategy Bond Fund, like any
investment, has risks. The value of the Fund fluctuates, and
you could lose money. The principal risks of investing in
the Fund are those associated with investing in fixed-income
securities, including non-investment grade fixed-income
securities, investing in municipal obligations and
international securities,
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
employing derivatives and using a multi-manager approach.
Please refer to the "Risks" section later in this Prospectus
for further details.
</TABLE>
TAX-MANAGED LARGE CAP FUND
- ---------------------------------
(FORMERLY EQUITY T FUND)
<TABLE>
<S> <C>
INVESTMENT To provide capital growth on an after-tax basis by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Tax-Managed Large Cap Fund invests primarily in equity
INVESTMENT securities of large capitalization US companies, although
STRATEGIES the Fund may invest a limited amount in non-US firms from
time to time. The Fund generally pursues a market-oriented
style of security selection which incorporates both a growth
style and a value style. The Fund seeks to realize capital
growth while minimizing shareholder tax consequences arising
from the Fund's portfolio management activities. The Fund
attempts to do this through the realization of returns as
capital gains and not as investment income under US tax
laws. The Fund also attempts to minimize its realization of
capital gains and offset any such realization of capital
gains with capital losses. The Fund intends to be fully
invested at all times.
PRINCIPAL RISKS An investment in the Tax-Managed Large Cap Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with tax-sensitive management,
investing in equity securities, securities lending and
exposing liquidity reserves to equity markets. Please refer
to the "Risks" section later in this Prospectus for further
details.
</TABLE>
TAX-MANAGED SMALL CAP FUND
- ---------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide capital growth on an after-tax basis by investing
OBJECTIVE principally in equity securities of small capitalization
companies.
PRINCIPAL The Tax-Managed Small Cap Fund invests primarily in equity
INVESTMENT securities of US companies, although the Fund may invest a
STRATEGIES limited amount in non-US firms from time to time. The Fund
generally pursues a market-oriented style of security
selection which incorporates both a growth style and a value
style. The Fund seeks to realize capital growth while
minimizing shareholder tax consequences arising from the
Fund's portfolio management activities. The Fund attempts to
do this through the realization of returns as capital gains
and not as investment income under US tax laws. The Fund
also attempts to minimize its realization of capital gains
and offset any such realization of capital gains with
capital losses. The Fund intends to be fully invested at all
times.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL RISKS An investment in the Tax-Managed Small Cap Fund, like any
investment, has risks. The value of the Fund fluctuates and
you could lose money. The principal risks of investing in
the Fund are those associated with tax-sensitive management,
investing in equity securities, investing in securities of
small capitalization companies, securities lending and
exposing liquidity reserves to equity markets. Please refer
to the "Risks" section later in this Prospectus for further
details.
</TABLE>
TAX EXEMPT BOND FUND
- -------------------------
<TABLE>
<S> <C>
INVESTMENT To provide a high level of federal tax-exempt current income
OBJECTIVE by investing primarily in a diversified portfolio of
investment grade municipal securities.
PRINCIPAL The Tax Exempt Bond Fund concentrates its investments in
INVESTMENT investment- grade municipal debt obligations providing
STRATEGIES federal tax-exempt interest income. The average weighted
duration of the Fund's portfolio typically ranges within ten
percent of the average weighted duration of the Lehman
Brothers 1-10 Year Municipal Bond Index, but may vary up to
25% from the Index's duration. The Fund has no restrictions
on individual security duration. The Fund employs multiple
money managers, each with its own expertise in the municipal
bond market.
PRINCIPAL RISKS An investment in the Tax Exempt Bond Fund, like any
investment, has risks. The value of the Fund fluctuates with
interest rates and you could lose money. The principal risks
of investing in the Fund are those associated with investing
in fixed-income securities, investing in municipal
obligations and repurchase agreements, credit and liquidity
enhancements, securities lending and using a multi-manager
approach. Please refer to the "Risks" section later in this
Prospectus for further details.
</TABLE>
11
<PAGE>
PERFORMANCE
The following bar charts illustrate the risks of investing in the Funds by
showing how the performance of each Fund's Class S Shares varies from year to
year over a 10-year period (or, if a Fund has not been in operation for
10 years, since the beginning of such Fund's operations). The return for the
other classes of Shares offered by this Prospectus may be lower than the
Class S returns shown in the bar chart, depending upon the fees and expenses of
that other class. The highest and lowest quarterly returns during the period
shown in the bar charts for the Funds' Class S Shares are set forth below the
bar charts.
The tables accompanying the bar charts further illustrate the risks of
investing in the Funds by showing how each Fund's average annual returns for 1,
5 and 10 years (or, if a Fund has not been in operation for 10 years, since the
beginning of operations of such Fund) compare with the returns of certain
indexes that measure broad market performance.
The returns shown for the Class E Shares reflect the deduction of Rule 12b-1
distribution fees from the date each Fund's Class E Shares were first issued,
which is identified below, until May 18, 1998. Effective May 18, 1998, Class E
Shares of the Funds no longer charged Rule 12b-1 distribution fees, which had
reduced Class E returns prior to that date. The returns shown have not been
increased to reflect the effect of the elimination of those fees. Returns for
periods prior to the date that each Fund first issued its Class E Shares are
those of the Fund's Class S Shares, and therefore do not reflect deduction of
Rule 12b-1 distribution or shareholder servicing fees. Each Fund commenced
operations of its Class E Shares on the following dates: the Diversified Equity
Fund--May 27, 1997; the Equity Income, Quantitative Equity, Special Growth,
International Securities, Real Estate Securities and Diversified Bond Funds--
November 4, 1996; the Multistrategy Bond Fund--September 11, 1998; the Emerging
Markets Fund--September 22, 1998; the Short Term Bond Fund--February 18, 1999;
and the Tax Exempt Bond Fund--May 14, 1999.
Past performance is no indication of future results.
12
<PAGE>
- --------------------------------------------------------------------------------
DIVERSIFIED EQUITY FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -7.01%
1991 31.05%
1992 8.32%
1993 10.53%
1994 -0.01%
1995 35.17%
1996 23.29%
1997 31.32%
1998 25.11%
1999 18.21%
</TABLE>
BEST QUARTER: 22.46% (4Q/98)
WORST QUARTER: (15.19)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E................................................... 17.95% 26.20% 16.66%
Class S................................................... 18.21 26.48 16.79
Russell 1000-Registered Trademark- Index.................. 20.91 28.05 18.13
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL GROWTH FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -14.28%
1991 43.11%
1992 12.52%
1993 15.48%
1994 -3.71%
1995 28.52%
1996 18.65%
1997 28.77%
1998 0.42%
1999 21.45%
</TABLE>
BEST QUARTER: 22.40% (1Q/91)
WORST QUARTER: (22.45)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E................................................... 21.19% 18.75% 13.74%
Class S................................................... 21.45 19.07 13.89
Russell 2500-TM- Index.................................... 24.15 19.43 15.05
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
EQUITY INCOME FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -6.90%
1991 27.52%
1992 11.51%
1993 13.23%
1994 0.69%
1995 34.76%
1996 21.45%
1997 33.59%
1998 12.99%
1999 0.25%
</TABLE>
BEST QUARTER: 16.47% (1Q/91)
WORST QUARTER: (15.63)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E................................................... 0.04% 19.51% 13.91%
Class S................................................... 0.25 19.88 14.09
Russell 1000-Registered Trademark- Value Index............ 7.35 23.07 15.60
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
QUANTITATIVE EQUITY FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -5.60%
1991 31.70%
1992 8.67%
1993 12.56%
1994 0.19%
1995 37.69%
1996 23.08%
1997 32.70%
1998 24.82%
1999 21.37%
</TABLE>
BEST QUARTER: 22.58% (4Q/98)
WORST QUARTER: (14.38)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E................................................... 21.11% 27.39% 17.72%
Class S................................................... 21.37 27.76 17.89
Russell 1000-Registered Trademark- Index.................. 20.91 28.05 18.13
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL SECURITIES FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -15.34%
1991 11.99%
1992 -6.94%
1993 33.48%
1994 4.86%
1995 10.20%
1996 7.63%
1997 0.26%
1998 12.90%
1999 30.52%
</TABLE>
BEST QUARTER: 19.02% (4Q/99)
WORST QUARTER: (17.66)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E................................................... 30.21% 11.56% 7.87%
Class S................................................... 30.52 11.86 8.02
MSCI EAFE Index........................................... 27.30 13.15 7.34
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 -5.83%
1995 -8.21%
1996 12.26%
1997 -3.45%
1998 -27.57%
1999 49.03%
</TABLE>
BEST QUARTER: 27.94% (4Q/99)
WORST QUARTER: (21.64)% (3Q/98)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS* INCEPTION*
--------------------------------------- ------ -------- ----------
<S> <C> <C> <C>
Class E.................................................. 48.71% 1.38% 5.31%
Class S.................................................. 49.03 1.44 5.35
IFC Investable Composite Index........................... 67.11 2.17 8.58
-------------------------------------------------------------------------------------------
</TABLE>
----------------------------
* The Emerging Markets Fund commenced operations on January 29, 1993.
For periods prior to April 1, 1995, performance results for the Fund do
not reflect deduction of investment management fees.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -15.92%
1991 37.08%
1992 17.29%
1993 17.42%
1994 7.24%
1995 10.87%
1996 36.81%
1997 18.99%
1998 -15.94%
1999 0.55%
</TABLE>
BEST QUARTER: 24.69% (1Q/91)
WORST QUARTER: (14.24)% (3Q/90)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E................................................... 0.30% 8.50% 9.85%
Class S................................................... 0.55 8.81 10.01
NAREIT Equity REIT Index.................................. (4.62) 8.09 9.12
------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
SHORT TERM BOND FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 9.71%
1991 12.31%
1992 2.74%
1993 6.98%
1994 0.82%
1995 9.95%
1996 4.76%
1997 6.02%
1998 6.09%
1999 3.03%
</TABLE>
BEST QUARTER: 3.90% (4Q/91)
WORST QUARTER: (0.72)% (1Q/94)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999* 1 YEAR 5 YEARS 10 YEARS
---------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E..................................................... 2.81% 5.90% 6.16%
Class S..................................................... 3.03 5.94 6.18
Merrill Lynch 1-2.99 Years Treasury Index................... 3.06 6.51 6.59
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
------------------------------------------------------------ -----
Class E..................................................... 5.81%
Class S..................................................... 6.13
--------------------------------------------------------------------------------------------
</TABLE>
----------------------------
* For periods prior to April 1, 1995, performance results for the Fund
do not reflect deduction of investment management fees.
- --------------------------------------------------------------------------------
To obtain current 30-day yield information, please call 1-800-787-7354.
20
<PAGE>
- --------------------------------------------------------------------------------
DIVERSIFIED BOND FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 7.58%
1991 15.29%
1992 6.57%
1993 10.02%
1994 -3.25%
1995 17.76%
1996 3.43%
1997 9.09%
1998 8.09%
1999 -1.26%
</TABLE>
BEST QUARTER: 5.52% (3Q/91)
WORST QUARTER: (2.79)% (1Q/94)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Class E..................................................... (1.51)% 6.92% 6.99%
Class S..................................................... (1.26) 7.23 7.15
Lehman Brothers Aggregate Bond Index........................ (0.82) 7.73 7.70
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
------------------------------------------------------------ ------
Class E..................................................... 6.19%
Class S..................................................... 6.62
--------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
To obtain current 30-day yield information, please call 1-800-787-7345.
21
<PAGE>
- --------------------------------------------------------------------------------
MULTISTRATEGY BOND FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1994 -4.35%
1995 17.92%
1996 4.97%
1997 9.50%
1998 6.79%
1999 -0.81%
</TABLE>
BEST QUARTER: 6.23% (2Q/95)
WORST QUARTER: (3.44)% (1Q/94)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS INCEPTION*
--------------------------------------- ------ ------- ----------
<S> <C> <C> <C>
Class E................................................... (1.08)% 7.40% 5.89%
Class S................................................... (0.81) 7.50 5.96
Lehman Brothers Aggregate Bond Index...................... (0.82) 7.73 6.21
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
---------------------------------------------------------- ------
Class E................................................... 6.02%
Class S................................................... 6.29
--------------------------------------------------------------------------------------------
</TABLE>
----------------------------
* The Multistrategy Bond Fund commenced operations on January 29, 1993.
- --------------------------------------------------------------------------------
To obtain current 30-day yield information, please call 1-800-787-7354.
22
<PAGE>
- --------------------------------------------------------------------------------
TAX-MANAGED LARGE CAP FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1997 31.73%
1998 32.08%
1999 16.57%
</TABLE>
BEST QUARTER: 23.71% (4Q/98)
WORST QUARTER: (10.12)% (3Q/98)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS SINCE
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR INCEPTION*
--------------------------------------- ------ ----------
<S> <C> <C>
Tax-Managed Large Cap Fund Class S.......................... 16.57% 26.87%
S&P 500 Composite Stock Price Index......................... 21.14 27.70
-----------------------------------------------------------------------------------
</TABLE>
----------------------------
* The Tax-Managed Large Cap Fund commenced operations on October 7,
1996.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
TAX-MANAGED SMALL CAP FUND
Because the Tax-Managed Small Cap Fund had not been in operation for a
full calendar year when this Prospectus was printed, its performance history
and average annual returns are not included. Performance history and average
annual returns will be available for the Tax-Managed Small Cap Fund after
the Fund has been in operation for one calendar year.
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
TAX EXEMPT BOND FUND
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
CLASS S
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 6.12%
1991 7.64%
1992 5.85%
1993 6.58%
1994 -0.54%
1995 7.81%
1996 3.07%
1997 4.92%
1998 4.82%
1999 -0.52%
</TABLE>
BEST QUARTER: 2.79% (4Q/91)
WORST QUARTER: (1.59)% (1Q/94)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Tax Exempt Bond Fund Class E*............................... (0.66)% 3.95% 4.52%
Tax Exempt Bond Fund Class S*............................... (0.52) 3.98 4.53
Lehman Brothers Municipal 1-10 Year Index#.................. 0.55 6.21 -
Salomon Smith Barney 3-Month Treasury Bill Index............ 4.74 5.20 5.05
YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
------------------------------------------------------------ ------
30-Day Yield
Class E..................................................... 4.69%
Class S..................................................... 4.28
30-Day Tax Equivalent Yield
Class E..................................................... 7.76%
Class S..................................................... 7.09
--------------------------------------------------------------------------------------------
</TABLE>
----------------------------
* The performance of the Tax Exempt Bond Fund prior to January 1, 1999
reflects a higher advisory fee than is currently borne by the Fund.
# Prior to November 1, 1999, the comparative index for the Tax Exempt
Bond Fund was the Salomon Smith Barney 3-Month Treasury Bill Index. The
Fund believes that the Lehman Brothers Municipal 1-10 Year Index is
more broadly representative of the securities and strategies likely to
be employed by the Tax Exempt Bond Fund and provides more useful
information as a comparative basis for evaluation of the Fund's
performance. The Lehman Brothers Municipal 1-10 Year Index is an index,
with income reinvested, representative of municipal bonds with
maturities ranging from 1-10 years.
- --------------------------------------------------------------------------------
To obtain current yield information, please call 1-800-787-7354.
24
<PAGE>
FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold Shares of the Funds.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES
MAXIMUM SALES CHARGE (LOAD)
CHARGE (LOAD) IMPOSED ON MAXIMUM
IMPOSED ON REINVESTED DEFERRED SALES REDEMPTION EXCHANGE
PURCHASES DIVIDENDS CHARGE (LOAD) FEES FEES
--------- --------- ------------- ---- ----
<S> <C> <C> <C> <C> <C>
All Funds, Classes E and S............. None None None None None
</TABLE>
25
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(% OF NET ASSETS)
<TABLE>
<CAPTION>
OTHER EXPENSES
(INCLUDING
ADMINISTRATIVE TOTAL NET
FEES AND TOTAL GROSS ANNUAL ANNUAL FUND
ADVISORY SHAREHOLDER FUND OPERATING FEE WAIVERS AND OPERATING
FEE* SERVICING FEES)** EXPENSE# REIMBURSEMENTS EXPENSES
---- ----------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
CLASS E SHARES
Diversified Equity................. 0.73% 0.45% 1.18% 0.00% 1.18%
Special Growth..................... 0.90% 0.59% 1.49% 0.00% 1.49%
Equity Income...................... 0.75% 0.61% 1.36% 0.00% 1.36%
Quantitative Equity................ 0.73% 0.45% 1.18% 0.00% 1.18%
International Securities........... 0.90% 0.65% 1.55% 0.00% 1.55%
Emerging Markets................... 1.15% 1.01% 2.16% 0.00% 2.16%
Real Estate Securities............. 0.80% 0.59% 1.39% 0.00% 1.39%
Short Term Bond.................... 0.45% 0.54% 0.99% 0.00% 0.99%
Diversified Bond................... 0.40% 0.46% 0.86% 0.00% 0.86%
Multistrategy Bond+................ 0.60% 0.51% 1.11% 0.00% 1.11%
Tax-Exempt Bond.................... 0.30% 0.52% 0.82% 0.00% 0.82%
CLASS S SHARES
Diversified Equity................. 0.73% 0.20% 0.93% 0.00% 0.93%
Special Growth..................... 0.90% 0.34% 1.24% 0.00% 1.24%
Equity Income...................... 0.75% 0.36% 1.11% 0.00% 1.11%
Quantitative Equity................ 0.73% 0.20% 0.93% 0.00% 0.93%
International Securities........... 0.90% 0.40% 1.30% 0.00% 1.30%
Emerging Markets................... 1.15% 0.76% 1.91% 0.00% 1.91%
Real Estate Securities............. 0.80% 0.34% 1.14% 0.00% 1.14%
Short Term Bond.................... 0.45% 0.29% 0.74% 0.00% 0.74%
Diversified Bond................... 0.40% 0.21% 0.61% 0.00% 0.61%
Multistrategy Bond+................ 0.60% 0.26% 0.86% 0.00% 0.86%
Tax Exempt Bond.................... 0.30% 0.27% 0.57% 0.00% 0.57%
Tax-Managed Large Cap.............. 0.70% 0.15% 0.85% 0.00% 0.85%
Tax-Managed Small Cap+............. 0.98% 0.33% 1.31% (0.06)% 1.25%
</TABLE>
- ------------------------------
* Each Fund may also pay, in addition to the fee set forth above, a fee which
compensates the Funds' advisor, Frank Russell Investment Management Company
(FRIMCo) for managing collateral which the Funds have received in securities
lending and certain other portfolio transactions which are not treated as
net assets of that Fund ("additional assets") in determining the Fund's net
asset value per share. The additional fee payable to FRIMCo will equal an
amount of up to 0.07% of each Fund's additional assets on an annualized
basis.
** Annual operating expenses for the Tax-Managed Small Cap Fund are based on
average net assets expected to be invested during the Fund's first
12 months of operation. During the course of that period, expenses may be
more or less than the
26
<PAGE>
amount shown. "Other Expenses" for Class E Shares have been restated to
reflect current expenses and include a shareholder servicing fee of 0.25% of
average daily net assets of the Funds' Class E Shares.
# If you purchase any class of Shares of a Fund through a financial
intermediary, such as a bank or an investment adviser, you may also pay
additional fees to the intermediary for services provided by the
intermediary. You should contact your financial intermediary for information
concerning what additional fees, if any, will be charged.
+ FRIMCo has contractually agreed to waive, at least until February 28, 2001
up to the full amount of its 1.03% combined advisory and administrative fees
for the Tax-Managed Small Cap Fund, and to reimburse the Fund to the extent
that Fund-level expenses exceed 1.25% of the average daily net assets of
that Fund on an annual basis.
27
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
The example assumes that you invest $10,000 in a Fund for the time periods
indicated, and then redeem all of your Shares at the end of the period. The
example also assumes your investment has a 5% return each year and that
operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS E:
Diversified Equity Fund..................................... $ 120 $ 375 $ 650 $1,433
Special Growth Fund......................................... 152 471 813 1,779
Equity Income Fund.......................................... 138 431 745 1,636
Quantitative Equity Fund.................................... 120 375 650 1,433
International Securities Fund............................... 158 490 846 1,847
Emerging Markets Fund....................................... 219 676 1,159 2,493
Real Estate Securities Fund................................. 142 441 761 1,669
Short Term Bond Fund........................................ 101 315 547 1,213
Diversified Bond Fund....................................... 88 274 476 1,060
Multistrategy Bond Fund..................................... 113 353 612 1,353
Tax-Exempt Bond Fund........................................ 84 262 456 1,015
CLASS S:
Diversified Equity Fund..................................... $ 95 $ 297 $ 515 $1,144
Special Growth Fund......................................... 126 393 680 1,500
Equity Income Fund.......................................... 113 353 612 1,353
Quantitative Equity Fund.................................... 95 297 515 1,144
International Securities Fund............................... 132 411 712 1,568
Emerging Markets Fund....................................... 194 600 1,032 2,233
Real Estate Securities Fund................................. 116 362 627 1,384
Short Term Bond Fund........................................ 76 237 412 919
Diversified Bond Fund....................................... 62 195 340 762
Multistrategy Bond Fund..................................... 88 274 476 1,060
Tax Exempt Bond Fund........................................ 58 183 318 713
Tax-Managed Large Cap Fund.................................. 87 271 471 1,048
Tax-Managed Small Cap Fund.................................. 127 409 712 1,573
</TABLE>
28
<PAGE>
SUMMARY COMPARISON OF THE FUNDS
<TABLE>
<CAPTION>
ANTICIPATED MAXIMUM
EQUITY DEBT
FUND INVESTMENTS INVESTMENTS FOCUS
- ----------------------------------- ----------- ----------- --------------------------------------
<S> <C> <C> <C>
Diversified Equity Fund............ 65-100% 35% Income and capital growth
Special Growth Fund................ 65-100% 35% Maximum total return primarily through
capital appreciation
Equity Income Fund................. 65-100% 35% Current income
Quantitative Equity Fund........... 100% 0% Total return
International Securities Fund...... 65-100% 35% Total return
Emerging Markets Fund.............. 65-100% 35% Maximum total return primarily through
capital appreciation
Real Estate Securities Fund........ 65-100% 35% Total return
Short Term Bond Fund............... 0-35% 100% Preservation of capital and generation
of current income
Diversified Bond Fund.............. 35% 100% Current income and diversification
Multistrategy Bond Fund............ 0% 100% Maximum total return primarily through
capital appreciation
Tax-Exempt Bond Fund............... 0% 100% Maximum current income
Tax-Managed Large Cap Fund......... 65-100% 35% Capital growth
Tax-Managed Small Cap Fund......... 65-100% 35% Capital growth
</TABLE>
THE PURPOSE OF THE FUNDS--MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION
The Frank Russell Investment Company (FRIC) Funds (Funds) are offered
through certain bank trust departments, registered investment advisers,
broker-dealers or other financial services organizations that have been selected
by the Funds' adviser or distributor (Financial Intermediaries). The Funds are
designed to provide a means for investors to use Frank Russell Investment
Management Company's (FRIMCo) and Frank Russell Company's (Russell)
"multi-style, multi-manager diversification" investment method and to obtain
FRIMCo's and Russell's money manager evaluation services. Unlike most investment
companies that have a single organization that acts as both administrator and
investment adviser, the Funds divide responsibility for corporate management and
investment advice between FRIMCo and a number of different money managers.
Three functions form the core of Russell's consulting services:
- OBJECTIVE SETTING: Defining appropriate investment objectives and desired
investment returns, based on a client's unique situation and risk
tolerance.
- ASSET ALLOCATION: Allocating a client's assets among different asset
classes--such as common stocks, fixed-income securities, international
securities, temporary cash investments and real estate--in a way most
likely to achieve the client's objectives and desired returns.
29
<PAGE>
- MONEY MANAGER RESEARCH: Evaluating and recommending professional
investment advisory and management organizations ("money managers") to
make specific portfolio investments for each asset class, according to
designated investment objectives, styles and strategies.
When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.
The Funds believe investors should seek to hold fully diversified portfolios
that reflect both their own individual investment time horizons and their
ability to accept risk. The Funds believe that for many, this can be
accomplished through strategically purchasing shares in one or more of the Funds
which have been structured to provide access to specific asset classes employing
a multi-style, multi-manager approach.
Capital market history shows that asset classes with greater risk will
generally outperform lower risk asset classes over time. For instance, corporate
equities, over the past 50 years, have outperformed corporate debt in absolute
terms. However, what is generally true of performance over extended periods will
not necessarily be true at any given time during a market cycle, and from time
to time asset classes with greater risk may also underperform lower risk asset
classes, on either a risk adjusted or absolute basis. Investors should select a
mix of asset classes that reflects their overall ability to withstand market
fluctuations over their investment horizons.
Studies have shown that no one investment style within an asset class will
consistently outperform competing styles. For instance, investment styles
favoring securities with growth characteristics may outperform styles favoring
income producing securities, and vice versa. For this reason, no single manager
has consistently outperformed the market over extended periods. Although
performance cycles tend to repeat themselves, they do not do so predictably.
The Funds believe, however, that it is possible to select managers who have
shown a consistent ability to achieve superior results within subsets or styles
of specific asset classes and investment styles by employing a unique
combination of qualitative and quantitative measurements. The Funds combine
these select managers with other managers within the same asset class who employ
complementary styles. By combining complementary investment styles within an
asset class, investors are better able to reduce their exposure to the risk of
any one investment style going out of favor.
By strategically selecting from among a variety of investments by asset
class, each of which has been constructed using these multi-style, multi-manager
principles, investors are able to design portfolios that meet their specific
investment needs.
The Funds conduct their business through a number of service providers, who
act on behalf of the Funds. FRIMCo, the Funds' administrator and investment
adviser, performs the Funds' day to day corporate management and also evaluates
and oversees the Funds' money managers. Each of the Funds' money managers makes
all investment decisions for the portion of the Fund assigned to it by FRIMCo.
The Funds' custodian, State Street Bank, maintains custody of all of the Funds'
assets. FRIMCo, in its capacity as the Funds' transfer agent, is responsible for
maintaining the Funds' shareholder records and carrying out shareholder
transactions. When a Fund acts in one of these areas, it does so through the
service provider responsible for that area.
30
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
DIVERSIFIED EQUITY FUND
- ---------------------------
<TABLE>
<S> <C>
INVESTMENT To provide income and capital growth by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Diversified Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies, most of
STRATEGIES which are US based.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
Additionally, the Fund is diversified by equity substyle.
For example, within the Growth Style, the Fund expects to
employ both an Earnings Momentum substyle (concentrating on
companies with more volatile and accelerating growth rates)
and a Consistent Growth substyle (concentrating on companies
with stable earnings growth over an economic cycle).
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
substyle and its performance record, as well as the
characteristics of the money manager's typical portfolio
investments. These characteristics include capitalization
size, growth and profitability measures, valuation ratios,
economic sector weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
SPECIAL GROWTH FUND
- ------------------------
<TABLE>
<S> <C>
INVESTMENT To maximize total return primarily through capital
OBJECTIVE appreciation and assuming a higher level of volatility than
the Diversified Equity Fund.
PRINCIPAL The Special Growth Fund invests primarily in common stocks
INVESTMENT of small and medium capitalization companies most of which
STRATEGIES are US based. The Fund's investments may include companies
that have been publicly traded for less than five years and
smaller companies, such as companies not listed in the
Russell 2000-Registered Trademark- Index.
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record, as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
EQUITY INCOME FUND
- -----------------------
<TABLE>
<S> <C>
INVESTMENT To achieve a high level of current income while maintaining
OBJECTIVE the potential for capital appreciation.
PRINCIPAL The Equity Income Fund invests primarily in common stocks of
INVESTMENT medium and large capitalization companies, most of which are
STRATEGIES US based. Because the Fund's investment objective is
primarily to provide a high level of current income, the
Fund generally pursues a value style of securities
selection, emphasizing investments in common stocks of
companies that appear to be undervalued relative to their
corporate worth, based on earnings, book or asset value,
revenues or cash flow.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses two principal investment styles intended to
complement one another:
- YIELD SUBSTYLE--emphasizes investments in equity
securities with above-average yield relative to the
market. Generally, these securities are issued by
companies in the financial and utilities industries
and, to a lesser extent, other industries.
- LOW PRICE/EARNINGS RATIO SUBSTYLE--emphasizes
investments in equity securities of companies that are
considered undervalued relative to their corporate
worth, based on earnings, book or asset value,
revenues or cash flow. These companies are generally
found among industrial, financial and utilities
sectors. From time to time, this substyle may also
include investments in companies with above-average
earnings growth prospects, if they appear to be
undervalued in relation to their securities'
historical price levels.
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment substyle and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
QUANTITATIVE EQUITY FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell
1000-Registered Trademark- Index over a market cycle of four
to six years) while maintaining volatility and
diversification similar to the Index.
PRINCIPAL The Quantitative Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies which
STRATEGIES are predominately US based. The Fund generally pursues a
market-oriented style of security selection, which
incorporates both a growth style and a value style, based on
quantitative investment models which are mathematical
formulas based on statistical analysis. This style
emphasizes investments in companies that appear to be
undervalued relative to their growth prospects.
</TABLE>
35
<PAGE>
<TABLE>
<S> <C>
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record as well as the characteristics of the money manager's
typical portfolio investments. These characteristics include
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment returns correlate with one another.
Each of the Fund's money managers use quantitative models to
rank securities based upon their expected ability to
outperform the total return of the Russell
1000-Registered Trademark- Index. Once a money manager has
ranked the securities, it then selects the securities most
likely to outperform and constructs, for its segment of the
Fund, a portfolio that has risks similar to the Russell
1000-Registered Trademark- Index. Each money manager
performs this process independently from each other money
manager.
The Russell 1000-Registered Trademark- Index consists of the
1,000 largest US companies by capitalization (i.e., market
price per share times the number of shares outstanding). The
smallest company in the Index at December 31, 1999 had a
capitalization of approximately $1.1 billion.
The Fund's money managers typically use a variety of
quantitative models, ranking securities within each model
and on a composite basis using proprietary weighting
formulas. Examples of those quantitative models are dividend
discount models, price/cash flow models, price/earnings
models, earnings surprise and earnings estimate revisions
models and price momentum models.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
INTERNATIONAL SECURITIES FUND
- -----------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.
PRINCIPAL The International Securities Fund invests primarily in
INVESTMENT equity securities issued by companies domiciled outside the
STRATEGIES US and in depository receipts which represent ownership of
securities of non-US companies. The Fund's investments span
most of the developed nations of the world (particularly
Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. Because
international equity investment performance has a reasonably
low correlation to US equity performance, this Fund may be
appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.
The Fund may seek to protect its investments against adverse
currency exchange rate changes by purchasing forward
currency contracts. These contracts enable the Fund to "lock
in" the US dollar price of a security that it plans to buy
or sell. The Fund may not accurately predict currency
movements.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector. A
variation of this style maintains investments that
replicate country and sector weightings of a broad
international market index.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
38
<PAGE>
EMERGING MARKETS FUND
- ----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from developed market
international portfolios by investing primarily in equity
securities.
PRINCIPAL The Emerging Markets Fund will primarily invest in equity
INVESTMENT securities of companies that are located in countries with
STRATEGIES emerging markets or that derive a majority of their revenues
from operations in such countries. These companies are
referred to as "Emerging Market Companies." For purposes of
the Fund's operations, an "emerging market" country is a
country having an economy and market that the World Bank or
the United Nations consider to be emerging or developing.
These countries generally include every country in the world
except the United States, Canada, Japan, Australia and most
countries located in Western Europe.
The Fund seeks to maintain a broadly diversified exposure to
emerging market countries and ordinarily will invest in the
securities of issuers in at least three different emerging
market countries.
The Fund invests in common stocks of Emerging Market
Companies and in depository receipts which represent
ownership of securities of non-US companies. The Fund may
also invest in rights, warrants and convertible fixed-income
securities. The Fund's securities are denominated primarily
in foreign currencies and may be held outside the US.
Some emerging markets countries do not permit foreigners to
participate directly in their securities markets or
otherwise present difficulties for efficient foreign
investment. Therefore, when it believes it is appropriate to
do so, the Fund may invest in pooled investment vehicles,
such as other investment companies, which enjoy broader or
more efficient access to shares of Emerging Market Companies
in certain countries but which may involve a further
layering of expenses.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another.
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record, as well as the characteristics of the
money manager's typical portfolio investments (e.g.,
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics). The Fund also considers
the manner in which money managers' historical and expected
investment returns correlate with one another.
The Fund may agree to purchase securities for a fixed price
at a future date beyond customary settlement time. This kind
of agreement is known as a "forward commitment" or as a
"when-issued" transaction.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. A Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
REAL ESTATE SECURITIES FUND
- --------------------------------
<TABLE>
<S> <C>
INVESTMENT To generate a high level of total return through above
OBJECTIVE average current income while maintaining the potential for
capital appreciation.
PRINCIPAL The Real Estate Securities Fund seeks to achieve its
INVESTMENT objective by concentrating its investments in equity
STRATEGIES securities of issuers whose value is derived primarily from
development, management and market pricing of underlying
real estate properties.
The Fund invests primarily in securities of companies, known
as real estate investment trusts (REITs), that own and/or
manage properties. REITs may be composed of anywhere from
two to over 1,000 properties. The Fund may also invest in
equity and debt securities of other types of real estate-
related companies. The Fund invests in companies which are
predominately US based, although the Fund may invest a
limited portion of its assets in non-US firms from time to
time.
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another.
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, property type and
geographic weightings and earnings and price volatility
statistics. The Fund also considers the manner in which
money managers' historical and expected investment returns
correlate with one another.
Although the Fund, like any mutual fund, maintains liquidity
reserves (i.e., cash awaiting investment or held to meet
redemption requests), the Fund may expose these reserves to
the performance of appropriate equity markets by investing
in stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
41
<PAGE>
SHORT TERM BOND FUND
- --------------------------
<TABLE>
<S> <C>
INVESTMENT The preservation of capital and the generation of current
OBJECTIVE income consistent with preservation of capital by investing
primarily in fixed-income securities with low-volatility
characteristics.
PRINCIPAL The Short Term Bond Fund invests primarily in fixed-income
INVESTMENT securities. In particular, the Fund holds debt securities
STRATEGIES issued or guaranteed by the US government and, to a lesser
extent by non-US governments, or by their respective
agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
The Fund may invest up to 10% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by the
Fund to be of comparable quality. These securities are
commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 15% of the average weighted duration
of the Merrill Lynch 1-2.99 Years Treasury Index, which was
1.6 years on December 31, 1999, but may vary up to 50% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes, as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Merrill Lynch 1-2.99 Years Treasury
Index.
</TABLE>
42
<PAGE>
<TABLE>
<S> <C>
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
DIVERSIFIED BOND FUND
- -------------------------
<TABLE>
<S> <C>
INVESTMENT To provide effective diversification against equities and a
OBJECTIVE stable level of cash flow by investing in fixed-income
securities.
PRINCIPAL The Diversified Bond Fund invests primarily in investment
INVESTMENT grade fixed- income securities. In particular, the Fund
STRATEGIES holds debt securities issued or guaranteed by the US
government and, to a lesser extent by non-US governments, or
by their respective agencies and instrumentalities. It also
holds mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time, the Fund may invest in municipal debt
obligations.
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. In seeking investments
that will produce cash flow, the Fund's money managers also
identify sectors of the fixed-income market that they
believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
44
<PAGE>
MULTISTRATEGY BOND FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from broad fixed-income market
portfolios.
PRINCIPAL The Multistrategy Bond Fund invests primarily in
INVESTMENT fixed-income securities. In particular, the Fund holds debt
STRATEGIES securities issued or guaranteed by the US government and, to
a lesser extent by non-US governments, or by their
respective agencies and instrumentalities. It also holds
mortgage-backed securities, including collateralized
mortgage obligations. The Fund also invests in corporate
debt securities and dollar-denominated obligations issued in
the US by non-US banks and corporations (Yankee Bonds). A
majority of the Fund's holdings are US dollar denominated.
From time to time the Fund may invest in municipal debt
obligations.
The Fund may invest up to 25% of its assets in debt
securities that are rated below investment grade as
determined by one or more nationally recognized securities
rating organizations or in unrated securities judged by a
Fund money manager to be of comparable quality. These
securities are commonly referred to as "junk bonds."
The average weighted duration of the Fund's portfolio
typically ranges within 10% of the average weighted duration
of the Lehman Brothers Aggregate Bond Index, which was 5.0
years as of December 31, 1999, but may vary up to 25% from
the Index's duration. The Fund has no restrictions on
individual security duration.
The Fund invests in securities of issuers in a variety of
sectors of the fixed-income market. The Fund's money
managers identify sectors of the fixed-income market that
they believe are undervalued and concentrate the Fund's
investments in those sectors. These sectors will differ over
time. To a lesser extent, the Fund may attempt to anticipate
shifts in interest rates and hold securities that the Fund
expects to perform well in relation to market indexes as a
result of such shifts. Additionally, the Fund typically
holds proportionately fewer US Treasury obligations than are
represented in the Lehman Brothers Aggregate Bond Index.
</TABLE>
45
<PAGE>
<TABLE>
<S> <C>
The Fund employs multiple money managers, each with its own
expertise in the fixed-income markets. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may enter into interest rate futures contracts,
options on such futures contracts and interest rate swaps
(i.e., agreements to exchange the Fund's rights to receive
certain interest payments) as a substitute for holding
physical securities or to facilitate the implementation of
its investment strategy but not for leverage purposes. The
Fund invests its liquidity reserves in one or more FRIC
money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not be able to achieve its investment
objective during such times.
</TABLE>
46
<PAGE>
TAX-MANAGED LARGE CAP FUND (FORMERLY EQUITY T FUND)
- --------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide capital growth on an after-tax basis by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Tax-Managed Large Cap Fund invests primarily in equity
INVESTMENT securities of large capitalization US companies, as
STRATEGIES represented by the S&P 500-Registered Trademark- market
index, although the Fund may invest a limited amount in
non-US firms from time to time.
The Fund generally pursues a market-oriented style of
security selection, which incorporates both a growth style
and a value style, based on quantitative investment models
which are mathematical formulas based on statistical
analyses. This style emphasizes investments in large
capitalization companies that, on a long-term basis, appear
to be undervalued relative to their growth prospects, and
may include both growth and value securities. Although it is
not an index fund, under normal market conditions, the Tax-
Managed Large Cap Fund will invest at least 65 percent of
the value of its total assets in securities that are
included in the S&P 500-Registered Trademark- market index.
The Fund seeks to realize capital growth while minimizing
shareholder tax consequences arising from the Fund's
portfolio management activities. In its attention to tax
consequences of its investment decisions, the Fund differs
from most equity mutual funds, which are managed to maximize
pre-tax total return without regard to whether their
portfolio management activities result in taxable
distributions to shareholders.
The Fund is designed for long-term investors who seek to
minimize the impact of taxes on their investment returns.
The Fund is not designed for short-term investors or for
tax-deferred investment vehicles such as IRAs and 401(k)
plans.
The Fund intends to minimize its taxable distributions to
shareholders in two ways:
- First, the Fund strives to realize its returns as
long-term capital gains, and not as investment income,
under US tax laws. To do so, the Fund typically buys
stocks with the intention of holding them long enough
to qualify for capital gain tax treatment.
</TABLE>
47
<PAGE>
<TABLE>
<S> <C>
- Second, the Fund attempts to minimize its realization
of capital gains and to offset any such realization with
capital losses. To do so, when the Fund sells shares
of an appreciated portfolio security, it seeks to
minimize the resulting capital gains by first selling
the shares for which the Fund paid the highest price.
Further, the Fund attempts to offset those capital
gains with matching capital losses by simultaneously
selling shares of depreciated portfolio securities.
If large shareholder redemptions occur unexpectedly, the
Fund could be required to sell portfolio securities
resulting in its realization of net capital gains. This
could temporarily reduce the Fund's tax efficiency. Also, as
the Fund matures, it may hold individual securities that
have appreciated so significantly that it would be difficult
for the Fund to sell them without realizing net capital
gains.
The Fund selects and holds portfolio securities based on its
assessment of their potential for long-term total returns.
The Fund uses a dividend discount model to gauge securities'
anticipated returns relative to their industry peers. This
model forecasts the expected future dividends of individual
securities and calculates the expected return at the current
share price. The Fund identifies securities that exhibit
superior total return prospects. From among those
securities, using a quantitative after-tax model, the Fund
chooses stocks from a variety of economic sectors and
industries, generally in the proportions that those sectors
and industries are represented in the S&P 500 Index.
When the Fund's shares are redeemed, the Fund could be
required to sell portfolio securities resulting in its
realization of net capital gains, impacting all
shareholders. The Fund believes that multiple purchases and
redemptions of Fund shares by individual shareholders could
adversely affect the Fund's strategy of tax-efficiency and
could reduce its ability to contain costs. The Fund further
believes that short-term investments in the Fund are
inconsistent with its long-term strategy. For this reason,
the Fund will apply its general right to refuse any
purchases by rejecting purchase orders from investors whose
patterns of purchases and redemptions in the Fund is
inconsistent with the Fund's strategy.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform generally as though its cash reserves were actually
invested in those markets. The Fund may also invest its
liquidity reserves in one or more FRIC money market funds.
</TABLE>
48
<PAGE>
<TABLE>
<S> <C>
Additionally, the Fund may lend up to one-third of its
portfolio securities to earn income. These loans may be
terminated at any time. The Fund will receive either cash or
US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not be able to achieve its investment
objective during such times.
</TABLE>
TAX-MANAGED SMALL CAP FUND
- ---------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide capital growth on an after-tax basis by investing
OBJECTIVE principally in equity securities of small capitalization
companies.
PRINCIPAL The Tax-Managed Small Cap Fund invests primarily in equity
INVESTMENT securities of US companies, although the Fund may invest a
STRATEGIES limited amount in non-US firms from time to time.
The Fund generally pursues a market-oriented style of
security selection, which incorporates both a growth style
and a value style, based on quantitative investment models
which are mathematical formulas based on statistical
analyses. This style emphasizes investments in small
capitalization companies that, on a long-term basis, appear
to be undervalued relative to their growth prospects, and
may include both growth and value securities. Under normal
market conditions, the Tax-Managed Small Cap Fund will
invest at least 65 percent of its total assets in securities
that are not included in the S&P 500 market index.
The Fund seeks to realize capital growth while minimizing
shareholder tax consequences arising from the Fund's
portfolio management activities. In its attention to tax
consequences of its investment decisions, the Fund differs
from most equity mutual funds, which are managed to maximize
pre-tax total return without regard to whether their
portfolio management activities result in taxable
distributions to shareholders.
The Fund is designed for long-term investors who seek to
minimize the impact of taxes on their investment returns.
The Fund is not designed for short-term investors or for
tax-deferred investment vehicles such as IRAs and 401(k)
plans.
</TABLE>
49
<PAGE>
<TABLE>
<S> <C>
The Fund intends to minimize its taxable distributions to
shareholders in two ways:
- First, the Fund strives to realize its returns as
long-term capital gains, and not as investment income,
under US tax laws. To do so, the Fund typically buys
stocks with the intention of holding them long enough
to qualify for capital gain tax treatment.
- Second, the Fund attempts to minimize its realization
of capital gains and to offset any such realization with
capital losses. To do so, when the Fund sells shares
of an appreciated portfolio security, it seeks to
minimize the resulting capital gains by first selling
the shares for which the Fund paid the highest price.
Further, the Fund attempts to offset those capital
gains with matching capital losses by simultaneously
selling shares of depreciated portfolio securities.
If large shareholder redemptions occur unexpectedly, the
Fund could be required to sell portfolio securities
resulting in its realization of net capital gains. This
could temporarily reduce the Fund's tax efficiency. Also, as
the Fund matures, it may hold individual securities that
have appreciated so significantly that it would be difficult
for the Fund to sell them without realizing net capital
gains.
The Fund selects and holds portfolio securities based on its
assessment of their potential for long-term total returns.
When the Fund's shares are redeemed, the Fund could be
required to sell portfolio securities resulting in its
realization of net capital gains, impacting all
shareholders. The Fund believes that multiple purchases and
redemptions of Fund shares by individual shareholders could
adversely affect the Fund's strategy of tax-efficiency and
could reduce its ability to contain costs. The Fund further
believes that short-term investments in the Fund are
inconsistent with its long-term strategy. For this reason,
the Fund will apply its general right to refuse any
purchases by rejecting purchase orders from investors whose
patterns of purchases and redemptions in the Fund is
inconsistent with the Fund's strategy.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform generally as though its cash reserves were actually
invested in those markets. The Fund may also invest its
liquidity reserves in one or more FRIC money market funds.
</TABLE>
50
<PAGE>
<TABLE>
<S> <C>
Additionally, the Fund may lend up to one-third of its
portfolio securities to earn income. These loans may be
terminated at any time. The Fund will receive either cash or
US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not be able to achieve its investment
objective during such times.
</TABLE>
TAX EXEMPT BOND FUND
- -------------------------
<TABLE>
<S> <C>
INVESTMENT To provide a high level of federal tax-exempt current income
OBJECTIVE by investing primarily in a diversified portfolio of
investment grade municipal securities.
PRINCIPAL The Tax Exempt Bond Fund concentrates its investments in
INVESTMENT investment- grade municipal debt obligations providing
STRATEGIES federal tax-exempt interest income. Specifically, these
obligations are debt obligations issued by states,
territories and possessions of the US and the District of
Columbia and their political subdivisions, agencies and
instrumentalities, or multi-state agencies or authorities to
obtain funds to support special government needs or special
projects. Under normal market conditions, at least 80% of
the Fund's assets will be invested in tax-exempt securities.
The average weighted duration of the Fund's portfolio
typically ranges within ten percent of the average weighted
duration of the Lehman Brothers Municipal 1-10 Year Index,
which was 4.4 years on December 31, 1999, but may vary up
to 25% from the Index's duration. The Fund has no
restrictions on individual security duration.
The Fund employs multiple money managers, each with its own
expertise in the municipal bond market. When determining how
to allocate its assets among money managers, the Fund
considers a variety of factors. These factors include a
money manager's investment style and performance record as
well as the characteristics of the money manager's typical
portfolio investments. These characteristics include
portfolio biases, magnitude of sector shifts and duration
movements. The Fund also considers the manner in which money
managers' historical and expected investment returns
correlate with one another.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
</TABLE>
51
<PAGE>
<TABLE>
<S> <C>
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not be able to achieve its investment
objective during such times.
</TABLE>
52
<PAGE>
RISKS
An investment in the Funds, like any investment, has risks. The value of
each Fund fluctuates, and you could lose money. The following table describes
principal types of risks that the Funds are subject to and lists next to each
description those Funds most likely to be affected by the risk. Other Funds that
are not listed may hold portfolio investments that are subject to one or more of
the risks, but will not do so in a way that is expected to principally affect
the performance of the Fund as a whole. Please refer to the Funds' Statement of
Additional Information for a discussion of risks associated with types of
securities held by the Funds and the investment practices employed by the
individual Funds.
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
MULTI-MANAGER APPROACH The investment styles employed by a Fund's Diversified Equity
money managers may not be complementary. The Special Growth
interplay of the various strategies employed Equity Income
by a Fund's multiple money managers may Quantitative Equity
result in a Fund holding a concentration of International Securities
certain types of securities. This Emerging Markets
concentration may be beneficial or Real Estate Securities
detrimental to a Fund's performance Short Term Bond
depending upon the performance of those Diversified Bond
securities and the overall economic Multistrategy Bond
environment. The multi-manager approach Tax Exempt Bond
could result in a high level of portfolio
turnover, resulting in higher Fund brokerage
expenses and increased tax liability from a
Fund's realization of capital gains.
TAX-SENSITIVE MANAGEMENT A Fund's tax-managed equity investment Tax-Managed Large Cap
strategy may not provide as high a return Tax-Managed Small Cap
before consideration of federal income tax
consequences as other funds. A tax-sensitive
investment strategy involves active
management and a Fund may realize capital
gains.
EQUITY SECURITIES The value of equity securities will rise and Diversified Equity
fall in response to the activities of the Special Growth
company that issued the stock, general Equity Income
market conditions and/ or economic Quantitative Equity
conditions. International Securities
Emerging Markets
Real Estate Securities
Tax-Managed Large Cap
Tax-Managed Small Cap
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
- Value Stocks Investments in value stocks are subject to Diversified Equity
risks that (i) their intrinsic values may Special Growth
never be realized by the market or (ii) such Equity Income
stock may turn out not to have been International Securities
undervalued. Tax-Managed Large Cap
Tax-Managed Small Cap
- Growth Stocks Growth company stocks may provide minimal Diversified Equity
dividends which could otherwise cushion Special Growth
stock prices in a market decline. The value International Securities
of growth company stocks may rise and fall Tax-Managed Large Cap
significantly based, in part, on investors' Tax-Managed Small Cap
perceptions of the company, rather than on
fundamental analysis of the stocks.
- Market-Oriented Market-oriented investments are generally Diversified Equity
Investments subject to the risks associated with growth Special Growth
and value stocks. Quantitative Equity
International Securities
Tax-Managed Large Cap
Tax-Managed Small Cap
- Securities of Investments in smaller companies may involve Special Growth
Small greater risks because these companies Tax-Managed Small Cap
Capitalization generally have a limited track record.
Companies Smaller companies often have narrower
markets and more limited managerial and
financial resources than larger, more
established companies. As a result, their
performance can be more volatile, which may
increase the volatility of a Fund's
portfolio.
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
FIXED-INCOME Prices of fixed-income securities rise and Short Term Bond
SECURITIES fall in response to interest rate changes. Diversified Bond
Generally, when interest rates rise, prices Multistrategy Bond
of fixed-income securities fall. The longer Tax Exempt Bond
the duration of the security, the more
sensitive the security is to this risk. A 1%
increase in interest rates would reduce the
value of a $100 note by approximately one
dollar if it had a one-year duration, but
would reduce its value by approximately
fifteen dollars if it had a 15-year
duration. There is also a risk that one or
more of the securities will be downgraded in
credit rating or go into default.
Lower-rated bonds generally have higher
credit risks.
- Non-Investment Although lower rated debt securities Short Term Bond
Grade generally offer a higher yield than higher Multistrategy Bond
Fixed-Income rated debt securities, they involve higher
Securities risks. They are especially subject to:
- Adverse changes in general economic
conditions and in the industries in
which their issuers are engaged,
- Changes in the financial condition of
their issuers and
- Price fluctuations in response to
changes in interest rates.
As a result, issuers of lower rated debt
securities are more likely than other
issuers to miss principal and interest
payments or to default which could result in
a loss to a Fund.
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
INTERNATIONAL SECURITIES A Fund's return and net asset value may be International Securities
significantly affected by political or Emerging Markets
economic conditions and regulatory Short Term Bond
requirements in a particular country. Multistrategy Bond
Foreign markets, economies and political
systems may be less stable than US markets,
and changes in exchange rates of foreign
currencies can affect the value of a Fund's
foreign assets. Foreign laws and accounting
standards typically are not as strict as
they are in the US and there may be less
public information available about foreign
companies. Foreign securities markets may be
less liquid and have fewer transactions than
US securities markets. Additionally,
international markets may experience delays
and disruptions in securities settlement
procedures for a Fund's portfolio
securities.
- -Non-US Debt Securities A Fund's foreign debt securities are Short Term Bond
typically obligations of sovereign Multistrategy Bond
governments and corporations. These
securities are particularly subject to a
risk of default from political instability.
- -Emerging Market Investments in emerging or developing Emerging Markets
Countries markets involve exposure to economic
structures that are generally less diverse
and mature, and to political systems which
have less stability than those of more
developed countries. Emerging market
securities are subject to currency transfer
restrictions and may experience delays and
disruptions in securities settlement
procedures for a Fund's portfolio
securities.
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
- -Instruments of U.S. and Non-US corporations and banks issuing dollar Short Term Bond
Foreign Banks and denominated instruments in the US are not Diversified Bond
Branches and foreign necessarily subject to the same regulatory Multistrategy Bond
Corporations, Including requirements that apply to US corporations
Yankee Bonds and banks, such as accounting, auditing and
recordkeeping standards, the public
availability of information and, for banks,
reserve requirements, loan limitations and
examinations. This increases the possibility
that a non-US corporation or bank may become
insolvent or otherwise unable to fulfill its
obligations on these instruments.
DERIVATIVES (E.G. Price movements of a futures contract, Short Term Bond
FUTURES CONTRACTS, option or structured note may not be Diversified Bond
OPTIONS ON identical to price movements of portfolio Multistrategy Bond
FUTURES, INTEREST RATE securities or a securities index resulting
SWAPS) in the risk that, when a Fund buys a futures
contract or option as a hedge, the hedge may
not be completely effective.
REAL ESTATE SECURITIES Just as real estate values go up and down, Real Estate Securities
the value of the securities of companies
involved in the industry, and in which a
Fund invests, also fluctuates. A Fund that
invests in real estate securities is also
subject to the risks associated with direct
ownership of real estate. Additional risks
include declines in the value of real
estate, changes in general and local
economic conditions, increases in property
taxes and changes in tax laws and interest
rates. The value of securities of companies
that service the real estate industry may
also be affected by such risks.
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
- -REITs REITs may be affected by changes in the Real Estate Securities
value of the underlying properties owned by
the REITs and by the quality of any credit
extended. Moreover, the underlying
portfolios of REITs may not be diversified,
and therefore are subject to the risk of
financing a single or a limited number of
projects. REITs are also dependent upon
management skills and are subject to heavy
cash flow dependency, defaults by borrowers,
self-liquidation and the possibility of
failing either to qualify for tax-free pass
through of income under federal tax laws or
to maintain their exemption from certain
federal securities laws.
MUNICIPAL OBLIGATIONS Municipal obligations are affected by Short Term Bond
economic, business or political Diversified Bond
developments. These securities may be Multistrategy Bond
subject to provisions of litigation, Tax Exempt Bond
bankruptcy and other laws affecting the
rights and remedies of creditors, or may
become subject to future laws extending the
time for payment of principal and/or
interest, or limiting the rights of
municipalities to levy taxes.
REPURCHASE AGREEMENTS Under a repurchase agreement, a bank or Diversified Bond
broker sells securities to a Fund and agrees Short Term Bond
to repurchase them at the Fund's cost plus Multistrategy Bond
interest. If the value of the securities
declines and the bank or broker defaults on
its repurchase obligation, a Fund could
incur a loss.
CREDIT AND LIQUIDITY Adverse changes in a guarantor's credit Tax Exempt Bond
ENHANCEMENTS quality if contemporaneous with adverse
changes in the guaranteed security could
cause losses to a Fund and may affect its
net asset value.
EXPOSING LIQUIDITY By exposing its liquidity reserves to the Diversified Equity
RESERVES TO EQUITY equity market, principally by use of equity Special Growth
MARKETS futures, a Fund's performance tends to Equity Income
correlate more closely to the performance of Quantitative Equity
the market as a whole. Although this International Securities
increases a Fund's performance if equity Real Estate Securities
markets rise, it reduces a Fund's Tax-Managed Large Cap
performance if equity markets decline. Tax-Managed Small Cap
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
--------------------- ----------- -------------
<S> <C> <C>
SECURITIES LENDING If a borrower of a Fund's securities fails All Funds
financially, the Fund's recovery of the
loaned securities may be delayed or the Fund
may lose its rights to the collateral which
could result in a loss to a Fund.
</TABLE>
AN INVESTMENT IN ANY OF THE FUNDS IS NOT A BANK DEPOSIT AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
59
<PAGE>
MANAGEMENT OF THE FUNDS
The Funds' investment adviser is FRIMCo, 909 A Street, Tacoma, Washington
98402. FRIMCo pioneered the "multi-style, multi-manager" investment method in
mutual funds and manages over $17 billion in more than 30 mutual fund
portfolios. FRIMCo was established in 1982 to serve as the investment management
arm of Russell.
Russell, which acts as consultant to the Funds, was founded in 1936 and has
been providing comprehensive asset management consulting services for over 30
years to institutional investors, principally large corporate employee benefit
plans. Russell provides the Funds and FRIMCo with the asset management
consulting services that it provides to its other consulting clients. The Funds
do not compensate Russell for these services. Russell and its affiliates have
offices around the world, in Tacoma, New York, Toronto, London, Paris, Sydney,
Auckland, Singapore and Tokyo.
Russell is a subsidiary of The Northwestern Mutual Life Insurance Company.
Founded in 1857, Northwestern Mutual is a mutual life insurance corporation
headquartered in Milwaukee, Wisconsin. It leads the US in both individual life
insurance sold annually and individual life insurance in force.
FRIMCo recommends money managers to the Funds, allocates Fund assets among
them, oversees them, and evaluates their results. FRIMCo also oversees the
management of the Funds' liquidity reserves. The Funds' money managers select
the individual portfolio securities for the assets assigned to them.
FRIMCo's officers and employees who oversee the money managers are:
- Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
June 1989.
- Mark D. Amberson, who has been a Portfolio Manager of FRIMCo since January
1998. From 1991 to 1997, Mr. Amberson was a Portfolio Manager in Russell's
Money Market Trading Group. Mr. Amberson has, jointly with Mr. Burge,
primary responsibility for management of the Fixed Income I, Diversified
Bond, Short Term Bond, Fixed Income III, Tax Exempt Bond and Multistrategy
Bond Funds.
- Randal C. Burge, who has been Director of Global Fixed Income since
January 2000. From 1995 to 1999, Mr. Burge was a Portfolio Manager of
FRIMCo. From 1990 to 1995, Mr. Burge was a Client Executive for Frank
Russell Australia. Mr. Burge has, jointly with Mr. Amberson, primary
responsibility for management of the Fixed Income I, Fixed Income III,
Diversified Bond, Short Term Bond, Tax Exempt Bond and Multistrategy Bond
Funds.
- Jean Carter, who has been Director of Global Equities since January 2000.
From 1994 to 1999, Ms. Carter was a Portfolio Manager of FRIMCo.
- Ann Duncan, who has been a Portfolio Manager of FRIMCo since January 1998.
From 1996 to 1997, Ms. Duncan was a Senior Equity Research Analyst with
Russell. From 1992 to 1995, Ms. Duncan was an equity analyst and portfolio
manager with Avatar Associates. Ms. Duncan has, jointly with Mr. Jornlin,
primary responsibility for management of the International and
International Securities Funds.
- James M. Imhof, Director of FRIMCo's Portfolio Trading, manages the Funds'
liquidity portfolios on a day to day basis and has been responsible for
ongoing analysis and monitoring of the money managers since 1989.
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- James A. Jornlin, who has been a Portfolio Manager of FRIMCo since January
2000. From 1995 to 1999, Mr. Jornlin was a Senior Investment Officer of
FRIMCo. From 1991 to 1995, Mr. Jornlin was a Senior Research Analyst with
Russell. Mr. Jornlin has, jointly with Mr. Parish, primary responsibility
for management of the Emerging Markets Fund, has, jointly with
Ms. Duncan, primary responsibility for the management of the International
and International Securities Funds and has, jointly with Mr. Ogard,
primary responsibility for the management of the Real Estate Securities
Fund.
- Eric W. Ogard, who has been a Portfolio Manager of FRIMCo since March
2000. Mr. Ogard was a Research Analyst for FRIMCo from 1995 to 1997 and a
Senior Research Analyst for FRIMCo from 1997 to 2000. Mr. Ogard has,
jointly with Mr. Trittin and Mr. Tipple, primary responsibility for the
management of the Equity I, Equity II, Equity III, Equity Q, Tax-Managed
Large Cap, Tax-Managed Small Cap, Diversified Equity, Quantitative Equity,
Special Growth and Equity Income Funds and has, jointly with Mr. Jornlin,
primary responsibility for the management of the Real Estate Securities
Fund.
- Symon Parish, who has been an Associate Portfolio Manager of Frank Russell
Company Limited, an affiliate of FRIMCo, since 1996. From 1994 to 1996,
Mr. Parish was a client service executive in Russell's Auckland office.
Mr. Parish has, jointly with Mr. Jornlin, primary responsibility for the
Emerging Markets Fund.
- Brian C. Tipple, who has been a Portfolio Manager of FRIMCo since
July 1999. From 1991 to 1999, Mr. Tipple was a Client Executive with Frank
Russell Trust Company. Mr. Tipple has, jointly with Mr. Ogard and
Mr. Trittin, primary responsibility for the management of the Equity I,
Equity II, Equity III, Equity Q, Tax-Managed Large Cap, Tax-Managed Small
Cap, Diversified Equity, Quantitative Equity, Special Growth and Equity
Income Funds.
- Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of US Equity
Manager Research Department with Russell. Mr. Trittin has, jointly with
Mr. Ogard and Mr. Tipple, primary responsibility for management of the
Equity I, Equity II, Equity III, Equity Q, Tax-Managed Large Cap,
Tax-Managed Small Cap, Diversified Equity, Quantitative Equity, Special
Growth and Equity Income Funds.
The aggregate annual rate of advisory and administrative fees, payable to
FRIMCo monthly on a pro rata basis, are the following percentages of each Fund's
average daily net assets: Diversified Equity Fund, 0.78%; Special Growth Fund,
0.95%; Equity Income Fund, 0.80%; Quantitative Equity Fund, 0.78%; International
Securities Fund, 0.95%; Emerging Markets Fund, 1.20%; Real Estate Securities
Fund, 0.85%; Short Term Bond Fund, 0.50%; Diversified Bond Fund, 0.45%;
Multistrategy Bond Fund, 0.65% Tax-Managed Large Cap Fund, 0.75%; Tax-Managed
Small Cap Fund, 1.03%; and Tax Exempt Bond Fund, 0.35%. Of these aggregate
amounts 0.05% is attributable to administrative services. FRIMCo has
contractually agreed to waive, at least until February 28, 2001, a portion of
its 1.03% combined advisory and administrative fees for the Tax-Managed Small
Cap Fund, up to the full amount of those fees for Fund-level expenses that
exceed 1.25% of the average daily net assets of that Fund on an annual basis.
Additionally, FRIMCo has agreed to reimburse the Tax-Managed Small Cap Fund, at
least until April 30, 2001, for all remaining Fund-level expenses that exceed
1.25% of the average daily net assets of the Tax-Managed Small Cap Fund on an
annual basis. Each Fund may also pay, in
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addition to the aggregate fees set forth above, a fee which compensates FRIMCo
for managing collateral which the Funds have received in securities lending and
certain other portfolio transactions which are not treated as net assets of that
Fund ("additional assets") in determining the Fund's net asset value per share.
The additional fee payable to FRIMCo will equal an amount of up to 0.07% of each
Fund's additional assets on an annualized basis.
THE MONEY MANAGERS
Each Fund allocates its assets among the money managers listed under "Money
Manager Information" at the end of this Prospectus. FRIMCo, as the Funds'
advisor, may change the allocation of a Fund's assets among money managers at
any time. The Funds received an exemptive order from the Securities and Exchange
Commission (SEC) that permits a Fund to engage or terminate a money manager at
any time, subject to the approval by the Fund's Board of Trustees (Board),
without a shareholder vote. A Fund notifies its shareholders within 60 days of
when a money manager begins providing services. The Funds select money managers
based primarily upon the research and recommendations of FRIMCo and Russell.
FRIMCo and Russell evaluate quantitatively and qualitatively the money manager's
skills and results in managing assets for specific asset classes, investment
styles and strategies. Short-term investment performance, by itself, is not a
controlling factor in any Fund's selection or termination of a money manager.
Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund. At the same time, however, each money
manager must operate within the Fund's investment objectives, restrictions and
policies. Additionally, each manager must operate within more specific
constraints developed from time to time by FRIMCo. FRIMCo develops such
constraints for each manager based on FRIMCo's assessment of the manager's
expertise and investment style. By assigning more specific constraints to each
money manager, FRIMCo intends to capitalize on the strengths of each money
manager and to combine their investment activities in a complementary fashion.
Although the money managers' activities are subject to general oversight by the
Board and the Funds' officers, neither the Board, the officers, FRIMCo nor
Russell evaluate the investment merits of the money managers' individual
security selections.
J.P. Morgan Investment Management, Inc. ("Morgan") manages the Tax-Managed
Large Cap Fund. Robin Chance is the individual responsible for the management of
the Fund. Ms. Chance, Vice President and member of the Structured Equity Group,
has responsibility for tax aware structured equity strategies. Ms. Chance joined
Morgan in 1987. Ms. Chance is a CFA and a graduate of the University of
Pennsylvania's Management and Technology Program, also earning an MBA from New
York University's Stern School of Business.
Geewax, Terker & Company manages the Tax-Managed Small Cap Fund. John Julius
Geewax is the portfolio manager responsible for the management of the Fund. Mr.
Geewax is a graduate of the University of Pennsylvania and has earned a J.D.
from the University of Pennsylvania as well as an MBA and a PhD from the Wharton
School of the University of Pennsylvania. Mr. Geewax co-founded the firm in
1982. He is currently a general partner and portfolio manager responsible for
research and development and trading oversight for all of the firm's investment
services.
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PORTFOLIO TURNOVER
The portfolio turnover rates for certain multi-manager Funds are likely to
be somewhat higher than the rates for comparable mutual funds with a single
money manager. Each of the Funds' money managers makes decisions to buy or sell
securities independently from other managers. Thus, one money manager for a Fund
may be selling a security when another money manager for the Fund (or for
another Fund) is purchasing the same security. Also, when a Fund replaces a
money manager, the new money manager may significantly restructure the
investment portfolio. These practices may increase the Funds' portfolio turnover
rates, realization of gains or losses, brokerage commissions and other
transaction costs. When a Fund realizes capital gains upon selling portfolio
securities, your tax liability increases. The annual portfolio turnover rates
for each of the Funds are shown in the Financial Highlights tables in this
Prospectus.
DIVIDENDS AND DISTRIBUTIONS
INCOME DIVIDENDS
Each Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The amount and frequency of
distributions are not guaranteed, all distributions are at the Board's
discretion. Currently, the Board intends to declare dividends from net
investment income (if any), according to the following schedule:
<TABLE>
<CAPTION>
DECLARED PAYABLE FUNDS
- -------- ------- -----
<S> <C> <C>
Monthly................. Early in the following month Tax-Exempt Bond, Diversified Bond and
Multistrategy Bond Funds
Quarterly............... Mid: April, July, October and December Diversified Equity, Special Growth,
Equity Income, Quantitative Equity,
Real Estate Securities and Short Term
Bond Funds
Annually................ Mid-December International Securities, Emerging
Markets, Tax Managed Large Cap and
Tax-Managed Small Cap Funds
</TABLE>
CAPITAL GAINS DISTRIBUTIONS
The Board intends to declare capital gain distributions (both short-term and
long-term) once a year in mid-December to reflect any net short-term and net
long-term capital gains realized by a Fund as of October 31 of the current
fiscal year. A Fund may be required to make an additional distribution if
necessary, in any year for operational or other reasons. Distributions that are
declared in October, November or December to shareholders of record in such
months, and paid in January of the following year, will be treated for tax
purposes as if received on December 31 of the year in which they were declared.
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BUYING A DIVIDEND
If you purchase shares just before a distribution, you will pay the full
price for the Shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." Unless your account is
a tax-deferred account, dividends paid to you would be included in your gross
income for tax purposes even though you may not have participated in the
increase of the net asset value of a Fund, regardless of whether you reinvested
the dividends. To avoid "buying a dividend," check a Fund's distribution dates
before you invest.
AUTOMATIC REINVESTMENT
Your dividends and other distributions are automatically reinvested at the
closing net asset value on the record date, in additional shares of the
appropriate Fund, unless you elect to have the dividends or distributions paid
in cash or invested in another Fund. You may change your election by delivering
written notice no later than ten days prior to the payment date to the Funds at
Frank Russell Investment Company c/o Boston Financial Data Services, 2 Heritage
Drive, N. Quincy, MA 02171.
TAXES
In general, distributions from a Fund are taxable to you as either ordinary
income or capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Any long-term capital
gains distributed by a Fund are taxable to you as long-term capital gains no
matter how long you have owned your shares. Every January, you will receive a
statement that shows the tax status of distributions you received for the
previous year. Distributions declared in December but paid in January are
taxable as if they were paid in December.
When you sell or exchange your shares of a Fund, you may have a capital gain
or loss. Any loss incurred on the sale or exchange of a Fund's Shares, held for
six months or less, will be treated as a long-term capital loss to the extent of
capital gains dividends received with respect to such Shares. The tax rate on
any gain from the sale or exchange of your shares depends on how long you have
held your shares.
The Funds make no representation as to the amount of variability of each
Funds' capital gain distributions which may vary as a function of several
variables including, but not limited to, prevailing dividend yield levels,
general market conditions, shareholders redemption patterns and Fund cash
equitization activity.
Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-US investors may be
subject to US withholding and estate tax. You should consult your tax
professional about federal, state, local or foreign tax consequences of holding
shares of a Fund.
When a Fund invests in securities of certain foreign countries, the Fund may
have taxes withheld on the income received from these securities. If more than
50% of the total fair market value of the Fund's assets is made up of foreign
securities, then the Fund may elect to pass through such taxes to shareholders
as a foreign tax credit.
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If you are a corporate investor, a portion of the dividends from net
investment income paid by Diversified Equity Fund, Special Growth Fund, Equity
Income Fund, Quantitative Equity Fund, Real Estate Securities Fund, Tax-Managed
Large Cap Fund or Tax-Managed Small Cap Fund will generally qualify, in part,
for the corporate dividends-received deduction. However, the portion of the
dividends so qualified depends on the aggregate qualifying dividend income
received by each Fund from domestic (US) sources. Certain holding period and
debt financing restrictions may apply to corporate investors seeking to claim
the deduction. You should consult your tax professional with respect to the
applicability of these rules.
Although the Tax-Managed Large Cap and the Tax-Managed Small Cap Funds are
managed to minimize the amount of capital gains realized during a particular
year, the realization of capital gains is not entirely within either Fund's or
its money manager's control. Shareholder purchase and redemption activity, as
well as the Fund's performance, will impact the amount of capital gains
realized. Capital gains distributions by the Tax-Managed Large Cap Fund and
Tax-Managed Small Cap Fund may vary considerably from year to year.
The Tax-Exempt Bond Fund intends to continue to qualify to pay
"exempt-interest dividends" to its shareholders by maintaining, as of the close
of each quarter of its taxable years, at least 50% of the value of its total
assets in municipal obligations. If the Fund satisfies this requirement,
distributions from net investment income to shareholders will be exempt from
federal income taxation, including the alternative minimum tax, to the extent
that net investment income is represented by interest on municipal obligations.
However, to the extent dividends are derived from taxable income from temporary
investments, short-term capital gains, or income derived from the sale of bonds
purchased with market discount, the dividends are treated as ordinary income,
whether paid in cash or reinvested in additional shares. The Fund may invest a
portion of its assets in private activity bonds, the income from which is a
preference item in determining your alternative minimum tax.
By law, a Fund must withhold 31% of your distributions and proceeds if you
do not provide your correct taxpayer identification number, or certify that such
number is correct, or if the IRS instructs the Fund to do so.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
YOU SHOULD CONSULT YOUR OWN TAX ADVISER CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN A FUND.
Additional information on these and other tax matters relating to the Funds
and their shareholders is included in the section entitled "Taxes" in the Funds'
Statement of Additional Information.
HOW NET ASSET VALUE IS DETERMINED
NET ASSET VALUE PER SHARE
The net asset value per share is calculated for Shares of each class of each
Fund on each business day on which Shares are offered or redemption orders are
tendered. For all Funds, a business day is one on which the New York Stock
Exchange (NYSE) is open for trading. The NYSE is not open on
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national holidays or Good Friday. All Funds determine net asset value at 4:00
p.m. Eastern Time or the close of the NYSE, whichever is earlier.
VALUATION OF PORTFOLIO SECURITIES
Securities held by the Funds are typically priced using market quotations or
pricing services when the prices are believed to be reliable, that is, when the
prices reflect the fair market value of the securities. The Funds value
securities for which market quotations are not readily available at "fair
value," as determined in good faith and in accordance with procedures
established by the Board. If you hold Shares in a Fund, such as the
International Securities Fund or Emerging Markets Fund, that holds portfolio
securities that are listed primarily on foreign exchanges, the net asset value
of that Fund's Shares may change on a day when you will not be able to purchase
or redeem that Fund's Shares. This is because the value of those portfolio
securities may change on weekends or other days when that Fund does not price
its Shares.
Money market instruments maturing within 60 days of the valuation date that
are held by the Tax-Managed Large Cap, Tax-Managed Small Cap and Tax Exempt Bond
Funds are valued at "amortized cost" unless the Board determines that amortized
cost does not represent fair value. Under this method, a portfolio instrument is
initially valued at cost, and thereafter a constant accretion/amortization to
maturity of any discount or premium is assumed. While amortized cost provides
certainty in valuation, it may result in periods when the value of an instrument
is higher or lower than the price a Fund would receive if it sold the
instrument.
DISTRIBUTION AND SHAREHOLDER
SERVICING ARRANGEMENTS
The Funds offer multiple classes of Shares: Class C Shares, Class E Shares
and Class S Shares.
CLASS C SHARES participate in the Funds' Rule 12b-1 distribution plan
and in the Funds' shareholder servicing plan. Under the distribution plan,
the Funds' Class C Shares pay distribution fees of 0.75% annually for the
sale and distribution of Class C Shares. Under the shareholder servicing
plan, the Funds' Class C Shares pay shareholder servicing fees of 0.25% on
an annualized basis for services provided to Class C shareholders. Because
both of these fees are paid out of the Funds' Class C Share assets on an
ongoing basis, over time these fees will increase the cost of your
investment in Class C Shares of the Funds, and the distribution fee may cost
an investor more than paying other types of sales charges.
CLASS E SHARES participate in the Funds' shareholder servicing plan.
Under the shareholder servicing plan, the Funds' Class E Shares pay
shareholder servicing fees of 0.25% on an annualized basis for services
provided to Class E shareholders. The shareholder servicing fees are paid
out of the Funds' Class E share assets on an ongoing basis, and over time
will increase the cost of your investment in the Funds.
CLASS S SHARES participate in neither the Funds' distribution plan nor
the Funds' shareholder servicing plan.
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HOW TO PURCHASE SHARES
Funds are generally available only through a select network of qualified
Financial Intermediaries. If you are not currently working with one of these
Financial Intermediaries, please call Russell Investor Services at (800) RUSSEL4
(800-787-7354) for assistance in contacting an investment professional near you.
For each of the Class E and Class S Shares, there is a $2,500 required
minimum initial investment for each account in each Fund. Each Fund reserves the
right to change the categories of investors eligible to purchase its shares or
the required minimum investment amount. You may be eligible to purchase Fund
shares if you do not meet the required initial minimum investment. You should
consult your Financial Intermediary for details, which are summarized in the
Funds' statement of additional information.
Financial Intermediaries may charge their customers a fee for providing
investment-related services. Financial Intermediaries generally receive no
compensation from the Funds or the Funds' service providers with respect to
Class S Shares of the Funds. Financial Intermediaries may receive shareholder
servicing compensation from the Funds' Distributor with respect to Class E
Shares of the Funds.
PAYING FOR SHARES
You may purchase Shares of the Funds through a Financial Intermediary on any
business day the Funds are open. Purchase orders are processed at the next net
asset value per share calculated after the Funds' receive your order in proper
form (defined in the "Written Instructions" section), and accept the order.
All purchases must be made in US dollars. Checks and other negotiable bank
drafts must be drawn on US banks and made payable to "Frank Russell Investment
Company." The Funds reserve the right to reject any purchase order for any
reason including, but not limited to, receiving a check which does not clear the
bank or a payment which does not arrive in proper form by settlement date. You
will be responsible for any resulting loss to the Funds. An overdraft charge may
also be applied. Cash, third party checks and checks drawn on credit card
accounts generally will not be accepted. However, exceptions may be made by
prior special arrangement with certain Financial Intermediaries.
OFFERING DATES AND TIMES
Orders must be received by the Funds prior to 4:00 p.m. Eastern Time or the
close of the NYSE, whichever is earlier. Purchases can be made on any day when
Fund shares are offered. Because Financial Intermediaries' processing time may
vary, please ask your Financial Intermediary representative when your account
will be credited.
ORDER AND PAYMENT PROCEDURES
Generally, you must place purchase orders for Shares through a Financial
Intermediary. You may pay for your purchase by mail or electronic funds
transfer. Initial purchases require a completed and
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signed Application for each new account regardless of the investment method.
Specific payment arrangements should be made with your Financial Intermediary.
BY MAIL
For new accounts, please mail the completed Application to your Financial
Intermediary. Payment for orders may be made by check or other negotiable bank
draft and sent to the Funds' Transfer Agent. Certified checks are not necessary,
but checks are accepted subject to collection at full face value in US funds.
Third party checks will not be accepted. Checks should be made payable to "Frank
Russell Investment Company."
BY FEDERAL FUNDS WIRE
You can pay for orders by wiring federal funds to the Funds' Custodian,
State Street Bank and Trust Company. All wires must include your account
registration and account number for identification. Inability to properly
identify a wire transfer may prevent or delay timely settlement of your
purchase.
BY AUTOMATED CLEARING HOUSE ("ACH")
You can make initial or subsequent investments through ACH to the Funds'
Custodian, State Street Bank and Trust Company.
AUTOMATED INVESTMENT PROGRAM
You can make regular investments (minimum $50) in the Funds in an
established account on a monthly, quarterly, semiannual or annual basis by
automatic electronic funds transfer from a bank account. You must make a
separate transfer for each Fund in which you purchase Shares. You may change the
amount or stop the automatic purchase at any time. Contact your Financial
Intermediary for further information on this program and an enrollment form.
THREE-DAY SETTLEMENT PROGRAM
The Funds will accept orders at the next computed net asset value through
Financial Intermediaries to purchase Shares of the Funds for settlement on the
third business day following the receipt of the order. These orders are paid for
by a federal funds wire if the Financial Intermediary has enrolled in the
program and agreed in writing to indemnify the Funds against any losses
resulting from non-receipt of payment.
EXCHANGE PRIVILEGE
BY MAIL OR TELEPHONE
Through your Financial Intermediary, you may exchange Shares of any Fund you
own for shares of any other Fund on the basis of the current net asset value per
share at the time of the exchange. Shares of a Fund offered by this Prospectus
may only be exchanged for Shares of a Fund offered by FRIC through another
Prospectus under certain conditions and only in states where the exchange may
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be legally made. For additional information, including Prospectuses for other
Funds, contact your Financial Intermediary.
Exchanges may be made by mail or by telephone if the registration of the two
accounts is identical. Contact your Financial Intermediary for assistance in
exchanging Shares and, because Financial Intermediaries' processing time may
vary, to find out when your account will be credited or debited. To request an
exchange in writing, please follow the procedures in the "Written Instructions"
section before mailing to your Financial Intermediary.
An exchange involves the redemption of Shares, which is treated as a sale
for income tax purposes. Thus, capital gain or loss may be realized. Please
consult your tax adviser for more information. Shares to be acquired will be
purchased when the proceeds from the redemption become available (up to seven
days from the receipt of the request) at the next net asset value per share
calculated after the Funds received the exchange request in good order.
IN-KIND EXCHANGE OF SECURITIES
FRIMCo, in its capacity as the Funds' investment advisor, may, at its
discretion, permit you to acquire Shares in exchange for securities you
currently own. Any securities exchanged must meet the investment objective,
policies and limitations of the applicable Fund, have a readily ascertainable
market value, be liquid, not be subject to restrictions on resale and have a
market value, plus any cash, equal to at least $100,000.
Shares purchased in exchange for securities generally may not be redeemed or
exchanged for 15 days following the purchase by exchange or until the transfer
has settled, whichever comes first. If you are a taxable investor, you will
generally realize a gain or loss for federal income tax purposes on the
exchange. If you are contemplating an in-kind exchange you should consult your
tax adviser.
The price at which the exchange will take place will depend upon the
relative net asset value of the Shares purchased and securities exchanged.
Securities accepted by a Fund will be valued in the same way the Fund values its
assets. Any interest earned on the securities following their delivery to the
Funds and prior to the exchange will be considered in valuing the securities.
All interest, dividends, subscription or other rights attached to the securities
becomes the property of the Fund, along with the securities. Please contact your
Financial Intermediary for further information.
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HOW TO REDEEM SHARES
Shares of the Funds may be redeemed through your Financial Intermediary on
any business day the Funds are open at the next net asset value per share
calculated after the Funds' Transfer Agent receives an order in proper form
(defined in the "Written Instructions" section). Payment will ordinarily be made
within seven days after receipt of your request in proper form. Shares recently
purchased by check may not be available for redemption for 15 days following the
purchase or until the check clears, whichever occurs first, to assure payment
has been collected.
REDEMPTION DATES AND TIMES
Redemption requests must be placed through a Financial Intermediary and
received by the Funds prior to 4:00 p.m. Eastern Time or the close of the NYSE,
whichever is earlier. Because Financial Intermediaries' processing times may
vary, please ask your Financial Intermediary representative when your account
will be debited. Requests can be made by mail or telephone on any day when Fund
shares are offered, or through the Systematic Withdrawal Program described
below.
BY MAIL OR TELEPHONE
You may redeem your shares by calling or writing to your Financial
Intermediary. Written requests to sell shares are in proper form when the
instructions are signed by all registered owners, with a signature guarantee if
necessary.
SYSTEMATIC WITHDRAWAL PROGRAM
The Funds, except the Tax-Managed Large Cap and Tax-Managed Small Cap Funds,
offer a systematic withdrawal program which allows you to redeem your Shares and
receive regular payments from your account on a monthly, quarterly, semiannual
or annual basis. If you would like to establish a systematic withdrawal program,
please complete the proper section of the account application and indicate how
you would like to receive your payments. You will generally receive your payment
by the end of the month in which a payment is scheduled. When you redeem your
shares under a systematic withdrawal program, it is a taxable transaction. The
Tax-Managed Large Cap and Tax-Managed Small Cap Funds do not offer a systematic
withdrawal program in view of their portfolio management strategies.
You may choose to have the payments mailed to you or directed to your bank
account by ACH transfer. You may discontinue the systematic withdrawal program,
or change the amount and timing of withdrawal payments by contacting your
Financial Intermediary.
ACCOUNTS IN STREET NAME
Many brokers, employee benefit plans and bank trusts combine their client's
Fund holdings in a single omnibus account with the Funds held in the brokers',
plans', or bank trusts' own name or "street name." Therefore, if you hold Fund
shares through a brokerage account, employee benefit plan or bank trust fund,
the Funds may have records only of the omnibus account. In this case, your
broker, employee benefit plan or bank is responsible for keeping track of your
account information. This means
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that you may not be able to request transactions in your Shares directly through
the Funds, but can do so only through your broker, plan administrator or bank.
Ask your Financial Intermediary for information on whether your Fund shares are
held in an omnibus account.
PAYMENT OF REDEMPTION PROCEEDS
BY CHECK
When you redeem your Shares, a check for the redemption proceeds will be
sent to the shareholder(s) of record at the address of record within seven days
after the Funds receive a redemption request in proper form.
BY WIRE
If you have established the electronic redemption option, your redemption
proceeds can be wired to your predesignated bank account on the next bank
business day after the Funds receive your redemption request. The Funds may
charge a fee to cover the cost of sending a wire transfer for redemptions less
than $1,000, and your bank may charge an additional fee to receive the wire.
Wire transfers can be sent to US commercial banks that are members of the
Federal Reserve System.
WRITTEN INSTRUCTIONS
PROPER FORM: Written instructions must be in proper form. They must include:
A description of the request
The name of the Fund(s)
The class of shares, if applicable
The account number(s)
The amount of money or number of shares being purchased, exchanged,
transferred or redeemed
The name(s) on the account(s)
The signature(s) of all registered account owners
For exchanges, the name of the Fund you are exchanging into
Your daytime telephone number
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SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
<TABLE>
<CAPTION>
ACCOUNT TYPE REQUIREMENTS FOR WRITTEN REQUESTS
<S> <C>
Individual, Joint Tenants, Tenants in Written instructions must be signed by each
Common shareholder, exactly as the names appear in the
account registration.
UGMA or UTMA (custodial accounts for Written instructions must be signed by the
minors) custodian in his/her capacity as it appears in
the account registration.
Corporation, Association Written instructions must be signed by authorized
person(s), stating his/her capacity as indicated
by the corporate resolution to act on the account
and a copy of the corporate resolution, certified
within the past 90 days, authorizing the signer
to act.
Estate, Trust, Pension, Profit Sharing Written instructions must be signed by all
Plan trustees. If the name of the trustee(s) does not
appear in the account registration, please
provide a copy of the trust document certified
within the last 60 days.
Joint tenancy shareholders whose Written instructions must by signed by the
co-tenants are deceased surviving tenant(s). A certified copy of the
death certificate must accompany the request.
</TABLE>
SIGNATURE GUARANTEE
The Funds reserve the right to require a signature guarantee under certain
circumstances. A signature guarantee verifies the authenticity of your
signature. You should be able to obtain a signature guarantee from a bank,
broker, credit union, savings association, clearing agency, or securities
exchange or association, but not a notary public. Call your financial
institution to see if it has the ability to guarantee a signature.
ACCOUNT POLICIES
THIRD PARTY TRANSACTIONS
If you purchase Shares as part of a program of services offered by a
Financial Intermediary, you may be required to pay additional fees. You should
contact your Financial Intermediary for information concerning what additional
fees, if any, may be charged.
REDEMPTION IN-KIND
A Fund may pay for any portion of the redemption amount in excess of
$250,000 by a distribution in-kind of securities from the Fund's portfolio,
instead of in cash. If you receive an in-kind distribution of portfolio
securities, and choose to sell them, you will incur brokerage charges and
continue to be subject to tax consequences and market risk pending any sale.
72
<PAGE>
STATE CHECKS
For the protection of shareholders and the Funds, if a check issued for the
payment of a redemption or distribution is not cashed for more than 180 days
from issuance, it will not be honored. The Funds have adopted procedures
described in the statement of additional information regarding the treatment of
stale checks, or you may contact your Financial Intermediary for additional
information.
73
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you
understand the Funds' financial performance for the past 5 years (or, if a Fund
or Class has not been in operation for 5 years, since the beginning of
operations for that Fund or Class). Certain information reflects financial
results for a single Fund share throughout each year or period ended
December 31. The total returns in the table represent how much your investment
in a Fund would have increased (or decreased) during each period, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Funds'
financial statements, are included in the Funds' annual reports, which are
available upon request. The information in the following tables represents the
Financial Highlights for the Funds' Class E and Class S Shares, respectively,
for the periods shown.
DIVERSIFIED EQUITY FUND--CLASS E SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997*
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 51.40 $ 43.64 $ 45.55
------- ------- -------
INCOME FROM OPERATIONS
Net investment income (a)................................. .13 .10 .06
Net realized and unrealized gain (loss)................... 8.81 10.34 7.97
------- ------- -------
Total income from operations............................ 8.94 10.44 8.03
------- ------- -------
DISTRIBUTIONS
From net investment income................................ (.09) (.08) (.07)
From net realized gain.................................... (5.82) (2.60) (9.87)
------- ------- -------
Total distributions..................................... (5.91) (2.68) (9.94)
------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 54.43 $ 51.40 $ 43.64
======= ======= =======
TOTAL RETURN (%)(b)......................................... 17.95 24.59 15.99
RATIOS(%)/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 12,958 9,007 2,839
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.19 1.33 1.63
Net investment income................................... .23 .21 .10
Portfolio turnover rate (%)............................... 110.36 100.31 114.11
</TABLE>
- --------------------------
* For the period May 27, 1997 (commencement of sale) to December 31, 1997.
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
74
<PAGE>
DIVERSIFIED EQUITY FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 51.39 $ 43.64 $ 41.45 $ 38.62 $ 32.26
---------- ---------- ---------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a).................... .28 .30 .37 .48 .60
Net realized and unrealized gain (loss)...... 8.79 10.34 12.06 8.15 10.63
---------- ---------- ---------- -------- --------
Total income from operations............... 9.07 10.64 12.43 8.63 11.23
---------- ---------- ---------- -------- --------
DISTRIBUTIONS
From net investment income................... (.31) (.29) (.37) (.48) (.60)
From net realized gain....................... (5.82) (2.60) (9.87) (5.32) (4.27)
---------- ---------- ---------- -------- --------
Total distributions........................ (6.13) (2.89) (10.24) (5.80) (4.87)
---------- ---------- ---------- -------- --------
NET ASSET VALUE, END OF PERIOD................. $ 54.33 $ 51.39 $ 43.64 $ 41.45 $ 38.62
========== ========== ========== ======== ========
TOTAL RETURN (%)............................... 18.21 25.11 31.32 23.29 35.17
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)..... 1,569,920 1,367,016 1,042,620 699,691 530,645
Ratios to average net assets (%):
Operating expenses......................... .93 .91 .92 .94 .95
Net investment income...................... .51 .62 .80 1.18 1.56
Portfolio turnover rate (%).................. 110.36 100.31 114.11 99.90 92.53
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
75
<PAGE>
SPECIAL GROWTH FUND--CLASS E SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997 1996*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 42.91 $ 45.42 $40.75 $ 43.48
------- ------- ------ -------
INCOME FROM OPERATIONS
Net investment income (loss) (a).......................... (.16) (.17) (.13) (.02)
Net realized and unrealized gain (loss)................... 9.02 .09 11.05 1.63
------- ------- ------ -------
Total income from operations............................ 8.86 (.08) 10.92 1.61
------- ------- ------ -------
DISTRIBUTIONS
From net realized gain.................................... (3.22) (2.43) (6.25) (4.34)
------- ------- ------ -------
NET ASSET VALUE, END OF PERIOD.............................. $ 48.55 $ 42.91 $45.42 $ 40.75
======= ======= ====== =======
TOTAL RETURN (%)(b)......................................... 21.19 .04 27.90 4.04
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 5,411 6,139 3,153 910
Ratios to average net assets (%)(c):
Operating expenses, net................................. 1.49 1.58 1.83 1.89
Net investment income (loss)............................ (.36) (.39) (.51) (.38)
Portfolio turnover rate (%)............................... 111.98 129.19 97.19 118.13
</TABLE>
- --------------------------
* For the period November 4, 1996 (commencement of sale) to December 31, 1996.
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
76
<PAGE>
SPECIAL GROWTH FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 43.34 $ 45.72 $ 40.79 $ 39.17 $ 33.47
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (loss)(a)....................... (.05) .01 .08 .12 .18
Net realized and unrealized gain (loss)............... 9.12 .08 11.18 6.87 9.25
-------- -------- -------- -------- --------
Total income from operations........................ 9.07 .09 11.26 6.99 9.43
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income............................ (.01) (.04) (.08) (.12) (.21)
From net realized gain................................ (3.22) (2.43) (6.25) (5.25) (3.52)
-------- -------- -------- -------- --------
Total distributions................................. (3.23) (2.47) (6.33) (5.37) (3.73)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......................... $ 49.18 $ 43.34 $ 45.72 $ 40.79 $ 39.17
======== ======== ======== ======== ========
TOTAL RETURN (%)........................................ 21.45 .42 28.77 18.65 28.52
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).............. 697,211 595,862 572,635 393,048 313,678
Ratios to average net assets (%):
Operating expenses.................................. 1.24 1.15 1.15 1.19 1.22
Net investment income (loss)........................ (.10) .03 .18 .28 .49
Portfolio turnover rate (%)........................... 111.98 129.19 97.19 118.13 87.56
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
77
<PAGE>
EQUITY INCOME FUND--CLASS E SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997 1996*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 41.45 $ 41.43 $ 40.22 $ 41.86
------- ------- ------- -------
INCOME FROM OPERATIONS
Net investment income (a)................................. .33 .37 .32 .10
Net realized and unrealized gain (loss)................... (.44) 4.49 12.20 2.39
------- ------- ------- -------
Total income from operations............................ (.11) 4.86 12.52 2.49
------- ------- ------- -------
DISTRIBUTIONS
From net investment income................................ (.25) (.51) (.07) (.18)
From net realized gain.................................... (3.89) (4.33) (11.24) (3.95)
------- ------- ------- -------
Total distributions..................................... (4.14) (4.84) (11.31) (4.13)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 37.20 $ 41.45 $ 41.43 $ 40.22
======= ======= ======= =======
TOTAL RETURN (%)(b)......................................... .04 12.41 32.68 6.23
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 1,061 745 338 122
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.35 1.42 1.74 1.77
Net investment income................................... .80 .90 .77 1.50
Portfolio turnover rate (%)............................... 137.94 149.63 139.33 106.40
</TABLE>
- --------------------------
* For the period November 4, 1996 (commencement of sale) to December 31, 1996.
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
78
<PAGE>
EQUITY INCOME FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 41.26 $ 41.08 $ 40.22 $ 38.43 $ 32.21
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)............................. .41 .55 .69 .82 .94
Net realized and unrealized gain (loss)............... (.44) 4.49 12.11 7.03 10.08
-------- -------- -------- -------- --------
Total income from operations........................ (.03) 5.04 12.80 7.85 11.02
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income............................ (.42) (.53) (.70) (.83) (.97)
From net realized gain................................ (3.89) (4.33) (11.24) (5.23) (3.83)
-------- -------- -------- -------- --------
Total distributions................................. (4.31) (4.86) (11.94) (6.06) (4.80)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......................... $ 36.92 $ 41.26 $ 41.08 $ 40.22 $ 38.43
======== ======== ======== ======== ========
TOTAL RETURN (%)........................................ .25 12.99 33.59 21.45 34.76
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).............. 186,983 250,491 226,952 195,132 180,116
Ratios to average net assets (%):
Operating expenses.................................. 1.11 1.01 1.04 1.07 1.06
Net investment income............................... 1.03 1.30 1.51 2.03 2.51
Portfolio turnover rate (%)........................... 137.94 149.63 139.33 106.40 92.40
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
79
<PAGE>
QUANTITATIVE EQUITY FUND--CLASS E SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997 1996*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $42.50 $36.80 $33.05 $33.81
------ ------ ------ ------
INCOME FROM OPERATIONS
Net investment income (a)................................. .13 .12 .14 .05
Net realized and unrealized gain (loss)................... 8.50 8.54 9.95 1.87
------ ------ ------ ------
Total income from operations............................ 8.63 8.66 10.09 1.92
------ ------ ------ ------
DISTRIBUTIONS
From net investment income................................ (.10) (.16) (.07) (.08)
From net realized gain.................................... (5.84) (2.80) (6.27) (2.60)
------ ------ ------ ------
Total distributions..................................... (5.94) (2.96) (6.34) (2.68)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD.............................. $45.19 $42.50 $36.80 $33.05
====== ====== ====== ======
TOTAL RETURN (%)(b)......................................... 21.11 24.34 31.70 5.91
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 7,987 7,479 2,344 322
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.18 1.31 1.59 1.65
Net investment income................................... .28 .30 .33 .81
Portfolio turnover rate (%)............................... 89.52 77.23 87.67 74.33
</TABLE>
- --------------------------
* For the period November 4, 1996 (commencement of sale) to December 31, 1996.
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
80
<PAGE>
QUANTITATIVE EQUITY FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $ 42.53 $ 36.78 $ 33.05 $ 30.76 $ 24.84
---------- ---------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a).......................... .24 .27 .38 .51 .50
Net realized and unrealized gain (loss)............ 8.50 8.55 10.00 6.24 8.72
---------- ---------- -------- -------- --------
Total income from operations..................... 8.74 8.82 10.38 6.75 9.22
---------- ---------- -------- -------- --------
DISTRIBUTIONS
From net investment income......................... (.24) (.27) (.38) (.51) (.51)
From net realized gain............................. (5.84) (2.80) (6.27) (3.95) (2.79)
---------- ---------- -------- -------- --------
Total distributions.............................. (6.08) (3.07) (6.65) (4.46) (3.30)
---------- ---------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD....................... $ 45.19 $ 42.53 $ 36.78 $ 33.05 $ 30.76
========== ========== ======== ======== ========
TOTAL RETURN (%)..................................... 21.37 24.82 32.70 23.08 37.69
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)........... 1,545,021 1,316,051 996,880 663,925 488,948
Ratios to average net assets (%):
Operating expenses............................... .93 .91 .91 .93 .93
Net investment income............................ .53 .69 1.04 1.59 1.71
Portfolio turnover rate (%)........................ 89.52 77.23 87.67 74.33 78.83
</TABLE>
- --------------------------
(a) Periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
81
<PAGE>
INTERNATIONAL SECURITIES FUND--CLASS E SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997 1996*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 60.68 $54.64 $58.47 $58.56
------- ------ ------ ------
INCOME FROM OPERATIONS
Net investment income (a)................................. .40 .28 .35 (.03)
Net realized and unrealized gain (loss)................... 17.72 6.53 (.64) 1.68
------- ------ ------ ------
Total income from operations............................ 18.12 6.81 (.29) 1.65
------- ------ ------ ------
DISTRIBUTIONS
From net investment income................................ (.27) (.57) (.29) (.43)
From net realized gain.................................... (3.58) (.20) (3.25) (1.31)
------- ------ ------ ------
Total distributions..................................... (3.85) (.77) (3.54) (1.74)
------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD.............................. $ 74.95 $60.68 $54.64 $58.47
======= ====== ====== ======
TOTAL RETURN (%)(b)......................................... 30.21 12.53 (.41) 2.86
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 5,552 4,431 1,271 623
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.55 1.64 1.96 2.00
Net investment income................................... .61 .49 .19 (.61)
Portfolio turnover rate (%)............................... 120.52 68.46 73.54 42.43
</TABLE>
- --------------------------
* For the period November 4, 1996 (commencement of sale) to December 31, 1996.
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
82
<PAGE>
INTERNATIONAL SECURITIES FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 60.86 $ 54.69 $ 58.48 $ 56.61 $ 53.96
---------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)....................... .51 .69 .56 .53 .56
Net realized and unrealized gain (loss)......... 17.82 6.32 (.46) 3.72 4.89
---------- -------- -------- -------- --------
Total income from operations.................. 18.33 7.01 .10 4.25 5.45
---------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income...................... (.50) (.64) (.64) (.48) (1.11)
From net realized gain.......................... (3.58) (.20) (3.25) (1.90) (1.69)
---------- -------- -------- -------- --------
Total distributions........................... (4.08) (.84) (3.89) (2.38) (2.80)
---------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.................... $ 75.11 $ 60.86 $ 54.69 $ 58.48 $ 56.61
========== ======== ======== ======== ========
TOTAL RETURN (%).................................. 30.52 12.90 .26 7.63 10.20
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)........ 1,133,495 940,779 839,767 743,615 623,389
Ratios to average net assets (%):
Operating expenses, net....................... 1.30 1.22 1.26 1.30 1.30
Operating expenses, gross..................... 1.30 1.22 1.26 1.31 1.31
Net investment income......................... .79 1.15 .91 .91 .97
Portfolio turnover rate (%)..................... 120.52 68.46 73.54 42.43 42.96
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
83
<PAGE>
EMERGING MARKETS FUND--CLASS E SHARES
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1999 1998*
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 8.48 $ 7.37
------ ------
INCOME FROM OPERATIONS
Net investment income (loss)(a)........................... (.04) (.02)
Net realized and unrealized gain (loss)................... 4.14 1.13
------ ------
Total income from operations............................ 4.10 1.11
------ ------
DISTRIBUTIONS
From net investment income................................ (.07) --
------ ------
NET ASSET VALUE, END OF PERIOD.............................. $12.51 $ 8.48
====== ======
TOTAL RETURN (%)(b)......................................... 48.71 15.06
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 6,314 39
Ratios to average net assets (%)(c)(d):
Operating expenses...................................... 2.17 --
Net investment income (loss)............................ (.40) --
Portfolio turnover rate (%)............................... 94.85 59.35
</TABLE>
- --------------------------
* For the period September 22, 1998 (commencement of sale) to December 31,
1998.
(a) Average month-end shares outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
(d) The ratios for the period ended December 31, 1998 are not meaningful due to
the Class's short period of operation.
84
<PAGE>
EMERGING MARKETS FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 8.48 $ 11.79 $ 12.35 $ 11.16 $ 12.25
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)........................ .03 .12 .14 .10 .11
Net realized and unrealized gain (loss).......... 4.10 (3.35) (.56) 1.26 (1.12)
-------- -------- -------- -------- --------
Total income from operations................... 4.13 (3.23) (.42) 1.36 (1.01)
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income....................... (.09) (.08) (.14) (.17) (.05)
From net realized gain........................... -- -- -- -- (.03)
-------- -------- -------- -------- --------
Total distributions............................ (.09) (.08) (.14) (.17) (.08)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD..................... $ 12.52 $ 8.48 $ 11.79 $ 12.35 $ 11.16
======== ======== ======== ======== ========
TOTAL RETURN (%)(b)................................ 49.03 (27.57) (3.45) 12.26 (8.21)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)......... 430,794 294,349 333,052 271,490 172,673
Ratios to average net assets (%)(b):
Operating expenses, net........................ 1.91 1.75 1.64 1.71 1.75
Operating expenses, gross...................... 1.91 1.75 1.64 1.72 1.80
Net investment income.......................... .26 1.20 .87 .77 .88
Portfolio turnover rate (%)...................... 94.85 59.35 50.60 34.62 71.16
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
85
<PAGE>
REAL ESTATE SECURITIES FUND--CLASS E SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997 1996*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $24.27 $ 31.02 $29.18 $26.67
------ ------- ------ ------
INCOME FROM OPERATIONS
Net investment income (a)................................. 1.28 1.26 1.14 .24
Net realized and unrealized gain (loss)................... (1.24) (6.12) 3.95 3.85
------ ------- ------ ------
Total income from operations............................ .04 (4.86) 5.09 4.09
------ ------- ------ ------
DISTRIBUTIONS
From net investment income................................ (1.55) (1.43) (1.04) (.32)
From net realized gain.................................... -- (.46) (2.21) (1.26)
------ ------- ------ ------
Total distributions..................................... (1.55) (1.89) (3.25) (1.58)
------ ------- ------ ------
NET ASSET VALUE, END OF PERIOD.............................. $22.76 $ 24.27 $31.02 $29.18
====== ======= ====== ======
TOTAL RETURN (%)(b)......................................... .30 (16.25) 18.20 15.75
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 7,134 843 388 101
Ratios to average net assets (%)(c):
Operating expenses...................................... 1.39 1.47 1.71 1.77
Net investment income................................... 5.42 4.90 3.94 5.31
Portfolio turnover rate (%)............................... 42.69 42.58 49.40 51.75
</TABLE>
- --------------------------
* For the period November 4, 1996 (commencement of sale) to December 31, 1996.
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are not annualized.
86
<PAGE>
REAL ESTATE SECURITIES FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 24.44 $ 30.86 $ 29.19 $ 23.51 $ 22.53
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)........................ 1.30 1.34 1.36 1.39 1.32
Net realized and unrealized gain (loss).......... (1.20) (6.13) 3.93 6.89 1.03
-------- -------- -------- -------- --------
Total income from operations................... .10 (4.79) 5.29 8.28 2.35
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income....................... (1.68) (1.17) (1.41) (1.34) (1.35)
From net realized gain........................... -- (.46) (2.21) (1.26) (.02)
-------- -------- -------- -------- --------
Total distributions............................ (1.68) (1.63) (3.62) (2.60) (1.37)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD..................... $ 22.86 $ 24.44 $ 30.86 $ 29.19 $ 23.51
======== ======== ======== ======== ========
TOTAL RETURN (%)................................... .55 (15.94) 18.99 36.81 10.87
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)......... 589,300 576,326 615,483 445,619 290,990
Ratios to average net assets (%):
Operating expenses............................. 1.14 1.05 1.02 1.04 1.04
Net investment income.......................... 5.41 4.93 4.57 5.64 6.10
Portfolio turnover rate (%)...................... 42.69 42.58 49.40 51.75 23.49
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
87
<PAGE>
SHORT TERM BOND FUND--CLASS E SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 18.51
-------
INCOME FROM OPERATIONS
Net investment income (a)................................. .80
Net realized and unrealized gain (loss)................... (.34)
-------
Total income from operations............................ .46
-------
DISTRIBUTIONS
From net investment income................................ (.89)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 18.08
=======
TOTAL RETURN (%)(b)......................................... 2.53
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 8,693
Ratios to average net assets (%)(c):
Operating expenses...................................... .97
Net investment income................................... 5.05
Portfolio turnover rate (%)............................... 177.08
</TABLE>
- --------------------------
* For the period February 18, 1999 (commencement of sale) to December 31,
1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
88
<PAGE>
SHORT TERM BOND FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 18.46 $ 18.35 $ 18.36 $ 18.55 $ 17.98
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)........................ .90 .99 1.08 1.04 1.16
Net realized and unrealized gain (loss).......... (.36) .11 -- (.19) .59
-------- -------- -------- -------- --------
Total income from operations................... .54 1.10 1.08 .85 1.75
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income....................... (.97) (.99) (1.09) (1.04) (1.18)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD..................... $ 18.03 $ 18.46 $ 18.35 $ 18.36 $ 18.55
======== ======== ======== ======== ========
TOTAL RETURN (%)(b)................................ 3.03 6.09 6.02 4.76 9.95
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)......... 447,590 260,539 229,470 222,983 183,577
Ratios to average net assets (%)(b):
Operating expenses............................. .74 .66 .66 .70 .58
Net investment income.......................... 5.22 5.37 5.70 5.70 6.41
Portfolio turnover rate (%)...................... 177.08 129.85 213.14 264.40 269.31
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
89
<PAGE>
DIVERSIFIED BOND FUND--CLASS E SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997 1996*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 23.92 $ 24.06 $ 22.98 $ 23.16
------- ------- ------- -------
INCOME FROM OPERATIONS
Net investment income (a)................................. 1.30 1.32 1.22 .25
Net realized and unrealized gain (loss)................... (1.65) .45 .66 (.09)
------- ------- ------- -------
Total income from operations............................ (.35) 1.77 1.88 .16
------- ------- ------- -------
DISTRIBUTIONS
From net investment income................................ (1.21) (1.56) (.72) (.34)
From net realized gain.................................... (.13) (.35) (.08) --
------- ------- ------- -------
Total distributions..................................... (1.34) (1.91) (.80) (.34)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 22.23 $ 23.92 $ 24.06 $ 22.98
======= ======= ======= =======
TOTAL RETURN (%)(b)......................................... (1.51) 7.63 8.35 .67
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 3,639 4,703 2,469 962
Ratios to average net assets (%)(c):
Operating expenses...................................... .87 .98 1.29 1.31
Net investment income................................... 5.49 5.42 5.64 5.75
Portfolio turnover rate (%)............................... 152.23 216.88 172.43 138.98
</TABLE>
- --------------------------
* For the period November 4, 1996 (commencement of sale) to December 31, 1996.
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
90
<PAGE>
DIVERSIFIED BOND FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 23.53 $ 23.43 $ 22.97 $ 23.69 $ 21.53
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)........................ 1.31 1.38 1.45 1.47 1.54
Net realized and unrealized gain (loss).......... (1.60) .47 .56 (.71) 2.18
-------- -------- -------- -------- --------
Total income from operations................... (.29) 1.85 2.01 .76 3.72
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income....................... (1.32) (1.40) (1.47) (1.48) (1.56)
From net realized gain........................... (.13) (.35) (.08) -- --
Tax return of capital............................ (.02) -- -- -- --
-------- -------- -------- -------- --------
Total distributions............................ (1.47) (1.75) (1.55) (1.48) (1.56)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD..................... $ 21.77 $ 23.53 $ 23.43 $ 22.97 $ 23.69
======== ======== ======== ======== ========
TOTAL RETURN (%)(b)................................ (1.26) 8.09 9.09 3.43 17.76
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)......... 765,674 808,761 687,331 554,804 513,808
Ratios to average net assets (%)(b):
Operating expenses............................. .61 .57 .60 .61 .59
Net investment income.......................... 5.78 5.83 6.35 6.46 6.69
Portfolio turnover rate (%)...................... 152.23 216.88 172.43 138.98 135.85
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For the periods thereafter, they are reported net of
investment management fees but gross of any investment services fees.
91
<PAGE>
MULTISTRATEGY BOND FUND--CLASS E SHARES
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1999 1998*
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.10 $ 10.30
------- -------
INCOME FROM OPERATIONS
Net investment income (a)................................. .56 .16
Net realized and unrealized gain (loss)................... (.66) .07
------- -------
Total income from operations............................ (.10) .23
------- -------
DISTRIBUTIONS
From net investment income................................ (.52) (.20)
From net realized gain.................................... (.01) (.23)
------- -------
Total distributions..................................... (.53) (.43)
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.47 $ 10.10
======= =======
TOTAL RETURN (%)(b)......................................... (1.08) 1.89
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 3,248 2,610
Ratios to average net assets (%)(c):
Operating expenses, net................................. 1.05 --
Operating expenses, gross............................... 1.11 --
Net investment income................................... 5.54 --
Portfolio turnover rate (%)............................... 134.11 334.86
</TABLE>
- --------------------------
* For the period September 11, 1998 (commencement of sale) to December 31,
1998.
(a) Average month-end shares outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for the period ended December 31, 1998 are not meaningful due to
the Class's short period of operation.
92
<PAGE>
MULTISTRATEGY BOND FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 10.11 $ 10.26 $ 10.11 $ 10.25 $ 9.29
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income (a)........................ .57 .60 .60 .61 .65
Net realized and unrealized gain (loss).......... (.65) .08 .33 (.12) .97
-------- -------- -------- -------- --------
Total income from operations................... (.08) .68 .93 .49 1.62
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income....................... (.56) (.60) (.61) (.62) (.66)
From net realized gain........................... (.01) (.23) (.17) (.01) --
-------- -------- -------- -------- --------
Total distributions............................ (.57) (.83) (.78) (.63) (.66)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD..................... $ 9.46 $ 10.11 $ 10.26 $ 10.11 $ 10.25
======== ======== ======== ======== ========
TOTAL RETURN (%)................................... (.81) 6.79 9.50 4.97 17.92
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)......... 556,703 547,747 437,312 305,428 218,765
Ratios to average net assets (%):
Operating expenses, net........................ .80 .80 .80 .81 .85
Operating expenses, gross...................... .86 .81 .83 .88 .89
Net investment income.......................... 5.79 5.76 5.93 6.19 6.61
Portfolio turnover rate (%)...................... 134.11 334.86 263.75 145.38 142.26
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
93
<PAGE>
TAX-MANAGED LARGE CAP FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------
1999 1998 1997 1996*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 18.26 $ 13.90 $ 10.61 $ 10.00
-------- -------- -------- -------
INCOME FROM OPERATIONS
Net investment income (a)................................. .14 .10 .08 .03
Net realized and unrealized gain (loss)................... 2.88 4.35 3.28 .61
-------- -------- -------- -------
Total income from operations............................ 3.02 4.45 3.36 .64
-------- -------- -------- -------
DISTRIBUTIONS
From net investment income................................ (.11) (.08) (.07) (.03)
From net realized gain.................................... -- (.01) -- --
-------- -------- -------- -------
Total distributions..................................... (.11) (.09) (.07) (.03)
-------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 21.17 $ 18.26 $ 13.90 $ 10.61
======== ======== ======== =======
TOTAL RETURN (%)(b)......................................... 16.57 32.08 31.73 6.10
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 566,001 305,452 109,735 19,931
Ratios to average net assets (%)(c):
Operating expenses, net................................. .85 .99 1.00 1.00
Operating expenses, gross............................... .85 .99 1.08 2.83
Net investment income................................... .71 .61 .92 1.62
Portfolio turnover rate (%)............................... 48.35 50.59 39.23 8.86
</TABLE>
- --------------------------
* For the period October 7, 1996 (commencement of operations) to December 31,
1996.
(a) For periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
94
<PAGE>
TAX-MANAGED SMALL CAP FUND--CLASS S SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
-------
INCOME FROM OPERATIONS
Net investment income (a)................................. .01
Net realized and unrealized gain (loss)................... .72
-------
Total income from operations............................ .73
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.73
=======
TOTAL RETURN (%)(b)......................................... 7.30
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 29,053
Ratios to average net assets (%)(c):
Operating expenses, net................................. 1.25
Operating expenses, gross............................... 7.95
Net investment income................................... 1.92
Portfolio turnover rate (%)............................... 3.33
</TABLE>
- --------------------------
* For the period December 1, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
95
<PAGE>
TAX EXEMPT BOND FUND--CLASS E SHARES
<TABLE>
<CAPTION>
1999*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 21.19
-------
INCOME FROM OPERATIONS
Net investment income (a)................................. .50
Net realized and unrealized gain (loss)................... (.71)
-------
Total income from operations............................ (.21)
-------
DISTRIBUTIONS
From net investment income................................ (.51)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 20.47
=======
TOTAL RETURN (%)(b)......................................... (.99)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................. 2,854
Ratios to average net assets (%)(c):
Operating expenses...................................... .82
Net investment income................................... 3.76
Portfolio turnover rate (%)............................... 119.34
</TABLE>
- --------------------------
* For the period May 14, 1999 (commencement of sale) to December 31, 1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Not annualized.
(c) Annualized.
96
<PAGE>
TAX EXEMPT BOND FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $ 21.39 $ 21.19 $ 21.02 $ 21.24 $ 20.48
-------- -------- ------- ------- -------
INCOME FROM OPERATIONS
Net investment income (a)................................ .84 .81 .84 .85 .81
Net realized and unrealized gain (loss).................. (.95) .19 .18 (.21) .77
-------- -------- ------- ------- -------
Total income from operations........................... (.11) 1.00 1.02 .64 1.58
-------- -------- ------- ------- -------
DISTRIBUTIONS
From net investment income............................... (.86) (.80) (.85) (.86) (.82)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD............................. $ 20.42 $ 21.39 $ 21.19 $ 21.02 $ 21.24
======== ======== ======= ======= =======
TOTAL RETURN (%)(b)........................................ (.52) 4.82 4.92 3.07 7.81
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)................. 123,960 128,959 83,076 66,344 63,838
Ratios to average net assets (%)(b):
Operating expenses..................................... .57 .72 .71 .75 .74
Net investment income.................................. 3.99 3.80 3.99 4.02 3.91
Portfolio turnover rate (%).............................. 119.34 74.42 40.79 74.34 73.91
</TABLE>
- --------------------------
(a) For the periods subsequent to December 31, 1997, average month-end shares
outstanding were used for this calculation.
(b) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
97
<PAGE>
MONEY MANAGER INFORMATION
The money managers have no affiliations with the Funds or the Funds' service
providers other than their management of Fund assets. Each money manager has
been in business for at least three years, and is principally engaged in
managing institutional investment accounts. These managers may also serve as
managers or advisers to other Funds in FRIC, or to other clients of FRIMCo or of
Frank Russell Company, including Frank Russell Company's wholly owned
subsidiary, Frank Russell Trust Company.
DIVERSIFIED EQUITY FUND
ALLIANCE CAPITAL MANAGEMENT L.P., US Bank Place, 601 2nd Ave. South, Suite
5000, Minneapolis, MN 55402-4322.
BARCLAYS GLOBAL FUND ADVISORS, 45 Fremont Street, 17th Floor, San Francisco,
CA 94105.
EQUINOX CAPITAL MANAGEMENT, LLC, 590 Madison Avenue, 41st Floor, New York,
NY 10022.
JACOBS LEVY EQUITY MANAGEMENT, INC., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.
MARSICO CAPITAL MANAGEMENT, LLC, 1200 17th Street, Suite 1300, Denver, CO
80202.
PEACHTREE ASSET MANAGEMENT, One Peachtree Center, Suite 4500, 303 Peachtree
Street N.E., Atlanta, GA 30308.
SANFORD C. BERNSTEIN & CO., INC., 767 Fifth Avenue, 21st Floor, New York, NY
10153-0185.
STRONG CAPITAL MANAGEMENT, INC., 100 Heritage Reserve, Menomonee Falls, WI
53051.
SUFFOLK CAPITAL MANAGEMENT, INC., 1633 Broadway, 40th Floor, New York, NY
10019.
TURNER INVESTMENT PARTNERS, INC., 1235 Westlakes Drive, Suite 350, Berwyn,
PA 19312.
WESTPEAK INVESTMENT ADVISORS, L.P., 1011 Walnut Street, Suite 400, Boulder,
CO 80302.
SPECIAL GROWTH FUND
CAPITALWORKS INVESTMENT PARTNERS, LLC, 401 West "A" Street, Suite 1675, San
Diego, CA 92101.
DELPHI MANAGEMENT, INC., 50 Rowes Wharf, Suite 440, Boston, MA 02110.
FIDUCIARY TRUST COMPANY INTERNATIONAL, INC., 2 World Trade Center, New York,
NY 10048.
GLOBEFLEX CAPITAL, L.P., 4365 Executive Drive, Suite 720, San Diego, CA
92121.
JACOBS LEVY EQUITY MANAGEMENT, INC., See: Diversified Equity Fund.
SIRACH CAPITAL MANAGEMENT, INC., One Union Square, Suite 3323, 600
University Street, Seattle, WA 98101.
WESTPEAK INVESTMENT ADVISORS, L.P., See: Diversified Equity Fund.
98
<PAGE>
EQUITY INCOME FUND
BARCLAYS GLOBAL FUND ADVISORS, See: Diversified Equity Fund.
EQUINOX CAPITAL MANAGEMENT, INC., See: Diversified Equity Fund.
WESTPEAK INVESTMENT ADVISORS, L.P., See: Diversified Equity Fund.
QUANTITATIVE EQUITY FUND
BARCLAYS GLOBAL FUND ADVISORS, See: Diversified Equity Fund.
FRANKLIN PORTFOLIO ASSOCIATES LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104.
JACOBS LEVY EQUITY MANAGEMENT, INC., See: Diversified Equity Fund.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., 522 Fifth Ave., 6th Floor, New
York, NY 10036.
INTERNATIONAL SECURITIES FUND
DELAWARE INTERNATIONAL ADVISERS LTD., 80 Cheapside, 3rd Floor, London
EC2V6EE England.
FIDELITY MANAGEMENT TRUST COMPANY, 82 Devonshire Street, Boston, MA 02109.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., See: Quantitative Equity Fund.
MASTHOLM ASSET MANAGEMENT, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue,
WA 98004.
MONTGOMERY ASSET MANAGEMENT, LLC, 101 California Street, 35th Floor, San
Francisco, CA 94111.
OECHSLE INTERNATIONAL ADVISORS, LLC, One International Place, 23rd Floor,
Boston, MA 02110.
SANFORD C. BERNSTEIN & CO., INC., See: Diversified Equity Fund.
THE BOSTON COMPANY ASSET MANAGEMENT, INC., One Boston Place, 14th Floor,
Boston, MA 02108-4402.
EMERGING MARKETS FUND
FOREIGN & COLONIAL EMERGING MARKETS LIMITED, Exchange House, Primrose
Street, London, England EC2A 2NY.
GENESIS ASSET MANAGERS LIMITED, 21 Knightsbridge, London SW1X 7LY England.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, 600 W. Broadway, 29th Floor, San
Diego, CA 92101.
SANFORD C. BERNSTEIN & CO., See: Diversified Equity Fund.
SCHRODERS INVESTMENT MANAGEMENT NORTH AMERICA LIMITED, 31 Greshman Street,
London EC2V 7QA England.
REAL ESTATE SECURITIES FUND
AEW CAPITAL MANAGEMENT, L.P., 225 Franklin Street, Boston, MA 02110-2803.
COHEN & STEERS CAPITAL MANAGEMENT, 757 Third Avenue, New York, NY 10017.
SECURITY CAPITAL GLOBAL CAPITAL MANAGEMENT GROUP INCORPORATED, 11 South
LaSalle Street, 2nd Floor, Chicago, IL 60603.
99
<PAGE>
SHORT TERM BOND FUND
BLACKROCK FINANCIAL MANAGEMENT, INC., 345 Park Ave., 29th Floor, New York,
NY 10154.
STANDISH, AYER & WOOD, INC., One Financial Center, Boston, MA 02111.
STW FIXED INCOME MANAGEMENT LTD., 200 East Carrillo Street, Suite 100, Santa
Barbara, CA 93101-2143.
DIVERSIFIED BOND FUND
LINCOLN CAPITAL MANAGEMENT COMPANY, See: Diversified Equity Fund.
PACIFIC INVESTMENT MANAGEMENT COMPANY, 840 Newport Center Drive, Suite 360,
P.O. Box 6430, Newport Beach, CA 92658-6430.
STANDISH, AYER & WOOD, INC., See: Short Term Bond Fund.
MULTISTRATEGY BOND FUND
LAZARD ASSET MANAGEMENT, 30 Rockefeller Plaza, New York, NY 10112-6300.
MILLER, ANDERSON & SHERRERD, LLP, One Tower Bridge, W. Conshohocken, PA
19428.
PACIFIC INVESTMENT MANAGEMENT COMPANY, See: Diversified Bond Fund.
STANDISH, AYER & WOOD, INC., See: Short Term Bond Fund.
TAX EXEMPT BOND FUND
MFS INSTITUTIONAL ADVISORS, INC., 500 Boylston Street, Boston, MA 02116.
STANDISH, AYER & WOOD, INC., See: Short Term Bond Fund.
TAX-MANAGED LARGE CAP FUND
J.P. MORGAN INVESTMENT MANAGEMENT INC., 522 Fifth Ave., 6th Floor,
New York, NY 10036.
TAX-MANAGED SMALL CAP FUND
GEEWAX, TERKER & COMPANY, 99 Starr Street, Phoenixville, PA 19460.
WHEN CONSIDERING AN INVESTMENT IN THE FUNDS, DO NOT RELY ON ANY INFORMATION
UNLESS IT IS CONTAINED IN THIS PROSPECTUS OR IN THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION. THE FUNDS HAVE NOT AUTHORIZED ANYONE TO ADD ANY
INFORMATION OR TO MAKE ANY ADDITIONAL STATEMENTS ABOUT THE FUNDS. THE FUNDS MAY
NOT BE AVAILABLE IN SOME JURISDICTIONS OR TO SOME PERSONS. THE FACT THAT YOU
HAVE RECEIVED THIS PROSPECTUS SHOULD NOT, IN ITSELF, BE TREATED AS AN OFFER TO
SELL FUND SHARES TO YOU. CHANGES IN THE AFFAIRS OF THE FUNDS OR IN THE FUNDS'
MONEY MANAGERS MAY OCCUR AFTER THE DATE ON THE COVER PAGE OF THIS PROSPECTUS.
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED TO REFLECT ANY MATERIAL CHANGES
TO THE INFORMATION IT CONTAINS.
100
<PAGE>
For more information about the Funds, the following documents are available
without charge:
ANNUAL/SEMIANNUAL REPORTS: Additional information about the Funds'
investments is available in the Funds' annual and semiannual reports to
shareholders. In each Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds.
The annual report for each Fund and the SAI are incorporated into this
Prospectus by reference. You may obtain free copies of the reports and the
SAI, and may request other information, by contacting your Financial
Intermediary or the Funds at:
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
Telephone: 1-800-787-7354
Fax: 253-591-3495
Website: russell.com
You can review and copy information about the Funds (including the SAI) at
the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. You can obtain information on the operation of the Public Reference Room
by calling the Commission at 1-800-SEC-0330. You can obtain copies of this
information upon paying a duplicating fee by writing to the Public Reference
Section of the Commission, Washington, D.C. 20549-6009. Reports and other
information about the Funds are also available on the Commission's Internet
website at sec.gov.
FRANK RUSSELL INVESTMENT COMPANY
Class E and S Shares:
Diversified Equity Fund
Special Growth Fund
Equity Income Fund
Quantitative Equity Fund
International Securities Fund
Emerging Markets Fund
Real Estate Securities Fund
Short Term Bond Fund
Diversified Bond Fund
Multistrategy Bond Fund
Tax Exempt Bond Fund
Class S Shares:
Tax-Managed Large Cap Fund
Tax-Managed Small Cap Fund
[RUSSELL LOGO] Distributor: Russell Fund Distributors, Inc.
SEC File No. 811-3153
36-08-060 (05/00)
<PAGE>
TAX-MANAGED GLOBAL EQUITY FUND
FRANK RUSSELL INVESTMENT COMPANY
TAX-MANAGED
GLOBAL EQUITY FUND
PROSPECTUS
CLASS C SHARES
MAY 1, 2000
909 A STREET, TACOMA, WA 98402 . 800-787-7354 . 253-627-7001
As with all mutual funds, the Securities and Exchange Commission has neither
determined that the information in this Prospectus is accurate or complete,
nor approved or disapproved of these securities. It is a criminal offense to
state otherwise.
[RUSSELL LOGO]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary
Investment Objective...................................... 3
Principal Investment Strategies........................... 3
Principal Risks........................................... 5
Performance............................................... 5
Fees and Expenses......................................... 6
The Purpose of the Fund--Multi-Style, Multi-Manager
Diversification........................................... 8
Management of the Underlying Funds and the Global Equity
Fund...................................................... 11
The Money Managers for the Underlying Funds................. 13
Investment Objective and Principal Investment Strategies of
the Underlying Funds...................................... 14
Principal Risks............................................. 24
Dividends and Distributions................................. 27
Taxes....................................................... 28
How Net Asset Value Is Determined........................... 29
Distribution and Shareholder Servicing Arrangements......... 29
How to Purchase Shares...................................... 30
Exchange Privilege.......................................... 31
How to Redeem Shares........................................ 32
Payment of Redemption Proceeds.............................. 33
Written Instructions........................................ 34
Account Policies............................................ 35
Money Manager Information................................... 36
</TABLE>
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Tax-Managed Global Equity Fund seeks to achieve high, long-term capital
appreciation on an after-tax basis, while recognizing the possibility of high
fluctuations in year-to-year market values.
PRINCIPAL INVESTMENT STRATEGIES
The Frank Russell Investment Company (FRIC) Tax-Managed Global Equity Fund
(referred to as the Global Equity Fund or the Fund) is a "fund of funds," and
diversifies its assets by investing, at present, in the Class S Shares of
several other FRIC Funds (Underlying Funds). The Global Equity Fund seeks to
achieve its investment objective by investing in different combinations of the
Underlying Funds using a tax-efficient strategy.
The Global Equity Fund seeks to achieve its investment objectives while
minimizing shareholder tax consequences arising from its portfolio management
activities. In its attention to tax consequences of portfolio management, the
Global Equity Fund differs from most other fund-of-funds, which are managed to
maximize pre-tax return without regard to whether their portfolio management
activities result in taxable distributions to shareholders.
The Global Equity Fund intends to minimize its taxable distributions to
shareholders in three ways:
First, the Global Equity Fund strives to realize its returns as long-term
capital gains, and not as investment income, under US tax laws. To do so,
the Fund typically buys shares of Underlying Funds with the intention of
holding them long enough to qualify for capital gain tax treatment.
Second, the Global Equity Fund attempts to minimize its realization of
capital gains and to offset any such realization with capital losses. To do
so, when the Fund sells shares of an appreciated Underlying Fund, it seeks
to minimize the resulting capital gains by first selling the shares for
which it paid the highest price. Further, the Fund attempts to offset those
capital gains with matching capital losses by simultaneously selling shares
of depreciated Underlying Funds.
Third, the Global Equity Fund allocates a portion of its assets to
Underlying Funds that employ tax-efficient strategies.
When the Global Equity Fund's shares are redeemed, the Fund could be
required to sell portfolio securities resulting in its realization of net
capital gains, impacting all shareholders. The Global Equity Fund believes that
multiple purchases and redemptions of Fund shares by individual shareholders
could adversely affect its strategy of tax-efficiency and could reduce its
ability to contain costs. The Global Equity Fund further believes that
short-term investments in the Fund are inconsistent with its long-term strategy.
For this reason, the Global Equity Fund will apply its general right to refuse
any purchases by rejecting purchase orders from investors whose patterns of
purchases and redemptions in the Fund is, in the opinion of the Fund,
inconsistent with the Fund's strategy.
The Global Equity Fund allocates its assets by investing in shares of a
diversified group of Underlying Funds. The Underlying Funds in which the Fund
invests are shown in the table below. The Global
3
<PAGE>
Equity Fund intends its strategy of investing in combinations of Underlying
Funds to result in investment diversification that an investor could otherwise
achieve only by holding numerous individual investments.
<TABLE>
<CAPTION>
TAX-MANAGED
UNDERLYING FUND GLOBAL EQUITY FUND
--------------- ------------------
<S> <C>
Tax-Managed Large Cap Fund (formerly Equity T Fund) 50%
International Securities Fund 20%
Tax-Managed Small Cap Fund 15%
Quantitative Equity Fund 10%
Emerging Markets Fund 5%
</TABLE>
The Global Equity Fund intends to be fully invested at all times. Although
the Fund, like all other mutual funds, maintains liquidity reserves (i.e. cash
awaiting investment or held to meet redemption requests), the Fund exposes these
reserves to the performance of appropriate equity markets by investing in stock
futures contracts. This causes the Fund to perform as though its cash reserves
were actually invested in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Global Equity Fund can change the allocation of its assets among
Underlying Funds at any time, if its investment adviser, Frank Russell
Investment Management Company (FRIMCo) believes that doing so would better
enable the Global Equity Fund to pursue its investment objective. From time to
time, the Global Equity Fund adjusts its investments within set limits based on
FRIMCo's outlook for the economy, financial markets generally and relative
market valuation of the asset classes represented by each Underlying Fund.
Additionally, the Global Equity Fund may deviate from set limits when, in
FRIMCo's opinion, it is necessary to do so to pursue the Global Equity Fund's
investment objective. However, the Global Equity Fund expects that amounts it
allocates to each Underlying Fund will generally vary only within 10% of the
ranges specified in the table above.
DIVERSIFICATION
The Global Equity Fund is a "nondiversified" investment company for purposes
of the Investment Company Act of 1940 because it invests in the securities of a
limited number of issuers (i.e., the Underlying Funds). Each of the Underlying
Funds in which the Global Equity Fund invests is a diversified investment
company.
4
<PAGE>
PRINCIPAL RISKS
You should consider the following factors before investing in the Global
Equity Fund:
- An investment in the Global Equity Fund, like any investment, has risks.
The value of the Fund fluctuates, and you could lose money.
- Since the assets of the Global Equity Fund are invested primarily in
shares of the Underlying Funds, the investment performance of the Global
Equity Fund is directly related to the investment performance of the
Underlying Funds in which it invests.
- The policy of the Global Equity Fund is to allocate its assets among the
Underlying Funds within certain ranges. Therefore, the Fund may have less
flexibility to invest than a mutual fund without such constraints.
- The Global Equity Fund is exposed to the same risks as the Underlying
Funds in direct proportion to the allocation of its assets among the
Underlying Funds. These risks include the risks associated with a
multi-manager approach to investing, as well as those associated with
investing in equity securities and international securities. For further
detail on the risks summarized here, please refer to the section
"Principal Risks."
- An investment in the Global Equity Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
- The officers, Trustees and FRIMCo presently serve as officers, Trustees
and investment manager of the Underlying Funds. Therefore, conflicts may
arise as those persons and FRIMCo fulfill their fiduciary responsibilities
to the Global Equity Fund and to the Underlying Funds.
- The Global Equity Fund is designed for long-term investors who seek to
minimize the impact of taxes on their investment returns. The Fund is not
designed for short-term investors or for tax-deferred investment vehicles
such as IRAs and 40l(k) plans.
- If large shareholder redemptions occur unexpectedly, the Global Equity
Fund could be required to sell shares of appreciated Underlying Funds
resulting in realization of net capital gains. This could temporarily
reduce the Global Equity Fund's tax efficiency. Also, as the Global Equity
Fund matures, it may hold shares of Underlying Funds that have appreciated
so significantly that it would be difficult for the Fund to sell them
without realizing net capital gains.
PERFORMANCE
Because the Global Equity Fund had not been in operation for a full calendar
year when this Prospectus was printed, no performance history is included.
Performance history will be available for the Global Equity Fund after it has
been in operation for one calendar year.
5
<PAGE>
FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold Shares of the Global Equity Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES
MAXIMUM SALES CHARGE (LOAD)
CHARGE (LOAD) IMPOSED ON MAXIMUM
IMPOSED ON REINVESTED DEFERRED SALES REDEMPTION EXCHANGE
PURCHASES DIVIDENDS CHARGE (LOAD) FEES FEES
--------- --------- ------------- ---- ----
<S> <C> <C> <C> <C> <C>
Class C................................. None None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(% OF NET ASSETS)
<TABLE>
<CAPTION>
OTHER EXPENSES
(REFLECTING TOTAL GROSS TOTAL NET
SHAREHOLDER ANNUAL FUND EXPENSE WAIVERS ANNUAL FUND
ADVISORY DISTRIBUTION SERVICING OPERATING AND OPERATING
FEE (12B-1) FEES* FEES)** EXPENSES# REIMBURSEMENTS+ EXPENSES
--- ------------- ------- --------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Class C Shares................ 0.20% 0.75% 0.25% 1.20% (0.20)% 1.00%
</TABLE>
- ------------------------
* Pursuant to the rules of the National Association of Securities Dealers,
Inc. ("NASD"), the aggregate initial sales charges, deferred sales charges
and asset-based sales charges on shares of the Global Equity Fund may not
exceed 6.25% of total gross sales, subject to certain exclusions. This 6.25%
limitation is imposed on all Class C Shares of the Global Equity Fund as a
group rather than on a per shareholder basis. Therefore, long-term
shareholders of the Class C Shares may pay more than the economic equivalent
of the maximum front-end sales charges permitted by the NASD.
** The Fund expenses shown in this table do not include the pro-rata expenses
of the Underlying Funds, which are shown in the next two tables. For
purposes of this table, "Other Expenses" for Class C reflects a shareholder
services fee of up to 0.25% of average daily net assets. Annual operating
expenses are estimated, based on average net assets expected to be invested
during the Fund's first twelve months of operation. During the course of
this period, expenses may be more or less than the amount shown.
# If you purchase any class of Shares of the Global Equity Fund through a
Financial Intermediary, such as a bank or an investment adviser, you may
also pay additional fees to the intermediary for services provided by the
intermediary which, in turn, may pay fees to FRIMCo for services FRIMCo
provides to the Financial Intermediary. You should contact your financial
intermediary for information concerning what additional fees, if any, will
be charged.
+ FRIMCo has contractually agreed to waive, at least through February 28,
2001, its 0.20% advisory fee. Certain operating expenses of the Global
Equity Fund will be paid by the Underlying Funds and/or FRIMCo, as more
fully described below.
6
<PAGE>
DIRECT EXPENSES
The Global Equity Fund does not bear any direct operating expenses. Those
operating expenses include those arising from accounting, administrative,
custody, auditing, legal and transfer agent services. They do not include
expenses attributable to advisory fees (which are currently waived by FRIMCo),
any Rule 12b-1 distribution fee, any shareholder service fees, or any
nonrecurring extraordinary expenses, which will be borne by the Global Equity
Fund or its appropriate classes of shares.
The Global Equity Fund's direct operating expenses are borne either by the
Underlying Funds in which the Global Equity Fund invests or by FRIMCo. This
arrangement is governed by Special Servicing Agreements among each of the
affected Funds and FRIMCo. Those agreements are entered into on a yearly basis
and must be re-approved annually by FRIC's Board of Trustees.
INDIRECT EXPENSES
Shareholders in the Global Equity Fund bear indirectly the proportionate
expenses of the Underlying Funds in which the Global Equity Fund invests. The
following table provides the expense ratios for each of the Underlying Funds in
which the Global Equity Fund may invest (based on information as of
December 31, 1999).
<TABLE>
<CAPTION>
TOTAL NET OPERATING
UNDERLYING FUND (CLASS S SHARES) EXPENSE RATIOS
- -------------------------------- --------------
<S> <C>
Quantitative Equity Fund.................................... 0.93%
International Securities Fund............................... 1.30%
Emerging Markets Fund....................................... 1.91%
Tax-Managed Large Cap Fund (formerly Equity T Fund)......... 0.85%
Tax-Managed Small Cap Fund*................................. 1.25%
</TABLE>
- ------------------------
* Estimated based on average net assets expected to be invested during the
first twelve months of operations.
Based on these expense ratios, the Global Equity Fund expects its total
direct and indirect operating expense ratios (calculated as a percentage of
average net assets) to be as follows:
<TABLE>
<CAPTION>
CLASS C
-------
<S> <C>
Global Equity Fund.......................................... 2.06%
</TABLE>
The Global Equity Fund's total expense ratio is based on its estimated total
direct operating expense ratio plus a weighted average of the expense ratios of
the Underlying Funds in which it plans to invest. These total expense ratios may
be higher or lower depending on the allocation of the Global Equity Fund's
assets among the Underlying Funds, the actual expenses of the Underlying Funds
and the actual expenses of the Global Equity Fund.
7
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
GLOBAL EQUITY FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
The example assumes that you invest $10,000 in the Global Equity Fund for
the time periods indicated and then redeem all of your shares at the end of
those periods. The example also assumes your investment has a 5% return each
year, and that operating expenses, which include the indirect expenses of the
Underlying Funds, remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
-------- --------
<S> <C> <C>
Class C..................................................... $209 $687
</TABLE>
THE PURPOSE OF THE FUND--MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION
The Global Equity Fund is offered through certain bank trust departments,
registered investment advisers, broker-dealers and other financial services
organizations that have been selected by the Global Equity Fund's adviser or
distributor (Financial Intermediaries). The Global Equity Fund offers investors
the opportunity to invest in a diversified mutual fund investment allocation
program and is designed to provide a means for investors to use FRIMCo's and
Frank Russell Company's (Russell) "multi-style, multi-manager diversification"
investment method and to obtain FRIMCo's and Russell's money manager evaluation
services.
Three functions form the core of Russell's consulting services:
- OBJECTIVE SETTING: Defining appropriate investment objectives and desired
investment returns, based on a client's unique situation and risk
tolerance.
- ASSET ALLOCATION: Allocating a client's assets among different asset
classes--such as common stocks, fixed-income securities, international
securities, temporary cash investments and real estate--in a way most
likely to achieve the client's objectives and desired returns.
- MONEY MANAGER RESEARCH: Evaluating and recommending professional
investment advisory and management organizations ("money managers") to
make specific portfolio investments for each asset class, according to
designated investment objectives, styles and strategies.
When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.
The Global Equity Fund believes investors should seek to hold fully
diversified portfolios that reflect both their own individual investment time
horizons and their ability to accept risk. The Global Equity Fund believes that
for many, this can be accomplished through strategically purchasing shares in
one or more of the Underlying Funds which have been structured to provide access
to specific asset classes employing a multi-style, multi-manager approach.
Capital market history shows that asset classes with greater risk will
generally outperform lower risk asset classes over time. For instance, corporate
equities, over the past 50 years, have outperformed
8
<PAGE>
corporate debt in absolute terms. However, what is generally true of performance
over extended periods will not necessarily be true at any given time during a
market cycle, and from time to time asset classes with greater risk may also
underperform lower risk asset classes, on either a risk adjusted or absolute
basis. Investors should select a mix of asset classes that reflects their
overall ability to withstand market fluctuations over their investment horizons.
Studies have shown that no one investment style within an asset class will
consistently outperform competing styles. For instance, investment styles
favoring securities with growth characteristics may outperform styles favoring
income producing securities, and vice versa. For this reason, no single manager
has consistently outperformed the market over extended periods. Although
performance cycles tend to repeat themselves, they do not do so predictably.
The Global Equity Fund believes, however, that it is possible to select
managers who have shown a consistent ability to achieve superior results within
subsets or styles of specific asset classes and investment styles by employing a
unique combination of qualitative and quantitative measurements. A number of the
Underlying Funds in which the Global Equity Fund invests combine these select
managers with other managers within the same asset class who employ
complementary styles. By combining complementary investment styles within an
asset class, investors are better able to reduce their exposure to the risk of
any one investment style going out of favor.
By strategically selecting from among a variety of investments by asset
class, each of which has been constructed using these multi-style, multi-manager
principles, investors are able to design portfolios that meet their specific
investment needs.
The Global Equity Fund has a greater potential than most mutual funds for
diversification among investment styles and money managers since the Global
Equity Fund invests in shares of several Underlying Funds. The Global Equity
Fund was created to provide a mutual fund investor with a simple but effective
means of structuring a diversified mutual fund investment program suited to meet
the investor's individual needs. FRIMCo has long stressed the value of
diversification in an investment program, and has offered its advisory expertise
in assisting investors on how to design their individual investment program.
9
<PAGE>
The diversification afforded by the allocation of the Global Equity Fund's
investment in the Underlying Funds is illustrated in the following chart:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
International Securities 20%
Emerging Markets 5%
Quantitative Equity 10%
Tax-Managed Small Cap Fund 15%
Tax-Managed Large Cap Fund 50%
Tax-Managed Global Equity Fund
</TABLE>
The Global Equity Fund conducts its business through a number of service
providers, who act on behalf of the Fund. FRIMCo, the Fund's administrator and
investment adviser, performs the Fund's day to day corporate management and
oversees the Fund's money managers. The Fund's money managers make all
investment decisions for the portion of the Fund assigned to it by FRIMCo. The
Underlying Funds' custodian, State Street Bank, maintains custody of all of the
Underlying Funds' assets. FRIMCo, in its capacity as the Fund's transfer agent,
is responsible for maintaining the Fund's shareholder records and carrying out
shareholder transactions. When the Fund acts in one of these areas, it does so
through the service provider responsible for that area.
10
<PAGE>
MANAGEMENT OF THE UNDERLYING FUNDS
AND THE GLOBAL EQUITY FUND
The investment adviser of the Global Equity Fund and each of the Underlying
Funds is FRIMCo, 909 A Street, Tacoma, Washington 98402. FRIMCo pioneered the
"multi-style, multi-manager" investment method in mutual funds and manages over
$17 billion in more than 30 mutual fund portfolios. FRIMCo was established in
1982 to serve as the investment management arm of Russell.
Russell, which acts as consultant to the Global Equity Fund and each of the
Underlying Funds, was founded in 1936 and has been providing comprehensive asset
management consulting services for over 30 years to institutional investors,
principally large corporate employee benefit plans. Russell provides the Global
Equity Fund, the Underlying Funds, and FRIMCo with the asset management
consulting services that it provides to its other consulting clients. Neither
the Global Equity Fund nor the Underlying Funds compensate Russell for these
services. Russell and its affiliates have offices around the world, in Tacoma,
New York, Toronto, London, Paris, Sydney, Auckland, Singapore and Tokyo.
Russell is a subsidiary of The Northwestern Mutual Life Insurance Company.
Founded in 1857, Northwestern Mutual is a mutual life insurance corporation
headquartered in Milwaukee, Wisconsin. It leads the US in both individual life
insurance sold annually and individual life insurance in force.
FRIMCo recommends money managers to the Underlying Funds, allocates
Underlying Fund assets among them, oversees them, and evaluates their results.
FRIMCo also oversees the management of the Underlying Funds' liquidity reserves.
The Underlying Funds' money managers select the individual portfolio securities
for the assets in the Underlying Funds assigned to them.
James A. Jornlin is responsible for the day to day decisions regarding the
investment and reinvestment of the Global Equity Fund within its target asset
allocation strategy percentages. Mr. Jornlin has managed the Global Equity Fund
since its inception. He also oversees certain Underlying Funds as described
below.
FRIMCo's officers and employees who oversee the money managers of the
Underlying Funds are:
- Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
June 1989.
- Jean Carter, who has been Director of Global Equities since January 2000.
From 1994 to 1999, Ms. Carter was a Portfolio Manager of FRIMCo.
- Ann Duncan, who has been a Portfolio Manager of FRIMCo since January 1998.
From 1996 to 1997, Ms. Duncan was a Senior Equity Research Analyst with
Russell. From 1992 to 1995, Ms. Duncan was an equity analyst and portfolio
manager with Avatar Associates. Ms. Duncan has, jointly with Mr. Jornlin,
primary responsibility for management of the International and
International Securities Funds.
- James M. Imhof, Director of FRIMCo's Portfolio Trading, manages the Funds'
liquidity portfolios on a day to day basis and has been responsible for
ongoing analysis and monitoring of the money managers since 1989.
11
<PAGE>
- James A. Jornlin, who has been a Portfolio Manager of FRIMCo since January
2000. From 1995 to 1999, Mr. Jornlin was a Senior Investment Officer of
FRIMCo. From 1991 to 1995, Mr. Jornlin was a Senior Research Analyst with
Russell. Mr. Jornlin has primary responsibility for management of the
Tax-Managed Global Equity, Equity Aggressive Strategy, Aggressive
Strategy, Balanced Strategy, Moderate Strategy and Conservative Strategy
Funds, has, jointly with Mr. Ogard, primary responsibility for the
management of the Real Estate Securities Fund, has, jointly with Ms.
Duncan, primary responsibility for the management of the International and
International Securities Funds and has, jointly with Mr. Parish, primary
responsibility for the management of Emerging Markets Fund.
- Eric W. Ogard, who has been a Portfolio Manager of FRIMCo since
March 2000. Mr. Ogard was a Research Analyst for FRIMCo from 1995 to 1997
and a Senior Research Analyst for FRIMCo from 1997 to 2000. Mr. Ogard has,
jointly with Mr. Trittin and Mr. Tipple, primary responsibility for the
management of the Equity I, Equity II, Equity III, Equity Q, Tax-Managed
Large Cap, Tax-Managed Small Cap, Diversified Equity, Quantitative Equity,
Special Growth and Equity Income Funds and has, jointly with Mr. Jornlin,
primary responsibility for the management of the Real Estate Securities
Fund.
- Symon Parish who has been an Associate Portfolio Manager of Frank Russell
Company Limited, an affiliate of FRIMCo, since 1996. From 1994 to 1996,
Mr. Parish was a client service executive in Russell's Auckland office.
Mr. Parish has, jointly with Mr. Jornlin, primary responsibility for the
Emerging Markets Fund.
- Brian C. Tipple, who has been a Portfolio Manager of FRIMCo since July
1999. From 1991 to 1999, Mr. Tipple was a Client Executive with Frank
Russell Trust Company. Mr. Tipple has, jointly with Mr. Ogard and Mr.
Trittin, primary responsibility for the Equity I, Equity II, Equity III,
Equity Q, Tax-Managed Large Cap, Tax-Managed Small Cap, Diversified
Equity, Quantitative Equity, Special Growth and Equity Income Funds.
- Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of US Equity
Manager Research Department with Russell. Mr. Trittin has, jointly with
Mr. Ogard and Mr. Tipple, primary responsibility for management of the
Equity I, Equity II, Equity III, Equity Q, Tax-Managed Large Cap,
Tax-Managed Small Cap, Diversified Equity, Quantitative Equity, Special
Growth and Equity Income Funds.
For its investment advisory and administrative services, FRIMCo receives an
aggregate fee from the Global Equity Fund at the annual rate of 0.25% of the
average daily net assets of the Fund, payable to FRIMCo monthly on a pro rata
basis. Of this aggregate amount, 0.20% is attributable to advisory services and
0.05% is attributable to administrative services. FRIMCo has contractually
agreed to waive its 0.20% advisory fee to which it is entitled from the Global
Equity Fund.
In addition to the advisory fee payable by the Global Equity Fund, the Fund
will bear indirectly a proportionate share of operating expenses that include
the advisory fees paid by the Underlying Funds in which it invests. While a
shareholder of the Global Equity Fund will also bear a proportionate part of
advisory fees paid by an Underlying Fund, each of the advisory fees paid is
based upon the services received by the Global Equity Fund. From the advisory
fee that it receives from each Underlying Fund,
12
<PAGE>
FRIMCo pays the Underlying Fund's money managers for their investment selection
services. FRIMCo retains any remainder as compensation for the services
described above and to pay expenses. The annual rate of the advisory and
administrative fees, payable to FRIMCo monthly on a pro rata basis, are the
following percentages of the average daily net assets of each Underlying Fund:
Quantitative Equity Fund 0.78%, International Securities Fund 0.95%, Emerging
Markets Fund 1.20%, Tax-Managed Large Cap Fund 0.75% and Tax-Managed Small Cap
Fund 1.03%. Of this aggregate amount, 0.05% is attributable to administrative
services.
THE MONEY MANAGERS FOR THE UNDERLYING FUNDS
Each Underlying Fund allocates its assets among the money managers listed
under "Money Manager Information" at the end of this Prospectus. FRIMCo, as the
Underlying Funds' advisor, may change the allocation of an Underlying Fund's
assets among money managers at any time. The Underlying Funds received an
exemptive order from the Securities and Exchange Commission (SEC) that permits
an Underlying Fund to engage or terminate a money manager at any time, subject
to approval by the Underlying Fund's Board of Trustees (Board), without a
shareholder vote. An Underlying Fund notifies its shareholders within 60 days of
when a money manager begins providing services. The Underlying Funds select
money managers based primarily upon the research and recommendations of FRIMCo
and Russell. FRIMCo and Russell evaluate quantitatively and qualitatively the
money manager's skills and results in managing assets for specific asset
classes, investment styles and strategies. Short-term investment performance, by
itself, is not a controlling factor in any Underlying Fund's selection or
termination of a money manager.
Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of an Underlying Fund. At the same time, however,
each money manager must operate within the Underlying Fund's investment
objectives, restrictions and policies. Additionally, each manager must operate
within more specific constraints developed from time to time by FRIMCo. FRIMCo
develops such constraints for each manager based on FRIMCo's assessment of the
manager's expertise and investment style. By assigning more specific constraints
to each money manager, FRIMCo intends to capitalize on the strengths of each
money manager and to combine their investment activities in a complementary
fashion. Although the money managers' activities are subject to general
oversight by the Board and the Underlying Funds' officers, neither the Board,
the officers, FRIMCo, nor Russell evaluate the investment merits of the money
managers' individual security selections.
J.P. Morgan Investment Management, Inc. ("Morgan") manages the Tax-Managed
Large Cap Fund. Robin Chance is the individual responsible for the management of
the Fund. Ms. Chance, Vice President and member of the Structured Equity Group,
has responsibility for tax aware structured equity strategies. Ms. Chance joined
Morgan in 1987. Ms. Chance is a CFA and a graduate of the University of
Pennsylvania's Management and Technology Program, also earning an MBA from New
York University's Stern School of Business.
13
<PAGE>
Geewax, Terker & Company manages the Tax-Managed Small Cap Fund. John Julius
Geewax is the portfolio manager responsible for the management of the Fund. Mr.
Geewax is a graduate of the University of Pennsylvania and has earned a J.D.
from the University of Pennsylvania as well as an MBA and a PhD from the Wharton
School of the University of Pennsylvania. Mr. Geewax co-founded the firm in
1982. He is currently a general partner and portfolio manager responsible for
research and development and trading oversight for all of the firm's investment
services.
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
OF THE UNDERLYING FUNDS
The objective and principal strategies of each Underlying Fund are described
in this section. Further information about the Underlying Funds is contained in
the Statement of Additional Information as well as in the Prospectuses of the
Underlying Funds. Because the Global Equity Fund invests in the Underlying
Funds, investors of the Global Equity Fund will be affected by the Underlying
Funds' investment strategies in direct proportion to the amount of assets the
Global Equity Fund allocates to the Underlying Fund pursuing such policies. To
request a copy of a Prospectus for an Underlying Fund, contact FRIC at
800/787-7354 (in Washington, 253/627-7001).
QUANTITATIVE EQUITY FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell
1000-Registered Trademark- Index over a market cycle of four
to six years) while maintaining volatility and
diversification similar to the Index.
PRINCIPAL The Quantitative Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies which
STRATEGIES are predominately US based. The Fund generally pursues a
market-oriented style of security selection, which
incorporates both a growth style and a value style, based on
quantitative investment models which are mathematical
formulas based on statistical analyses. This style
emphasizes investments in companies that appear to be
undervalued relative to their growth prospects.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record as well as the characteristics of the money manager's
typical portfolio investments. These characteristics include
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment returns correlate with one another.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
Each of the Fund's money managers use quantitative models to
rank securities based upon their expected ability to
outperform the total return of the Russell 1000 Index. Once
a money manager has ranked the securities, it then selects
the securities most likely to outperform and constructs, for
its segment of the Fund, a portfolio that has risks similar
to the Russell 1000 Index. Each money manager performs this
process independently from each other money manager.
The Russell 1000 Index consists of the 1,000 largest US
companies by capitalization (i.e., market price per share
times the number of shares outstanding). The smallest
company in the Index at December 31, 1999 had a
capitalization of approximately $1.1 billion.
The Fund's money managers typically use a variety of
quantitative models, ranking securities within each model
and on a composite basis using proprietary weighting
formulas. Examples of those quantitative models are dividend
discount models, price/cash flow models, price/earnings
models, earnings surprise and earnings estimate revisions
models and price momentum models.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
15
<PAGE>
INTERNATIONAL SECURITIES FUND
- -----------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.
PRINCIPAL The International Securities Fund invests primarily in
INVESTMENT equity securities issued by companies domiciled outside the
STRATEGIES US and in depository receipts which represent ownership of
securities of non-US companies. The Fund's investments span
most of the developed nations of the world (particularly
Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. Because
international equity investment performance has a reasonably
low correlation to US equity performance, this Fund may be
appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.
The Fund may seek to protect its investments against adverse
currency exchange rate changes by purchasing forward
currency contracts. These contracts enable the Fund to "lock
in" the US dollar price of a security that it plans to buy
or sell. The Fund may not accurately predict currency
movements.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles, intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector. A
variation of this style maintains investments that
replicate country and sector weightings of a broad
international market index.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
17
<PAGE>
EMERGING MARKETS FUND
- ----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from developed market
international portfolios by investing primarily in equity
securities.
PRINCIPAL The Emerging Markets Fund will primarily invest in equity
INVESTMENT securities of companies that are located in countries with
STRATEGIES emerging markets or that derive a majority of their revenues
from operations in such countries. These companies are
referred to as "Emerging Market Companies." For purposes of
the Fund's operations, an "emerging market" country is a
country having an economy and market that the World Bank or
the United Nations consider to be emerging or developing.
These countries generally include every country in the world
except the United States, Canada, Japan, Australia and most
countries located in Western Europe.
The Fund seeks to maintain a broadly diversified exposure to
emerging market countries and ordinarily will invest in the
securities of issuers in at least three different emerging
market countries.
The Fund invests in common stocks of Emerging Market
Companies and in depository receipts which represent
ownership of securities of non-US companies. The Fund may
also invest in rights, warrants and convertible fixed-income
securities. The Fund's securities are denominated primarily
in foreign currencies and may be held outside the US.
Some emerging markets countries do not permit foreigners to
participate directly in their securities markets or
otherwise present difficulties for efficient foreign
investment. Therefore, when it believes it is appropriate to
do so, the Fund may invest in pooled investment vehicles,
such as other investment companies, which enjoy broader or
more efficient access to shares of Emerging Market Companies
in certain countries but may involve a further layering of
expenses.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record, as well as the characteristics of the money
manager's typical portfolio investments (e.g.,
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics). The Fund also considers
the manner in which money managers' historical and expected
investment returns correlate with one another.
The Fund may agree to purchase securities for a fixed price
at a future date beyond customary settlement time. This kind
of agreement is known as a "forward commitment" or as a
"when-issued" transaction.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. A Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
19
<PAGE>
TAX-MANAGED LARGE CAP FUND (FORMERLY EQUITY T FUND)
- ---------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide capital growth on an after-tax basis by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Tax-Managed Large Cap Fund invests primarily in equity
INVESTMENT securities of large capitalization US companies, as
STRATEGIES represented by the S&P 500-Registered Trademark- market
index, although the Fund may invest a limited amount in
non-US firms from time to time.
The Fund generally pursues a market-oriented style of
security selection, which incorporates both a growth style
and a value style, based on quantitative investment models
which are mathematical formulas based on statistical
analyses. This style emphasizes investments in large
capitalization companies that, on a long-term basis, appear
to be undervalued relative to their growth prospects, and
may include both growth and value securities. Although it is
not an index fund, under normal market conditions, the Tax-
Managed Large Cap Fund will invest at least 65 percent of
the value of its total assets in securities that are
included in the S&P 500 market index.
The Fund seeks to realize capital growth while minimizing
shareholder tax consequences arising from the Fund's
portfolio management activities. In its attention to tax
consequences of its investment decisions, the Fund differs
from most equity mutual funds, which are managed to maximize
pre-tax total return without regard to whether their
portfolio management activities result in taxable
distributions to shareholders.
The Fund is designed for long-term investors who seek to
minimize the impact of taxes on their investment returns.
The Fund is not designed for short-term investors or for
tax-deferred investment vehicles such as IRAs and 401(k)
plans.
The Fund intends to minimize its taxable distributions to
shareholders in two ways:
- First, the Fund strives to realize its returns as
long-term capital gains, and not as investment income,
under US tax laws. To do so, the Fund typically buys
stocks with the intention of holding them long enough
to qualify for capital gain tax treatment.
- Second, the Fund attempts to minimize its realization
of capital gains and to offset any such realization with
capital losses. To do so, when the Fund sells shares
of an appreciated portfolio security, it seeks to
minimize the resulting capital gains by first selling
the shares for which the Fund paid the highest price.
Further, the Fund attempts to offset those capital
gains with matching capital losses by simultaneously
selling shares of depreciated portfolio securities.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
If large shareholder redemptions occur unexpectedly, the
Fund could be required to sell portfolio securities
resulting in its realization of net capital gains. This
could temporarily reduce the Fund's tax efficiency. Also, as
the Fund matures, it may hold individual securities that
have appreciated so significantly that it would be difficult
for the Fund to sell them without realizing net capital
gains.
The Fund selects and holds portfolio securities based on its
assessment of their potential for long-term total returns.
The Fund uses a dividend discount model to gauge securities'
anticipated returns relative to their industry peers. This
model forecasts the expected future dividends of individual
securities and calculates the expected return at the current
share price. The Fund identifies securities that exhibit
superior total return prospects. From among those
securities, using a quantitative after-tax model, the Fund
chooses stocks from a variety of economic sectors and
industries, generally in the proportions that those sectors
and industries are represented in the S&P 500 Index.
When Shares are redeemed, the Fund could be required to sell
portfolio securities resulting in its realization of net
capital gains, impacting all shareholders. The Fund believes
that multiple purchases and redemptions of Fund shares by
individual shareholders could adversely affect the Fund's
strategy of tax-efficiency and could reduce its ability to
contain costs. The Fund further believes that short-term
investments in the Fund are inconsistent with its long-term
strategy. For this reason, the Fund will apply its general
right to refuse any purchases by rejecting purchase orders
from investors whose patterns of purchases and redemptions
in the Fund is inconsistent with the Fund's strategy.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. The Fund may also invest its liquidity
reserves in one or more Frank Russell Investment Company
(FRIC) money market funds.
Additionally, the Fund may lend up to one-third of its
portfolio securities to earn income. These loans may be
terminated at any time. The Fund will receive either cash or
US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
21
<PAGE>
TAX-MANAGED SMALL CAP FUND
- ---------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide capital growth on an after-tax basis by investing
OBJECTIVE principally in equity securities of small capitalization
companies.
PRINCIPAL The Tax-Managed Small Cap Fund invests primarily in equity
INVESTMENT securities of US companies, although the Fund may invest a
STRATEGIES limited amount in non-US firms from time to time.
The Fund generally pursues a market-oriented style of
security selection, which incorporates both a growth style
and a value style, based on quantitative investment models
which are mathematical formulas based on statistical
analyses. This style emphasizes investments in small
capitalization companies that, on a long-term basis, appear
to be undervalued relative to their growth prospects, and
may include both growth and value securities. Under normal
market conditions, the Tax-Managed Small Cap Fund will
invest at least 65 percent of the value of its total assets
in securities that are not included in the S&P 500 market
index.
The Fund seeks to realize capital growth while minimizing
shareholder tax consequences arising from the Fund's
portfolio management activities. In its attention to tax
consequences of its investment decisions, the Fund differs
from most equity mutual funds, which are managed to maximize
pre-tax total return without regard to whether their
portfolio management activities result in taxable
distributions to shareholders.
The Fund is designed for long-term investors who seek to
minimize the impact of taxes on their investment returns.
The Fund is not designed for short-term investors or for
tax-deferred investment vehicles such as IRAs and 401(k)
plans.
The Fund intends to minimize its taxable distributions to
shareholders in two ways:
- First, the Fund strives to realize its returns as
long-term capital gains, and not as investment income,
under US tax laws. To do so, the Fund typically buys
stocks with the intention of holding them long enough
to qualify for capital gain tax treatment.
- Second, the Fund attempts to minimize its realization
of capital gains and to offset any such realization with
capital losses. To do so, when the Fund sells shares
of an appreciated portfolio security, it seeks to
minimize the resulting capital gains by first selling
the shares for which the Fund paid the highest price.
Further, the Fund attempts to offset those capital
gains with matching capital losses by simultaneously
selling shares of depreciated portfolio securities.
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
If large shareholder redemptions occur unexpectedly, the
Fund could be required to sell portfolio securities
resulting in its realization of net capital gains. This
could temporarily reduce the Fund's tax efficiency. Also, as
the Fund matures, it may hold individual securities that
have appreciated so significantly that it would be difficult
for the Fund to sell them without realizing net capital
gains.
The Fund selects and holds portfolio securities based on its
assessment of their potential for long term total returns.
When the Fund's shares are redeemed, the Fund could be
required to sell portfolio securities resulting in its
realization of net capital gains, impacting all
shareholders. The Fund believes that multiple purchases and
redemptions of Fund shares by individual shareholders could
adversely affect the Fund's strategy of tax-efficiency and
could reduce its ability to contain costs. The Fund further
believes that short-term investments in the Fund are
inconsistent with its long-term strategy. For this reason,
the Fund will apply its general right to refuse any
purchases by rejecting purchase orders from investors whose
patterns of purchases and redemptions in the Fund is
inconsistent with the Fund's strategy.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform generally as though its cash reserves were actually
invested in those markets. The Fund may also invest its
liquidity reserves in one or more Frank Russell Investment
Company (FRIC) money market funds.
Additionally, the Fund may lend up to one-third of its
portfolio securities to earn income. These loans may be
terminated at any time. The Fund will receive either cash or
US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
23
<PAGE>
PRINCIPAL RISKS
The following table describes principal types of risks the Global Equity
Fund is subject to, based on the investments made by the Underlying Funds, and
lists next to each description the Underlying Funds most likely to be affected
by the risk. Other Underlying Funds that are not listed may be subject to one or
more of the risks, based on the allocation of assets among the Underlying Funds,
but will not do so in a way that is expected to principally affect the
performance of the Global Equity Fund or Underlying Fund as a whole. Please
refer to the Global Equity Fund's Statement of Additional Information for a
discussion of risks associated with types of securities held by the Underlying
Funds and the investment practices employed by the individual Underlying Funds.
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
MULTI-MANAGER The investment styles employed by a Fund's Global Equity Fund
APPROACH money managers may not be complementary. The
interplay of the various strategies employed by (UNDERLYING FUNDS:
a Fund's multiple money managers may result in QUANTITATIVE EQUITY
a Fund holding a concentration of certain types INTERNATIONAL SECURITIES
of securities. This concentration may be EMERGING MARKETS)
beneficial or detrimental to a Fund's
performance depending upon the performance of
those securities and the overall economic
environment. The multi-manager approach could
result in a high level of portfolio turnover,
resulting in higher Fund brokerage expenses and
increased tax liability from a Fund's
realization of capital gains.
TAX-SENSITIVE A Fund's tax-managed equity investment strategy Global Equity Fund
MANAGEMENT may not provide as high a return before
consideration of federal income tax (UNDERLYING FUNDS:
consequences as other funds. A tax-sensitive TAX-MANAGED LARGE CAP
investment strategy involves active management TAX-MANAGED SMALL CAP)
and a Fund can realize capital gains.
EQUITY SECURITIES The value of equity securities will rise and Global Equity Fund
fall in response to the activities of the
company that issued the stock, general market (ALL UNDERLYING FUNDS)
conditions and/or economic conditions.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
- -Value Stocks Investments in value stocks are subject to Global Equity Fund
risks that (i) their intrinsic values may never
be realized by the market or (ii) such stock (UNDERLYING FUNDS:
may turn out not to have been undervalued. INTERNATIONAL SECURITIES
TAX-MANAGED LARGE CAP
TAX-MANAGED SMALL CAP)
- -Growth Stocks Growth company stocks may provide minimal Global Equity Fund
dividends which could otherwise cushion stock
prices in a market decline. The value of growth (UNDERLYING FUNDS:
company stocks may rise and fall significantly INTERNATIONAL SECURITIES
based, in part, on investors' perceptions of TAX-MANAGED LARGE CAP
the company, rather than on fundamental TAX-MANAGED SMALL CAP)
analysis of the stocks.
- -Market-Oriented Market-oriented investments are generally Global Equity Fund
Investments subject to the risks associated with growth and
value stocks. (UNDERLYING FUNDS:
QUANTITATIVE EQUITY
INTERNATIONAL SECURITIES
TAX-MANAGED LARGE CAP
TAX-MANAGED SMALL CAP)
- -Securities of Small Investments in smaller companies may involve Global Equity Fund
Capitalization greater risks because these companies generally
Companies have a limited track record. Smaller companies (UNDERLYING FUND:
often have narrower markets and more limited TAX-MANAGED SMALL CAP)
managerial and financial resources than larger,
more established companies. As a result, their
performance can be more volatile, which may
increase the volatility of a Fund's portfolio.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
INTERNATIONAL A Fund's return and net asset value may be Global Equity Fund
SECURITIES significantly affected by political or economic
conditions and regulatory requirements in a (UNDERLYING FUNDS:
particular country. Foreign markets, economies INTERNATIONAL SECURITIES
and political systems may be less stable than EMERGING MARKETS)
US markets, and changes in exchange rates of
foreign currencies can affect the value of a
Fund's foreign assets. Foreign laws and
accounting standards typically are not as
strict as they are in the US and there may be
less public information available about foreign
companies. A Fund's foreign debt securities are
typically obligations of sovereign governments.
These securities are particularly subject to a
risk of default from political instability.
Foreign securities markets may be less liquid
and have fewer transactions than US securities
markets. Additionally, international markets
may experience delays and disruptions in
securities settlement procedures for a Fund's
portfolio securities.
- -Emerging Market Investments in emerging or developing markets (UNDERLYING FUND:
Countries involve exposure to economic structures that EMERGING MARKETS)
are generally less diverse and mature, and to
political systems which have less stability
than those of more developed countries.
Emerging market securities are subject to
currency transfer restrictions and may
experience delays and disruptions in securities
settlement procedures for the Fund's portfolio
securities.
EXPOSING LIQUIDITY By exposing its liquidity reserves to the Global Equity Fund
RESERVES TO EQUITY equity market principally by use of equity
MARKETS futures, a Fund's performance tends to (UNDERLYING FUNDS:
correlate more closely to the performance of QUANTITATIVE EQUITY
the market as a whole. Although this increases INTERNATIONAL SECURITIES
a Fund's performance if equity markets rise, it TAX-MANAGED LARGE CAP
reduces a Fund's performance if equity markets TAX-MANAGED SMALL CAP)
decline.
SECURITIES LENDING If a borrower of a Fund's securities fails Global Equity Fund
financially, the Fund's recovery of the loaned
securities may be delayed or the Fund may lose (UNDERLYING FUNDS:
its rights to the collateral which could result ALL UNDERLYING FUNDS)
in a loss to a Fund.
</TABLE>
26
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
INCOME DIVIDENDS
The Global Equity Fund distributes substantially all of its net investment
income and net capital gains to shareholders each year. The amount and frequency
of distributions are not guaranteed, all distributions are at the Board's
discretion. Currently, the Board intends to declare dividends from net
investment income, if any, for the Global Equity Fund on an annual basis, with
payment being made in mid-December.
CAPITAL GAINS DISTRIBUTIONS
The Board intends to declare capital gain distributions (both short-term and
long-term) once a year in mid-December to reflect any net short-term and net
long-term capital gains realized by the Fund as of October 31 of the current
fiscal year. The Fund may be required to make an additional distribution if
necessary, in any year for operational or other reasons. Distributions that are
declared in October, November, or December to shareholders of record in such
months, and paid in January of the following year, will be treated for tax
purposes as if received on December 31 of the year in which they were declared.
In addition, the Global Equity Fund receives capital gains distributions
from the Underlying Funds. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, the Global Equity Fund
may generate capital gains through rebalancing the portfolio to meet the Fund's
allocation percentages.
BUYING A DIVIDEND
If you purchase shares just before a distribution, you will pay the full
price for the Shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." Unless your account is
a tax-deferred account, dividends paid to you would be included in your gross
income for tax purposes even though you may not have participated in the
increase of the net asset value of the Global Equity Fund, regardless of whether
you reinvested the dividends. To avoid "buying a dividend," check a Fund's
distribution dates before you invest.
AUTOMATIC REINVESTMENT
Your dividends and other distributions are automatically reinvested at the
closing net asset value on the record date, in additional shares of the Global
Equity Fund, unless you elect to have the dividends or distributions paid in
cash or invested in another Fund. You may change your election by delivering
written notice no later than ten days prior to the payment date to the Global
Equity Fund at Frank Russell Investment Company c/o Boston Financial Data
Services, 2 Heritage Drive, N. Quincy, MA 02171.
27
<PAGE>
TAXES
In general, distributions from the Global Equity Fund are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest your
distributions in additional shares of the Global Equity Fund or receive them in
cash. Any long-term capital gains distributed by the Global Equity Fund are
taxable to you as long-term capital gains no matter how long you have owned your
shares. Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell or exchange your shares of the Global Equity Fund, you may
have a capital gain or loss. The tax rate on any gain from the sale or exchange
of your shares depends on how long you have held your shares.
The Fund makes no representation as to the amount or variability of its
capital gain distributions which may vary as a function of several variables
including, but not limited to, prevailing dividend yield levels, general market
conditions, shareholders redemption patterns and Fund cash equitization
activity.
The Global Equity Fund distributions and gains from the sale or exchange of
your shares will generally be subject to state and local income tax. Non-US
investors may be subject to US withholding and estate tax. You should consult
your tax professional about federal, state, local or foreign tax consequences in
holding shares of the Global Equity Fund.
Athough the Tax-Managed Large Cap and the Tax-Managed Small Cap Funds are
managed to minimize the amount of capital gains realized during a particular
year, the realization of capital gains is not entirely within either of those
Underlying Fund's or its money manager's control. Shareholder purchase and
redemption activity, as well as those Underlying Fund's performance, will impact
the amount of capital gains realized. Capital gains distributions by the
Tax-Managed Large Cap Fund and Tax-Managed Small Cap Fund may vary considerably
from year to year.
By law, the Global Equity Fund must withhold 31% of your distributions and
proceeds if you do not provide your correct taxpayer identification number, or
certify that such number is correct, or if the IRS instructs the Global Equity
Fund to do so.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE GLOBAL
EQUITY FUND.
Additional information on these and other tax matters relating to the Global
Equity Fund and its shareholders is included in the section entitled "Taxes" in
the Fund's Statement of Additional Information.
28
<PAGE>
HOW NET ASSET VALUE IS DETERMINED
NET ASSET VALUE PER SHARE
The net asset value per share is calculated for Shares of each Class of the
Global Equity Fund on each business day on which Shares are offered or
redemption orders are tendered. For the Global Equity Fund, a business day is
one on which the New York Stock Exchange (NYSE) is open for trading. The NYSE is
not open on national holidays or Good Friday. The Global Equity Fund and all
Underlying Funds determine net asset value at 4:00 p.m. Eastern Time or as of
the close of the NYSE, whichever is earlier. The determination is made by
appraising the Global Equity Fund's underlying investments on each business day
(i.e., the Underlying Funds at the current net asset value per share of such
Underlying Fund).
Money market instruments maturing within 60 days of the valuation date that
are held by the Tax-Managed Large Cap and Tax-Managed Small Cap Funds are valued
at "amortized cost" unless the Board determines that amortized cost does not
represent fair value. Under this method, a portfolio instrument is initially
valued at cost, and thereafter a constant accretion/amortization to maturity of
any discount or premium is assumed. While amortized cost provides certainty in
valuation, it may result in periods when the value of an instrument is higher or
lower than the price those Underlying Funds would receive if they sold the
instrument.
VALUATION OF PORTFOLIO SECURITIES
Securities held by the Underlying Funds are typically priced using market
quotations or pricing services when the prices are believed to be reliable, that
is, when the prices reflect the fair market value of the securities. The
Underlying Funds value securities for which market quotations are not readily
available at "fair value," as determined in good faith and in accordance with
procedures established by the Board. The Global Equity Fund invests in
Underlying Funds, such as the International Securities Fund, that holds
portfolio securities listed primarily on foreign exchanges. The net asset value
of those Underlying Funds' shares and therefore, the Global Equity Fund's
Shares, may change on a day when you will not be able to purchase or redeem
Global Equity Fund Shares. This is because the value of those portfolio
securities may change on weekends or other days when the Global Equity Fund does
not price its shares.
DISTRIBUTION AND SHAREHOLDER
SERVICING ARRANGEMENTS
The Global Equity Fund offers multiple classes of shares: Class C Shares and
Class S Shares.
CLASS C SHARES participate in the Global Equity Fund's Rule 12b-1
distribution plan and in its shareholder servicing plan. Under the distribution
plan, Class C Shares pay distribution fees of 0.75% annually for the sale and
distribution of Class C Shares. Under the shareholder servicing plan, the Class
C Shares pay shareholder servicing fees of 0.25% on an annualized basis for
services provided to Class C shareholders. Because both of these fees are paid
out of the Class C Share assets on an ongoing basis, over time these fees will
increase the cost of a Class C Share investment in the Global Equity Fund, and
the distribution fee may cost an investor more than paying other types of sales
charges.
CLASS S SHARES participate in neither the Fund's distribution plan nor the
Fund's shareholder services plan.
29
<PAGE>
HOW TO PURCHASE SHARES
The Global Equity Fund is generally available only through a select network
of qualified Financial Intermediaries. If you are not currently working with one
of these Financial Intermediaries, please call Russell Investor Services at
(800) RUSSEL4 (800-787-7354) for assistance in contacting an investment
professional near you.
For Class C Shares, there is a $1,000 required minimum initial investment
for each account in the Global Equity Fund. The Global Equity Fund reserves the
right to change the categories of investors eligible to purchase shares or the
required minimum investment amounts. You may be eligible to purchase Fund shares
if you do not meet the required initial minimum investment. You should consult
your Financial Intermediary for details, which are summarized in the Funds'
statement of additional information.
Financial Intermediaries may charge their customers a fee for providing
investment-related services. Financial Intermediaries that maintain omnibus
accounts with the Funds may receive administrative fees from the Fund or its
transfer agent. Financial Intermediaries may receive distribution and
shareholder servicing compensation with respect to Class C Shares.
PAYING FOR SHARES
You may purchase Shares of the Global Equity Fund through a Financial
Intermediary on any business day the Fund is open. Purchase orders are processed
at the next net asset value per share calculated after the Global Equity Fund
receives your order in proper form (defined in the "Written Instructions"
section), and accepts the order.
All purchases must be made in US dollars. Checks and other negotiable bank
drafts must be drawn on US banks and made payable to "Frank Russell Investment
Company." The Global Equity Fund reserves the right to reject any purchase order
for any reason including, but not limited to, receiving a check which does not
clear the bank or a payment which does not arrive in proper form by settlement
date. You will be responsible for any resulting loss to the Fund. An overdraft
charge may also be applied. Cash, third party checks and checks drawn on credit
card accounts generally will not be accepted. However, exceptions may be made by
prior special arrangement with certain Financial Intermediaries.
OFFERING DATES AND TIMES
Orders must be received by the Global Equity Fund prior to 4:00 p.m. Eastern
Time or the close of the NYSE, whichever is earlier. Purchases can be made on
any day when Global Equity Fund shares are offered. Because Financial
Intermediaries' processing time may vary, please ask your Financial Intermediary
representative when your account will be credited.
ORDER AND PAYMENT PROCEDURES
Generally, you must place purchase orders for Shares through a Financial
Intermediary. You may pay for your purchase by mail or electronic funds
transfer. Initial purchases require a completed and
30
<PAGE>
signed Application for each new account regardless of the investment method.
Specific payment arrangements should be made with your Financial Intermediary.
BY MAIL
For new accounts, please mail the completed Application to your Financial
Intermediary. Payment for orders may be made by check or other negotiable bank
draft and sent to the Global Equity Fund's Transfer Agent. Certified checks are
not necessary, but checks are accepted subject to collection at full face value
in US funds. Third party checks will not be accepted. Checks should be made
payable to "Frank Russell Investment Company."
BY FEDERAL FUNDS WIRE
You can pay for orders by wiring federal funds to the Global Equity Fund's
Custodian, State Street Bank and Trust Company. All wires must include your
account registration and account number for identification. Inability to
properly identify a wire transfer may prevent or delay timely settlement of your
purchase.
BY AUTOMATED CLEARING HOUSE ("ACH")
You can make initial or subsequent investments through ACH to the Fund's
Custodian, State Street Bank and Trust Company.
AUTOMATED INVESTMENT PROGRAM
You can make regular investments (minimum $50) in the Global Equity Fund in
an established account on a monthly, quarterly, semiannual or annual basis by
automatic electronic funds transfer from a bank account. You may change the
amount or stop the automatic purchase at any time. Contact your Financial
Intermediary for further information on this program and an enrollment form.
THREE-DAY SETTLEMENT PROGRAM
The Global Equity Fund will accept orders at the next computed net asset
value through Financial Intermediaries to purchase Shares of the Fund for
settlement on the third business day following the receipt of the order. These
orders are paid for by a federal funds wire if the Financial Intermediary has
enrolled in the program and agreed in writing to indemnify the Global Equity
Fund against any losses resulting from non-receipt of payment.
EXCHANGE PRIVILEGE
BY MAIL OR TELEPHONE
Through your Financial Intermediary, you may be able to exchange shares of
the Global Equity Fund for shares of another FRIC Fund. Shares of the Global
Equity Fund offered by this Prospectus may only be exchanged for shares of a
fund offered by FRIC through another Prospectus under certain
31
<PAGE>
conditions and only in states where the exchange may be legally made. For
additional information, including Prospectuses for other FRIC Funds, contact
your Financial Intermediary.
Exchanges may be made by mail or by telephone if the registration of the two
accounts is identical. Contact your Financial Intermediary for assistance in
exchanging Shares and, because Financial Intermediaries' processing time may
vary, to find out when your account will be credited or debited. To request an
exchange in writing, please follow the procedures in the "Written Instructions"
section before mailing to your Financial Intermediary.
An exchange involves the redemption of Shares, which is treated as a sale
for income tax purposes. Thus, capital gain or loss may be realized. Please
consult your tax adviser for more information. The Shares to be acquired will be
purchased when the proceeds from the redemption become available (up to seven
days from the receipt of the request) at the next net asset value per share
calculated after the Funds received the exchange request in good order.
IN-KIND EXCHANGE OF SECURITIES
FRIMCo, in its capacity as the Global Equity Fund's investment advisor, may,
at its discretion, permit you to acquire Shares in exchange for securities you
currently own. Any securities exchanged must meet the investment objective,
policies and limitations of the Global Equity Fund, have a readily ascertainable
market value, be liquid, not be subject to restrictions on resale and have a
market value, plus any cash, equal to at least $100,000.
Shares purchased in exchange for securities generally may not be redeemed or
exchanged for 15 days following the purchase by exchange or until the transfer
has settled, whichever comes first. If you are a taxable investor, you will
generally realize a gain or loss for federal income tax purposes on the
exchange. If you are contemplating an in-kind exchange you should consult your
tax adviser.
The price at which the exchange will take place will depend upon the
relative net asset value of the Shares purchased and securities exchanged.
Securities accepted by the Fund will be valued in the same way the Fund values
its assets. Any interest earned on the securities following their delivery to
the Global Equity Fund and prior to the exchange will be considered in valuing
the securities. All interest, dividends, subscription or other rights attached
to the securities becomes the property of the Fund, along with the securities.
Please contact your Financial Intermediary for further information.
HOW TO REDEEM SHARES
Shares of the Global Equity Fund may be redeemed through your Financial
Intermediary on any business day the Fund is open at the next net asset value
per share calculated after the Fund's Transfer Agent receives an order in proper
form (defined in the "Written Instructions" section). Payment will ordinarily be
made within seven days after receipt of your request in proper form. Shares
recently purchased by check may not be available for redemption for 15 days
following the purchase or until the check clears, whichever occurs first, to
assure payment has been collected.
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<PAGE>
REDEMPTION DATES AND TIMES
Redemption requests must be placed through a Financial Intermediary and
received by the Global Equity Fund prior to 4:00 p.m. Eastern Time or the close
of the NYSE, whichever is earlier. Because Financial Intermediaries' processing
times may vary, please ask your Financial Intermediary representative when your
account will be debited. Requests can be made by mail or telephone on any day
when Global Equity Fund shares are offered.
BY MAIL OR TELEPHONE
You may redeem your shares by calling or writing to your Financial
Intermediary. Written requests to sell shares are in proper form when the
instructions are signed by all registered owners, with a signature guarantee if
necessary.
SYSTEMATIC WITHDRAWAL PROGRAM
The Fund does not offer a systematic withdrawal program in view of its
portfolio management strategy.
ACCOUNTS IN STREET NAME
Many brokers, employee benefit plans and bank trusts combine their client's
holdings in a single omnibus account held in the brokers', plans', or bank
trusts' own name or "street name." Therefore, if you hold Global Equity Fund
shares through a brokerage account, employee benefit plan or bank trust fund,
the Global Equity Fund may have records only of the omnibus account. In this
case, your broker, employee benefit plan or bank is responsible for keeping
track of your account information. This means that you may not be able to
request transactions in your Shares directly through the Fund, but can do so
only through your broker, plan administrator or bank. Ask your Financial
Intermediary for information on whether your Global Equity Fund shares are held
in an omnibus account.
PAYMENT OF REDEMPTION PROCEEDS
BY CHECK
When you redeem your Shares, a check for the redemption proceeds will be
sent to the shareholder(s) of record at the address of record within seven days
after the Global Equity Fund receives a redemption request in proper form.
BY WIRE
If you have established the electronic redemption option, your redemption
proceeds can be wired to your predesignated bank account on the next bank
business day after the Global Equity Fund receives your redemption request. The
Fund may charge a fee to cover the cost of sending a wire transfer for
redemptions less than $1,000, and your bank may charge an additional fee to
receive the wire. Wire transfers can be sent to US commercial banks that are
members of the Federal Reserve System.
33
<PAGE>
WRITTEN INSTRUCTIONS
PROPER FORM: Written instructions must be in proper form. They must include:
A description of the request
The name of the Fund(s)
The class of shares, if applicable
The account number(s)
The amount of money or number of shares being purchased, exchanged,
transferred or redeemed
The name(s) on the account(s)
The signature(s) of all registered account owners
For exchanges, the name of the Fund you are exchanging into
Your daytime telephone number
SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
<TABLE>
<CAPTION>
ACCOUNT TYPE REQUIREMENTS FOR WRITTEN REQUESTS
<S> <C>
Individual, Joint Tenants, Tenants in Written instructions must be signed by each
Common shareholder, exactly as the names appear in the
account registration.
UGMA or UTMA (custodial accounts for Written instructions must be signed by the
minors) custodian in his/her capacity as it appears in
the account registration.
Corporation, Association Written instructions must be signed by authorized
person(s), stating his/her capacity as indicated
by the corporate resolution to act on the account
and a copy of the corporate resolution, certified
within the past 90 days, authorizing the signer
to act.
Estate, Trust, Pension, Profit Sharing Written instructions must be signed by all
Plan trustees. If the name of the trustee(s) does not
appear in the account registration, please
provide a copy of the trust document certified
within the last 60 days.
Joint tenancy shareholders whose Written instructions must by signed by the
co-tenants are deceased surviving tenant(s). A certified copy of the
death certificate must accompany the request.
</TABLE>
34
<PAGE>
SIGNATURE GUARANTEE
The Global Equity Fund reserves the right to require a signature guarantee
under certain circumstances. A signature guarantee verifies the authenticity of
your signature. You should be able to obtain a signature guarantee from a bank,
broker, credit union, savings association, clearing agency, or securities
exchange or association, but not a notary public. Call your financial
institution to see if it has the ability to guarantee a signature.
ACCOUNT POLICIES
THIRD PARTY TRANSACTIONS
If you purchase Global Equity Fund shares as part of a program of services
offered by a Financial Intermediary, you may be required to pay additional fees.
You should contact your Financial Intermediary for information concerning what
additional fees, if any, may be charged.
REDEMPTION IN-KIND
The Fund may pay for any portion of the redemption amount in excess of
$250,000 by a distribution in-kind of securities from the Fund's portfolio,
instead of in cash. If you receive an in-kind distribution of portfolio
securities, and choose to sell them, you will incur brokerage charges and
continue to be subject to tax consequences and market risk pending any sale.
STALE CHECKS
For the protection of shareholders and the Fund, if a check issued for the
payment of a redemption or distribution is not cashed for more than 180 days
from issuance, it will not be honored. The Fund has adopted procedures described
in the statement of additional information regarding the treatment of stale
checks, or you may contact your Financial Intermediary for additional
information.
35
<PAGE>
MONEY MANAGER INFORMATION
The money managers have no affiliations with the Global Equity Fund or the
Fund's service providers other than their management of Underlying Fund assets.
Each money manager has been in business for at least three years, and is
principally engaged in managing institutional investment accounts. These
managers may also serve as managers or advisers to other Funds in FRIC, or to
other clients of FRIMCo or of Frank Russell Company, including Frank Russell
Company's wholly-owned subsidiary, Frank Russell Trust Company.
This section identifies the money managers for the Underlying Funds in which
the Global Equity Fund invests.
QUANTITATIVE EQUITY FUND
BARCLAYS GLOBAL FUND ADVISORS, 45 Fremont Street 17th Floor, San Francisco,
CA 94105.
FRANKLIN PORTFOLIO ASSOCIATES LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., 522 Fifth Ave., 6th Floor, New
York, NY 10036.
JACOBS LEVY EQUITY MANAGEMENT, INC., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.
INTERNATIONAL SECURITIES FUND
DELAWARE INTERNATIONAL ADVISERS LTD., 80 Cheapside, 3rd Floor, London
EC2V6EE England.
FIDELITY MANAGEMENT TRUST COMPANY, 82 Devonshire Street, Boston, MA 02109.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., See: Quantitative Equity Fund.
MASTHOLM ASSET MANAGEMENT, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue,
WA 98004.
MONTGOMERY ASSET MANAGEMENT, LLC, 101 California Street, 35th Floor, San
Francisco, CA 94111.
OECHSLE INTERNATIONAL ADVISORS, LLC, One International Place, 23rd Floor,
Boston, MA 02110.
SANFORD C. BERNSTEIN & CO., INC., 767 Fifth Avenue, 21st Floor, New York, NY
10153-0185.
THE BOSTON COMPANY ASSET MANAGEMENT, INC., One Boston Place, 14th Floor,
Boston, MA 02108-4402.
EMERGING MARKETS FUND
FOREIGN & COLONIAL EMERGING MARKETS LIMITED, Exchange House, Primrose
Street, London, England EC2A 2NY.
GENESIS ASSET MANAGERS LIMITED, 21 Knightsbridge, London SW1X 7LY England.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, 600 W. Broadway 29th Floor, San
Diego, CA 92101.
SANFORD C. BERNSTEIN & CO. INC., See: International Securities Fund.
36
<PAGE>
SCHRODERS CAPITAL MANAGEMENT INTERNATIONAL LIMITED, 31 Greshman Street,
London EC2V 7QA England.
TAX-MANAGED LARGE CAP FUND
(FORMERLY EQUITY T FUND)
J.P. MORGAN INVESTMENT MANAGEMENT, INC., See: Quantitative Equity Fund.
TAX-MANAGED SMALL CAP FUND
GEEWAX, TERKER & COMPANY, 99 Starr Street, Phoenixville, PA 19460.
WHEN CONSIDERING AN INVESTMENT IN THE GLOBAL EQUITY FUND, DO NOT RELY ON ANY
INFORMATION UNLESS IT IS CONTAINED IN THIS PROSPECTUS OR IN THE GLOBAL EQUITY
FUND STATEMENT OF ADDITIONAL INFORMATION. THE GLOBAL EQUITY FUND HAS NOT
AUTHORIZED ANYONE TO ADD ANY INFORMATION OR TO MAKE ANY ADDITIONAL STATEMENTS
ABOUT THE FUND. THE FUND MAY NOT BE AVAILABLE IN SOME JURISDICTIONS OR TO SOME
PERSONS. THE FACT THAT YOU HAVE RECEIVED THIS PROSPECTUS SHOULD NOT, IN ITSELF,
BE TREATED AS AN OFFER TO SELL GLOBAL EQUITY FUND SHARES TO YOU. CHANGES IN THE
AFFAIRS OF THE FUND OR IN THE UNDERLYING FUNDS' MONEY MANAGERS MAY OCCUR AFTER
THE DATE ON THE COVER PAGE OF THIS PROSPECTUS. THIS PROSPECTUS WILL BE AMENDED
OR SUPPLEMENTED TO REFLECT ANY MATERIAL CHANGES TO THE INFORMATION IT CONTAINS.
37
<PAGE>
For more information about the LifePoints Tax-Managed Global Equity Fund, the
following documents are available without charge:
ANNUAL/SEMIANNUAL REPORTS: Additional information about the LifePoints
Tax-Managed Global Equity Fund's investments will be available in the Fund's
annual and semiannual reports to shareholders once the Fund has completed its
first annual or semi-annual period. In the annual report, you will find a
discussion of the Fund's holdings and of market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the LifePoints Tax-Managed Global Equity Fund.
You may obtain free copies of the annual report for the Fund once the Fund
has completed its first annual or semi-annual period and of the SAI or may
request other information, by contacting your Financial Intermediary or the
Fund at:
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
1-800-787-7354
Fax: 253-591-3495
Website: russell.com
You can review and copy information about the LifePoints Tax-Managed Global
Equity Fund (including the SAI) at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. You can obtain copies of this information upon paying a
duplicating fee by writing to the Public Reference Section of the Commission,
Washington, D.C. 20549-6009. Reports and other information about the
LifePoints Tax-Managed Global Equity Fund are also available on the
Commission's Internet website at sec.gov.
FRANK RUSSELL INVESTMENT COMPANY
Class C Shares:
Tax-Managed Global Equity Fund
[RUSSELL LOGO] Distributor: Russell Fund Distributors, Inc.
SEC File No. 811-3153
36-08-089 (05/00)
<PAGE>
TAX-MANAGED GLOBAL EQUITY FUND
FRANK RUSSELL INVESTMENT COMPANY
TAX-MANAGED
GLOBAL EQUITY FUND
PROSPECTUS
CLASS S SHARES
MAY 1, 2000
909 A STREET, TACOMA, WA 98402 . 800-787-7354 . 253-627-7001
As with all mutual funds, the Securities and Exchange Commission has neither
determined that the information in this Prospectus is accurate or complete,
nor approved or disapproved of these securities. It is a criminal offense to
state otherwise.
[RUSSELL LOGO]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary......................................... 3
Investment Objective...................................... 3
Principal Investment Strategies........................... 3
Principal Risks........................................... 5
Performance............................................... 5
Fees and Expenses......................................... 6
The Purpose of the Fund--Multi-Style, Multi-Manager
Diversification........................................... 8
Management of the Underlying Funds and the Global Equity
Fund...................................................... 11
The Money Managers for the Underlying Funds................. 13
Investment Objective and Principal Investment Strategies of
the Underlying Funds...................................... 14
Principal Risks............................................. 24
Dividends and Distributions................................. 27
Taxes....................................................... 28
How Net Asset Value Is Determined........................... 29
Distribution and Shareholder Servicing Arrangements......... 29
How to Purchase Shares...................................... 30
Exchange Privilege.......................................... 31
How to Redeem Shares........................................ 32
Payment of Redemption Proceeds.............................. 33
Written Instructions........................................ 34
Account Policies............................................ 35
Money Manager Information................................... 36
</TABLE>
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Tax-Managed Global Equity Fund seeks to achieve high, long-term capital
appreciation on an after-tax basis, while recognizing the possibility of high
fluctuations in year-to-year market values.
PRINCIPAL INVESTMENT STRATEGIES
The Frank Russell Investment Company (FRIC) Tax-Managed Global Equity Fund
(referred to as the Global Equity Fund or the Fund) is a "fund of funds," and
diversifies its assets by investing, at present, in the Class S Shares of
several other FRIC Funds (Underlying Funds). The Global Equity Fund seeks to
achieve its investment objective by investing in different combinations of the
Underlying Funds using a tax-efficient strategy.
The Global Equity Fund seeks to achieve its investment objectives while
minimizing shareholder tax consequences arising from its portfolio management
activities. In its attention to tax consequences of portfolio management, the
Global Equity Fund differs from most other fund-of-funds, which are managed to
maximize pre-tax return without regard to whether their portfolio management
activities result in taxable distributions to shareholders.
The Global Equity Fund intends to minimize its taxable distributions to
shareholders in three ways:
First, the Global Equity Fund strives to realize its returns as long-term
capital gains, and not as investment income, under US tax laws. To do so,
the Fund typically buys shares of Underlying Funds with the intention of
holding them long enough to qualify for capital gain tax treatment.
Second, the Global Equity Fund attempts to minimize its realization of
capital gains and to offset any such realization with capital losses. To do
so, when the Fund sells shares of an appreciated Underlying Fund, it seeks
to minimize the resulting capital gains by first selling the shares for
which it paid the highest price. Further, the Fund attempts to offset those
capital gains with matching capital losses by simultaneously selling shares
of depreciated Underlying Funds.
Third, the Global Equity Fund allocates a portion of its assets to
Underlying Funds that employ tax-efficient strategies.
When the Global Equity Fund's shares are redeemed, the Fund could be
required to sell portfolio securities resulting in its realization of net
capital gains, impacting all shareholders. The Global Equity Fund believes that
multiple purchases and redemptions of Fund shares by individual shareholders
could adversely affect its strategy of tax-efficiency and could reduce its
ability to contain costs. The Global Equity Fund further believes that
short-term investments in the Fund are inconsistent with its long-term strategy.
For this reason, the Global Equity Fund will apply its general right to refuse
any purchases by rejecting purchase orders from investors whose patterns of
purchases and redemptions in the Fund is, in the opinion of the Fund,
inconsistent with the Fund's strategy.
The Global Equity Fund allocates its assets by investing in shares of a
diversified group of Underlying Funds. The Underlying Funds in which the Fund
invests are shown in the table below. The Global
3
<PAGE>
Equity Fund intends its strategy of investing in combinations of Underlying
Funds to result in investment diversification that an investor could otherwise
achieve only by holding numerous individual investments.
<TABLE>
<CAPTION>
TAX-MANAGED
UNDERLYING FUND GLOBAL EQUITY FUND
--------------- ------------------
<S> <C>
Tax-Managed Large Cap Fund (formerly Equity T Fund) 50%
International Securities Fund 20%
Tax-Managed Small Cap Fund 15%
Quantitative Equity Fund 10%
Emerging Markets Fund 5%
</TABLE>
The Global Equity Fund intends to be fully invested at all times. Although
the Fund, like all other mutual funds, maintains liquidity reserves (i.e. cash
awaiting investment or held to meet redemption requests), the Fund exposes these
reserves to the performance of appropriate equity markets by investing in stock
futures contracts. This causes the Fund to perform as though its cash reserves
were actually invested in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Global Equity Fund can change the allocation of its assets among
Underlying Funds at any time, if its investment adviser, Frank Russell
Investment Management Company (FRIMCo) believes that doing so would better
enable the Global Equity Fund to pursue its investment objective. From time to
time, the Global Equity Fund adjusts its investments within set limits based on
FRIMCo's outlook for the economy, financial markets generally and relative
market valuation of the asset classes represented by each Underlying Fund.
Additionally, the Global Equity Fund may deviate from set limits when, in
FRIMCo's opinion, it is necessary to do so to pursue the Global Equity Fund's
investment objective. However, the Global Equity Fund expects that amounts it
allocates to each Underlying Fund will generally vary only within 10% of the
ranges specified in the table above.
DIVERSIFICATION
The Global Equity Fund is a "nondiversified" investment company for purposes
of the Investment Company Act of 1940 because it invests in the securities of a
limited number of issuers (i.e., the Underlying Funds). Each of the Underlying
Funds in which the Global Equity Fund invests is a diversified investment
company.
4
<PAGE>
PRINCIPAL RISKS
You should consider the following factors before investing in the Global
Equity Fund:
- An investment in the Global Equity Fund, like any investment, has risks.
The value of the Fund fluctuates, and you could lose money.
- Since the assets of the Global Equity Fund are invested primarily in
shares of the Underlying Funds, the investment performance of the Global
Equity Fund is directly related to the investment performance of the
Underlying Funds in which it invests.
- The policy of the Global Equity Fund is to allocate its assets among the
Underlying Funds within certain ranges. Therefore, the Fund may have less
flexibility to invest than a mutual fund without such constraints.
- The Global Equity Fund is exposed to the same risks as the Underlying
Funds in direct proportion to the allocation of its assets among the
Underlying Funds. These risks include the risks associated with a
multi-manager approach to investing, as well as those associated with
investing in equity securities and international securities. For further
detail on the risks summarized here, please refer to the section
"Principal Risks."
- An investment in the Global Equity Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
- The officers, Trustees and FRIMCo presently serve as officers, Trustees
and investment manager of the Underlying Funds. Therefore, conflicts may
arise as those persons and FRIMCo fulfill their fiduciary responsibilities
to the Global Equity Fund and to the Underlying Funds.
- The Global Equity Fund is designed for long-term investors who seek to
minimize the impact of taxes on their investment returns. The Fund is not
designed for short-term investors or for tax-deferred investment vehicles
such as IRAs and 40l(k) plans.
- If large shareholder redemptions occur unexpectedly, the Global Equity
Fund could be required to sell shares of appreciated Underlying Funds
resulting in realization of net capital gains. This could temporarily
reduce the Global Equity Fund's tax efficiency. Also, as the Global Equity
Fund matures, it may hold shares of Underlying Funds that have appreciated
so significantly that it would be difficult for the Fund to sell them
without realizing net capital gains.
PERFORMANCE
Because the Global Equity Fund had not been in operation for a full calendar
year when this Prospectus was printed, no performance history is included.
Performance history will be available for the Global Equity Fund after it has
been in operation for one calendar year.
5
<PAGE>
FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold Shares of the Global Equity Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES
MAXIMUM SALES CHARGE (LOAD)
CHARGE (LOAD) IMPOSED ON MAXIMUM
IMPOSED ON REINVESTED DEFERRED SALES REDEMPTION EXCHANGE
PURCHASES DIVIDENDS CHARGE (LOAD) FEES FEES
--------- --------- ------------- ---- ----
<S> <C> <C> <C> <C> <C>
Class S................................. None None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(% OF NET ASSETS)
<TABLE>
<CAPTION>
TOTAL GROSS TOTAL NET
ANNUAL FUND EXPENSE WAIVERS ANNUAL FUND
ADVISORY OTHER OPERATING AND OPERATING
FEE EXPENSES* EXPENSES# REIMBURSEMENTS+ EXPENSES
--- --------- --------- --------------- --------
<S> <C> <C> <C> <C> <C>
Class S Shares.......................... 0.20% 0.00% 0.20% (0.20)% 0.00%
</TABLE>
- ------------------------
* The Fund expenses shown in this table do not include the pro-rata expenses
of the Underlying Funds, which are shown in the next two tables. Annual
operating expenses are estimated, based on average net assets expected to be
invested during the Fund's first twelve months of operation. During the
course of this period, expenses may be more or less than the amount shown.
# If you purchase any class of Shares of the Global Equity Fund through a
Financial Intermediary, such as a bank or an investment adviser, you may
also pay additional fees to the intermediary for services provided by the
intermediary which, in turn, may pay fees to FRIMCo for services FRIMCo
provides to the Financial Intermediary. You should contact your financial
intermediary for information concerning what additional fees, if any, will
be charged.
+ FRIMCo has contractually agreed to waive, at least through February 28,
2001, its 0.20% advisory fee. Certain operating expenses of the Global
Equity Fund will be paid by the Underlying Funds and/or FRIMCo, as more
fully described below.
6
<PAGE>
DIRECT EXPENSES
The Global Equity Fund does not bear any direct operating expenses. Those
operating expenses include those arising from accounting, administrative,
custody, auditing, legal and transfer agent services. They do not include
expenses attributable to advisory fees (which are currently waived by FRIMCo),
any Rule 12b-1 distribution fee, any shareholder service fees, or any
nonrecurring extraordinary expenses, which will be borne by the Global Equity
Fund or its appropriate classes of shares.
The Global Equity Fund's direct operating expenses are borne either by the
Underlying Funds in which the Global Equity Fund invests or by FRIMCo. This
arrangement is governed by Special Servicing Agreements among each of the
affected Funds and FRIMCo. Those agreements are entered into on a yearly basis
and must be re-approved annually by FRIC's Board of Trustees.
INDIRECT EXPENSES
Shareholders in the Global Equity Fund bear indirectly the proportionate
expenses of the Underlying Funds in which the Global Equity Fund invests. The
following table provides the expense ratios for each of the Underlying Funds in
which the Global Equity Fund may invest (based on information as of
December 31, 1999).
<TABLE>
<CAPTION>
TOTAL NET OPERATING
UNDERLYING FUND (CLASS S SHARES) EXPENSE RATIOS
- -------------------------------- --------------
<S> <C>
Quantitative Equity Fund.................................... 0.93%
International Securities Fund............................... 1.30%
Emerging Markets Fund....................................... 1.91%
Tax-Managed Large Cap Fund (formerly Equity T Fund)......... 0.85%
Tax-Managed Small Cap Fund*................................. 1.25%
</TABLE>
- ------------------------
* Estimated based on average net assets expected to be invested during the
first twelve months of operations.
Based on these expense ratios, the Global Equity Fund expects its total
direct and indirect operating expense ratios (calculated as a percentage of
average net assets) to be as follows:
<TABLE>
<CAPTION>
CLASS S
-------
<S> <C>
Global Equity Fund.......................................... 1.06%
</TABLE>
The Global Equity Fund's total expense ratio is based on its estimated total
direct operating expense ratio plus a weighted average of the expense ratios of
the Underlying Funds in which it plans to invest. These total expense ratios may
be higher or lower depending on the allocation of the Global Equity Fund's
assets among the Underlying Funds, the actual expenses of the Underlying Funds
and the actual expenses of the Global Equity Fund.
7
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
GLOBAL EQUITY FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
The example assumes that you invest $10,000 in the Global Equity Fund for
the time periods indicated and then redeem all of your shares at the end of
those periods. The example also assumes your investment has a 5% return each
year, and that operating expenses, which include the indirect expenses of the
Underlying Funds, remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
-------- --------
<S> <C> <C>
Class S..................................................... $108 $379
</TABLE>
THE PURPOSE OF THE FUND--MULTI-STYLE, MULTI-MANAGER DIVERSIFICATION
The Global Equity Fund is offered through certain bank trust departments,
registered investment advisers, broker-dealers and other financial services
organizations that have been selected by the Global Equity Fund's adviser or
distributor (Financial Intermediaries). The Global Equity Fund offers investors
the opportunity to invest in a diversified mutual fund investment allocation
program and is designed to provide a means for investors to use FRIMCo's and
Frank Russell Company's (Russell) "multi-style, multi-manager diversification"
investment method and to obtain FRIMCo's and Russell's money manager evaluation
services.
Three functions form the core of Russell's consulting services:
- OBJECTIVE SETTING: Defining appropriate investment objectives and desired
investment returns, based on a client's unique situation and risk
tolerance.
- ASSET ALLOCATION: Allocating a client's assets among different asset
classes--such as common stocks, fixed-income securities, international
securities, temporary cash investments and real estate--in a way most
likely to achieve the client's objectives and desired returns.
- MONEY MANAGER RESEARCH: Evaluating and recommending professional
investment advisory and management organizations ("money managers") to
make specific portfolio investments for each asset class, according to
designated investment objectives, styles and strategies.
When this process is completed, a client's assets are invested using a
"multi-style, multi-manager diversification" technique. The goals of this
process are to reduce risk and to increase returns.
The Global Equity Fund believes investors should seek to hold fully
diversified portfolios that reflect both their own individual investment time
horizons and their ability to accept risk. The Global Equity Fund believes that
for many, this can be accomplished through strategically purchasing shares in
one or more of the Underlying Funds which have been structured to provide access
to specific asset classes employing a multi-style, multi-manager approach.
Capital market history shows that asset classes with greater risk will
generally outperform lower risk asset classes over time. For instance, corporate
equities, over the past 50 years, have outperformed
8
<PAGE>
corporate debt in absolute terms. However, what is generally true of performance
over extended periods will not necessarily be true at any given time during a
market cycle, and from time to time asset classes with greater risk may also
underperform lower risk asset classes, on either a risk adjusted or absolute
basis. Investors should select a mix of asset classes that reflects their
overall ability to withstand market fluctuations over their investment horizons.
Studies have shown that no one investment style within an asset class will
consistently outperform competing styles. For instance, investment styles
favoring securities with growth characteristics may outperform styles favoring
income producing securities, and vice versa. For this reason, no single manager
has consistently outperformed the market over extended periods. Although
performance cycles tend to repeat themselves, they do not do so predictably.
The Global Equity Fund believes, however, that it is possible to select
managers who have shown a consistent ability to achieve superior results within
subsets or styles of specific asset classes and investment styles by employing a
unique combination of qualitative and quantitative measurements. A number of the
Underlying Funds in which the Global Equity Fund invests combine these select
managers with other managers within the same asset class who employ
complementary styles. By combining complementary investment styles within an
asset class, investors are better able to reduce their exposure to the risk of
any one investment style going out of favor.
By strategically selecting from among a variety of investments by asset
class, each of which has been constructed using these multi-style, multi-manager
principles, investors are able to design portfolios that meet their specific
investment needs.
The Global Equity Fund has a greater potential than most mutual funds for
diversification among investment styles and money managers since the Global
Equity Fund invests in shares of several Underlying Funds. The Global Equity
Fund was created to provide a mutual fund investor with a simple but effective
means of structuring a diversified mutual fund investment program suited to meet
the investor's individual needs. FRIMCo has long stressed the value of
diversification in an investment program, and has offered its advisory expertise
in assisting investors on how to design their individual investment program.
9
<PAGE>
The diversification afforded by the allocation of the Global Equity Fund's
investment in the Underlying Funds is illustrated in the following chart:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TAX-MANAGED GLOBAL EQUITY FUND
<S> <C>
International Securities 20%
Emerging Markets 5%
Quantitative Equity 10%
Tax-Managed Small Cap Fund 15%
Tax-Managed Large Cap Fund 50%
</TABLE>
The Global Equity Fund conducts its business through a number of service
providers, who act on behalf of the Fund. FRIMCo, the Fund's administrator and
investment adviser, performs the Fund's day to day corporate management and
oversees the Fund's money managers. The Fund's money managers make all
investment decisions for the portion of the Fund assigned to it by FRIMCo. The
Underlying Funds' custodian, State Street Bank, maintains custody of all of the
Underlying Funds' assets. FRIMCo, in its capacity as the Fund's transfer agent,
is responsible for maintaining the Fund's shareholder records and carrying out
shareholder transactions. When the Fund acts in one of these areas, it does so
through the service provider responsible for that area.
10
<PAGE>
MANAGEMENT OF THE UNDERLYING FUNDS
AND THE GLOBAL EQUITY FUND
The investment adviser of the Global Equity Fund and each of the Underlying
Funds is FRIMCo, 909 A Street, Tacoma, Washington 98402. FRIMCo pioneered the
"multi-style, multi-manager" investment method in mutual funds and manages over
$17 billion in more than 30 mutual fund portfolios. FRIMCo was established in
1982 to serve as the investment management arm of Russell.
Russell, which acts as consultant to the Global Equity Fund and each of the
Underlying Funds, was founded in 1936 and has been providing comprehensive asset
management consulting services for over 30 years to institutional investors,
principally large corporate employee benefit plans. Russell provides the Global
Equity Fund, the Underlying Funds, and FRIMCo with the asset management
consulting services that it provides to its other consulting clients. Neither
the Global Equity Fund nor the Underlying Funds compensate Russell for these
services. Russell and its affiliates have offices around the world, in Tacoma,
New York, Toronto, London, Paris, Sydney, Auckland, Singapore and Tokyo.
Russell is a subsidiary of The Northwestern Mutual Life Insurance Company.
Founded in 1857, Northwestern Mutual is a mutual life insurance corporation
headquartered in Milwaukee, Wisconsin. It leads the US in both individual life
insurance sold annually and individual life insurance in force.
FRIMCo recommends money managers to the Underlying Funds, allocates
Underlying Fund assets among them, oversees them, and evaluates their results.
FRIMCo also oversees the management of the Underlying Funds' liquidity reserves.
The Underlying Funds' money managers select the individual portfolio securities
for the assets in the Underlying Funds assigned to them.
James A. Jornlin is responsible for the day to day decisions regarding the
investment and reinvestment of the Global Equity Fund within its target asset
allocation strategy percentages. Mr. Jornlin has managed the Global Equity Fund
since its inception. He also oversees certain Underlying Funds as described
below.
FRIMCo's officers and employees who oversee the money managers of the
Underlying Funds are:
- Randall P. Lert, who has been Chief Investment Officer of FRIMCo since
June 1989.
- Jean Carter, who has been Director of Global Equities since January 2000.
From 1994 to 1999, Ms. Carter was a Portfolio Manager of FRIMCo.
- Ann Duncan, who has been a Portfolio Manager of FRIMCo since January 1998.
From 1996 to 1997, Ms. Duncan was a Senior Equity Research Analyst with
Russell. From 1992 to 1995, Ms. Duncan was an equity analyst and portfolio
manager with Avatar Associates. Ms. Duncan has, jointly with Mr. Jornlin,
primary responsibility for management of the International and
International Securities Funds.
- James M. Imhof, Director of FRIMCo's Portfolio Trading, manages the Funds'
liquidity portfolios on a day to day basis and has been responsible for
ongoing analysis and monitoring of the money managers since 1989.
11
<PAGE>
- James A. Jornlin, who has been a Portfolio Manager of FRIMCo since January
2000. From 1995 to 1999, Mr. Jornlin was a Senior Investment Officer of
FRIMCo. From 1991 to 1995, Mr. Jornlin was a Senior Research Analyst with
Russell. Mr. Jornlin has primary responsibility for management of the
Tax-Managed Global Equity, Equity Aggressive Strategy, Aggressive
Strategy, Balanced Strategy, Moderate Strategy and Conservative Strategy
Funds, has, jointly with Mr. Ogard, primary responsibility for the
management of the Real Estate Securities Fund, has, jointly with Ms.
Duncan, primary responsibility for the management of the International and
International Securities Funds and has, jointly with Mr. Parish, primary
responsibility for the management of Emerging Markets Fund.
- Eric W. Ogard, who has been a Portfolio Manager of FRIMCo since
March 2000. Mr. Ogard was a Research Analyst for FRIMCo from 1995 to 1997
and a Senior Research Analyst for FRIMCo from 1997 to 2000. Mr. Ogard has,
jointly with Mr. Trittin and Mr. Tipple, primary responsibility for the
management of the Equity I, Equity II, Equity III, Equity Q, Tax-Managed
Large Cap, Tax-Managed Small Cap, Diversified Equity, Quantitative Equity,
Special Growth and Equity Income Funds and has, jointly with Mr. Jornlin,
primary responsibility for the management of the Real Estate Securities
Fund.
- Symon Parish who has been an Associate Portfolio Manager of Frank Russell
Company Limited, an affiliate of FRIMCo, since 1996. From 1994 to 1996,
Mr. Parish was a client service executive in Russell's Auckland office.
Mr. Parish has, jointly with Mr. Jornlin, primary responsibility for the
Emerging Markets Fund.
- Brian C. Tipple, who has been a Portfolio Manager of FRIMCo since July
1999. From 1991 to 1999, Mr. Tipple was a Client Executive with Frank
Russell Trust Company. Mr. Tipple has, jointly with Mr. Ogard and
Mr. Trittin, primary responsibility for the Equity I, Equity II, Equity
III, Equity Q, Tax-Managed Large Cap, Tax-Managed Small Cap, Diversified
Equity, Quantitative Equity, Special Growth and Equity Income Funds.
- Dennis J. Trittin, who has been a Portfolio Manager of FRIMCo since
January 1996. From 1988 to 1996, Mr. Trittin was director of US Equity
Manager Research Department with Russell. Mr. Trittin has, jointly with
Mr. Ogard and Mr. Tipple, primary responsibility for management of the
Equity I, Equity II, Equity III, Equity Q, Tax-Managed Large Cap,
Tax-Managed Small Cap, Diversified Equity, Quantitative Equity, Special
Growth and Equity Income Funds.
For its investment advisory and administrative services, FRIMCo receives an
aggregate fee from the Global Equity Fund at the annual rate of 0.25% of the
average daily net assets of the Fund, payable to FRIMCo monthly on a pro rata
basis. Of this aggregate amount, 0.20% is attributable to advisory services and
0.05% is attributable to administrative services. FRIMCo has contractually
agreed to waive its 0.20% advisory fee to which it is entitled from the Global
Equity Fund.
In addition to the advisory fee payable by the Global Equity Fund, the Fund
will bear indirectly a proportionate share of operating expenses that include
the advisory fees paid by the Underlying Funds in which it invests. While a
shareholder of the Global Equity Fund will also bear a proportionate part of
advisory fees paid by an Underlying Fund, each of the advisory fees paid is
based upon the services received by the Global Equity Fund. From the advisory
fee that it receives from each Underlying Fund,
12
<PAGE>
FRIMCo pays the Underlying Fund's money managers for their investment selection
services. FRIMCo retains any remainder as compensation for the services
described above and to pay expenses. The annual rate of the advisory and
administrative fees, payable to FRIMCo monthly on a pro rata basis, are the
following percentages of the average daily net assets of each Underlying Fund:
Quantitative Equity Fund 0.78%, International Securities Fund 0.95%, Emerging
Markets Fund 1.20%, Tax-Managed Large Cap Fund 0.75% and Tax-Managed Small Cap
Fund 1.03%. Of this aggregate amount, 0.05% is attributable to administrative
services.
THE MONEY MANAGERS FOR THE UNDERLYING FUNDS
Each Underlying Fund allocates its assets among the money managers listed
under "Money Manager Information" at the end of this Prospectus. FRIMCo, as the
Underlying Funds' advisor, may change the allocation of an Underlying Fund's
assets among money managers at any time. The Underlying Funds received an
exemptive order from the Securities and Exchange Commission (SEC) that permits
an Underlying Fund to engage or terminate a money manager at any time, subject
to approval by the Underlying Fund's Board of Trustees (Board), without a
shareholder vote. An Underlying Fund notifies its shareholders within 60 days of
when a money manager begins providing services. The Underlying Funds select
money managers based primarily upon the research and recommendations of FRIMCo
and Russell. FRIMCo and Russell evaluate quantitatively and qualitatively the
money manager's skills and results in managing assets for specific asset
classes, investment styles and strategies. Short-term investment performance, by
itself, is not a controlling factor in any Underlying Fund's selection or
termination of a money manager.
Each money manager has complete discretion to purchase and sell portfolio
securities for its segment of an Underlying Fund. At the same time, however,
each money manager must operate within the Underlying Fund's investment
objectives, restrictions and policies. Additionally, each manager must operate
within more specific constraints developed from time to time by FRIMCo. FRIMCo
develops such constraints for each manager based on FRIMCo's assessment of the
manager's expertise and investment style. By assigning more specific constraints
to each money manager, FRIMCo intends to capitalize on the strengths of each
money manager and to combine their investment activities in a complementary
fashion. Although the money managers' activities are subject to general
oversight by the Board and the Underlying Funds' officers, neither the Board,
the officers, FRIMCo, nor Russell evaluate the investment merits of the money
managers' individual security selections.
J.P. Morgan Investment Management, Inc. ("Morgan") manages the Tax-Managed
Large Cap Fund. Robin Chance is the individual responsible for the management of
the Fund. Ms. Chance, Vice President and member of the Structured Equity Group,
has responsibility for tax aware structured equity strategies. Ms. Chance joined
Morgan in 1987. Ms. Chance is a CFA and a graduate of the University of
Pennsylvania's Management and Technology Program, also earning an MBA from New
York University's Stern School of Business.
13
<PAGE>
Geewax, Terker & Company manages the Tax-Managed Small Cap Fund. John Julius
Geewax is the portfolio manager responsible for the management of the Fund. Mr.
Geewax is a graduate of the University of Pennsylvania and has earned a J.D.
from the University of Pennsylvania as well as an MBA and a PhD from the Wharton
School of the University of Pennsylvania. Mr. Geewax co-founded the firm in
1982. He is currently a general partner and portfolio manager responsible for
research and development and trading oversight for all of the firm's investment
services.
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
OF THE UNDERLYING FUNDS
The objective and principal strategies of each Underlying Fund are described
in this section. Further information about the Underlying Funds is contained in
the Statement of Additional Information as well as in the Prospectuses of the
Underlying Funds. Because the Global Equity Fund invests in the Underlying
Funds, investors of the Global Equity Fund will be affected by the Underlying
Funds' investment strategies in direct proportion to the amount of assets the
Global Equity Fund allocates to the Underlying Fund pursuing such policies. To
request a copy of a Prospectus for an Underlying Fund, contact FRIC at
800/787-7354 (in Washington, 253/627-7001).
QUANTITATIVE EQUITY FUND
- -----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide a total return greater than the total return of
OBJECTIVE the US stock market (as measured by the Russell
1000-Registered Trademark- Index over a market cycle of four
to six years) while maintaining volatility and
diversification similar to the Index.
PRINCIPAL The Quantitative Equity Fund invests primarily in common
INVESTMENT stocks of medium and large capitalization companies which
STRATEGIES are predominately US based. The Fund generally pursues a
market-oriented style of security selection, which
incorporates both a growth style and a value style, based on
quantitative investment models which are mathematical
formulas based on statistical analyses. This style
emphasizes investments in companies that appear to be
undervalued relative to their growth prospects.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record as well as the characteristics of the money manager's
typical portfolio investments. These characteristics include
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics. The Fund also considers the
manner in which money managers' historical and expected
investment returns correlate with one another.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
Each of the Fund's money managers use quantitative models to
rank securities based upon their expected ability to
outperform the total return of the Russell 1000 Index. Once
a money manager has ranked the securities, it then selects
the securities most likely to outperform and constructs, for
its segment of the Fund, a portfolio that has risks similar
to the Russell 1000 Index. Each money manager performs this
process independently from each other money manager.
The Russell 1000 Index consists of the 1,000 largest US
companies by capitalization (i.e., market price per share
times the number of shares outstanding). The smallest
company in the Index at December 31, 1999 had a
capitalization of approximately $1.1 billion.
The Fund's money managers typically use a variety of
quantitative models, ranking securities within each model
and on a composite basis using proprietary weighting
formulas. Examples of those quantitative models are dividend
discount models, price/cash flow models, price/earnings
models, earnings surprise and earnings estimate revisions
models and price momentum models.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
The Fund may lend up to one-third of its portfolio
securities to earn income. These loans may be terminated at
any time. The Fund will receive either cash or US government
debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
15
<PAGE>
INTERNATIONAL SECURITIES FUND
- -----------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide favorable total return and additional
OBJECTIVE diversification for US investors.
PRINCIPAL The International Securities Fund invests primarily in
INVESTMENT equity securities issued by companies domiciled outside the
STRATEGIES US and in depository receipts which represent ownership of
securities of non-US companies. The Fund's investments span
most of the developed nations of the world (particularly
Europe and the Far East) to maintain a high degree of
diversification among countries and currencies. Because
international equity investment performance has a reasonably
low correlation to US equity performance, this Fund may be
appropriate for investors who want to reduce their
investment portfolio's overall volatility by combining an
investment in this Fund with investments in US equities.
The Fund may seek to protect its investments against adverse
currency exchange rate changes by purchasing forward
currency contracts. These contracts enable the Fund to "lock
in" the US dollar price of a security that it plans to buy
or sell. The Fund may not accurately predict currency
movements.
The Fund employs a "multi-style, multi-manager" approach
whereby portions of the Fund are allocated to different
money managers who employ distinct investment styles. The
Fund uses three principal investment styles, intended to
complement one another:
- GROWTH STYLE emphasizes investments in equity
securities of companies with above-average earnings
growth prospects. These companies are generally found
in the technology, health care, consumer and service
sectors.
- VALUE STYLE emphasizes investments in equity
securities of companies that appear to be undervalued
relative to their corporate worth, based on earnings,
book or asset value, revenues or cash flow. These
companies are generally found among industrial,
financial and utilities sectors.
- MARKET-ORIENTED STYLE emphasizes investments in
companies that appear to be undervalued relative to
their growth prospects. This style may encompass
elements of both the growth and value styles. These
companies may be found in any industry sector. A
variation of this style maintains investments that
replicate country and sector weightings of a broad
international market index.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
When determining how to allocate its assets among money
managers, the Fund considers a variety of factors. These
factors include a money manager's investment style and
performance record as well as the characteristics of the
money manager's typical portfolio investments. These
characteristics include capitalization size, growth and
profitability measures, valuation ratios, economic sector
weightings and earnings and price volatility statistics. The
Fund also considers the manner in which money managers'
historical and expected investment returns correlate with
one another.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. Additionally, the Fund invests its
liquidity reserves in one or more FRIC money market funds.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. The Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
17
<PAGE>
EMERGING MARKETS FUND
- ----------------------------
<TABLE>
<S> <C>
INVESTMENT To provide maximum total return primarily through capital
OBJECTIVE appreciation and by assuming a higher level of volatility
than is ordinarily expected from developed market
international portfolios by investing primarily in equity
securities.
PRINCIPAL The Emerging Markets Fund will primarily invest in equity
INVESTMENT securities of companies that are located in countries with
STRATEGIES emerging markets or that derive a majority of their revenues
from operations in such countries. These companies are
referred to as "Emerging Market Companies." For purposes of
the Fund's operations, an "emerging market" country is a
country having an economy and market that the World Bank or
the United Nations consider to be emerging or developing.
These countries generally include every country in the world
except the United States, Canada, Japan, Australia and most
countries located in Western Europe.
The Fund seeks to maintain a broadly diversified exposure to
emerging market countries and ordinarily will invest in the
securities of issuers in at least three different emerging
market countries.
The Fund invests in common stocks of Emerging Market
Companies and in depository receipts which represent
ownership of securities of non-US companies. The Fund may
also invest in rights, warrants and convertible fixed-income
securities. The Fund's securities are denominated primarily
in foreign currencies and may be held outside the US.
Some emerging markets countries do not permit foreigners to
participate directly in their securities markets or
otherwise present difficulties for efficient foreign
investment. Therefore, when it believes it is appropriate to
do so, the Fund may invest in pooled investment vehicles,
such as other investment companies, which enjoy broader or
more efficient access to shares of Emerging Market Companies
in certain countries but may involve a further layering of
expenses.
The Fund employs a multi-manager approach whereby portions
of the Fund are allocated to different money managers whose
approaches are intended to complement one another. When
determining how to allocate its assets among money managers,
the Fund considers a variety of factors. These factors
include a money manager's investment style and performance
record, as well as the characteristics of the money
manager's typical portfolio investments (e.g.,
capitalization size, growth and profitability measures,
valuation ratios, economic sector weightings and earnings
and price volatility statistics). The Fund also considers
the manner in which money managers' historical and expected
investment returns correlate with one another.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
The Fund may agree to purchase securities for a fixed price
at a future date beyond customary settlement time. This kind
of agreement is known as a "forward commitment" or as a
"when-issued" transaction.
A portion of the Fund's net assets may be "illiquid"
securities (i.e., securities that do not have a readily
available market or that are subject to resale
restrictions). Additionally, the Fund may lend up to
one-third of its portfolio securities to earn income. These
loans may be terminated at any time. A Fund will receive
either cash or US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
TAX-MANAGED LARGE CAP FUND (FORMERLY EQUITY T FUND)
- ---------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide capital growth on an after-tax basis by investing
OBJECTIVE principally in equity securities.
PRINCIPAL The Tax-Managed Large Cap Fund invests primarily in equity
INVESTMENT securities of large capitalization US companies, as
STRATEGIES represented by the S&P 500-Registered Trademark- market
index, although the Fund may invest a limited amount in
non-US firms from time to time.
The Fund generally pursues a market-oriented style of
security selection, which incorporates both a growth style
and a value style, based on quantitative investment models
which are mathematical formulas based on statistical
analyses. This style emphasizes investments in large
capitalization companies that, on a long-term basis, appear
to be undervalued relative to their growth prospects, and
may include both growth and value securities. Although it is
not an index fund, under normal market conditions, the Tax-
Managed Large Cap Fund will invest at least 65 percent of
the value of its total assets in securities that are
included in the S&P 500 market index.
The Fund seeks to realize capital growth while minimizing
shareholder tax consequences arising from the Fund's
portfolio management activities. In its attention to tax
consequences of its investment decisions, the Fund differs
from most equity mutual funds, which are managed to maximize
pre-tax total return without regard to whether their
portfolio management activities result in taxable
distributions to shareholders.
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
The Fund is designed for long-term investors who seek to
minimize the impact of taxes on their investment returns.
The Fund is not designed for short-term investors or for
tax-deferred investment vehicles such as IRAs and 401(k)
plans.
The Fund intends to minimize its taxable distributions to
shareholders in two ways:
- First, the Fund strives to realize its returns as
long-term capital gains, and not as investment income,
under US tax laws. To do so, the Fund typically buys
stocks with the intention of holding them long enough
to qualify for capital gain tax treatment.
- Second, the Fund attempts to minimize its realization
of capital gains and to offset any such realization with
capital losses. To do so, when the Fund sells shares
of an appreciated portfolio security, it seeks to
minimize the resulting capital gains by first selling
the shares for which the Fund paid the highest price.
Further, the Fund attempts to offset those capital
gains with matching capital losses by simultaneously
selling shares of depreciated portfolio securities.
If large shareholder redemptions occur unexpectedly, the
Fund could be required to sell portfolio securities
resulting in its realization of net capital gains. This
could temporarily reduce the Fund's tax efficiency. Also, as
the Fund matures, it may hold individual securities that
have appreciated so significantly that it would be difficult
for the Fund to sell them without realizing net capital
gains.
The Fund selects and holds portfolio securities based on its
assessment of their potential for long-term total returns.
The Fund uses a dividend discount model to gauge securities'
anticipated returns relative to their industry peers. This
model forecasts the expected future dividends of individual
securities and calculates the expected return at the current
share price. The Fund identifies securities that exhibit
superior total return prospects. From among those
securities, using a quantitative after-tax model, the Fund
chooses stocks from a variety of economic sectors and
industries, generally in the proportions that those sectors
and industries are represented in the S&P 500 Index.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
When Shares are redeemed, the Fund could be required to sell
portfolio securities resulting in its realization of net
capital gains, impacting all shareholders. The Fund believes
that multiple purchases and redemptions of Fund shares by
individual shareholders could adversely affect the Fund's
strategy of tax-efficiency and could reduce its ability to
contain costs. The Fund further believes that short-term
investments in the Fund are inconsistent with its long-term
strategy. For this reason, the Fund will apply its general
right to refuse any purchases by rejecting purchase orders
from investors whose patterns of purchases and redemptions
in the Fund is inconsistent with the Fund's strategy.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform as though its cash reserves were actually invested
in those markets. The Fund may also invest its liquidity
reserves in one or more Frank Russell Investment Company
(FRIC) money market funds.
Additionally, the Fund may lend up to one-third of its
portfolio securities to earn income. These loans may be
terminated at any time. The Fund will receive either cash or
US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
TAX-MANAGED SMALL CAP FUND
- ---------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide capital growth on an after-tax basis by investing
OBJECTIVE principally in equity securities of small capitalization
companies.
PRINCIPAL The Tax-Managed Small Cap Fund invests primarily in equity
INVESTMENT securities of US companies, although the Fund may invest a
STRATEGIES limited amount in non-US firms from time to time.
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
The Fund generally pursues a market-oriented style of
security selection, which incorporates both a growth style
and a value style, based on quantitative investment models
which are mathematical formulas based on statistical
analyses. This style emphasizes investments in small
capitalization companies that, on a long-term basis, appear
to be undervalued relative to their growth prospects, and
may include both growth and value securities. Under normal
market conditions, the Tax-Managed Small Cap Fund will
invest at least 65 percent of the value of its total assets
in securities that are not included in the S&P 500 market
index.
The Fund seeks to realize capital growth while minimizing
shareholder tax consequences arising from the Fund's
portfolio management activities. In its attention to tax
consequences of its investment decisions, the Fund differs
from most equity mutual funds, which are managed to maximize
pre-tax total return without regard to whether their
portfolio management activities result in taxable
distributions to shareholders.
The Fund is designed for long-term investors who seek to
minimize the impact of taxes on their investment returns.
The Fund is not designed for short-term investors or for
tax-deferred investment vehicles such as IRAs and 401(k)
plans.
The Fund intends to minimize its taxable distributions to
shareholders in two ways:
- First, the Fund strives to realize its returns as
long-term capital gains, and not as investment income,
under US tax laws. To do so, the Fund typically buys
stocks with the intention of holding them long enough
to qualify for capital gain tax treatment.
- Second, the Fund attempts to minimize its realization
of capital gains and to offset any such realization with
capital losses. To do so, when the Fund sells shares
of an appreciated portfolio security, it seeks to
minimize the resulting capital gains by first selling
the shares for which the Fund paid the highest price.
Further, the Fund attempts to offset those capital
gains with matching capital losses by simultaneously
selling shares of depreciated portfolio securities.
If large shareholder redemptions occur unexpectedly, the
Fund could be required to sell portfolio securities
resulting in its realization of net capital gains. This
could temporarily reduce the Fund's tax efficiency. Also, as
the Fund matures, it may hold individual securities that
have appreciated so significantly that it would be difficult
for the Fund to sell them without realizing net capital
gains.
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
The Fund selects and holds portfolio securities based on its
assessment of their potential for long term total returns.
When the Fund's shares are redeemed, the Fund could be
required to sell portfolio securities resulting in its
realization of net capital gains, impacting all
shareholders. The Fund believes that multiple purchases and
redemptions of Fund shares by individual shareholders could
adversely affect the Fund's strategy of tax-efficiency and
could reduce its ability to contain costs. The Fund further
believes that short-term investments in the Fund are
inconsistent with its long-term strategy. For this reason,
the Fund will apply its general right to refuse any
purchases by rejecting purchase orders from investors whose
patterns of purchases and redemptions in the Fund is
inconsistent with the Fund's strategy.
The Fund intends to be fully invested at all times. Although
the Fund, like any mutual fund, maintains liquidity reserves
(i.e., cash awaiting investment or held to meet redemption
requests), the Fund exposes these reserves to the
performance of appropriate equity markets by investing in
stock index futures contracts. This causes the Fund to
perform generally as though its cash reserves were actually
invested in those markets. The Fund may also invest its
liquidity reserves in one or more Frank Russell Investment
Company (FRIC) money market funds.
Additionally, the Fund may lend up to one-third of its
portfolio securities to earn income. These loans may be
terminated at any time. The Fund will receive either cash or
US government debt obligations as collateral.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions. If this
occurs, the Fund may not achieve its investment objective
during such times.
</TABLE>
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<PAGE>
PRINCIPAL RISKS
The following table describes principal types of risks the Global Equity
Fund is subject to, based on the investments made by the Underlying Funds, and
lists next to each description the Underlying Funds most likely to be affected
by the risk. Other Underlying Funds that are not listed may be subject to one or
more of the risks, based on the allocation of assets among the Underlying Funds,
but will not do so in a way that is expected to principally affect the
performance of the Global Equity Fund or Underlying Fund as a whole. Please
refer to the Global Equity Fund's Statement of Additional Information for a
discussion of risks associated with types of securities held by the Underlying
Funds and the investment practices employed by the individual Underlying Funds.
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
MULTI-MANAGER The investment styles employed by a Fund's Global Equity Fund
APPROACH money managers may not be complementary. The
interplay of the various strategies employed by (UNDERLYING FUNDS:
a Fund's multiple money managers may result in QUANTITATIVE EQUITY
a Fund holding a concentration of certain types INTERNATIONAL SECURITIES
of securities. This concentration may be EMERGING MARKETS)
beneficial or detrimental to a Fund's
performance depending upon the performance of
those securities and the overall economic
environment. The multi-manager approach could
result in a high level of portfolio turnover,
resulting in higher Fund brokerage expenses and
increased tax liability from a Fund's
realization of capital gains.
TAX-SENSITIVE A Fund's tax-managed equity investment strategy Global Equity Fund
MANAGEMENT may not provide as high a return before
consideration of federal income tax (UNDERLYING FUNDS:
consequences as other funds. A tax-sensitive TAX-MANAGED LARGE CAP
investment strategy involves active management TAX-MANAGED SMALL CAP)
and a Fund can realize capital gains.
EQUITY SECURITIES The value of equity securities will rise and Global Equity Fund
fall in response to the activities of the
company that issued the stock, general market (ALL UNDERLYING FUNDS)
conditions and/or economic conditions.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
- -Value Stocks Investments in value stocks are subject to Global Equity Fund
risks that (i) their intrinsic values may never
be realized by the market or (ii) such stock (UNDERLYING FUNDS:
may turn out not to have been undervalued. INTERNATIONAL SECURITIES
TAX-MANAGED LARGE CAP
TAX-MANAGED SMALL CAP)
- -Growth Stocks Growth company stocks may provide minimal Global Equity Fund
dividends which could otherwise cushion stock
prices in a market decline. The value of growth (UNDERLYING FUNDS:
company stocks may rise and fall significantly INTERNATIONAL SECURITIES
based, in part, on investors' perceptions of TAX-MANAGED LARGE CAP
the company, rather than on fundamental TAX-MANAGED SMALL CAP)
analysis of the stocks.
- -Market-Oriented Market-oriented investments are generally Global Equity Fund
Investments subject to the risks associated with growth and
value stocks. (UNDERLYING FUNDS:
QUANTITATIVE EQUITY
INTERNATIONAL SECURITIES
TAX-MANAGED LARGE CAP
TAX-MANAGED SMALL CAP)
- -Securities of Small Investments in smaller companies may involve Global Equity Fund
Capitalization greater risks because these companies generally
Companies have a limited track record. Smaller companies (UNDERLYING FUND:
often have narrower markets and more limited TAX-MANAGED SMALL CAP)
managerial and financial resources than larger,
more established companies. As a result, their
performance can be more volatile, which may
increase the volatility of a Fund's portfolio.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH DESCRIPTION RELEVANT FUND
- -------------------- ----------- -------------
<S> <C> <C>
INTERNATIONAL A Fund's return and net asset value may be Global Equity Fund
SECURITIES significantly affected by political or economic
conditions and regulatory requirements in a (UNDERLYING FUNDS:
particular country. Foreign markets, economies INTERNATIONAL SECURITIES
and political systems may be less stable than EMERGING MARKETS)
US markets, and changes in exchange rates of
foreign currencies can affect the value of a
Fund's foreign assets. Foreign laws and
accounting standards typically are not as
strict as they are in the US and there may be
less public information available about foreign
companies. A Fund's foreign debt securities are
typically obligations of sovereign governments.
These securities are particularly subject to a
risk of default from political instability.
Foreign securities markets may be less liquid
and have fewer transactions than US securities
markets. Additionally, international markets
may experience delays and disruptions in
securities settlement procedures for a Fund's
portfolio securities.
- -Emerging Market Investments in emerging or developing markets (UNDERLYING FUND:
Countries involve exposure to economic structures that EMERGING MARKETS)
are generally less diverse and mature, and to
political systems which have less stability
than those of more developed countries.
Emerging market securities are subject to
currency transfer restrictions and may
experience delays and disruptions in securities
settlement procedures for the Fund's portfolio
securities.
EXPOSING LIQUIDITY By exposing its liquidity reserves to the Global Equity Fund
RESERVES TO EQUITY equity market principally by use of equity
MARKETS futures, a Fund's performance tends to (UNDERLYING FUNDS:
correlate more closely to the performance of QUANTITATIVE EQUITY
the market as a whole. Although this increases INTERNATIONAL SECURITIES
a Fund's performance if equity markets rise, it TAX-MANAGED LARGE CAP
reduces a Fund's performance if equity markets TAX-MANAGED SMALL CAP)
decline.
SECURITIES LENDING If a borrower of a Fund's securities fails Global Equity Fund
financially, the Fund's recovery of the loaned
securities may be delayed or the Fund may lose (UNDERLYING FUNDS:
its rights to the collateral which could result ALL UNDERLYING FUNDS)
in a loss to a Fund.
</TABLE>
26
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
INCOME DIVIDENDS
The Global Equity Fund distributes substantially all of its net investment
income and net capital gains to shareholders each year. The amount and frequency
of distributions are not guaranteed, all distributions are at the Board's
discretion. Currently, the Board intends to declare dividends from net
investment income, if any, for the Global Equity Fund on an annual basis, with
payment being made in mid-December.
CAPITAL GAINS DISTRIBUTIONS
The Board intends to declare capital gain distributions (both short-term and
long-term) once a year in mid-December to reflect any net short-term and net
long-term capital gains realized by the Fund as of October 31 of the current
fiscal year. The Fund may be required to make an additional distribution if
necessary, in any year for operational or other reasons. Distributions that are
declared in October, November, or December to shareholders of record in such
months, and paid in January of the following year, will be treated for tax
purposes as if received on December 31 of the year in which they were declared.
In addition, the Global Equity Fund receives capital gains distributions
from the Underlying Funds. Consequently, capital gains distributions may be
expected to vary considerably from year to year. Also, the Global Equity Fund
may generate capital gains through rebalancing the portfolio to meet the Fund's
allocation percentages.
BUYING A DIVIDEND
If you purchase shares just before a distribution, you will pay the full
price for the Shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." Unless your account is
a tax-deferred account, dividends paid to you would be included in your gross
income for tax purposes even though you may not have participated in the
increase of the net asset value of the Global Equity Fund, regardless of whether
you reinvested the dividends. To avoid "buying a dividend," check a Fund's
distribution dates before you invest.
AUTOMATIC REINVESTMENT
Your dividends and other distributions are automatically reinvested at the
closing net asset value on the record date, in additional shares of the Global
Equity Fund, unless you elect to have the dividends or distributions paid in
cash or invested in another Fund. You may change your election by delivering
written notice no later than ten days prior to the payment date to the Global
Equity Fund at Frank Russell Investment Company c/o Boston Financial Data
Services, 2 Heritage Drive, N. Quincy, MA 02171.
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<PAGE>
TAXES
In general, distributions from the Global Equity Fund are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest your
distributions in additional shares of the Global Equity Fund or receive them in
cash. Any long-term capital gains distributed by the Global Equity Fund are
taxable to you as long-term capital gains no matter how long you have owned your
shares. Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell or exchange your shares of the Global Equity Fund, you may
have a capital gain or loss. The tax rate on any gain from the sale or exchange
of your shares depends on how long you have held your shares.
The Fund makes no representation as to the amount or variability of its
capital gain distributions which may vary as a function of several variables
including, but not limited to, prevailing dividend yield levels, general market
conditions, shareholders redemption patterns and Fund cash equitization
activity.
The Global Equity Fund distributions and gains from the sale or exchange of
your shares will generally be subject to state and local income tax. Non-US
investors may be subject to US withholding and estate tax. You should consult
your tax professional about federal, state, local or foreign tax consequences in
holding shares of the Global Equity Fund.
Athough the Tax-Managed Large Cap and the Tax-Managed Small Cap Funds are
managed to minimize the amount of capital gains realized during a particular
year, the realization of capital gains is not entirely within either of those
Underlying Fund's or its money manager's control. Shareholder purchase and
redemption activity, as well as those Underlying Fund's performance, will impact
the amount of capital gains realized. Capital gains distributions by the
Tax-Managed Large Cap Fund and Tax-Managed Small Cap Fund may vary considerably
from year to year.
By law, the Global Equity Fund must withhold 31% of your distributions and
proceeds if you do not provide your correct taxpayer identification number, or
certify that such number is correct, or if the IRS instructs the Global Equity
Fund to do so.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE GLOBAL
EQUITY FUND.
Additional information on these and other tax matters relating to the Global
Equity Fund and its shareholders is included in the section entitled "Taxes" in
the Fund's Statement of Additional Information.
28
<PAGE>
HOW NET ASSET VALUE IS DETERMINED
NET ASSET VALUE PER SHARE
The net asset value per share is calculated for Shares of each Class of the
Global Equity Fund on each business day on which Shares are offered or
redemption orders are tendered. For the Global Equity Fund, a business day is
one on which the New York Stock Exchange (NYSE) is open for trading. The NYSE is
not open on national holidays or Good Friday. The Global Equity Fund and all
Underlying Funds determine net asset value at 4:00 p.m. Eastern Time or as of
the close of the NYSE, whichever is earlier. The determination is made by
appraising the Global Equity Fund's underlying investments on each business day
(i.e., the Underlying Funds at the current net asset value per share of such
Underlying Fund).
Money market instruments maturing within 60 days of the valuation date that
are held by the Tax-Managed Large Cap and Tax-Managed Small Cap Funds are valued
at "amortized cost" unless the Board determines that amortized cost does not
represent fair value. Under this method, a portfolio instrument is initially
valued at cost, and thereafter a constant accretion/amortization to maturity of
any discount or premium is assumed. While amortized cost provides certainty in
valuation, it may result in periods when the value of an instrument is higher or
lower than the price those Underlying Funds would receive if they sold the
instrument.
VALUATION OF PORTFOLIO SECURITIES
Securities held by the Underlying Funds are typically priced using market
quotations or pricing services when the prices are believed to be reliable, that
is, when the prices reflect the fair market value of the securities. The
Underlying Funds value securities for which market quotations are not readily
available at "fair value," as determined in good faith and in accordance with
procedures established by the Board. The Global Equity Fund invests in
Underlying Funds, such as the International Securities Fund, that holds
portfolio securities listed primarily on foreign exchanges. The net asset value
of those Underlying Funds' shares and therefore, the Global Equity Fund's
Shares, may change on a day when you will not be able to purchase or redeem
Global Equity Fund Shares. This is because the value of those portfolio
securities may change on weekends or other days when the Global Equity Fund does
not price its shares.
DISTRIBUTION AND SHAREHOLDER
SERVICING ARRANGEMENTS
The Global Equity Fund offers multiple classes of shares: Class C Shares and
Class S Shares.
CLASS C SHARES participate in the Global Equity Fund's Rule 12b-1
distribution plan and in its shareholder servicing plan. Under the distribution
plan, Class C Shares pay distribution fees of 0.75% annually for the sale and
distribution of Class C Shares. Under the shareholder servicing plan, the Class
C Shares pay shareholder servicing fees of 0.25% on an annualized basis for
services provided to Class C shareholders. Because both of these fees are paid
out of the Class C Share assets on an ongoing basis, over time these fees will
increase the cost of a Class C Share investment in the Global Equity Fund, and
the distribution fee may cost an investor more than paying other types of sales
charges.
CLASS S SHARES participate in neither the Fund's distribution plan nor the
Fund's shareholder services plan.
29
<PAGE>
HOW TO PURCHASE SHARES
The Global Equity Fund is generally available only through a select network
of qualified Financial Intermediaries. If you are not currently working with one
of these Financial Intermediaries, please call Russell Investor Services at
(800) RUSSEL4 (800-787-7354) for assistance in contacting an investment
professional near you.
For Class S Shares, there is a $2,500 required minimum initial investment
for each account in the Global Equity Fund. The Global Equity Fund reserves the
right to change the categories of investors eligible to purchase shares or the
required minimum investment amounts. You may be eligible to purchase Fund shares
if you do not meet the required initial minimum investment. You should consult
your Financial Intermediary for details, which are summarized in the Funds'
statement of additional information.
Financial Intermediaries may charge their customers a fee for providing
investment-related services. Financial Intermediaries that maintain omnibus
accounts with the Funds may receive administrative fees from the Fund or its
transfer agent.
PAYING FOR SHARES
You may purchase Shares of the Global Equity Fund through a Financial
Intermediary on any business day the Fund is open. Purchase orders are processed
at the next net asset value per share calculated after the Global Equity Fund
receives your order in proper form (defined in the "Written Instructions"
section), and accepts the order.
All purchases must be made in US dollars. Checks and other negotiable bank
drafts must be drawn on US banks and made payable to "Frank Russell Investment
Company." The Global Equity Fund reserves the right to reject any purchase order
for any reason including, but not limited to, receiving a check which does not
clear the bank or a payment which does not arrive in proper form by settlement
date. You will be responsible for any resulting loss to the Fund. An overdraft
charge may also be applied. Cash, third party checks and checks drawn on credit
card accounts generally will not be accepted. However, exceptions may be made by
prior special arrangement with certain Financial Intermediaries.
OFFERING DATES AND TIMES
Orders must be received by the Global Equity Fund prior to 4:00 p.m. Eastern
Time or the close of the NYSE, whichever is earlier. Purchases can be made on
any day when Global Equity Fund shares are offered. Because Financial
Intermediaries' processing time may vary, please ask your Financial Intermediary
representative when your account will be credited.
ORDER AND PAYMENT PROCEDURES
Generally, you must place purchase orders for Shares through a Financial
Intermediary. You may pay for your purchase by mail or electronic funds
transfer. Initial purchases require a completed and
30
<PAGE>
signed Application for each new account regardless of the investment method.
Specific payment arrangements should be made with your Financial Intermediary.
BY MAIL
For new accounts, please mail the completed Application to your Financial
Intermediary. Payment for orders may be made by check or other negotiable bank
draft and sent to the Global Equity Fund's Transfer Agent. Certified checks are
not necessary, but checks are accepted subject to collection at full face value
in US funds. Third party checks will not be accepted. Checks should be made
payable to "Frank Russell Investment Company."
BY FEDERAL FUNDS WIRE
You can pay for orders by wiring federal funds to the Global Equity Fund's
Custodian, State Street Bank and Trust Company. All wires must include your
account registration and account number for identification. Inability to
properly identify a wire transfer may prevent or delay timely settlement of your
purchase.
BY AUTOMATED CLEARING HOUSE ("ACH")
You can make initial or subsequent investments through ACH to the Fund's
Custodian, State Street Bank and Trust Company.
AUTOMATED INVESTMENT PROGRAM
You can make regular investments (minimum $50) in the Global Equity Fund in
an established account on a monthly, quarterly, semiannual or annual basis by
automatic electronic funds transfer from a bank account. You may change the
amount or stop the automatic purchase at any time. Contact your Financial
Intermediary for further information on this program and an enrollment form.
THREE-DAY SETTLEMENT PROGRAM
The Global Equity Fund will accept orders at the next computed net asset
value through Financial Intermediaries to purchase Shares of the Fund for
settlement on the third business day following the receipt of the order. These
orders are paid for by a federal funds wire if the Financial Intermediary has
enrolled in the program and agreed in writing to indemnify the Global Equity
Fund against any losses resulting from non-receipt of payment.
EXCHANGE PRIVILEGE
BY MAIL OR TELEPHONE
Through your Financial Intermediary, you may be able to exchange shares of
the Global Equity Fund for shares of another FRIC Fund. Shares of the Global
Equity Fund offered by this Prospectus may only be exchanged for shares of a
fund offered by FRIC through another Prospectus under certain
31
<PAGE>
conditions and only in states where the exchange may be legally made. For
additional information, including Prospectuses for other FRIC Funds, contact
your Financial Intermediary.
Exchanges may be made by mail or by telephone if the registration of the two
accounts is identical. Contact your Financial Intermediary for assistance in
exchanging Shares and, because Financial Intermediaries' processing time may
vary, to find out when your account will be credited or debited. To request an
exchange in writing, please follow the procedures in the "Written Instructions"
section before mailing to your Financial Intermediary.
An exchange involves the redemption of Shares, which is treated as a sale
for income tax purposes. Thus, capital gain or loss may be realized. Please
consult your tax adviser for more information. The Shares to be acquired will be
purchased when the proceeds from the redemption become available (up to seven
days from the receipt of the request) at the next net asset value per share
calculated after the Funds received the exchange request in good order.
IN-KIND EXCHANGE OF SECURITIES
FRIMCo, in its capacity as the Global Equity Fund's investment advisor, may,
at its discretion, permit you to acquire Shares in exchange for securities you
currently own. Any securities exchanged must meet the investment objective,
policies and limitations of the Global Equity Fund, have a readily ascertainable
market value, be liquid, not be subject to restrictions on resale and have a
market value, plus any cash, equal to at least $100,000.
Shares purchased in exchange for securities generally may not be redeemed or
exchanged for 15 days following the purchase by exchange or until the transfer
has settled, whichever comes first. If you are a taxable investor, you will
generally realize a gain or loss for federal income tax purposes on the
exchange. If you are contemplating an in-kind exchange you should consult your
tax adviser.
The price at which the exchange will take place will depend upon the
relative net asset value of the Shares purchased and securities exchanged.
Securities accepted by the Fund will be valued in the same way the Fund values
its assets. Any interest earned on the securities following their delivery to
the Global Equity Fund and prior to the exchange will be considered in valuing
the securities. All interest, dividends, subscription or other rights attached
to the securities becomes the property of the Fund, along with the securities.
Please contact your Financial Intermediary for further information.
HOW TO REDEEM SHARES
Shares of the Global Equity Fund may be redeemed through your Financial
Intermediary on any business day the Fund is open at the next net asset value
per share calculated after the Fund's Transfer Agent receives an order in proper
form (defined in the "Written Instructions" section). Payment will ordinarily be
made within seven days after receipt of your request in proper form. Shares
recently purchased by check may not be available for redemption for 15 days
following the purchase or until the check clears, whichever occurs first, to
assure payment has been collected.
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<PAGE>
REDEMPTION DATES AND TIMES
Redemption requests must be placed through a Financial Intermediary and
received by the Global Equity Fund prior to 4:00 p.m. Eastern Time or the close
of the NYSE, whichever is earlier. Because Financial Intermediaries' processing
times may vary, please ask your Financial Intermediary representative when your
account will be debited. Requests can be made by mail or telephone on any day
when Global Equity Fund shares are offered.
BY MAIL OR TELEPHONE
You may redeem your shares by calling or writing to your Financial
Intermediary. Written requests to sell shares are in proper form when the
instructions are signed by all registered owners, with a signature guarantee if
necessary.
SYSTEMATIC WITHDRAWAL PROGRAM
The Global Equity Fund does not offer a systematic withdrawal program in
view its portfolio management strategy.
ACCOUNTS IN STREET NAME
Many brokers, employee benefit plans and bank trusts combine their client's
holdings in a single omnibus account held in the brokers', plans', or bank
trusts' own name or "street name." Therefore, if you hold Global Equity Fund
shares through a brokerage account, employee benefit plan or bank trust fund,
the Global Equity Fund may have records only of the omnibus account. In this
case, your broker, employee benefit plan or bank is responsible for keeping
track of your account information. This means that you may not be able to
request transactions in your Shares directly through the Fund, but can do so
only through your broker, plan administrator or bank. Ask your Financial
Intermediary for information on whether your Global Equity Fund shares are held
in an omnibus account.
PAYMENT OF REDEMPTION PROCEEDS
BY CHECK
When you redeem your Shares, a check for the redemption proceeds will be
sent to the shareholder(s) of record at the address of record within seven days
after the Global Equity Fund receives a redemption request in proper form.
BY WIRE
If you have established the electronic redemption option, your redemption
proceeds can be wired to your predesignated bank account on the next bank
business day after the Global Equity Fund receives your redemption request. The
Fund may charge a fee to cover the cost of sending a wire transfer for
redemptions less than $1,000, and your bank may charge an additional fee to
receive the wire. Wire transfers can be sent to US commercial banks that are
members of the Federal Reserve System.
33
<PAGE>
WRITTEN INSTRUCTIONS
PROPER FORM: Written instructions must be in proper form. They must include:
A description of the request
The name of the Fund(s)
The class of shares, if applicable
The account number(s)
The amount of money or number of shares being purchased, exchanged,
transferred or redeemed
The name(s) on the account(s)
The signature(s) of all registered account owners
For exchanges, the name of the Fund you are exchanging into
Your daytime telephone number
SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
<TABLE>
<CAPTION>
ACCOUNT TYPE REQUIREMENTS FOR WRITTEN REQUESTS
<S> <C>
Individual, Joint Tenants, Tenants in Written instructions must be signed by each
Common shareholder, exactly as the names appear in the
account registration.
UGMA or UTMA (custodial accounts for Written instructions must be signed by the
minors) custodian in his/her capacity as it appears in
the account registration.
Corporation, Association Written instructions must be signed by authorized
person(s), stating his/her capacity as indicated
by the corporate resolution to act on the account
and a copy of the corporate resolution, certified
within the past 90 days, authorizing the signer
to act.
Estate, Trust, Pension, Profit Sharing Written instructions must be signed by all
Plan trustees. If the name of the trustee(s) does not
appear in the account registration, please
provide a copy of the trust document certified
within the last 60 days.
Joint tenancy shareholders whose Written instructions must by signed by the
co-tenants are deceased surviving tenant(s). A certified copy of the
death certificate must accompany the request.
</TABLE>
34
<PAGE>
SIGNATURE GUARANTEE
The Global Equity Fund reserves the right to require a signature guarantee
under certain circumstances. A signature guarantee verifies the authenticity of
your signature. You should be able to obtain a signature guarantee from a bank,
broker, credit union, savings association, clearing agency, or securities
exchange or association, but not a notary public. Call your financial
institution to see if it has the ability to guarantee a signature.
ACCOUNT POLICIES
THIRD PARTY TRANSACTIONS
If you purchase Global Equity Fund shares as part of a program of services
offered by a Financial Intermediary, you may be required to pay additional fees.
You should contact your Financial Intermediary for information concerning what
additional fees, if any, may be charged.
REDEMPTION IN-KIND
The Fund may pay for any portion of the redemption amount in excess of
$250,000 by a distribution in-kind of securities from the Fund's portfolio,
instead of in cash. If you receive an in-kind distribution of portfolio
securities, and choose to sell them, you will incur brokerage charges and
continue to be subject to tax consequences and market risk pending any sale.
STALE CHECKS
For the protection of shareholders and the Fund, if a check issued for the
payment of a redemption or distribution is not cashed for more than 180 days
from issuance, it will not be honored. The Fund has adopted procedures described
in the statement of additional information regarding the treatment of stale
checks, or you may contact your Financial Intermediary.
35
<PAGE>
MONEY MANAGER INFORMATION
The money managers have no affiliations with the Global Equity Fund or the
Fund's service providers other than their management of Underlying Fund assets.
Each money manager has been in business for at least three years, and is
principally engaged in managing institutional investment accounts. These
managers may also serve as managers or advisers to other Funds in FRIC, or to
other clients of FRIMCo or of Frank Russell Company, including Frank Russell
Company's wholly-owned subsidiary, Frank Russell Trust Company.
This section identifies the money managers for the Underlying Funds in which
the Global Equity Fund invests.
QUANTITATIVE EQUITY FUND
BARCLAYS GLOBAL FUND ADVISORS, 45 Fremont Street 17(th) Floor, San
Francisco, CA 94105.
FRANKLIN PORTFOLIO ASSOCIATES LLC, Two International Place, 22nd Floor,
Boston, MA 02110-4104.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., 522 Fifth Ave., 6th Floor, New
York, NY 10036.
JACOBS LEVY EQUITY MANAGEMENT, INC., 280 Corporate Center, 3 ADP Boulevard,
Roseland, NJ 07068.
INTERNATIONAL SECURITIES FUND
DELAWARE INTERNATIONAL ADVISERS LTD., 80 Cheapside, 3rd Floor, London
EC2V6EE England.
FIDELITY MANAGEMENT TRUST COMPANY, 82 Devonshire Street, Boston, MA 02109.
J.P. MORGAN INVESTMENT MANAGEMENT, INC., See: Quantitative Equity Fund.
MASTHOLM ASSET MANAGEMENT, LLC, 10500 N.E. 8th Street, Suite 660, Bellevue,
WA 98004.
MONTGOMERY ASSET MANAGEMENT, LLC, 101 California Street, 35(th) Floor, San
Francisco, CA 94111.
OECHSLE INTERNATIONAL ADVISORS, LLC, One International Place, 23rd Floor,
Boston, MA 02110.
SANFORD C. BERNSTEIN & CO., INC., 767 Fifth Avenue, 21st Floor, New York, NY
10153-0185.
THE BOSTON COMPANY ASSET MANAGEMENT, INC., One Boston Place, 14th Floor,
Boston, MA 02108-4402.
EMERGING MARKETS FUND
FOREIGN & COLONIAL EMERGING MARKETS LIMITED, Exchange House, Primrose
Street, London, England EC2A 2NY.
GENESIS ASSET MANAGERS LIMITED, 21 Knightsbridge, London SW1X 7LY England.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, 600 W. Broadway 29(th) Floor, San
Diego, CA 92101.
SANFORD C. BERNSTEIN & CO. INC., See: International Securities Fund.
36
<PAGE>
SCHRODERS CAPITAL MANAGEMENT INTERNATIONAL LIMITED, 31 Greshman Street,
London EC2V 7QA England.
TAX-MANAGED LARGE CAP FUND
(FORMERLY EQUITY T FUND)
J.P. MORGAN INVESTMENT MANAGEMENT, INC., See: Quantitative Equity Fund.
TAX-MANAGED SMALL CAP FUND
GEEWAX, TERKER & COMPANY, 99 Starr Street, Phoenixville, PA 19460.
WHEN CONSIDERING AN INVESTMENT IN THE GLOBAL EQUITY FUND, DO NOT RELY ON ANY
INFORMATION UNLESS IT IS CONTAINED IN THIS PROSPECTUS OR IN THE GLOBAL EQUITY
FUND STATEMENT OF ADDITIONAL INFORMATION. THE GLOBAL EQUITY FUND HAS NOT
AUTHORIZED ANYONE TO ADD ANY INFORMATION OR TO MAKE ANY ADDITIONAL STATEMENTS
ABOUT THE FUND. THE FUND MAY NOT BE AVAILABLE IN SOME JURISDICTIONS OR TO SOME
PERSONS. THE FACT THAT YOU HAVE RECEIVED THIS PROSPECTUS SHOULD NOT, IN ITSELF,
BE TREATED AS AN OFFER TO SELL GLOBAL EQUITY FUND SHARES TO YOU. CHANGES IN THE
AFFAIRS OF THE FUND OR IN THE UNDERLYING FUNDS' MONEY MANAGERS MAY OCCUR AFTER
THE DATE ON THE COVER PAGE OF THIS PROSPECTUS. THIS PROSPECTUS WILL BE AMENDED
OR SUPPLEMENTED TO REFLECT ANY MATERIAL CHANGES TO THE INFORMATION IT CONTAINS.
37
<PAGE>
For more information about the LifePoints Tax-Managed Global Equity Fund, the
following documents are available without charge:
ANNUAL/SEMIANNUAL REPORTS: Additional information about the LifePoints
Tax-Managed Global Equity Fund's investments will be available in the Fund's
annual and semiannual reports to shareholders once the Fund has completed its
first annual or semi-annual period. In the annual report, you will find a
discussion of the Fund's holdings and of market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the LifePoints Tax-Managed Global Equity Fund.
You may obtain free copies of the annual report for the Fund once the Fund
has completed its first annual or semi-annual period and of the SAI or may
request other information, by contacting your Financial Intermediary or the
Fund at:
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
1-800-787-7354
Fax: 253-591-3495
Website: russell.com
You can review and copy information about the LifePoints Tax-Managed Global
Equity Fund (including the SAI) at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. You can obtain copies of this information upon paying a
duplicating fee by writing to the Public Reference Section of the Commission,
Washington, D.C. 20549-6009. Reports and other information about the
LifePoints Tax-Managed Global Equity Fund are also available on the
Commission's Internet website at sec.gov.
FRANK RUSSELL INVESTMENT COMPANY
Class S Shares:
Tax-Managed Global Equity Fund
[RUSSELL LOGO] Distributor: Russell Fund Distributors, Inc.
SEC File No. 811-3153
36-08-084 (05/00)
<PAGE>
MONEY MARKET FUNDS
FRANK RUSSELL INVESTMENT COMPANY
MONEY MARKET FUNDS
PROSPECTUS
CLASS S SHARES:
MONEY MARKET FUND
US GOVERNMENT MONEY MARKET FUND
TAX FREE MONEY MARKET FUND
MAY 1, 2000
909 A STREET, TACOMA, WA 98402 . 800-787-7354 . 253-627-7001
As with all mutual funds, the Securities and Exchange Commission has neither
determined that the information in this Prospectus is accurate or complete,
nor approved or disapproved of these securities. It is a criminal offense to
state otherwise.
[RUSSELL LOGO]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary......................................... 3
Investment Objective, Principal Investment Strategies and
Principal Risks......................................... 3
Performance............................................... 5
Fees and Expenses......................................... 8
Investment Objective and Principal Investment Strategies.... 10
Risks....................................................... 12
Management of the Funds..................................... 13
The Money Managers.......................................... 14
Dividends and Distributions................................. 15
Taxes....................................................... 15
How Net Asset Value Is Determined........................... 16
How to Purchase Shares...................................... 17
Exchange Privilege.......................................... 19
How to Redeem Shares........................................ 20
Payment of Redemption Proceeds.............................. 21
Written Instructions........................................ 21
Account Policies............................................ 22
Financial Highlights........................................ 24
Money Manager Information................................... 27
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS
MONEY MARKET FUND
- -----------------------
<TABLE>
<S> <C>
INVESTMENT To maximize current income to the extent consistent with the
OBJECTIVE preservation of capital and liquidity, and the maintenance
of a stable $1.00 per share net asset value, by investing in
short-term, high-grade money market instruments.
PRINCIPAL The Money Market Fund invests in a portfolio of high quality
INVESTMENT money market securities maturing within 397 days or less.
STRATEGIES The Fund principally invests in securities issued or
guaranteed by the US government or its agencies or by US and
foreign banks, as well as asset-backed securities and
short-term debt of US and foreign corporations and trusts.
The dollar-weighted average maturity of the Fund's portfolio
is 90 days or less. The Money Market Fund seeks to achieve
its objective by active security selection consistent with
its daily assessment of market and credit risks.
PRINCIPAL RISKS An investment in the Money Market Fund, like any investment,
has risks. The principal risks of investing in the Fund are
those associated with investing in fixed-income securities,
including instruments of US and foreign banks and branches
and foreign corporations, use of repurchase agreements and
credit and liquidity enhancements. Please refer to the
"Risks" section later in this Prospectus for further
details.
</TABLE>
US GOVERNMENT MONEY MARKET FUND
- -----------------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide the maximum current income that is consistent
OBJECTIVE with the preservation of capital and liquidity and the
maintenance of a stable $1.00 per share net asset value by
investing exclusively in US government obligations.
PRINCIPAL The US Government Money Market Fund invests in a portfolio
INVESTMENT of high quality money market securities issued or guaranteed
STRATEGIES by the US government or any of its agencies and
instrumentalities maturing within 397 days or less. The
dollar-weighted average maturity of the Fund's portfolio is
90 days or less. The Fund seeks to achieve its objective by
active security selection consistent with its daily
assessment of market risks.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL RISKS An investment in the US Government Money Market Fund, like
any investment, has risks. The principal risks of investing
in the Fund are those associated with investing in
fixed-income securities and repurchase agreements. Please
refer to the "Risks" section later in this Prospectus for
further details.
</TABLE>
TAX FREE MONEY MARKET FUND
- ---------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide the maximum current income exempt from federal
OBJECTIVE income tax that is consistent with the preservation of
capital and liquidity, and the maintenance of a $1.00 per
share net asset value by investing in short-term municipal
obligations.
PRINCIPAL The Tax Free Money Market Fund invests in a portfolio of
INVESTMENT high quality short-term debt securities maturing in 397 days
STRATEGIES or less. The dollar-weighted average maturity of the Fund's
portfolio is 90 days or less. The Fund invests almost
exclusively in investment-grade municipal debt obligations
providing tax-exempt interest income.
PRINCIPAL RISKS An investment in the Tax Free Money Market Fund, like any
investment, has risks. The principal risks of investing in
the Fund are those associated with investing in fixed-income
securities, municipal obligations and credit and liquidity
enhancements. Please refer to the "Risks" section later in
this Prospectus for further details on these risks.
</TABLE>
An investment in any of the Funds offered by this Prospectus is not insured or
guaranteed by the Federal Depsoit Insurance Corporation or any other government
agency. Although the Funds seek to preserve the value of your investment at
$1.00 per Share, it is possible to lose money by investing in any of the Funds.
4
<PAGE>
PERFORMANCE
The following bar charts illustrate the risks of investing in the Funds by
showing how the performance of each Fund's Class S shares varies from year to
year over a 10-year period. The highest and lowest quarterly returns during the
period shown in the bar charts for each of the Funds's Class S Shares is set
forth below the bar charts.
The tables accompanying the bar charts further illustrate the risks of
investing in the Funds by showing each Fund's average annual returns for 1, 5
and 10 years.
Past performance is no indication of future results.
- --------------------------------------------------------------------------------
MONEY MARKET FUND CLASS S
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 8.55%
1991 6.38%
1992 4.11%
1993 3.48%
1994 4.57%
1995 6.19%
1996 5.63%
1997 5.79%
1998 5.69%
1999 5.27%
</TABLE>
BEST QUARTER: 2.11% (3Q/90)
WORST QUARTER: 0.80% (4Q/93)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Money Market Fund Class S*................................. 5.27% 5.70% 5.54%
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
Money Market Fund Class S.................................. 5.67%
7-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT EFFECTIVE
Money Market Fund Class S.................................. 5.69% 5.85%
-------------------------------------------------------------------------------------------
</TABLE>
----------------------------
* For periods prior to April 1, 1995 performance results for the Money
Market Fund do not reflect deduction of all management fees.
- --------------------------------------------------------------------------------
To obtain current yield information, please call 1-800-787-7354.
5
<PAGE>
- --------------------------------------------------------------------------------
US GOVERNMENT MONEY MARKET FUND CLASS S
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 8.04%
1991 5.90%
1992 3.53%
1993 2.88%
1994 3.87%
1995 5.98%
1996 5.40%
1997 5.59%
1998 5.34%
1999 4.93%
</TABLE>
BEST QUARTER: 1.98% (3Q/90)
WORST QUARTER: 0.67% (4Q/93)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
US Government Money Market Fund Class S.................... 4.93% 5.44% 5.13%
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
US Government Money Market Fund Class S.................... 5.35%
7-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT EFFECTIVE
US Government Money Market Fund Class S.................... 5.30% 5.44%
-------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
To obtain current yield information, please call 1-800-787-7354.
6
<PAGE>
- --------------------------------------------------------------------------------
TAX FREE MONEY MARKET FUND CLASS S
ANNUAL TOTAL RETURNS
(FOR THE YEARS ENDED DECEMBER 31)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1990 5.99%
<S> <C>
1991 4.84%
1992 3.09%
1993 2.55%
1994 2.83%
1995 3.76%
1996 3.35%
1997 3.61%
1998 3.36%
1999 3.31%
</TABLE>
BEST QUARTER: 1.50% (4Q/90)
WORST QUARTER: 0.58% (1Q/94)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEARS 10 YEARS
--------------------------------------- ------ ------- --------
<S> <C> <C> <C>
Tax Free Money Market Fund Class S......................... 3.31% 3.47% 3.66%
30-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT
Tax Free Money Market Fund Class S......................... 3.70%
7-DAY YIELDS FOR THE YEAR ENDED DECEMBER 31, 1999 CURRENT EFFECTIVE
Tax Free Money Market Fund Class S......................... 4.42% 4.52%
7-DAY TAX EQUIVALENT YIELD FOR THE YEAR ENDED DECEMBER 31,
1999 CURRENT EFFECTIVE
Tax Free Money Market Fund................................. 7.32% 7.48%
-------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
To obtain current yield information, please call 1-800-787-7354.
7
<PAGE>
FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if you
buy and hold shares of the Funds.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM SALES
MAXIMUM SALES CHARGE (LOAD)
CHARGE (LOAD) IMPOSED ON MAXIMUM
IMPOSED ON REINVESTED DEFERRED SALES REDEMPTION EXCHANGE
PURCHASES DIVIDENDS CHARGE (LOAD) FEES FEES
--------- --------- ------------- ---- ----
<S> <C> <C> <C> <C> <C>
Each Fund (Class S).................... None None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
(% OF NET ASSETS)
<TABLE>
<CAPTION>
OTHER
EXPENSES TOTAL GROSS TOTAL NET
(INCLUDING ANNUAL FUND ANNUAL FUND
ADVISORY ADMINISTRATIVE OPERATING FEE OPERATING
FEE FEES) EXPENSES* WAIVERS# EXPENSES
--- ----- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Money Market Fund.............................. 0.20% 0.12% 0.32% (0.15)% 0.17%
US Government Money Market Fund................ 0.20% 0.34% 0.54% (0.24)% 0.30%
Tax Free Money Market Fund..................... 0.20% 0.11% 0.31% (0.10)% 0.21%
</TABLE>
- ------------------------
* If you purchase any class of Shares of a Fund through a Financial
Intermediary, such as a bank or an investment adviser, you may also pay
additional fees to the intermediary for services provided by the
intermediary. You should contact your intermediary for information
concerning what additional fees, if any, will be charged.
# FRIMCo has contractually agreed to waive, at least until February 28, 2001, a
portion of its 0.25% combined advisory and administrative fees for the US
Government Money Market Fund, up to the full amount of that fee for all
expenses that exceed 0.30% of the average daily net assets on an annual
basis. Additionally, FRIMCo has contractually agreed to waive, at least
until February 28, 2001, 0.15% of its 0.25% and 0.10% of its 0.25% combined
advisory and administrative fees for the Money Market Fund and Tax Free
Money Market Fund, respectively.
8
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH FUND
WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
The example assumes that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your Shares at the end of those periods. The
example also assumes your investment has a 5% return each year and that
operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CLASS S:
Money Market Fund........................................... $17 $ 87 $164 $390
US Government Money Market Fund............................. 31 149 278 654
Tax Free Money Market Fund.................................. 22 90 164 384
</TABLE>
9
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
MONEY MARKET FUND
- -----------------------
<TABLE>
<S> <C>
INVESTMENT To maximize current income to the extent consistent with the
OBJECTIVE preservation of capital and liquidity, and the maintenance
of a stable $1.00 per share net asset value, by investing in
short-term, high-grade money market instruments.
PRINCIPAL The Money Market Fund invests in a portfolio of high quality
INVESTMENT money market securities maturing within 397 days or less.
STRATEGIES The Fund principally invests in securities issued or
guaranteed by the US government or its agencies or by US and
foreign banks, as well as asset-backed securities and
short-term debt of US and foreign corporations and trusts.
The Fund invests in securities which may be supported by
credit enhancements primarily from US and foreign banks. Up
to 10% of the Fund's net assets may be "illiquid" securities
(i.e., securities that do not have a readily available
market or that are subject to resale restrictions). The
Fund's investments may include adjustable rate securities
whose rates are tied to appropriate money market indices
which reset frequently. The dollar-weighted average maturity
of the Fund's portfolio is 90 days or less.
The Money Market Fund seeks to achieve its objective by
active security selection consistent with its daily
assessment of market and credit risks. This approach begins
with a broad review of the economic and political
environment. Interest rate forecasts of the investment
community and Federal Reserve policy are analyzed to develop
an expectation for interest rate trends. Within this
framework, the Fund identifies individual securities for
investment.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions.
</TABLE>
US GOVERNMENT MONEY MARKET FUND
- -----------------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide the maximum current income that is consistent
OBJECTIVE with the preservation of capital and liquidity and the
maintenance of a stable $1.00 per share net asset value by
investing exclusively in US government obligations.
PRINCIPAL The US Government Money Market Fund invests in a portfolio
INVESTMENT of high quality money market securities issued or guaranteed
STRATEGIES by the US government or any of its agencies and
instrumentalities maturing within 397 days or less. These
include, among others, the US Treasury, Federal National
Mortgage Association, Federal Home Loan Mortgage Association
and the Federal Home Loan Bank. The Fund enters into
repurchase agreements collateralized by US government and
agency obligations. The Fund's investments may include
adjustable rate securities whose rates are
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
tied to appropriate money market indices and reset
frequently. The dollar-weighted average maturity of the
Fund's portfolio is 90 days or less.
The Fund seeks to achieve its objective by active security
selection consistent with its daily assessment of market
risks. This approach begins with a broad review of the
economic and political environment. Interest rate forecasts
of the investment community and Federal Reserve policy are
analyzed to develop an expectation for interest rate trends.
Within this framework, the Fund identifies individual
securities for investment.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions.
</TABLE>
TAX FREE MONEY MARKET FUND
- ---------------------------------
<TABLE>
<S> <C>
INVESTMENT To provide the maximum current income exempt from federal
OBJECTIVE income tax that is consistent with the preservation of
capital and liquidity, and the maintenance of a $1.00 per
share net asset value by investing in short-term municipal
obligations.
PRINCIPAL The Tax Free Money Market Fund invests in a portfolio of
INVESTMENT high quality short-term debt securities maturing in 397 days
STRATEGIES or less. The dollar-weighted average maturity of the Fund's
portfolio is 90 days or less.
The Fund invests almost exclusively in investment-grade
municipal debt obligations providing tax-exempt interest
income. Specifically, these obligations are debt
obligations, rated A- or higher by Moody's Investor Service,
Inc. or its equivalent by a nationally recognized
statistical rating organization (NRSRO), issued by states,
territories and possessions of the United States and the
District of Columbia and their political subdivisions,
agencies, and instrumentalities, or multi-state agencies or
authorities to obtain funds to support special government
needs or special projects.
Some of the securities in which the Fund invests are
supported by credit and liquidity enhancements from third
parties. These enhancements are generally letters of credit
from foreign or domestic banks.
From time to time, the Fund may take temporary defensive
positions that may be inconsistent with its principal
investment policies in an attempt to respond to adverse
market, economic, political or other conditions.
</TABLE>
11
<PAGE>
RISKS
An investment in the Funds, like any investment, has risks. The following
table describes principal types of risks that the Funds are subject to and lists
next to each description those Funds most likely to be affected by the risk.
Other Funds that are not listed may hold portfolio investments that are subject
to one or more of the risks, but will not do so in a way that is expected to
principally affect the performance of the Fund as a whole. Please refer to the
Funds' Statement of Additional Information for a discussion of risks associated
with types of securities held by the Funds and the investment practices employed
by the individual Funds.
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
- --------------------- ----------- -------------
<S> <C> <C>
FIXED-INCOME Prices of fixed-income securities rise and fall in Money Market
SECURITIES response to interest rate changes. Generally, when US Government
interest rates rise, prices of fixed-income securities Money Market
fall. The longer the duration of the security, the more Tax Free
sensitive the security is to this risk. A 1% increase Money Market
in interest rates would reduce the value of a $100 note
by approximately one dollar if it had a one-year
duration, but would reduce its value by approximately
fifteen dollars if it had a 15-year duration. There is
also a risk that one or more of the securities will be
downgraded in credit rating or go into default.
Lower-rated bonds generally have higher credit risks.
INSTRUMENTS OF Non-US corporations and banks issuing dollar Money Market
US AND FOREIGN denominated instruments in the US are not necessarily
BANKS AND subject to the same regulatory requirements that apply
BRANCHES AND to US corporations and banks, such as accounting,
FOREIGN auditing and recordkeeping standards, the public
CORPORATIONS availability of information and, for banks, reserve
requirements, loan limitations and examinations. This
increases the possibility that a non-US corporation or
bank may become insolvent or otherwise unable to
fulfill its obligations on these instruments.
MUNICIPAL Municipal obligations are affected by economic, Tax Free
OBLIGATIONS business or political developments. These securities Money Market
may be subject to provisions of litigation, bankruptcy
and other laws affecting the rights and remedies of
creditors, or may become subject to future laws
extending the time for payment of principal and/or
interest, or limiting the rights of municipalities to
levy taxes.
CREDIT AND Adverse changes in a guarantor's credit quality if Money Market
LIQUIDITY contemporaneous with adverse changes in the guaranteed Tax Free
ENHANCEMENTS security could cause losses to a Fund and may affect Money Market
its net asset value.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
RISK ASSOCIATED WITH: DESCRIPTION RELEVANT FUND
- --------------------- ----------- -------------
<S> <C> <C>
REPURCHASE Under a repurchase agreement, a bank or broker sells US Government
AGREEMENTS securities to a Fund and agrees to repurchase them at Money Market
the Fund's cost plus interest. If the value of the
securities declines, and the bank or broker defaults on
its repurchase obligation, the Fund could incur a loss.
</TABLE>
AN INVESTMENT IN MONEY MARKET FUNDS IS NOT A BANK DEPOSIT AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE MONEY MARKET, US GOVERNMENT MONEY MARKET AND TAX
FREE MONEY MARKET FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00
PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN EACH OF THESE FUNDS.
MANAGEMENT OF THE FUNDS
The Funds' investment adviser is Frank Russell Investment Management Company
(FRIMCo), 909 A Street, Tacoma, Washington 98402. FRIMCo pioneered the
"multi-style, multi-manager" investment method in mutual funds and manages over
$17 billion in more than 30 mutual fund portfolios. FRIMCo was established in
1982 to serve as the investment management arm of Frank Russell Company
(Russell).
Russell, which acts as consultant to the Funds, was founded in 1936 and has
been providing comprehensive asset management consulting services for over 30
years to institutional investors, principally large corporate employee benefit
plans. Russell provides the Funds and FRIMCo with the asset management
consulting services that it provides to its other consulting clients. The Funds
do not compensate Russell for these services. Russell and its affiliates have
offices around the world, in Tacoma, New York, Toronto, London, Paris, Sydney,
Auckland, Singapore and Tokyo.
Russell is a subsidiary of The Northwestern Mutual Life Insurance Company.
Founded in 1857, Northwestern Mutual is a mutual life insurance corporation
headquartered in Milwaukee, Wisconsin. It leads the US in both individual life
insurance sold annually and individual life insurance in force.
FRIMCo acts as money manager for the Money Market and US Government Money
Market Funds and recommends money managers to the Tax Free Money Market Fund,
oversees them, and evaluates their results. Each Fund's money manager selects
the individual portfolio securities for the assets assigned to it.
The aggregate annual rate of advisory and administrative fees, payable to
FRIMCo monthly on a pro rata basis, are the following percentages of each Fund's
average daily net assets: Money Market Fund, 0.25%, US Government Money Market
Fund, 0.25% and Tax Free Money Market Fund, 0.25%. Of these aggregate amounts
0.05% is attributable to administrative services. FRIMCo has contractually
agreed to waive, at least until February 28, 2001, a portion of its 0.25%
combined advisory and administrative fees for the US Government Money Market
Fund, up to the full amount of that fee for all expenses that exceed 0.30% of
the average daily net assets on an annual basis. Additionally, FRIMCo has
contractually agreed to waive 0.15% of its 0.25% and 0.10% of its 0.25% combined
advisory and administrative fees for the Money Market Fund and Tax Free Money
Market Fund,
13
<PAGE>
respectively. Each Fund may also pay, in addition to the aggregate fees set
forth above, a fee which compensates FRIMCo for managing collateral which the
Funds have received in certain portfolio transactions which are not treated as
net assets of that Fund ("additional assets") in determining the Fund's net
asset value per share. The additional fee payable to FRIMCo will equal an amount
of up to 0.07% of each Fund's additional assets on an annualized basis.
THE MONEY MANAGERS
The Tax Free Money Market Fund allocates its assets to the money manager
listed under "Money Manager Information" at the end of this Prospectus. FRIMCo,
as the Funds' advisor, may change the allocation of a Fund's assets to one or
more other money managers at any time. The Funds received an exemptive order
from the Securities and Exchange Commission (SEC) that permits a Fund to engage
or terminate a money manager at any time, subject to the approval by the Fund's
Board of Trustees (Board), without a shareholder vote. A Fund notifies its
shareholders within 60 days of when a money manager begins providing services.
The Funds select money managers based primarily upon the research and
recommendations of FRIMCo and Russell. FRIMCo and Russell evaluate
quantitatively and qualitatively the money manager's skills and results in
managing assets for specific asset classes, investment styles and strategies.
Short-term investment performance, by itself, is not a controlling factor in any
Fund's selection or termination of a money manager.
A money manager has complete discretion to purchase and sell portfolio
securities for its segment of a Fund. At the same time, however, the money
manager must operate within the Fund's investment objectives, restrictions and
policies. Additionally, the manager must operate within more specific
constraints developed from time to time by FRIMCo. FRIMCo develops such
constraints for a manager based on FRIMCo's assessment of the manager's
expertise and investment style. By assigning more specific constraints to a
money manager, FRIMCo intends to capitalize on the strengths of the money
manager and if multiple managers are employed, to combine their investment
activities in a complementary fashion. Although the money managers' activities
are subject to general oversight by the Board and the Funds' officers, neither
the Board, the officers, FRIMCo nor Russell evaluate the investment merits of a
money manager's individual security selections.
14
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
INCOME DIVIDENDS
Each Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. The amount and frequency of
distributions are not guaranteed, all distributions are at the Board's
discretion. Currently, the Board intends to declare dividends from net
investment income (if any), according to the following schedule:
<TABLE>
<CAPTION>
DECLARED PAYABLE FUNDS
- -------- ------- -----
<S> <C> <C>
Daily................ Jan. to Nov., 2nd to last business day Money Market Fund
of the month; Dec., last business day US Government Money Market Fund
of the month Tax Free Money Market Fund
</TABLE>
The Funds determine net investment income immediately prior to the
determination of their net asset values. This occurs at the earlier of 4:00 p.m.
or the close of the New York Stock Exchange on each business day. Net investment
income is credited daily to the accounts of shareholders of record prior to the
net asset value calculation. The income is paid monthly.
CAPITAL GAINS DISTRIBUTIONS
The Board intends to declare long-term capital gain distributions once a
year in mid-December to reflect any net long-term capital gains realized by a
Fund as of October 31 of the current fiscal year. A Fund may be required to make
an additional distribution, if necessary, in any year for operation or other
reasons.
AUTOMATIC REINVESTMENT
Your dividends and other distributions are automatically reinvested at the
closing net asset value on the record date, in additional shares of the
appropriate Fund, unless you elect to have the dividends or distributions paid
in cash or invested in another Fund. You may change your election by delivering
written notice no later than ten days prior to the payment date to the Funds at
Frank Russell Investment Company, c/o Boston Financial Data Services, 2 Heritage
Drive, N. Quincy, MA 02171.
TAXES
In general, distributions from a Fund are taxable to you as either ordinary
income or capital gains. This is true whether you reinvest your distributions in
additional shares of the Fund or receive them in cash. Every January, you will
receive a statement that shows the tax status of distributions you received for
the previous year. Distributions declared in December but paid in January are
taxable as if they were paid in December.
Because the Funds expect to maintain a stable $1.00 Share price, you should
not have any gain or loss if you sell your Shares.
Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Non-US investors may be
subject to US withholding and estate tax. You
15
<PAGE>
should consult your tax professional about federal, state, local or foreign tax
consequences in holding shares of a Fund.
The Tax Free Money Market Fund intends to continue to qualify to pay
"exempt-interest dividends" to its shareholders by maintaining, as of the close
of each quarter of its taxable years, at least 50% of the value of its total
assets in municipal obligations. If the Fund satisfies this requirement,
distributions from net investment income to shareholders will be exempt from
federal income taxation, including the alternative minimum tax, to the extent
net investment income is represented by interest on municipal obligations.
However, to the extent dividends are derived from taxable income from temporary
investments, short-term capital gains, or income derived from the sale of bonds
purchased with market discount, the dividends are treated as ordinary income,
whether paid in cash or reinvested in additional shares. The Fund may invest a
portion of its assets in private activity bonds, the income from which is a
preference item in determining your alternative minimum tax.
By law, a Fund must withhold 31% of your distributions and proceeds if you
do not provide your correct taxpayer identification number, or certify that such
number is correct, or if the IRS instructs the Fund to do so.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN A FUND.
Additional information on these and other tax matters relating to the Funds
and their shareholders is included in the section entitled "Taxes" in the SAI.
HOW NET ASSET VALUE IS DETERMINED
NET ASSET VALUE PER SHARE
The net asset value per share is calculated for Shares of each Fund on each
business day on which Shares are offered or redemption orders are tendered. A
business day for the Funds includes any day on which the New York Stock Exchange
(NYSE) is open for trading and the Boston Federal Reserve Bank is open. Neither
the NYSE nor the Boston Federal Reserve Bank is open on national holidays. All
Funds determine net asset value at 4:00 p.m. Eastern Time or as of the close of
the NYSE, whichever is earlier.
VALUATION OF PORTFOLIO SECURITIES
The Funds' portfolio investments are valued using the amortized cost method.
Under this method, a portfolio instrument is initially valued at cost and
thereafter a constant accretion/amortization to maturity of any discount or
premium is assumed. While amortized cost provides certainty in valuation, it may
result in periods when the value of an instrument is higher or lower than the
price a Fund would receive if it sold the instrument.
16
<PAGE>
HOW TO PURCHASE SHARES
Funds are generally available only through a select network of qualified
Financial Intermediaries. If you are not currently working with one of these
Financial Intermediaries, please call Russell Investor Services at (800) RUSSEL4
(800-787-7354) for assistance in contacting an investment professional near you.
There is currently no required minimum investment in the Funds described in
this Prospectus. The Funds are designed to be used as part of an allocated
investment portfolio in combination with Funds described in the Russell Funds
Prospectus or Institutional Funds Prospectus of Frank Russell Investment Company
(FRIC).
Financial Intermediaries may charge their customers a fee for providing
investment-related services. Financial Intermediaries generally receive no
compensation from the Funds or the Funds' service providers with respect to
Class S Shares of the Funds.
PAYING FOR SHARES
You may purchase Shares of the Funds through a Financial Intermediary on any
business day the Funds are open. Purchase orders are processed at the next net
asset value per share calculated after the Funds' receive your order in proper
form (defined in the "Written Instructions" section), and accept the order.
All purchases must be made in US. dollars. Checks and other negotiable bank
drafts must be drawn on US. banks and made payable to "Frank Russell Investment
Company." The Funds reserve the right to reject any purchase order for any
reason including, but not limited to, receiving a check which does not clear the
bank or a payment which does not arrive in proper form by settlement date. You
will be responsible for any resulting loss to the Funds. An overdraft charge may
also be applied. Cash, third party checks and checks drawn on credit card
accounts generally will not be accepted. However, exceptions may be made by
prior special arrangement with certain Financial Intermediaries.
OFFERING DATES AND TIMES
Orders must be received by the Funds prior to the following designated
times:
<TABLE>
<S> <C>
4:00 p.m. Eastern Time or close of the NYSE, Money Market Fund
whichever is earlier*
11:45 a.m. Eastern Time Tax Free Money Market Fund
12:15 p.m. Eastern Time US Government Money Market Fund
</TABLE>
- ------------------------------
* On days when the Public Securities Association declares an early closure of
the bond market, orders for purchase of shares of the Money Market Fund must
be received prior to the time of such early closure.
Purchases can be made on any day when Fund Shares are offered. Because
Financial Intermedaries' processing time may vary, please ask your Financial
Intermediary representative when your account will be credited.
17
<PAGE>
ORDER AND PAYMENT PROCEDURES
Generally, you must place purchase orders for Shares of the Funds through a
Financial Intermediary. You may pay for your purchase by mail or electronic
funds transfer. Initial purchases require a completed and signed Application for
each new account regardless of the investment method. Specific payment
arrangements should be made with your Financial Intermediary.
BY MAIL
For new accounts, please mail the completed Application to your Financial
Intermediary. Payment for orders may be made by check or other negotiable bank
draft and sent to the Funds' Transfer Agent. Certified checks are not necessary,
but checks are accepted subject to collection at full face value in US funds.
Third party checks will not be accepted. Checks should be made payable to "Frank
Russell Investment Company."
BY FEDERAL FUNDS WIRE
You can pay for orders by wiring federal funds to the Funds' Custodian,
State Street Bank and Trust Company. All wires must include your account
registration and account number for identification. Inability to properly
identify a wire transfer may prevent or delay timely settlement of your
purchase.
BY AUTOMATED CLEARING HOUSE ("ACH")
You can make initial or subsequent investments through ACH to the Funds'
Custodian, State Street Bank and Trust Company.
AUTOMATED INVESTMENT PROGRAM
You can make regular investments (minimum $50) in the Funds in an
established account on a monthly, quarterly, semiannual or annual basis by
automatic electronic funds transfer from a bank account. You must make a
separate transfer for each Fund in which you purchase Shares. You may change the
amount or stop the automatic purchase at any time. Contact your Financial
Intermediary for further information on this program and an enrollment form.
THREE-DAY SETTLEMENT PROGRAM
The Funds will accept orders at the next computed net asset value from
Financial Intermediaries to purchase Shares of the Funds for settlement on the
third business day following the receipt of the order. These orders are paid for
by a federal funds wire if the Financial Intermediary has enrolled in the
program and agreed in writing to indemnify the Funds against any losses
resulting from non-receipt of payment.
18
<PAGE>
EXCHANGE PRIVILEGE
BY MAIL OR TELEPHONE
Through your Financial Intermediary, you may exchange Shares of any Fund you
own for shares of any other Fund on the basis of the current net asset value per
share at the time of the exchange. Shares of a Fund offered by this Prospectus
may only be exchanged for Shares of a Fund offered by FRIC through another
Prospectus under certain conditions and only in states where the exchange may be
legally made. For additional information, including Prospectuses for other
Funds, contact your Financial Intermediary.
Exchanges may be made by mail or by telephone if the registration of the two
accounts is identical. Contact your Financial Intermediary for assistance in
exchanging Shares and, because Financial Intermediaries' processing time may
vary, to find out when your account will be credited or debited. To request an
exchange in writing, please follow the procedures in the "Written Instructions"
section before mailing to your Financial Intermediary.
An exchange involves the redemption of Shares, which is treated as a sale
for income tax purposes. Thus, capital gain or loss may be realized. Please
consult your tax adviser for more information. The Shares to be acquired will be
purchased when the proceeds from the redemption become available (up to seven
days from the receipt of the request) at the next net asset value per share
calculated after the Funds received the exchange request in good order.
IN-KIND EXCHANGE OF SECURITIES
FRIMCo, in its capacity as the Funds' investment advisor, may, at its
discretion, permit you to acquire Shares in exchange for securities you
currently own. Any securities exchanged must meet the investment objective,
policies and limitations of the applicable Fund, have a readily ascertainable
market value, be liquid, not be subject to restrictions on resale and have a
market value, plus any cash, equal to at least $100,000.
Shares purchased in exchange for securities generally may not be redeemed or
exchanged for 15 days following the purchase by exchange or until the transfer
has settled, whichever comes first. If you are a taxable investor, you will
generally realize a gain or loss for federal income tax purposes on the
exchange. If you are contemplating an in-kind exchange you should consult your
tax adviser.
The price at which the exchange will take place will depend upon the
relative net asset value of the Shares purchased and securities exchanged.
Securities accepted by a Fund will be valued in the same way the Fund values its
assets. Any interest earned on the securities following their delivery to the
Funds and prior to the exchange will be considered in valuing the securities.
All interest, dividends, subscription or other rights attached to the securities
becomes the property of the Fund, along with the securities. Please contact your
Financial Intermediary for further information.
19
<PAGE>
HOW TO REDEEM SHARES
Shares of the Funds may be redeemed through your Financial Intermediary on
any business day the Funds are open at the next net asset value per share
calculated after the Funds' Transfer Agent receives an order in proper form
(defined in the "Written Instructions" section). Payment will ordinarily be made
within seven days after receipt of your request in proper form. Shares recently
purchased by check may not be available for redemption for 15 days following the
purchase or until the check clears, whichever occurs first, to assure payment
has been collected.
REDEMPTION DATES AND TIMES
Redemption requests must be placed through a Financial Intermediary and
received by the Funds prior to the following designated times. Because Financial
Intermediaries' processing times may vary, please ask your Financial
Intermediary representative when your account will be debited. Requests can be
made by mail or telephone on any day when Fund shares are offered, or through
the Systematic Withdrawal Program described below.
<TABLE>
<S> <C>
4:00 p.m. Eastern Time or close of the NYSE, Money Market Fund
whichever is earlier*
11:45 a.m. Eastern Time Tax Free Money Market Fund
12:15 p.m. Eastern Time US Government Money Market Fund
</TABLE>
- ------------------------------
* On days when the Public Securities Association declares an early closure of
the bond market, orders for redemption of shares of the Money Market Fund
must be received prior to the time of such early closure.
BY MAIL OR TELEPHONE
You may redeem your shares by calling or writing to your Financial
Intermediary. Written requests to sell shares are in proper form when the
instructions are signed by all registered owners, with a signature guarantee if
necessary.
SYSTEMATIC WITHDRAWAL PROGRAM
The Funds offer a systematic withdrawal program which allows you to redeem
your Shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. If you would like to establish a
systematic withdrawal program, please complete the proper section of the account
application and indicate how you would like to receive your payments. You will
generally receive your payment by the end of the month in which a payment is
scheduled. When you redeem your shares under a systematic withdrawal program, it
is a taxable transaction.
You may choose to have the payments mailed to you or directed to your bank
account by ACH transfer. You may discontinue the systematic withdrawal program,
or change the amount and timing of withdrawal payments by contacting your
Financial Intermediary.
20
<PAGE>
ACCOUNTS IN STREET NAME
Many brokers, employee benefit plans and bank trusts combine their client's
Fund holdings in a single omnibus account with the Funds held in the brokers',
plans', or bank trusts' own name or "street name." Therefore, if you hold Fund
shares through a brokerage account, employee benefit plan or bank trust fund,
the Funds may have records only of the omnibus account. In this case, your
broker, employee benefit plan or bank is responsible for keeping track of your
account information. This means that you may not be able to request transactions
in your Shares directly through the Funds, but can do so only through your
broker, plan administrator or bank. Ask your Financial Intermediary for
information on whether your Shares are held in an omnibus account.
PAYMENT OF REDEMPTION PROCEEDS
BY CHECK
When you redeem your Shares, a check for the redemption proceeds will be
sent to the shareholder(s) of record at the address of record within seven days
after the Funds receive a redemption request in proper form.
BY WIRE
If you have established the electronic redemption option, your redemption
proceeds can be wired to your predesignated bank account on the next bank
business day after the Funds receive your redemption request. The Funds may
charge a fee to cover the cost of sending a wire transfer for redemptions less
than $1,000, and your bank may charge an additional fee to receive the wire.
Wire transfers can be sent to US commercial banks that are members of the
Federal Reserve System.
WRITTEN INSTRUCTIONS
PROPER FORM: Written instructions must be in proper form. They must include:
A description of the request
The name of the Fund(s)
The class of shares, if applicable
The account number(s)
The amount of money or number of shares being purchased, exchanged,
transferred or redeemed
The name(s) on the account(s)
The signature(s) of all registered account owners
For exchanges, the name of the Fund you are exchanging into
Your daytime telephone number
21
<PAGE>
SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
<TABLE>
<CAPTION>
ACCOUNT TYPE REQUIREMENTS FOR WRITTEN REQUESTS
<S> <C>
Individual, Joint Tenants, Tenants in Written instructions must be signed by each
Common shareholder, exactly as the names appear in the
account registration.
UGMA or UTMA (custodial Written instructions must be signed by the
accounts for minors) custodian in his/her capacity as it appears in
the account registration.
Corporation, Association Written instructions must be signed by authorized
person(s), stating his/her capacity as indicated
by the corporate resolution to act on the account
and a copy of the corporate resolution, certified
within the past 90 days, authorizing the signer
to act.
Estate, Trust, Pension, Profit Sharing Written instructions must be signed by all
Plan trustees. If the name of the trustee(s) does not
appear in the account registration, please
provide a copy of the trust document certified
within the last 60 days.
Joint tenancy shareholders whose Written instructions must by signed by the
co-tenants are deceased surviving tenant(s). A certified copy of the
death certificate must accompany the request.
</TABLE>
SIGNATURE GUARANTEE
The Funds reserve the right to require a signature guarantee under certain
circumstances. A signature guarantee verifies the authenticity of your
signature. You should be able to obtain a signature guarantee from a bank,
broker, credit union, savings association, clearing agency, or securities
exchange or association, but not a notary public. Call your financial
institution to see if it has the ability to guarantee a signature.
ACCOUNT POLICIES
THIRD PARTY TRANSACTIONS
If you purchase Shares as part of a program of services offered by a
Financial Intermediary, you may be required to pay additional fees. You should
contact your Financial Intermediary for information concerning what additional
fees, if any, may be charged.
REDEMPTION IN-KIND
A Fund may pay for any portion of the redemption amount in excess of
$250,000 by a distribution in-kind of securities from the Fund's portfolio,
instead of in cash. If you receive an in-kind distribution of portfolio
securities, and choose to sell them, you will incur brokerage charges and
continue to be subject to tax consequences and market risk pending any sale.
22
<PAGE>
STATE CHECKS
For the protection of shareholders and the Funds, if a check issued for the
payment of a redemption or distribution is not cashed for more than 180 days
from issuance, it will not be honored. The Funds have adopted procedures
described in the statement of additional information regarding the treatment of
stale checks, or you may contact your Financial Intermediary for additional
information.
23
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand a Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share throughout each year or period ended
December 31. The total returns in the table represent how much your investment
in the Fund would have increased (or decreased) during each period, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Funds'
financial statements, are included in the Funds' annual report, which is
available upon request.
MONEY MARKET FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
---------- ---------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income......................... .0515 .0553 .0563 .0549 .0601
---------- ---------- -------- -------- --------
DISTRIBUTIONS
From net investment income.................... (.0515) (.0553) (.0563) (.0549) (.0601)
---------- ---------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.................. $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
========== ========== ======== ======== ========
TOTAL RETURN (%)(a)............................. 5.27 5.69 5.79 5.63 6.19
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)...... 2,026,717 1,605,026 926,283 496,932 533,643
Ratios to average net assets (%)(a):
Operating expenses, net..................... .17 .16 .08 .05 .06
Operating expenses, gross .................. .32 .31 .30 .30 .26
Net investment income....................... 5.15 5.54 5.65 5.49 6.01
</TABLE>
- --------------------------
(a) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
24
<PAGE>
US GOVERNMENT MONEY MARKET FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS
Net investment income................................. .0483 .0520 .0545 .0526 .0580
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income............................ (.0483) (.0520) (.0545) (.0526) (.0580)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.......................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
TOTAL RETURN (%)........................................ 4.93 5.34 5.59 5.40 5.98
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).............. 190,150 166,224 187,412 239,725 149,941
Ratios to average net assets (%):
Operating expenses, net............................. .30 .32 .20 .25 .32
Operating expenses, gross........................... .54 .55 .41 .50 .51
Net investment income............................... 4.83 5.20 5.44 5.27 5.82
</TABLE>
25
<PAGE>
TAX FREE MONEY MARKET FUND--CLASS S SHARES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
INCOME FROM OPERATIONS
Net investment income................................... .0326 .0331 .0355 .0329 .0370
-------- -------- -------- -------- --------
DISTRIBUTIONS
From net investment income.............................. (.0326) (.0331) (.0355) (.0329) (.0370)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD............................ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
TOTAL RETURN (%)(a)....................................... 3.31 3.36 3.61 3.35 3.76
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands)................ 246,695 194,663 130,725 102,207 78,000
Ratios to average net assets (%)(a):
Operating expenses, net............................... .21 .34 .28 .42 .48
Operating expenses, gross............................. .31 .44 .38 .42 .48
Net investment income................................. 3.28 3.29 3.55 3.28 3.69
</TABLE>
- --------------------------
(a) Prior to April 1, 1995, Fund performance, operating expenses, and net
investment income do not include any management fees paid to the Manager or
money managers. For periods thereafter, they are reported net of investment
management fees but gross of any investment services fees.
26
<PAGE>
MONEY MANAGER INFORMATION
The money managers identified below, other than the money manager for the
Money Market and US Government Money Market Funds, have no affiliations with the
Funds or the Funds' service providers other than their management of Fund
assets. Each money manager has been in business for at least three years, and is
principally engaged in managing institutional investment accounts. These
managers may also serve as managers or advisers to other Funds in FRIC, or to
other clients of FRIMCo or of Frank Russell Company, including Frank Russell
Company's wholly owned subsidiary, Frank Russell Trust Company.
MONEY MARKET FUND
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY, 909 A Street, Tacoma, WA 98402.
US GOVERNMENT MONEY MARKET FUND
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY, See: Money Market Fund.
TAX FREE MONEY MARKET FUND
WEISS, PECK & GREER, LLC, One New York Plaza, 30th Floor, New York, NY
10004.
WHEN CONSIDERING AN INVESTMENT IN THE FUNDS, DO NOT RELY ON ANY INFORMATION
UNLESS IT IS CONTAINED IN THIS PROSPECTUS OR IN THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION. THE FUNDS HAVE NOT AUTHORIZED ANYONE TO ADD ANY
INFORMATION OR TO MAKE ANY ADDITIONAL STATEMENTS ABOUT THE FUNDS. THE FUNDS MAY
NOT BE AVAILABLE IN SOME JURISDICTIONS OR TO SOME PERSONS. THE FACT THAT YOU
HAVE RECEIVED THIS PROSPECTUS SHOULD NOT, IN ITSELF, BE TREATED AS AN OFFER TO
SELL FUND SHARES TO YOU. CHANGES IN THE AFFAIRS OF THE FUNDS OR IN THE FUNDS'
MONEY MANAGERS MAY OCCUR AFTER THE DATE ON THE COVER PAGE OF THIS PROSPECTUS.
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED TO REFLECT ANY MATERIAL CHANGES
TO THE INFORMATION IT CONTAINS.
27
<PAGE>
For more information about the Funds, the following documents are available
without charge:
ANNUAL/SEMIANNUAL REPORTS: Additional information about the Funds'
investments is available in the Funds' annual and semiannual reports to
shareholders. In each Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds.
The annual report for each Fund and the SAI are incorporated into this
Prospectus by reference. You may obtain free copies of the reports and the
SAI, and may request other information, by contacting your Financial
Intermediary or the Funds at:
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
Telephone: 1-800-787-7354
Fax: 253-591-3495
Website: russell.com
You can review and copy information about the Funds (including the SAI) at
the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. You can obtain information on the operation of the Public Reference Room
by calling the Commission at 1-800-SEC-0330. You can obtain copies of this
information upon paying a duplicating fee by writing to the Public Reference
Section of the Commission, Washington, D.C. 20549-6009. Reports and other
information about the Funds are also available on the Commission's Website:
sec.gov.
FRANK RUSSELL INVESTMENT COMPANY
Class S Shares:
Money Market Fund
US Government Money Market Fund
Tax Free Money Market Fund
[RUSSELL LOGO] Distributor: Russell Fund Distributors, Inc.
SEC File No. 811-3153
36-08-059 (5/00)
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
909 A Street
Tacoma, Washington 98402
Telephone (800) 972-0700
In Washington (253) 627-7001
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
Frank Russell Investment Company ("FRIC") is a single legal entity
organized as a Massachusetts business trust. FRIC operates investment portfolios
referred to as "Funds." FRIC offers Shares of beneficial interest in the Funds
in multiple separate prospectuses.
This Statement of Additional Information ("Statement") is not a Prospectus;
this Statement should be read in conjunction with the Fund of Funds'
Prospectuses, which may be obtained without charge by telephoning or writing
FRIC at the number or address shown above.
Capitalized terms not otherwise defined in this Statement shall have the
meanings assigned to them in the Prospectuses.
This Statement incorporates by reference the Fund of Funds' Annual Reports
to Shareholders for the year ended December 31, 1999. Copies of the Fund of
Funds' Annual Reports accompany this Statement. The Tax-Managed Global Equity
Fund did not issue any Shares in 1999 and therefore has not yet issued an Annual
Report to shareholders.
This Statement describes the Class C, Class D, Class E and Class S Shares
of the Equity Aggressive Strategy, Aggressive Strategy, Balanced Strategy,
Moderate Strategy and Conservative Strategy Funds and the Class C and Class S
Shares of the Tax-Managed Global Equity Fund (collectively, the "Fund of
Funds"), each of which invests in different combinations of other funds (the
"Underlying Funds") which invests in different combinations of stocks, bonds and
cash equivalents.
FUND INCEPTION DATE PROSPECTUS DATE
---- -------------- ---------------
Equity Aggressive Strategy Fund September 30, 1997 May 1, 2000
Aggressive Strategy Fund September 16, 1997 May 1, 2000
Balanced Strategy Fund September 16, 1997 May 1, 2000
Moderate Strategy Fund October 2, 1997 May 1, 2000
Conservative Strategy Fund November 7, 1997 May 1, 2000
Tax-Managed Global Equity Fund February 1, 2000 May 1, 2000
<PAGE>
The Underlying Funds in which the Fund of Funds currently invest commenced
operations on the dates indicated below:
FUND INCEPTION DATE
---- --------------
Diversified Equity Fund September 5, 1985
Special Growth Fund September 5, 1985
Quantitative Equity Fund May 15, 1987
International Securities Fund September 5, 1985
Diversified Bond Fund September 5, 1985
Short Term Bond Fund October 30, 1981
Multistrategy Bond Fund January 29, 1993
Real Estate Securities Fund July 28, 1989
Emerging Markets Fund January 29, 1993
Tax-Managed Large Cap Fund (formerly Equity T Fund) October 7, 1996
Tax-Managed Small Cap Fund December 1, 1999
<PAGE>
TABLE OF CONTENTS
CERTAIN TERMS USED IN THIS STATEMENT OF ADDITIONAL INFORMATION ARE DEFINED IN
THE GLOSSARY, WHICH BEGINS ON PAGE 51
Page
STRUCTURE AND GOVERNANCE............................................... 1
Organization and Business History................................... 1
Shareholder Meetings................................................ 1
Controlling Shareholders............................................ 1
Trustees and Officers............................................... 2
OPERATION OF FRIC...................................................... 8
Service Providers................................................... 8
Consultant.......................................................... 8
Advisor and Administrator........................................... 8
Money Managers...................................................... 10
Distributor......................................................... 11
Custodian........................................................... 11
Transfer and Dividend Disbursing Agent.............................. 12
Order Placement Designees........................................... 12
Independent Accountants............................................. 12
Codes of Ethics.....................................................
Plan Pursuant to Rule 18f-3......................................... 12
Distribution Plan................................................... 13
Shareholder Services Plan........................................... 14
Underlying Fund Expenses............................................ 14
Fund of Funds Operating Expenses.................................... 15
Purchase and Redemption of Fund of Funds Shares.....................
Valuation of the Fund of Fund Shares................................ 15
Pricing of Securities............................................... 15
Portfolio Turnover Rates of the Fund of Funds....................... 16
Portfolio Transaction Policies of the Underlying Funds.............. 16
Brokerage Allocations............................................... 17
Brokerage Commissions............................................... 18
Yield and Total Return Quotations................................... 18
INVESTMENT RESTRICTIONS, POLICIES AND PRACTICES OF THE FUND OF FUNDS.. 19
Investment Restrictions............................................. 19
Investment Policies and Practices of the Fund of Funds.............. 20
INVESTMENT POLICIES OF THE UNDERLYING FUNDS............................ 22
TAXES.................................................................. 42
MONEY MANAGER INFORMATION FOR UNDERLYING FUNDS......................... 43
RATINGS OF DEBT INSTRUMENTS............................................ 46
FINANCIAL STATEMENTS................................................... 52
GLOSSARY............................................................... 53
<PAGE>
STRUCTURE AND GOVERNANCE
ORGANIZATION AND BUSINESS HISTORY. FRIC commenced business operations as a
Maryland corporation in October 1981. On January 2, 1985, FRIC reorganized by
changing its domicile and legal status to a Massachusetts business trust.
FRIC is currently organized and operating under an amended Master Trust
Agreement dated July 26, 1984, and the provisions of Massachusetts law governing
the operation of a Massachusetts business trust. The Board of Trustees ("Board")
may amend the Master Trust Agreement from time to time; provided, however, that
any amendment which would materially and adversely affect shareholders of FRIC
as a whole, or shareholders of a particular Fund, must be approved by the
holders of a majority of the Shares of FRIC or the Fund, respectively. FRIC is a
registered open-end management investment company of the diversified type.
FRIC is authorized to issue Shares of beneficial interest, and may divide
the Shares into two or more series, each of which evidences a pro rata ownership
interest in a different investment portfolio -- a "Fund." Each Fund is a
separate trust under Massachusetts law. The Trustees may, without seeking
shareholder approval, create additional Funds at any time. The amended Master
Trust Agreement provides that a shareholder may be required to redeem Shares in
a Fund under circumstances set forth in the Master Trust Agreement.
FRIC Funds are authorized to issue Shares of beneficial interest in one or
more classes. Shares of each class of a Fund have a par value of $0.01 per
share, are fully paid and nonassessable, and have no preemptive or conversion
rights. Shares of each class of a Fund represent proportionate interests in the
assets of that Fund and have the same voting and other rights and preferences as
the Shares of other classes of the Fund. Shares of each class of a Fund are
entitled to the dividends and distributions earned on the assets belonging to
the Fund that the Board declares. Each class of Shares is designed to meet
different investor needs. Each of the Fund of Funds described in this Statement,
other than the Tax-Managed Global Equity Fund which only offers Shares of
beneficial interest in the Class C and S Shares, offers Shares of beneficial
interest in the Class C, Class D, Class E and Class S Shares. The Class C, Class
D and Class E Shares are subject to a shareholder services fee of up to 0.25%.
In addition, the Class D Shares are subject to a Rule 12b-1 fee of up to 0.75%
(presently limited to 0.25%) and the Class C Shares are subject to a 0.75% Rule
12b-1 fee. Unless otherwise indicated, "Shares" in this Statement refers to the
Class C, Class D and Class E Shares of the Fund of Funds, other than the
Tax-Managed Global Equity Fund, and Class C and Class S Shares of the
Tax-Managed Fund Global Equity Fund.
Under certain unlikely circumstances, as is the case with any Massachusetts
business trust, a shareholder of a Fund may be held personally liable for the
obligations of the Fund. The Master Trust Agreement provides that shareholders
shall not be subject to any personal liability for the acts or obligations of a
Fund and that every written agreement, obligation or other undertaking of the
Funds shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The amended Master Trust Agreement also provides
that FRIC shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of a Fund and satisfy any judgment
thereon. Thus, the risk of any shareholder incurring financial loss beyond his
investment on account of shareholder liability is limited to circumstances in
which a Fund itself would be unable to meet its obligations.
Frank Russell Company has the right to grant (and withdraw) the
nonexclusive use of the name "Frank Russell" or any variation.
SHAREHOLDER MEETINGS. FRIC will not hold annual meetings of shareholders,
but special meetings may be held. Special meetings may be convened (i) by the
Board, (ii) upon written request to the Board by shareholders holding at least
10% of the outstanding Shares, or (iii) upon the Board's failure to honor the
shareholders' request described above, by shareholders holding at least 10% of
the outstanding Shares by giving notice of the special meeting to shareholders.
Each share of a class of a Fund has one vote in Trustee elections and other
matters submitted for shareholder vote. On any matter which affects only a
particular Fund or class, only Shares of that Fund or class are entitled to
vote. There are no cumulative voting rights.
CONTROLLING SHAREHOLDERS. The Trustees have the authority and
responsibility to manage the business of FRIC, and hold office for life unless
they resign or are removed by, in substance, a vote of two-thirds of FRIC Shares
outstanding. Under these circumstances, no one person, entity or shareholder
"controls" FRIC.
1
<PAGE>
At March 31, 2000, the following shareholders owned 5% or more of any Class
of any Fund's Shares:
AGGRESSIVE STRATEGY FUND CLASS D - Security Trustee Co., Trustee, Karr
Tuttle Campbell Retirement Savings Plan, 2390 East Camelback Road, Suite
240, Phoenix, AZ 85016-3434, 37.73%, record; Maltrust & Co., c/o Eastern
Bank & Trust AM & M, Attn: Retirement Plan Services, 3rd Floor, 217 Essex
Street, Salem, MA 01970-3728, 31.85%, record, Webster Trust Co., Trustee,
For Beecher & Bennett 401K Profit Sharing Plan, Attn: Christopher Rand, 346
Main Street, Kensington, CT 06037-2652, 8.32%, record; Security Trust
Company, Trustee, FBO Pace International LLC 401K Plan, 2390 East Camelback
Road, Suite 240, Phoenix, AZ 85016-3434, 6.64%, record.
AGGRESSIVE STRATEGY FUND CLASS E - Board of Pensions of the Church of God,
Inc., Trustees, Church of God Pension Plan, Attn: Doug Hamlin, P.O. Box
2559, Anderson, IN 46018-2559, 10.66%, record; Charles Schwab & Co., Inc.,
Special Custody Account for the Exclusive Benefit of Customers, Attn:
Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104-4122, 7.37%,
record.
AGGRESSIVE STRATEGY FUND CLASS S - Deborah M. Dahl, P.O. Box 357, Toledo,
OR 97391-0357, 35.54%, record; Peter Killian Wilke & Anne Marie White
Wilke, Trustees, Peter K. Wilke & Anne M. Wilke Living Trust U/A DTD
10/20/92, 5 High Bluff, Laguna Niguel, CA 92677-4259; 14.18%, record;
Raymond James & Assoc., Inc., CSDN, James E. Ryan IRA R/O, 253 Miami Lakes
Drive, Milford, OH 45150-5810, 8.06%, record; W.R. Meadows, Inc. Profit
Sharing Plan and 401K Plan Trust, Aggressive, c/o Corus Asset Management,
2401 N. Halsted Street, Chicago, IL 60614-2451, 6.46%, record.
BALANCED STRATEGY FUND CLASS D - Bellingham Cold Storage Co. Profit Sharing
Retirement Plan, Security Trust Co., Trustee, 2390 East Camelback Road,
Suite 240, Phoenix, AZ 85016-3434, 38.20%, record; Maltrust & Co., c/o
Eastern Bank & Trust AM & M, Attn: Retirement Plan Services, 3rd Floor, 217
Essex Street, Salem, MA 01970-3728, 35.24%, record; Security Trustee Co.,
Trustee, Karr Tuttle Campbell Retirement Savings Plan, 2390 East Camelback
Road, Suite 240, Phoenix, AZ 85016-3434, 13.00%, record.
BALANCED STRATEGY FUND CLASS E - Board of Pensions of the Church of God,
Inc., Trustees, Church of God Pension Plan - ANNU., Attn: Doug Hamlin, P.O.
Box 2559, Anderson, IN 46018-2559, 19.72%, record; NFSC FEBO #U19-000019,
Firstar - Reinvest, Chris Surges, P.O. Box 1787, Mutual Funds, 9th Floor,
Milwaukee, WI 53201-1787, 8.42%, record; Board of Pensions of the Church of
God, Inc., Trustees, Church of God Pension Plan, Attn: Doug Hamlin, P.O.
Box 2559, Anderson, IN 46018-2559, 8.17%, record; Charles Schwab & Co.,
Inc., Special Custody Account for the Exclusive Benefit of Customers, Attn:
Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104-4122, 6.00%,
record.
BALANCED STRATEGY FUND CLASS S - Robert W. Baird & Co., Inc., Trustee, FBO
Michael Blankenship Rollover IRA, A/C 1596-6289, P.O. Box 6052,
Tallahassee, FL 32314-6052, 16.54%, record; Frank Mannarino and Paul Nitz,
Trustees Under The Orthopedic Institute Pension Plan DTD 3/1/76, FBO
Phyllis Ann Searcey, 813 East Dorothy Lane, Kettering, OH 45419-2008,
10.61%, record; Robert W. Baird & Co., Inc., Trustee, FBO Conn E. Wittwer
Rollover IRA, A/C 8757-1774, 911 West Ballard Road, Spokane, WA 99208-8799,
7.76%, record; United Way of Madison County, P.O. Box 1200, Anderson, IN
46015-1200, 6.51%, record; Marie L. Smith & Steven F. Smith, JT TEN WROS,
5695 Algonguin Way, San Jose, CA 95138-2205, 6.05%, record; Marc & Tamara
Beckman, Co-Trustees, Marc & Tamara Beckman Revocable Living Trust DTD
2/2/99, 50 San Gregorio Court, Danville, CA 94526-1544, 6.01% record.
CONSERVATIVE STRATEGY FUND CLASS C - Elizabeth P. Ingoldsby, Trustee,
Ingoldsby Family Trust U/A DTD 4/5/82, 868 San Simeon Road, Arcadia, CA,
91007-6036, 14.23%, record; Rita N. Dunbar, 303 S. Raven Terrace,
Inverness, FL 34450-2755, 13.85%, record; Frank R. Manzano, Trustee,
Stoottlemyer Trust DTD 5/15/91, 3049 Alabama Street, La Crescenta, CA,
91214-2702, 11.29%, record; Stephen L. Easley, 2251 Willow Drive, San
Bernardino, CA, 92404-3113, 6.43%, record.
2
<PAGE>
CONSERVATIVE STRATEGY FUND CLASS D - Maltrust & Co., c/o Eastern Bank &
Trust AM & M, Attn: Retirement Plan Services, 3rd Floor, 217 Essex Street,
Salem, MA 01970-3728, 80.09%, record; Webster Trust Co., Trustee, For
Beecher & Bennett 401K Profit Sharing Plan, Attn: Christopher Rand, 346
Main Street, Kensington, CT 06037-2652, 9.68%, record; Security Trust Co.,
Trustee, FBO Van Doren Sales, Inc. 401K Retirement Plan, 2390 East
Camelback Road, Suite 240, Phoenix, AZ 85016-3434, 6.28%, record.
CONSERVATIVE STRATEGY FUND CLASS E - Board of Pensions of the Church of
God, Inc., Trustees, Church of God Pension Plan, Attn: Doug Hamlin, P.O.
Box 2559, Anderson, IN 46018-2559, 16.51%, record; FTC & Co. Datalynx #T03,
FBO Wesleyan Pension Plan 403(B), P.O. Box 173736, Denver, CO 80217-3736,
9.35%, record; Charles Schwab & Co., Inc., Special Custody Account for the
Exclusive Benefit of Customers, Attn: Mutual Funds, 101 Montgomery Street,
San Francisco, CA 94104-4122, 6.73%, record; Citizens Bank of Batesville,
Trustee, White River Medical Center, Inc. 401K Plan, 3rd & College Streets,
Batesville, AR 72503, 6.02%, record.
CONSERVATIVE STRATEGY FUND CLASS S - Robert W. Baird & Co., Inc., Trustee,
FBO Dorothy Wood Rollover IRA, A/C 8769-9241, 580 Bloomfield Avenue, Apt.
12A, West Caldwell, NJ 07006-7503, 56.10%, record; Velma Laureta Deremer,
Trustee, The Velma Laureta Deremer Revocable Living Trust UA DTD
09/07/1999, 7866 Horse Ferry Road, Orlando, FL 32835-5966, 26.57%, record;
Brock M. Lutz, Trustee, Charlotte N. Martin Trust DTD 02/20/92, 748 South
Spoede Road, Frontenac, MO 63131-2603, 10.00%, record; State Street Bank &
Trust Co., Cust. for the IRA of FBO Velma Laureta Deremer, 7866 Horse Ferry
Road, Orlando, FL 32835-5966, 7.31%, record.
EQUITY AGGRESSIVE STRATEGY FUND CLASS E - NFSC FEBO #U19-000019, Firstar -
Reinvest, Chris Surges, P.O. Box 1787, Mutual Funds, 9th Floor, Milwaukee,
WI 53201-1787, 23.91%, record; Board of Pensions of the Church of God,
Inc., Trustees, Church of God Pension Plan, Attn: Doug Hamlin, P.O. Box
2559, Anderson, IN 46018-2559, 11.00%, record; Charles Schwab & Co., Inc.,
Special Custody Account for the Exclusive Benefit of Customers, Attn:
Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104-4122, 10.71%,
record; FTC & Co. Datalynx #T03, FBO Wesleyan Pension Plan 403(B), P.O. Box
173736, Denver, CO 80217-3736, 5.69%, record.
MODERATE STRATEGY FUND CLASS C - NFSC FEBO #0AB-918083, NFSC/FMTC IRA
Rollover, FBO Blaise F. Dinatale, 441 Springwood Drive, Verona, PA
15147-2623, 5.01%; record.
MODERATE STRATEGY FUND CLASS D - Maltrust & Co., c/o Eastern Bank & Trust
AM & M, Attn: Retirement Plan Services, 3rd Floor, 217 Essex Street, Salem,
MA 01970-3728, 55.51%, record; Security Trust Co., Cust. For FBO Jumbo
Foods 401(k), 2390 East Camelback Road, Suite 240, Phoenix, AZ 85016-3434,
23.46%, record; Security Trust Co., Trustee, Karr Tuttle Campbell
Retirement Savings Plan, 2390 East Camelback Road, Suite 240, Phoenix, AZ
85016-3434, 10.30%, record.
MODERATE STRATEGY FUND CLASS E - Board of Pensions of the Church of God,
Inc., Trustees, Church of God Pension Plan, Attn: Doug Hamlin, P.O. Box
2559, Anderson, IN 46018-2559, 20.25%, record; FTC & Co. Datalynx #T03, FBO
Wesleyan Pension Plan 403(B), P.O. Box 173736, Denver, CO 80217-3736,
11.69%, record; Charles Schwab & Co., Inc., Special Custody Account for the
Exclusive Benefit of Customers, Attn: Mutual Funds, 101 Montgomery Street,
San Francisco, CA 94104-4122, 8.33%, record.
MODERATE STRATEGY FUND CLASS S - State Street Bank & Trust Co., Cust. for
the IRA R/O FBO Gordon G. Powers, 12202 East Poinsettia Drive, Scottsdale,
AZ 85259-3332, 32.59%, record; State Street Bank & Trust Co., Cust. FBO
Mary Jo Wendorff IRA R/O, 19 Vista Real Drive, Rolling Hills Estates, CA
90274-4227, 25.12%, record; Dorothy T. Robinson, Robert W. Ani, Carol W.
Perkins, Trustees, The Dorothy B. Tuck Trust DTD 06/08/99, 662 Via Los
Altos, Laguna Woods, CA 92653-4579, 14,78 %, record; Ruth T. Holmes TOD
Martine Smith, P.O. Box 39, Indian Trail, NC 28079-0039, 12.67%, record;
Barbara J. Billings, 1953 Woodstock Road, White River JCT, VT 05001-9795,
8.38%, record; State Street Bank & Trust Co., Cust. for the Rollover IRA of
Steve Baumgras, 3727 South Atlantic Avenue, Apt. 109, Daytona Beach, FL
32127-5212, 6.29%, record.
3
<PAGE>
TAX MANAGED GLOBAL EQUITY FUND CLASS C - Susan A. McCullough & Charles
McCullough JT TEN, 17029 21st Avenue S.W., Seattle, WA 98166-3315, 15.35%,
record; James G. Bazlen and Alice T. Bazlen, Trustees, The Jab Trust U/A
DTD 2/6/97, 4421 East Horseshoe, Phoenix, AZ 85028-6138, 6.88%, record;
Juella R. Zenor, 8205 53rd Street Court West, Tacoma, WA 98467-1971, 6.31%,
record; Kathryn Clarke Thompson, 6123 Del Monte Drive, Houston, TX
77057-3517, 6.09%, record; NFSC FEBO #0NN-124710, Claude D. Baker MD, 5295
West Plymouth Drive, Littleton, CO 80128-4930, 5.34%, record.
TAX MANAGED GLOBAL EQUITY FUND CLASS S - Charles Schwab & Co., Inc.,
Special Custody Account for the Exclusive Benefit of Customers, Attn:
Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104-4122, 24.03%,
record; Thomas P. Stayer & Victoria D. Stayer, JT TEN WROS, Fee In Lieu,
1146 Richards Road, Allegany, NY 14706-9736, 8.28%, record; Lucinda Sharp
Gates, P.O. Box 502, Parkman, OH 44080-0502, 5.85%, record; Cinda Stayer
Warner & R. Gregg Warner, JT TEN WROS, Fee In Lieu, 1080 Richards Road,
Allegany, NY 14706-9736, 5.80%, record; Robert R. Thomas & Jane L. Thomas,
Trustees, Robert R. Thomas & Jane L. Thomas Trust U/A DTD 5/14/1999, 2672
Big Wagon Road, Alpine, CA 91901-3103, 5.66%, record.
At March 31, 2000, the following shareholders could be deemed to "control"
the following Fund of Funds because such shareholder owns more than 25% of the
voting Shares of the indicated Fund of Funds:
AGGRESSIVE STRATEGY FUND CLASS D - Security Trustee Co., Trustee, Karr
Tuttle Campbell Retirement Savings Plan, 2390 East Camelback Road, Suite
240, Phoenix, AZ 85016-3434, 37.73%, record; Maltrust & Co., c/o Eastern
Bank & Trust AM & M, Attn: Retirement Plan Services, 3rd Floor, 217 Essex
Street, Salem, MA 01970-3728, 31.85%, record.
AGGRESSIVE STRATEGY FUND CLASS S - Deborah M. Dahl, P.O. Box 357, Toledo,
OR 97391-0357, 35.54%, record.
BALANCED STRATEGY FUND CLASS D - Bellingham Cold Storage Co. Profit Sharing
Retirement Plan, Security Trust Co., Trustee, 2390 East Camelback Road,
Suite 240, Phoenix, AZ 85016-3434, 38.20%, record; Maltrust & Co., c/o
Eastern Bank & Trust AM & M, Attn: Retirement Plan Services, 3rd Floor, 217
Essex Street, Salem, MA 01970-3728, 35.24%, record.
CONSERVATIVE STRATEGY FUND CLASS D - Maltrust & Co., c/o Eastern Bank &
Trust AM & M, Attn: Retirement Plan Services, 3rd Floor, 217 Essex Street,
Salem, MA 01970-3728, 80.09%, record.
CONSERVATIVE STRATEGY FUND CLASS S - Robert W. Baird & Co., Inc., Trustee,
FBO Dorothy Wood Rollover IRA, A/C 8769-9241, 580 Bloomfield Avenue, Apt.
12A, West Caldwell, NJ 07006-7503, 56.10%, record; Velma Laureta Deremer,
Trustee, The Velma Laureta Deremer Revocable Living Trust UA DTD
09/07/1999, 7866 Horse Ferry Road, Orlando, FL 32835-5966, 26.57%, record.
MODERATE STRATEGY FUND CLASS D - Maltrust & Co., c/o Eastern Bank & Trust
AM & M, Attn: Retirement Plan Services, 3rd Floor, 217 Essex Street, Salem,
MA 01970-3728, 55.51%, record.
MODERATE STRATEGY FUND CLASS S - State Street Bank & Trust Co., Cust. for
the IRA R/O FBO Gordon G. Powers, 12202 East Poinsettia Drive, Scottsdale,
AZ 85259-3332, 32.59%, record; State Street Bank & Trust Co., Cust. FBO
Mary Jo Wendorff IRA R/O, 19 Vista Real Drive, Rolling Hills Estates, CA
90274-4227, 25.12%, record.
For information in this regard with respect to the Underlying Funds, refer
to the Statement of Additional Information for the Underlying Funds.
The Trustees and officers of FRIC, as a group, own less than 1% of any Class of
each Fund.
TRUSTEES AND OFFICERS. The Board of Trustees is responsible for overseeing
generally the operation of the Funds, including reviewing and approving the
Funds' contracts with Frank Russell Investment Management Company
4
<PAGE>
("FRIMCo"), Frank Russell Company ("Russell") and the money managers. A Trustee
may be removed at any time by, in substance, a vote of two-thirds of FRIC
Shares. A vacancy in the Board shall be filled by a vote of a majority of the
remaining Trustees so long as, in substance, two-thirds of the Trustees have
been elected by shareholders. The officers, all of whom are employed by and are
officers of FRIMCo or its affiliates, are responsible for the day-to-day
management and administration of the Funds' operations.
FRIC paid $150,000 in the aggregate for the year ended December 31, 1999 to
the Trustees who are not officers or employees of FRIMCo or its affiliates.
Trustees are paid an annual fee plus travel and other expenses incurred in
attending Board meetings. FRIC's officers and employees are paid by FRIMCo or
its affiliates.
The following table contains the Trustees and officers and their positions
with FRIC, their ages, their present and principal occupations during the past
five years and the mailing addresses of Trustees who are not affiliated with
FRIC.
An asterisk (*) indicates that the Trustee or officer is an "interested
person" of FRIC as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). As used in the table, "Frank Russell Company" includes its
corporate predecessor, Frank Russell Co., Inc.
<TABLE>
<CAPTION>
- --------------------------- ---------------------- --------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, AGE, POSITION(S) HELD DURING THE
ADDRESS WITH FUND PAST 5 YEARS
- --------------------------- ---------------------- --------------------------------------------------------------
- --------------------------- ---------------------- --------------------------------------------------------------
<S> <C> <C>
*George F. Russell, Jr., Trustee Emeritus and Also currently: Trustee Emeritus and Chairman Emeritus,
Born July 3, 1932 Chairman Emeritus Russell Insurance Funds; Director, Chairman of the Board and
since 1998. Chief Executive Officer, Russell Building Management
909 A Street Company, Inc.; Director and Chairman of the Board, Frank
Tacoma, Washington Russell Company; Director and Chairman of the Board, Frank
98402-1616 Russell Investments (Delaware), Inc.; Chairman
Emeritus/Director Emeritus, Frank Russell Trust Company;
Chairman Emeritus, Frank Russell Securities, Inc.; Director
Emeritus, Frank Russell Investment Management Company;
Director, Chairman of the Board and President, Russell 20/20
Association. From 1984 to December 1998, Trustee and
Chairman of the Board of FRIC. From August 1996 to December
1998, Trustee and Chairman of the Board of Russell Insurance
Funds.
- --------------------------- ---------------------- --------------------------------------------------------------
- --------------------------- ---------------------- --------------------------------------------------------------
*Lynn L. Anderson, Trustee, President Also currently: Trustee, President and Chief Executive
Born April 22, 1939 and Chief Executive Officer, Russell Insurance Funds; Director, Chief Executive
Officer since 1987. Officer and Chairman of the Board, Russell Fund
909 A Street Distributors, Inc.; Trustee, Chairman of the Board,
Tacoma, Washington President, The SSgA Funds (investment company); Director and
98402-1616 Chairman of the Board, Frank Russell Investment Management
Company; Chairman of the Board, Frank Russell Trust Company;
Director and Chairman of the Board, Frank Russell Investment
Company PLC; Director, Frank Russell Investments (Ireland)
Limited, Frank Russell Investments (Cayman) Ltd., and Frank
Russell Investments (UK) Ltd.; March 1997 to December 1998,
Director, Frank Russell Company; June 1993 to November 1995,
Director, Frank Russell Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment
company).
- --------------------------- ---------------------- --------------------------------------------------------------
- --------------------------- ---------------------- --------------------------------------------------------------
Paul E. Anderson, Trustee since 1984. Also currently: Trustee, Russell Insurance Funds. 1996 to
Born October 15, present, President, Anderson Management Group LLC
- --------------------------- ---------------------- --------------------------------------------------------------
5
<PAGE>
1931 (architectural design and manufacturing). 1984 to 1996,
President, Vancouver Door Company, Inc.
23 Forest Glen Lane
Tacoma, Washington 98409
- --------------------------- ---------------------- --------------------------------------------------------------
- --------------------------- ---------------------- --------------------------------------------------------------
Paul Anton, Ph.D., Trustee since 1985. Also currently: Trustee, Russell Insurance Funds. President,
Born December 1, 1919 Paul Anton and Associates (Marketing Consultant on emerging
international markets for small corporations). 1991-1994,
PO Box 212 Adjunct Professor, International Marketing, University of
Gig Harbor, Washington Washington, Tacoma, Washington.
98335
- --------------------------- ---------------------- --------------------------------------------------------------
- --------------------------- ---------------------- --------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------- ---------------------- ------------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, AGE, POSITION(S) HELD DURING THE
ADDRESS WITH FUND PAST 5 YEARS
- --------------------------- ---------------------- ------------------------------------------------------------------
- --------------------------- ---------------------- ------------------------------------------------------------------
<S> <C> <C>
William E. Baxter, Trustee since 1984. Trustee, Russell Insurance Funds.
Born June 8, 1925 Retired.
800 North C Street
Tacoma, Washington
98403
- --------------------------- ---------------------- ------------------------------------------------------------------
- --------------------------- ---------------------- ------------------------------------------------------------------
Kristianne Blake Trustee since 2000. Also currently: Trustee, Russell Insurance Funds; President,
Born January 22, 1954 Kristianne Gates Blake, P.S.; Trustee, WM Group of Funds;
Trustee, William H. & Mary M. Gates Charitable Remainder Annuity
P.O. Box 28338 Trust.
Spokane, Washington
99228
- --------------------------- ---------------------- ------------------------------------------------------------------
- --------------------------- ---------------------- ------------------------------------------------------------------
Lee C. Gingrich, Trustee since 1984. Also currently: Trustee, Russell Insurance Funds and President,
Born October 6, 1930 Gingrich Enterprises, Inc. (Business and Property Management).
1730 North Jackson
Tacoma, Washington 98406
- --------------------------- ---------------------- ------------------------------------------------------------------
- --------------------------- ---------------------- ------------------------------------------------------------------
Eleanor W. Palmer, Trustee since 1984. Also currently: Trustee, Russell Insurance Funds and Director of
Born May 5, 1926 Frank Russell Trust Company. Retired.
2025 Narrows View
Circle #232-D, P.O.
Box 1057
Gig Harbor,
Washington 98335
- --------------------------- ---------------------- ------------------------------------------------------------------
- --------------------------- ---------------------- ------------------------------------------------------------------
Raymond P. Tennison, Trustee since 2000. Also currently: Trustee, Russell Insurance Funds and President,
Jr. Simpson Investment Company and several additional subsidiary
Born December 21, companies, including Simpson Timber Company, Simpson Paper
1955 Company and Simpson Tacoma Kraft Company. Prior to July 1997,
President and Board member, Simpson Paper Company. Trustee,
1301 Fifth Avenue Simpson Employee Retirement Fund.
Suite 2800
Seattle, Washington
98101
- --------------------------- ---------------------- ------------------------------------------------------------------
- --------------------------- ---------------------- ------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------- ----------------------------- ----------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, AGE, POSITION(S) HELD DURING THE
ADDRESS WITH FUND PAST 5 YEARS
- --------------------------- ----------------------------- ----------------------------------------------------------------
- --------------------------- ----------------------------- ----------------------------------------------------------------
<S> <C> <C>
*Mark E. Swanson, Treasurer and Chief Also currently: Treasurer and Chief Accounting Officer,
Born November 26, Accounting Officer since Russell Insurance Funds; Director, Fund Administration
1963 1998. Frank Russell Trust Company; Treasurer, Assistant
Secretary and Principal Accounting Officer, SSgA Funds
909 A Street (investment company); Director of Fund Administration,
Tacoma, Washington Frank Russell Investment Management Company; Manager,
98402-1616 Funds Accounting and Taxes, Russell Fund Distributors,
Inc. April 1996 to August 1998, Assistant Treasurer,
Frank Russell Investment Company; August 1996 to August
1998, Assistant Treasurer, Russell Insurance Funds;
November 1995 to July 1998, Assistant Secretary, SSgA
Funds; February 1997 to July 1998, Manager, Funds Accounting
and Taxes, Frank Russell Investment Management Company.
- --------------------------- ----------------------------- ----------------------------------------------------------------
- --------------------------- ----------------------------- ----------------------------------------------------------------
*Randall P. Lert, Director of Investments Also currently: Director of Investments, Russell Insurance
Born October 3, 1953 since 1991. Funds; Chief Investment Officer, Frank Russell Trust Company;
Director and Chief Investment Officer, Frank Russell
909 A Street Investment Management Company; Director and Chief Investment
Tacoma, Washington Officer, Russell Fund Distributors, Inc.; Director-Futures
98402-1616 Trading, Frank Russell Investments (Ireland) Limited and Frank
Russell Investments (Cayman) Ltd.; Senior Vice President and
Director of Portfolio Trading, Frank Russell Canada
Limited/Limitee. April 1990 to November 1995, Director of
Investments of Frank Russell Investment Management Company.
- --------------------------- ----------------------------- ----------------------------------------------------------------
- --------------------------- ----------------------------- ----------------------------------------------------------------
*Karl J. Ege, Secretary and General Also currently: Secretary and General Counsel of Russell
Born October 8, 1941 Counsel since 1994. Insurance Funds; Director, Secretary and General Counsel,
Russell Real Estate Advisors, Inc. and Frank Russell Capital,
909 A Street Inc.; Secretary, General Counsel and Managing Director--Law
Tacoma, Washington and Government Affairs of Frank Russell Company; Secretary and
98402-1616 General Counsel of Frank Russell Investment Management
Company, Frank Russell Trust Company and Russell Fund
Distributors, Inc.; Director and Secretary of Russell Insurance
Agency, Inc., Frank Russell Investments (Delaware), Inc., A
Street Investment Associates, Inc., Russell International
Services Co., Inc. and Russell 20-20 Association; Director
and Assistant Secretary of Frank Russell Company
Limited (London) and Russell Systems Ltd.; Director of Frank
Russell Investment Company LLC, Frank Russell Securities,
Inc., Frank Russell Company PTY, Limited, Frank Russell
Institutional Funds plc, Frank Russell Qualifying Investor
Fund, Russell Investment Management Ltd., Frank Russell
Investment Company PLC, Frank Russell Investments (Ireland)
Limited, Frank Russell Investment (Japan), Ltd., Frank Russell
Company, S.A., Frank Russell Japan Co., Ltd., Frank Russell
Company (NZ) Limited, Russell Investment Nominee Co PTY Ltd and
Frank Russell Investments (UK) Ltd. April 1992 to December, 1998,
Director, Frank Russell Company.
- --------------------------- ----------------------------- ----------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- --------------------------- ----------------------------- ----------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, AGE, POSITION(S) HELD DURING THE
ADDRESS WITH FUND PAST 5 YEARS
- --------------------------- ----------------------------- ----------------------------------------------------------------
- --------------------------- ----------------------------- ----------------------------------------------------------------
<S> <C> <C>
*Peter F. Apanovitch, Manager of Short-Term Also currently: Manager of Short-Term Investment Funds,
Born May 3, 1945 Investment Funds. Russell Insurance Funds, Frank Russell Investment
Management Company and Frank Russell Trust Company.
909 A Street
Tacoma, Washington
98402-1616
- --------------------------- ----------------------------- ----------------------------------------------------------------
</TABLE>
9
<PAGE>
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR ESTIMATED
RETIREMENT ANNUAL TOTAL
AGGREGATE BENEFITS BENEFITS COMPENSATION
COMPENSATION ACCRUED AS PART UPON FROM FRIC PAID
TRUSTEE FROM FRIC OF FRIC EXPENSES RETIREMENT TO TRUSTEES
------- --------- ---------------- ---------- -----------
<S> <C> <C> <C> <C>
Lynn L. Anderson $0 $0 $0 $0
Paul E. Anderson $30,000 $0 $0 $38,000*
Paul Anton, PhD $30,000 $0 $0 $38,000*
William E. Baxter $30,000 $0 $0 $38,000*
Kristianne Blake $0 $0 $0 $0
Lee C. Gingrich $30,000 $0 $0 $38,000*
Eleanor W. Palmer $30,000 $0 $0 $38,000*
Raymond P. Tennison, Jr. $0 $0 $0 $0
</TABLE>
* Received $8,000 each for service as Trustees on the Russell Insurance Funds'
Board of Trustees.
10
<PAGE>
OPERATION OF FRIC
SERVICE PROVIDERS. Most of FRIC's necessary day-to-day operations are
performed by separate business organizations under contract to FRIC. The
principal service providers are:
<TABLE>
<CAPTION>
<S> <C>
Consultant Frank Russell Company
Advisor, Administrator, Transfer and Frank Russell Investment Management Company
Dividend Disbursing Agent
Money Managers for the Multiple professional discretionary
Underlying Funds investment management organizations
Custodian and Portfolio Accountant State Street Bank and Trust Company
</TABLE>
CONSULTANT. Frank Russell Company, the corporate parent of Frank Russell
Investment Management Company (FRIMCo), was responsible for organizing FRIC and
provides ongoing consulting services, described in the Prospectus, to FRIC and
FRIMCo. FRIMCo does not pay Frank Russell Company an annual fee for consulting
services.
Frank Russell Company provides comprehensive consulting and money manager
evaluation services to institutional clients, including FRIMCo and Frank Russell
Trust Company, and to high net worth individuals and families ($100 million)
through its Russell Private Investment Division. Frank Russell Company also
provides: (i) consulting services for international investment to these and
other clients through its International Division and its wholly owned
subsidiaries, Frank Russell Company London (Frank Russell Company Limited),
Frank Russell Canada (Frank Russell Canada Limited/Limitee), Frank Russell
Australia (Frank Russell Company Pty., Limited), Frank Russell Japan, Frank
Russell AG (Zurich), Frank Russell Company S.A. (Paris) and Frank Russell
Company (N.Z.) Limited (Auckland), and Frank Russell Investments (Delaware),
Inc., and (ii) investment account and portfolio evaluation services to corporate
pension plan sponsors and institutional money managers through its Russell Data
Services Division. Frank Russell Securities, Inc., a wholly owned subsidiary of
Frank Russell Company, carries on an institutional brokerage business. Frank
Russell Capital Inc., a wholly owned subsidiary of Frank Russell Company,
carries on an investment banking business as a registered broker-dealer. Frank
Russell Trust Company, a wholly-owned subsidiary of Frank Russell Company,
provides comprehensive trust and investment management services to corporate
pension and profit-sharing plans. Frank Russell Investments (Cayman) Ltd., a
wholly owned subsidiary of Frank Russell Company, provides investment advice and
other services. Frank Russell Investment (Ireland) Ltd., a wholly owned
subsidiary of Frank Russell Company, provides investment advice and other
services. Frank Russell International Services Co., Inc., a wholly owned
subsidiary of Frank Russell Company, provides services to U.S. personnel
secunded to overseas enterprises. Russell Fiduciary Services Company, a wholly
owned subsidiary of Frank Russell Company, provides fiduciary services to
pension and welfare benefit plans and other institutional investors. The mailing
address of Frank Russell Company is 909 A Street, Tacoma, WA 98402
As affiliates, Frank Russell Company and FRIMCo may establish certain
intercompany cost allocations that reflect the consulting services supplied to
FRIMCo. George F. Russell, Jr., Trustee Emeritus and Chairman Emeritus of FRIC,
is the Chairman of the Board of Frank Russell Company. FRIMCo is a wholly owned
subsidiary of Frank Russell Company.
Frank Russell Company is a subsidiary of The Northwestern Mutual Life
Insurance Company ("Northwestern Mutual"). Founded in 1857, Northwestern Mutual
is a mutual insurance corporation organized under the laws of Wisconsin.
Northwestern Mutual's products consist of a full range of permanent and term
life insurance, disability income insurance, long-term care insurance, mutual
funds and annuities for personal, estate, retirement, business, and benefits
planning. Northwestern Mutual provides its insurance products and services
through an exclusive network of approximately 7,200 agents associated with over
100 general agencies nationwide. Northwestern Mutual leads the U.S. in both
individual life insurance sold annually and total individual life insurance in
force.
ADVISOR AND ADMINISTRATOR. FRIMCo provides or oversees the provision of
all general management and administration, investment advisory and portfolio
management, and distribution services for the Funds. FRIMCo provides the Funds
with office space, equipment and the personnel necessary to operate and
administer the Funds' business and to
11
<PAGE>
supervise the provision of services by third parties such as the money managers
(in the case of the Underlying Funds) and custodian. FRIMCo also develops the
investment programs for each of the Funds, selects money managers for the
Underlying Funds (subject to approval by the Board), allocates assets among
money managers, monitors the money managers' investment programs and results,
and may exercise investment discretion over assets invested in the Underlying
Funds' Liquidity Portfolios. (See, "Investment Policies of the Underlying Funds
- -- Liquidity Portfolios.") FRIMCo also acts as FRIC's transfer agent and
dividend disbursing agent. FRIMCo, as agent for FRIC, pays the money managers'
fees for the Underlying Funds, as a fiduciary for the Underlying Funds, out of
the advisory fee paid by the Underlying Funds to FRIMCo. The remainder of the
advisory fee is retained by FRIMCo as compensation for the services described
above and to pay expenses.
Each of the Funds pays an advisory fee and an administrative fee to
FRIMCo, billed monthly on a pro rata basis and calculated as a specified
percentage of the average daily net assets of each of the Funds. Services which
are administrative in nature are provided by FRIMCo pursuant to an
Administrative Agreement for an annual fee of 0.05% of each Fund's average daily
net asset value. (See the Prospectuses for the Underlying Funds' annual
percentage rates.)
The following Fund of Funds paid FRIMCo the listed advisory and
administrative fees (gross of reimbursement and/or waivers) for the years ended
December 31, 1999, 1998 and 1997.
FUND OF FUNDS 12/31/99* 12/31/98 12/31/97**
------------- --------- -------- ----------
Equity Aggressive Fund $403,512 $151,953 $1,140
Aggressive Strategy Fund 312,714 96,256 1,727
Balanced Strategy Fund 650,215 277,200 1,187
Moderate Strategy Fund 94,535 30,361 151
Conservative Strategy Fund 35,959 6,465 8
* NO SHARES OF THE TAX-MANAGED GLOBAL EQUITY FUND WERE ISSUED DURING ANY OF
THE PERIODS SHOWN ABOVE.
** THE FUND OF FUNDS, OTHER THAN THE TAX-MANAGED GLOBAL EQUITY FUND, COMMENCED
OPERATIONS DURING CALENDAR YEAR 1997 AND THEREFORE INCURRED MANAGEMENT FEES
DUE TO FRIMCO FOR ONLY A PORTION OF THE YEAR 1997. HOWEVER, FRIMCO
VOLUNTARILY AGREED TO WAIVE ITS MANAGEMENT FEE (INCLUDING ITS ADVISORY AND
ADMINISTRATIVE FEES) DURING THE YEARS ENDED DECEMBER 31, 1999, 1998 AND
1997.
While FRIMCo will perform investment advisory services for the Fund of
Funds (i.e., determining the percentages of the Underlying Funds which will
be purchased by each Fund of Funds, and periodically adjusting the
percentages and the Underlying Funds), FRIMCo has waived and/or reimbursed
its management, advisory and, except for the Tax-Managed Global Equity Fund,
administrative fees since each Fund of Fund's inception and has contractually
agreed to continue the waiver of advisory fees through February 28, 2001 and,
except for the Tax-Managed Global Equity Fund, the waiver of administrative
fees through November 30, 2000. Advisory fees do not vary among classes of
Shares. Administrative fees for the Tax-Managed Global Equity Fund are, and
for each of the Fund of Funds after November 30, 2000 will be, borne by the
Underlying Funds in accordance with the Funds' Special Servicing Agreements.
For the fiscal years ended December 31, 1999, 1998 and 1997, respectively,
FRIMCo waived fees in the following amounts: Equity Aggressive Strategy Fund:
$403,512, $151,953 and $1,140; Aggressive Strategy Fund: $312,714, $96,256
and $1,727; Balanced Strategy Fund: $650,215, $277,200 and $1,187; Moderate
Strategy Fund: $94,535, $30,361 and $151; and Conservative Strategy Fund:
$35,959, $6,465 and $8. For the fiscal years ended December 31, 1999, 1998
and 1997, respectively, FRIMCo reimbursed the Fund of Funds in the following
amounts: Equity Aggressive Strategy Fund, $11,875, $74,469 and $61,796;
Aggressive Strategy Fund, $11,979, $62,426 and $64,455; Balanced Strategy
Fund, $12,780, $126,140 and $62,956; Moderate Strategy Fund, $10,913, $52,221
and $56,786; and Conservative Strategy Fund, $3,912, $46,954 and $87,167. No
Shares of the Tax-Managed Global Equity Fund were issued during these
periods. Each of the Fund of Funds will indirectly bear their proportionate
share of the combined advisory and administrative fees paid by the Underlying
Funds in which they invest. While a shareholder of a Fund of Funds will also
bear a proportionate part of the combined advisory and administrative fees
paid by an Underlying Fund, those fees paid are based upon the services
received by the respective Underlying Fund.
12
<PAGE>
The Underlying Funds in which the Fund of Funds currently invest paid
FRIMCo the listed advisory and administrative fees (gross of reimbursements
and/or waivers) for the years ended December 31, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
YEARS ENDED
12/31/99 12/31/98 12/31/97
-------- -------- --------
<S> <C> <C> <C>
Diversified Equity $11,377,505 $9,580,094 $6,906,245
Special Growth 5,867,193 5,901,577 4,556,999
Quantitative Equity 11,129,142 9,056,015 6,616,377
International Securities 9,446,953 8,859,189 7,751,289
Diversified Bond 3,695,482 3,407,594 2,755,500
Short Term Bond 2,269,960 1,216,062 1,184,588
Multistrategy Bond 3,667,917 3,241,445 2,225,087
Real Estate Securities 5,193,244 5,183,218 4,428,351
Emerging Markets 4,222,210 4,020,121 4,167,163
Tax-Managed Large Cap 3,180,328 1,463,604 375,054
Tax-Managed Small Cap* 18,536 -- --
Tax Exempt Bond 498,685 525,312 361,226
Tax Free Money Market 491,260 429,613 266,939
</TABLE>
* TAX-MANAGED SMALL CAP FUND COMMENCED OPERATIONS ON DECEMBER 1, 1999.
Effective May 1, 1996 through April 30, 2000, FRIMCo has contractually
agree to waive a portion of its combined advisory and administrative fees for
the Multistrategy Bond Fund, to the extent Fund level expenses exceed 0.80% of
average daily net assets on an annual basis, FRIMCo waived fees in the amounts
of $126,393, $57,035 and $327,074 for the years ended December 31, 1997, 1998
and 1999, respectively. As a result of the waivers, the Fund paid advisory and
administrative fees equal to $2,225,087, $3,184,410 and $3,340,842 for the years
ended December 31, 1997, 1998 and 1999, respectively.
FRIMCo has contractually agreed to waive a portion of its 1.03% combined
advisory and administrative fees for the Tax-Managed Small Cap Fund, up to the
full amount of those fees, equal to the amount by which Fund-Level expenses
exceed 1.25% of the Fund's average daily net assets on an annual basis. In
addition, FRIMCo has contractually agreed to reimburse the Fund for any
remaining total Fund-level expenses after any FRIMCo waiver which exceeds 1.25%
of average daily net assets on an annual basis. FRIMCo waived fees in the amount
of $18,536 for the year ended December 31, 1999. In addition, FRIMCo reimbursed
the Fund $101,897 for expenses over the cap in 1999. As a result of the waivers
and reimbursements, the Fund paid no advisory and administrative fees for the
year ended December 31, 1999. The Tax-Managed Small Cap Fund commenced
operations on December 1, 1999.
FRIMCo is a wholly owned subsidiary of Frank Russell Company, a
subsidiary of The Northwestern Mutual Life Insurance Company. FRIMCo's mailing
address is 909 A Street, Tacoma, WA 98402.
MONEY MANAGERS. The money managers of the Underlying Funds have no
affiliations or relationships with FRIC or FRIMCo other than as discretionary
managers for all or a portion of a Fund's portfolio, except some money managers
(and their affiliates) may effect brokerage transactions for the Underlying
Funds (see, "Brokerage Allocations" and "Brokerage Commissions"). Money managers
may serve as advisors or discretionary managers for Frank Russell Trust Company,
other investment vehicles sponsored or advised by Frank Russell Company or its
affiliates, other consulting clients of Frank Russell Company, other offshore
vehicles and/or for accounts which have no business relationship with the Frank
Russell Company organization
13
<PAGE>
From its advisory fees received from the Underlying Funds, FRIMCo, as
agent for FRIC, pays all fees to the money managers for their investment
selection services. Quarterly, each money manager is paid the pro rata portion
of an annual fee, based on the average for the quarter of all the assets
allocated to the money manager. For the years ended December 31, 1997, 1998 and
1999, management fees paid to the money managers of the Underlying Funds were:
<TABLE>
<CAPTION>
ANNUAL RATE
FUND $ AMOUNT PAID (AS A % OF AVERAGE DAILY NET ASSETS)
- --------------------------- ----------------------------------------------- -------------------------------------
1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Diversified Equity $1,996,005 $ 2,556,100 $ 2,908,409 0.23% 0.21% 0.20%
Special Growth 1,914,056 2,419,648 2,249,925 0.40% 0.39% 0.36%
Quantitative Equity 1,648,992 2,153,019 2,623,428 0.19% 0.19% 0.18%
International Securities 3,188,600 3,505,016 3,429,899 0.39% 0.37% 0.34%
Diversified Bond 462,945 529,842 555,643 0.08% 0.07% 0.07%
Short Term Bond 410,761 414,057 795,354 0.17% 0.17% 0.17%
Multistrategy Bond 751,497 990,456 1,046,997 0.21% 0.19% 0.18%
Real Estate Securities 1,529,207 1,757,612 1,711,842 0.29% 0.29% 0.28%
Emerging Markets 2,369,288 2,230,317 2,151,950 0.68% 0.66% 0.65%
Tax-Managed Large Cap 170,958 606,948 1,130,665 0.31% 0.31% 0.27%
Tax-Managed Small Cap* -- -- 6,673 -- -- 0.34%
Tax Exempt Bond 179,885 252,321 305,104 0.25% 0.23% 0.19%
Tax Free Money Market 103,973 134,817 146,901 0.08% 0.08% 0.08%
- ---------------------------
* THE TAX-MANAGED SMALL CAP FUND COMMENCED OPERATIONS ON DECEMBER 1, 1999.
</TABLE>
Each money manager has agreed that it will look only to FRIMCo for the
payment of the money manager's fee, after FRIC has paid FRIMCo. Fees paid to the
money managers are not affected by any voluntary or statutory expense
limitations. Some money managers may receive investment research prepared by
Frank Russell Company as additional compensation, or may receive brokerage
commissions for executing portfolio transactions for the Funds through broker-
dealer affiliates.
DISTRIBUTOR. Russell Fund Distributors, Inc. (the "Distributor") serves
as the distributor of FRIC Shares. The Distributor receives no compensation from
FRIC for its services other than Rule 12b-1 compensation and shareholder
services compensation for certain classes of Shares pursuant to FRIC's Rule
12b-1 Distribution Plan and its Shareholder Services Plan, respectively. The
Distributor is a wholly owned subsidiary of FRIMCo and its mailing address is
909 A Street, Tacoma, WA 98402.
CUSTODIAN AND PORTFOLIO ACCOUNTANT. State Street Bank and Trust Company
("State Street") serves as the custodian for FRIC. State Street also provides
basic portfolio recordkeeping required for each of the Underlying Funds for
regulatory and financial reporting purposes. For these services, State Street is
paid the following annual fees, which will be billed and payable on a monthly
basis:
CUSTODY:
Domestic Custody (Underlying Funds) - (i) $3,000 per portfolio per fund; (ii)
First $10 billion in average daily net assets - 0.75%, Over $10 billion - 0.65%.
Global Custody ( Underlying Funds) - (i) First $500 million in month end net
assets - 0.11% - 0.35%, Over $500 million - 0.03% - 0.35% depending on the
geographic classification of the investments in the international funds (ii) a
transaction charge ranging from $25 - $100 depending on the geographic
classification of the investments in the international funds. All Custody
(Underlying Funds) - (i) Portfolio transaction charges range from $6.00 - $25.00
depending on the type of transaction; (ii) Futures and Options charges range
from $8.00 - $25.00; (iii) monthly pricing fees of $375.00 per portfolio and
$6.00 - $11.00 per security; (iv) on-line access charges of $2,500 per fund; and
(v) Reimbursement of out-of-pocket expenses including postage, transfer fees,
stamp duties, taxes, wire fees, telexes and freight. Portfolio transaction
charges for the Fund of Funds are equal to $5.00 each. In addition, interest
earned on uninvested cash balances will be used to offset the Fund of Funds' and
Underlying Funds' custodian expense, as applicable.
14
<PAGE>
FUND ACCOUNTING:
Domestic Fund Accounting Underlying Funds - (i) $10,000 per portfolio; and (ii)
0.015% of average daily net assets. International Fund Accounting Underlying
Funds - (i) $24,000 per portfolio per year; and (ii) 0.03% of month end net
assets. Fund of Funds Account - $12,000 per portfolio; Yield calculation
services Fund of Funds and Underlying Funds - $4,200 per fixed income fund. Tax
accounting services - $8,500 per Equity Fund, $11,000 per Fixed Income Fund, and
$15,000 per Global Fund. The mailing address for State Street Bank and Trust
Company is: 1776 Heritage Drive, North Quincy, MA 02171.
TRANSFER AND DIVIDEND DISBURSING AGENT. FRIMCo serves as Transfer Agent
for FRIC. For this service FRIMCo is paid a per-account fee for transfer agency
and dividend disbursing services provided to FRIC. From this fee, which is based
upon the number of shareholder accounts and total assets of the Funds, FRIMCo
compensates unaffiliated agents who assist in providing these services. FRIMCo
is also reimbursed by FRIC for certain out-of-pocket expenses, including
postage, taxes, wires, stationery and telephone. The Fund of Funds' investments
in the Underlying Funds will not be charged a fee. FRIMCo's mailing address is
909 A Street, Tacoma, WA 98402.
ORDER PLACEMENT DESIGNEES. FRIC has authorized certain Financial
Intermediaries to accept on its behalf purchase and redemption orders for FRIC
Shares. Certain Financial Intermediaries are authorized, subject to approval of
FRIC's Distributor, to designate other intermediaries to accept purchase and
redemption orders on FRIC's behalf. With respect to those intermediaries, FRIC
will be deemed to have received a purchase or redemption order when such a
Financial Intermediary or, if applicable, an authorized designee, accepts the
order. The customer orders will be priced at the applicable Fund's net asset
value next computed after they are accepted by such a Financial Intermediary or
an authorized designee, provided that Financial Intermediary or an authorized
designee timely transmits the customer order to FRIC.
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP serves as the
independent accountants of FRIC. PricewaterhouseCoopers LLP is responsible for
performing annual audits of the financial statements and financial highlights of
the Funds in accordance with generally accepted auditing standards and a review
of federal tax returns. The mailing address of PricewaterhouseCoopers LLP is
1800 First Interstate Center, 999 Third Avenue, Seattle, WA 98104-4098.
CODES OF ETHICS. FRIC, FRIMCo and RFD have each adopted a Code of
Ethics as required under Sec Rule 17j-1. These Codes permit personnel subject
to the Codes to invest in securities, which may include securities in which
the Underlying Funds can invest. Personal investments are subject to the
regulatory and disclosure provisions of the respective Codes. In addition,
each Money Manager has adopted a Code of Ethics under Rule 17j-1. The table
below indicates whether each Money Manager's Code of Ethics permits personnel
covered by the Code to invest in securities and, where appropriate, to invest
in securities in which an Underlying Fund advised by that Money Manager may
invest.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
IS PERSONAL INVESTING ARE INVESTMENTS IN SECURITIES OWNED BY
MONEY MANAGER ALLOWED? THE ADVISED FUND ALLOWED?
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
AEW Capital Management, L.P. Yes No
- ----------------------------------------------------------------------------------------------------
Alliance Capital Management Yes Yes, but not in securities with pending
L.P. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Barclays Global Fund Yes Yes, but not in securities with pending
Advisors N.A. or possible client buy or sell orders
and certain blackouts apply to
securities of Barclays PLC and
securities underwritten by Barclays
affiliates
- ----------------------------------------------------------------------------------------------------
BlackRock Financial Yes Yes, but not in securities with pending
Management or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
The Boston Company Asset Yes Yes, but not in securities with pending
Management or possible client buy or sell orders,
also, certain persons may not purchase
securities issued by financial services
organizations
- ----------------------------------------------------------------------------------------------------
CapitalWorks Investment Yes Yes, but not in securities with pending
Partners or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Cohen & Steers Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Delaware International Yes Yes, but not in securities with pending
Advisors Limited or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Delphi Management, Inc. Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Equinox Capital Management, Yes Yes, but not in securities with pending
Inc. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Fidelity Management Trust Yes Cannot purchase securities on a
Company restricted list
- ----------------------------------------------------------------------------------------------------
Fiduciary International, Yes Yes, but not in securities with pending
Inc. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Foreign & Colonial Emerging Yes Cannot purchase securities on a
Markets Limited restricted list
- ----------------------------------------------------------------------------------------------------
Franklin Portfolio Yes Yes, but not in securities with pending
Associates LLC or possible client buy or sell orders,
also, certain persons may not invest in
securities of financial services
organizations
- ----------------------------------------------------------------------------------------------------
Geewax, Terker & Company Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Genesis Asset Managers, Ltd. Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
GlobeFlex Capital, L.P. Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Jacobs Levy Equity Yes Yes, but not in securities with pending
Management, Inc. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
J.P. Morgan Investment Yes Cannot purchase securities on a
Management, Inc. restricted list or securities of
financial services organizations
- ----------------------------------------------------------------------------------------------------
Lazard Asset Management Yes Cannot purchase securities on a
restricted list
- ----------------------------------------------------------------------------------------------------
Lincoln Capital Management Yes Yes, but not in securities with pending
Company or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Marsico Capital Management, Severely restricts No
LLC personal trading except
for a limited number of specific transactions such
as purchase of mutual fund shares, commercial
paper, etc.
- ----------------------------------------------------------------------------------------------------
Mastholm Asset Management, Yes Yes, but not in securities with pending
LLC or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Miller, Anderson & Yes Yes, but not in securities with pending
Sherrerd, LLP or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Montgomery Asset Management Yes Yes, but not in securities with pending
LLC or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Nicholas Applegate Capital Yes Yes, but not in securities with pending
Management or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Oechsle International Yes Yes, but not in securities with pending
Advisors, LLC or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Pacific Investment Yes Yes, but not in securities with pending
Management Company or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Peachtree Asset Management Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Sanford C. Bernstein & Co., Yes Yes, subject to blackouts and other
Inc. restrictions
- ----------------------------------------------------------------------------------------------------
Schroders Capital Yes Cannot purchase securities on a
Management International restricted list
Limited
- ----------------------------------------------------------------------------------------------------
Security Capital Global Yes Yes, but not in securities with pending
Capital Management Group or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Sirach Capital Management, Yes Yes, but not in securities with pending
Inc. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Standish, Ayer & Wood, Inc. Yes Cannot purchase securities on a
restricted list
- ----------------------------------------------------------------------------------------------------
STW Fixed Income Management Yes Yes, but not in securities with pending
Ltd. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Strong Capital Management Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Suffolk Capital Management Yes Yes, but not in securities with pending
Ltd. or possible client buy or sell orders or
in securities of which 10% or more are
held in portfolios managed by Suffolk
- ----------------------------------------------------------------------------------------------------
Turner Investment Partners Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Westpeak Investment Yes Yes, but not in securities with pending
Advisors, L.P. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
</TABLE>
PLAN PURSUANT TO RULE 18f-3. Securities and Exchange Commission (the
"SEC") Rule 18f-3 under the 1940 Act, permits a registered open-end investment
company to issue multiple classes of shares in accordance with a written plan
approved by the investment company's board of trustees that is filed with the
SEC. At a meeting held on April 22, 1996, the Board adopted a plan pursuant to
Rule 18f-3 (the "Rule 18f-3 Plan") on behalf of each Fund that issues multiple
classes of Shares (each a "Multiple Class Fund"). At a meeting held on June 3,
1998, the Board amended the Rule 18f-3 Plan to create classes for the
Institutional Funds. On November 9, 1998, the Board again amended the Rule 18f-3
Plan to revise the previously authorized classes. On August 9, 1999, the Board
amended the Rule 18f-3 Plan to create classes for the Tax-Managed Small Cap
Fund, Tax-Managed Large Cap Fund and the Tax-Managed Global Equity Funds. On
November 22, 1999, the Board amended the Rule 18f-3 Plan to create Class A
Shares for all Funds except the Institutional Funds and the money market funds.
For purposes of this Statement of Additional Information, each Fund that issues
multiple classes of Shares is referred to as a "Multiple Class Fund." The key
features of the Rule 18f-3 plan are as follows: Shares of each class of a
Multiple Class Fund represent an equal pro rata interest in the underlying
assets of that Fund, and generally have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations, qualifications
and terms and conditions, except that: (1) each class of Shares offered in
connection with a Rule 12b-1 plan may bear certain fees under its respective
Rule 12b-1 plan and may have exclusive voting rights on matters pertaining to
that plan and any related agreements; (2) each class of Shares may contain a
conversion feature; (3) each class of Shares may bear differing amounts of
certain class expenses; (4) different policies may be established with respect
to the payment of distributions on the classes of Shares of a Multiple Class
Fund to equalize the net asset values of the classes or, in the absence of such
policies, the net asset value per share of the different classes may differ at
certain times; (5) each class of Shares of a Multiple Class Fund may have
different exchange privileges from another class; (6) each class of Shares of a
Multiple Class Fund may have a different class designation from another class of
that Fund; and (7) each class of Shares offered in connection with a shareholder
servicing plan may bear certain fees under its respective plan.
15
<PAGE>
DISTRIBUTION PLAN. Under the 1940 Act, the SEC has adopted Rule 12b-1,
which regulates the circumstances under which the Funds may, directly or
indirectly, bear distribution expenses. Rule 12b-1 provides that the Funds may
pay for such expenses only pursuant to a plan adopted in accordance with Rule
12b-1. Accordingly, the Multiple Class Funds have adopted a distribution plan
(the "Distribution Plan") for the Multiple Class Funds' Class C and Class D
Shares, which are described in the respective Funds' Prospectus. In adopting the
Distribution Plan, a majority of the Trustees, including a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of FRIC
and who have no direct or indirect financial interest in the operation of the
Distribution Plan or in any agreements entered into in connection with the
Distribution Plan (the "Independent Trustees"), have concluded, in conformity
with the requirements of the 1940 Act, that there is a reasonable likelihood
that the Distribution Plan will benefit each respective Multiple Class Fund and
its shareholders. In connection with the Trustees' consideration of whether to
adopt the Distribution Plan, the Distributor, as the Multiple Class Funds'
principal underwriter, represented to the Trustees that the Distributor believes
that the Distribution Plan should result in increased sales and asset retention
for the Multiple Class Funds by enabling the Multiple Class Funds to reach and
retain more investors and Financial Intermediaries (such as brokers, banks,
financial planners, investment advisors and other financial institutions),
although it is impossible to know for certain, in the absence of a Distribution
Plan or under an alternative distribution arrangement, the level of sales and
asset retention that a Multiple Class Fund would have.
The 12b-1 fees may be used to compensate (a) Selling Agents (as defined
below) for sales support services provided, and related expenses incurred with
respect to Class C and Class D Shares, by such Selling Agents, and (b) the
Distributor for distribution services provided by it, and related expenses
incurred, including payments by the Distributor to compensate Selling Agents for
providing support services. The Distribution Plan is a compensation-type plan.
As such, FRIC makes no distribution payments to the Distributor with respect to
Class C and Class D Shares except as described above. Therefore, FRIC does not
pay for unreimbursed expenses of the Distributor, including amounts expended by
the Distributor in excess of amounts received by it from FRIC, interest,
carrying or other financing charges in connection with excess amounts expended,
or the Distributor's overhead expenses. However, the Distributor may be able to
recover such amount or may earn a profit from future payments made by FRIC under
the Distribution Plan.
The Distribution Plan provides that each Multiple Class Fund may spend
annually, directly or indirectly, up to 0.75% of the average daily net asset
value of its Class C and Class D Shares for any activities or expenses primarily
intended to result in the sale of Class C and Class D Shares of a Multiple Class
Fund. Such payments by FRIC will be calculated daily and paid periodically and
shall not be made less frequently than quarterly. Any amendment to increase
materially the costs that a Multiple Class Fund's Shares may bear for
distribution pursuant to the Distribution Plan shall be effective upon a vote of
the holders of the affected Class of the lesser of (a) more than fifty percent
(50%) of the outstanding Shares of the affected Class of a Multiple Class Fund
or (b) sixty-seven percent (67%) or more of the Shares of affected Class of a
Multiple Class Fund present at a shareholders' meeting, if the holders of more
than 50% of the outstanding Shares of the affected Class of such Fund are
present or represented by proxy (a "1940 Act Vote"). The Distribution Plan does
not provide for the Multiple Class Funds to be charged for interest, carrying or
any other financing charges on any distribution expenses carried forward to
subsequent years. A quarterly report of the amounts expended under the
Distribution Plan, and the purposes for which such expenditures were incurred,
must be made to the Trustees for their review. The Distribution Plan may not be
amended without approval of the holders of the affected Class of Shares. The
Distribution Plan and material amendments to it must be approved annually by all
of the Trustees and by the Independent Trustees. While the Distribution Plan is
in effect, the selection and nomination of the Independent Trustees shall be
committed to the discretion of such Independent Trustees. The Distribution Plan
is terminable, as to a Multiple Class Fund's Shares, without penalty at any time
by (a) a vote of a majority of the Independent Trustees, or (b) a vote of the
holders of the lesser of (a) more than fifty percent (50%) of the outstanding
Shares of the affected Class of a Multiple Class Fund or (b) a 1940 Act Vote.
Under the Distribution Plan, the Multiple Class Funds may also enter
into agreements ("Selling Agent Agreements") with Financial Intermediaries and
with the Distributor to provide sales support services with respect to Multiple
Class Fund Class C or Class D Shares held by or for the customers of the
Financial Intermediaries. Financial Intermediaries that have entered into
Selling Agent Agreements are referred to in this Statement as "Selling Agents."
Under the Distribution Plan, the following Multiple Class Funds' Class
C and Class D Shares accrued expenses in the following amounts, payable as
compensation to the Distributor, for the year ended December 31, 1999 (these
amounts were for compensation to dealers):
16
<PAGE>
FUND OF FUNDS CLASS C CLASS D
------------- ------- -------
Equity Aggressive Strategy Fund $28,827 $10,594
Aggressive Strategy Fund 50,849 9,961
Balanced Strategy Fund 85,150 10,153
Moderate Strategy Fund 10,299 3,983
Conservative Strategy Fund 3,270 2,429
No Tax-Managed Global Equity Fund Class C Shares were issued during the
year ended December 31, 1999.
SHAREHOLDER SERVICES PLAN. A majority of the Trustees, including a
majority of Independent Trustees, has adopted and amended a Shareholder Services
Plan for certain classes of Shares of the Fund of Funds ("Servicing Plan"). The
Servicing Plan was adopted on April 22, 1996 and amended on June 3, 1998,
November 9, 1998, August 9, 1999 and November 22, 1999.
Under the Service Plan, FRIC may compensate the Distributor or any
investment advisers, banks, broker-dealers, financial planners or other
financial institutions that are dealers of record or holders of record or that
have a servicing relationship with the beneficial owners or record holders of
Shares of Class A, Class C, Class D or Class E, offering such Shares ("Servicing
Agents"), for any activities or expenses primarily intended to assist, support
or service their clients who beneficially own or are primarily intended to
assist, support or service their clients who beneficially own or are record
holders of Shares of Class A, Class C, Class D or Class E. Such payments by FRIC
will be calculated daily and paid quarterly at a rate or rates set from time to
time by the Trustees, provided that no rate set by the Trustees for Shares of
Class A, Class C, Class D or Class E may exceed, on an annual basis, 0.25% of
the average daily net asset value of that Fund's Class A, Class C, Class D, or
Class E Shares.
Among other things, the Service Plan provides that (1) the Distributor
shall provide to FRIC's officers and Trustees, and the Trustees shall review at
least quarterly, a written report of the amounts expended by it pursuant to the
Service Plan, or by Servicing Agents pursuant to Service Agreements, and the
purposes for which such expenditures were made; (2) the Service Plan shall
continue in effect for so long as its continuance is specifically approved at
least annually by the Trustees, and any material amendment thereto is approved
by a majority of the Trustees, including a majority of the Independent Trustees,
cast in person at a meeting called for that purpose; (3) while the Service Plan
is in effect, the selection and nomination of the Independent Trustees shall be
committed to the discretion of such Independent Trustees; and (4) the Service
Plan is terminable, as to a Multiple Class Fund's Shares, by a vote of a
majority of the Independent Trustees.
Under the Service Plan, the following Fund of Funds' Class C, Class D and
Class E Shares accrued expenses in the following amounts payable to the
Distributor, for the year ended December 31, 1999:
FUND OF FUNDS CLASS C CLASS D CLASS E
------------- ------- ------- -------
Equity Aggressive Strategy Fund $9,609 $10,594 $383,309
Aggressive Strategy Fund 16,950 9,961 285,803
Balanced Strategy Fund 28,383 10,153 611,678
Moderate Strategy Fund 3,433 3,983 87,119
Conservative Strategy Fund 1,090 2,429 32,439
No Class A Shares were issued during the year ended December 31, 1999.
UNDERLYING FUND EXPENSES
The Underlying Funds will pay all their expenses other than those
expressly assumed by FRIMCo. The principal expense of the Underlying Funds is
the annual advisory fee and annual administrative fee, each payable to FRIMCo.
The Underlying Funds' other expenses include: fees for independent accountants,
legal, transfer agent, registrar, custodian, dividend disbursement, and
portfolio and shareholder recordkeeping services, and maintenance of tax records
payable to Frank Russell Company; state taxes; brokerage fees and commissions;
insurance premiums; association membership dues; fees for filing of reports and
registering Shares with regulatory bodies; and such extraordinary expenses as
may arise, such
17
<PAGE>
as federal taxes and expenses incurred in connection with litigation proceedings
and claims and the legal obligations of FRIC to indemnify its Trustees,
officers, employees, shareholders, distributors and agents with respect thereto.
Whenever an expense can be attributed to a particular Underlying Fund,
the expense is charged to that Underlying Fund. Other common expenses are
allocated among the Underlying Funds based primarily upon their relative net
assets.
As of the date of this Statement, FRIMCo has voluntarily agreed to waive
and/or reimburse until February 28, 2001 all or a portion of its advisory and
administrative fees with respect to certain Underlying Funds.
FUND OF FUNDS OPERATING EXPENSES
Each Fund of Funds is expected to have a low operating expense ratio
although, as a shareholder of the Underlying Funds, each Fund of Funds
indirectly bears its pro rata share of the advisory fees charged to, and
expenses of operating, the Underlying Funds in which it invests. It is currently
contemplated that all other operating expenses (shareholder servicing, legal,
accounting, etc.) except for the 0.20% advisory fee and any Rule 12b-1 Fees and
Shareholder Service Fees will be paid for in accordance with these Special
Servicing Agreements (each a "Servicing Agreement") among each Fund of Funds,
its Underlying Funds and FRIMCo. Under the Servicing Agreement, FRIMCo arranges
for all services pertaining to the operations of the Fund of Funds, including
transfer agency services but not including any services covered by the Fund of
Funds' advisory fee or any Rule 12b-1 or Shareholder Service Fees. However, it
is expected that the additional assets invested in the Underlying Funds by the
Fund of Funds will produce economies of operations and other savings for the
Underlying Funds which will exceed the cost of the services required for the
operation of the Fund of Funds. In this case, the Servicing Agreement provides
that the officers of FRIC, at the direction of the Trustees, may apply such
savings to payment of the aggregate operating expenses of Fund of Funds which
have invested in that Underlying Fund, so that the Underlying Fund will bear
those operating expenses in proportion to the average daily value of the shares
owned by the Fund of Funds, provided that no Underlying Fund will bear such
operating expenses in excess of the estimated savings to it. In the event that
the aggregate financial benefits to the Underlying Funds do not exceed the costs
of the Fund of Funds, the Servicing Agreement provides that FRIMCo will bear
that portion of costs determined to be greater than the benefits. Those costs
include Fund accounting, custody, auditing, legal, blue sky and, as well as
organizational, transfer agency, prospectus, shareholder reporting, proxy,
administrative and miscellaneous expenses.
PURCHASE AND REDEMPTION OF FUND OF FUNDS SHARES
MINIMUM INVESTMENT REQUIREMENTS. You may be eligible to purchase Fund of Funds
Shares if you do not meet the applicable required minimum investment. The Fund
of Funds, at their discretion, may waive the initial minimum investment
requirement for some employee benefit plans and other plans with at least $5
million in total plan assets or if requirements are met for a combined purchase
privilege, cumulative quantity discount, or statement of intention. If you
invest less than the required minimum investment in a Fund of Funds, and the
minimum investment required has not been waived for you, the Funds of Funds
reserve the right to refuse your order or to correct, within a reasonable
period, your purchase transaction and notify you promptly of that correction.
Trustees, officers, employees and certain third party contractors of FRIC and
its affiliates and their spouses and children are not subject to any initial
minimum investment requirement.
The Fund of Funds may also waive the required minimum initial investment for
IRAs and UGMAs and similar vehicles on which an explicit or practical initial
investment restriction is imposed by a regulatory body.
STALE CHECKS. If you do not cash a dividend, distribution, or redemption check
within 180 days from the date it was issued, the Funds of Funds will act to
protect themselves and you. No interest will accrue on amounts represented by
uncashed checks.
FOR UNCASHED DIVIDEND AND DISTRIBUTION CHECKS AND UNCASHED REDEMPTION CHECKS OF
$25 OR LESS, the Fund of Funds will deem the unchased check to be an order to
reinvest the proceeds of the uncashed check into your account with that Fund at
its then-current net asset value, and, if the uncashed check represents a
dividend or distribution, the Fund of Funds will deem it to be an order to
reinvest all future Fund dividends and distributions unless otherwise notified
by you. If you do not have an open account with that Fund, an uncashed check of
more than $25 will be deemed an order to purchase shares of the Frank Russell
Investment Company Money Market Fund, and the
18
<PAGE>
proceeds of any uncashed checks for $25 or less will be held in the Fund's
general account for your benefit in accordance with applicable law.
FOR REDEMPTION CHECKS OF MORE THAN $25, the Fund will reissue the check. If the
reissued check is not cashed within 180 days from the date it was reissued, the
Funds will deem that to be an order to reinvest the proceeds of the uncashed
check into your account with that Fund at its then-current net asset value. If
you no longer have a current account open for that Fund, the uncashed check will
be deemed an order to purchase shares of the Frank Russell Investment Company
Money Market Fund.
VALUATION OF THE FUND OF FUNDS SHARES
The net asset value per share of each Class of Shares is calculated
separately for each Fund of Funds on each business day on which Shares are
offered or orders to redeem are tendered. A business day is one on which the New
York Stock Exchange is open for trading. Currently, the New York Stock Exchange
is open for trading every weekday, except New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Net asset value per share is computed for each class of Shares of a Fund
by dividing the current value of the Fund's assets attributable to each class of
Shares, less liabilities attributable to that class of Shares, by the number of
each individual class of Shares of the Fund outstanding, and rounding to the
nearest cent.
PRICING OF SECURITIES
The Class S Shares of the Underlying Funds held by each Fund of Funds are
valued at their net asset value. The Emerging Markets, International Securities,
Diversified Bond and Multistrategy Bond Funds' portfolio securities actively
trade on foreign exchanges which may trade on Saturdays and on days that the
Underlying Funds do not offer or redeem shares. The trading of portfolio
securities on foreign exchanges on such days may significantly increase or
decrease the net asset value of the Class S Shares of the Underlying Fund when a
shareholder (such as a Fund of Funds) is not able to purchase or redeem
Underlying Fund Shares. Further, because foreign securities markets may close
prior to the time the Underlying Funds determine net asset value, events
affecting the value of the portfolio securities occurring between the time
prices are determined and the time the Underlying Funds calculate net asset
value may not be reflected in the calculation of net asset value unless FRIMCo
determines that a particular event would materially affect the net asset value.
PORTFOLIO TURNOVER RATES OF THE FUND OF FUNDS
The portfolio turnover rate for each Fund of Funds is calculated by
dividing the lesser of purchases or sales of Underlying Fund Shares for the
particular year, by the monthly average value of the Underlying Fund Shares
owned by the Fund of Funds during the year. The Fund of Funds will purchase or
sell Underlying Fund Shares to: (i) accommodate purchases and sales of each Fund
of Funds' Shares; (ii) change the percentages of each Fund of Funds' assets
invested in each of the Underlying Funds in response to market conditions; and
(iii) maintain or modify the allocation of each Fund of Funds' assets among the
Underlying Funds generally within the percentage limits described in the
Prospectus.
The portfolio turnover rates for the last two years for each Fund of Funds
were:
YEARS ENDED
FUND OF FUNDS 12/31/99 12/31/98
- ------------- -------- --------
Equity Aggressive Strategy Fund 76.20% 73.95%
Aggressive Strategy Fund 71.44 93.08
Balanced Strategy Fund 64.63 78.85
Moderate Strategy Fund 120.04 175.58
Conservative Strategy Fund 125.01 169.79
No Tax-Managed Global Equity Fund Shares were issued during the periods ending
December 31, 1998 or 1999.
19
<PAGE>
PORTFOLIO TRANSACTION POLICIES OF THE UNDERLYING FUNDS
Decisions to buy and sell securities for the Underlying Funds are made by
the money managers for the assets assigned to them, and by FRIMCo or the money
manager for the Underlying Funds' Liquidity Portfolios. The Underlying Funds,
other than the Tax-Managed Large Cap, Tax-Managed Small Cap and Tax Exempt Bond
Funds, do not give significant weight to attempting to realize long-term, rather
than short-term, capital gains while making portfolio investment decisions. The
portfolio turnover rates for certain multi-manager Underlying Funds are likely
to be somewhat higher than the rates for comparable mutual funds with a single
money manager. The money managers make decisions to buy or sell securities
independently from other money managers. Thus, one money manager could be
selling a security when another money manager for the same Underlying Fund (or
for another series of FRIC) is purchasing the same security. In addition, when a
money manager's services are terminated and another retained, the new manager
may significantly restructure the portfolio. These practices may increase the
Underlying Funds' portfolio turnover rates, realization of gains or losses,
brokerage commissions and other transaction based costs. The Underlying Funds'
changes of money managers may also result in a significant number of portfolio
sales and purchases as the new money manager restructures the former money
manager's portfolio. In view of the Tax-Managed Large Cap and Tax-Managed Small
Cap Funds' investment objective and policies, such Funds' ability to change
money managers may be constrained. The annual portfolio turnover rates for each
of the Underlying Funds for the periods ended December 31, 1999 and 1998,
respectively, were as follows: Diversified Equity Fund, 110% and 100%; Special
Growth Fund, 112% and 129%; Quantitative Equity Fund, 90% and 77%; International
Securities Fund, 121% and 68%; Diversified Bond Fund, 152% and 217%; Short Term
Bond Fund, 177% and 130%; Multistrategy Bond Fund, 134% and 335%; Real Estate
Securities Fund, 43% and 43%; and Emerging Markets Fund, 95% and 59%;
Tax-Managed Large Cap Fund, 48% and 51%; Tax-Managed Small Cap 3% for 1999 (did
not commence operations until December 1, 1999); and Tax Exempt Bond Fund, 119%
and 74%.
BROKERAGE ALLOCATIONS
Transactions on US stock exchanges involve the payment of negotiated
brokerage commissions; on non-US exchanges, commissions are generally fixed.
There is generally no stated commission in the case of securities traded in the
over-the-counter markets, including most debt securities and money market
instruments, but the price includes an undisclosed payment in the form of a
mark-up or mark-down. The cost of securities purchased from underwriters
includes an underwriting commission or concession.
Subject to the arrangements and provisions described below, the selection
of a broker or dealer to execute portfolio transactions is usually made by the
money manager of the Underlying Fund. FRIC's advisory agreements with FRIMCo and
the money managers provide, in substance and subject to specific directions from
officers of FRIC or FRIMCo, that in executing portfolio transactions and
selecting brokers or dealers, the principal objective is to seek the best
overall terms available to the Underlying Fund. Securities will ordinarily be
purchased in the primary markets, and the money manager shall consider all
factors it deems relevant in assessing the best overall terms available for any
transaction, including the breadth of the market in the security, the price of
the security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis).
In addition, the advisory agreements authorize FRIMCo and the money
managers, respectively, in selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, to consider the
"brokerage and research services" (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided to the Underlying Fund, FRIMCo
and/or to the money manager (or their affiliates). FRIMCo and the money managers
are authorized to cause the Underlying Funds to pay a commission to a broker or
dealer who provides such brokerage and research services for executing a
portfolio transaction which is in excess of the amount of commissions another
broker or dealer would have charged for effecting that transaction. FRIMCo or
the money manager, as appropriate, must determine in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided -- viewed in terms of that particular transaction or in terms
of all the accounts over which FRIMCo or the money manager exercises investment
discretion. Any commission, fee or other remuneration paid to an affiliated
broker-dealer is paid in compliance with FRIC's procedures adopted in accordance
with Rule 17e-1 of the 1940 Act.
FRIMCo does not expect FRIC ordinarily to effect a significant portion of
FRIC's total brokerage business for the Underlying Funds with broker- dealers
affiliated with its money managers. However, a money manager may effect
portfolio transactions for the segment of an Underlying Fund's portfolio
assigned to the money manager with a broker-dealer affiliated with the manager,
as well as with brokers affiliated with other money managers.
20
<PAGE>
FRIMCo and each Money Manager arranges for the purchase and sale of
FRIC's securities and selects brokers and dealers (including affiliates),
which in its best judgment provide prompt and reliable execution at favorable
prices and reasonable commission rates. FRIMCo and each Money Manager may
select brokers and dealers which provide it with research services and may
cause FRIC to pay such brokers and dealers commissions which exceed those
other brokers and dealers may have charged, if it views the commissions as
reasonable in relation to the value of the brokerage and/or research
services. In selecting a broker, including affiliates, for a transaction, the
primary consideration is prompt and effective execution of orders at the most
favorable prices. Subject to that primary consideration, dealers may be
selected for research, statistical or other services to enable FRIMCo and
each Money Manager to supplement its own research and analysis.
The Underlying Funds may effect portfolio transactions with or through
Frank Russell Securities, Inc. ("FRS"), an affiliate of FRIMCo, only when the
applicable money manager determines that the Underlying Fund will receive
competitive execution, price and commissions. Where brokerage transactions are
effected by money managers on behalf of the Underlying Funds through FRS at the
request of the FRIMCo, research services obtained from third party service
providers at market rates are provided to FRIMCo by FRS. Such research services
include performance measurement statistics, fund analytics systems and market
monitoring systems. This arrangement may be used by any Underlying Fund other
than those Underlying Funds which invest principally in fixed income securities.
All Underlying Funds may also effect portfolio transactions on an agency basis
through, and pay brokerage commissions to, the brokerage affiliates of money
managers.
BROKERAGE COMMISSIONS
The Board reviews, at least annually, the commissions paid by the
Underlying Funds to evaluate whether the commissions paid over representative
periods of time were reasonable in relation to commissions being charged by
other brokers and the benefits to the Underlying Funds. Frank Russell Company
maintains an extensive database showing commissions paid by institutional
investors, which is the primary basis for making this evaluation. Certain
services received by FRIMCo or money managers attributable to a particular
transaction may benefit one or more other accounts for which investment
discretion is exercised by the money manager, or a Fund other than that for
which the particular portfolio transaction was effected. The fees of the money
managers are not reduced by reason of their receipt of such brokerage and
research services.
For information regarding brokerage commissions paid by the Underlying
Funds and the Underlying Funds' holdings of securities issued by the top ten
broker dealers used by those Funds, refer to the Statement of Additional
Information for the Underlying Funds.
YIELD AND TOTAL RETURN QUOTATIONS
The Fund of Funds compute their average annual total return by using a
standardized method of calculation required by the SEC, and report average
annual total return for each class of Shares which they offer.
Average annual total return is computed by finding the average annual
compounded rates of return on a hypothetical initial investment of $1,000 over
the one, five and ten year periods (or life of the Fund of Funds, as
appropriate), that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
21
<PAGE>
P(1+T) to the power of n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the one, five or
ten year period at the end of the one, five or ten
year period (or fractional portion thereof).
The calculation assumes that all dividends and distributions of each Fund
of Funds are reinvested at the price stated in the Prospectus on the dividend
dates during the period, and includes all recurring fees that are charged to all
shareholder accounts. The average annual total returns for one or more classes
of Shares will be reported in the applicable Prospectus.
Yields are computed by using standardized methods of calculation required
by the SEC. Similar to average annual total return calculations, a Fund of Funds
calculates yields for each class of Shares which it offers. Yields for the Fund
of Funds, which do not invest primarily in money market instruments, are
calculated by dividing the net investment income per share earned during a
30-day (or one month) period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[(A-B+1) to the power of 6 -1]
------------------------------
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = average daily number of Shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period.
The yields for the Fund of Funds investing primarily in fixed-income
instruments are reported in the Prospectus. Yield may fluctuate daily and does
not provide a basis for determining future yields.
Tax-equivalent yield for the Tax Exempt Bond Fund is calculated by
dividing that portion of the yield of the appropriate Fund as computed above
which is tax exempt by one minus a stated income tax rate (36.9%). The
tax-equivalent yield for the Tax Exempt Bond Fund is reported in the Funds'
respective Prospectus.
Each Fund of Funds may, from time to time, advertise non-standard
performances, including average annual total return for periods other than 1, 5
or 10 years or since inception.
Each Fund of Funds may compare its performance with various industry
standards of performance, including Lipper Analytical Services, Inc. or other
industry publications, business periodicals, rating services and market indices.
INVESTMENT RESTRICTIONS, POLICIES AND
PRACTICES OF THE FUND OF FUNDS
Each Fund of Funds' investment objective is "fundamental" which means
each investment objective may not be changed without the approval of a majority
of each Fund's shareholders. Certain investment policies may also be
fundamental. Other policies may be changed by a Fund without shareholder
approval. The Fund of Funds' investment objectives are set forth in the
respective Prospectus.
INVESTMENT RESTRICTIONS. Each Fund of Funds is subject to the following
fundamental investment restrictions. Unless otherwise noted, these restrictions
apply on a Fund-by-Fund basis at the time an investment is being made. No Fund
of Funds will:
1.Invest in any security if, as a result of such investment, less than
75% of its total assets would be represented by cash; cash items; securities of
the US government, its agencies, or instrumentalities; securities of other
investment
22
<PAGE>
companies (including the Underlying Funds); and other securities limited in
respect of each issuer to an amount not greater in value than 5% of the total
assets of such Fund of Funds.
2. Invest 25% or more of the value of the Fund of Funds' total assets in
the securities of companies primarily engaged in any one industry (other than
the US government, its agencies and instrumentalities, and Shares of the
Underlying Funds).
3. Acquire more than 5% of the outstanding voting securities, or 10% of
all of the securities, of any one issuer, except with respect to Shares of FRIC
Funds.
4. Invest in companies for the purpose of exercising control or
management.
5. Purchase or sell real estate; provided that each Fund of Funds may
invest in the Real Estate Securities Fund, which may own securities secured by
real estate or interests therein or issued by companies which invest in real
estate or interests therein.
6. Purchase or sell commodities or commodities contracts.
7. Borrow money, except that the Fund may borrow as a temporary measure
for extraordinary or emergency purposes, and not in excess of five percent of
its net assets; provided, that the Fund may borrow to facilitate redemptions
(not for leveraging or investment), provided that borrowings do not exceed an
amount equal to 33 1/3% of the current value of the Fund's assets taken at
market value, less liabilities other than borrowings. If at any time the Fund's
borrowings exceed this limitation due to a decline in net assets, such
borrowings will be reduced to the extent necessary to comply with this
limitation within three days. Reverse repurchase agreements will not be
considered borrowings for purposes of the foregoing restrictions, provided that
the Fund will not purchase investments when borrowed funds (including reverse
repurchase agreements) exceed 5% of its total assets.
8. Purchase securities on margin or effect short sales (except that a
Fund of Funds may obtain such short-term credits as may be necessary for the
clearance of purchases or sales of securities).
9. Engage in the business of underwriting securities issued by others or
purchase securities subject to legal or contractual restrictions on disposition.
10. Participate on a joint or a joint and several basis in any trading
account in securities except to the extent permitted by the 1940 Act and any
applicable rules and regulations and except as permitted by any applicable
exemptive orders from the 1940 Act. The "bunching" of orders for the sale or
purchase of marketable portfolio securities with two or more Funds, or with a
Fund and such other accounts under the management of FRIMCo or any money manager
for the Funds to save brokerage costs or to average prices among them shall not
be considered a joint securities trading account.
11. Make loans of money or securities to any person or firm; provided,
however, that the making of a loan shall not be construed to include (i) the
entry into "repurchase agreements;" or (ii) the lending of portfolio securities
in the manner generally described in the Fund of Funds' Prospectus in the
section titled "Investment Policies, Restrictions and Risks of the Fund of Funds
and Tax-Managed Funds -- Lending Portfolio Securities."
12. Purchase or sell options.
13. Purchase the securities of other investment companies except to the
extent permitted by the 1940 Act and any applicable rules and regulations and
except as permitted by any applicable exemptive orders from the 1940 Act (and as
described below).
14. Purchase from or sell portfolio securities to the officers, the
Trustees or other "interested persons" (as defined in the 1940 Act) of FRIC,
including the Underlying Funds' money managers and their affiliates, except as
permitted by the 1940 Act, SEC rules or exemptive orders.
23
<PAGE>
15. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit any Fund from making any otherwise
permissible borrowings, mortgages or pledges, entering into permissible reverse
repurchase agreements, or issuing shares of beneficial interest in multiple
classes.
Because of their investment objectives and policies, the Fund of Funds
will concentrate more than 25% of their assets in the mutual fund industry. In
accordance with the Fund of Funds' investment policies set forth in the
Prospectus, each of the Fund of Funds may invest more than 25% of its assets in
the Underlying Funds. However, each of the Underlying Funds in which each Fund
of Funds will invest (other than the Real Estate Securities Fund) will not
concentrate more than 25% of its total assets in any one industry. The Real
Estate Securities Fund may invest 25% or more of its total assets in the
securities of companies directly or indirectly engaged in the real estate
industry.
INVESTMENT POLICIES AND PRACTICES OF THE FUND OF FUNDS
REPURCHASE AGREEMENTS. Each Fund of Funds may enter into repurchase
agreements with the seller -- a bank or securities dealer -- who agrees to
repurchase the securities at the Fund's cost plus interest within a specified
time (normally the next day). The securities purchased by a Fund of Funds have a
total value in excess of the value of the repurchase agreement and are held by
Fund of Funds' Custodian until repurchased. Repurchase agreements assist a Fund
of Funds in being invested fully while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. The Fund of Funds will limit
repurchase transactions to those member banks of the Federal Reserve System and
primary dealers in US government securities whose creditworthiness is
continually monitored and found satisfactory by FRIMCo.
MONEY MARKET INSTRUMENTS. Each Fund of Funds may invest in securities
maturing within 397 days or less at the time from the trade date or such other
date upon which a Fund of Funds' interest in a security is subject to market
action. Each Fund of Funds will follow procedures reasonably designed to assure
that the prices so determined approximate the current market value of the Fund's
securities. The procedures also address such matters as diversification and
credit quality of the securities the Fund of Funds purchase, and were designed
to ensure compliance by the Funds with the requirements of Rule 2a-7 of the 1940
Act.
ILLIQUID SECURITIES. The expenses of registration of restricted
securities that are illiquid (excluding securities that may be resold by the
Fund of Funds pursuant to Rule 144A, as explained in the Prospectus) may be
negotiated at the time such securities are purchased by a Fund of Funds. When
registration is required, a considerable period may elapse between a decision to
sell the securities and the time the sale would be permitted. Thus, the Fund of
Funds may not be able to obtain as favorable a price as that prevailing at the
time of the decision to sell. A Fund of Funds also may acquire, through private
placements, securities having contractual resale restrictions, which might lower
the amount realizable upon the sale of such securities.
The guidelines adopted by the Board for the determination of liquidity of
securities take into account trading activity for the securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, a Fund's holding of
that security may be illiquid. There may be undesirable delays in selling
illiquid securities at prices representing their fair value.
24
<PAGE>
INVESTMENT POLICIES OF THE UNDERLYING FUNDS
The investment objective and principal investment strategy for each of the
Underlying Funds is provided in their Prospectuses. The following table
illustrates the investments that the Underlying Funds primarily invest in or are
permitted to invest in.
<TABLE>
<CAPTION>
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
DIVERSIFIED SPECIAL QUANTITATIVE INTERNATIONAL DIVERSIFIED SHORT TERM
EQUITY GROWTH EQUITY SECURITIES BOND BOND
TYPE OF PRACTICE FUND FUND FUND FUND FUND FUND
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Common stocks.......... |X| |X| |X| |X|
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
Common stock equivalents
(warrants)........... |X| |X| |X| |X|
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
Common stock equivalents
(options)............ |X| |X| |X| |X|
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
Common stock equivalents
(convertible debt
securities)....... |X| |X| |X| |X| |X|
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
Common stock equivalents
(depository receipts) |X| |X|
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
Preferred stocks....... |X| |X| |X| |X| |X|
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
Equity derivative |X| |X| |X| |X|
securities.............
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
Debt securities (below
investment grade or junk
bonds)............... |X|
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
US government securities |X| |X| |X| |X| |X| |X|
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
Municipal obligations.. |X|
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
Investment company
securities........... |X| |X| |X| |X| |X| |X|
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
Foreign securities..... |X| |X| |X| |X| |X| |X|
- --------------------------- ----------- ------------ --------------- ------------- ------------ --------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
MULTISTRATEGY REAL ESTATE EMERGING TAX-MANAGED TAX-MANAGED
BOND SECURITIES MARKETS LARGE CAP SMALL CAP TAX EXEMPT
TYPE OF PRACTICE FUND FUND FUND FUND FUND FUND
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Common stocks.......... |X| |X| |X| |X|
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
Common stock equivalents
(warrants)........... |X| |X| |X| |X|
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
Common stock equivalents
(options)............ |X| |X| |X| |X|
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
Common stock equivalents
(convertible debt
securities)...... |X| |X|
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
Common stock equivalents
(depository receipts)
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
Preferred stocks....... |X| |X| |X| |X|
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
Equity derivative |X| |X| |X| |X|
securities.............
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
Debt securities (below
investment grade or junk
bonds)............... |X| |X|
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
US government securities |X| |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
Municipal obligations.. |X| |X|
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
Investment company
securities........... |X| |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
Foreign securities..... |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------- ------------- -------------- ------------- ------------
</TABLE>
25
<PAGE>
OTHER INVESTMENT PRACTICES OF THE UNDERLYING FUNDS. The Underlying Funds use
investment techniques commonly used by other mutual funds. The table below
summarizes the principal investment practices of the Underlying Funds, each of
which may involve certain special risks. The Glossary located at the back of the
SAI describes each of the investment techniques identified below.
<TABLE>
<CAPTION>
- --------------------------- -------------- --------------- ------------- --------------- ---------------- --------------
DIVERSIFIED SPECIAL QUANTITATIVE INTERNATIONAL DIVERSIFIED SHORT TERM
EQUITY GROWTH EQUITY SECURITIES BOND BOND
TYPE OF PRACTICE FUND FUND FUND FUND FUND FUND
- --------------------------- -------------- --------------- ------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Cash reserves.......... |X| |X| |X| |X| |X| |X|
- --------------------------- -------------- --------------- ------------- --------------- ---------------- --------------
Repurchase agreements(1) |X| |X| |X|
- --------------------------- -------------- --------------- ------------- --------------- ---------------- --------------
When-issued and forward
commitment securities |X| |X| |X|
- --------------------------- -------------- --------------- ------------- --------------- ---------------- --------------
Reverse repurchase
agreements........... |X| |X| |X|
- --------------------------- -------------- --------------- ------------- --------------- ---------------- --------------
Lending portfolio
securities
not to exceed 33 1/3% |X| |X| |X| |X| |X| |X|
of total Fund assets.
- --------------------------- -------------- --------------- ------------- --------------- ---------------- --------------
Illiquid securities
(limited to 15% of a |X| |X| |X| |X| |X| |X|
Fund's net assets)...
- --------------------------- -------------- --------------- ------------- --------------- ---------------- --------------
Forward currency
contracts(2)......... |X| |X| |X|
- --------------------------- -------------- --------------- ------------- --------------- ---------------- --------------
Write (sell) call and put
options on securities,
securities indexes and
foreign currencies(3) |X| |X| |X| |X|
- --------------------------- -------------- --------------- ------------- --------------- ---------------- --------------
Purchase options on
securities, securities
indexes, and |X| |X| |X| |X| |X| |X|
currencies(3)..........
- --------------------------- -------------- --------------- ------------- --------------- ---------------- --------------
Interest rate futures
contracts, stock index
futures contracts,
foreign currency
contracts and options |X| |X| |X| |X| |X| |X|
on futures(4)........
- --------------------------- -------------- --------------- ------------- --------------- ---------------- --------------
Liquidity portfolios... |X| |X| |X| |X|
- --------------------------- -------------- --------------- ------------- --------------- ---------------- --------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
MULTISTRATEGY REAL ESTATE EMERGING TAX-MANAGED TAX-MANAGED TAX EXEMPT
BOND SECURITIES MARKETS LARGE CAP SMALL CAP BOND
TYPE OF PRACTICE FUND FUND FUND FUND FUND FUND
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Cash reserves.......... |X| |X| |X| |X| |X| |X|
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
Repurchase agreements(1) |X| |X| |X| |X|
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
When-issued and forward
commitment securities |X| |X| |X| |X|
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
Reverse repurchase
agreements........... |X| |X| |X| |X|
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
Lending portfolio
securities
not to exceed 33 1/3% |X| |X| |X| |X| |X|
of total Fund assets.
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
Illiquid securities
(limited to 15% of a |X| |X| |X| |X| |X| |X|
Fund's net assets)...
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
Forward currency
contracts(2)......... |X| |X|
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
Write (sell) call and put
options on securities,
securities indexes and
foreign currencies(3) |X| |X| |X|
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
Purchase options on
securities, securities
indexes, and |X| |X| |X| |X| |X|
currencies(3)........
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
Interest rate futures
contracts, stock index
futures contracts,
foreign currency
contracts and options |X| |X| |X| |X|
on futures(4)........
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
Liquidity portfolios... |X| |X| |X| |X|
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
Credit and Liquidity
Enhancements........... |X|
- --------------------------- -------------- --------------- -------------- -------------- ---------------- --------------
</TABLE>
26
<PAGE>
- ---------------------
(1) Under the 1940 Act, repurchase agreements are considered to be loans by a
Fund and must be fully collateralized by collateral assets. If the seller
defaults on its obligations to repurchase the underlying security, a Fund
may experience delay or difficulty in exercising its rights to realize
upon the security, may incur a loss if the value of the security declines
and may incur disposition costs in liquidating the security.
(2) Each of the International Securities, Diversified Bond, Multistrategy
Bond, Short Term Bond and Emerging Markets Funds may not invest more than
one-third of its assets in these contracts.
(3) A Fund will only engage in options where the options are traded on a
national securities exchange or in an over-the-counter market. A Fund may
invest up to 5% of its net assets, represented by the premium paid, in
call and put options. A Fund may write a call or put option to the extent
that the aggregate value of all securities or other assets used to cover
all such outstanding options does not exceed 25% of the value of its net
assets.
(4) A Fund does not enter into any futures contracts or related options if
the sum of initial margin deposits on futures contracts, related options
(including options on securities, securities indexes and currencies) and
premiums paid for any such related options would exceed 5% of its total
assets. A Fund does not purchase futures contracts or related options if,
as a result, more than one-third of its total assets would be so
invested.
CASH RESERVES. Each Fund of Funds and each Underlying Fund (the "Funds")
and its money managers may elect to invest a Fund's cash reserves in one or more
of FRIC's money market funds. Those money market funds seek to maximize current
income to the extent consistent with the preservation of capital and liquidity,
and the maintenance of a stable $1.00 per share net asset value by investing
solely in short-term money market instruments. The Fund of Funds and the
Underlying Funds will use this procedure only so long as doing so does not
adversely affect the portfolio management and operations of the money market
funds and FRIC's other Funds. Those money market funds and the Fund of Funds and
Underlying Funds investing in them treat such investments as the purchase and
redemption of money market fund shares. Any Fund of Funds or Underlying Fund
investing in a money market fund pursuant to this procedure participates equally
on a pro rata basis in all income, capital gains and net assets of the money
market fund, and will have all rights and obligations of a shareholder as
provided in FRIC's Master Trust Agreement, including voting rights. However,
shares of a money market fund issued to the Fund of Funds or Underlying Funds
will be voted by the Trustees of FRIC in the same proportion as the shares of
the money market fund that are held by shareholders who are not Fund of Funds or
Underlying Funds. Fund of Funds and Underlying Funds investing in a money market
fund effectively do not pay advisory or administrative management fees to a
money market fund and thus do no pay duplicative advisory or administrative fees
as FRIMCo waives a portion of its advisory or administrative fees due from those
Funds in an amount that offsets the advisory or administrative fees it receives
from the applicable money market fund in respect of those investments.
LIQUIDITY PORTFOLIO. An Underlying Fund at times has to sell portfolio
securities in order to meet redemption requests. The selling of securities may
effect an Underlying Fund's performance since the money manager sells the
securities for other than investment reasons. An Underlying Fund can avoid
selling its portfolio securities by holding adequate levels of cash to meet
anticipated redemption requests. The holding of significant amounts of cash is
contrary, however, to the investment objectives of the Diversified Equity,
Special Growth, Quantitative Equity, International Securities, Tax-Managed Large
Cap and Tax-Managed Small Cap Funds. The more cash these Underlying Funds hold,
the more difficult it is for their returns to meet or surpass their respective
benchmarks. FRIMCo will exercise investment discretion or select a money manager
to exercise investment discretion for approximately 5-15% of the Funds' assets
assigned to a "Liquidity Portfolio."
A Liquidity Portfolio addresses this potential detriment by having
FRIMCo, or a money manager selected for this purpose, create a temporary equity
exposure for cash reserves through the use of options and futures contracts
until those cash reserves are invested in securities or used for Underlying Fund
transactions. This will enable those four Underlying Funds to hold cash while
receiving a return on the cash which is similar to holding equity securities.
RUSSELL 1000 INDEX. The Russell 1000 -Registered Trademark- Index
consists of the 1,000 largest US companies by capitalization. The Index does
not include cross corporate holdings in a company's capitalization. For
example, when IBM owned approximately 20% of Intel, only 80% of the total
shares outstanding of Intel were used to determine Intel's capitalization.
Also not included in the Index are closed-end investment companies, companies
that do not file a Form 10-K report with the SEC, foreign securities and
American Depository Receipts.
The Index's composition is changed annually to reflect changes in market
capitalization and share balances outstanding. These changes are expected to
represent less than 1% of the total market capitalization of the Index. Changes
27
<PAGE>
for mergers and acquisitions are made when trading ceases in the acquirer's
shares. The 1,001st largest US company by capitalization is then added to the
Index to replace the acquired stock.
Frank Russell Company chooses the stocks to be included in the Index
solely on a statistical basis and it is not an indication that Frank Russell
Company or FRIMCo believes that the particular security is an attractive
investment.
CERTAIN INVESTMENTS OF THE UNDERLYING FUNDS
REPURCHASE AGREEMENTS. An Underlying Fund may enter into repurchase
agreements with the seller, a bank or securities dealer, who agrees to
repurchase the securities at the Underlying Fund's cost plus interest within a
specified time (normally one day). The securities purchased by an Underlying
Fund have a total value in excess of the value of the repurchase agreement and
are held by the Custodian until repurchased. Repurchase agreements assist an
Underlying Fund in being invested fully while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. The Underlying Funds will
limit repurchase transactions to those member banks of the Federal Reserve
System and primary dealers in US government securities whose creditworthiness is
continually monitored and found satisfactory by the Underlying Funds' money
managers.
REVERSE REPURCHASE AGREEMENTS. An Underlying Fund may enter into reverse
repurchase agreements to meet redemption requests where the liquidation of
portfolio securities is deemed by the Underlying Fund's money manager to be
inconvenient or disadvantageous. A reverse repurchase agreement is a transaction
whereby an Underlying Fund transfers possession of a portfolio security to a
bank or broker-dealer in return for a percentage of the portfolio securities'
market value. The Underlying Fund retains record ownership of the security
involved including the right to receive interest and principal payments. At an
agreed upon future date, the Underlying Fund repurchases the security by paying
an agreed upon purchase price plus interest. Liquid assets of an Underlying Fund
equal in value to the repurchase price, including any accrued interest, will be
segregated on the Underlying Fund's records while a reverse repurchase agreement
is in effect.
HIGH RISK BONDS. The Underlying Funds, other than the Emerging Markets,
Short Term Bond, and Multistrategy Bond Funds, do not invest their assets in
securities rated less than BBB by S&P or Baa by Moody's, or in unrated
securities judged by the money managers to be of a lesser credit quality than
those designations. Securities rated BBB by S&P or Baa by Moody's are the lowest
ratings which are considered "investment grade" securities, although Moody's
considers securities rated Baa, and S&P considers bonds rated BBB, to have some
speculative characteristics. The Underlying Funds, other than Emerging Markets,
Short Term Bond, and Multistrategy Bond Funds, will dispose of, in a prudent and
orderly fashion, securities whose ratings drop below these minimum ratings. The
market value of debt securities generally varies inversely in relation to
interest rates.
The Emerging Markets, Short Term Bond, and Multistrategy Bond Funds will
invest in "investment grade" securities and may invest up to 5% of its total
assets (in the case of the Emerging Markets Fund), 10% of its total assets (in
the case of the Short Term Bond Fund) and 25% of its total assets (in the case
of the Multistrategy Bond Fund) in debt securities rated less than BBB by S&P or
Baa by Moody's, or in unrated securities judged by the money managers of the
Funds to be of comparable quality. Lower rated debt securities generally offer a
higher yield than that available from higher grade issues. However, lower rated
debt securities involve higher risks, because they are especially subject to
adverse changes in general economic conditions and in the industries in which
the issuers are engaged, to changes in the financial condition of the issuers
and to price fluctuation in response to changes in interest rates. During
periods of economic downturn or rising interest rates, highly leveraged issuers
may experience financial stress which could adversely affect their ability to
make payments of principal and interest and increase the possibility of default.
In addition, the market for lower rated debt securities has expanded rapidly in
recent years, and its growth has paralleled a long economic expansion. The
market for lower rated debt securities is generally thinner and less active than
that for higher quality securities, which would limit the Underlying Funds'
ability to sell such securities at fair value in response to changes in the
economy or the financial markets. While such debt may have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions. The money managers of the Multistrategy
Bond, Short Term Bond and Emerging Markets Funds will seek to reduce the risks
associated with investing in such securities by limiting the Funds' holdings in
such securities and by the depth of their own credit analysis.
Securities rated BBB by S&P or Baa by Moody's may involve greater risks
than securities in higher rating categories. Securities receiving S&P's BBB
rating are regarded as having adequate capacity to pay interest and repay
principal. Such securities typically exhibit adequate investor protections but
adverse economic conditions or changing
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circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rating categories.
Securities possessing Moody's Baa rating are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security is judged adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such securities lack outstanding
investment characteristics and in fact may have speculative characteristics as
well. For further description of the various rating categories, see "Ratings of
Debt Instruments."
RISK FACTORS. The growth of the market for lower rated debt securities
has paralleled a long period of economic expansion. Lower rated debt securities
may be more susceptible to real or perceived adverse economic and competitive
industry conditions than investment grade securities. The prices of low rated
debt securities have been found to be less sensitive to interest rate changes
than investment grade securities, but more sensitive to economic downturns,
individual corporate developments, and price fluctuations in response to
changing interest rates. A projection of an economic downturn or of a period of
rising interest rates, for example, could cause a sharper decline in the prices
of low rated debt securities because the advent of a recession could lessen the
ability of a highly leveraged company to make principal and interest payments on
its debt securities. If the issuer of low rated debt securities defaults, a Fund
may incur additional expenses to seek financial recovery.
In addition, the markets in which low rated debt securities are traded
are generally thinner, more limited and less active than those for higher rated
securities. The existence of limited markets for particular securities may
diminish an Underlying Fund's ability to sell the securities at fair value
either to meet redemption requests or to respond to changes in the economy or in
the financial markets and could adversely affect and cause fluctuations in the
daily net asset value of the Underlying Fund's Shares.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated securities may be more complex than for
issuers of other investment grade securities, and the ability of an Underlying
Fund to achieve its investment objectives may be more dependent on credit
analysis than would be the case if the Fund was investing only in investment
grade securities.
The money managers of the Emerging Markets, Short Term Bond, and
Multistrategy Bond Funds may use ratings to assist in investment decisions.
Ratings of debt securities represent a rating agency's opinion regarding their
quality and are not a guarantee of quality. Rating agencies attempt to evaluate
the safety of principal and interest payments and do not evaluate the risks of
fluctuations in market value. Also, rating agencies may fail to make timely
changes in credit ratings in response to subsequent events, so that an issuer's
current financial condition may be better or worse than a rating indicates.
ILLIQUID SECURITIES. The Underlying Funds will not purchase or otherwise
acquire any security if, as a result, more than 15% of a Fund's net assets
(taken at current value) would be invested in securities, including repurchase
agreements of more than seven days' duration, that are illiquid by virtue of the
absence of a readily available market or because of legal or contractual
restrictions on resale. In addition, the Underlying Funds will not invest more
than 10% of their respective net assets (taken at current value) in securities
of issuers which may not be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"). These policies do not
include (1) commercial paper issued under Section 4(2) of the 1933 Act, or (2)
restricted securities eligible for resale to qualified institutional purchasers
pursuant to Rule 144A under the 1933 Act that are determined to be liquid by the
money managers in accordance with Board approved guidelines. These guidelines
adopted by the Board for the determination of liquidity of securities take into
account trading activity for such securities and the availability of reliable
pricing information, among other factors. If there is a lack of trading interest
in a particular Rule 144A security, an Underlying Fund's holding of that
security may be illiquid. There may be undesirable delays in selling illiquid
securities at prices representing their fair value.
The expenses of registration of restricted securities that are illiquid
(excluding securities that may be resold by the Underlying Funds pursuant to
Rule 144A, as explained in their respective Prospectuses) may be negotiated at
the time such securities are purchased by an Underlying Fund. When registration
is required, a considerable period may elapse between a decision to sell the
securities and the time the sale would be permitted. Thus, an Underlying Fund
may not be able to obtain as favorable a price as that prevailing at the time of
the decision to sell. An
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Underlying Fund also may acquire, through private placements, securities having
contractual resale restrictions, which might lower the amount realizable upon
the sale of such securities.
FORWARD COMMITMENTS. An Underlying Fund may contract to purchase
securities for a fixed price at a future date beyond customary settlement time
(a "forward commitment" or "when-issued" transaction), so long as such
transactions are consistent with an Underlying Fund's ability to manage its
investment portfolio and meet redemption requests. An Underlying Fund may
dispose of a forward commitment or when-issued transaction prior to settlement
if it is appropriate to do so and realize short-term profits or losses upon such
sale. When effecting such transactions, liquid assets of the Underlying Fund in
a dollar amount sufficient to make payment for the portfolio securities to be
purchased will be segregated on the Fund's records at the trade date and
maintained until the transaction is settled. Forward commitments and when-issued
transactions involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date or the other party to the transaction
fails to complete the transaction.
Additionally, under certain circumstances, the International Securities
and Emerging Markets Funds may occasionally engage in "free trade" transactions
in which delivery of securities sold by the Underlying Fund is made prior to the
Fund's receipt of cash payment therefor or the Fund's payment of cash for
portfolio securities occurs prior to the Fund's receipt of those securities.
"Free trade" transactions involve the risk of loss to an Underlying Fund if the
other party to the "free trade" transaction fails to complete the transaction
after the Fund has tendered cash payment or securities, as the case may be.
LENDING PORTFOLIO SECURITIES. Cash collateral received by an Underlying
Fund when it lends its portfolio securities is invested in high-quality
short-term debt instruments, short-term bank collective investment and money
market mutual funds (including funds advised by the Custodian, for which it may
receive an asset- based fee), and other investments meeting certain quality and
maturity established by the Underlying Funds. Income generated from the
investment of the cash collateral is first used to pay the rebate interest cost
to the borrower of the securities then to pay for lending transaction costs, and
then the remainder is divided between the Underlying Fund and the lending agent.
Each Underlying Fund will retain most rights of beneficial ownership,
including dividends, interest or other distributions on the loaned securities.
Voting rights may pass with the lending. An Underlying Fund will call loans to
vote proxies if a material issue affecting the investment is to be voted upon.
An Underlying Fund may incur costs or possible losses in excess of the
interest and fees received in connection with securities lending transactions.
Some securities purchased with cash collateral are subject to market
fluctuations while a loan is outstanding. To the extent that the value of the
cash collateral as invested is insufficient to return the full amount of the
collateral plus rebate interest to the borrower upon termination of the loan, an
Underlying Fund must immediately pay the amount of the shortfall to the
borrower.
OPTIONS AND FUTURES. The Underlying Funds may purchase and sell (write)
both call and put options on securities, securities indexes and foreign
currencies, and enter into interest rate, foreign currency and index futures
contracts and purchase and sell options on such futures contracts for hedging
purposes. If other types of options, futures contracts, or options on futures
contracts are traded in the future, the Underlying Funds may also use those
instruments, provided that FRIC's Board determines that their use is consistent
with the Underlying Funds' investment objectives, and provided that their use is
consistent with restrictions applicable to options and futures contracts
currently eligible for use by the Underlying Funds (i.e., that written call or
put options will be "covered" or "secured" and that futures and options on
futures contracts will be used only for hedging purposes).
OPTIONS ON SECURITIES AND INDEXES. Each Underlying Fund may purchase and
write both call and put options on securities and securities indexes in
standardized contracts traded on foreign or national securities exchanges,
boards of trade, or similar entities, or quoted on NASDAQ or on a regulated
foreign over-the- counter market, and agreements, sometimes called cash puts,
which may accompany the purchase of a new issue of bonds from a dealer. The
Underlying Funds intend to treat options in respect of specific securities that
are not traded on a national securities exchange and the securities underlying
covered call options as not readily marketable and therefore subject to the
limitations on the Underlying Funds' ability to hold illiquid securities. The
Underlying Funds intend to purchase and write call and put options on specific
securities.
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An option on a security (or securities index) is a contract that gives
the purchaser of the option, in return for a premium, the right (but not the
obligation) to buy from (in the case of a call) or sell to (in the case of a
put) the writer of the option the security underlying the option at a specified
exercise price at any time during the option period. The writer of an option on
a security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier
(established by the exchange upon which the stock index is traded) for the index
option. (An index is designed to reflect specified facets of a particular
financial or securities market, a specified group of financial instruments or
securities, or certain economic indicators.) Options on securities indexes are
similar to options on specific securities except that settlement is in cash and
gains and losses depend on price movements in the stock market generally (or in
a particular industry or segment of the market), rather than price movements in
the specific security.
An Underlying Fund may purchase a call option on securities to protect
against substantial increases in prices of securities the Underlying Fund
intends to purchase pending its ability or desire to purchase such securities in
an orderly manner. An Underlying Fund may purchase a put option on securities to
protect holdings in an underlying or related security against a substantial
decline in market value. Securities are considered related if their price
movements generally correlate to one another.
An Underlying Fund will write call options and put options only if they
are "covered." In the case of a call option on a security, the option is
"covered" if the Underlying Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, liquid assets
in such amount are placed in a segregated account by the Custodian) upon
conversion or exchange of other securities held by the Underlying Fund. For a
call option on an index, the option is covered if the Underlying Fund maintains
with the Custodian liquid assets equal to the contract value. A call option is
also covered if the Underlying Fund holds a call on the same security or index
as the call written where the exercise price of the call held is (1) equal to or
less than the exercise price of the call written, or (2) greater than the
exercise price of the call written, provided the difference is maintained by the
Fund in liquid assets in a segregated account with the Custodian. A put option
on a security or an index is "covered" if the Underlying Fund maintains liquid
assets equal to the exercise price in a segregated account with the Custodian. A
put option is also covered if the Underlying Fund holds a put on the same
security or index as the put written where the exercise price of the put held is
(1) equal to or greater than the exercise price of the put written, or (2) less
than the exercise price of the put written, provided the difference is
maintained by the Underlying Fund in liquid assets in a segregated account with
the Custodian.
If an option written by an Underlying Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by an Underlying Fund expires unexercised, the Fund
realizes a capital loss (long or short-term depending on whether the Fund's
holding period for the option is greater than one year) equal to the premium
paid.
To close out a position when writing covered options, a Fund may make a
"closing purchase transaction," which involves purchasing an option on the same
security with the same exercise price and expiration date as the option which it
previously wrote on the security. To close out a position as a purchaser of an
option, a Fund may make a "closing sale transaction," which involves liquidating
the Fund's position by selling the option previously purchased. The Fund will
realize a profit or loss from a closing purchase or sale transaction depending
upon the difference between the amount paid to purchase an option and the amount
received from the sale thereof.
Prior to the earlier of exercise or expiration, an option may be closed
out by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Underlying Fund desires.
An Underlying Fund will realize a capital gain from a closing transaction
on an option it has written if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the Underlying Fund
will realize a capital loss. If the premium received from a closing sale
transaction is more than the premium paid to purchase the option, the Underlying
Fund will realize a capital gain or, if it is less, the Fund will realize a
capital loss. With respect to closing transactions on purchased options, the
capital gain or loss realized will be short or long-term depending on the
holding period of the option closed out. The principal factors affecting the
market value of a put or a call option include
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supply and demand, interest rates, the current market price of the underlying
security or index in relation to the exercise price of the option, the
volatility of the underlying security or index, and the time remaining until the
expiration date.
The premium paid for a put or call option purchased by an Underlying Fund
is an asset of the Fund. The premium received for an option written by an
Underlying Fund is recorded as a liability. The value of an option purchased or
written is marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or no closing
price is available, at the mean between the last bid and asked prices.
RISKS ASSOCIATED WITH OPTIONS ON SECURITIES AND INDEXES. There are
several risks associated with transactions in options on securities and on
indexes. For example, there are significant 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 objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
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, 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 (i.e., the premium paid) on the option. Also, where a put or
call option on a particular security is purchased to hedge against price
movements in a related security, the price of the put or call option may move
more or less than the price of the related security.
There can be no assurance that a liquid market will exist when an
Underlying Fund seeks to close out an option position. If an Underlying Fund
were unable to close out an option that it had purchased on a security, it would
have to exercise the option in order to realize any profit or the option may
expire worthless. If an Underlying Fund were unable to close out a covered call
option that it had written on a security, it would not be able to sell the
underlying security unless the option expired without exercise.
As the writer of a covered call option, an Underlying Fund forgoes,
during the option's life, the opportunity to profit from increases in the market
value of the underlying security above the exercise price, but, as long as its
obligation as a writer continues, has retained a risk of loss should the price
of the underlying security decline. Where an Underlying Fund writes a put
option, it is exposed during the term of the option to a decline in the price of
the underlying security.
If trading were suspended in an option purchased by an Underlying Fund,
the Underlying Fund would not be able to close out the option. If restrictions
on exercise were imposed, the Underlying Fund might be unable to exercise an
option it has purchased. Except to the extent that a call option on an index
written by the Underlying Fund is covered by an option on the same index
purchased by the Fund, movements in the index may result in a loss to the Fund;
however, such losses may be mitigated by changes in the value of the Fund's
securities during the period the option was outstanding.
OPTIONS ON FOREIGN CURRENCY. An Underlying Fund may buy or sell put and
call options on foreign currencies either on exchanges or in the
over-the-counter market for the purpose of hedging against changes in future
currency exchange rates. Call options convey the right to buy the underlying
currency at a price which is expected to be lower than the spot price of the
currency at the time the option expires. Put options convey the right to sell
the underlying currency at a price which is anticipated to be higher than the
spot price of the currency at the time the option expires. Currency options
traded on US or other exchanges may be subject to position limits which may
limit the ability of an Underlying Fund to reduce foreign currency risk using
such options. Over-the-counter options differ from traded options in that they
are two-party contracts with price and other terms negotiated between buyer and
seller, and generally do not have as much market liquidity as exchange-traded
options. None of the Underlying Funds, other than the Multistrategy Bond and
Emerging Markets Funds, currently intends to write or purchase such options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. An Underlying Fund
may invest in interest rate futures contracts, foreign currency futures
contracts, or stock index futures contracts, and options thereon that are traded
on a US or foreign exchange or board of trade, as specified in their
Prospectuses. An interest rate, foreign currency or index futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of financial instruments (such as GNMA certificates or
Treasury bonds) or foreign currency at a specified price at a future date. A
futures contract on an index (such as the S&P 500) is an agreement between two
parties (buyer and seller) to take or make delivery of an amount of cash equal
to the difference between the value of the index at the close of the last
trading day of
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the contract and the price at which the index contract was originally written.
In the case of futures contracts traded on US exchanges, the exchange itself
or an affiliated clearing corporation assumes the opposite side of each
transaction (i.e., as buyer or seller). A futures contract may be satisfied or
closed out by delivery or purchase, as the case may be, of the financial
instrument or by payment of the change in the cash value of the index.
Frequently, using futures to effect a particular strategy instead of using the
underlying or related security or index will result in lower transaction costs
being incurred. Although the value of an index may be a function of the value
of certain specified securities, no physical delivery of these securities is
made. A public market exists in futures contracts covering several indexes as
well as a number of financial instruments and foreign currencies. For example:
the S&P 500; the Russell 2000-Registered Trademark-; Nikkei 225; CAC-40; FT-SE
100; the NYSE composite; US Treasury bonds; US Treasury notes; GNMA
Certificates; three-month US Treasury bills; Eurodollar certificates of
deposit; the Australian Dollar; the Canadian Dollar; the British Pound; the
German Mark; the Japanese Yen; the French Franc; the Swiss Franc; the Mexican
Peso; and certain multinational currencies, such as the ECU. It is expected
that other futures contracts will be developed and traded in the future.
An Underlying Fund may also purchase and write call and put options on
futures contracts. Options on futures contracts possess many of the same
characteristics as options on securities and indexes (discussed above). A
futures option gives the holder the right, in return for the premium paid, to
assume a long position (in the case of a call) or short position (in the case of
a put) in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true. An option on
a futures contract may be closed out before exercise or expiration by an
offsetting purchase or sale on option on a futures contract of the same series.
There can be no assurance that a liquid market will exist at a time when
an Underlying Fund seeks to close out a futures contract or a futures option
position. Most futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single day; once the
daily limit has been reached on a particular contract, no trades may be made
that day at a price beyond that limit. In addition, certain of these instruments
are relatively new and without a significant trading history. As a result, there
is no assurance that an active secondary market will develop or continue to
exist. Lack of a liquid market for any reason may prevent an Underlying Fund
from liquidating an unfavorable position and the Fund would remain obligated to
meet margin requirements until the position is closed.
An Underlying Fund will only enter into futures contracts or options on
futures contracts which are standardized and traded on a US or foreign exchange
or board of trade, or similar entity, or quoted on an automated quotation
system. An Underlying Fund will enter into a futures contract only if the
contract is "covered" or if the Fund at all times maintains with its custodian
liquid assets equal to or greater than the fluctuating value of the contract
(less any margin or deposit). An Underlying Fund will write a call or put option
on a futures contract only if the option is "covered." For a discussion of how
to cover a written call or put option, see "Options on Securities and Indexes"
above.
An Underlying Fund may enter into contracts and options on futures
contracts for "bona fide hedging" purposes, as defined under the rules of the
Commodity Futures Trading Commission (the "CFTC"). An Underlying Fund may also
enter into futures contracts and options on futures contracts for non hedging
purposes provided the aggregate initial margin and premiums required to
establish these positions will not exceed 5% of the Fund's net assets.
As long as required by regulatory authorities, each Underlying Fund will
limit its use of futures contracts and options on futures contracts to hedging
transactions. For example, an Underlying Fund might use futures contracts to
hedge against anticipated changes in interest rates that might adversely affect
either the value of the Fund's securities or the price of the securities which
the Fund intends to purchase. Additionally, an Underlying Fund may use futures
contracts to create equity exposure for its cash reserves for liquidity
purposes.
When a purchase or sale of a futures contract is made by an Underlying
Fund, the Fund is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or US government 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 which is returned to the Underlying Fund
upon termination of the contract, assuming all contractual obligations have been
satisfied. Each Underlying Fund expects to earn interest income on its initial
margin deposits.
A futures contract held by an Underlying Fund is valued daily at the
official settlement price of the exchange on which it is traded. Each day the
Underlying Fund pays or receives cash, called "variation margin," equal to the
daily change
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in value of the futures contract. This process is known as "marking to market."
Variation margin does not represent a borrowing or loan by an Underlying 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, each Underlying Fund will mark-to- market its open futures
positions.
An Underlying Fund is also 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 Underlying Fund.
Although some 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, the Underlying Fund
realizes a capital gain, or if it is more, the Fund realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Underlying Fund realizes a capital gain, or if it is less, the Fund
realizes a capital loss. The transaction costs must also be included in these
calculations.
LIMITATIONS ON USE OF FUTURES AND OPTIONS ON FUTURES CONTRACTS. An
Underlying Fund will not enter into a futures contract or futures option
contract if, immediately thereafter, the aggregate initial margin deposits
relating to such positions plus premiums paid by it for open futures option
positions, less the amount by which any such options are "in-the-money," would
exceed 5% of the Fund's total assets. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option.
When purchasing a futures contract, an Underlying Fund will maintain with
the Custodian (and mark-to-market on a daily basis) liquid assets that, when
added to the amounts deposited with a futures commission merchant as margin, are
equal to the market value of the futures contract. Alternatively, the Underlying
Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high or higher than the price of the contract
held by the Fund.
When selling a futures contract, an Underlying Fund will maintain with
the Custodian (and mark-to-market on a daily basis) liquid assets that, when
added to the amount deposited with a futures commission merchant as margin, are
equal to the market value of the instruments underlying the contract.
Alternatively, the Underlying 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 Underlying 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 Custodian).
When selling a call option on a futures contract, an Underlying Fund will
maintain with the Custodian (and mark-to-market on a daily basis) liquid assets
that, when added to the amounts deposited with a futures commission merchant as
margin, equal the total market value of the futures contract underlying the call
option. Alternatively, the Underlying 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.
When selling a put option on a futures contract, an Underlying Fund will
maintain with the Custodian (and mark-to-market on a daily basis) liquid assets
that equal the purchase price of the futures contract, less any margin on
deposit. Alternatively, the Underlying 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.
In order to comply with applicable regulations of the CFTC pursuant to
which the Underlying Funds avoid being deemed to be a "commodity pools," the
Funds are limited in entering into futures contracts and options on futures
contracts to positions which constitute "bona fide hedging" positions within the
meaning and intent of applicable CFTC rules, and
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with respect to positions for non-hedging purposes, to positions for which the
aggregate initial margins and premiums will not exceed 5% of the net assets of a
Fund as determined under the CFTC Rules.
The requirements for qualification as a regulated investment company also
may limit the extent to which an Underlying Fund may enter into futures, options
on futures contracts or forward contracts. See "Taxation."
RISKS ASSOCIATED WITH FUTURES AND OPTIONS ON FUTURES CONTRACTS. There are
several risks associated with the use of futures and options on futures
contracts as hedging techniques. A purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract. There
can be no guarantee that there will be a correlation between price movements in
the hedging vehicle and in the portfolio securities being hedged. In addition,
there are significant differences between the securities and futures markets
that could result in an imperfect correlation between the markets, causing a
given hedge not to achieve its objectives. The degree of imperfection of
correlation depends on circumstances such as variations in speculative market
demand for futures and options on futures contracts on securities, including
technical influences in futures trading and options on futures contracts, 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 issuers. An incorrect
correlation could result in a loss on both the hedged securities in a Fund and
the hedging vehicle so that the portfolio return might have been greater had
hedging not been attempted. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
Futures 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 an
Underlying Fund seeks to close out a futures or a futures option position. Most
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent an Underlying Fund from liquidating an
unfavorable position and the Underlying Fund would remain obligated to meet
margin requirements until the position is closed.
ADDITIONAL RISKS OF OPTIONS ON SECURITIES, FUTURES CONTRACTS, OPTIONS ON
FUTURES CONTRACTS, AND FORWARD CURRENCY EXCHANGE CONTRACT AND OPTIONS THEREON.
Options on securities, futures contracts, options on futures contracts,
currencies and options on currencies 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 positions also could be
adversely affected by (1) other complex foreign, political, legal and economic
factors, (2) lesser availability than in the United States of data on which to
make trading decisions, (3) delays in an Underlying Fund's ability to act upon
economic events occurring in foreign markets during non-business hours in the
United States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (5) lesser
trading volume.
HEDGING STRATEGIES. Stock index futures contracts may be used by the
Diversified Equity, Special Growth, Quantitative Equity, International
Securities, Emerging Markets, Tax-Managed Large Cap and Tax-Managed Small Cap
Funds as an "equitization" vehicle for cash reserves held by the Funds. For
example: equity index futures contracts are purchased to correspond with the
cash reserves in each of the Funds. As a result, an Underlying Fund will realize
gains or losses based on the performance of the equity market corresponding to
the relevant indexes for which futures contracts have been purchased. Thus, each
Underlying Fund's cash reserves will always be fully exposed to equity market
performance.
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Financial futures contracts may be used by the International Securities,
Diversified Bond, Short Term Bond, Multistrategy Bond, Emerging Markets and Tax
Exempt Bond Funds as a hedge during or in anticipation of interest rate changes.
For example: if interest rates were anticipated to rise, financial futures
contracts would be sold (short hedge) which would have an effect similar to
selling bonds. Once interest rates increase, fixed-income securities held in the
Fund's portfolio would decline, but the futures contract value would decrease,
partly offsetting the loss in value of the fixed-income security by enabling the
Underlying Fund to repurchase the futures contract at a lower price to close out
the position.
The Underlying Funds may purchase a put and/or sell a call option on a
stock index futures contract instead of selling a futures contract in
anticipation of market decline. Purchasing a call and/or selling a put option on
a stock index futures contract is used instead of buying a futures contract in
anticipation of a market advance, or to temporarily create an equity exposure
for cash balances until those balances are invested in equities. Options on
financial futures are used in a similar manner in order to hedge portfolio
securities against anticipated changes in interest rates.
When purchasing a futures contract, an Underlying Fund will maintain with
the Custodian (and mark-to-market on a daily basis) liquid assets that, when
added to the amounts deposited with a futures commission merchant as margin, are
equal to the market value of the futures contract. Alternatively, an Underlying
Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high or higher than the price of the contract
held by the Fund.
FOREIGN CURRENCY FUTURES CONTRACTS. The Underlying Funds are also
permitted to enter into foreign currency futures contracts in accordance with
their investment objectives and as limited by the procedures outlined above.
A foreign currency futures contract is a bilateral agreement pursuant to
which one party agrees to make, and the other party agrees to accept delivery of
a specified type of debt security or currency at a specified price. Although
such futures contacts by their terms call for actual delivery or acceptance of
debt securities or currency, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery.
The Underlying Funds may sell a foreign currency futures contract to
hedge against possible variations in the exchange rate of the foreign currency
in relation to the US dollar. When a manager anticipates a significant change in
a foreign exchange rate while intending to invest in a foreign security, an
Underlying Fund may purchase a foreign currency futures contract to hedge
against a rise in foreign exchange rates pending completion of the anticipated
transaction. Such a purchase would serve as a temporary measure to protect the
Underlying Fund against any rise in the foreign exchange rate which may add
additional costs to acquiring the foreign security position. The Underlying Fund
may also purchase call or put options on foreign currency futures contracts to
obtain a fixed foreign exchange rate. The Underlying Fund may purchase a call
option or write a put option on a foreign exchange futures contract to hedge
against a decline in the foreign exchange rates or the value of its foreign
securities. The Underlying Fund may write a call option on a foreign currency
futures contract as a partial hedge against the effects of declining foreign
exchange rates on the value of foreign securities.
RISK FACTORS. There are certain investment risks in using futures
contracts and/or options as a hedging technique. One risk is the imperfect
correlation between price movement of the futures contracts or options and the
price movement of the portfolio securities, stock index or currency subject of
the hedge. The risk increases for the Tax Exempt Bond Fund since financial
futures contracts that may be engaged in involve taxable securities rather than
tax exempt securities. There is no assurance that the price of taxable
securities will move in a similar manner to the price of tax exempt securities.
Another risk is that a liquid secondary market may not exist for a futures
contract causing an Underlying Fund to be unable to close out the futures
contract thereby affecting a Fund's hedging strategy.
In addition, foreign currency options and foreign currency futures
involve additional risks. 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 positions could also be adversely affected by (1) other complex foreign,
political, legal and economic factors, (2) lesser availability than in the
United States of data on which to make trading decisions, (3) delays in an
Underlying Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the United States, (4) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the United States, and (5) lesser trading volume.
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FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS ("FORWARD CURRENCY
CONTRACTS"). The International Securities, Diversified Bond, Short Term Bond,
Multistrategy Bond and Emerging Markets Funds may engage in forward currency
contracts to hedge against uncertainty in the level of future exchange rates.
The Funds will conduct their forward foreign currency exchange transactions
either on a spot (i.e. cash) basis at the rate prevailing in the currency
exchange market, or through entering into forward currency exchange contracts
("forward contract") to purchase or sell currency at a future date. A forward
contract involves an obligation to purchase or sell a specific currency. For
example, to exchange a certain amount of U.S. dollars for a certain amount of
Japanese Yen, at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. Forward currency contracts are (a) traded in an interbank market
conducted directly between currency traders (typically, commercial banks or
other financial institutions) and their customers, (b) generally have no deposit
requirements and (c) are consummated without payment of any commissions. A Fund
may, however, enter into forward currency contracts containing either or both
deposit requirements and commissions. In order to assure that a Fund's forward
currency contracts are not used to achieve investment leverage, the Fund will
segregate liquid assets in an amount at all times equal to or exceeding the
Fund's commitments with respect to these contracts. The Underlying Funds may
engage in a forward contract that involves transacting in a currency whose
changes in value are considered to be linked (a proxy) to a currency or
currencies in which some or all of the Underlying Funds' portfolio securities
are or are expected to be denominated. An Underlying Fund's dealings in forward
contracts will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of foreign
currency with respect to specific receivables or payables of the Funds generally
accruing in connection with the purchase or sale of their portfolio securities.
Position hedging is the sale of foreign currency with respect to portfolio
security positions denominated or quoted in the currency. An Underlying Fund may
not position hedge with respect to a particular currency to an extent greater
than the aggregate market value (at the time of making such sale) of the
securities held in its portfolio denominated or quoted in or currency
convertible into that particular currency (or another currency or aggregate of
currencies which act as a proxy for that currency). The Underlying Funds may,
however, enter into a position hedging transaction with respect to a currency
other than that held in the Funds' portfolios, if such a transaction is deemed a
hedge. If an Underlying Fund enters into this type of hedging transaction,
liquid assets will be placed in a segregated account in an amount equal to the
value of the Fund's total assets committed to the consummation of the forward
contract. If the value of the securities placed in the segregated account
declines, additional liquid assets will be placed in the account so that the
value of the account will equal the amount of the Underlying Fund's commitment
with respect to the contract. Hedging transactions may be made from any foreign
currency into US dollars or into other appropriate currencies.
At or before the maturity of a forward foreign currency contract, an
Underlying Fund may either sell a portfolio security and make delivery of the
currency, or retain the security and offset its contractual obligation to
deliver the currency by purchasing a second contract pursuant to which the
Underlying Fund will obtain, on the same maturity date, the same amount of the
currency which it is obligated to deliver. If the Underlying Fund retains the
portfolio security and engages in an offsetting transaction, the Fund, at the
time of execution of the offsetting transaction, will incur a gain or a loss to
the extent that movement has occurred in forward currency contract prices.
Should forward prices decline during the period between the Fund's entering into
a forward contract for the sale of a currency and the date that it enters into
an offsetting contract for the purchase of the currency, the Fund will realize a
gain to the extent that the price of the currency that it has agreed to sell
exceeds the price of the currency that it has agreed to purchase. Should forward
prices increase, the Underlying Fund will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency that it has agreed to sell. There can be no assurance that new forward
currency or offsets will be available to a Fund.
Upon maturity of a forward currency contract, the Underlying Funds may
(a) pay for and receive, or deliver and be paid for, the underlying currency,
(b) negotiate with the dealer to roll over the contract into a new forward
currency contract with a new future settlement date or (c) negotiate with the
dealer to terminate the forward contract by entering into an offset with the
currency trader whereby the parties agree to pay for and receive the difference
between the exchange rate fixed in the contract and the then current exchange
rate. An Underlying Fund also may be able to negotiate such an offset prior to
maturity of the original forward contract. There can be no assurance that new
forward contracts or offsets will always be available to the Underlying Funds.
The cost to an Underlying Fund of engaging in currency transactions
varies with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because transactions in
currency exchange are usually conducted on a principal basis, no fees or
commissions are involved. The use of forward foreign
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currency contracts does not eliminate fluctuations in the underlying prices of
the securities, but it does establish a rate of exchange that can be achieved in
the future. In addition, although forward foreign currency contracts limit the
risk of loss due to a decline in the value of the hedged currency, at the same
time, they limit any potential gain that might result should the value of the
currency increase.
If a devaluation is generally anticipated, an Underlying Fund may be able
to contract to sell the currency at a price above the devaluation level that it
anticipates. An Underlying Fund will not enter into a currency transaction if,
as a result, it will fail to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), for a given year.
Forward foreign currency contracts are not regulated by the SEC. They are
traded through financial institutions acting as market-makers. In the forward
foreign currency market, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Moreover, a trader of forward contracts could lose amounts
substantially in excess of its initial investments, due to the collateral
requirements associated with such positions.
The market for forward currency contracts may be limited with respect to
certain currencies. These factors will restrict an Underlying Fund's ability to
hedge against the risk of devaluation of currencies in which the Fund holds a
substantial quantity of securities and are unrelated to the qualitative rating
that may be assigned to any particular portfolio security. Where available, the
successful use of forward contracts draws upon a money manager's special skills
and experience with respect to such instruments and usually depends on the money
manager's ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, a
Fund may not achieve the anticipated benefits of forward contracts or may
realize losses and thus be in a worse position than if such strategies had not
been used. Unlike many exchange-traded futures contracts and options on futures
contracts, there are no daily price fluctuation limits with respect to forward
contracts, and adverse market movements could therefore continue to an unlimited
extent over a period of time. In addition, the correlation between movements in
the prices of such instruments and movements in the price of the securities and
currencies hedged or used for cover will not be perfect. In the case of proxy
hedging, there is also a risk that the perceived linkage between various
currencies may not be present or may not be present during the particular time
the Underlying Funds are engaged in that strategy.
An Underlying Fund's ability to dispose of its positions in forward
contracts will depend on the availability of active markets in such instruments.
It is impossible to predict the amount of trading interest that may exist in
various types of forward contracts. Forward foreign currency contracts may be
closed out only by the parties entering into an offsetting contract. Therefore,
no assurance can be given that an Underlying Fund will be able to utilize these
instruments effectively for the purposes set forth above.
Forward foreign currency transactions are subject to the additional risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected by (1)
other complex foreign, political, legal and economic factors, (2) lesser
availability than in the United States of data on which to make trading
decisions, (3) delays in an Underlying Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, (5) lesser trading
volume and (6) that a perceived linkage between various currencies may not
persist throughout the duration of the contracts
DEPOSITORY RECEIPTS. An Underlying Fund may hold securities of foreign
issuers in the form of American Depository Receipts ("ADRs"), American
Depository Shares ("ADSs") and European Depository Receipts ("EDRs"), or other
securities convertible into securities of eligible European or Far Eastern
issuers. These securities may not necessarily be denominated in the same
currency as the securities for which they may be exchanged. ADRs and ADSs
typically are issued by an American bank or trust company and evidence ownership
of underlying securities issued by a foreign corporation. EDRs, which are
sometimes referred to as Continental Depository Receipts ("CDRs"), are issued in
Europe typically by foreign banks and trust companies and evidence ownership of
either foreign or domestic securities. Generally, ADRs and ADSs in registered
form are designed for use in United States securities markets and EDRs in bearer
form are designed for use in European securities markets. For purposes of an
Underlying Fund's investment policies, the Underlying Fund's investments in
ADRs, ADSs and EDRs will be deemed to be investments in the equity securities
representing securities of foreign issuers into which they may be converted.
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ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respect
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions, and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders with respect to the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
Underlying Funds may invest in sponsored and unsponsored ADRs.
BANK INSTRUMENTS. The Diversified Bond, Short Term Bond and Multistrategy
Bond Funds may invest in bank instruments, which include European certificates
of deposit ("ECDs"), European time deposits ("ETDs") and Yankee Certificates of
deposit ("Yankee CDs"). ECDs, ETDs, and Yankee CDs are subject to somewhat
different risks from the obligations of domestic banks. ECDs are dollar
denominated certificates of deposit issued by foreign branches of US and foreign
banks; ETDs are US dollar denominated time deposits in a foreign branch of a US
bank or a foreign bank; and Yankee CDs are certificates of deposit issued by a
US branch of a foreign bank denominated in US dollars and held in the United
States. Different risks may also exist for ECDs, ETDs, and Yankee CDs because
the banks issuing these instruments, or their domestic or foreign branches, are
not necessarily subject to the same regulatory requirements that apply to
domestic banks, such as reserve requirements, loan limitations, examinations,
accounting, auditing and recordkeeping, and the public availability of
information. These factors will be carefully considered by the money managers
when evaluating credit risk in the selection of investments.
INDEXED COMMERCIAL PAPER. Indexed commercial paper is US-dollar denominated
commercial paper the yield of which is linked to certain foreign exchange rate
movements. The yield to the investor on indexed commercial paper is established
at maturity as a function of spot exchange rates between the US dollar and a
designated currency as of or about that time. The yield to the investor will be
within a range stipulated at the time of purchase of the obligation, generally
with a guaranteed minimum rate of return that is below, and a potential maximum
rate of return that is above, market yields on US-dollar denominated commercial
paper, with both the minimum and maximum rates of return on the investment
corresponding to the minimum and maximum values of the spot exchange rate two
business days prior to maturity. While such commercial paper entails risk of
loss of principal, the potential risk for realizing gains as a result of changes
in foreign currency exchange rates enables a Fund to hedge (or cross-hedge)
against a decline in the US dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return. Currently
only the Multistrategy Bond Fund intends to invest in indexed commercial paper,
and then only for hedging purposes.
US GOVERNMENT OBLIGATIONS. The types of US government obligations the
Underlying Funds may purchase include: (1) a variety of US Treasury obligations
which differ only in their interest rates, maturities and times of issuance: (a)
US Treasury bills at time of issuance have maturities of one year or less, (b)
US Treasury notes at time of issuance have maturities of one to ten years and
(c) US Treasury bonds at time of issuance generally have maturities of greater
than ten years; (2) obligations issued or guaranteed by US government agencies
and instrumentalities and supported by any of the following: (a) the full faith
and credit of the US Treasury (such as Government National Mortgage Association
("GNMA") participation certificates), (b) the right of the issuer to borrow an
amount limited to a specific line of credit from the US Treasury, (c)
discretionary authority of the US government agency or instrumentality or (d)
the credit of the instrumentality (examples of agencies and instrumentalities
are: Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks and
Federal National Mortgage Association). No assurance can be given that the US
government will provide financial support to such US government agencies or
instrumentalities described in (2)(b), (2)(c) and (2)(d) in the future, other
than as set forth above, since it is not obligated to do so by law. Accordingly,
such US government obligations may involve risk of loss of principal and
interest. The
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Underlying Funds may invest in fixed-rate and floating or variable rate US
government obligations. The Underlying Funds may purchase US government
obligations on a forward commitment basis.
VARIABLE AND FLOATING RATE SECURITIES. A floating rate security is one
whose terms provide for the automatic adjustment of an interest rate whenever a
specified interest rate changes. A variable rate security is one whose terms
provide for the automatic establishment of a new interest rate on set dates. The
interest rate on floating rate securities is ordinarily tied to and is a
percentage of the prime rate of a specified bank or some similar objective
standard, such as 90-day US Treasury Bill rate, and may change as often as twice
daily. Generally, changes in interest rates on floating rate securities will
reduce changes in the securities' market value from the original purchase price
resulting in the potential for capital appreciation or capital depreciation
being less than for fixed-income obligations with a fixed interest rate.
ZERO COUPON SECURITIES. Zero coupon securities are notes, bonds and
debentures that (1) do not pay current interest and are issued at a substantial
discount from par value, (2) have been stripped of their unmatured interest
coupons and receipts or (3) pay no interest until a stated date one or more
years into the future. These securities also include certificates representing
interests in such stripped coupons and receipts. Zero coupon securities trade at
a discount from their par value and are subject to greater fluctuations of
market value in response to changing interest rates.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES. The forms of mortgage
related and other asset-backed securities the Underlying Funds may invest in
include the securities described below:
MORTGAGE PASS-THROUGH SECURITIES. Mortgage pass-through securities are
securities representing interests in "pools" of mortgages in which payments of
both interest and principal on the securities are generally made monthly. The
securities are "pass-through" securities because they provide investors with
monthly payments of principal and interest which in effect are a "pass-through"
of the monthly payments made by the individual borrowers on the underlying
mortgages, net of any fees paid to the issuer or guarantor. The principal
governmental issuer of such securities is the GNMA, which is a wholly-owned US
government corporation within the Department of Housing and Urban Development.
Government-related issuers include the Federal Home Loan Mortgage Corporation
("FHLMC"), a corporate instrumentality of the United States created pursuant to
an Act of Congress, and which is owned entirely by the Federal Home Loan Banks,
and the Federal National Mortgage Association ("FNMA"), a government sponsored
corporation owned entirely by private stockholders. Commercial banks, savings
and loan institutions, private mortgage insurance companies, mortgage bankers
and other secondary market issuers also create pass-through pools of
conventional residential mortgage loans. Such issuers may be the originators
of the underlying mortgage loans as well as the guarantors of the
mortgage-related securities.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are hybrid instruments with characteristics of both mortgage-backed
bonds and mortgage pass-through securities. Similar to a bond, interest and
prepaid principal on a CMO are paid, in most cases, monthly. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA. CMOs are structured into multiple classes (or "tranches"), with each class
bearing a different stated maturity.
ASSET-BACKED SECURITIES. Asset-backed securities represent undivided
fractional interests in pools of instruments, such as consumer loans, and are
similar in structure to mortgage-related pass-through securities. Payments of
principal and interest are passed through to holders of the securities and are
typically supported by some form of credit enhancement, such as a letter of
credit, surety bond, limited guarantee by another entity or by priority to
certain of the borrower's other securities. The degree of enhancement varies,
generally applying only until exhausted and covering only a fraction of the
security's par value. If the credit enhancement held by an Underlying Fund has
been exhausted, and if any required payments of principal and interest are not
made with respect to the underlying loans, the Underlying Fund may experience
loss or delay in receiving payment and a decrease in the value of the security.
RISK FACTORS. Prepayment of principal on mortgage or asset-backed
securities may expose an Underlying Fund to a lower rate of return upon
reinvestment of principal. Also, if a security subject to prepayment has been
purchased at a premium, in the event of prepayment the value of the premium
would be lost. Like other fixed-income securities, the value of mortgage-related
securities is affected by fluctuations in interest rates.
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LOAN PARTICIPATIONS. The Funds may purchase participations in commercial
loans. Such indebtedness may be secured or unsecured. Loan participations
typically represent direct participation in a loan to a corporate borrower, and
generally are offered by banks or other financial institutions or lending
syndicates. In purchasing the loan participations, a Fund assumes the credit
risk associated with the corporate buyer and may assume the credit risk
associated with the interposed bank or other financial intermediary. The
participation may not be rated by a nationally recognized rating service.
Further, loan participations may not be readily marketable and may be subject to
restrictions on resale.
MUNICIPAL OBLIGATIONS. "Municipal obligations" are debt obligations issued
by states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multi-state agencies or authorities the interest from which is exempt from
federal income tax in the opinion of bond counsel to the issuer. Municipal
obligations include debt obligations issued to obtain funds for various public
purposes and certain industrial development bonds issued by or on behalf of
public authorities. Municipal obligations are classified as general obligation
bonds, revenue bonds and notes.
MUNICIPAL BONDS. Municipal bonds generally have maturities of more than
one year when issued and have two principal classifications - General Obligation
Bonds and Revenue Bonds.
GENERAL OBLIGATION BONDS - are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and
interest.
REVENUE BONDS - are payable only from the revenues derived from a
particular facility or group of facilities or from the proceeds of
special excise or other specific revenue service.
INDUSTRIAL DEVELOPMENT BONDS - are a type of revenue bond and do not
generally constitute the pledge of credit of the issuer of such bonds.
The payment of the principal and interest on such bonds is dependent on
the facility's user to meet its financial obligations and the pledge,
if any, of real and personal property financed as security for such
payment. Industrial development bonds are issued by or on behalf of
public authorities to raise money to finance public and private
facilities for business, manufacturing, housing, ports, pollution
control, airports, mass transit and other similar type projects.
MUNICIPAL NOTES. Municipal notes generally have maturities of one year or
less when issued and are used to satisfy short-term capital needs. Municipal
notes include:
TAX ANTICIPATION NOTES - are issued to finance working capital needs of
municipalities and are generally issued in anticipation of future tax
revenues.
BOND ANTICIPATION NOTES - are issued in expectation of a municipality
issuing a long-term bond in the future. Usually the long-term bonds
provide the money for the repayment of the notes.
REVENUE ANTICIPATION NOTES - are issued in expectation of receipt of
other types of revenues such as certain federal revenues.
CONSTRUCTION LOAN NOTES - are sold to provide construction financing
and may be insured by the Federal Housing Administration. After
completion of the project, FNMA or GNMA frequently provides permanent
financing.
PRE-REFUNDED MUNICIPAL BONDS - are bonds no longer secured by the
credit of the issuing entity, having been escrowed with US Treasury
securities as a result of a refinancing by the issuer. The bonds are
escrowed for retirement either at original maturity or at an earlier
call date.
TAX FREE COMMERCIAL PAPER - is a promissory obligation issued or
guaranteed by a municipal issuer and frequently accompanied by a letter
of credit of a commercial bank. It is used by agencies of state and
local governments to finance seasonal working capital needs, or as
short-term financing in anticipation of long-term financing.
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TAX FREE FLOATING AND VARIABLE RATE DEMAND NOTES - are municipal
obligations backed by an obligation of a commercial bank to the issuer
thereof which allows the issuer to issue securities with a demand
feature, which, when exercised, usually becomes effective within thirty
days. The rate of return on the notes is readjusted periodically
according to some objective standard such as changes in a commercial
bank's prime rate.
TAX FREE PARTICIPATION CERTIFICATES - are tax free floating, or
variable rate demand notes which are issued by a bank, insurance
company or other financial institution or affiliated organization that
sells a participation in the note. They are usually purchased by the
Tax Exempt Bond and Tax Free Money Market Funds to maintain liquidity.
The Funds' money managers will continually monitor the pricing, quality
and liquidity of the floating and variable rate demand instruments held
by the Funds, including the participation certificates.
A participation certificate gives a Fund an undivided interest in the
municipal obligation in the proportion that the Fund's participation
interest bears to the total principal amount of the municipal
obligation and provides the demand feature described below. Each
participation is backed by: an irrevocable letter of credit or guaranty
of a bank which may be the bank issuing the participation certificate,
a bank issuing a confirming letter of credit to that of the issuing
bank, or a bank serving as agent of the issuing bank with respect to
the possible repurchase of the certificate of participation; or
insurance policy of an insurance company that the money manager has
determined meets the prescribed quality standards for the Fund. The
Fund has the right to sell the participation certificate back to the
institution and draw on the letter of credit or insurance on demand
after thirty days' notice for all or any part of the full principal
amount of the Fund's participation interest in the security plus
accrued interest. The Funds' money managers intend to exercise the
demand feature only (1) upon a default under the terms of the bond
documents, (2) as needed to provide liquidity to the Funds in order to
make redemptions of Fund Shares, or (3) to maintain the required
quality of its investment portfolios.
The institutions issuing the participation certificates will retain a
service and letter of credit fee and a fee for providing the demand
feature, in an amount equal to the excess of the interest paid on the
instruments over the negotiated yield at which the participations were
purchased by a Fund. The total fees generally range from 5% to 15% of
the applicable prime rate or other interest rate index. The Fund will
attempt to have the issuer of the participation certificate bear the
cost of the insurance. The Fund retains the option to purchase
insurance if necessary, in which case the cost of insurance will be a
capitalized expense of the Fund.
DEMAND NOTES. The Tax Exempt Bond and Tax Free Money Market Funds may
purchase municipal obligations with the right to a "put" or "stand- by
commitment." A "put" on a municipal obligation obligates the seller of the put
to buy within a specified time and at an agreed upon price a municipal
obligation the put is issued with. A stand-by commitment is similar to a put
except the seller of the commitment is obligated to purchase the municipal
obligation on the same day the Fund exercises the commitment and at a price
equal to the amortized cost of the municipal obligation plus accrued interest.
The seller of the put or stand-by commitment may be the issuer of the municipal
obligation, a bank or broker-dealer.
The Funds will enter into put and stand-by commitments with institutions
such as banks and broker-dealers that the Funds' money managers continually
believe satisfy the Funds' credit quality requirements. The ability of the Funds
to exercise the put or stand-by commitment may depend on the seller's ability to
purchase the securities at the time the put or stand-by commitment is exercised
or on certain restrictions in the buy back arrangement. Such restrictions may
prohibit the Funds from exercising the put or stand-by commitment except to
maintain portfolio flexibility and liquidity. In the event the seller would be
unable to honor a put or stand-by commitment for financial reasons, the Funds
may, in the opinion of Funds' management, be a general creditor of the seller.
There may be certain restrictions in the buy back arrangement which may not
obligate the seller to repurchase the securities. (See, "Certain Investments --
Municipal Notes -- Tax Free Participation Certificates.")
The Tax Exempt Bond and Tax Free Money Market Funds may purchase from
issuers floating or variable rate municipal obligations some of which are
subject to payment of principal by the issuer on demand by the Funds (usually
not more than thirty days' notice). The Funds may also purchase floating or
variable rate municipal obligations or participations therein from banks,
insurance companies or other financial institutions which are owned
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by such institutions or affiliated organizations. Each participation is usually
backed by an irrevocable letter of credit, or guaranty of a bank or insurance
policy of an insurance company.
INTEREST RATE TRANSACTIONS. The Short Term Bond and Multistrategy Bond
Funds may enter into interest rate swaps, on either an asset-based or
liability-based basis, depending on whether they are hedging their assets or
their liabilities, and will usually enter into interest rate swaps on a net
basis, i.e., the two payment streams are netted out, with the Funds receiving or
paying, as the case may be, only the net amount of the two payments. When a Fund
engages in an interest rate swap, it exchanges its obligations to pay or rights
to receive interest payments for the obligations or rights to receive interest
payments of another party (i.e., an exchange of floating rate payments for fixed
rate payments). The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of their
portfolios or to protect against any increase in the price of securities they
anticipate purchasing at a later date. Inasmuch as these hedging transactions
are entered into for good faith hedging purposes, the money managers and the
Funds believe such obligations do not constitute senior securities and,
accordingly, will not treat them as being subject to the Funds' borrowing
restrictions. The net amount of the excess, if any, of the Funds' obligations
over their entitlements with respect to each interest rate swap will be accrued
on a daily basis and an amount of cash or liquid high-grade debt securities
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Funds' custodian. To the extent that
the Funds enter into interest rate swaps on other than a net basis, the amount
maintained in a segregated account will be the full amount of the Funds'
obligations, if any, with respect to such interest rate swaps, accrued on a
daily basis. The Funds will not enter into any interest rate swaps unless the
unsecured senior debt or the claims-paying ability of the other party thereto is
rated in the highest rating category of at least one nationally recognized
rating organization at the time of entering into such transaction. If there is a
default by the other party to such a transaction, the Funds will have
contractual remedies pursuant to the agreement related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid.
The use of interest rate swaps is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If a money manager using this
technique is incorrect in its forecast of market values, interest rates and
other applicable factors, the investment performance of a Fund would diminish
compared to what it would have been if this investment technique was not used.
A Fund may only enter into interest rate swaps to hedge its portfolio.
Interest rate swaps do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that the
Funds are contractually obligated to make. If the other party to an interest
rate swap defaults, the Funds' risk of loss consists of the net amount of
interest payments that the Funds are contractually entitled to receive. Since
interest rate swaps are individually negotiated, the Funds expect to achieve an
acceptable degree of correlation between their rights to receive interest on
their portfolio securities and their rights and obligations to receive and pay
interest pursuant to interest rate swaps.
INVESTMENT IN FOREIGN SECURITIES. The Funds may invest in foreign
securities traded on US or foreign exchanges or in the over-the-counter market.
Investing in securities issued by foreign governments and corporations involves
considerations and possible risks not typically associated with investing in
obligations issued by the US government and domestic corporations. Less
information may be available about foreign companies than about domestic
companies, and foreign companies generally are not subject to the same uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic companies.
The values of foreign investments are affected by changes in currency rates or
exchange control regulations, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than
in the United States. Investments in foreign countries could be affected by
other factors not present in the United States, including nationalization,
expropriation, confiscatory taxation, lack of uniform accounting and auditing
standards and potential difficulties in enforcing contractual obligations and
could be subject to extended settlement periods or restrictions affecting the
prompt return of capital to the United States.
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INVESTMENT IN EMERGING MARKETS. Foreign investment may include emerging
market debt. Emerging markets consist of countries determined by the money
managers of the Fund to have developing or emerging economies and markets. These
countries generally include every country in the world except the United States,
Canada, Japan, Australia and most countries located in Western Europe. The Funds
may invest in the following types of emerging market debt -- bonds; notes and
debentures of emerging market governments; debt and other fixed-income
securities issued or guaranteed by emerging market government agencies,
instrumentalities or central banks; and other fixed-income securities issued or
guaranteed by banks or other companies in emerging markets which the money
managers believe are suitable investments for the Funds. The risks associated
with investing in foreign securities are often heightened for investments in
developing or emerging markets. Investments in emerging or developing markets
involve exposure to economic structures that are generally less diverse and
mature, and to political systems which can be expected to have less stability,
than those of more developed countries. Moreover, the economies of individual
emerging market countries may differ favorably or unfavorably from the US
economy in such respects as the rate of growth in gross domestic product, the
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. Because the Funds' foreign securities will generally be
denominated in foreign currencies, the value of such securities to the Funds
will be affected by changes in currency exchange rates and in exchange control
regulations. A change in the value of a foreign currency against the US dollar
will result in a corresponding change in the US dollar value of the Funds'
foreign securities. In addition, some emerging market countries may have fixed
or managed currencies which are not free-floating against the US dollar.
Further, certain emerging market countries' currencies may not be
internationally traded. Certain of these currencies have experienced a steady
devaluation relative to the US dollar. Many emerging market countries have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had,
and may continue to have, negative effects on the economies and securities
markets of certain emerging market countries.
FOREIGN GOVERNMENT SECURITIES. Foreign government securities which the
Underlying Funds may invest in generally consist of obligations issued or backed
by the national, state or provincial government or similar political
subdivisions or central banks in foreign countries. Foreign government
securities also include debt obligations of supranational entities, which
include international organizations designated or backed by governmental
entities to promote economic reconstruction or development, international
banking institutions and related government agencies. These securities also
include debt securities of "quasi-government agencies" and debt securities
denominated in multinational currency units of an issuer.
OTHER DEBT SECURITIES. Multistrategy Bond Fund may invest in debt
securities issued by supranational organizations such as:
THE WORLD BANK -- An international bank which was chartered to finance
development projects in developing member countries.
THE EUROPEAN COMMUNITY -- An organization which consists of certain
European states engaged in cooperative economic activities.
THE EUROPEAN COAL AND STEEL COMMUNITY -- An economic union of various
European nations' steel and coal industries.
THE ASIAN DEVELOPMENT BANK -- An international development bank
established to lend funds, promote investment and provide technical
assistance to member nations in the Asian and Pacific regions.
Multistrategy Bond Fund may also invest in debt securities denominated in
the ECU, which is a "basket" consisting of specific amounts of currency of
member states of the European Economic Community. The Counsel of Ministers of
the European Economic Community may adjust specific amounts of currency
comprising the ECU to reflect changes in the relative values of the underlying
currencies. The money managers investing in these securities do not believe that
such adjustments will adversely affect holders of ECU-denominated obligations or
the marketability of the securities.
BRADY BONDS. The Multistrategy Bond Fund may invest in Brady Bonds, the
products of the "Brady Plan," under which bonds are issued in exchange for cash
and certain of a country's outstanding commercial bank loans. The Brady Plan
offers relief to debtor countries that have effected substantial economic
reforms. Specifically, debt reduction and structural reform are the main
criteria countries must satisfy in order to obtain Brady Plan status. Brady
Bonds may be collateralized
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or uncollateralized, are issued in various currencies (primarily US-dollar) and
are actively traded on the over-the-counter market. Brady Bonds have been issued
only recently and accordingly they do not have a long payment history.
TAXES
DISTRIBUTIONS
DISTRIBUTIONS OF NET INVESTMENT INCOME. The Fund of Funds receive income
generally in the form of dividends and interest on their investments. This
income, less expenses incurred in the operation of a Fund of Funds, constitutes
its net investment income from which dividends may be paid to you. Any
distributions by a Fund of Funds from such income will be taxable to you as
ordinary income, whether you take them in cash or in additional Shares.
DISTRIBUTIONS OF CAPITAL GAINS. The Fund of Funds may derive capital gains
and losses in connection with sales or other dispositions of their portfolio
securities which are made up, for the most part, of Shares of the Underlying
Funds. Distributions derived from the excess of net short-term capital gain over
net long-term capital loss will be taxable to you as ordinary income.
Distributions paid from long-term capital gains realized by a Fund of Funds will
be taxable to you as long-term capital gain, regardless of how long you have
held your Shares in the Fund of Funds. Any net short-term or long-term capital
gains realized by a Fund of Funds (net of any capital loss carryovers) generally
will be distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate federal excise or income taxes on a
Fund of Funds.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. Each Fund of Funds will
inform you of the amount and character of your distributions at the time they
are paid, and will advise you of the tax status for federal income tax purposes
of such distributions shortly after the close of each calendar year. If you have
not held a Fund of Funds' Shares for a full year, you may have designated and
distributed to you as ordinary income or capital gain a percentage of income
and/or capital gains that is not equal to the actual amount of such income or
capital gains earned during the period of your investment in a Fund of Funds.
TAXES
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. Each Fund of Funds
has elected to be treated as a regulated investment company under Subchapter M
of the Internal Revenue Code (the "Code"), has qualified as such for its most
recent fiscal year, and intends to so qualify during the current fiscal year. As
a regulated investment company, a Fund of Funds generally pays no federal income
tax on the income and gains it distributes to you. The Board reserves the right
not to maintain the qualification of a Fund of Funds as a regulated investment
company if it determines such course of action to be beneficial to you. In such
case, a Fund of Funds will be subject to federal, and possibly state, corporate
taxes on its taxable income and gains, and distributions to you will be taxed as
ordinary income or capital gains to the extent of a Fund of Funds's available
earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires a Fund of Funds to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its net capital gain income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to you by December 31 of each year in order to avoid federal excise
taxes. Each Fund of Funds intends to declare and pay sufficient dividends in
December (or in January that are treated by you as received in December) but
does not guarantee and can give no assurances that its distributions will be
sufficient to eliminate all such taxes.
REDEMPTION OF FUND SHARES. Redemptions and exchanges of a Fund of Funds'
Shares are taxable transactions for federal and state income tax purposes that
cause you to recognize a gain or loss. If you hold your Shares as a capital
asset, the gain or loss that you realize will be capital gain or loss. Any loss
incurred on the redemption or exchange of Shares held for six months or less
will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to you by a Fund of Funds on those Shares.
Beginning after the year 2005 (2000 for certain shareholders) gain on the
sale or redemption of Shares held more than five years may be subject to a
reduced rate of tax.
All or a portion of any loss that you realize upon the redemption of your
Fund of Funds Shares will be disallowed to the extent that you purchase other
Shares in such Fund of Funds (through reinvestment of dividends or otherwise)
within 30 days before or after your share redemption. Any loss disallowed under
these rules will be added to your tax basis in the new Shares you purchase.
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MONEY MANAGER INFORMATION
FOR THE UNDERLYING FUNDS
DIVERSIFIED EQUITY FUND
ALLIANCE CAPITAL MANAGEMENT L.P. is a limited partnership whose (i)
general partner, Alliance Capital Management Corporation, is a wholly owned
subsidiary of AXA Financial, Inc. (formerly The Equitable Companies
Incorporated) ("AXF") and (ii) majority unit holder is ACMC, Inc., an indirect
wholly owned subsidiary of AXF. AXA, a French insurance company, owns
approximately 58.4% of the common stock of AXF.
BARCLAYS GLOBAL FUND ADVISORS N.A. is a wholly-owned subsidiary of
Barclays Global Investors, N.A.
EQUINOX CAPITAL MANAGEMENT, LLC is 100% employee owned, with majority
ownership held by Ron Ulrich.
JACOBS LEVY EQUITY MANAGEMENT, INC. is owned by Bruce Jacobs and Kenneth
Levy.
MARSICO CAPITAL MANAGEMENT, LLC is owned 50% by Marsico Management
Holdings, LLC and 50% by TFM Holdings, LLLP. Marsico Management Holdings is a
wholly owned subsidiary of Bank of America, N.A. which in turn is a wholly owned
subsidiary of Bank of America Corporation. TFM Holdings, LLLP is a Colorado
limited liability limited partnership whose sole general partner is TFM
Managers, Inc. which is wholly-owned by Thomas F. Marsico.
PEACHTREE ASSET MANAGEMENT is a division of SSB Citi Fund Management LLC.
SSB Citi Fund Management LLC is 100% owned by Salomon Smith Barney Holdings,
Inc. which is a wholly owned subsidiary of Citigroup Inc.
SANFORD C. BERNSTEIN & CO., INC. is controlled by its Board of Directors.
The Board consists of Lewis A. Sanders, Roger Hertog, Andrew S. Adelson, Kevin
R. Brine, Charles C. Cahn, Jr., Marilyn G. Fedak, Arthur W. Fried, Michael L.
Goldstein, Thomas S. Hexner, Jerry M. Lieberman, Marc O. Mayer, Jean M. Reid and
Francis H. Trainer, Jr.
STRONG CAPITAL MANAGEMENT, INC. is a corporation controlled by Richard S.
Strong.
SUFFOLK CAPITAL MANAGEMENT, INC. is a wholly owned subsidiary of United
Asset Management Company, a publicly traded corporation.
TURNER INVESTMENT PARTNERS INC. is a corporation controlled by Robert E.
Turner.
WESTPEAK INVESTMENT ADVISORS, LP is a wholly-owned subsidiary of Nvest
Companies, L.P. ("Nvest Companies"). Nvest Companies' managing general partner,
Nvest Corporation, is an indirect, wholly-owned subsidiary of Metropolitan Life
Insurance Company ("MetLife"), which also owned, as of January 31, 1999,
approximately 48% of the limited partnership interests in Nvest Companies. Nvest
Companies' advising general partner, Nvest, L.P., is a publicly-traded company
listed on the New York Stock Exchange.
SPECIAL GROWTH FUND
CAPITALWORKS INVESTMENT PARTNERS, LLC is a liability company controlled by
its members who include John D. Wylie, Jack C. Marshall, Mark J. Correnti and
Donovan T. Garcia.
DELPHI MANAGEMENT, INC. is 100% owned by Scott Black.
FIDUCIARY INTERNATIONAL, INC. is an indirect wholly-owned subsidiary of
Fiduciary Trust Company International, a New York state chartered bank.
GLOBEFLEX CAPITAL, L.P. is a California limited partnership. Its general
partners are Robert J. Anslow, Jr. and Marina L. Marrelli.
JACOBS LEVY EQUITY MANAGEMENT, INC. See: Diversified Equity Fund.
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SIRACH CAPITAL MANAGEMENT, INC. is a wholly-owned subsidiary of United
Asset Management Company, a publicly traded corporation.
WESTPEAK INVESTMENT ADVISORS, L.P. See: Diversified Equity Fund.
QUANTITATIVE EQUITY FUND
BARCLAYS GLOBAL FUND ADVISORS. See: Diversified Equity Fund.
FRANKLIN PORTFOLIO ASSOCIATES LLC is a Massachusetts limited liability
company owned by Mellon Financial Corporation.
J.P. MORGAN INVESTMENT MANAGEMENT, INC. is a wholly owned subsidiary of
J.P. Morgan & Co., Inc., a publicly held bank holding company.
JACOBS LEVY EQUITY MANAGEMENT, INC. See: Diversified Equity Fund.
INTERNATIONAL SECURITIES FUND
DELAWARE INTERNATIONAL ADVISERS LIMITED is an indirect, wholly-owned
subsidiary of Lincoln National Corporation, a publicly traded company.
FIDELITY MANAGEMENT TRUST COMPANY is a wholly-owned subsidiary of FMR
Corp. Members of the Edward C. Johnson 3rd family are predominant owners of a
class of shares of common stock representing approximately 49% of the voting
power of FMR Corp.
J.P. MORGAN INVESTMENT MANAGEMENT, INC. See: Quantitative Equity Fund.
MASTHOLM ASSET MANAGEMENT, LLC is a Washington limited liability company
that is controlled by the following members: Douglas R. Allen, Thomas M. Garr,
Robert L. Gernstetter, Joseph P. Jordan, Arthur M. Tyson and Theordore J. Tyson.
MONTGOMERY ASSET MANAGEMENT LLC is a Delaware limited liability company
with majority ownership held by Commerzbank AG, a foreign banking organization.
OECHSLE INTERNATIONAL ADVISORS is a Delaware limited liability company
that is controlled by its member manager, Oechsle Group, LLC, a Delaware limited
liability company. Oechsle Group, LLC is controlled by the following members: S.
Dewey Keesler, Stephen P. Langer, L. Sean Roche and Warren R. Walker.
SANFORD C. BERNSTEIN & CO., INC. See: Diversified Equity Fund.
THE BOSTON COMPANY ASSET MANAGEMENT, LLC is a wholly owned, indirect
subsidiary of Mellon Financial Corporation, a publicly held corporation.
DIVERSIFIED BOND FUND
LINCOLN CAPITAL MANAGEMENT COMPANY is over 50% owned by John Cole, Dave
Fowler, Jay Freedman, Parker Hall, Peter Knez, Kenneth Meyer and Alan Sebulsky.
PACIFIC INVESTMENT MANAGEMENT COMPANY ("PIMCO") is a subsidiary of PIMCO
Advisors L.P. ("PIMCO Advisors"). The general partners of PIMCO Advisors are
PIMCO Partners, G.P. and PIMCO Advisors Holdings L.P. ("PAH"). PIMCO Partners,
G.P. is a general partnership between PIMCO Holding LLC, a Delaware limited
liability company and indirect wholly-owned subsidiary of Pacific Life Insurance
Company, and PIMCO Partners LLC, a California limited liability company
controlled by the current PIMCO Managing Directors and two former Managing
Directors of PIMCO. PIMCO Partners, G.P. is the sole general partner of PAH. It
is expected that on or about May 5,
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2000, Allianz of America, Inc., ("A of A") will acquire (the "Acquisition")
majority ownership of PIMCO Advisors and its subsidiaries, including PIMCO.
After the closing of the Acquisition, A of A will own approximately 70% of the
outstanding partnership interests in PIMCO Advisors. Pacific Life Insurance
Company will retain its approximately 30% interest in an indirect general
partner of PIMCO Advisors. In connection with the Acquisition, A of A will enter
into a put/call arrangement for the possible disposition of Pacific Life
Insurance Company's indirect interest in PIMCO Advisors.
STANDISH, AYER & WOOD, INC. is organized as a Sub-chapter S Corporation
and is 100% owned by its twenty-five directors, with no director having more
than 25% ownership.
SHORT TERM BOND FUND
BLACKROCK FINANCIAL MANAGEMENT operates as a partially owned independent
subsidiary of the PNC Bank. On October 1, 1999 the firm completed an initial
public offering ("IPO") of its common stock. Currently, 14% of BlackRock stock
is publicly held, PNC Bank owns approximately 70%, and BlackRock's employees own
16%.
STANDISH, AYER & WOOD, INC. See: Diversified Bond Fund.
STW FIXED INCOME MANAGEMENT LTD. is a Bermuda exempted company. William H.
Williams III is the sole shareholder.
MULTISTRATEGY BOND FUND
LAZARD ASSET MANAGEMENT is a division of Lazard Freres & Co. LLC (LF&Co) a
broker/dealer which is a New York limited liability company.
MILLER, ANDERSON & SHERRERD, LLP ("MAS") is a Pennsylvania limited
liability partnership. MAS is wholly-owned by indirect subsidiaries of Morgan
Stanley Dean Witter & Co., and is a division of Morgan Stanley Dean Witter
Investment Management.
PACIFIC INVESTMENT MANAGEMENT COMPANY. See: Diversified Bond Fund.
STANDISH, AYER & WOOD, INC. See: Diversified Bond Fund.
REAL ESTATE SECURITIES FUND
AEW CAPITAL MANAGEMENT, L.P. is a wholly-owned affiliate of Nvest
Companies, L.P. ("Nvest"). Nvest is a publicly held limited partnership.
Metropolitan Life Insurance Company owns approximately 48% of Nvest. AEW Capital
Management, Inc., a wholly-owned subsidiary of Nvest Holdings, Inc., is the
general partner, and Nvest is the sole limited partner of AEW Capital
Management, L.P.
COHEN & STEERS CAPITAL MANAGEMENT is a corporation whose two principals,
Robert H. Steers and Martin Cohen, control the corporation within the meaning of
the 1940 Act.
SECURITY CAPITAL GLOBAL CAPITAL MANAGEMENT GROUP INCORPORATED is an
indirect, wholly-owned subsidiary of Security Capital, a publicly traded
corporation.
EMERGING MARKETS FUND
FOREIGN & COLONIAL EMERGING MARKETS LIMITED is a wholly-owned subsidiary
of Hypo Foreign & Colonial Management (Holding) Limited ("HFCM"), the holding
company of the Foreign & Colonial Group of Fund managers. HFCM is controlled by
Bayerische Hypo-und Vereinsbank AG, the second largest commercial bank in
Germany.
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GENESIS ASSET MANAGERS LIMITED is a limited liability company organized
under the laws of the state of Guernsey, the Channel Islands. Genesis Asset
Managers Limited is affiliated with and has common investment executives with
the Genesis Group of fund management companies. The Genesis Group, whose holding
company is Genesis Holdings International Limited, is controlled 55% by
management and associated interests, and the balance held by outside
shareholders, with the largest single holding being 15%.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT is a California limited partnership
whose general partner is Nicholas-Applegate Capital Management Holdings, L.P., a
California limited partnership whose general partner is Nicholas-Applegate
Capital Management Holdings, Inc., a California corporation controlled by Arthur
E. Nicholas.
SANFORD C. BERNSTEIN & CO. INC. See: Diversified Equity Fund.
SCHRODERS INVESTMENT MANAGEMENT NORTH AMERICA LIMITED is 100% owned by
Schroders plc, which is publicly traded on the London Stock Exchange.
TAX-MANAGED LARGE CAP
J.P. MORGAN INVESTMENT MANAGEMENT INC. See: Quantitative Equity Fund.
TAX-MANAGED SMALL CAP
GEEWAX, TERKER & COMPANY is a general partnership with its general
partners, John J. Geewax and Bruce E Terker, each owning 50% of the firm.
RATINGS OF DEBT INSTRUMENTS
CORPORATE AND MUNICIPAL BOND RATINGS.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S):
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great period of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
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Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time
may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal and interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification in its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic
category; the modifier 2 indicates a mid-range ranking; and modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS GROUP ("S&P"):
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. While bonds with this rating normally
exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than debt in
higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB -- Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual implied BBB- rating.
B -- Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC -- Bonds rated CCC have a currently identifiable vulnerability to
default, and are dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B-
rating.
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CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating. The C rating
has been used to cover a situation where a bankruptcy petition has been
filed but debt service payments are continued.
C1 -- The rating C1 is reserved for income bonds on which no interest is
being paid.
D -- Bonds rated D are in payment default. The D rating is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes such
payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
appropriate category.
Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic issues. The ratings measure the
creditworthiness of the obligor but do not take into account currency
exchange and related uncertainties.
STATE, MUNICIPAL NOTES AND TAX EXEMPT DEMAND NOTES. MOODY'S:
Moody's rating for state, municipal and other short-term obligations will
be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and
long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of
the first importance in bond risk are of lesser importance in the short
run. Symbols used are as follows:
MIG-1 -- Notes bearing this designation are of the best quality, enjoying
strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing or both.
MIG-2 -- Notes bearing this designation are of high quality, with margins
of protection ample although not so large as in the preceding group.
S&P:
A S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
-- Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
S&P assigns "dual" ratings to all long-term debt issues that have as part
of their provisions a variable rate demand or double feature.
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The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature.
The long-term debt rating symbols are used to denote the put option (for
example, "AAA/A-1+") or if the nominal maturity is short, a rating of
"SP-1+/AAA" is assigned.
COMMERCIAL PAPER RATINGS.
MOODY'S:
Commercial paper rated Prime by Moody's is based upon its evaluation of
many factors, including: (l) management of the issuer; (2) the issuer's
industry or industries and the speculative-type risks which may be
inherent in certain areas; (3) the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten
years; (7) financial strength of a parent company and the relationships
which exist with the issue; and (8) recognition by the management of
obligations which may be present or may arise as a result of public
interest questions and preparations to meet such obligations.
Relative differences in these factors determine whether the issuer's
commercial paper is rated Prime-l, Prime-2, or Prime-3.
Prime-1 - indicates a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics: (1) leading market positions
in well established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structures with moderate
reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash
generation; and (5) well established access to a range of financial
markets and assured sources of alternative liquidity.
Prime-2 - indicates a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is
maintained.
S&P:
Commercial paper rated A by S&P has the following characteristics:
liquidity ratios are adequate to meet cash requirements. Long-term senior
debt is rated A or better. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically,
the issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of management
are unquestioned. Relative strength or weakness of the above factors
determine whether the issuer's commercial paper is rated A-l, A-2, or
A-3.
A-1 -- This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation.
A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
DUFF & PHELPS, INC.:
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all
obligations with maturities of under one year, including commercial
paper, the uninsured portion of certificates of deposit, unsecured bank
loans, master notes, bankers' acceptances, irrevocable letters of credit,
and current maturities of long-term debt. Asset-backed commercial paper
is also rated according to this scale.
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Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including
trade credit, bank lines, and the capital markets. An important
consideration is the level of an obligor's reliance on short-term funds
on an ongoing basis.
The distinguishing feature of Duff & Phelps' short-term ratings is the
refinement of the traditional '1' category. The majority of short-term
debt issuers carries the highest rating, yet quality differences exist
within that tier. As a consequence, Duff & Phelps has incorporated
gradations of '1+' (one plus) and '1-' (one minus) to assist investors in
recognizing those differences.
Duff 1+ -- Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources
of funds, is outstanding, and safety is just below risk-free US Treasury
short-term obligations.
Duff 1 -- Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.
Duff 1- -- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are
very small.
Good Grade
Duff 2 -- Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors
are small.
Satisfactory Grade
Duff 3 -- Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
Non-Investment Grade
Duff 4 -- Speculative investment characteristics. Liquidity is not
sufficient to ensure against disruption in debt service. Operating
factors and market access may be subject to a high degree of variation.
Default
Duff 5 -- Issuer failed to meet scheduled principal and/or interest
payments.
IBCA, INC.:
In addition to conducting a careful review of an institution's reports
and published figures, IBCA's analysts regularly visit the companies for
discussions with senior management. These meetings are fundamental to the
preparation of individual reports and ratings. To keep abreast of any
changes that may affect assessments, analysts maintain contact throughout
the year with the management of the companies they cover.
IBCA's analysts speak the languages of the countries they cover, which is
essential to maximize the value of their meetings with management and to
properly analyze a company's written materials. They also have a thorough
knowledge of the laws and accounting practices that govern the operations
and reporting of companies within the various countries.
Often, in order to ensure a full understanding of their position,
companies entrust IBCA with confidential data. While this confidential
data cannot be disclosed in reports, it is taken into account when
assigning ratings. Before dispatch to subscribers, a draft of the report
is submitted to each company to permit correction of any factual errors
and to enable clarification of issues raised.
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IBCA's Rating Committees meet at regular intervals to review all ratings
and to ensure that individual ratings are assigned consistently for
institutions in all the countries covered. Following the Committee
meetings, ratings are issued directly to subscribers. At the same time,
the company is informed of the ratings as a matter of courtesy, but not
for discussion.
A1+ -- Obligations supported by the highest capacity for timely
repayment.
A1 -- Obligations supported by a very strong capacity for timely
repayment.
A2 -- Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
B1 -- Obligations supported by an adequate capacity for timely repayment.
Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher
categories.
B2 -- Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial
conditions.
C1 -- Obligations for which there is an inadequate capacity to ensure
timely repayment.
D1 -- Obligations which have a high risk of default or which are
currently in default.
FITCH INVESTORS SERVICE, INC. ("FITCH"):
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes
and municipal and investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in
a timely manner.
Fitch short-term ratings are as follows:
F-1+ -- Exceptionally strong credit quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1 -- Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated F1+.
F-2 -- Good credit quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned 'F-1+' and 'F-1' ratings.
F-3 -- Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate, however, near-term adverse changes could cause these
securities to be rated below investment grade.
F-5 -- Weak credit quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
D -- Default. Issues assigned this rating are in actual or imminent
payment default.
THOMSON BANKWATCH ("TBW") SHORT-TERM RATINGS:
The TBW Short-Term Ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which
the rating has been assigned.
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These ratings are derived exclusively from a quantitative analysis of
publicly available information. Qualitative judgments have not been
incorporated. The ratings are intended to be applicable to all operating
entities of an organization but there may be in some cases more credit
liquidity and/or risk in one segment of the business than another.
The TBW short-term rating applies only to unsecured instruments that have
a maturity of one year or less, and reflects the likelihood of an
untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
FINANCIAL STATEMENTS
The 1999 annual financial statements of the Fund of Funds, including
notes to the financial statements and financial highlights and the Report of
Independent Accountants, are included in the Fund of Funds Annual Report to
Shareholders. A copy of the Fund of Funds' Annual Report dated December 31, 1999
accompanies this Statement and is incorporated herein by reference.
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GLOSSARY
BANK INSTRUMENTS -- Include certificates of deposit, bankers' acceptances
and time deposits, and may include European certificates of deposit ("ECDs"),
European time deposits ("ETDs") and Yankee certificates of deposit ("Yankee
CDs"). ECDs are dollar denominated certificates of deposit issued by foreign
branches of US and foreign banks; ETDs are US dollar denominated time deposits
in a foreign branch of a US bank or a foreign bank; and Yankee CDs are
certificates of deposit issued by a US branch of a foreign bank denominated is
US dollars and held in the United States.
BRADY BONDS -- Product of the "Brady Plan," under which bonds are issued in
exchange for cash and certain of the country's outstanding commercial bank
loans.
BOARD -- The Board of Trustees of FRIC.
CASH RESERVES -- The Underlying Funds are authorized to invest its cash
reserves (i.e., funds awaiting investment in the specific types of securities to
be acquired by a Fund) in money market instruments and in debt securities of
comparable quality to the Fund's permitted investments. As an alternative to an
Underlying Fund directly investing in money market instruments, the Funds and
their money managers may elect to invest the Fund's cash reserves in FRIC's
Money Market Fund. To prevent duplication of fees, FRIMCo waives its management
fee on that portion of a Fund's assets invested in FRIC's Money Market Fund.
CODE -- Internal Revenue Code of 1986, as amended.
CONVERTIBLE SECURITY -- This is a fixed-income security (a bond or
preferred stock) that may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stock in a
corporation's capital structure but are usually subordinated to similar
non-convertible securities. The price of a convertible security is influenced by
the market value of the underlying common stock.
COVERED CALL OPTION -- A call option is "covered" if the Fund owns the
underlying securities, has the right to acquire the securities without
additional consideration, has collateral assets sufficient to meet its
obligations under the option or owns an offsetting call option.
CUSTODIAN -- State Street Bank and Trust Company, FRIC's custodian and
portfolio accountant.
DEPOSITORY RECEIPTS -- These include American Depository Receipts ("ADRs"),
European Depository Receipts, Global Depository Receipts, and other similar
securities convertible into securities of foreign issuers. ADRs are receipts
typically issued by a United States bank or trust company evidencing ownership
of the underlying securities. Generally, ADRs in registered form are designed
for use in US securities markets.
DERIVATIVES -- These include forward currency exchange contracts, stock
options, currency options, stock and stock index options, futures contracts,
swaps and options on futures contracts on US government and foreign government
securities and currencies.
DISTRIBUTOR -- Russell Fund Distributors, Inc., the organization that sells
the Shares of the Funds under a contract with FRIC.
EQUITY DERIVATIVE SECURITIES -- These include, among other instruments,
options on equity securities, warrants and futures contracts on equity
securities.
FINANCIAL INTERMEDIARY -- A bank trust department, registered investment
adviser, broker-dealer or other financial services organization that has been
selected by FRIMCo or by FRIC's Distributor.
FNMA -- Federal National Mortgage Association.
FORWARD COMMITMENTS -- Each Fund may agree to purchase securities for a
fixed price at a future date beyond customary settlement time (a "forward
commitment" or "when-issued" transaction), so long as the transactions are
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consistent with the Fund's ability to manage its portfolio and meet redemption
requests. When effecting these transactions, liquid assets of a Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
are segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
FORWARD CURRENCY CONTRACTS -- This is a contract individually negotiated
and privately traded by currency traders and their customers and creates an
obligation to purchase or sell a specific currency for an agreed-upon price at a
future date. The Funds generally do not enter into forward contracts with terms
greater than one year, and they typically enter into forward contracts only
under two circumstances. First, if a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the US dollar price of the security by entering into a forward
contract to buy the amount of a foreign currency needed to settle the
transaction. Second, if the Fund's money managers believe that the currency of a
particular foreign country will substantially rise or fall against the US
dollar, the Fund may enter into a forward contract to buy or sell the currency
approximating the value of some or all of the Fund's portfolio securities
denominated in the currency. A Fund will not enter into a forward contract if,
as a result, it would have more than one-third of its assets committed to such
contracts (unless it owns the currency that it is obligated to deliver or has
caused the Custodian to segregate segregable assets having a value sufficient to
cover its obligations). Although forward contracts are used primarily to protect
a Fund from adverse currency movements, they involve the risk that currency
movements will not be accurately predicted.
FRIC -- Frank Russell Investment Company, an open-end management investment
company which is registered with the SEC.
FRIMCO -- Frank Russell Investment Management Company, FRIC's investment
advisor, administrator and transfer and dividend paying agent.
FUNDS-- The 32 investment series of FRIC. Each Fund is considered a
separate registered investment company (or RIC) for federal income tax purposes,
and each Fund has its own investment objective, policies and restrictions.
FUTURES AND OPTIONS ON FUTURES -- An interest rate futures contract is an
agreement to purchase or sell debt securities, usually US government securities,
at a specified date and price. For example, a Fund may sell interest rate
futures contracts (i.e., enter into a futures contract to sell the underlying
debt security) in an attempt to hedge against an anticipated increase in
interest rates and a corresponding decline in debt securities it owns. A Fund
will have collateral assets equal to the purchase price of the portfolio
securities represented by the underlying interest rate futures contracts it has
an obligation to purchase.
GNMA -- Government National Mortgage Association
ILLIQUID SECURITIES -- The Underlying Funds will not purchase or otherwise
acquire any security if, as a result, more than 15% of a Fund's net assets
(taken at current value) would be invested in securities, including repurchase
agreements maturing in more than seven days, that are illiquid because of the
absence of a readily available market or because of legal or contractual resale
restrictions. No Underlying Fund will invest more than 10% of its respective net
assets (taken at current value) in securities of issuers that may not be sold to
the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"). These policies do not include (1) commercial paper issued
under Section 4(2) of the 1933 Act, or (2) restricted securities eligible for
resale to qualified institutional purchasers pursuant to Rule 144A under the
1933 Act that are determined to be liquid by the money managers in accordance
with Board-approved guidelines.
INVESTMENT GRADE -- Investment grade debt securities are those rated within
the four highest grades by S&P (at least BBB) or Moody's (at least Baa), or
unrated debt securities deemed to be of comparable quality by a money manager
using Board-approved guidelines.
LENDING PORTFOLIO SECURITIES -- Each Underlying Fund may lend portfolio
securities with a value of up to 33 1/3% of each Fund's total assets. These
loans may be terminated at any time. A Fund will receive either cash (and agree
to pay a "rebate" interest rate), US government or US government agency
obligations as collateral in an amount equal to at least 102% (for loans of US
securities) or 105% (for non-US securities) of the current market value of the
loaned securities. The collateral is daily "marked-to-market," and the borrower
will furnish additional collateral in the event that the value of the collateral
drops below 100% of the market value of the loaned securities. If the borrower
of the securities fails financially,
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there is a risk of delay in recovery of the securities or loss of rights in the
collateral. Consequently, loans are made only to borrowers which are deemed to
be of good financial standing.
LIQUIDITY PORTFOLIO -- FRIMCo will manage or will select a money manager to
exercise investment discretion for approximately 5%-15% of Diversified Equity,
Special Growth, Quantitative Equity, International Securities, Real Estate
Securities and Emerging Markets Funds' assets assigned to a Liquidity portfolio.
The Liquidity portfolio will be used to temporarily create an equity exposure
for cash balances until those balances are invested in securities or used for
Fund transactions.
MONEY MARKET FUNDS-- Money Market, US Government Money Market and Tax-Free
Money Market Funds, each a Fund of FRIC. Each Money Market Fund seeks to
maintain a stable net asset value of $1 per share.
MOODY'S -- Moody's Investors Service, Inc., an NRSRO
MUNICIPAL OBLIGATIONS -- Debt obligations issued by states, territories and
possessions of the United States and the District of Columbia, and their
political subdivisions, agencies and instrumentalities, or multi-state agencies
or authorities the interest from which is exempt from federal income tax,
including the alternative minimum tax, in the opinion of bond counsel to the
issuer. Municipal obligations include debt obligations issued to obtain funds
for various public purposes as well as certain industrial development bonds
issued by or on behalf of public authorities. Municipal obligations may include
project, tax anticipation, revenue anticipation, bond anticipation, and
construction loan notes; tax-exempt commercial paper; fixed and variable rate
notes; obligations whose interest and principal are guaranteed or insured by the
US government or fully collateralized by US government obligations; industrial
development bonds; and variable rate obligations.
NET ASSET VALUE (NAV)-- The value of a Fund is determined by deducting the
Fund's liabilities from the total assets of the portfolio. The net asset value
per share is determined by dividing the net asset value of the Fund by the
number of its Shares that are outstanding.
NRSRO -- A nationally recognized statistical rating organization, such as
S&P or Moody's
NYSE -- New York Stock Exchange
OPTIONS ON SECURITIES, SECURITIES INDEXES AND CURRENCIES -- A Fund may
purchase call options on securities that it intends to purchase (or on
currencies in which those securities are denominated) in order to limit the risk
of a substantial increase in the market price of such security (or an adverse
movement in the applicable currency). A Fund may purchase put options on
particular securities (or on currencies in which those securities are
denominated) in order to protect against a decline in the market value of the
underlying security below the exercise price less the premium paid for the
option (or an adverse movement in the applicable currency relative to the US
dollar). Prior to expiration, most options are expected to be sold in a closing
sale transaction. Profit or loss from the sale depends upon whether the amount
received is more or less than the premium paid plus transaction costs. A Fund
may purchase put and call options on stock indexes in order to hedge against
risks of stock market or industry-wide stock price fluctuations.
PFIC-- A passive foreign investment company. Emerging Markets Fund may
purchase interests in an issuer that is considered a PFIC under the Code.
PRIME RATE -- The interest rate charged by leading US banks on loans to
their most creditworthy customers
REPURCHASE AGREEMENTS -- An Underlying Fund may enter into repurchase
agreements with a bank or broker-dealer that agrees to repurchase the securities
at the Fund's cost plus interest within a specified time (normally the next
business day). If the party agreeing to repurchase should default and if the
value of the securities held by the Fund (102% at the time of agreement) should
fall below the repurchase price, the Fund could incur a loss. Subject to the
overall limitations described in "Illiquid Securities" in this Glossary, a Fund
will not invest more than 15% of its net assets (taken at current market value)
in repurchase agreements maturing in more than seven days.
REVERSE REPURCHASE AGREEMENTS -- A Fund may enter into reverse repurchase
agreements to meet redemption requests when a money manager determines that
selling portfolio securities would be inconvenient or disadvantageous. A reverse
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repurchase agreement is a transaction where a Fund transfers possession of a
portfolio security to a bank or broker-dealer in return for a percentage of the
portfolio security's market value. The Fund retains record ownership of the
transferred security, including the right to receive interest and principal
payments. At an agreed upon future date, the Fund repurchases the security by
paying an agreed upon purchase price plus interest. Liquid assets of the Fund
equal in value to the repurchase price, including any accrued interest, are
segregated on the Fund's records while a reverse repurchase agreement is in
effect.
RUSSELL 1000-Registered Trademark- INDEX. The Russell 1000-Registered
Trademark- Index consists of the 1,000 largest US companies by capitalization
(i.e., market price per share times the number of shares outstanding). The
smallest company in the Index at the time of selection has a capitalization of
approximately $1 billion. The Index does not include cross-corporate holdings
in a company's capitalization. For example, when IBM owned approximately 20%
of Intel, only 80% of the total shares outstanding of Intel were used to
determine Intel's capitalization. Also not included in the Index are
closed-end investment companies, companies that do not file a Form 10-K report
with the SEC, foreign securities, and American Depository Receipts. The
Index's composition is changed annually to reflect changes in market
capitalization and share balances outstanding. The Russell 1000-Registered
Trademark- Index is used as the basis for Quantitative Equity Fund's
performance because FRIMCo believes it represents the universe of stocks in
which most active money managers invest and is representative of the
performance of publicly traded common stocks most institutional investors
purchase.
RUSSELL -- Frank Russell Company, consultant to FRIC and to the Funds
S&P -- Standard & Poor's Ratings Group, an NRSRO
S&P 500 -- Standard & Poor's 500 Composite Price Index
SHARES-- The Class Shares in the Funds described in the Prospectuses. Each
Class Share of a Fund represents a share of beneficial interest in the Fund.
STATEMENT -- FRIC's Statement of Additional Information.
TRANSFER AGENT -- FRIMCo, in its capacity as FRIC's transfer and dividend
paying agent
UNDERLYING FUNDS -- The FRIC Funds in which the Fund of Funds invest in.
US -- United States
US GOVERNMENT OBLIGATIONS -- These include US Treasury bills, notes, bonds
and other obligations issued or guaranteed by the US government, its agencies or
instrumentalities. US Treasury bills, notes and bonds, and GNMA participation
certificates, are issued or guaranteed by the US government. Other securities
issued by US government agencies or instrumentalities are supported only by the
credit of the agency or instrumentality (for example, those issued by the
Federal Home Loan Bank) whereas others, such as those issued by FNMA, have an
additional line of credit with the US Treasury.
VARIABLE RATE OBLIGATION-- Municipal obligations with a demand feature that
typically may be exercised within 30 days. The rate of return on variable rate
obligations is readjusted periodically according to a market rate, such as the
Prime rate. Also called floating rate obligations.
WARRANTS -- Typically, a warrant is a long-term option that permits the
holder to buy a specified number of shares of the issuer's underlying common
stock at a specified exercise price by a particular expiration date. A warrant
not exercised or disposed of by its expiration date expires worthless.
1940 ACT-- The Investment Company Act of 1940, as amended. The 1940 Act
governs the operations of FRIC and the Funds.
1933 ACT -- The Securities Act of 1933, as amended.
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FRANK RUSSELL INVESTMENT COMPANY
909 A Street
Tacoma, Washington 98402
Telephone (800) 972-0700
In Washington (253) 627-7001
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
Frank Russell Investment Company ("FRIC") is a single legal entity
organized as a Massachusetts business trust. FRIC operates investment portfolios
referred to as "Funds." FRIC offers Shares of beneficial interest in the Funds
in multiple separate Prospectuses.
This Statement of Additional Information ("Statement") is not a
prospectus; this Statement should be read in conjunction with the Funds'
Prospectuses. Prospectuses may be obtained without charge by telephoning or
writing FRIC at the number or address shown above.
Capitalized terms not otherwise defined in this Statement shall have the
meanings assigned to them in the Prospectuses.
This Statement incorporates by reference FRIC's Annual Reports to
Shareholders for the year ended December 31, 1999. Copies of the Funds' Annual
Reports accompany this Statement.
As of the date of this Statement, FRIC is comprised of the following
Funds, each of which commenced operations on the date indicated:
<TABLE>
<CAPTION>
Fund Inception
FUND DATE PROSPECTUS DATE
<S> <C> <C>
Equity I Fund October 15, 1981 May 1, 2000
Equity II Fund December 28, 1981 May 1, 2000
Equity III Fund November 27, 1981 May 1, 2000
Equity Q Fund May 29, 1987 May 1, 2000
Tax-Managed Large Cap Fund (formerly October 7, 1996 May 1, 2000
Equity T Fund)
Tax-Managed Small Cap Fund December 1, 1999 May 1, 2000
International Fund January 31, 1983 May 1, 2000
Emerging Markets Fund January 29, 1993 May 1, 2000
Fixed Income I Fund October 15, 1981 May 1, 2000
Fixed Income III Fund January 29, 1993 May 1, 2000
Money Market Fund October 15, 1981 May 1, 2000
Diversified Equity Fund September 5, 1985 May 1, 2000
Special Growth Fund September 5, 1985 May 1, 2000
Equity Income Fund September 5, 1985 May 1, 2000
Quantitative Equity Fund May 15, 1987 May 1, 2000
International Securities Fund September 5, 1985 May 1, 2000
Real Estate Securities Fund July 28, 1989 May 1, 2000
Diversified Bond Fund September 5, 1985 May 1, 2000
Short Term Bond Fund October 30, 1981 May 1, 2000
Multistrategy Bond Fund January 29, 1993 May 1, 2000
Tax Exempt Bond Fund September 5, 1985 May 1, 2000
U.S. Government Money Market Fund September 5, 1985 May 1, 2000
Tax Free Money Market Fund May 8, 1987 May 1, 2000
</TABLE>
<PAGE>
A shareholder of the Equity I, Equity II, Equity III, Equity Q, International,
Fixed Income I or Fixed Income III Funds may enter into a separate agreement
with Frank Russell Investment Management Company ("FRIMCo") to obtain certain
services from, and pay a separate quarterly individual shareholder investment
services fee directly to, FRIMCo. The amount of the fee is based upon the assets
subject to the applicable agreement and the services obtained under that
agreement. A shareholder of the other Funds does not execute such an agreement
to acquire such services and pays no such fees. In each case, FRIMCo may charge
fees to a shareholder for non-investment services provided directly to that
shareholder.
Each of the Funds (except the money market funds) presently offers interests in
different classes of Shares as described in the table below. For purposes of
this Statement, each Fund that issues multiple classes of Shares is referred to
as a "Multiple Class Fund." Seven of the Funds, the Equity I, Equity II, Equity
III, Equity Q, International, Fixed Income I and Fixed Income III Funds, are
referred to in this Statement as the "Institutional Funds." Unless otherwise
indicated, this Statement relates to all classes of Shares of the Funds.
<TABLE>
<CAPTION>
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Fund Class C Class E Class S Class I Class Y
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Equity I X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Equity II X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Equity III X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Equity Q X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Tax-Managed Large Cap X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Tax-Managed Small Cap X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
International X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Emerging Markets X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Fixed Income I X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Fixed Income III X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Money Market X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Diversified Equity X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Special Growth X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Equity Income X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Quantitative Equity X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
International Securities X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Real Estate Securities X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Diversified Bond X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Short Term Bond X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Multistrategy Bond X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Tax Exempt Bond X X X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
U.S. Government Money Market X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
Tax Free Money Market X
- --------------------------------------- ----------- ------------ ----------- ----------- -----------
</TABLE>
<PAGE>
TABLE OF CONTENTS
CERTAIN TERMS USED IN THIS STATEMENT ARE DEFINED IN THE
GLOSSARY, WHICH BEGINS ON PAGE 61
Page
STRUCTURE AND GOVERNANCE........................................... 1
Organization and Business History........................... 1
Shareholder Meetings........................................ 1
Controlling Shareholders.................................... 1
Trustees and Officers....................................... 3
OPERATION OF FRIC.................................................. 8
Service Providers........................................... 8
Consultant.................................................. 8
Advisor and Administrator................................... 8
Money Managers.............................................. 11
Distributor................................................. 12
Custodian and Portfolio Accountant.......................... 12
Transfer and Dividend Disbursing Agent...................... 12
Order Placement Designees................................... 13
Independent Accountants..................................... 13
Code of Ethics..............................................
Plan Pursuant to Rule 18f-3................................. 13
Distribution Plan........................................... 13
Shareholder Services Plan................................... 14
Fund Expenses............................................... 15
Purchase and Redemption of Fund Shares......................
Valuation of Fund Shares.................................... 15
Valuation of Portfolio Securities........................... 16
Portfolio Transaction Policies.............................. 16
Portfolio Turnover Rate..................................... 17
Brokerage Allocations....................................... 17
Brokerage Commissions....................................... 19
Yield and Total Return Quotations........................... 21
INVESTMENT RESTRICTIONS, POLICIES AND CERTAIN INVESTMENTS.......... 23
Investment Restrictions..................................... 23
Investment Policies......................................... 25
Certain Investments......................................... 29
TAXES.............................................................. 46
MONEY MANAGER INFORMATION.......................................... 49
RATINGS OF DEBT INSTRUMENTS........................................ 55
FINANCIAL STATEMENTS............................................... 60
GLOSSARY........................................................... 61
<PAGE>
STRUCTURE AND GOVERNANCE
ORGANIZATION AND BUSINESS HISTORY. FRIC commenced business operations as a
Maryland corporation on October 15, 1981. On January 2, 1985, FRIC reorganized
by changing its domicile and legal status to a Massachusetts business trust.
FRIC is currently organized and operating under an amended Master Trust
Agreement dated July 26, 1984, and the provisions of Massachusetts's law
governing the operation of a Massachusetts business trust. The Board of Trustees
("Board" or the "Trustees") may amend the Master Trust Agreement from time to
time; provided, however, that any amendment which would materially and adversely
affect shareholders of FRIC as a whole, or shareholders of a particular Fund,
must be approved by the holders of a majority of the Shares of FRIC or the Fund,
respectively. FRIC is a registered open-end management investment company of the
diversified type.
FRIC is authorized to issue Shares of beneficial interest, and may divide the
Shares into two or more series, each of which evidences a pro rata ownership
interest in a different investment portfolio -- a "Fund." Each Fund is a
separate trust under Massachusetts law. The Trustees may, without seeking
shareholder approval, create additional Funds at any time. The amended Master
Trust Agreement provides that a shareholder may be required to redeem Shares in
a Fund under circumstances set forth in the Master Trust Agreement.
FRIC's Funds are authorized to issue Shares of beneficial interest in one or
more classes. Shares of each class of a Fund have a par value of $.01 per share,
are fully paid and nonassessable, and have no preemptive or conversion rights.
Shares of each class of a Fund represent proportionate interests in the assets
of that Fund and have the same voting and other rights and preferences as the
Shares of other classes of the Fund. Shares of each class of a Fund are entitled
to the dividends and distributions earned on the assets belonging to the Fund
that the Board declares. Each class of Shares is designed to meet different
investor needs. The Class C Shares are subject to a Rule 12b-1 fee of up to
0.75% and a shareholder services fee of up to 0.25%. Class E Shares are subject
to a shareholder services fee of up to 0.25%. The Class I, Class Y, and Class S
Shares are not subject to either a Rule 12b-1 fee or a shareholder services fee.
Unless otherwise indicated, "Shares" in this Statement refers to all classes of
Shares of the Funds.
Under certain unlikely circumstances, as is the case with any Massachusetts
business trust, a shareholder of a Fund may be held personally liable for the
obligations of the Fund. The Master Trust Agreement provides that shareholders
shall not be subject to any personal liability for the acts or obligations of a
Fund and that every written agreement, obligation or other undertaking of the
Funds shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The amended Master Trust Agreement also provides
that FRIC shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of a Fund and satisfy any judgment
thereon. Thus, the risk of any shareholder incurring financial loss beyond his
investment on account of shareholder liability is limited to circumstances in
which a Fund itself would be unable to meet its obligations.
Frank Russell Company has the right to grant (and withdraw) the nonexclusive use
of the name "Frank Russell" or any variation.
SHAREHOLDER MEETINGS. FRIC will not hold annual meetings of shareholders, but
special meetings may be held. Special meetings may be convened (i) by the Board,
(ii) upon written request to the Board by shareholders holding at least 10% of
FRIC's outstanding Shares, or (iii) upon the Board's failure to honor the
shareholders' request described above, by shareholders holding at least 10% of
the outstanding Shares by giving notice of the special meeting to shareholders.
Each share of a class of a Fund has one vote in Trustee elections and other
matters submitted for shareholder vote. On any matter which affects only a
particular Fund or class, only Shares of that Fund or class are entitled to
vote. There are no cumulative voting rights.
CONTROLLING SHAREHOLDERS. The Trustees have the authority and responsibility to
manage the business of FRIC, and hold office for life unless they resign or are
removed by, in substance, a vote of two-thirds of FRIC Shares outstanding. Under
these circumstances, no one person, entity or shareholder "controls" FRIC.
1
<PAGE>
At March 31, 2000, the following shareholders owned 5% or more of any Class of
any Fund's Shares:
DIVERSIFIED BOND FUND CLASS C - NFSC FEBO #0NN-101451, NFSC/FMTC IRA
Rollover FBO Bobby J. Lane, 1845 Putnam Drive, Bartlesville, OK 74006-6805,
6.02%, record.
DIVERSIFIED BOND FUND CLASS E - Zions First National Bank, Trustee, Tucker,
Sadler Profit Sharing Plan, P.O. Box 30880, Salt Lake City, UT 84130-0880,
23.38%, record; Carey & Co., Huntington National Bank, Attn: Mutual Funds
MC1024, P.O. Box 1558, Columbus, OH 43216-1558, 13.61%, record; Maltrust &
Co., c/o Eastern Bank & Trust/Gibraltar, Attn: Retirement Plan Services 3rd
Floor, 217 Essex Street, Salem, MA 01970-3728, 12.02%, record; Metropolitan
National Bank, Trustee for William Gary Darwin MD, PA PS, P.O. Box 8010,
Little Rock, AR 72203-8010, 9.03%, record; Metropolitan National Bank,
Trustee for Bowie Cass Electric Co-op Retirement Plan, P.O. Box 8010,
Little Rock, AR 72203-8010, 9.02%, record; The Citizens Bank of Batesville
Employee 401(k) Profit Sharing Plan, 3rd & College Street, Batesville, AR
72501, 6.12%, record.
DIVERSIFIED BOND FUND CLASS S - Citizens Bank, Saginaw, Attn:
Trust/Investment Department, 101 North Washington, Saginaw, MI 48607-1206,
15.97%, record; Balanced Strategy Fund, c/o Frank Russell Investment
Company, P.O. Box 1591, Tacoma, WA 98401-1591, 12.34%, record.
DIVERSIFIED EQUITY FUND CLASS E - Maltrust & Co., c/o Eastern Bank &
Trust/Gibraltar, Attn: Retirement Plan Services 3rd Floor, 217 Essex
Street, Salem, MA 01970-3728, 36.96%, record; Zions First National Bank,
Trustee, Tucker, Sadler Profit Sharing Plan, P.O. Box 30880, Salt Lake
City, UT 84130-0880, 5.54%, record; Bowie Cass Electric Co-op 401(k), 111
Center Street, Little Rock, AR 72201-4402, 5.05%, record.
EMERGING MARKETS FUND CLASS E - Security Trust Co., Trustee, Karr Tuttle
Campbell Retirement Savings Plan, 2390 East Camelback Road, Suite 240,
Phoenix, AZ 85016-3434, 14.67%, record; Junior Achievement, Inc. Retirement
Plan, 1441 Wazee Street, Apt. 104, Denver, CO 80202-5952, 13.77%, record;
Northern Colorado Water Conservancy Defined Benefit Plan, 1441 Wazee
Street, Apt. 104, Denver, CO 80202-5952, 5.69%, record.
EMERGING MARKETS FUND CLASS S - Charles Schwab & Co., Inc., Special Custody
Account for the Exclusive Benefit of Customers, Attn: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104-4122, 7.44%, record; Var & Co.,
First Trust, N.A., Funds Accounting, P.O. Box 64482, St. Paul, MN
55164-0482, 5.78%, record.
EQUITY I FUND CLASS E - FM Co., Huntington National Bank, One Financial
Plaza, Holland, MI 49423-9166, 37.90%, record; Northern Colorado Water
Conservancy Defined Benefit Plan, 1441 Wazee Street, Apt. 104, Denver, CO
80202-5952, 7.38%, record; Security Trust Co., Trustee, Karr Tuttle
Campbell Retirement Savings Plan, 2390 East Camelback Road, Suite 240,
Phoenix, AZ 85016-3434, 5.86%, record.
EQUITY I FUND CLASS I - Var & Co., First Trust, N.A., Funds Accounting,
P.O. Box 64482, St. Paul, MN 55164-0482, 10.35%, record; Charles Schwab &
Co., Inc., Special Custody Account for the Exclusive Benefit of Customers,
Attn: Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104-4122,
6.84%, record.
EQUITY I FUND CLASS Y - JATO Reinv, National City Bank of Minneapolis,
Attn: Trust Department, P.O. Box E 1919, Minneapolis, MN 55480, 100.00%,
record.
EQUITY II FUND CLASS E - FM Co., Huntington National Bank, One Financial
Plaza, Holland, MI 49423-9166, 48.68%, record; US Bank NA Cust. for Daily
Valued Retirement Program, First Trust Center (SPEN 0402), 180 East 5th
Street, St. Paul, MN 55101-2667, 6.55%, record; Junior Achievement, Inc.
Retirement Plan, 1441 Wazee Street, Apt. 104, Denver, CO 80202-5952, 5.92%,
record.
EQUITY II FUND CLASS I - Charles Schwab & Co., Inc., Special Custody
Account for the Exclusive Benefit of Customers, Attn: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104-4122, 8.35%, record; Var & Co.,
First Trust, N.A., Funds Accounting, P.O. Box 64482, St. Paul, MN
55164-0482, 5.62%, record.
EQUITY II FUND CLASS Y - JATO Reinv, National City Bank of Minneapolis,
Attn: Trust Department, P.O. Box E 1919, Minneapolis, MN 55480, 100.00%,
record.
2
<PAGE>
EQUITY III FUND CLASS E - FM Co., Huntington National Bank, One Financial
Plaza, Holland, MI 49423-9166, 24.23%, record; Security Trust Co., Trustee,
Karr Tuttle Campbell Retirement Savings Plan, 2390 East Camelback Road,
Suite 240, Phoenix, AZ 85016-3434, 18.12%, record; Junior Achievement, Inc.
Retirement Plan, 1441 Wazee Street, Apt. 104, Denver, CO 80202-5952,
16.51%, record; Advisors Trust Company Master IRA, 1441 Wazee Street, Apt.
104, Denver, CO 80202-5952, 5.08%, record.
EQUITY III FUND CLASS I - Var & Co., First Trust, N.A., Funds Accounting,
P.O. Box 64482, St. Paul, MN 55164-0482, 9.50%, record; International
Shipowners Reinsurance Co., S.A., B.P. 841, L-2018, Luxembourg, 7.05%,
record; Shaw's Supermarkets, Inc., Super SVGS & Prot-Max Growth, P.O. Box
600, 140 Laurel Street, East Bridgewater, MA 02333-0600, 6.37%, record;
Carey & Co., Huntington National Bank, Attn: Mutual Funds MC1024, P.O. Box
1558, Columbus, OH 43216-1558, 5.09%, record.
EQUITY III FUND CLASS Y - Frank Russell Investment Management Company,
Attn: Mark Swanson, P.O. Box 1591, Tacoma, WA 98401-1591, 100.00%, record.
EQUITY INCOME FUND CLASS C - Robert W. Baird & Co., Inc., Trustee, FBO
Wayne K. Saiki Rollover IRA, A/C 7267-3056, 73-4909 Anini Street, Kailua
Kona, HI 96740-9235, 9.18%, record; Robert W. Baird & Co., Inc., Trustee,
FBO Neil Thomas Anderson SEP IRA, A/C 1141-8184, 3107 Ramshorn Drive,
Castle Rock, CO 80104-9087, 6.59%, record.
EQUITY INCOME FUND CLASS E - Metropolitan National Bank, Trustee for
William Gary Darwin MD, PA PS, P.O. Box 8010, Little Rock, AR 72203-8010,
25.59%, record; Carey & Co., Huntington National Bank, Attn: Mutual Funds
MC1024, P.O. Box 1558, Columbus, OH 43216-1558, 19.78%, record; Bowie Cass
Electric Co-op 401(k), 111 Center Street, Little Rock, AR 72201-4402,
14.14%, record; The Citizens Bank of Batesville Employee 401(k) Profit
Sharing Plan, 3rd & College Street, Batesville, AR 72501, 12.27%, record;
Citizens Bank of Batesville, Trustee, White River Medical Center, Inc.
401(k) Plan, 3rd & College Streets, Batesville, AR 72503, 10.67%, record.
EQUITY INCOME FUND CLASS S - Charles Schwab & Co., Inc., Special Custody
Account for the Exclusive Benefit of Customers, Attn: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104-4122, 5.96%, record.
EQUITY Q FUND CLASS E - FM Co., Huntington National Bank, One Financial
Plaza, Holland, MI, 49423-9166, 42.53%, record; Security Trust Co.,
Trustee, Karr Tuttle Campbell Retirement Savings Plan, 2390 East Camelback
Road, Suite 240, Phoenix, AZ 85016-3434, 12.57%, record; Junior
Achievement, Inc. Retirement Plan, 1441 Wazee Street, Apt. 104, Denver, CO
80202-5952, 6.94%, record.
EQUITY Q FUND CLASS I - Var & Co., First Trust, N.A., Funds Accounting,
P.O. Box 64482, St. Paul, MN 55164-0482, 11.97%, record; Charles Schwab &
Co., Inc., Special Custody Account for the Exclusive Benefit of Customers,
Attn: Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104-4122,
6.38%, record.
EQUITY Q FUND CLASS Y - JATO Reinv, National City Bank of Minneapolis,
Attn: Trust Depart., P.O. Box E 1919, Minneapolis, MN 55480, 100.00%,
record.
FIXED INCOME I FUND CLASS E - FM Co., Huntington National Bank, One
Financial Plaza, Holland, MI 49423-9166, 25.09%, record; Junior
Achievement, Inc., Retirement Plan, 1441 Wazee Street, Apt. 104, Denver, CO
80202-5952, 17.15%, record; Northern Colorado Water Conservancy, Defined
Benefit Plan, 1441 Wazee Street, Apt. 104, Denver, CO 80202-5952, 11.69%,
record.
FIXED INCOME I FUND CLASS I - Var & Co., First Trust, N.A., Funds
Accounting, P.O. Box 64482, St. Paul, MN 55164-0482, 8.25%, record; First
Tennessee Bank NA, First Tennessee Bank FBO, Knox County Reinvest A/C,
Attn: Trust Securities-Third Floor, 165 Madison Avenue, Memphis, TN
38103-2723, 5.24%, record.
FIXED INCOME I FUND CLASS Y - JATO Reinv, National City Bank of
Minneapolis, Attn: Trust Depart., P.O. Box E 1919, Minneapolis, MN 55480,
100.00%, record.
FIXED INCOME III FUND CLASS E - Advisors Trust Company FBO Building
Industry Associates Profit Sharing Plan, 1441 Wazee Street, Apt. 104,
Denver, CO 80202-5952, 22.59%, record; Ear, Nose and Throat Physicians of
North Mississippi, PA 401(k) Profit Sharing Plan -- Aggressive, P.O. Box,
2180, Tupelo, MS 38803-2180, 18.60%, record;
3
<PAGE>
Fusion Ceramics, Inc. Profit Sharing Plan, P.O. Box 127, Carrollton, OH
44615-0127, 15.40%, record; National 4-H Council, 1441 Wazee Street, Apt.
104, Denver, CO 80202-5952, 11.24%, record; Arnold W. Magasinn, Trustee,
Peter Hauber 1992 CRUT, 1441 Wazee Street, Apt. 104, Denver, CO 80202-5952,
10.03%, record; Arnold W. Magasinn, Trustee, Brigitte A. Hauber 1992 CRUT,
1441 Wazee Street, Apt. 104, Denver, CO 80202-5952, 8.77%, record; Ear,
Nose and Throat Physicians of North Mississippi, PA 401(k) Profit Sharing
Plan -- Balanced, P.O. Box, 2180, Tupelo, MS 38803-2180, 6.26%, record.
FIXED INCOME III FUND CLASS I - Var & Co., First Trust, N.A., Funds
Accounting, P.O. Box 64482, St. Paul, MN 55164-0482, 14.81%, record.
FIXED INCOME III FUND CLASS Y - Frank Russell Investment Management
Company, Attn: Mark Swanson, P.O. Box 1591, Tacoma, WA 98401-1591, 100.00%,
record.
INTERNATIONAL FUND CLASS E - FM Co., Huntington National Bank, One
Financial Plaza, Holland, MI 49423-9166, 18.46%, record; Junior
Achievement, Inc. Retirement Plan, 1441 Wazee Street, Apt. 104, Denver, CO
80202-5952, 11.59%, record; Northern Colorado Water Conservancy Defined
Benefit Plan, 1441 Wazee Street, Apt. 104, Denver, CO 80202-5952, 6.31%,
record; Advisors Trust Company FBO Building Industry Associates Profit
Sharing Plan, 1441 Wazee Street, Apt. 104, Denver, CO 80202-5952, 6.02%,
record; The Fund for American Studies, 1441 Wazee Street, Apt. 104, Denver,
CO 80202-5952, 5.64%, record.
INTERNATIONAL FUND CLASS I - Var & Co., First Trust, N.A., Funds
Accounting, P.O. Box 64482, St. Paul, MN 55164-0482, 11.04%, record;
Charles Schwab & Co., Inc., Special Custody Account for the Exclusive
Benefit of Customers, Attn: Mutual Funds, 101 Montgomery Street, San
Francisco, CA 94104-4122, 7.17%, record.
INTERNATIONAL FUND CLASS Y - JATO Reinv, National City Bank of Minneapolis,
Attn: Trust Department, P.O. Box 1919, Minneapolis, MN 55480, 100.00%,
record.
INTERNATIONAL SECURITIES FUND CLASS E - Maltrust & Co., c/o Eastern Bank &
Trust/Gibraltar, Attn: Retirement Plan Services 3rd Floor, 217 Essex
Street, Salem, MA 01970-3728, 15.66%, record; Zions First National Bank,
Trustee, Tucker, Sadler Profit Sharing Plan, P.O. Box 30880, Salt Lake
City, UT 84130-0880, 10.93%, record; Metropolitan National Bank, Trustee
for Bowie Cass Electric Co-op Retirement Plan, P.O. Box 8010, Little Rock,
AR 72203-8010, 8.27%, record; Carey & Co., Huntington National Bank, Attn:
Mutual Funds MC1024, P.O. Box 1558, Columbus, OH 43216-1558, 6.46%, record;
Metropolitan National Bank Defined Benefit Plan, 111 Center Street, Little
Rock, AR 72201-4402, 5.42%, record.
MULTI-STRATEGY BOND FUND CLASS E - Metropolitan National Bank, Trustee for
Bowie Cass Electric Co-op Retirement Plan, P.O. Box 8010, Little Rock, AR
72203-8010, 20.57%, record; Zions First National Bank, Trustee, Tucker,
Sadler Profit Sharing Plan, P.O. Box 30880, Salt Lake City, UT 84130-0880,
9.22%, record; Maltrust & Co., c/o Eastern Bank & Trust/Gibraltar, Attn:
Retirement Plan Services 3rd Floor, 217 Essex Street, Salem, MA 01970-3728,
8.17%, record; Arkansas Womens Center Employees Pension Plan, 9501 Lile
Drive, Suite 888, Little Rock, AR 72205-6233, 7.89%, record; Metropolitan
National Bank, Trustee for William Gary Darwin MD, PA PS, P.O. Box 8010,
Little Rock, AR 72203-8010, 6.71%, record; James L. Lee Jr., DDS, Profit
Sharing Plan, 1501 South Waldron, Suite 200, Fort Smith, AR 72903-2565,
5.82%, record; Terry Fiddler, DDS, Money Purchase & Profit Sharing Plan,
562 Locust Street, Conway, AR 72032-5349, 5.59%, record.
MULTI-STRATEGY BOND FUND CLASS S - Balanced Strategy Fund, c/o Frank
Russell Investment Company, P.O. Box 1591, Tacoma, WA 98401-1591, 10.19%,
record; Aggressive Strategy Fund, c/o Frank Russell Investment Company,
P.O. Box 1591, Tacoma, WA 98401-1591, 7.61%, record.
QUANTITATIVE EQUITY FUND CLASS E - Zions First National Bank, Trustee,
Tucker, Sadler Profit Sharing Plan, P.O. Box 30880, Salt Lake City, UT
84130-0880, 9.24%, record; Bowie Cass Electric Co-op 401(k), 111 Center
Street, Little Rock, AR 72201-4402, 7.84%, record; Carey & Co., Huntington
National Bank, Attn: Mutual Funds MC1024, P.O. Box 1558, Columbus, OH
43216-1558, 6.27%, record; Metropolitan National Bank, Trustee of Crews &
Assoc. 401(k) Plan, Metropolitan National Bank, 111 Center Street, Little
Rock, AR 72201-4402, 6.19%, record; Citizens Bank of Batesville, Trustee,
White River Medical Center, Inc. 401(k) Plan, 3rd & College Streets,
Batesville, AR 72503, 5.77%, record; Metropolitan National Bank, Trustee
for Bowie Cass Electric Co-op Retirement Plan, P.O. Box 8010, Little
4
<PAGE>
Rock, AR 72203-8010, 5.59%, record; Metropolitan National Bank Defined
Benefit Plan, 111 Center Street, Little Rock, AR 72201-4402, 5.51%, record.
REAL ESTATE SECURITIES FUND CLASS C - Robert W. Baird & Co., Inc., Trustee,
FBO Albert R. Vandam IRA, A/C 8564-0301, 6 Tilden Road, Scituate, MA
02066-3924, 5.75%, record.
REAL ESTATE SECURITIES FUND CLASS E - FM Co., Huntington National Bank, One
Financial Plaza, Holland, MI, 49423-9166, 19.83%, record; Junior
Achievement, Inc. Retirement Plan, 1441 Wazee Street, Apt. 104, Denver, CO
80202-5952, 15.87%, record; Northern Colorado Water Conservancy Defined
Benefit Plan, 1441 Wazee Street, Apt. 104, Denver, CO 80202-5952, 8.05%,
record.
REAL ESTATE SECURITIES FUND CLASS S - Var & Co., First Trust, N.A., Funds
Accounting, P.O. Box 64482, St. Paul, MN 55164-0482, 5.72%, record.
SHORT TERM BOND FUND CLASS C - State Street Bank & Trust Co., Cust. for the
IRA R/O FBO Lester J. Waguespack, 248 Tall Timbers Road, New Caney, TX
77357-2826, 46.08%, record; Executive Mouldings, Inc., c/o Fred Gutnick,
2711 Wilkinson Boulevard, Charlotte, NC 28208-5619, 11.22%, record;
Donaldson, Lufkin, Jenrette Securities Corporation, Inc., FBO Margaret R.
Krystyniak, P.O. Box 2052, Jersey City, NJ 07303-2052, 11.10%, record;
Donaldson, Lufkin, Jenrette Securities Corporation, Inc., FBO Joan W.
Terrill, Trustee, P.O. Box 2052, Jersey City, NJ 07303-2052, 6.42%, record;
NFSC FEBO #0NN-115673, NFSC/FMTC IRA Rollover FBO Jeraldine Fries, P.O. Box
2424, Bartlesville, OK 74005-2424, 5.15%, record.
SHORT TERM BOND FUND CLASS E - Junior Achievement, Inc. Retirement Plan,
1441 Wazee, Street Apt. 104, Denver, CO 80202-5952, 38.01%, record; Zions
First National Bank, Trustee, Tucker, Sadler Profit Sharing Plan, P.O. Box
30880, Salt Lake City, UT 84130-0880, 5.96%, record; Advisors Trust Company
Master IRA, 1441 Wazee Street, Apt. 104, Denver, CO 80202-5952, 5.36%,
record.
SHORT TERM BOND FUND CLASS S - Charles Schwab & Co., Inc., Special Custody
Account for the Exclusive Benefit of Customers, Attn: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104-4122, 6.58%, record; First
Tennessee Bank NA, First Tennessee Bank FBO Knox County Reinvest A/C, Attn:
Trust Securities-Third Floor, 165 Madison Avenue, Memphis, TN 38103-2723,
5.00%, record.
SPECIAL GROWTH FUND CLASS E - Maltrust & Co., c/o Eastern Bank &
Trust/Gibraltar, Attn: Retirement Plan Services 3rd Floor, 217 Essex
Street, Salem, MA 01970-3728, 11.60%, record; Wabanc & Co., 717 West
Sprague Avenue, Spokane, WA 99201-3922, 11.58%, record; Bowie Cass Electric
Co-op 401(k), 111 Center Street, Little Rock, AR 72201-4402, 9.86%, record;
Metropolitan National Bank, Trustee for Bowie Cass Electric Co-op
Retirement Plan, P.O. Box 8010, Little Rock, AR 72203-8010, 7.20%, record.
SPECIAL GROWTH FUND CLASS S - Charles Schwab & Co., Inc., Special Custody
Account for the Exclusive Benefit of Customers, Attn: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104-4122, 5.10%, record.
TAX EXEMPT BOND FUND CLASS C - NFSC FEBO #0NN-122416, Raymond F. Haring,
11170 Jerryson Drive, Grand Ledge, MI 48837-9180, 25.17%, record; Margaret
M. Link, 520 Skyway Drive, Grand Junction, CO 81503-4401, 20.21%, record;
Kathryn Clarke Thompson, Trustee, Test TR for Kathryn Clarke Thompson
Created Art IV of Will & Codicils of Guy Bryan Thompson, Deceased, 6123 Del
Monte Drive, Houston, TX 77057-3517, 16.77%, record; Kathryn Clarke
Thompson, 6123 Del Monte Drive, Houston, TX 77057-3517, 14.79%, record;
NFSC FEBO #0NN-104531, Betty Jo Clemens, Trustee, Betty Jo Clemens
Revocable Trust U/A 11/10/97, 9651 Rapid City Road N.W., Rapid City, MI
49676-9485, 7.67%, record.
TAX EXEMPT BOND FUND CLASS E - Jeanne Blanche Fisher, Trustee, Fisher
Family Trust A U/A DTD 07/06/1978, 1441 Wazee Street, Apt. 104, Denver, CO
80202-5952, 13.79%, Gary Deward Brown & Johanna L. Brown Inter Vivos Trust
DTD 6/7/82, 1441 Wazee Street, Suite 104, Denver, CO 80202-5952, 9.29%,
record; Birgit Lane Revocable Trust U/D/T DTD May 14, 1993, 1441 Wazee
Street, Suite 104, Denver, CO 80202-5952, 9.05%, record; Arnold W. And
Vicki F. Magasinn, Trustees of Magasinn Family Trust 10/5/87, 1441 Wazee
Street, Apt. 104, Denver, CO 80202-5952, 7.87%, record; James D. Duvall
III, Trustee, James D. Duvall III 1993 Charitable Remainder Unitrust, 1441
Wazee Street, Apt. 104, Denver CO 80202-5952, 6.34%, record; James T. and
Jane Anderson, 1441 Wazee Street, Apt. 104,
5
<PAGE>
Denver, CO 80202-5952, 5.99%, record; Linda F. West, Trustee, Anthony L.
West 1993 Charitable Remainder Unitrust, 1441 Wazee Street, Apt. 104,
Denver, CO 80202-5952, 5.37%, record; Esther S. Akiyana, Trustee of
Survivors Trust of Akiyama Living Trust, 1441 Wazee Street, Apt. 104,
Denver, CO 80202-5952, 5.28%, record.
TAX FREE MONEY MARKET FUND - Citizens Bank, Saginaw, Attn: Trust/Investment
Department, 101 North Washington, Saginaw, MI 48607-1206, 24.06%, record;
Tax Exempt Bond Master Account #GU8C, c/o Frank Russell Investment
Management Company, Attn: Operations Department, P.O. Box 1591, Tacoma, WA
98401-1591, 10.88%, record; Steven L. Marcus Trust, 43 Elliot Hill Road,
Natick, MA 01760-5564, 5.82%, record.
TAX-MANAGED LARGE CAP FUND CLASS C - WEDCO, Inc., P.O. Box 1131, Reno, NV
89504-1131, 15.35%, record; Fred S. Gutnick & Frances H. Gutnick, JT TEN
WROS, 7050 Buckland Road, Charlotte, NC 28278-9781, 5.29%, record.
TAX-MANAGED LARGE CAP FUND CLASS S - Charles Schwab & Co., Inc., Special
Custody Account for the Exclusive Benefit of Customers, Attn: Mutual Funds,
101 Montgomery Street, San Francisco, CA 94104-4122, 22.15%, record;
Indiana Trust 5, Indiana Trust & Investment Management Company, P.O. Box
5149, Mishawaka, IN 46546-5149, 7.38%, record.
TAX-MANAGED SMALL CAP FUND CLASS C - Marjorie B. Baer Revocable Family
Trust, 21186 Hamlin Drive, Boca Raton, FL 33433-7433, 14.87%, record; Parks
Anderson & Ginger E. Anderson TEN COM, 4617 252nd Avenue S.E., Issaquah, WA
98029-7606, 9.38%, record.
TAX-MANAGED SMALL CAP FUND CLASS S - Charles Schwab & Co., Inc., Special
Custody Account for the Exclusive Benefit of Customers, Attn: Mutual Funds,
101 Montgomery Street, San Francisco, CA 94104-4122, 23.52%, record; Green
Investment Account, 9604 North 43rd Place, Phoenix, AZ 85028-5119, 6.84%,
record; Indiana Trust 5, Indiana Trust & Investment Management Company,
P.O. Box 5149, Mishawaka, IN 46546-5149, 5.83%, record.
At March 31, 2000, the following shareholders could be deemed "control" the
following Funds because such shareholder owns more than 25% of the voting Shares
of the indicated Fund:
DIVERSIFIED EQUITY FUND CLASS E - Maltrust & Co., c/o Eastern Bank &
Trust/Gibraltar, Attn: Retirement Plan Services 3rd Floor, 217 Essex
Street, Salem, MA 01970-3728, 36.96%, record.
EQUITY I FUND CLASS E - FM Co., Huntington National Bank, One Financial
Plaza, Holland, MI 49423-9166, 37.90%, record.
EQUITY I FUND CLASS Y - JATO Reinv, National City Bank of Minneapolis,
Attn: Trust Department, P.O. Box E 1919, Minneapolis, MN 55480, 100.00%,
record.
EQUITY II FUND CLASS E - FM Co., Huntington National Bank, One Financial
Plaza, Holland, MI 49423-9166, 48.68%, record.
EQUITY II FUND CLASS Y - JATO Reinv, National City Bank of Minneapolis,
Attn: Trust Department, P.O. Box E 1919, Minneapolis, MN 55480, 100.00%,
record.
EQUITY III FUND CLASS Y - Frank Russell Investment Management Company,
Attn: Mark Swanson, P.O. Box 1591, Tacoma, WA 98401-1591, 100.00%, record.
EQUITY INCOME FUND CLASS E - Metropolitan National Bank, Trustee for
William Gary Darwin MD, PA PS, P.O. Box 8010, Little Rock, AR 72203-8010,
25.59%, record.
EQUITY Q FUND CLASS E - FM Co., Huntington National Bank, One Financial
Plaza, Holland, MI, 49423-9166, 42.53%, record.
EQUITY Q FUND CLASS Y - JATO Reinv, National City Bank of Minneapolis,
Attn: Trust Depart., P.O. Box E 1919, Minneapolis, MN 55480, 100.00%,
record.
6
<PAGE>
FIXED INCOME I FUND CLASS E - FM Co., Huntington National Bank, One
Financial Plaza, Holland, MI 49423-9166, 25.09%, record.
FIXED INCOME I FUND CLASS Y - JATO Reinv, National City Bank of
Minneapolis, Attn: Trust Depart., P.O. Box E 1919, Minneapolis, MN 55480,
100.00%, record.
FIXED INCOME III FUND CLASS Y - Frank Russell Investment Management
Company, Attn: Mark Swanson, P.O. Box 1591, Tacoma, WA 98401-1591, 100.00%,
record.
INTERNATIONAL FUND CLASS Y - JATO Reinv, National City Bank of Minneapolis,
Attn: Trust Department, P.O. Box 1919, Minneapolis, MN 55480, 100.00%,
record.
SHORT TERM BOND FUND CLASS C - State Street Bank & Trust Co., Cust. for the
IRA R/O FBO Lester J. Waguespack, 248 Tall Timbers Road, New Caney, TX
77357-2826, 46.08%, record.
SHORT TERM BOND FUND CLASS E - Junior Achievement, Inc. Retirement Plan,
1441 Wazee, Street Apt. 104, Denver, CO 80202-5952, 38.01%, record.
TAX EXEMPT BOND FUND CLASS C - NFSC FEBO #0NN-122416, Raymond F. Haring,
11170 Jerryson Drive, Grand Ledge, MI 48837-9180, 25.17%, record.
The Trustees and officers of FRIC, as a group, own less than 1% of any Class of
each Fund.
TRUSTEES AND OFFICERS. The Board of Trustees is responsible for overseeing
generally the operation of the Funds, including reviewing and approving the
Funds' contracts with FRIMCo, Russell and the money managers. A Trustee may be
removed at any time by, in substance, a vote of two-thirds of FRIC Shares. A
vacancy in the Board shall be filled by a vote of a majority of the remaining
Trustees so long as, in substance, two-thirds of the Trustees have been elected
by shareholders. The officers, all of whom are employed by and are officers of
FRIMCo or its affiliates, are responsible for the day-to-day management and
administration of the Funds' operations.
FRIC paid in aggregate $147,339 for the year ended December 31, 1999 to the
Trustees who are not officers or employees of FRIMCo or its affiliates. Trustees
are paid an annual fee plus travel and other expenses incurred in attending
Board meetings. FRIC's officers and employees are paid by FRIMCo or its
affiliates.
The following table contains the Trustees and officers and their positions with
FRIC, their dates of birth, their present and principal occupations during the
past five years and the mailing addresses of Trustees who are not affiliated
with FRIC.
An asterisk (*) indicates that the Trustee or officer is an "interested person"
of FRIC as defined in the Investment Company Act of 1940, as amended (the "1940
Act"). As used in the table, "Frank Russell Company" includes its corporate
predecessor, Frank Russell Co., Inc.
<TABLE>
<CAPTION>
- --------------------------- ---------------------- --------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, AGE, POSITION(S) HELD DURING THE
ADDRESS WITH FUND PAST 5 YEARS
- --------------------------- ---------------------- --------------------------------------------------------------
- --------------------------- ---------------------- --------------------------------------------------------------
<S> <C> <C>
*George F. Russell, Jr., Trustee Emeritus and Also currently: Trustee Emeritus and Chairman Emeritus,
Born July 3, 1932 Chairman Emeritus Russell Insurance Funds; Director, Chairman of the Board and
since 1998. Chief Executive Officer, Russell Building Management
909 A Street Company, Inc.; Director and Chairman of the Board, Frank
Tacoma, Washington Russell Company; Director and Chairman of the Board, Frank
98402-1616 Russell Investments (Delaware), Inc.; Chairman
Emeritus/Director Emeritus, Frank Russell Trust Company;
Chairman Emeritus, Frank Russell Securities, Inc.; Director
7
<PAGE>
Emeritus, Frank Russell Investment Management Company;
Director, Chairman of the Board and President, Russell 20/20
Association. From 1984 to December 1998, Trustee and
Chairman of the Board of FRIC. From August 1996 to December
1998, Trustee and Chairman of the Board of Russell Insurance
Funds.
- --------------------------- ---------------------- --------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- --------------------------- ---------------------- --------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, AGE, POSITION(S) HELD DURING THE
ADDRESS WITH FUND PAST 5 YEARS
- --------------------------- ---------------------- --------------------------------------------------------------
- --------------------------- ---------------------- --------------------------------------------------------------
<S> <C> <C>
*Lynn L. Anderson, Trustee, President Also currently: Trustee, President and Chief Executive
Born April 22, 1939 and Chief Executive Officer, Russell Insurance Funds; Director, Chief Executive
Officer since 1987. Officer and Chairman of the Board, Russell Fund
909 A Street Distributors, Inc.; Trustee, Chairman of the Board,
Tacoma, Washington President, The SSgA Funds (investment company); Director and
98402-1616 Chairman of the Board, Frank Russell Investment Management
Company; Chairman of the Board, Frank Russell Trust Company;
Director and Chairman of the Board, Frank Russell Investment
Company PLC; Director, Frank Russell Investments (Ireland)
Limited, Frank Russell Investments (Cayman) Ltd., and Frank
Russell Investments (UK) Ltd.; March 1997 to December 1998,
Director, Frank Russell Company; June 1993 to November 1995,
Director, Frank Russell Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment
company).
- --------------------------- ---------------------- --------------------------------------------------------------
- --------------------------- ---------------------- --------------------------------------------------------------
Paul E. Anderson, Trustee since 1984. Also currently: Trustee, Russell Insurance Funds. 1996 to
Born October 15, 1931 present, President, Anderson Management Group LLC
(architectural design and manufacturing). 1984 to 1996,
23 Forest Glen Lane President, Vancouver Door Company, Inc.
Tacoma, Washington 98409
- --------------------------- ---------------------- --------------------------------------------------------------
- --------------------------- ---------------------- --------------------------------------------------------------
Paul Anton, Ph.D., Trustee since 1985. Also currently: Trustee, Russell Insurance Funds. President,
Born December 1, 1919 Paul Anton and Associates (Marketing Consultant on emerging
international markets for small corporations). 1991-1994,
PO Box 212 Adjunct Professor, International Marketing, University of
Gig Harbor, Washington Washington, Tacoma, Washington.
98335
- --------------------------- ---------------------- --------------------------------------------------------------
- --------------------------- ---------------------- --------------------------------------------------------------
William E. Baxter, Trustee since 1984. Trustee, Russell Insurance Funds.
Born June 8, 1925 Retired.
800 North C Street
Tacoma, Washington 98403
- --------------------------- ---------------------- --------------------------------------------------------------
- --------------------------- ---------------------- --------------------------------------------------------------
Kristianne Blake Trustee since 2000. Also currently: Trustee, Russell Insurance Funds; President,
Born January 22, 1954 Kristianne Gates Blake, P.S.; Trustee, WM Group of Funds;
Trustee, William H. & Mary M. Gates Charitable Remainder
P.O. Box 28338 Annuity Trust.
Spokane, Washington
99228
- --------------------------- ---------------------- --------------------------------------------------------------
- --------------------------- ---------------------- --------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- --------------------------- ---------------------- ------------------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, AGE, POSITION(S) HELD DURING THE
ADDRESS WITH FUND PAST 5 YEARS
- --------------------------- ---------------------- ------------------------------------------------------------------
<S> <C> <C>
Lee C. Gingrich, Trustee since 1984. Also currently: Trustee, Russell Insurance Funds and President,
Born October 6, 1930 Gingrich Enterprises, Inc. (Business and Property Management).
1730 North Jackson
Tacoma, Washington 98406
- --------------------------- ---------------------- ------------------------------------------------------------------
- --------------------------- ---------------------- ------------------------------------------------------------------
Eleanor W. Palmer, Trustee since 1984. Also currently: Trustee, Russell Insurance Funds and Director of
Born May 5, 1926 Frank Russell Trust Company. Retired.
2025 Narrows View Circle
#232-D, P.O. Box 1057
Gig Harbor, Washington
98335
- --------------------------- ---------------------- ------------------------------------------------------------------
- --------------------------- ---------------------- ------------------------------------------------------------------
Raymond P. Tennison, Jr. Trustee since 2000. Also currently: Trustee, Russell Insurance Funds and President,
Born December 21, 1955 Simpson Investment Company and several additional subsidiary
companies, including Simpson Timber Company, Simpson Paper
1301 Fifth Avenue Company and Simpson Tacoma Kraft Company. Prior to July 1997,
Suite 2800 President and Board member, Simpson Paper Company. Trustee,
Seattle, Washington 98101 Simpson Employee Retirement Fund.
- --------------------------- ---------------------- ------------------------------------------------------------------
- --------------------------- ---------------------- ------------------------------------------------------------------
*Mark E. Swanson, Treasurer and Chief Also currently: Treasurer and Chief Accounting Officer,
Born November 26, 1963 Accounting Officer Russell Insurance Funds; Director, Fund Administration
since 1998. Frank Russell Trust Company; Treasurer, Assistant
909 A Street Secretary and Principal Accounting Officer, SSgA Funds
Tacoma, Washington (investment company); Director of Fund Administration,
98402-1616 Frank Russell Investment Management Company; Manager,
Funds Accounting and Taxes, Russell Fund Distributors,
Inc. April 1996 to August 1998, Assistant Treasurer,
Frank Russell Investment Company; August 1996 to August
1998, Assistant Treasurer, Russell Insurance Funds;
November 1995 to July 1998, Assistant Secretary, SSgA
Funds; February 1997 to July 1998, Manager, Funds
Accounting and Taxes, Frank Russell Investment Management
Company.
- --------------------------- ---------------------- ------------------------------------------------------------------
- --------------------------- ---------------------- ------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- --------------------------- ----------------------------- -----------------------------------------------------------
PRINCIPAL OCCUPATION(S)
NAME, AGE, POSITION(S) HELD DURING THE
ADDRESS WITH FUND PAST 5 YEARS
- --------------------------- ----------------------------- -----------------------------------------------------------
<S> <C> <C>
*Randall P. Lert, Director of Investments Also currently: Director of Investments, Russell
Born October 3, 1953 since 1991. Insurance Funds; Chief Investment Officer, Frank Russell
Trust Company; Director and Chief Investment Officer,
909 A Street Frank Russell Investment Management Company; Director and
Tacoma, Washington Chief Investment Officer, Russell Fund Distributors,
98402-1616 Inc.; Director-Futures Trading, Frank Russell Investments
(Ireland) Limited and Frank Russell Investments (Cayman)
Ltd.; Senior Vice President and Director of Portfolio
Trading, Frank Russell Canada Limited/Limitee. April
1990 to November 1995, Director of Investments of Frank
Russell Investment Management Company.
- --------------------------- ----------------------------- -----------------------------------------------------------
- --------------------------- ----------------------------- -----------------------------------------------------------
*Karl J. Ege, Secretary and General Also currently: Secretary and General Counsel of Russell
Born October 8, 1941 Counsel since 1994. Insurance Funds; Director, Secretary and General Counsel,
Russell Real Estate Advisors, Inc. and Frank Russell
909 A Street Capital, Inc.; Secretary, General Counsel and Managing
Tacoma, Washington Director--Law and Government Affairs of Frank Russell
98402-1616 Company; Secretary and General Counsel of Frank Russell
Investment Management Company, Frank Russell Trust
Company and Russell Fund Distributors, Inc.; Director
and Secretary of Russell Insurance Agency, Inc., Frank
Russell Investments (Delaware), Inc., A Street Investment
Associates, Inc., Russell International Services Co., Inc.
and Russell 20-20 Association; Director and Assistant
Secretary of Frank Russell Company Limited (London) and
Russell Systems Ltd.; Director of Frank Russell Investment
Company LLC, Frank Russell Securities, Inc., Frank Russell
Company PTY, Limited, Frank Russell Institutional Funds
plc, Frank Russell Qualifying Investor Fund, Russell
Investment Management Ltd., Frank Russell Investment
Company PLC, Frank Russell Investments (Ireland)
Limited, Frank Russell Investment (Japan), Ltd., Frank
Russell Company, S.A., Frank Russell Japan Co.,
Ltd., Frank Russell Company (NZ) Limited, Russell
Investment Nominee Co PTY Ltd and Frank Russell
Investments (UK) Ltd. April 1992 to December, 1998,
Director, Frank Russell Company.
- --------------------------- ----------------------------- -----------------------------------------------------------
- --------------------------- ----------------------------- -----------------------------------------------------------
*Peter F. Apanovitch, Manager of Short-Term Also currently: Manager of Short-Term Investment Funds,
Born May 3, 1945 Investment Funds. Russell Insurance Funds, Frank Russell Investment
Management Company and Frank Russell Trust Company.
909 A Street
Tacoma, Washington
98402-1616
- --------------------------- ----------------------------- -----------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS BENEFITS UPON FROM FRIC
TRUSTEE FROM FRIC PART OF FRIC EXPENSES RETIREMENT PAID TO TRUSTEES
- ------- ------------ --------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Lynn L. Anderson $0 $0 $0 $0
Paul E. Anderson $30,000 $0 $0 $38,000*
Paul Anton, PhD. $30,000 $0 $0 $38,000*
William E. Baxter $30,000 $0 $0 $38,000*
Kristianne Blake $0 $0 $0 $0
Lee C. Gingrich $30,000 $0 $0 $38,000*
Eleanor W. Palmer $30,000 $0 $0 $38,000*
Raymond P. Tennison, Jr. $0 $0 $0 $0
* Received $8,000 for service as trustees on the Board of Trustees for the Russell Insurance Funds.
</TABLE>
12
<PAGE>
OPERATION OF FRIC
SERVICE PROVIDERS. Most of FRIC's necessary day-to-day operations are performed
by separate business organizations under contract to FRIC. The principal service
providers are:
<TABLE>
<CAPTION>
<S> <C>
Consultant Frank Russell Company
Advisor, Administrator, Transfer and Frank Russell Investment Management Company
Dividend Disbursing Agent
Money Managers Multiple professional discretionary investment management
organizations
Custodian and Portfolio Accountant State Street Bank and Trust Company
</TABLE>
CONSULTANT. Frank Russell Company, the corporate parent of Frank Russell
Investment Management Company ("FRIMCo"), was responsible for organizing FRIC
and provides ongoing consulting services, described in the Prospectuses, to FRIC
and FRIMCo. FRIMCo does not pay Frank Russell Company an annual fee for
consulting services.
Frank Russell Company provides comprehensive consulting and money manager
evaluation services to institutional clients, including FRIMCo and Frank Russell
Trust Company, and to high net worth individuals and families ($100 million)
through its Russell Private Investment Division. Frank Russell Company also
provides: (i) consulting services for international investment to these and
other clients through its International Division and its wholly owned
subsidiaries, Frank Russell Company London (Frank Russell Company Limited),
Frank Russell Canada (Frank Russell Canada Limited/Limitee), Frank Russell
Australia (Frank Russell Company Pty., Limited), Frank Russell Japan, Frank
Russell AG (Zurich), Frank Russell Company S.A. (Paris), Frank Russell Company
(N.Z.) Limited (Auckland), and Frank Russell Investments (Delaware), Inc., and
(ii) investment account and portfolio evaluation services to corporate pension
plan sponsors and institutional money managers through its Russell Data Services
Division. Frank Russell Securities, Inc., a wholly owned subsidiary of Frank
Russell Company, carries on an institutional brokerage business. Frank Russell
Capital Inc., a wholly owned subsidiary of Frank Russell Company, carries on an
investment banking business as a registered broker-dealer. Frank Russell Trust
Company, a wholly owned subsidiary of Frank Russell Company, provides
comprehensive trust and investment management services to corporate pension and
profit-sharing plans. Frank Russell Investments (Cayman) Ltd., a wholly owned
subsidiary of Frank Russell Company, provides investment advice and other
services. Frank Russell Investment (Ireland) Ltd., a wholly owned subsidiary of
Frank Russell Company, provides investment advice and other services. Frank
Russell International Services Co., Inc., a wholly owned subsidiary of Frank
Russell Company, provides services to US personnel secunded to overseas
enterprises. Russell Fiduciary Services Company, a wholly owned subsidiary of
Frank Russell Company, provides fiduciary services to pension and welfare
benefit plans and other institutional investors. The mailing address of Frank
Russell Company is 909 A Street, Tacoma, WA 98402.
As affiliates, Frank Russell Company and FRIMCo may establish certain
intercompany cost allocations that reflect the consulting services supplied to
FRIMCo. George F. Russell, Jr., Trustee Emeritus and Chairman Emeritus of FRIC,
is the Chairman of the Board of Frank Russell Company. FRIMCo is a wholly owned
subsidiary of Frank Russell Company.
Frank Russell Company is a subsidiary of The Northwestern Mutual Life Insurance
Company ("Northwestern Mutual"). Founded in 1857, Northwestern Mutual is a
mutual insurance corporation organized under the laws of Wisconsin. Northwestern
Mutual's products consist of a full range of permanent and term life insurance,
disability income insurance, long-term care insurance, mutual funds and
annuities for personal, estate, retirement, business, and benefits planning.
Northwestern Mutual provides its insurance products and services through an
exclusive network of approximately 7,200 agents associated with over 100 general
agencies nationwide. Northwestern Mutual leads the U.S. in both individual life
insurance sold annually and total individual life insurance in force.
ADVISOR AND ADMINISTRATOR. FRIMCo provides or oversees the provision of all
general management and administration, investment advisory and portfolio
management, and distribution services for the Funds. FRIMCo provides
13
<PAGE>
the Funds with office space, equipment and the personnel necessary to operate
and administer the Funds' business and to supervise the provision of services by
third parties such as the money managers and custodian. FRIMCo also develops the
investment programs for each of the Funds, selects money managers for the Funds
(subject to approval by the Board), allocates assets among money managers,
monitors the money managers' investment programs and results, and may exercise
investment discretion over assets invested in the Funds' Liquidity Portfolio.
(See, "Investment Policies--Liquidity Portfolio.") FRIMCo also acts as FRIC's
transfer agent, dividend disbursing agent and as the money manager for the Money
Market and US Government Money Market Funds. FRIMCo, as agent for FRIC, pays the
money managers' fees for the Funds, as a fiduciary for the Funds, out of the
advisory fee paid by the Funds to FRIMCo. The remainder of the advisory fee is
retained by FRIMCo as compensation for the services described above and to pay
expenses.
Each of the Funds pays an advisory fee and an administrative fee directly to
FRIMCo, billed monthly on a pro rata basis and calculated as a specified
percentage of the average daily net assets of each of the Funds. Services which
are administrative in nature are provided by FRIMCo pursuant to an
Administrative Agreement for an annual fee of 0.05% of each Fund's average daily
net asset value. (See the applicable Prospectus for the Funds' annual advisory
percentage rates.)
FRIMCo has contractually agreed to waive all or a portion of its combined
advisory and administrative fees for certain Funds. This arrangement is not part
of the Advisory Agreement with FRIC or the Administrative Agreement and may be
changed or discontinued. FRIMCo currently calculates its advisory fee based on a
Fund's average daily net assets less any advisory fee incurred on the Fund's
assets to the extent the Fund incurs advisory fees for investing a portion of
its assets in FRIC's Money Market Fund.
14
<PAGE>
The following Funds paid FRIMCo the listed advisory and administrative fees
(gross of reimbursements and/or waivers) for the years ended December 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
YEARS ENDED
12/31/99 12/31/98 12/31/97
-------- -------- --------
<S> <C> <C> <C>
Diversified Equity $11,377,505 $9,580,094 $6,906,245
Special Growth 5,867,193 5,901,577 4,556,999
Equity Income 1,793,367 2,039,971 1,721,974
Quantitative Equity 11,129,142 9,056,015 6,616,377
International Securities 9,446,953 8,859,189 7,751,289
Real Estate Securities 5,193,244 5,183,218 4,428,351
Diversified Bond 3,695,482 3,407,594 2,755,500
Multistrategy Bond 3,667,917 3,241,445 2,225,087
Tax Exempt Bond 498,685 525,312 361,226
U.S. Government Money Market 392,940 372,920 542,075
Tax Free Money Market 491,260 429,613 266,939
Equity I 8,904,910 7,626,293 6,457,044
Equity II 4,636,747 3,792,749 3,226,955
Equity III 1,179,507 1,403,784 1,381,167
Equity Q 7,390,737 6,563,229 6,049,752
Tax-Managed Large Cap (formerly Equity T) 3,180,328 1,463,604 375,054
Tax-Managed Small Cap* 18,536 -- --
International 8,145,109 7,709,349 7,576,927
Emerging Markets 4,222,210 4,020,121 4,167,163
Fixed Income I 3,037,359 2,631,177 2,149,298
Fixed Income III 2,521,293 2,380,980 1,835,798
Short Term Bond 2,269,960 1,216,062 1,184,588
Money Market 5,108,573 2,719,009 1,805,170
</TABLE>
* TAX-MANAGED SMALL CAP FUND COMMENCED OPERATIONS DECEMBER 1, 1999.
Effective October 15, 1997, FRIMCo voluntarily agreed to waive 0.15% of its
0.25% combined advisory and administrative fee for the Money Market Fund. FRIMCo
waived fees in the amounts of $1,611,140, $1,631,406 and $3,065,144 for the
years ended December 31, 1997, 1998 and 1999, respectively. As a result of the
waivers, the Fund paid advisory and administrative equal to $194,031, $1,087,604
and $2,043,429 for the years ended December 31, 1997, 1998 and 1999,
respectively.
Prior to June 15, 1998, FRIMCo voluntarily agreed to waive 0.13% of its 0.20%
advisory and administrative fees for the US Government Money Market Fund.
Effective June 15, 1998, FRIMCo has contractually agreed to waive a portion of
its combined advisory fee, up to the full amount of those fees, equal to the
amount by which the Fund's total operating expenses exceed 0.30% of the Fund's
average daily net assets on an annual basis. FRIMCo waived fees in the amounts
of $463,787, $316,055 and $379,754 for the years ended December 31, 1997, 1998
and 1999, respectively. As a result of the waivers, the Fund paid advisory and
administrative equal to $78,288, $56,865 and $13,186 for the years ended
December 31, 1997, 1998 and 1999, respectively.
Effective January 1, 1997, FRIMCo voluntarily agreed to waive 0.10% of its 0.25%
combined advisory and administrative fees for the Tax Free Money Market Fund.
FRIMCo waived fees in the amounts of $106,776, $171,845 and $196,504 for the
years ended December 31, 1997, 1998 and 1999, respectively. As a result of the
waivers, the Fund paid advisory and
15
<PAGE>
administrative equal to $160,163, $257,768 and $294,756 for the years ended
December 31, 1997, 1998 and 1999, respectively.
Effective May 1, 1996 until April 30, 2000, FRIMCo contractually agreed to waive
a portion of its combined advisory and administrative fees for the Multistrategy
Bond Fund, to the extent Fund level expenses exceed 0.80% of average daily net
assets on an annual basis. FRIMCo waived fees in the amounts of $126,393,
$57,035 and $327,074 for the years ended December 31, 1997, 1998 and 1999,
respectively. As a result of the waivers, the Fund paid advisory and
administrative fees equal to $2,225,087, $3,184,410 and $3,340,842 for the years
ended December 31, 1997, 1998 and 1999, respectively.
FRIMCo has contractually agreed to waive a portion of its 1.03% combined
advisory and administrative fees for the Tax-Managed Small Cap Fund, up to the
full amount of those fees, equal to the amount by which total Fund-level
expenses exceed 1.25% of the Fund's average daily net assets on an annual basis.
In addition, FRIMCo has contractually agreed to reimburse the Fund for any
remaining total Fund-level expenses after any FRIMCo waiver which exceed 1.25%
of average daily net assets on an annual basis. FRIMCo waived fees in the amount
of $18,536 for the year ended December 31, 1999. In addition, FRIMCo reimbursed
the Fund $101,897 for expenses over the cap in 1999. As a result of the waivers
and reimbursements, the Fund paid no advisory and administrative for the year
ended December 31, 1999. The Fund commenced operations on December 1, 1999.
FRIMCo is a wholly-owned subsidiary of Frank Russell Company, a subsidiary of
The Northwestern Mutual Life Insurance Company. FRIMCo's mailing address is 909
A Street, Tacoma, WA 98402.
MONEY MANAGERS. Except with respect to the Money Market and US Government Money
Market Funds, the Funds' money managers have no affiliations or relationships
with FRIC or FRIMCo other than as discretionary managers for all or a portion of
a Fund's portfolio, except some money managers (and their affiliates) may effect
brokerage transactions for the Funds (see, "Brokerage Allocations" and
"Brokerage Commissions"). Money managers may serve as advisors or discretionary
managers for Frank Russell Trust Company, other investment vehicles sponsored or
advised by Frank Russell Company or its affiliates, other consulting clients of
Frank Russell Company, other off-shore vehicles and/or for accounts which have
no business relationship with the Frank Russell Company organization.
From its advisory fees, FRIMCo, as agent for FRIC, pays all fees to the money
managers for their investment selection services. Quarterly, each money manager
is paid the pro rata portion of an annual fee, based on the average for the
quarter of all the assets allocated to the money manager. For the years ended
December 31, 1997, 1998 and 1999, management fees paid to the money managers
were:
<TABLE>
<CAPTION>
ANNUAL RATE
FUND $ AMOUNT PAID (AS A % OF AVERAGE DAILY NET ASSETS)
---- ------------- ------------------------------------
1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Equity I $2,425,193 $2,646,978 $2,988,941 0.23% 0.21% 0.20%
Equity II 1,716,048 1,973,599 2,296,509 0.40% 0.39% 0.36%
Equity III 439,093 421,765 342,095 0.19% 0.18% 0.17%
Fixed Income I 542,745 620,482 702,784 0.08% 0.07% 0.07%
Short Term Bond 410,761 414,057 795,354 0.17% 0.17% 0.17%
Fixed Income III 692,500 861,391 854,445 0.21% 0.19% 0.18%
International 3,947,057 3,863,814 3,785,779 0.39% 0.37% 0.34%
Equity Q 1,958,721 2,026,435 2,286,487 0.19% 0.19% 0.18%
Tax-Managed Large Cap 170,958 606,948 1,130,665 0.31% 0.31% 0.27%
Tax-Managed Small Cap* -- -- 6,673 -- -- 0.34%
Emerging Markets 2,369,288 2,230,317 2,151,950 0.68% 0.66% 0.65%
Diversified Equity 1,996,005 2,556,100 2,908,409 0.23% 0.21% 0.20%
Special Growth 1,914,056 2,419.648 2,249,925 0.40% 0.39% 0.36%
Equity Income 410,481 460,134 384,336 0.19% 0.18% 0.17%
Diversified Bond 462,945 529,842 555,643 0.08% 0.07% 0.07%
16
<PAGE>
International Securities 3,188,600 3,505,016 3,429,899 0.39% 0.37% 0.34%
Multistrategy Bond 751,497 990,456 1,046,997 0.21% 0.19% 0.18%
Quantitative Equity 1,648,992 2,153,019 2,623,428 0.19% 0.19% 0.18%
Real Estate Securities 1,529,207 1,757,612 1,711,842 0.29% 0.29% 0.28%
Tax Exempt Bond 179,885 252,321 305,104 0.25% 0.23% 0.19%
Tax Free Money Market 103,973 134,817 146,901 0.08% 0.08% 0.08%
</TABLE>
* THE TAX-MANAGED SMALL CAP FUND COMMENCED OPERATIONS ON DECEMBER 1, 1999.
Each money manager has agreed that it will look only to FRIMCo for the payment
of the money manager's fee, after FRIC has paid FRIMCo. Fees paid to the money
managers are not affected by any voluntary or statutory expense limitations.
Some money managers may receive investment research prepared by Frank Russell
Company as additional compensation, or may receive brokerage commissions for
executing portfolio transactions for the Funds through broker-dealer affiliates.
DISTRIBUTOR. Russell Fund Distributors, Inc. (the "Distributor") serves as the
distributor of FRIC Shares. The Distributor receives no compensation from FRIC
for its services other than Rule 12b-1 compensation and shareholder services
compensation for certain classes of Shares pursuant to FRIC's Rule 12b-1
Distribution Plan and Shareholder Services Plan, respectively. The Distributor
is a wholly owned subsidiary of FRIMCo and its mailing address is 909 A Street,
Tacoma, WA 98402.
CUSTODIAN AND PORTFOLIO ACCOUNTANT. State Street Bank and Trust Company ("State
Street") serves as the custodian for FRIC. State Street also provides basic
portfolio recordkeeping required for each of the Funds for regulatory and
financial reporting purposes. For these services, State Street is paid the
following annual fees, which will be billed and payable on a monthly basis:
CUSTODY:
Domestic Custody - (i) $3,000 per portfolio per fund; (ii) First $10 billion in
average daily net assets - 0.75%, Over $10 billion - 0.65%. Global Custody - (i)
First $500 million in month end net assets - 0.11% - 0.35%, Over $500 million -
0.03% - 0.35% depending on the geographic classification of the investments in
the international funds (ii) a transaction charge ranging from $25 - $100
depending on the geographic classification of the investments in the
international funds. All Custody - (i) Portfolio transaction charges range from
$6.00 - $25.00 depending on the type of transaction; (ii) Futures and Options
charges range from $8.00 - $25.00; (iii) monthly pricing fees of $375.00 per
portfolio (except for the Tax Free Money Market Fund) and $6.00 - $11.00 per
security; (iv) on-line access charges of $2,500 per fund; and (v) Reimbursement
of out-of-pocket expenses including postage, transfer fees, stamp duties, taxes,
wire fees, telexes and freight. In addition, interest earned on uninvested cash
balances will be used to offset the Funds' custodian expense.
FUND ACCOUNTING:
Domestic Fund Accounting - (i) $10,000 per portfolio; and (ii) 0.015% of average
daily net assets. International Fund Accounting - (i) $24,000 per portfolio per
year; and (ii) 0.03% of month end net assets. Yield calculation services -
$4,200 per fixed income fund. Tax accounting services - $8,500 per Equity Fund,
$11,000 per Fixed Income Fund, and $15,000 per Global Fund. The mailing address
for State Street Bank and Trust Company is: 1776 Heritage Drive, North Quincy,
MA 02171.
TRANSFER AND DIVIDEND DISBURSING AGENT. FRIMCo serves as Transfer Agent for
FRIC. For this service, FRIMCo is paid a fee for transfer agency and dividend
disbursing services provided to FRIC. From this fee, which is based upon the
number of shareholder accounts and total assets of the Funds, FRIMCo compensates
unaffiliated agents who assist in providing these services. FRIMCO is also
reimbursed by FRIC for certain out-of-pocket expenses, including postage, taxes,
wires, stationery and telephone. FRIMCo's mailing address is 909 A Street,
Tacoma, WA 98402.
ORDER PLACEMENT DESIGNEES. FRIC has authorized certain Financial Intermediaries
to accept on its behalf purchase and redemption orders for FRIC Shares. Certain
Financial Intermediaries are authorized, subject to approval of FRIC's
Distributor, to designate other intermediaries to accept purchase and redemption
orders on FRIC's behalf. With respect to those intermediaries, FRIC will be
deemed to have received a purchase or redemption order when such a Financial
Intermediary or, if applicable, an authorized designee, accepts the order. The
customer orders will be priced at the applicable
17
<PAGE>
Fund's net asset value next computed after they are accepted by such a Financial
Intermediary or an authorized designee, provided that Financial Intermediary or
an authorized designee timely transmits the customer order to FRIC.
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP serves as the independent
accountants of FRIC. PricewaterhouseCoopers LLP is responsible for performing
annual audits of the financial statements and financial highlights of the Funds
in accordance with generally accepted auditing standards and a review of federal
tax returns. The mailing address of PricewaterhouseCoopers LLP is 1800 First
Interstate Center, 999 Third Avenue, Seattle, WA 98104-4098.
CODES OF ETHICS. FRIC, FRIMCo and RFD have each adopted a Code of Ethics
as required under SEC Rule 17j-1. These Codes permit personnel subject to the
Codes to invest in securities, which may include securities in which the
Funds can invest. Personal investments are subject to the regulatory and
disclosure provisions of the respective Codes. In addition, each Money
Manager has adopted a Code of Ethics under Rule 17j-1. The table below
indicates whether each Money Manager's Code of Ethics permits personnel
covered by the Code to invest in securities and, where appropriate, to invest
in securities in which a Fund advised by that Money Manager may invest.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
IS PERSONAL INVESTING ARE INVESTMENTS IN SECURITIES OWNED BY
MONEY MANAGER ALLOWED? THE ADVISED FUND ALLOWED?
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
AEW Capital Management, L.P. Yes No
- ----------------------------------------------------------------------------------------------------
Alliance Capital Management Yes Yes, but not in securities with pending
L.P. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Barclays Global Fund Yes Yes, but not in securities with pending
Advisors N.A. or possible client buy or sell orders
and certain blackouts apply to
securities of Barclays PLC and
securities underwritten by Barclays
affiliates
- ----------------------------------------------------------------------------------------------------
BlackRock Financial Yes Yes, but not in securities with pending
Management or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
The Boston Company Asset Yes Yes, but not in securities with pending
Management or possible client buy or sell orders,
also, certain persons may not purchase
securities issued by financial services
organizations
- ----------------------------------------------------------------------------------------------------
CapitalWorks Investment Yes Yes, but not in securities with pending
Partners or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Cohen & Steers Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Delaware International Yes Yes, but not in securities with pending
Advisors Limited or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Delphi Management, Inc. Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Equinox Capital Management, Yes Yes, but not in securities with pending
Inc. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Fidelity Management Trust Yes Cannot purchase securities on a
Company restricted list
- ----------------------------------------------------------------------------------------------------
Fiduciary International, Yes Yes, but not in securities with pending
Inc. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Foreign & Colonial Emerging Yes Cannot purchase securities on a
Markets Limited restricted list
- ----------------------------------------------------------------------------------------------------
Franklin Portfolio Yes Yes, but not in securities with pending
Associates LLC or possible client buy or sell orders,
also, certain persons may not invest in
securities of financial services
organizations
- ----------------------------------------------------------------------------------------------------
Geewax, Terker & Company Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Genesis Asset Managers, Ltd. Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
GlobeFlex Capital, L.P. Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Jacobs Levy Equity Yes Yes, but not in securities with pending
Management, Inc. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
J.P. Morgan Investment Yes Cannot purchase securities on a
Management, Inc. restricted list or securities of
financial services organizations
- ----------------------------------------------------------------------------------------------------
Lazard Asset Management Yes Cannot purchase securities on a
restricted list
- ----------------------------------------------------------------------------------------------------
Lincoln Capital Management Yes Yes, but not in securities with pending
Company or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Marsico Capital Management, Severely restricts No
LLC personal trading except
for a limited number of specific transactions such
as purchase of mutual fund shares, commercial
paper, etc.
- ----------------------------------------------------------------------------------------------------
Mastholm Asset Management, Yes Yes, but not in securities with pending
LLC or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
MFS Institutional Advisors, Yes Yes, but not in securities with pending
Inc. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Miller, Anderson & Yes Yes, but not in securities with pending
Sherrerd, LLP or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Montgomery Asset Management Yes Yes, but not in securities with pending
LLC or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Nicholas Applegate Capital Yes Yes, but not in securities with pending
Management or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Oechsle International Yes Yes, but not in securities with pending
Advisors, LLC or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Pacific Investment Yes Yes, but not in securities with pending
Management Company or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Peachtree Asset Management Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Sanford C. Bernstein & Co., Yes Yes, subject to blackouts and other
Inc. restrictions
- ----------------------------------------------------------------------------------------------------
Schroders Capital Yes Cannot purchase securities on a
Management International restricted list
Limited
- ----------------------------------------------------------------------------------------------------
Security Capital Global Yes Yes, but not in securities with pending
Capital Management Group or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Sirach Capital Management, Yes Yes, but not in securities with pending
Inc. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Standish, Ayer & Wood, Inc. Yes Cannot purchase securities on a
restricted list
- ----------------------------------------------------------------------------------------------------
STW Fixed Income Management Yes Yes, but not in securities with pending
Ltd. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Strong Capital Management Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Suffolk Capital Management Yes Yes, but not in securities with pending
Ltd. or possible client buy or sell orders or
in securities of which 10% or more are
held in portfolios managed by Suffolk
- ----------------------------------------------------------------------------------------------------
Turner Investment Partners Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Weiss, Peck & Greer, L.L.C. Yes Yes, but not in securities with pending
or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
Westpeak Investment Yes Yes, but not in securities with pending
Advisors, L.P. or possible client buy or sell orders
- ----------------------------------------------------------------------------------------------------
</TABLE>
PLAN PURSUANT TO RULE 18f-3. Securities and Exchange Commission (the "SEC") Rule
18f-3 under the 1940 Act, permits a registered open-end investment company to
issue multiple classes of Shares in accordance with a written plan approved by
the investment company's board of trustees that is filed with the SEC. At a
meeting held on April 22, 1996, the Board adopted a plan pursuant to Rule 18f-3
(the "Rule 18f-3 Plan") on behalf of each Fund that issues multiple classes of
Shares (each a "Multiple Class Fund"). At a meeting held on June 3, 1998, the
Board amended the Rule 18f-3 Plan to create classes for the Institutional Funds.
On November 9, 1998, the Board again amended the Rule 18f-3 Plan to revise the
previously authorized classes. On August 9, 1999, the Board amended the Rule
18f-3 Plan to create classes for the Tax-Managed Small Cap Fund, Tax-Managed
Large Cap Fund and the Tax-Managed Global Equity Fund. On November 22, 1999, the
Board amended the Rule 18f-3 Plan to create Class A Shares for all Funds except
the Institutional Funds and the money market funds. For purposes of this
Statement of Additional Information, each Fund that issues multiple classes of
Shares is referred to as a "Multiple Class Fund." The key features of the Rule
18f-3 plan are as follows: Shares of each class of a Multiple Class Fund
represent an equal pro rata interest in the underlying assets of that Fund, and
generally have identical voting, dividend, liquidation, and other rights,
preferences, powers, restrictions, limitations, qualifications and terms and
conditions, except that: (1) each class of Shares offered in connection with a
Rule 12b-1 plan may bear certain fees under its respective Rule 12b-1 plan and
may have exclusive voting rights on matters pertaining to that plan and any
related agreements; (2) each class of Shares may contain a conversion feature;
(3) each class of Shares may bear differing amounts of certain class expenses;
(4) different policies may be established with respect to the payment of
distributions on the classes of Shares of a Multiple Class Fund to equalize the
net asset values of the classes or, in the absence of such policies, the net
asset value per share of the different classes may differ at certain times; (5)
each class of Shares of a Multiple Class Fund may have different exchange
privileges from another class; (6) each class of Shares of a Multiple Class Fund
may have a different class designation from another class of that Fund; and (7)
each class of Shares offered in connection with a shareholder servicing plan
would bear certain fees under its respective plan.
DISTRIBUTION PLAN. Under the 1940 Act, the SEC has adopted Rule 12b-1, which
regulates the circumstances under which the Funds may, directly or indirectly,
bear distribution expenses. Rule 12b-1 provides that the Funds may pay for such
expenses only pursuant to a plan adopted in accordance with Rule 12b-1.
Accordingly, the Multiple Class Funds have adopted a distribution plan (the
"Distribution Plan") for the Multiple Class Funds' Class C Shares, which are
described in the respective Funds' Prospectuses. In adopting the Distribution
Plan, a majority of the Trustees, including a majority of the Trustees who are
not "interested persons" (as defined in the 1940 Act) of FRIC and who have no
direct or indirect financial interest in the operation of the Distribution Plan
or in any agreements entered into in connection with the Distribution Plan (the
"Independent Trustees"), have concluded, in conformity with the requirements of
the 1940 Act, that there is a reasonable likelihood that the Distribution Plan
will benefit each respective Multiple Class Fund and its shareholders. In
connection with the Trustees' consideration of whether to adopt the Distribution
Plan, the Distributor, as the Multiple Class Funds' principal underwriter,
represented to the Trustees that the Distributor believes that the Distribution
Plan should result in increased sales and asset retention for the Multiple Class
Funds by enabling the Multiple Class Funds to reach and retain more investors
and Financial Intermediaries (such as brokers, banks, financial planners,
investment advisors and other financial institutions), although it is impossible
to know for certain, in the absence of a Distribution Plan or under an
alternative distribution arrangement, the level of sales and asset retention
that a Multiple Class Fund would have.
The 12b-1 fees may be used to compensate (a) Selling Agents (as defined below)
for sales support services provided, and related expenses incurred with respect
to Class C Shares, by such Selling Agents, and (b) the Distributor for
distribution services provided by it, and related expenses incurred, including
payments by the Distributor to compensate Selling Agents for providing support
services. The Distribution Plan is a compensation-type plan. As such, FRIC makes
no distribution payments to the Distributor with respect to Class C Shares
except as described above. Therefore, FRIC does not pay for unreimbursed
expenses of the Distributor, including amounts expended by the Distributor in
excess of amounts received by it from FRIC, interest, carrying or other
financing charges in connection with excess amounts expended, or the
Distributor's overhead expenses. However, the Distributor may be able to recover
such amount or may earn a profit from future payments made by FRIC under the
Distribution Plan.
18
<PAGE>
The Distribution Plan provides that each Multiple Class Fund may spend annually,
directly or indirectly, up to 0.75% of the average daily net asset value of its
Class C and Class D Shares for any activities or expenses primarily intended to
result in the sale of Class C and Class D Shares of a Multiple Class Fund. Such
payments by FRIC will be calculated daily and paid periodically and shall not be
made less frequently than quarterly. Any amendment to increase materially the
costs that a Multiple Class Fund's Shares may bear for distribution pursuant to
the Distribution Plan shall be effective upon a vote of the holders of the
affected Class of the lesser of (a) more than fifty percent (50%) of the
outstanding Shares of the affected Class of a Multiple Class Fund or (b)
sixty-seven percent (67%) or more of the Shares of the affected Class of a
Multiple Class Fund present at a shareholders' meeting, if the holders of more
than 50% of the outstanding Shares of the affected Class of such Fund are
present or represented by proxy (a "1940 Act Vote"). The Distribution Plan does
not provide for the Multiple Class Funds to be charged for interest, carrying or
any other financing charges on any distribution expenses carried forward to
subsequent years. A quarterly report of the amounts expended under the
Distribution Plan, and the purposes for which such expenditures were incurred,
must be made to the Trustees for their review. The Distribution Plan may not be
amended without approval of the holders of the affected Class of Shares. The
Distribution Plan and material amendments to it must be approved annually by all
of the Trustees and by the Independent Trustees. While the Distribution Plan is
in effect, the selection and nomination of the Independent Trustees shall be
committed to the discretion of such Independent Trustees. The Distribution Plan
is terminable, as to a Multiple Class Fund's Shares, without penalty at any time
by (a) a vote of a majority of the Independent Trustees, or (b) a vote of the
holders of the lesser of (a) more than fifty percent (50%) of the outstanding
Shares of the affected Class of a Multiple Class Fund or (b) a 1940 Act Vote.
Under the Distribution Plan, the Multiple Class Funds may also enter into
agreements ("Selling Agent Agreements") with Financial Intermediaries and with
the Distributor to provide sales support services with respect to Multiple Class
Fund Shares held by or for the customers of the Financial Intermediaries.
Financial Intermediaries that have entered into Selling Agent Agreements are
referred to in this Statement as "Selling Agents."
Under the Distribution Plan, the following Multiple Class Funds' Class C Shares
accrued expenses in the following amounts, payable as compensation to the
Distributor, for the year ended December 31, 1999 (these amounts were for
compensation to dealers):
CLASS C
-------
Diversified Equity $48,812
Special Growth 17,589
Equity Income 4,462
Quantitative Equity 44,277
International Securities 23,083
Real Estate Securities 6,108
Diversified Bond 18,815
Tax-Managed Large Cap 133
Tax-Managed Small Cap 65
Short Term Bond 4,312
Multistrategy Bond 23,746
Tax Exempt Bond 1,305
Emerging Markets 4,363
SHAREHOLDER SERVICES PLAN. A majority of the Trustees, including a majority of
Independent Trustees, has adopted and amended a Shareholder Services Plan for
certain classes of Shares of the Funds ("Servicing Plan"). The Servicing Plan
was adopted on April 22, 1996 and amended on June 3, 1998, November 9, 1998,
August 9, 1999 and November 22, 1999.
Under the Service Plan, FRIC may compensate the Distributor or any investment
advisers, banks, broker-dealers, financial planners or other financial
institutions that are dealers of record or holders of record or that have a
servicing relationship with the beneficial owners or record holders of Shares of
the Class A, Class C or Class E, offering such Shares ("Servicing Agents"), for
any activities or expenses primarily intended to assist, support or service
their clients who beneficially own or are primarily intended to assist, support
or service their clients who beneficially own or are record holders of Shares of
FRIC's Class A, Class C or Class E. Such payments by FRIC will be calculated
daily and paid quarterly at a rate or rates set
19
<PAGE>
from time to time by the Trustees, provided that no rate set by the Trustees for
any Class A, Class C or Class E Shares may exceed, on an annual basis, 0.25% of
the average daily net asset value of that Fund's Shares.
Among other things, the Service Plan provides that (1) the Distributor shall
provide to FRIC's officers and Trustees, and the Trustees shall review at least
quarterly, a written report of the amounts expended by it pursuant to the
Service Plan, or by Servicing Agents pursuant to Service Agreements, and the
purposes for which such expenditures were made; (2) the Service Plan shall
continue in effect for so long as its continuance is specifically approved at
least annually by the Trustees, and any material amendment thereto is approved
by a majority of the Trustees, including a majority of the Independent Trustees,
cast in person at a meeting called for that purpose; (3) while the Service Plan
is in effect, the selection and nomination of the Independent Trustees shall be
committed to the discretion of such Independent Trustees; and (4) the Service
Plan is terminable, as to a Multiple Class Fund's Shares, by a vote of a
majority of the Independent Trustees.
Under the Service Plan, the following Multiple Class Funds' Class C and Class E
Shares accrued expenses in the following amounts payable to the Distributor, for
the year ended December 31, 1999:
CLASS C CLASS E
Diversified Equity $ 16,275 $ 30,910
Special Growth 5,863 14,559
Equity Income 1,487 2,535
Quantitative Equity 14,759 19,846
International Securities 7,694 12,644
Real Estate Securities 2,036 11,042
Diversified Bond 6,272 12,364
Tax-Managed Large Cap 44 --
Tax-Managed Small Cap 22 --
Short-Term Bond 1,437 14,758
Equity I -- 59,737
Equity II -- 40,342
Equity III -- 10,187
Fixed I -- 52,962
Fixed III -- 3,713
International -- 43,755
Equity Q -- 37,958
Emerging Markets 1,454 8,362
Diversified Equity 16,275 30,910
Real Estate Securities 2,036 11,042
Special Growth 5,863 14,559
Equity Income 1,487 2,535
Short-Term Bond 1,437 14,758
Diversified Bond 6,272 12,364
International Securities 7,694 12,644
Multistrategy Bond 7,915 8,153
Tax Exempt Bond 435 4,872
Quantitative Equity 14,759 19,846
No Class A Shares were issued during the year ended December 31, 1999.
FUND EXPENSES. The Funds will pay all their expenses other than those expressly
assumed by FRIMCo. The principal expense of the Funds is the annual advisory fee
and the annual administrative fee, each payable to FRIMCo. The Funds' other
expenses include: fees for independent accountants, legal, transfer agent,
registrar, custodian, dividend disbursement, and portfolio and shareholder
recordkeeping services, and maintenance of tax records (except for Money Market,
Tax Exempt Bond, U.S. Government Money Market, and Tax Free Money Market Funds);
state taxes; brokerage fees and commissions; insurance premiums; association
membership dues; fees for filing of reports and registering Shares with
regulatory bodies; and such extraordinary expenses as may arise, such as federal
taxes and expenses incurred in connection with litigation
20
<PAGE>
proceedings and claims and the legal obligations of FRIC to indemnify the
Trustees, officers, employees, shareholders, distributors and agents with
respect thereto.
Whenever an expense can be attributed to a particular Fund, the expense is
charged to that Fund. Other common expenses are allocated among the Funds based
primarily upon their relative net assets.
As of the date of this Statement, FRIMCo has contractually agreed to waive
and/or reimburse until February 28, 2001 all or a portion of its aggregate
combined advisory and administrative fees with respect to certain Funds.
PURCHASE AND REDEMPTION OF FUND SHARES
MINIMUM INVESTMENT REQUIREMENTS. You may be eligible to purchase Fund Shares if
you do not meet the applicable required minimum investment. The Funds, at their
discretion, may waive the initial minimum investment requirement for some
employee benefit plans and other plans with at least $5 million in total plan
assets or if requirements are met for a combined purchase privilege, cumulative
quantity discount, or statement of intention. If you invest less than the
required minimum investment in a Fund, and the minimum investment required has
not been waived for you, the Funds reserve the right to refuse your order or to
correct, within a reasonable period, your purchase transaction and notify you
promptly of that correction.
Trustees, officers, employees and certain third party contractors of FRIC and
its affiliates and their spouses and children are not subject to any initial
minimum investment requirement.
STALE CHECKS. If you do not cash a dividend, distribution, or redemption
check within 180 days from the date it was issued, the Funds will act to
protect themselves and you. No interest will accrue on amounts represented
by uncashed checks.
For uncashed dividend and distribution checks and uncashed redemption checks of
$25 or less, the Funds will deem the unchased check to be an order to reinvest
the proceeds of the uncashed check into your account with that Fund at its
then-current net asset value, and, if the uncashed check represents a dividend
or distribution, the Funds will deem it to be an order to reinvest all future
Fund dividends and distributions unless otherwise notified by you. If you do not
have an open account with that Fund, an uncashed check of more than $25 will be
deemed an order to purchase shares of the Frank Russell Investment Company Money
Market Fund, and the proceeds of any uncashed checks for $25 or less will be
held in the Fund's general account for your benefit in accordance with
applicable law.
For redemption checks of more than $25, the Fund will reissue the check. If the
reissued check is not cashed within 180 days from the date it was reissued, the
Funds will deem that to be an order to reinvest the proceeds of the uncashed
check into your account with that Fund at its then-current net asset value. If
you no longer have a current account open for that Fund, the uncashed check will
be deemed an order to purchase shares of the Frank Russell Investment Company
Money Market Fund.
VALUATION OF FUND SHARES. The net asset value per share is calculated for each
Fund Class on each business day on which Shares are offered or orders to redeem
are tendered. A business day is one on which the New York Stock Exchange
("NYSE") is open for trading, and for the Money Market, US Government Money
Market, and Tax Free Money Market Funds, any day on which both the NYSE is open
for trading and the Boston Federal Reserve Bank is open for business. Currently,
the NYSE is open for trading every weekday except New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. The Boston Federal Reserve Bank
is open for business Good Friday and every day the NYSE is open, except Columbus
Day and Veterans' Day.
Net asset value per share is computed for each class of Shares of a Fund by
dividing the current value of the Fund's assets attributable to each class of
Shares, less liabilities attributable to that class of Shares, by the number of
each individual class of Shares of the Fund outstanding, and rounding to the
nearest cent.
The International, Emerging Markets, International Securities, Fixed Income I,
Diversified Bond, Fixed Income III and Multistrategy Bond Funds' portfolio
securities actively trade on foreign exchanges which may trade on Saturdays and
on days that the Funds do not offer or redeem Shares. The trading of portfolio
securities on foreign exchanges on such days may significantly increase or
decrease the net asset value of Fund Shares when the shareholder is not able to
purchase or redeem Fund Shares. Further, because foreign securities markets may
close prior to the time the Funds determine their net asset values, events
affecting the value of the portfolio securities occurring between the time
prices are determined and the time the
21
<PAGE>
Funds calculate their net asset values may not be reflected in the calculations
of net asset value unless FRIMCo determines that a particular event would
materially affect the net asset value.
VALUATION OF PORTFOLIO SECURITIES. With the exceptions noted below, the Funds
value their portfolio securities at "fair market value." This generally means
that equity securities and fixed-income securities listed and principally traded
on any national securities exchange are valued on the basis of the last sale
price or, if there were no sales, at the closing bid price, on the primary
exchange on which the security is traded. US over-the-counter equity and
fixed-income securities and options are valued on the basis of the closing bid
price, and futures contracts are valued on the basis of last sale price.
Because many fixed-income securities do not trade each day, last sale or bid
prices often are not available. As a result, these securities may be valued
using prices provided by a pricing service when the prices are believed to be
reliable--that is, when the prices reflect the fair market value of the
securities.
International equity securities traded on a national securities exchange are
valued on the basis of the last sale price. International securities traded
over-the-counter are valued on the basis of the mean of bid prices. If there is
no last sale or mean bid price, the securities may be valued on the basis of
prices provided by a pricing service when the prices are believed to be
reliable.
Money market instruments maturing within 60 days of the valuation date held by
the Funds are valued using the amortized cost method. Under this method, a
portfolio instrument is initially valued at cost, and thereafter a constant
accretion/amortization to maturity of any discount or premium is assumed. The
Funds utilize the amortized cost valuation method in accordance with Rule 2(a)-7
of the 1940 Act. The money market instruments are valued at "amortized cost"
unless the Board determines that amortized cost does not represent fair value.
Money market instruments maturing within 60 days of the valuation date held by
the non-money market Funds are also valued at "amortized cost" unless the Board
determines that amortized cost does not represent fair value. While amortized
cost provides certainty in valuation, it may result in periods when the value of
an instrument is higher or lower than the price a Fund would receive if it sold
the instrument.
Municipal obligations are appraised or priced by an independent pricing source,
approved by the Board, which utilizes relevant information, such as bond
transactions, quotations from bond dealers, market transactions in comparable
securities and various relationships between securities.
The Funds value securities for which market quotations are not readily available
at "fair value," as determined in good faith and in accordance with procedures
established by the Board.
PORTFOLIO TRANSACTION POLICIES. Generally, securities are purchased for the
Equity I, Equity III, Equity Q, International, Emerging Markets, Fixed Income I,
Diversified Equity, Equity Income, Quantitative Equity, International
Securities, Real Estate Securities and Diversified Bond Funds for investment
income and/or capital appreciation and not for short-term trading profits.
However, these Funds may dispose of securities without regard to the time they
have been held when such action, for defensive or other purposes, appears
advisable to their money managers. The Equity II, Fixed Income III, Special
Growth, Short Term Bond, Multistrategy Bond and Tax Exempt Bond Funds trade more
actively to realize gains and/or to increase yields on investments by trading to
take advantage of short-term market variations. This policy is expected to
result in higher portfolio turnover for these Funds. Conversely, the Tax-Managed
Large Cap Fund and the Tax-Managed Small Cap Fund, which seek to minimize the
impact of taxes on their shareholders, attempt to limit short-term capital gains
and to minimize the realization of net long-term capital gains. These policies
are expected to result in a low portfolio turnover rate for the Tax-Managed
Large Cap Fund and the Tax-Managed Small Cap Fund.
The portfolio turnover rates for certain multi-manager Funds are likely to be
somewhat higher than the rates for comparable mutual funds with a single money
manager. Decisions to buy and sell securities for each Fund are made by a money
manager independently from other money managers. Thus, one money manager could
be selling a security when another money manager for the same Fund is purchasing
the same security thereby increasing the Fund's portfolio turnover ratios and
brokerage commissions. The Funds' changes of money managers may also result in a
significant number of portfolio sales and purchases as the new money manager
restructures the former money manager's portfolio. In view of the Tax-Managed
Large Cap and Tax-Managed Small Cap Funds' investment objective and policies,
those Funds' ability to change money managers may be constrained.
22
<PAGE>
The Funds, except the Tax Exempt Bond, Tax-Managed Large Cap and Tax-Managed
Small Cap Funds, do not give significant weight to attempting to realize
long-term capital gains when making portfolio management decisions.
PORTFOLIO TURNOVER RATE. The portfolio turnover rate for each Fund is calculated
by dividing the lesser of purchases or sales of portfolio securities for the
particular year, by the monthly average value of the portfolio securities owned
by the Fund during the past 13 months. For purposes of determining the rate, all
short-term securities, including options, futures, forward contracts, and
repurchase agreements, are excluded. Significant variations in the portfolio
turnover rates for any Fund generally are primarily attributable to money
manager changes, market volatility, and/or duration of portfolio investments.
The portfolio turnover rates for the last two years for each Fund (other than
the Money Market, US Government Money Market and Tax Free Money Market Funds)
were:
YEARS ENDED
12/31/99 12/31/98
-------- --------
Equity I 112% 101%
Equity II 112 129
Equity III 146 136
Equity Q 90 75
Tax-Managed Large Cap (formerly Equity T) 48 51
Tax-Managed Small Cap* 3 --
International 119 64
Emerging Markets 95 59
Fixed Income I 139 227
Fixed Income III 131 342
Diversified Equity 110 100
Special Growth 112 129
Equity Income 138 150
Quantitative Equity 90 77
International Securities 121 68
Real Estate Securities 43 43
Diversified Bond 152 217
Short Term Bond 177 130
Multistrategy Bond 134 335
Tax Exempt Bond 119 74
* THE TAX-MANAGED SMALL CAP FUND COMMENCED OPERATIONS ON DECEMBER 1, 1999.
A high portfolio turnover rate generally will result in higher brokerage
transaction costs and may result in higher levels of realized capital gains or
losses with respect to a Fund's portfolio securities (see "Taxes").
BROKERAGE ALLOCATIONS. Transactions on US stock exchanges involve the payment of
negotiated brokerage commissions; on non-US exchanges, commissions are generally
fixed. There is generally no stated commission in the case of securities traded
in the over-the-counter markets, including most debt securities and money market
instruments, but the price includes an undisclosed payment in the form of a
mark-up or mark-down. The cost of securities purchased from underwriters
includes an underwriting commission or concession.
Subject to the arrangements and provisions described below, the selection of a
broker or dealer to execute portfolio transactions is usually made by the money
manager. FRIC's advisory agreements with FRIMCo and the money managers provide,
in substance and subject to specific directions from officers of FRIC or FRIMCo,
that in executing portfolio transactions and selecting brokers or dealers, the
principal objective is to seek the best overall terms available to the Fund.
Securities will ordinarily be purchased in the primary markets, and the money
manager shall consider all factors it deems relevant in assessing the best
overall terms available for any transaction, including the breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any (for the specific transaction and on a continuing basis).
23
<PAGE>
In addition, the advisory agreements authorize FRIMCo and the money managers,
respectively, in selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, to consider the
"brokerage and research services" (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided to the Fund, FRIMCo and/or to
the money manager (or their affiliates). FRIMCo and the money managers are
authorized to cause the Funds to pay a commission to a broker or dealer who
provides such brokerage and research services for executing a portfolio
transaction which is in excess of the amount of commissions another broker or
dealer would have charged for effecting that transaction. FRIMCo or the money
manager, as appropriate, must determine in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided -- viewed in terms of that particular transaction or in terms of all
the accounts over which FRIMCo or the money manager exercises investment
discretion. Any commission, fee or other remuneration paid to an affiliated
broker-dealer is paid in compliance with FRIC's procedures adopted in accordance
with Rule 17e-1 of the 1940 Act.
FRIMCo does not expect FRIC to ordinarily effect a significant portion of FRIC's
total brokerage business for the Funds with broker-dealers affiliated with its
money managers. However, a money manager may effect portfolio transactions for
the segment of a Fund's portfolio assigned to the money manager with a
broker-dealer affiliated with the manager, as well as with brokers affiliated
with other money managers.
FRIMCo and each Money Manager arranges for the purchase and sale of FRIC's
securities and selects brokers and dealers (including affiliates), which in
its best judgment provide prompt and reliable execution at favorable prices
and reasonable commission rates. FRIMCo and each Money Manager may select
brokers and dealers which provide it with research services and may cause
FRIC to pay such brokers and dealers commissions which exceed those other
brokers and dealers may have charged, if it views the commissions as
reasonable in relation to the value of the brokerage and/or research
services. In selecting a broker, including affiliates, for a transaction, the
primary consideration is prompt and effective execution of orders at the most
favorable prices. Subject to that primary consideration, dealers may be
selected for research, statistical or other services to enable FRIMCo and
each Money Manager to supplement its own research and analysis.
The Funds may effect portfolio transactions with or through Frank Russell
Securities, Inc. ("FRS"), an affiliate of FRIMCo, only when the applicable money
manager determines that the Funds will receive competitive execution, price and
commissions. Where brokerage transactions are effected by money managers on
behalf of the Funds through FRS at the request of the FRIMCo, research services
obtained from third party service providers at market rates are provided to
FRIMCo by FRS. Such research services include performance measurement
statistics, fund analytics systems and market monitoring systems. This
arrangement may be used by any Fund other than those Funds which invest
principally in fixed income securities. All Funds may also effect portfolio
transactions on an agency basis through, and pay brokerage commissions to,
brokerage affiliates of the money managers.
BROKERAGE COMMISSIONS. The Board reviews, at least annually, the commissions
paid by the Funds to evaluate whether the commissions paid over representative
periods of time were reasonable in relation to commissions being charged by
other brokers and the benefits to the Funds. Frank Russell Company maintains an
extensive database showing commissions paid by institutional investors, which is
the primary basis for making this evaluation. Certain services received by
FRIMCo or money managers attributable to a particular transaction may benefit
one or more other accounts for which investment discretion is exercised by the
money manager, or a Fund other than that for which the particular portfolio
transaction was effected. The fees of the money managers are not reduced by
reason of their receipt of such brokerage and research services.
During the last three years, the brokerage commissions paid by the Funds were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Equity I $2,508,532 $ 2,185,029 $2,525,291
Equity II 1,236,438 1,111,879 743,450
Equity III 544,612 671,292 540,862
Equity Q 1,295,797 1,328,183 1,323,995
Tax-Managed Large Cap (formerly Equity T) 403,032 176,555 40,539
Tax-Managed Small Cap* 26,712 -- --
International 5,068,657 3,100,978 2,679,272
24
<PAGE>
Emerging Markets 2,035,042 1,414,084 1,722,534
Diversified Equity 2,438,549 2,137,221 2,340,509
Special Growth 1,226,126 1,362,922 828,211
Equity Income 615,257 732,684 515,622
Quantitative Equity 1,450,748 1,404,098 1,069,927
International Securities 4,794,982 2,865,227 2,193,334
Real Estate Securities 1,029,242 1,127,266 641,659
----------- --------- ------- -------
Total $24,673,726 $19,617,418 $17,165,205
=========== =========== ===========
</TABLE>
* TAX-MANAGED SMALL CAP FUND COMMENCED OPERATIONS ON DECEMBER 1, 1999.
The principal reasons for changes in several Funds' brokerage commissions for
the three years were (1) changes in Fund asset size, (2) changes in market
conditions, and (3) changes in money managers of certain Funds, which required
substantial portfolio restructurings, resulting in increased securities
transactions and brokerage commissions.
Fixed Income I, Fixed Income III, Diversified Bond, Short Term Bond,
Multistrategy Bond, Tax Exempt Bond, Money Market, US Government Money Market
and Tax Free Money Market Funds normally do not pay a stated brokerage
commission on transactions.
During the year ended December 31, 1999, approximately $2.6 million of the
brokerage commissions of the Funds were directed to brokers who provided
research services to FRIMCo. The research services included industry and company
analysis, portfolio strategy reports, economic analysis, and statistical data
pertaining to the capital markets.
Gross brokerage commissions received by affiliated broker/dealers from
affiliated and non-affiliated money managers for the year ended December 31,
1999, from portfolio transactions effected for the Funds, were as follows:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
AFFILIATED BROKER/DEALER COMMISSIONS COMMISSIONS
<S> <C> <C>
Autranet $ 16,389 0.07%
Bank of America 2,042 0.01
Commerz Bank 37,762 0.15
Donaldson, Lufking & Jenrette 73,002 0.30
Dresdner Klienworth 922 0.00
Frank Russell Securities 1,943,521 7.88
Jarnine Fleming 249 0.00
J.P. Morgan 180,516 0.73
Morgan Stanley 57,324 0.23
Robert Baird 19,204 0.08
Robinson Humphry 3,495 0.01
Salomon Smith Barney 167,915 0.68
Sanford C. Bernstein 75,740 0.31
State Street Bank 23,071 0.09
------ ----
Total $2,601,152 10.55%
---------- -----
</TABLE>
The percentage of total affiliated transactions (relating to trading activity)
to total transactions during the year ended December 31, 1999 for the Funds was
11.0%.
25
<PAGE>
During the year ended December 31, 1999, the Funds purchased securities issued
by the following regular brokers or dealers as defined by Rule 10b-1 of the 1940
Act, each of which is one of the Funds' ten largest brokers or dealers by dollar
amounts of securities executed or commissions received on behalf of the Funds.
The value of broker-dealer securities held as of December 31, 1999, was as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Salomon
FUND Merrill Morgan Goldman Credit Paine Smith Barney
Lynch Stanley Sachs Citibank Suisse Webber
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity I $17,616,064 $3,786,338
- ------------------------------------------------------------------------------------------------------------------------
Equity III 3,540,200 $221,231
- ------------------------------------------------------------------------------------------------------------------------
Equity Q $3,721,595 14,945,639 433,263 485,156
- ------------------------------------------------------------------------------------------------------------------------
Fixed Income I 9,022,952 999,210 4,507,710 $1,563,566 $1,590,547 285,165
- ------------------------------------------------------------------------------------------------------------------------
Fixed Income III 3,612,410 8,668,200 5,636,482 1,599,751 363,273 715,933
- ------------------------------------------------------------------------------------------------------------------------
Diversified Equity 16,729,444 3,484,938
- ------------------------------------------------------------------------------------------------------------------------
Equity Income 3,583,025 329,906
- ------------------------------------------------------------------------------------------------------------------------
Quantitative Equity 4,332,231 16,481,630 558,900
- ------------------------------------------------------------------------------------------------------------------------
Diversified Bond 2,971,698 971,729 1,261,638
- ------------------------------------------------------------------------------------------------------------------------
Short Term Bond 2,977,232 11,399,375 369,627
- ------------------------------------------------------------------------------------------------------------------------
Multistrategy Bond 5,554,262 9,401,493 5,490,050 1,851,452 441,819 883,034
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, the Funds did not have any holdings in their top 10
following broker-dealers:
Frank Russell Securities
Instinet Corp.
Investment Technology Group
YIELD AND TOTAL RETURN QUOTATIONS. The Funds compute their average annual total
return by using a standardized method of calculation required by the SEC and
report average annual total return for each class of Shares which they offer.
26
<PAGE>
Average annual total return is computed by finding the average annual compounded
rates of return on a hypothetical initial investment of $1,000 over the one,
five and ten year periods (or life of the Funds, as appropriate), that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1+T) to the power of n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the one,
five or ten year period at the end of the one,
five or ten year period (or fractional portion
thereof).
The calculation assumes that all dividends and distributions of each Fund are
reinvested at the price stated in the Prospectuses on the dividend dates during
the period, and includes all recurring fees that are charged to all shareholder
accounts. The average annual total returns for all classes of Shares are
reported in the respective Prospectuses.
Yields are computed by using standardized methods of calculation required by the
SEC. Similar to average annual total return calculations, a Fund calculates
yields for each class of Shares that it offers. Yields for Funds other than
Funds investing primarily in money market instruments (the "Money Market Funds")
are calculated by dividing the net investment income per share earned during a
30-day (or one month) period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[(A-B+1) to the power 6 -1]
------------------------------------
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = average daily number of Shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day
of the period
The yields for the Funds investing primarily in fixed-income instruments are
reported in the respective Prospectuses.
Each Money Market Fund computes its current annualized and compound effective
annualized yields using standardized methods required by the SEC. The annualized
yield for each Money Market Fund is computed by (a) determining the net change
in the value of a hypothetical account having a balance of one share at the
beginning of a seven calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account reflects the value
of additional Shares purchased with dividends declared on both the original
share and such additional Shares, but does not include realized gains and losses
or unrealized appreciation and depreciation. Compound effective yields are
computed by adding 1 to the base period return (calculated as described above),
raising that sum to a power equal to 365/7 and subtracting 1.
Yield may fluctuate daily and does not provide a basis for determining future
yields. Because each Money Market Fund's yield fluctuates, its yield cannot be
compared with yields on savings accounts or other investment alternatives that
provide an agreed-to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, length of maturities of
portfolio securities, the methods used by each fund to compute the yield
(methods may differ) and whether there are any special account charges which may
reduce effective yield.
Current and effective yields for the Class S Shares of the Money Market Funds
are reported in the Funds' respective Prospectuses.
27
<PAGE>
Each Fund may, from time to time, advertise non-standard performances, including
average annual total return for periods other than 1, 5 or 10 years or since
inception.
Each Fund may compare its performance with various industry standards of
performance, including Lipper Analytical Services, Inc. or other industry
publications, business periodicals, rating services and market indexes.
Tax-equivalent yields for the Tax Exempt Bond and Tax Free Money Market Funds
are calculated by dividing that portion of the yield of the appropriate Fund as
computed above which is tax exempt by one minus a stated income tax rate
(36.9%). The tax-equivalent yields for the Tax Exempt Bond and Tax Free Money
Market Funds are reported in the Funds' respective Prospectuses.
INVESTMENT RESTRICTIONS, POLICIES AND CERTAIN INVESTMENTS
Each Fund's investment objective is "fundamental" which means each investment
objective may not be changed without the approval of a majority of each Fund's
shareholders. Certain investment policies may also be fundamental. Other
policies may be changed by a Fund without shareholder approval. The Funds'
investment objectives are set forth in the respective Prospectuses.
INVESTMENT RESTRICTIONS. Each Fund is subject to the following fundamental
investment restrictions. Unless otherwise noted, these restrictions apply on a
Fund-by-Fund basis at the time an investment is being made.
No Fund will:
1. Invest in any security if, as a result of such investment, less than 75%
of its total assets would be represented by cash; cash items; securities of
the US government, its agencies, or instrumentalities; securities of other
investment companies; and other securities limited in respect of each
issuer to an amount not greater in value than 5% of the total assets of
such Fund. Investments by Funds, other than the Tax Free Money Market and
U.S. Government Money Market Funds, in Shares of the Money Market Fund are
not subject to this restriction, or to Investment Restrictions 2, 3, and
13. (See, "Investment Policies -- Cash Reserves.")
2. Invest 25% or more of the value of the Fund's total assets in the
securities of companies primarily engaged in any one industry (other than
the US government, its agencies and instrumentalities), but such
concentration may occur incidentally as a result of changes in the market
value of portfolio securities. This restriction does not apply to the Real
Estate Securities Fund. The Real Estate Securities Fund may invest 25% or
more of its total assets in the securities of companies directly or
indirectly engaged in the real estate industry. The Money Market Fund may
invest more than 25% of its assets in money market instruments issued by
domestic branches of US banks having net assets in excess of $100,000,000.
(Refer to the description of the Real Estate Securities Fund and the Money
Market Fund in the applicable Prospectuses for a description of each Fund's
policy with respect to concentration in a particular industry.)
3. Acquire more than 5% of the outstanding voting securities, or 10% of all
of the securities, of any one issuer.
4. Invest in companies for the purpose of exercising control or management.
5. Purchase or sell real estate; provided that a Fund may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
6. Purchase or sell commodities or commodities contracts except stock index
and financial futures contracts.
7. Borrow money, except that the Fund may borrow as a temporary measure for
extraordinary or emergency purposes, and not in excess of five percent of
its net assets; provided, that the Fund may borrow to facilitate
redemptions (not for leveraging or investment), provided that borrowings do
not exceed an amount equal to 33 1/3% of the current value of the Fund's
assets taken at market value, less liabilities other than borrowings. If at
any time the Fund's borrowings exceed this limitation due to a decline in
net assets, such borrowings will be reduced to the extent necessary to
comply with this limitation within three days. Reverse repurchase
agreements will not be considered borrowings for purposes of
28
<PAGE>
the foregoing restrictions, provided that the Fund will not purchase
investments when borrowed funds (including reverse repurchase agreements)
exceed 5% of its total assets.
8. Purchase securities on margin or effect short sales (except that a Fund
may obtain such short-term credits as may be necessary for the clearance of
purchases or sales of securities, may trade in futures and related options,
and may make margin payments in connection with transactions in futures
contracts and related options).
9. Engage in the business of underwriting securities issued by others or
purchase securities subject to legal or contractual restrictions on
disposition, except as permitted by the Tax Exempt Bond and Tax Free Money
Market Funds' investment objectives.
10. Participate on a joint or a joint and several basis in any trading
account in securities except to the extent permitted by the 1940 Act and
any applicable rules and regulations and except as permitted by any
applicable exemptive orders from the 1940 Act. The "bunching" of orders for
the sale or purchase of marketable portfolio securities with two or more
Funds, or with a Fund and such other accounts under the management of
FRIMCo or any money manager for the Funds to save brokerage costs or to
average prices among them shall not be considered a joint securities
trading account. The purchase of Shares of the Money Market Fund by any
other Fund shall also not be deemed to be a joint securities trading
account.
11. Make loans of money or securities to any person or firm; provided,
however, that the making of a loan shall not be construed to include (i)
the acquisition for investment of bonds, debentures, notes or other
evidences of indebtedness of any corporation or government which are
publicly distributed or of a type customarily purchased by institutional
investors; (ii) the entry into "repurchase agreements;" or (iii) the
lending of portfolio securities in the manner generally described in the
Funds' Prospectuses'.
12. Purchase or sell options except to the extent permitted by the policies
set forth in the sections "Certain Investments -- Options on Securities and
Indices," "Certain Investments -- Foreign Currency Options," "Certain
Investments -- Futures Contracts and Options on Future Contracts" and
"Certain Investments -- Forward Foreign Currency Contracts" below. The Tax
Exempt Bond and Tax Free Money Market Funds may purchase municipal
obligations from an issuer, broker, dealer, bank or other persons
accompanied by the agreement of such seller to purchase, at the Fund's
option, the municipal obligation prior to maturity thereof.
13. Purchase the securities of other investment companies except to the
extent permitted by the 1940 Act and any applicable rules and regulations
and except as permitted by any applicable exemptive orders from the 1940
Act.
14. Purchase from or sell portfolio securities to the officers, Trustees or
other "interested persons" (as defined in the 1940 Act) of FRIC, including
the Fund's money managers and their affiliates, except as permitted by the
1940 Act, SEC rules or exemptive orders.
15. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit any Fund from making any
otherwise permissible borrowings, mortgages or pledges, or entering into
permissible reverse repurchase agreements, and options and futures
transactions, or issuing shares of beneficial interest in multiple classes.
An additional fundamental policy is that (a) Fixed Income I, Diversified
Bond and Short Term Bond Funds may acquire convertible bonds which will be
disposed of by the Funds in as timely a manner as is practical after
conversion, and (b) Tax Exempt Bond Fund will not invest in interests in
oil, gas or other mineral exploration or development programs.
For purposes of these investment restrictions, the Tax Exempt Bond and Tax
Free Money Market Funds will consider as a separate issuer each:
governmental subdivision (i.e., state, territory, possession of the United
States or any political subdivision of any of the foregoing, including
agencies, authorities, instrumentalities, or similar entities, or of the
District of Columbia) if its assets and revenues are separate from those of
the government body creating it and the security is backed by its own
assets and revenues; the non-governmental user of an industrial development
bond, if the security is backed only by the assets and revenues of a
non-governmental user. The guarantee of a governmental or some other entity
is considered a separate security issued by the guarantor as well as the
other issuer for Investment Restrictions, industrial development bonds and
governmental issued securities. The issuer of all other municipal
obligations will be determined by the money manager on the basis of the
characteristics of the obligation, the most significant being the source of
the funds for the payment of principal and interest.
29
<PAGE>
INVESTMENT POLICIES.
FUND INVESTMENT SECURITIES
The following tables illustrate the investments that the Funds primarily
invest in or are permitted to invest in:
<TABLE>
<CAPTION>
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------- -------------
Diversified Equity Quantitative International Diversified Multistrategy Real
Type of Portfolio Equity Income Equity Securities Bond Bond Estate
SECURITY FUND FUND FUND FUND FUND FUND Securities
FUND
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stocks.......... |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Common stock equivalents
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
(warrants)........... |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
(options)............ |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
(convertible debt
securities)........ |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
(depository receipts) |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Preferred stocks....... |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Equity derivative |X| |X| |X| |X| |X|
securities.............
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Debt securities (below
investment grade or junk
bonds)............... |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
US government securities |X| |X| |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Municipal obligations.. |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Investment company
Securities........... |X| |X| |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Foreign securities..... |X| |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
US Tax
Tax- Tax- Tax Short Government Free
Emerging Managed Managed Special Exempt Term Money Money Money
Type of Portfolio Markets Large Cap Small Cap Growth Bond Bond Market Market Market
SECURITIES FUND FUND FUND FUND FUND FUND FUND FUND FUND
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stocks.......... |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
Common stock equivalents
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
(warrants)........... |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
(options)............ |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
(convertible debt
securities)........ |X| |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
(depository receipts) |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
Preferred stocks....... |X| |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
Equity derivative |X| |X| |X| |X|
securities.............
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
Debt securities (below
investment grade or junk
bonds)............... |X| |X|
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
US government securities |X| |X| |X| |X| |X| |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
Municipal obligations.. |X| |X|
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
Investment company
Securities........... |X| |X| |X| |X| |X| |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
Foreign securities..... |X| |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- --------- --------- --------- -------- ------------- ----------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Fixed Fixed
Type of Portfolio Equity I Equity II Equity III Equity Q International Income I Income III
SECURITY FUND FUND FUND FUND FUND FUND FUND
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stocks.......... |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Common stock equivalents
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
(warrants)........... |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
(options)............ |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
(convertible debt
securities)........ |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
(depository receipts) |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Preferred stocks....... |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Equity derivative |X| |X| |X| |X| |X|
securities.............
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Debt securities (below
investment grade or junk
bonds)............... |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
US government securities |X| |X| |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Municipal obligations.. |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Investment company
securities........... |X| |X| |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Foreign securities..... |X| |X| |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
</TABLE>
OTHER INVESTMENT PRACTICES
The Funds use investment techniques commonly used by other mutual funds.
The table below summarizes the principal investment practices of the Funds, each
of which may involve certain special risks. The Glossary located at the back of
the Statement of Additional Information describes each of the investment
techniques identified below.
<TABLE>
<CAPTION>
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------
Diversified Equity Quantitative International Diversified Multistrategy
Type of Portfolio Equity Income Equity Securities Bond Bond
SECURITY FUND FUND FUND FUND FUND FUND
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash reserves.......... |X| |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------
Repurchase agreements(1) |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------
When-issued and forward
commitment securities |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------
Reverse repurchase
agreements........... |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------
Lending portfolio
securities |X| |X| |X| |X| |X| |X|
not to exceed 33 1/3%
of total Fund assets.
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------
Illiquid securities
(limited to |X| |X| |X| |X| |X| |X|
15% of a Fund's net
assets)................
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------
Forward currency
contracts(2)......... |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------
Write (sell) call and put
options on securities,
securities indexes and
foreign currencies(3) |X| |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------
Purchase options on
securities, securities
indexes, and |X| |X| |X| |X| |X| |X|
currencies(3)..........
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------
Interest rate futures
contracts, stock index
futures contracts,foreign
currency contracts and |X| |X| |X| |X| |X| |X|
options on futures(4)
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------
Liquidity portfolios... |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------
</TABLE>
- ------------------------
(1) Under the 1940 Act, repurchase agreements are considered to be loans by a
Fund and must be fully collateralized by collateral assets. If the seller
defaults on its obligations to repurchase the underlying security, a Fund
may experience delay or difficulty in exercising its rights to realize upon
the security, may incur a loss if the value of the security declines and
may incur disposition costs in liquidating the security.
(2) Each of the International Securities, Diversified Bond and Multistrategy
Bond Funds may not invest more than one-third of its assets in these
contracts.
(3) A Fund will only engage in options where the options are traded on a
national securities exchange or in an over-the-counter market. A Fund may
invest up to 5% of its net assets, represented by the premium paid, in call
and put options. A Fund may write a call or put option to the extent that
the aggregate value of all securities or other assets used to cover all
such outstanding options does not exceed 25% of the value of its net
assets.
31
<PAGE>
(4) A Fund does not enter into any futures contracts or related options if the
sum of initial margin deposits on futures contracts, related options
(including options on securities, securities indexes and currencies) and
premiums paid for any such related options would exceed 5% of its total
assets. A Fund does not purchase futures contracts or related options if,
as a result, more than one-third of its total assets would be so invested.
<TABLE>
<CAPTION>
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
US Tax
Real Tax- Tax- Tax Short Government Free
Estate Emerging Managed Managed Special Exempt Term Money Money Money
Type of Portfolio Securities Markets Large Cap Small Cap Growth Bond Bond Market Market Market
SECURITIES FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash reserves.......... |X| |X| |X| |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
Repurchase agreements(1) |X| |X| |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
When-issued and forward
commitment securities |X| |X| |X| |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
Reverse repurchase
agreements........... |X| |X| |X| |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
Lending portfolio
securities
not to exceed 33 1/3% |X| |X| |X| |X| |X| |X| |X| |X|
of total Fund assets.
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
Illiquid securities
(limited to |X| |X| |X| |X| |X| |X| |X|
15% of a Fund's net
assets)................
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
Illiquid securities
(limited to |X| |X| |X|
10% of a Fund's net
assets)................
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
Forward currency
contracts(2)......... |X| |X|
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
Write (sell) call and put
options on securities,
securities indexes and
foreign currencies(3) |X| |X| |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
Purchase options on
securities, securities
indexes, and |X| |X| |X| |X| |X| |X|
currencies(3)..........
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
Interest rate futures
contracts, stock index
futures contracts,foreign
currency contracts and |X| |X| |X| |X| |X|
options on futures(4)
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
Credit and liquidity
enhancements......... |X| |X|
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
Liquidity portfolio.... |X| |X| |X| |X| |X| |X|
- --------------------------- ---------- ---------- ---------- ---------- -------- --------- ------ --------- ------------- ---------
</TABLE>
- -------------------------
(1) Under the 1940 Act, repurchase agreements are considered to be loans by a
Fund and must be fully collateralized by collateral assets. If the seller
defaults on its obligations to repurchase the underlying security, a Fund
may experience delay or difficulty in exercising its rights to realize upon
the security, may incur a loss if the value of the security declines and
may incur disposition costs in liquidating the security.
(2) Each of the Emerging Markets and Short Term Bond Funds may not invest more
than one-third of its assets in these contracts.
(3) A Fund will only engage in options where the options are traded on a
national securities exchange or in an over-the-counter market. A Fund may
invest up to 5% of its net assets, represented by the premium paid, in call
and put options. A Fund may write a call or put option to the extent that
the aggregate value of all securities or other assets used to cover all
such outstanding options does not exceed 25% of the value of its net
assets.
(4) A Fund does not enter into any futures contracts or related options if the
sum of initial margin deposits on futures contracts, related options
(including options on securities, securities indexes and currencies) and
premiums paid for any such related options would exceed 5% of its total
assets. A Fund does not purchase futures contracts or related options if,
as a result, more than one-third of its total assets would be so invested.
32
<PAGE>
<TABLE>
<CAPTION>
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Fixed Fixed
Type of Portfolio Equity I Equity II Equity III Equity Q International Income I Income III
SECURITY FUND FUND FUND FUND FUND FUND UND
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash reserves.......... |X| |X| |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Repurchase agreements(1) |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
When-issued and forward
commitment securities |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Reverse repurchase
agreements........... |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Lending portfolio
securities
not to exceed 33 1/3% |X| |X| |X| |X| |X| |X| |X|
of total Fund assets.
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Illiquid securities
(limited to |X| |X| |X| |X| |X| |X| |X|
15% of a Fund's net
assets)................
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Forward currency
contracts(2)......... |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Write (sell) call and put
options on securities,
securities indexes and
foreign currencies(3) |X| |X| |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Purchase options on
securities, securities
indexes, and |X| |X| |X| |X| |X| |X| |X|
currencies(3)..........
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Interest rate futures
contracts, stock index
futures contracts,foreign
currency contracts and |X| |X| |X| |X| |X| |X| |X|
options on futures(4)
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
Liquidity portfolio.... |X| |X| |X| |X| |X|
- --------------------------- ------------- ------------ ------------- ------------- ------------- ------------ -------------
</TABLE>
- -------------------------
(1) Under the 1940 Act, repurchase agreements are considered to be loans by a
Fund and must be fully collateralized by collateral assets. If the seller
defaults on its obligations to repurchase the underlying security, a Fund
may experience delay or difficulty in exercising its rights to realize upon
the security, may incur a loss if the value of the security declines and
may incur disposition costs in liquidating the security.
(2) Each of the International, Fixed Income I and Fixed Income III Funds may
not invest more than one-third of its assets in these contracts.
(3) A Fund will only engage in options where the options are traded on a
national securities exchange or in an over-the-counter market. A Fund may
invest up to 5% of its net assets, represented by the premium paid, in call
and put options. A Fund may write a call or put option to the extent that
the aggregate value of all securities or other assets used to cover all
such outstanding options does not exceed 25% of the value of its net
assets. Only the Fixed Income III Fund currently intends to write or
purchase options on foreign currency.
(4) A Fund does not enter into any futures contracts or related options if the
sum of initial margin deposits on futures contracts, related options
(including options on securities, securities indexes and currencies) and
premiums paid for any such related options would exceed 5% of its total
assets. A Fund does not purchase futures contracts or related options if,
as a result, more than one-third of its total assets would be so invested.
CASH RESERVES. Each Fund (except the Money Market, U.S. Government Money
Market and Tax Free Money Market Funds), and its money managers, may elect to
invest the Fund's cash reserves in one or more of FRIC's money market funds.
Those money market funds seek to maximize current income to the extent
consistent with the preservation of capital and liquidity, and the maintenance
of a stable $1.00 per share net asset value by investing solely in short-term
money market instruments. The Funds will use this procedure only so long as
doing so does not adversely affect the portfolio management and operations of
the money market funds and FRIC's other Funds. Those money market funds, and the
Funds investing in them, treat such investments as the purchase and redemption
of the money market funds' Shares. Any Fund investing in a money market fund
pursuant to this procedure participates equally on a pro rata basis in all
income, capital gains, and net assets of the money market fund, and will have
all rights and obligations of a shareholder as provided in FRIC's Master Trust
Agreement, including voting rights. However, Shares of a money market fund
issued to other Funds will be voted by the Trustees in the same proportion as
the Shares of the money market fund that are held by shareholders that are not
Funds. Funds investing in a money market fund effectively do not pay an advisory
or administrative fee to a money market fund and thus do not pay duplicative
advisory or administrative fees, as FRIMCo waives a portion of its advisory or
administrative fees due from those Funds in an amount that offsets the advisory
or administrative fees it receives from the applicable money market fund in
respect of those investments.
LIQUIDITY PORTFOLIO. A Fund at times has to sell portfolio securities in
order to meet redemption requests. The selling of securities may effect a Fund's
performance since the money manager sells the securities for other than
investment reasons. A Fund can avoid selling its portfolio securities by holding
adequate levels of cash to meet anticipated redemption requests.
33
<PAGE>
The holding of significant amounts of cash is contrary to the investment
objectives of the Equity I, Equity II, Equity III, Equity Q, Tax-Managed Large
Cap, Tax-Managed Small Cap, International, Diversified Equity, Special Growth,
Equity Income, Quantitative Equity and International Securities Funds. The more
cash these Funds hold, the more difficult it is for their returns to meet or
surpass their respective benchmarks. FRIMCo will exercise investment discretion
or select a money manager to exercise investment discretion for approximately
5-15% of the Funds' assets assigned to a "Liquidity Portfolio."
A Liquidity Portfolio addresses this potential detriment by having FRIMCo
or a money manager selected for this purpose create a temporary equity exposure
for cash reserves through the use of options and futures contracts. This will
enable the Funds to hold cash while receiving a return on the cash which is
similar to that of equity securities.
MONEY MARKET INSTRUMENTS. The Money Market, US Government Money Market and
Tax Free Money Market Funds expect to maintain, but do not guarantee, a net
asset value of $1.00 per share for purposes of purchases and redemptions by
valuing their Fund Shares at "amortized cost." The Money Market Funds will
maintain a dollar-weighted average maturity of 90 days or less. Each of the
Funds will invest in securities maturing within 397 days or less at the time of
the trade date or such other date upon which a Fund's interest in a security is
subject to market action. Each money market fund will follow procedures
reasonably designed to assure that the prices so determined approximate the
current market value of the Funds' securities. The procedures also address such
matters as diversification and credit quality of the securities the Funds
purchase, and were designed to ensure compliance by the Funds with the
requirements of Rule 2a-7 of the 1940 Act. For additional information concerning
these Funds, refer to the respective Prospectuses.
RUSSELL 1000-Registered Trademark- INDEX. The Russell 1000-Registered
Trademark- Index consists of the 1,000 largest US companies by
capitalization. The Index does not include cross corporate holdings in a
company's capitalization. For example, when IBM owned approximately 20% of
Intel, only 80% of the total shares outstanding of Intel were used to
determine Intel's capitalization. Also not included in the Index are
closed-end investment companies, companies that do not file a Form 10-K
report with the SEC, foreign securities and American Depository Receipts.
The Index's composition is changed annually to reflect changes in market
capitalization and share balances outstanding. These changes are expected to
represent less than 1% of the total market capitalization of the Index. Changes
for mergers and acquisitions are made when trading ceases in the acquirer's
shares. The 1,001st largest US company by capitalization is then added to the
Index to replace the acquired stock.
Frank Russell Company chooses the stocks to be included in the Index
solely on a statistical basis and it is not an indication that Frank Russell
Company or FRIMCo believes that the particular security is an attractive
investment.
CERTAIN INVESTMENTS.
REPURCHASE AGREEMENTS. A Fund may enter into repurchase agreements with the
seller -- a bank or securities dealer -- who agrees to repurchase the securities
at the Fund's cost plus interest within a specified time (normally one day). The
securities purchased by a Fund have a total value in excess of the value of the
repurchase agreement and are held by the Custodian until repurchased. Repurchase
agreements assist a Fund in being invested fully while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. The Funds will
limit repurchase transactions to those member banks of the Federal Reserve
System and primary dealers in US government securities whose creditworthiness is
continually monitored and found satisfactory by the Funds' money managers.
REVERSE REPURCHASE AGREEMENTS. A Fund may enter into reverse repurchase
agreements to meet redemption requests where the liquidation of portfolio
securities is deemed by the Fund's money manager to be inconvenient or
disadvantageous. A reverse repurchase agreement is a transaction whereby a Fund
transfers possession of a portfolio security to a bank or broker-dealer in
return for a percentage of the portfolio securities' market value. The Fund
retains record ownership of the security involved including the right to receive
interest and principal payments. At an agreed upon future date, the Fund
repurchases the security by paying an agreed upon purchase price plus interest.
Liquid assets of a Fund equal in value to the repurchase price, including any
accrued interest, will be segregated on the Fund's records while a reverse
repurchase agreement is in effect.
HIGH RISK BONDS. The Funds, other than the Emerging Markets, Fixed Income
III, Short Term Bond, and Multistrategy Bond Funds, do not invest their assets
in securities rated less than BBB by S&P or Baa by Moody's, or in unrated
securities judged by the money managers to be of a lesser credit quality than
those designations. Securities rated BBB by S&P or Baa by Moody's are
34
<PAGE>
the lowest ratings which are considered "investment grade," although Moody's
considers securities rated Baa, and S&P considers bonds rated BBB, to have some
speculative characteristics. The Funds, other than the Emerging Markets, Fixed
Income III, Short Term Bond, and Multistrategy Bond Funds, will dispose of, in a
prudent and orderly fashion, securities whose ratings drop below these minimum
ratings. The market value of debt securities generally varies inversely in
relation to interest rates.
The Emerging Markets, Fixed Income III, Short Term Bond, and Multistrategy
Bond Funds will invest in "investment grade" securities and may invest up to 5%
of its total assets (in the case of the Emerging Markets Fund), 10% of its total
assets (in the case of the Short Term Bond Fund), and 25% of its total assets
(in the case of the Fixed Income III and Multistrategy Bond Funds) in debt
securities rated less than BBB by S&P or Baa by Moody's, or in unrated
securities judged by the money managers of the Funds to be of comparable
quality. Lower rated debt securities generally offer a higher yield than that
available from higher grade issues. However, lower rated debt securities involve
higher risks, because they are especially subject to adverse changes in general
economic conditions and in the industries in which the issuers are engaged, to
changes in the financial condition of the issuers and to price fluctuation in
response to changes in interest rates. During periods of economic downturn or
rising interest rates, highly leveraged issuers may experience financial stress
which could adversely affect their ability to make payments of principal and
interest and increase the possibility of default. In addition, the market for
lower rated debt securities has expanded rapidly in recent years, and its growth
has paralleled a long economic expansion. The market for lower rated debt
securities is generally thinner and less active than that for higher quality
securities, which would limit the Funds' ability to sell such securities at fair
value in response to changes in the economy or the financial markets. While such
debt may have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposure to adverse conditions. The money
managers of the Fixed Income III, Multistrategy Bond, Short Term Bond, and
Emerging Markets Funds will seek to reduce the risks associated with investing
in such securities by limiting the Funds' holdings in such securities and by the
depth of their own credit analysis.
Securities rated BBB by S&P or Baa by Moody's may involve greater risks
than securities in higher rating categories. Securities receiving S&P's BBB
rating are regarded as having adequate capacity to pay interest and repay
principal. Such securities typically exhibit adequate investor protections but
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rating categories. For further description of the
various rating categories, see "Ratings of Debt Instruments."
Securities possessing Moody's Baa rating are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security is judged adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such securities lack outstanding
investment characteristics and in fact may have speculative characteristics as
well.
RISK FACTORS. The growth of the market for lower rated debt securities has
paralleled a long period of economic expansion. Lower rated debt securities may
be more susceptible to real or perceived adverse economic and competitive
industry conditions than investment grade securities. The prices of low rated
debt securities have been found to be less sensitive to interest rate changes
than investment grade securities, but more sensitive to economic downturns,
individual corporate developments, and price fluctuations in response to
changing interest rates. A projection of an economic downturn or of a period of
rising interest rates, for example, could cause a sharper decline in the prices
of low rated debt securities because the advent of a recession could lessen the
ability of a highly leveraged company to make principal and interest payments on
its debt securities. If the issuer of low rated debt securities defaults, a Fund
may incur additional expenses to seek financial recovery.
In addition, the markets in which low rated debt securities are traded are
generally thinner, more limited and less active than those for higher rated
securities. The existence of limited markets for particular securities may
diminish a Fund's ability to sell the securities at fair value either to meet
redemption requests or to respond to changes in the economy or in the financial
markets and could adversely affect and cause fluctuations in the daily net asset
value of the Fund's Shares.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated securities may be more complex than for
issuers of other investment grade securities, and the ability of a Fund to
achieve its investment objectives may be more dependent on credit analysis than
would be the case if the Fund was investing only in investment grade securities.
35
<PAGE>
The money managers of the Funds may use ratings to assist in investment
decisions. Ratings of debt securities represent a rating agency's opinion
regarding their quality and are not a guarantee of quality. Rating agencies
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, rating agencies may
fail to make timely changes in credit ratings in response to subsequent events,
so that an issuer's current financial condition may be better or worse than a
rating indicates.
ILLIQUID SECURITIES. The Funds will not purchase or otherwise acquire any
security if, as a result, more than 15% of a Fund's net assets (taken at current
value) would be invested in securities, including repurchase agreements of more
than seven days' duration, that are illiquid by virtue of the absence of a
readily available market or because of legal or contractual restrictions on
resale. In addition, the Funds will not invest more than 10% of their respective
net assets (taken at current value) in securities of issuers which may not be
sold to the public without registration under the Securities Act of 1933, as
amended (the "1933 Act"). These policies do not include (1) commercial paper
issued under Section 4(2) of the 1933 Act, or (2) restricted securities eligible
for resale to qualified institutional purchasers pursuant to Rule 144A under the
1933 Act that are determined to be liquid by the money managers in accordance
with Board approved guidelines. These guidelines adopted by the Board for the
determination of liquidity of securities take into account trading activity for
such securities and the availability of reliable pricing information, among
other factors. If there is a lack of trading interest in a particular Rule 144A
security, a Fund's holding of that security may be illiquid. There may be
undesirable delays in selling illiquid securities at prices representing their
fair value.
The expenses of registration of restricted securities that are illiquid
(excluding securities that may be resold by the Funds pursuant to Rule 144A, as
explained in the respective Prospectuses) may be negotiated at the time such
securities are purchased by a Fund. When registration is required, a
considerable period may elapse between a decision to sell the securities and the
time the sale would be permitted. Thus, a Fund may not be able to obtain as
favorable a price as that prevailing at the time of the decision to sell. A Fund
also may acquire, through private placements, securities having contractual
resale restrictions, which might lower the amount realizable upon the sale of
such securities.
FORWARD COMMITMENTS. A Fund may contract to purchase securities for a fixed
price at a future date beyond customary settlement time (a "forward commitment"
or "when-issued" transaction) so long as such transactions are consistent with
the Fund's ability to manage its investment portfolio and meet redemption
requests. A Fund may dispose of a forward commitment or when-issued transaction
prior to settlement if it is appropriate to do so and realize short-term profits
or losses upon such sale. When effecting such transactions, liquid assets of the
Fund in a dollar amount sufficient to make payment for the portfolio securities
to be purchased will be segregated on the Fund's records at the trade date and
maintained until the transaction is settled. Forward commitments and when-issued
transactions involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date or the other party to the transaction
fails to complete the transaction.
Additionally, under certain circumstances, the International, International
Securities and Emerging Markets Funds may occasionally engage in "free trade"
transactions in which delivery of securities sold by the Fund is made prior to
the Fund's receipt of cash payment therefor or the Fund's payment of cash for
portfolio securities occurs prior to the Fund's receipt of those securities.
"Free trade" transactions involve the risk of loss to a Fund if the other party
to the "free trade" transaction fails to complete the transaction after a Fund
has tendered cash payment or securities, as the case may be.
LENDING PORTFOLIO SECURITIES. Cash collateral received by a Fund when it
lends its portfolio securities is invested in high-quality short-term debt
instruments, short-term bank collective investment and money market mutual funds
(including funds advised by the Custodian, for which it may receive an asset-
based fee), and other investments meeting certain quality and maturity
established by the Funds. Income generated from the investment of the cash
collateral is first used to pay the rebate interest cost to the borrower of the
securities then to pay for lending transaction costs, and then the remainder is
divided between the Fund and the lending agent.
Each Fund will retain most rights of beneficial ownership, including
dividends, interest or other distributions on the loaned securities. Voting
rights may pass with the lending. A Fund will call loans to vote proxies if a
material issue affecting the investment is to be voted upon.
FRIC may incur costs or possible losses in excess of the interest and fees
received in connection with securities lending transactions. Some securities
purchased with cash collateral are subject to market fluctuations while a loan
is outstanding. To the extent that the value of the cash collateral as invested
is insufficient to return the full amount of the collateral plus
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rebate interest to the borrower upon termination of the loan, a Fund must
immediately pay the amount of the shortfall to the borrower.
OPTIONS AND FUTURES. The Funds, other than the Money Market, US Government
Money Market and Tax Free Money Market Funds, may purchase and sell (write) both
call and put options on securities, securities indexes, and foreign currencies,
and enter into interest rate, foreign currency and index futures contracts and
purchase and sell options on such futures contracts for hedging purposes. If
other types of options, futures contracts, or options on futures contracts are
traded in the future, the Funds may also use those instruments, provided that
FRIC's Board determines that their use is consistent with the Funds' investment
objectives, and provided that their use is consistent with restrictions
applicable to options and futures contracts currently eligible for use by the
Funds (i.e., that written call or put options will be "covered" or "secured" and
that futures and options on futures contracts will be used only for hedging
purposes).
OPTIONS ON SECURITIES AND INDEXES. Each Fund, except as noted above, may
purchase and write both call and put options on securities and securities
indexes in standardized contracts traded on foreign or national securities
exchanges, boards of trade, or similar entities, or quoted on NASDAQ or on a
regulated foreign over-the-counter market, and agreements, sometimes called cash
puts, which may accompany the purchase of a new issue of bonds from a dealer.
The Funds intend to treat options in respect of specific securities that are not
traded on a national securities exchange and the securities underlying covered
call options as not readily marketable and therefore subject to the limitations
on the Funds' ability to hold illiquid securities. The Funds intend to purchase
and write call and put options on specific securities.
An option on a security (or securities index) is a contract that gives the
purchaser of the option, in return for a premium, the right (but not the
obligation) to buy from (in the case of a call) or sell to (in the case of a
put) the writer of the option the security underlying the option at a specified
exercise price at any time during the option period. The writer of an option on
a security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier
(established by the exchange upon which the stock index is traded) for the index
option. (An index is designed to reflect specified facets of a particular
financial or securities market, a specified group of financial instruments or
securities, or certain economic indicators.) Options on securities indexes are
similar to options on specific securities except that settlement is in cash and
gains and losses depend on price movements in the stock market generally (or in
a particular industry or segment of the market), rather than price movements in
the specific security.
A Fund may purchase a call option on securities to protect against
substantial increases in prices of securities the Fund intends to purchase
pending its ability or desire to purchase such securities in an orderly manner.
A Fund may purchase a put option on securities to protect holdings in an
underlying or related security against a substantial decline in market value.
Securities are considered related if their price movements generally correlate
to one another.
A Fund will write call options and put options only if they are "covered."
In the case of a call option on a security, the option is "covered" if the Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, liquid assets in such amount are placed in a
segregated account by the Custodian) upon conversion or exchange of other
securities held by the Fund. For a call option on an index, the option is
covered if the Fund maintains with the Custodian liquid assets equal to the
contract value. A call option is also covered if the Fund holds a call on the
same security or index as the call written where the exercise price of the call
held is (1) equal to or less than the exercise price of the call written, or (2)
greater than the exercise price of the call written, provided the difference is
maintained by the Fund in liquid assets in a segregated account with the
Custodian. A put option on a security or an index is "covered" if the Fund
maintains liquid assets equal to the exercise price in a segregated account with
the Custodian. A put option is also covered if the Fund holds a put on the same
security or index as the put written where the exercise price of the put held is
(1) equal to or greater than the exercise price of the put written, or (2) less
than the exercise price of the put written, provided the difference is
maintained by the Fund in liquid assets in a segregated account with the
Custodian.
If an option written by a Fund expires, the Fund realizes a capital gain
equal to the premium received at the time the option was written. If an option
purchased by a Fund expires unexercised, the Fund realizes a capital loss (long
or short-term depending on whether the Fund's holding period for the option is
greater than one year) equal to the premium paid.
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To close out a position when writing covered options, a Fund may make a
"closing purchase transaction," which involves purchasing an option on the same
security with the same exercise price and expiration date as the option which it
previously wrote on the security. To close out a position as a purchaser of an
option, a Fund may make a "closing sale transaction," which involves liquidating
the Fund's position by selling the option previously purchased. The Fund will
realize a profit or loss from a closing purchase or sale transaction depending
upon the difference between the amount paid to purchase an option and the amount
received from the sale thereof.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Fund desires.
A Fund will realize a capital gain from a closing transaction on an option
it has written if the cost of the closing option is less than the premium
received from writing the option, or, if it is more, the Fund will realize a
capital loss. If the premium received from a closing sale transaction is more
than the premium paid to purchase the option, the Fund will realize a capital
gain or, if it is less, the Fund will realize a capital loss. With respect to
closing transactions on purchased options, the capital gain or loss realized
will be short or long-term depending on the holding period of the option closed
out. The principal factors affecting the market value of a put or a call option
include supply and demand, interest rates, the current market price of the
underlying security or index in relation to the exercise price of the option,
the volatility of the underlying security or index, and the time remaining until
the expiration date.
The premium paid for a put or call option purchased by a Fund is an asset
of the Fund. The premium received for an option written by a Fund is recorded as
a liability. The value of an option purchased or written is marked-to-market
daily and is valued at the closing price on the exchange on which it is traded
or, if not traded on an exchange or no closing price is available, at the mean
between the last bid and asked prices.
RISKS ASSOCIATED WITH OPTIONS ON SECURITIES AND INDEXES. There are several
risks associated with transactions in options on securities and on indexes. For
example, there are significant 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 objectives. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
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, 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 (i.e., the premium paid) on the option. Also, where a put or
call option on a particular security is purchased to hedge against price
movements in a related security, the price of the put or call option may move
more or less than the price of the related security.
There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option may expire worthless. If a Fund were
unable to close out a covered call option that it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise.
As the writer of a covered call option, a Fund forgoes, during the option's
life, the opportunity to profit from increases in the market value of the
underlying security above the exercise price, but, as long as its obligation as
a writer continues, has retained a risk of loss should the price of the
underlying security decline. Where a Fund writes a put option, it is exposed
during the term of the option to a decline in the price of the underlying
security.
If trading were suspended in an option purchased by a Fund, the Fund would
not be able to close out the option. If restrictions on exercise were imposed,
the Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by the Fund is covered by an
option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.
OPTIONS ON FOREIGN CURRENCY. A Fund may buy and sell put and call options
on foreign currencies either on exchanges or in the over-the-counter market for
the purpose of hedging against changes in future currency exchange rates. Call
options convey the right to buy the underlying currency at a price which is
expected to be lower than the spot price of
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the currency at the time the option expires. Put options convey the right to
sell the underlying currency at a price which is anticipated to be higher than
the spot price of the currency at the time the option expires. Currency options
traded on US or other exchanges may be subject to position limits which may
limit the ability of a Fund to reduce foreign currency risk using such options.
Over-the-counter options differ from traded options in that they are two-party
contracts with price and other terms negotiated between buyer and seller, and
generally do not have as much market liquidity as exchange-traded options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Fund may invest in
interest rate futures contracts, foreign currency futures contracts, or stock
index futures contracts, and options thereon that are traded on a US or
foreign exchange or board of trade, as specified in the Prospectuses. An
interest rate, foreign currency or index futures contract provides for the
future sale by one party and purchase by another party of a specified
quantity of financial instruments (such as GNMA certificates or Treasury
bonds) or foreign currency or the cash value of an index at a specified price
at a future date. A futures contract on an index (such as the S&P 500) is an
agreement between two parties (buyer and seller) to take or make delivery of
an amount of cash equal to the difference between the value of the index at
the close of the last trading day of the contract and the price at which the
index contract was originally written. In the case of futures contracts
traded on US exchanges, the exchange itself or an affiliated clearing
corporation assumes the opposite side of each transaction (i.e., as buyer or
seller). A futures contract may be satisfied or closed out by delivery or
purchase, as the case may be, of the financial instrument or by payment of
the change in the cash value of the index. Frequently, using futures to
effect a particular strategy instead of using the underlying or related
security or index will result in lower transaction costs being incurred.
Although the value of an index may be a function of the value of certain
specified securities, no physical delivery of these securities is made. A
public market exists in futures contracts covering several indexes as well as
a number of financial instruments and foreign currencies. For example: the
S&P 500; the Russell 2000-Registered Trademark-; Nikkei 225; CAC-40; FT-SE
100; the NYSE composite; US Treasury bonds; US Treasury notes; GNMA
Certificates; three-month US Treasury bills; Eurodollar certificates of
deposit; the Australian Dollar; the Canadian Dollar; the British Pound; the
German Mark; the Japanese Yen; the French Franc; the Swiss Franc; the Mexican
Peso; and certain multinational currencies, such as the European Currency
Unit ("ECU"). It is expected that other futures contracts will be developed
and traded in the future.
Each Fund may also purchase and write call and put options on futures
contracts. Options on futures contracts possess many of the same characteristics
as options on securities and indexes (discussed above). A futures option gives
the holder the right, in return for the premium paid, to assume a long position
(in the case of a call) or short position (in the case of a put) in a futures
contract at a specified exercise price at any time during the period of the
option. Upon exercise of a call option, the holder acquires a long position in
the futures contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true. An option on a futures contract
may be closed out (before exercise or expiration) by an offsetting purchase or
sale of an option on a futures contract of the same series.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures contract or a futures option position. Most
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent a Fund from liquidating an unfavorable
position and the Fund would remain obligated to meet margin requirements until
the position is closed.
A Fund will only enter into futures contracts or options on futures
contracts which are standardized and traded on a US or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. A Fund
will enter into a futures contract only if the contract is "covered" or if the
Fund at all times maintains with its custodian liquid assets equal to or greater
than the fluctuating value of the contract (less any margin or deposit). A Fund
will write a call or put option on a futures contract only if the option is
"covered." For a discussion of how to cover a written call or put option, see
"Options on Securities and Indexes" above.
A Fund may enter into contracts and options on futures contracts for "bona fide
hedging" purposes, as defined under the rules of the Commodity Futures Trading
Commission (the "CFTC"). A Fund may also enter into futures contracts and
options on futures contracts for non hedging purposes provided the aggregate
initial margin and premiums required to establish these positions will not
exceed 5% of the Fund's net assets.
As long as required by regulatory authorities, each Fund will limit its use
of futures contracts and options on futures contracts to hedging transactions.
For example, a Fund might use futures contracts to hedge against anticipated
changes in
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interest rates that might adversely affect either the value of the Fund's
securities or the price of the securities which the Fund intends to purchase.
Additionally, a Fund may use futures contracts to create equity exposure for its
cash reserves for liquidity purposes.
When a purchase or sale of a futures contract is made by a Fund, the Fund
is required to deposit with the Custodian (or broker, if legally permitted) a
specified amount of cash or US government 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 which is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. Each Fund
expects to earn interest income on its initial margin deposits. A futures
contract held by a 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 a 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, each Fund will mark-to-
market its open futures positions.
A Fund is also 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 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, the Fund realizes a capital
gain, or if it is more, the Fund realizes a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Fund
realizes a capital gain, or if it is less, the Fund realizes a capital loss. The
transaction costs must also be included in these calculations.
LIMITATIONS ON USE OF FUTURES AND OPTIONS ON FUTURES CONTRACTS. A Fund will
not enter into a futures contract or futures option contract if, immediately
thereafter, the aggregate initial margin deposits relating to such positions
plus premiums paid by it for open futures option positions, less the amount by
which any such options are "in-the-money," would exceed 5% of the Fund's total
assets. A call option is "in-the-money" if the value of the futures contract
that is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures contract
that is the subject of the option.
When purchasing a futures contract, a Fund will maintain with the Custodian
(and mark-to-market on a daily basis) liquid assets that, when added to the
amounts deposited with a futures commission merchant as margin, are equal to the
market value of the futures contract. Alternatively, the Fund may "cover" its
position by purchasing a put option on the same futures contract with a strike
price equal to or higher than the price of the contract held by the Fund.
When selling a futures contract, a Fund will maintain with the Custodian
(and mark-to-market on a daily basis) liquid assets that, when added to the
amount deposited with a futures commission merchant as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the 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 Custodian).
When selling a call option on a futures contract, a Fund will maintain with
the Custodian (and mark-to-market on a daily basis) liquid assets that, when
added to the amounts deposited with a futures commission merchant as margin,
equal the total market value of the futures contract underlying the call option.
Alternatively, the 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.
When selling a put option on a futures contract, a Fund will maintain with
the Custodian (and mark-to-market on a daily basis) liquid assets that equal the
purchase price of the futures contract, less any margin on deposit.
Alternatively, the Fund
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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.
In order to comply with applicable regulations of the Commodity Futures
Trading Commission ("CFTC") pursuant to which the Funds avoid being deemed to be
"commodity pools," the Funds are limited in entering into futures contracts and
options on futures contracts to positions which constitute "bona fide hedging"
positions within the meaning and intent of applicable CFTC rules, and with
respect to positions for non-hedging purposes, to positions for which the
aggregate initial margins and premiums will not exceed 5% of the net assets of a
Fund as determined under the CFTC Rules.
The requirements for qualification as a regulated investment company also
may limit the extent to which a Fund may enter into futures, options on futures
contracts or forward contracts. See "Taxation."
RISKS ASSOCIATED WITH FUTURES AND OPTIONS ON FUTURES CONTRACTS. There are
several risks associated with the use of futures and options on futures
contracts as hedging techniques. A purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract. There
can be no guarantee that there will be a correlation between price movements in
the hedging vehicle and in the portfolio securities being hedged. In addition,
there are significant differences between the securities and futures markets
that could result in an imperfect correlation between the markets, causing a
given hedge not to achieve its objectives. The degree of imperfection of
correlation depends on circumstances such as variations in speculative market
demand for futures and options on futures contracts on securities, including
technical influences in futures trading and options on futures contracts, 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 issuers. An incorrect
correlation could result in a loss on both the hedged securities in a Fund and
the hedging vehicle so that the portfolio return might have been greater had
hedging not been attempted. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
Futures 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. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent a Fund from liquidating an unfavorable
position and the Fund would remain obligated to meet margin requirements until
the position is closed.
ADDITIONAL RISKS OF OPTIONS ON SECURITIES, FUTURES CONTRACTS, OPTIONS ON
FUTURES CONTRACTS, AND FORWARD CURRENCY EXCHANGE CONTRACT AND OPTIONS THEREON.
Options on securities, futures contracts, options on futures contracts,
currencies and options on currencies 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 positions also could be
adversely affected by (1) other complex foreign, political, legal and economic
factors, (2) lesser availability than in the United States of data on which to
make trading decisions, (3) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (5) lesser
trading volume.
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HEDGING STRATEGIES. Stock index futures contracts may be used by the Equity
I, Equity II, Equity III, Equity Q, International, Emerging Markets, Diversified
Equity, Special Growth, Equity Income, Quantitative Equity, Tax-Managed Large
Cap, Tax-Managed Small Cap, and International Securities Funds as an
"equitization" vehicle for cash reserves held by the Funds. For example: equity
index futures contracts are purchased to correspond with the cash reserves in
each of the Funds. As a result, a Fund will realize gains or losses based on the
performance of the equity market corresponding to the relevant indexes for which
futures contracts have been purchased. Thus, each Fund's cash reserves will
always be fully exposed to equity market performance.
Financial futures contracts may be used by the International, Emerging
Markets, Fixed Income I, Fixed Income III, International Securities, Diversified
Bond, Short Term Bond, Multistrategy Bond and Tax Exempt Bond Funds as a hedge
during or in anticipation of interest rate changes. For example: if interest
rates were anticipated to rise, financial futures contracts would be sold (short
hedge) which would have an effect similar to selling bonds. Once interest rates
increase, fixed-income securities held in a Fund's portfolio would decline, but
the futures contract value would decrease, partly offsetting the loss in value
of the fixed-income security by enabling the Fund to repurchase the futures
contract at a lower price to close out the position.
The Funds may purchase a put and/or sell a call option on a stock index
futures contract instead of selling a futures contract in anticipation of market
decline. Purchasing a call and/or selling a put option on a stock index futures
contract is used instead of buying a futures contract in anticipation of a
market advance, or to temporarily create an equity exposure for cash balances
until those balances are invested in equities. Options on financial futures are
used in a similar manner in order to hedge portfolio securities against
anticipated changes in interest rates.
When purchasing a futures contract, a Fund will maintain with the Custodian
(and mark-to-market on a daily basis) liquid assets that, when added to the
amounts deposited with a futures commission merchant 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 or higher than the price of the contract held by the Fund.
FOREIGN CURRENCY FUTURES CONTRACTS. The Funds are also permitted to enter
into foreign currency futures contracts in accordance with their investment
objectives and as limited by the procedures outlined above.
A foreign currency futures contract is a bilateral agreement pursuant to
which one party agrees to make, and the other party agrees to accept delivery of
a specified type of debt security or currency at a specified price. Although
such futures contacts by their terms call for actual delivery or acceptance of
debt securities or currency, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery.
The Funds may sell a foreign currency futures contract to hedge against
possible variations in the exchange rate of the foreign currency in relation to
the US dollar. When a manager anticipates a significant change in a foreign
exchange rate while intending to invest in a foreign security, a Fund may
purchase a foreign currency futures contract to hedge against a rise in foreign
exchange rates pending completion of the anticipated transaction. Such a
purchase would serve as a temporary measure to protect the Fund against any rise
in the foreign exchange rate which may add additional costs to acquiring the
foreign security position. The Funds may also purchase call or put options on
foreign currency futures contracts to obtain a fixed foreign exchange rate. The
Funds may purchase a call option or write a put option on a foreign exchange
futures contract to hedge against a decline in the foreign exchange rates or the
value of its foreign securities. The Funds may write a call option on a foreign
currency futures contract as a partial hedge against the effects of declining
foreign exchange rates on the value of foreign securities.
RISK FACTORS. There are certain investment risks in using futures contracts
and/or options as a hedging technique. One risk is the imperfect correlation
between price movement of the futures contracts or options and the price
movement of the portfolio securities, stock index or currency subject of the
hedge. The risk increases for the Tax Exempt Bond Fund since financial futures
contracts that may be engaged in are on taxable securities rather than tax
exempt securities. There is no assurance that the price of taxable securities
will move in a similar manner to the price of tax exempt securities. Another
risk is that a liquid secondary market may not exist for a futures contract
causing a Fund to be unable to close out the futures contract thereby affecting
the Fund's hedging strategy.
In addition, foreign currency options and foreign currency futures involve
additional risks. Such transactions may not be regulated as effectively as
similar transactions in the United States; may not involve a clearing mechanism
and related
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guarantees; and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities. The value of such positions
could also be adversely affected by (1) other complex foreign, political, legal
and economic factors, (2) lesser availability than in the United States of data
on which to make trading decisions, (3) delays in a Fund's ability to act upon
economic events occurring in foreign markets during non- business hours in the
United States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (5) lesser
trading volume.
FORWARD FOREIGN CURRENCY EXCHANGE TRANSACTIONS ("FORWARD CURRENCY
CONTRACTS"). The Funds may engage in forward currency contracts to hedge against
uncertainty in the level of future exchange rates. The Funds will conduct their
forward foreign currency exchange transactions either on a spot (i.e. cash)
basis at the rate prevailing in the currency exchange market, or through
entering into forward currency exchange contracts ("forward contract") to
purchase or sell currency at a future date. A forward contract involves an
obligation to purchase or sell a specific currency. For example, to exchange a
certain amount of US dollars for a certain amount of Japanese Yen--at a future
date, which may be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. Forward
currency contracts are (a) traded in an interbank market conducted directly
between currency traders (typically, commercial banks or other financial
institutions) and their customers, (b) generally have no deposit requirements
and (c) are consummated without payment of any commissions. A Fund may, however,
enter into forward currency contracts containing either or both deposit
requirements and commissions. In order to assure that a Fund's forward currency
contracts are not used to achieve investment leverage, the Fund will segregate
liquid assets in an amount at all times equal to or exceeding the Fund's
commitments with respect to these contracts. The Funds may engage in a forward
contract that involves transacting in a currency whose changes in value are
considered to be linked (a proxy) to a currency or currencies in which some or
all of the Funds' portfolio securities are or are expected to be denominated. A
Fund's dealings in forward contracts will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of foreign currency with respect to specific receivables or
payables of the Funds generally accruing in connection with the purchase or sale
of their portfolio securities. Position hedging is the sale of foreign currency
with respect to portfolio security positions denominated or quoted in the
currency. A Fund may not position hedge with respect to a particular currency to
an extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in or
currency convertible into that particular currency (or another currency or
aggregate of currencies which act as a proxy for that currency). The Funds may,
however, enter into a position hedging transaction with respect to a currency
other than that held in the Funds' portfolios, if such a transaction is deemed a
hedge. If a Fund enters into this type of hedging transaction, liquid assets
will be placed in a segregated account in an amount equal to the value of the
Fund's total assets committed to the consummation of the forward contract. If
the value of the securities placed in the segregated account declines,
additional liquid assets will be placed in the account so that the value of the
account will equal the amount of the Fund's commitment with respect to the
contract. Hedging transactions may be made from any foreign currency into US
dollars or into other appropriate currencies.
At or before the maturity of a forward foreign currency contract, a Fund
may either sell a portfolio security and make delivery of the currency, or
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which the Fund will obtain,
on the same maturity date, the same amount of the currency which it is obligated
to deliver. If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward currency contract prices. Should forward prices decline
during the period between the Fund's entering into a forward contract for the
sale of a currency and the date that it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the extent that
the price of the currency that it has agreed to sell exceeds the price of the
currency that it has agreed to purchase. Should forward prices increase, the
Fund will suffer a loss to the extent that the price of the currency it has
agreed to purchase exceeds the price of the currency that it has agreed to sell.
There can be no assurance that new forward currency contracts or offsets will be
available to a Fund.
Upon maturity of a forward currency contract, the Funds may (a) pay for and
receive, or deliver and be paid for, the underlying currency, (b) negotiate with
the dealer to roll over the contract into a new forward currency contract with a
new future settlement date or (c) negotiate with the dealer to terminate the
forward contract by entering into an offset with the currency trader whereby the
parties agree to pay for and receive the difference between the exchange rate
fixed in the contract and the then current exchange rate. A Fund also may be
able to negotiate such an offset prior to maturity of the original forward
contract. There can be no assurance that new forward contracts or offsets will
always be available to the Funds.
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The cost to a Fund of engaging in currency transactions varies with factors
such as the currency involved, the length of the contract period and the market
conditions then prevailing. Because transactions in currency exchange are
usually conducted on a principal basis, no fees or commissions are involved. The
use of forward foreign currency contracts does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. In addition, although forward foreign
currency contracts limit the risk of loss due to a decline in the value of the
hedged currency, at the same time, they limit any potential gain that might
result should the value of the currency increase.
If a devaluation is generally anticipated, a Fund may be able to contract
to sell the currency at a price above the devaluation level that it anticipates.
A Fund will not enter into a currency transaction if, as a result, it will fail
to qualify as a regulated investment company under the Code, for a given year.
Forward foreign currency contracts are not regulated by the SEC. They are
traded through financial institutions acting as market-makers. In the forward
foreign currency market, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Moreover, a trader of forward contracts could lose amounts
substantially in excess of its initial investments, due to the collateral
requirements associated with such positions.
The market for forward currency contracts may be limited with respect to
certain currencies. These factors will restrict a Fund's ability to hedge
against the risk of devaluation of currencies in which the Fund holds a
substantial quantity of securities and are unrelated to the qualitative rating
that may be assigned to any particular portfolio security. Where available, the
successful use of forward currency contracts draws upon a money manager's
special skills and experience with respect to such instruments and usually
depends on the money manager's ability to forecast interest rate and currency
exchange rate movements correctly. Should interest or exchange rates move in an
unexpected manner, a Fund may not achieve the anticipated benefits of forward
currency contracts or may realize losses and thus be in a worse position than if
such strategies had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price fluctuation limits
with respect to forward currency contracts, and adverse market movements could
therefore continue to an unlimited extent over a period of time. In addition,
the correlation between movements in the prices of such instruments and
movements in the price of the securities and currencies hedged or used for cover
will not be perfect. In the case of proxy hedging, there is also a risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time a Fund is engaged in that strategy.
A Fund's ability to dispose of its positions in forward currency contracts
will depend on the availability of active markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of forward currency contracts. Forward currency contracts may be closed
out only by the parties entering into an offsetting contract. Therefore, no
assurance can be given that the Fund will be able to utilize these instruments
effectively for the purposes set forth above.
Forward foreign currency transactions are subject to the additional risk of
governmental actions affecting trading in or the prices of foreign currencies or
securities. The value of such positions also could be adversely affected by (1)
other complex foreign, political, legal and economic factors, (2) lesser
availability than in the United States of data on which to make trading
decisions, (3) delays in a Fund's ability to act upon economic events occurring
in foreign markets during non-business hours in the United States, (4) the
imposition of different exercise and settlement terms and procedures and margin
requirements than in the United States, (5) lesser trading volume and (6) that a
perceived linkage between various currencies may not persist throughout the
duration of the contracts.
DEPOSITORY RECEIPTS. A Fund may hold securities of foreign issuers in the
form of American Depository Receipts ("ADRs"), American Depository Shares
("ADSs") and European Depository Receipts ("EDRs"), or other securities
convertible into securities of eligible European or Far Eastern issuers. These
securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs and ADSs typically are issued
by an American bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depository Receipts ("CDRs"), are issued in Europe typically
by foreign banks and trust companies and evidence ownership of either foreign or
domestic securities. Generally, ADRs and ADSs in registered form are designed
for use in United States securities markets and EDRs in bearer form are designed
for use in European securities markets. For purposes of a Fund's investment
policies, the Fund's investments in ADRs, ADSs and EDRs will be deemed to be
investments in the equity securities representing securities of foreign issuers
into which they may be converted.
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ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into US dollars, the disposition of non-cash distributions, and the
performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders with respect to the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
Funds may invest in sponsored and unsponsored ADRs.
BANK INSTRUMENTS. The Diversified Bond, Multistrategy Bond, Short Term
Bond, Money Market, Fixed Income I and Fixed Income III Funds may invest in bank
instruments, which include European certificates of deposit ("ECDs"), European
time deposits ("ETDs") and Yankee Certificates of deposit ("Yankee CDs"). ECDs,
ETDs, and Yankee CDs are subject to somewhat different risks from the
obligations of domestic banks. ECDs are dollar denominated certificates of
deposit issued by foreign branches of US and foreign banks; ETDs are US dollar
denominated time deposits in a foreign branch of a US bank or a foreign bank;
and Yankee CDs are certificates of deposit issued by a US branch of a foreign
bank denominated in US dollars and held in the United States. Different risks
may also exist for ECDs, ETDs, and Yankee CDs because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily subject
to the same regulatory requirements that apply to domestic banks, such as
reserve requirements, loan limitations, examinations, accounting, auditing and
recordkeeping, and the public availability of information. These factors will be
carefully considered by the money managers when evaluating credit risk in the
selection of investments for the Multistrategy Bond Fund.
INDEXED COMMERCIAL PAPER. Indexed commercial paper is US-dollar denominated
commercial paper the yield of which is linked to certain foreign exchange rate
movements. The yield to the investor on indexed commercial paper is established
at maturity as a function of spot exchange rates between the US dollar and a
designated currency as of or about that time. The yield to the investor will be
within a range stipulated at the time of purchase of the obligation, generally
with a guaranteed minimum rate of return that is below, and a potential maximum
rate of return that is above, market yields on US-dollar denominated commercial
paper, with both the minimum and maximum rates of return on the investment
corresponding to the minimum and maximum values of the spot exchange rate two
business days prior to maturity. While such commercial paper entails risk of
loss of principal, the potential risk for realizing gains as a result of changes
in foreign currency exchange rates enables a Fund to hedge (or cross-hedge)
against a decline in the US dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return. Currently
only the Fixed Income III and Multistrategy Bond Funds intend to invest in
indexed commercial paper, and then only for hedging purposes.
US GOVERNMENT OBLIGATIONS. The types of US government obligations the Funds
may purchase include: (1) a variety of US Treasury obligations which differ only
in their interest rates, maturities and times of issuance: (a) US Treasury bills
at time of issuance have maturities of one year or less, (b) US Treasury notes
at time of issuance have maturities of one to ten years and (c) US Treasury
bonds at time of issuance generally have maturities of greater than ten years;
(2) obligations issued or guaranteed by US government agencies and
instrumentalities and supported by any of the following: (a) the full faith and
credit of the US Treasury (such as Government National Mortgage Association
participation certificates), (b) the right of the issuer to borrow an amount
limited to a specific line of credit from the US Treasury, (c) discretionary
authority of the US government agency or instrumentality or (d) the credit of
the instrumentality (examples of agencies and instrumentalities are: Federal
Land Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks and Federal National Mortgage
Association). No assurance can be given that the US government will provide
financial support to such US government agencies or instrumentalities described
in (2)(b), (2)(c) and (2)(d) in the future, other than as set forth above, since
it is not obligated to do so by law. Accordingly, such US government
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obligations may involve risk of loss of principal and interest. The Funds may
invest in fixed-rate and floating or variable rate US government obligations.
The Funds may purchase US government obligations on a forward commitment basis.
VARIABLE AND FLOATING RATE SECURITIES. A floating rate security is one
whose terms provide for the automatic adjustment of an interest rate whenever a
specified interest rate changes. A variable rate security is one whose terms
provide for the automatic establishment of a new interest rate on set dates. The
interest rate on floating rate securities is ordinarily tied to and is a
percentage of the prime rate of a specified bank or some similar objective
standard, such as 90-day US Treasury Bill rate, and may change as often as twice
daily. Generally, changes in interest rates on floating rate securities will
reduce changes in the securities' market value from the original purchase price
resulting in the potential for capital appreciation or capital depreciation
being less than for fixed-income obligations with a fixed interest rate.
The U.S. Government Money Market Fund may purchase variable rate US
government obligations which are instruments issued or guaranteed by the US
government, or an agency or instrumentality thereof, which have a rate of
interest subject to adjustment at regular intervals but no less frequently than
annually. Variable rate US government obligations whose interest rates are
readjusted no less frequently than annually will be deemed to have a maturity
equal to the period remaining until the next readjustment of the interest rate.
VARIABLE AMOUNT MASTER DEMAND NOTES. The Money Market Fund may invest in
variable amount master demand notes. Variable amount master demand notes are
unsecured obligations redeemable upon notice that permit investment of
fluctuating amounts at varying rates of interest pursuant to direct arrangements
with the issuer of the instrument. A variable amount master demand note differs
from ordinary commercial paper in that (1) it is issued pursuant to a written
agreement between the issuer and the holders, (2) its amount may, from time to
time, be increased (subject to an agreed maximum) or decreased by the holder of
the issue, (3) it is payable on demand, (4) its rate of interest payable varies
with an agreed upon formula and (5) it is not typically rated by a rating
agency.
ZERO COUPON SECURITIES. Zero coupon securities are notes, bonds and
debentures that (1) do not pay current interest and are issued at a substantial
discount from par value, (2) have been stripped of their unmatured interest
coupons and receipts or (3) pay no interest until a stated date one or more
years into the future. These securities also include certificates representing
interests in such stripped coupons and receipts. Zero coupon securities trade at
a discount from their par value and are subject to greater fluctuations of
market value in response to changing interest rates.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES. The forms of
mortgage-related and other asset-backed securities the Funds may invest in
include the securities described below:
MORTGAGE PASS-THROUGH SECURITIES. Mortgage pass-through securities are
securities representing interests in "pools" of mortgages in which payments of
both interest and principal on the securities are generally made monthly. The
securities are "pass-through" securities because they provide investors with
monthly payments of principal and interest which in effect are a "pass-through"
of the monthly payments made by the individual borrowers on the underlying
mortgages, net of any fees paid to the issuer or guarantor. The principal
governmental issuer of such securities is the Government National Mortgage
Association ("GNMA"), which is a wholly owned US government corporation within
the Department of Housing and Urban Development. Government-related issuers
include the Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate
instrumentality of the United States created pursuant to an Act of Congress, and
which is owned entirely by the Federal Home Loan Banks, and the Federal National
Mortgage Association ("FNMA"), a government sponsored corporation owned entirely
by private stockholders. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issuers also create pass-through pools of conventional residential
mortgage loans. Such issuers may be the originators of the underlying mortgage
loans as well as the guarantors of the mortgage-related securities.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are hybrid instruments with characteristics of both mortgage-backed
bonds and mortgage pass-through securities. Similar to a bond, interest and
pre-paid principal on a CMO are paid, in most cases, monthly. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage passthrough securities guaranteed by GNMA, FHLMC, or
FNMA. CMOs are structured into multiple classes (or "tranches"), with each class
bearing a different stated maturity.
ASSET-BACKED SECURITIES. Asset-backed securities represent undivided
fractional interests in pools of instruments, such as consumer loans, and are
similar in structure to mortgage-related pass-through securities. Payments of
principal and interest are passed through to holders of the securities and are
typically supported by some form of credit enhancement, such
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as a letter of credit, surety bond, limited guarantee by another entity or by
priority to certain of the borrower's other securities. The degree of
enhancement varies, generally applying only until exhausted and covering only a
fraction of the security's par value. If the credit enhancement held by a Fund
has been exhausted, and if any required payments of principal and interest are
not made with respect to the underlying loans, the Fund may experience loss or
delay in receiving payment and a decrease in the value of the security.
RISK FACTORS. Prepayment of principal on mortgage or asset-backed
securities may expose a Fund to a lower rate of return upon reinvestment of
principal. Also, if a security subject to prepayment has been purchased at a
premium, in the event of prepayment the value of the premium would be lost. Like
other fixed-income securities, the value of mortgage-related securities is
affected by fluctuations in interest rates.
LOAN PARTICIPATIONS. The Funds may purchase participations in commercial
loans. Such indebtedness may be secured or unsecured. Loan participations
typically represent direct participation in a loan to a corporate borrower, and
generally are offered by banks or other financial institutions or lending
syndicates. In purchasing the loan participations, a Fund assumes the credit
risk associated with the corporate buyer and may assume the credit risk
associated with the interposed bank or other financial intermediary. The
participation may not be rated by a nationally recognized rating service.
Further, loan participations may not be readily marketable and may be subject to
restrictions on resale.
MUNICIPAL OBLIGATIONS. "Municipal obligations" are debt obligations issued
by states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multi-state agencies or authorities the interest from which is exempt from
federal income tax in the opinion of bond counsel to the issuer. Municipal
obligations include debt obligations issued to obtain funds for various public
purposes and certain industrial development bonds issued by or on behalf of
public authorities. Municipal obligations are classified as general obligation
bonds, revenue bonds and notes.
MUNICIPAL BONDS. Municipal bonds generally have maturities of more
than one year when issued and have two principal classifications -- General
Obligation Bonds and Revenue Bonds.
GENERAL OBLIGATION BONDS - are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal and
interest.
REVENUE BONDS - are payable only from the revenues derived from a
particular facility or group of facilities or from the proceeds of
special excise or other specific revenue service.
INDUSTRIAL DEVELOPMENT BONDS - are a type of revenue bond and do
not generally constitute the pledge of credit of the issuer of such
bonds. The payment of the principal and interest on such bonds is
dependent on the facility's user to meet its financial obligations and
the pledge, if any, of real and personal property financed as security
for such payment. Industrial development bonds are issued by or on
behalf of public authorities to raise money to finance public and
private facilities for business, manufacturing, housing, ports,
pollution control, airports, mass transit and other similar type
projects.
MUNICIPAL NOTES. Municipal notes generally have maturities of one year
or less when issued and are used to satisfy short-term capital needs.
Municipal notes include:
TAX ANTICIPATION NOTES - are issued to finance working capital
needs of municipalities and are generally issued in anticipation of
future tax revenues.
BOND ANTICIPATION NOTES - are issued in expectation of a
municipality issuing a long-term bond in the future. Usually the
long-term bonds provide the money for the repayment of the notes.
REVENUE ANTICIPATION NOTES - are issued in expectation of receipt
of other types of revenues such as certain federal revenues.
CONSTRUCTION LOAN NOTES - are sold to provide construction
financing and may be insured by the Federal Housing Administration.
After completion of the project, FNMA or GNMA frequently provides
permanent financing.
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PRE-REFUNDED MUNICIPAL BONDS - are bonds no longer secured by the
credit of the issuing entity, having been escrowed with US Treasury
securities as a result of a refinancing by the issuer. The bonds are
escrowed for retirement either at original maturity or at an earlier
call date.
TAX FREE COMMERCIAL PAPER - is a promissory obligation issued or
guaranteed by a municipal issuer and frequently accompanied by a
letter of credit of a commercial bank. It is used by agencies of state
and local governments to finance seasonal working capital needs, or as
short-term financing in anticipation of long-term financing.
TAX FREE FLOATING AND VARIABLE RATE DEMAND NOTES - are municipal
obligations backed by an obligation of a commercial bank to the issuer
thereof which allows the issuer to issue securities with a demand
feature, which, when exercised, usually becomes effective within
thirty days. The rate of return on the notes is readjusted
periodically according to some objective standard such as changes in a
commercial bank's prime rate.
TAX FREE PARTICIPATION CERTIFICATES - are tax free floating, or
variable rate demand notes which are issued by a bank, insurance
company or other financial institution or affiliated organization that
sells a participation in the note. They are usually purchased by the
Tax Exempt Bond and Tax Free Money Market Funds to maintain liquidity.
The Funds' money managers will continually monitor the pricing,
quality and liquidity of the floating and variable rate demand
instruments held by the Funds, including the participation
certificates.
A participation certificate gives a Fund an undivided interest in
the municipal obligation in the proportion that the Fund's
participation interest bears to the total principal amount of the
municipal obligation and provides the demand feature described below.
Each participation is backed by: an irrevocable letter of credit or
guaranty of a bank which may be the bank issuing the participation
certificate, a bank issuing a confirming letter of credit to that of
the issuing bank, or a bank serving as agent of the issuing bank with
respect to the possible repurchase of the certificate of
participation; or insurance policy of an insurance company that the
money manager has determined meets the prescribed quality standards
for the Fund. The Fund has the right to sell the participation
certificate back to the institution and draw on the letter of credit
or insurance on demand after thirty days' notice for all or any part
of the full principal amount of the Fund's participation interest in
the security plus accrued interest. The Funds' money managers intend
to exercise the demand feature only (1) upon a default under the terms
of the bond documents, (2) as needed to provide liquidity to the Funds
in order to make redemptions of Fund Shares, or (3) to maintain the
required quality of its investment portfolios.
The institutions issuing the participation certificates will
retain a service and letter of credit fee and a fee for providing the
demand feature, in an amount equal to the excess of the interest paid
on the instruments over the negotiated yield at which the
participations were purchased by a Fund. The total fees generally
range from 5% to 15% of the applicable prime rate or other interest
rate index. The Fund will attempt to have the issuer of the
participation certificate bear the cost of the insurance. The Fund
retains the option to purchase insurance if necessary, in which case
the cost of insurance will be a capitalized expense of the Fund.
DEMAND NOTES. The Tax Exempt Bond and Tax Free Money Market Funds may
purchase municipal obligations with the right to a "put" or "stand- by
commitment." A "put" on a municipal obligation obligates the seller of the
put to buy within a specified time and at an agreed upon price a municipal
obligation the put is issued with. A stand-by commitment is similar to a
put except the seller of the commitment is obligated to purchase the
municipal obligation on the same day the Fund exercises the commitment and
at a price equal to the amortized cost of the municipal obligation plus
accrued interest. The seller of the put or stand-by commitment may be the
issuer of the municipal obligation, a bank or broker-dealer.
The Funds will enter into put and stand-by commitments with
institutions such as banks and broker-dealers that the Funds' money
managers continually believe satisfy the Funds' credit quality
requirements. The ability of the Funds to exercise the put or stand-by
commitment may depend on the seller's ability to purchase the securities at
the time the put or stand-by commitment is exercised or on certain
restrictions in the buy back
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arrangement. Such restrictions may prohibit the Funds from exercising the
put or stand-by commitment except to maintain portfolio flexibility and
liquidity. In the event the seller would be unable to honor a put or
stand-by commitment for financial reasons, the Funds may, in the opinion of
Funds' management, be a general creditor of the seller. There may be
certain restrictions in the buy back arrangement which may not obligate the
seller to repurchase the securities. (See, "Certain Investments --
Municipal Notes -- Tax Free Participation Certificates.")
The Tax Exempt Bond and Tax Free Money Market Funds may purchase from
issuers floating or variable rate municipal obligations some of which are
subject to payment of principal by the issuer on demand by the Funds
(usually not more than thirty days' notice). The Funds may also purchase
floating or variable rate municipal obligations or participations therein
from banks, insurance companies or other financial institutions which are
owned by such institutions or affiliated organizations. Each participation
is usually backed by an irrevocable letter of credit, or guaranty of a bank
or insurance policy of an insurance company.
INTEREST RATE TRANSACTIONS. The Fixed Income III, Short Term Bond and
Multistrategy Bond Funds may enter into interest rate swaps, on either an
asset-based or liability-based basis, depending on whether they are hedging
their assets or their liabilities, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Funds receiving or paying, as the case may be, only the net amount of the two
payments. When a Fund engages in an interest rate swap, it exchanges its
obligations to pay or rights to receive interest payments for the obligations or
rights to receive interest payments of another party (i.e., an exchange of
floating rate payments for fixed rate payments). The Fund expects to enter into
these transactions primarily to preserve a return or spread on a particular
investment or portion of their portfolios or to protect against any increase in
the price of securities they anticipate purchasing at a later date. Inasmuch as
these hedging transactions are entered into for good faith hedging purposes, the
money managers and the Funds believe such obligations do not constitute senior
securities and, accordingly, will not treat them as being subject to the Funds'
borrowing restrictions. The net amount of the excess, if any, of the Funds'
obligations over their entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash or liquid high-grade debt
securities having an aggregate net asset value at least equal to the accrued
excess will be maintained in a segregated account by the Funds' custodian. To
the extent that the Funds enter into interest rate swaps on other than a net
basis, the amount maintained in a segregated account will be the full amount of
the Funds' obligations, if any, with respect to such interest rate swaps,
accrued on a daily basis. The Funds will not enter into any interest rate swaps
unless the unsecured senior debt or the claims-paying ability of the other party
thereto is rated in the highest rating category of at least one nationally
recognized rating organization at the time of entering into such transaction. If
there is a default by the other party to such a transaction, the Funds will have
contractual remedies pursuant to the agreement related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid.
The use of interest rate swaps is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If a money manager using this
technique is incorrect in its forecast of market values, interest rates and
other applicable factors, the investment performance of a Fund would diminish
compared to what it would have been if this investment technique was not used.
A Fund may only enter into interest rate swaps to hedge its portfolio.
Interest rate swaps do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that the
Funds are contractually obligated to make. If the other party to an interest
rate swap defaults, the Funds' risk of loss consists of the net amount of
interest payments that the Funds are contractually entitled to receive. Since
interest rate swaps are individually negotiated, the Funds expect to achieve an
acceptable degree of correlation between their rights to receive interest on
their portfolio securities and their rights and obligations to receive and pay
interest pursuant to interest rate swaps.
INVESTMENT IN FOREIGN SECURITIES. The Funds may invest in foreign
securities traded on US or foreign exchanges or in the over-the-counter market.
Investing in securities issued by foreign governments and corporations involves
considerations and possible risks not typically associated with investing in
obligations issued by the US government and domestic corporations. Less
information may be available about foreign companies than about domestic
companies, and foreign companies generally are not subject to the same uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic companies.
The values of foreign investments are affected by changes in currency rates or
exchange control regulations, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than
in the United States.
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Investments in foreign countries could be affected by other factors not present
in the United States, including nationalization, expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations and could be subject to
extended settlement periods or restrictions affecting the prompt return of
capital to the United States.
INVESTMENT IN EMERGING MARKETS. Foreign investment may include emerging
market debt. Emerging markets consist of countries determined by the money
managers of the Fund to have developing or emerging economies and markets. These
countries generally include every country in the world except the United States,
Canada, Japan, Australia and most countries located in Western Europe. The Funds
may invest in the following types of emerging market debt -- bonds; notes and
debentures of emerging market governments; debt and other fixed-income
securities issued or guaranteed by emerging market government agencies,
instrumentalities or central banks; and other fixed-income securities issued or
guaranteed by banks or other companies in emerging markets which the money
managers believe are suitable investments for the Funds. The risks associated
with investing in foreign securities are often heightened for investments in
developing or emerging markets. Investments in emerging or developing markets
involve exposure to economic structures that are generally less diverse and
mature, and to political systems which can be expected to have less stability,
than those of more developed countries. Moreover, the economies of individual
emerging market countries may differ favorably or unfavorably from the US
economy in such respects as the rate of growth in gross domestic product, the
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. Because the Funds' foreign securities will generally be
denominated in foreign currencies, the value of such securities to the Funds
will be affected by changes in currency exchange rates and in exchange control
regulations. A change in the value of a foreign currency against the US dollar
will result in a corresponding change in the US dollar value of the Funds'
foreign securities. In addition, some emerging market countries may have fixed
or managed currencies which are not free-floating against the US dollar.
Further, certain emerging market countries' currencies may not be
internationally traded. Certain of these currencies have experienced a steady
devaluation relative to the US dollar. Many emerging market countries have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had,
and may continue to have, negative effects on the economies and securities
markets of certain emerging market countries.
FOREIGN GOVERNMENT SECURITIES. Foreign government securities which the
Funds may invest in generally consist of obligations issued or backed by the
national, state or provincial government or similar political subdivisions or
central banks in foreign countries. Foreign government securities also include
debt obligations of supranational entities, which include international
organizations designated or backed by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. These securities also include debt securities of
"quasi-government agencies" and debt securities denominated in multinational
currency units of an issuer.
OTHER DEBT SECURITIES. Multistrategy Bond and Fixed Income III Funds may
invest in debt securities issued by supranational organizations such as:
THE WORLD BANK -- An international bank which was chartered to finance
development projects in developing member countries.
THE EUROPEAN COMMUNITY -- An organization which consists of certain
European states engaged in cooperative economic activities.
THE EUROPEAN COAL AND STEEL COMMUNITY -- An economic union of various
European nations' steel and coal industries.
THE ASIAN DEVELOPMENT BANK -- An international development bank
established to lend funds, promote investment and provide technical
assistance to member nations in the Asian and Pacific regions.
Multistrategy Bond and Fixed Income III Funds may also invest in debt
securities denominated in the ECU, which is a "basket" consisting of specific
amounts of currency of member states of the European Economic Community. The
Counsel of Ministers of the European Economic Community may adjust specific
amounts of currency comprising the ECU to reflect changes in the relative values
of the underlying currencies. The money managers investing in these securities
do not believe that such adjustments will adversely affect holders of
ECU-denominated obligations or the marketability of the securities.
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BRADY BONDS. The Fixed Income III, Multistrategy Bond, International
Securities Funds may invest in Brady Bonds, the products of the "Brady Plan,"
under which bonds are issued in exchange for cash and certain of a country's
outstanding commercial bank loans. The Brady Plan offers relief to debtor
countries that have effected substantial economic reforms. Specifically, debt
reduction and structural reform are the main criteria countries must satisfy in
order to obtain Brady Plan status. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (primarily US-dollar) and are
actively traded on the over-the-counter market. Brady Bonds have been issued
only recently and accordingly they do not have a long payment history.
CREDIT AND LIQUIDITY ENHANCEMENTS. The Money Market Funds may invest in
securities supported by credit and liquidity enhancements from third parties,
generally letters of credit from foreign or domestic banks. Adverse changes in
the credit quality of these institutions could cause losses to Money Market
Funds that invest in these securities and may affect their share price.
TAXES
DISTRIBUTIONS
DISTRIBUTIONS OF NET INVESTMENT INCOME. The Funds receive income generally
in the form of dividends and interest on their investments. This income, less
expenses incurred in the operation of a Fund, constitutes its net investment
income from which dividends may be paid to you. Any distributions by a Fund from
such income will be taxable to you as ordinary income, whether you take them in
cash or in additional Shares.
DISTRIBUTIONS OF CAPITAL GAINS. The Funds may derive capital gains and
losses in connection with sales or other dispositions of their portfolio
securities. Distributions derived from the excess of net short-term capital gain
over net long-term capital loss will be taxable to you as ordinary income.
Distributions paid from long-term capital gains realized by a Fund will be
taxable to you as long-term capital gain, regardless of how long you have held
your Shares in the Fund. Any net short-term or long-term capital gains realized
by a Fund (net of any capital loss carryovers) generally will be distributed
once each year, and may be distributed more frequently, if necessary, in order
to reduce or eliminate federal excise or income taxes on a Fund.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. Each Fund will inform
you of the amount and character of your distributions at the time they are paid,
and will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year. If you have not
held a Fund's Shares for a full year, you may have designated and distributed to
you as ordinary income or capital gain a percentage of income and/or capital
gains that is not equal to the actual amount of such income and/or capital gains
earned during the period of your investment in a Fund.
TAXES
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. Each Fund has
elected to be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code (the "Code"), has qualified as such for its most
recent fiscal year, and intends to so qualify during the current fiscal year. As
a regulated investment company, a Fund generally pays no federal income tax on
the income and gains it distributes to you. The Board reserves the right not to
maintain the qualification of a Fund as a regulated investment company if it
determines such course of action to be beneficial to you. In such case, a Fund
will be subject to federal, and possibly state, corporate taxes on its taxable
income and gains, and distributions to you will be taxed as ordinary income or
capital gains to the extent of a Fund's available earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires a Fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its net capital gain income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to you by December 31 of each year in order to avoid federal excise
taxes. Each Fund intends to declare and pay sufficient dividends in December (or
in January that are treated by you as received in December) but does not
guarantee and can give no assurances that its distributions will be sufficient
to eliminate all such taxes.
REDEMPTION OF FUND SHARES. Redemptions and exchanges of a Fund's Shares
are taxable transactions for federal and state income tax purposes that cause
you to recognize a gain or loss. If you hold your Shares as a capital asset, the
gain or loss that you realize will be capital gain or loss. Any loss incurred on
the redemption or exchange of Shares held for six
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months or less will be treated as a long-term capital loss to the extent of any
long-term capital gains distributed to you by a Fund on those Shares.
Beginning after the year 2005 (2000 for certain shareholders), gain on the
sale or redemption of Shares held more than five years may be subject to a
reduced rate of tax.
All or a portion of any loss that you realize upon the redemption of your
Fund Shares will be disallowed to the extent that you purchase other Shares in
such Fund (through reinvestment of dividends or otherwise) within 30 days before
or after your share redemption. Any loss disallowed under these rules will be
added to your tax basis in the new Shares you purchase.
US GOVERNMENT OBLIGATIONS. Many states grant tax-free status to dividends
paid to you from interest earned on direct obligations of the US government,
subject in some states to minimum investment requirements that must be met by a
Fund. Investments in GNMA/FNMA securities, bankers' acceptances, commercial
paper and repurchase agreements collateralized by US government securities do
not generally qualify for tax-free treatment. The rules on exclusion of this
income are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. Distributions from
Diversified Equity, Equity Income, Quantitative Equity, Real Estate Securities,
Special Growth, Tax-Managed Large Cap, Tax-Managed Small Cap, Equity I, Equity
II, Equity III and Equity Q Funds may qualify in part for the 70%
dividends-received deduction for corporations. The portion of the dividends so
qualified depends on the aggregate taxable qualifying dividend income received
by such Funds from domestic (US) sources. The Fund will send to shareholders
statements each year advising the amount of the dividend income which qualifies
for such treatment. All dividends, including those which qualify for the
dividends-received deduction, must be included in your alternative minimum
taxable income calculation.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS. Most foreign exchange
gains realized on the sale of debt instruments are treated as ordinary income by
Funds which invest in foreign securities. Similarly, foreign exchange losses
realized by such Funds on the sale of debt instruments are generally treated as
ordinary income losses. These gains when distributed will be taxable to you as
ordinary dividends, and any losses will reduce such Fund's ordinary income
otherwise available for distribution to you. This treatment could increase or
reduce such Fund's ordinary income distributions to you, and may cause some or
all of such Fund's previously distributed income to be classified as a return of
capital.
The Funds may be subject to foreign withholding taxes on income from
certain of their foreign securities. If more than 50% of a Fund's total assets
at the end of the fiscal year are invested in securities of foreign
corporations, such Fund may elect to pass-through to you your pro rata share of
foreign taxes paid by the Fund. If this election is made, the year-end statement
you receive from the Fund will show more taxable income than was actually
distributed to you. However, you will be entitled to either deduct your share of
such taxes in computing your taxable income or claim a foreign tax credit for
such taxes against your US federal income tax. Each of these Funds will provide
you with the information necessary to complete your individual income tax return
if such election is made.
If a Fund invests in an entity that is classified as a "passive foreign
investment company" (a "PFIC") for federal income tax purposes, the application
of certain provisions of the Code (applying to PFICs) could result in the
imposition of certain federal income taxes to the Fund. Under the Code, a Fund
can elect to mark-to-market their PFIC holdings in lieu of paying taxes on gains
or distributions therefrom. In addition, Emerging Markets Fund may invest up to
10% of its total assets in the stock of foreign investment companies that may be
treated as PFICs under the Code. Certain other foreign corporations, not
operated as investment companies, may nevertheless satisfy the PFIC definition.
A portion of the income and gains that the Fund derives may be subject to a
nondeductible federal income tax at the Fund level, whether or not the
corresponding income is distributed to you. In this case, you would not be
permitted to claim a credit on your own tax return for the tax paid by the fund.
In some cases, Emerging Markets Fund may be able to avoid this tax by electing
to be taxed currently on its share of the PFIC's income, whether or not such
income is actually distributed by the PFIC. The Emerging Markets Fund will
endeavor to limit its exposure to the PFIC tax by investing in PFICs only where
the election to be taxed currently will be made. Because it is not always
possible to identify a foreign issuer as a PFIC in advance of making the
investment, the Fund may incur the PFIC tax in some instances. Investment income
received from sources within foreign countries may be subject to foreign income
taxes withheld at the source. The US has entered into tax treaties with many
foreign countries which may entitle a Fund to a reduced rate on such taxes or
exemption from taxes on such income. It is impossible to determine the effective
rate of foreign tax for a Fund in advance since the amount of assets invested
within various countries is not known.
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EXEMPT INTEREST DIVIDENDS. The Tax Exempt Bond Fund and Tax Free Money
Market Fund do not intend to purchase any municipal obligations required, in the
opinion of bond counsel, to be treated as a preference item by shareholders when
determining their alternative minimum tax liability. Exempt income paid by the
Funds is includable in the tax base for determining the extent to which a
shareholder's Social Security or railroad retirement benefits will be subject to
federal income tax. The Code also provides that interest on indebtedness
incurred, or continued, to purchase or carry Tax Exempt Bond Fund and Tax Free
Money Market Fund Shares, is not deductible; and that persons who are
"substantial users" (or persons related thereto) of facilities financed by
private activity bonds may not be able to treat the dividends paid by either
Fund as tax free. Such persons should consult their tax advisers before
purchasing Shares of the Tax Exempt Bond Fund or Tax Free Money Market Fund.
INVESTMENT IN COMPLEX SECURITIES. The Funds may invest in complex
securities. Such investments may be subject to numerous special and complicated
tax rules. These rules could affect whether gains and losses recognized by a
Fund are treated as ordinary income or capital gain and/or accelerate the
recognition of income to a Fund or defer a Fund's ability to recognize losses.
In turn, these rules may affect the amount, timing or character of the income
distributed to you by a Fund.
From November 1, 1999 to December 31, 1999, the Real Estate Securities
Fund, Short Term Bond Fund, Diversified Bond Fund and the Multistrategy Bond
Fund incurred net realized capital losses of $4,344,347, $283,698, $2,227,479
and $6,282,764, respectively. As permitted by tax regulations, the Real Estate
Securities Fund, Short Term Bond Fund, Diversified Bond Fund and the
Multistrategy Bond Fund intend to elect to defer these losses and treat them as
arising in the year ending October 31, 2000.
At December 31, 1999, certain of the Funds had net tax basis capital loss
carryforwards which may be applied against any realized net taxable gains of
each succeeding year until their respective expiration dates, whichever occurs
first. Available capital loss carryforwards and expiration dates are as follows:
<TABLE>
<CAPTION>
- ------------------ -------------------- -------------------- -------------------- ------------------- --------------------
Real Estate Emerging Markets Short Term Bond Diversified Bond Multistrategy Bond
Year Securities Fund Fund Fund Fund Fund
- ------------------ -------------------- -------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C>
12/31/01 -- -- (4,813,748) -- --
- ------------------ -------------------- -------------------- -------------------- ------------------- --------------------
12/31/02 -- -- (5,161,817) -- --
- ------------------ -------------------- -------------------- -------------------- ------------------- --------------------
12/31/03 -- (2,887,175) (2,834,049) -- --
- ------------------ -------------------- -------------------- -------------------- ------------------- --------------------
12/31/04 -- (348,806) (1,947,924) -- --
- ------------------ -------------------- -------------------- -------------------- ------------------- --------------------
12/31/05 -- -- (574,853) -- --
- ------------------ -------------------- -------------------- -------------------- ------------------- --------------------
12/31/06 (2,695,613) (56,335,865) (51,911) -- --
- ------------------ -------------------- -------------------- -------------------- ------------------- --------------------
12/31/07 (22,446,311) (29,958,651) (3,470,874) (11,070,653) (17,634,520)
- ------------------ -------------------- -------------------- -------------------- ------------------- --------------------
TOTALS (25,141,924) (86,530,497) (18,855,176) (11,070,653) (17,634,520)
- ------------------ -------------------- -------------------- -------------------- ------------------- --------------------
</TABLE>
REDEMPTIONS IN KIND. Each Fund has committed itself to pay in cash (by
check) all requests for redemption by any shareholder of record, limited in
amount, however, during any 90-day period to the lesser of $250,000 or 1% of the
value of the Fund's net assets at the beginning of the 90-day period. This
commitment is irrevocable without the prior approval of the U.S. Securities and
Exchange Commission. In the case of redemption requests in excess of these
amounts FRIC's Board reserves the right to make payments in whole or in part in
securities or other assets of a Fund, in case of an emergency, or if the payment
of such a redemption in cash would be detrimental to the existing shareholders
of the Fund. In these circumstances, the securities distributed would be valued
at the price used to compute the Fund's net assets and you may incur brokerage
fees in converting the securities to cash. The Funds do not intend to redeem
illiquid securities in kind. If this happens, however, you may not be able to
recover your investment in a timely manner.
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MONEY MANAGER INFORMATION
DIVERSIFIED EQUITY FUND
ALLIANCE CAPITAL MANAGEMENT L.P. is a limited partnership whose (i)
general partner, Alliance Capital Management Corporation, is a wholly owned
subsidiary of AXA Financial, Inc. (formerly The Equitable Companies
Incorporated) ("AXF") and (ii) majority unit holder is ACMC, Inc., an indirect
wholly owned subsidiary of AXF. AXA, a French insurance company, owns
approximately 58.4% of the common stock of AXF.
BARCLAYS GLOBAL FUND ADVISORS N.A. is a wholly-owned subsidiary of
Barclays Global Investors, N.A.
EQUINOX CAPITAL MANAGEMENT, LLC is 100% employee owned, with majority
ownership held by Ron Ulrich.
JACOBS LEVY EQUITY MANAGEMENT, INC. is owned by Bruce Jacobs and Kenneth
Levy.
MARSICO CAPITAL MANAGEMENT, LLC is owned 50% by Marsico Management
Holdings, LLC and 50% by TFM Holdings, LLLP. Marsico Management Holdings is a
wholly owned subsidiary of Bank of America, N.A. which in turn is a wholly owned
subsidiary of Bank of America Corporation. TFM Holdings, LLLP is a Colorado
limited liability limited partnership whose sole general partner is TFM
Managers, Inc. which is wholly-owned by Thomas F. Marsico.
PEACHTREE ASSET MANAGEMENT is a division of SSB Citi Fund Management LLC.
SSB Citi Fund Management LLC is 100% owned by Salomon Smith Barney Holdings,
Inc. which is a wholly owned subsidiary of Citigroup Inc.
SANFORD C. BERNSTEIN & CO., INC. is controlled by its Board of Directors.
The Board consists of Lewis A. Sanders, Roger Hertog, Andrew S. Adelson, Kevin
R. Brine, Charles C. Cahn, Jr., Marilyn G. Fedak, Arthur W. Fried, Michael L.
Goldstein, Thomas S. Hexner, Jerry M. Lieberman, Marc O. Mayer, Jean M. Reid and
Francis H. Trainer, Jr.
STRONG CAPITAL MANAGEMENT, INC. is a corporation controlled by Richard S.
Strong.
SUFFOLK CAPITAL MANAGEMENT, INC. is a wholly owned subsidiary of United
Asset Management Company, a publicly traded corporation.
TURNER INVESTMENT PARTNERS INC. is a corporation controlled by Robert E.
Turner.
WESTPEAK INVESTMENT ADVISORS, LP is a wholly-owned subsidiary of Nvest
Companies, L.P. ("Nvest Companies"). Nvest Companies' managing general partner,
Nvest Corporation, is an indirect, wholly-owned subsidiary of Metropolitan Life
Insurance Company ("MetLife"), which also owned, as of January 31, 1999,
approximately 48% of the limited partnership interests in Nvest Companies. Nvest
Companies' advising general partner, Nvest, L.P., is a publicly-traded company
listed on the New York Stock Exchange.
SPECIAL GROWTH FUND
CAPITALWORKS INVESTMENT PARTNERS, LLC is a liability company controlled by
its members who include John D. Wylie, Jack C. Marshall, Mark J. Correnti and
Donovan T. Garcia.
DELPHI MANAGEMENT, INC. is 100% owned by Scott Black.
FIDUCIARY INTERNATIONAL, INC. is an indirect wholly-owned subsidiary of
Fiduciary Trust Company International, a New York state chartered bank.
GLOBEFLEX CAPITAL, L.P. is a California limited partnership. Its general
partners are Robert J. Anslow, Jr. and Marina L. Marrelli.
JACOBS LEVY EQUITY MANAGEMENT, INC. See: Diversified Equity Fund.
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SIRACH CAPITAL MANAGEMENT, INC. is a wholly-owned subsidiary of United
Asset Management Company, a publicly traded corporation.
WESTPEAK INVESTMENT ADVISORS, L.P. See: Diversified Equity Fund.
EQUITY INCOME FUND
BARCLAYS GLOBAL FUND ADVISORS, See: Diversified Equity Fund.
EQUINOX CAPITAL MANAGEMENT, INC. See: Diversified Equity Fund.
WESTPEAK INVESTMENT ADVISORS, L.P. See: Diversified Equity Fund.
QUANTITATIVE EQUITY FUND
BARCLAYS GLOBAL FUND ADVISORS. See: Diversified Equity Fund.
FRANKLIN PORTFOLIO ASSOCIATES LLC is a Massachusetts limited liability
company owned by Mellon Financial Corporation.
J.P. MORGAN INVESTMENT MANAGEMENT, INC. is a wholly owned subsidiary of
J.P. Morgan & Co., Inc., a publicly held bank holding company.
JACOBS LEVY EQUITY MANAGEMENT, INC. See: Diversified Equity Fund.
INTERNATIONAL SECURITIES FUND
DELAWARE INTERNATIONAL ADVISERS LIMITED is an indirect, wholly-owned
subsidiary of Lincoln National Corporation, a publicly traded company.
FIDELITY MANAGEMENT TRUST COMPANY is a wholly-owned subsidiary of FMR
Corp. Members of the Edward C. Johnson 3rd family are predominant owners of a
class of shares of common stock representing approximately 49% of the voting
power of FMR Corp.
J.P. MORGAN INVESTMENT MANAGEMENT, INC. See: Quantitative Equity Fund.
MASTHOLM ASSET MANAGEMENT, LLC is a Washington limited liability company
that is controlled by the following members: Douglas R. Allen, Thomas M. Garr,
Robert L. Gernstetter, Joseph P. Jordan, Arthur M. Tyson and Theordore J. Tyson.
MONTGOMERY ASSET MANAGEMENT LLC is a Delaware limited liability company
with majority ownership held by Commerzbank AG, a foreign banking organization.
OECHSLE INTERNATIONAL ADVISORS is a Delaware limited liability company
that is controlled by its member manager, Oechsle Group, LLC, a Delaware limited
liability company. Oechsle Group, LLC is controlled by the following members: S.
Dewey Keesler, Stephen P. Langer, L. Sean Roche and Warren R. Walker.
SANFORD C. BERNSTEIN & CO., INC. See: Diversified Equity Fund.
THE BOSTON COMPANY ASSET MANAGEMENT, LLC is a wholly owned, indirect
subsidiary of Mellon Financial Corporation, a publicly held corporation.
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DIVERSIFIED BOND FUND
LINCOLN CAPITAL MANAGEMENT COMPANY is over 50% owned by John Cole, Dave
Fowler, Jay Freedman, Parker Hall, Peter Knez, Kenneth Meyer and Alan Sebulsky.
PACIFIC INVESTMENT MANAGEMENT COMPANY ("PIMCO") is a subsidiary of PIMCO
Advisors L.P. ("PIMCO Advisors"). The general partners of PIMCO Advisors are
PIMCO Partners, G.P. and PIMCO Advisors Holdings L.P. ("PAH"). PIMCO Partners,
G.P. is a general partnership between PIMCO Holding LLC, a Delaware limited
liability company and indirect wholly-owned subsidiary of Pacific Life Insurance
Company, and PIMCO Partners LLC, a California limited liability company
controlled by the current PIMCO Managing Directors and two former Managing
Directors of PIMCO. PIMCO Partners, G.P. is the sole general partner of PAH. It
is expected that on or about May 5, 2000, Allianz of America, Inc., ("A of A")
will acquire (the "Acquisition") majority ownership of PIMCO Advisors and its
subsidiaries, including PIMCO. After the closing of the Acquisition, A of A will
own approximately 70% of the outstanding partnership interests in PIMCO
Advisors. Pacific Life Insurance Company will retain its approximately 30%
interest in an indirect general partner of PIMCO Advisors. In connection with
the Acquisition, A of A will enter into a put/call arrangement for the possible
disposition of Pacific Life Insurance Company's indirect interest in PIMCO
Advisors.
STANDISH, AYER & WOOD, INC. is organized as a Sub-chapter S Corporation
and is 100% owned by its twenty-five directors, with no director having more
than 25% ownership.
MULTISTRATEGY BOND FUND
LAZARD ASSET MANAGEMENT is a division of Lazard Freres & Co. LLC (LF&Co) a
broker/dealer which is a New York limited liability company.
MILLER, ANDERSON & SHERRERD, LLP ("MAS") is a Pennsylvania limited
liability partnership. MAS is wholly-owned by indirect subsidiaries of Morgan
Stanley Dean Witter & Co., and is a division of Morgan Stanley Dean Witter
Investment Management.
PACIFIC INVESTMENT MANAGEMENT COMPANY. See: Diversified Bond Fund.
STANDISH, AYER & WOOD, INC. See: Diversified Bond Fund.
REAL ESTATE SECURITIES FUND
AEW CAPITAL MANAGEMENT, L.P. is a wholly-owned affiliate of Nvest
Companies, L.P. ("Nvest"). Nvest is a publicly held limited partnership.
Metropolitan Life Insurance Company owns approximately 48% of Nvest. AEW Capital
Management, Inc., a wholly-owned subsidiary of Nvest Holdings, Inc., is the
general partner, and Nvest is the sole limited partner of AEW Capital
Management, L.P.
COHEN & STEERS CAPITAL MANAGEMENT is a corporation whose two principals,
Robert H. Steers and Martin Cohen, control the corporation within the meaning of
the 1940 Act.
SECURITY CAPITAL GLOBAL CAPITAL MANAGEMENT GROUP INCORPORATED is an
indirect, wholly-owned subsidiary of Security Capital, a publicly traded
corporation.
EMERGING MARKETS FUND
FOREIGN & COLONIAL EMERGING MARKETS LIMITED is a wholly-owned subsidiary
of Hypo Foreign & Colonial Management (Holding) Limited ("HFCM"), the holding
company of the Foreign & Colonial Group of Fund managers. HFCM is controlled by
Bayerische Hypo-und Vereinsbank AG, the second largest commercial bank in
Germany.
GENESIS ASSET MANAGERS LIMITED is a limited liability company organized
under the laws of the state of Guernsey, the Channel Islands. Genesis Asset
Managers Limited is affiliated with and has common investment executives with
the Genesis Group of fund management companies. The Genesis Group, whose holding
company is Genesis Holdings International
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Limited, is controlled 55% by management and associated interests, and the
balance held by outside shareholders, with the largest single holding being 15%.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT is a California limited partnership
whose general partner is Nicholas-Applegate Capital Management Holdings, L.P., a
California limited partnership whose general partner is Nicholas-Applegate
Capital Management Holdings, Inc., a California corporation controlled by Arthur
E. Nicholas.
SANFORD C. BERNSTEIN & CO. INC. See: Diversified Equity Fund.
SCHRODERS INVESTMENT MANAGEMENT NORTH AMERICA LIMITED is 100% owned by
Schroders plc, which is publicly traded on the London Stock Exchange.
TAX-MANAGED LARGE CAP FUND
J.P. MORGAN INVESTMENT MANAGEMENT INC. See: Quantitative Equity Fund.
TAX-MANAGED SMALL CAP FUND
GEEWAX, TERKER & COMPANY is a general partnership with its general
partners, John J. Geewax and Bruce E Terker, each owning 50% of the firm.
TAX EXEMPT BOND FUND
MFS INSTITUTIONAL ADVISORS, INC. is an indirect subsidiary of and is
controlled by Sun Life Assurance Company of Canada (US), a mutual insurance
company.
STANDISH, AYER & WOOD, INC. See: Diversified Bond Fund.
SHORT TERM BOND FUND
BLACKROCK FINANCIAL MANAGEMENT operates as a partially owned independent
subsidiary of the PNC Bank. On October 1, 1999 the firm completed an initial
public offering ("IPO") of its common stock. Currently, 14% of BlackRock stock
is publicly held, PNC Bank owns approximately 70%, and BlackRock's employees own
16%.
STANDISH, AYER & WOOD, INC. See: Diversified Bond Fund.
STW FIXED INCOME MANAGEMENT LTD. is a Bermuda exempted company. William H.
Williams III is the sole shareholder.
MONEY MARKET FUND
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY is wholly-owned by Frank
Russell Company, a subsidiary of The Northwestern Mutual Life Insurance Company.
US GOVERNMENT MONEY MARKET FUND
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY. See: Money Market Fund.
TAX FREE MONEY MARKET FUND
WEISS, PECK & GREER, L.L.C. is a wholly-owned subsidiary of Robeco Groep
N.V.
EQUITY I FUND
ALLIANCE CAPITAL MANAGEMENT L.P. See: Diversified Equity Fund.
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BARCLAYS GLOBAL FUND ADVISORS. See: Diversified Equity Fund.
EQUINOX CAPITAL MANAGEMENT, INC. See: Diversified Equity Fund.
JACOBS LEVY EQUITY MANAGEMENT INC. See: Diversified Equity Fund.
MARSICO CAPITAL MANAGEMENT, LLC. See: Diversified Equity Fund
PEACHTREE ASSET MANAGEMENT. See: Diversified Equity Fund.
SANFORD C. BERNSTEIN & CO., INC. See: Diversified Equity Fund.
STRONG CAPITAL MANAGEMENT, INC. See: Diversified Equity Fund.
SUFFOLK CAPITAL MANAGEMENT, INC. See: Diversified Equity Fund.
TURNER INVESTMENT PARTNERS INC. See: Diversified Equity Fund.
WESTPEAK INVESTMENT ADVISORS, L.P. See: Diversified Equity Fund.
EQUITY II FUND
CAPITALWORKS INVESTMENT PARTNERS, LLC. See: Special Growth Fund.
DELPHI MANAGEMENT, INC. See: Special Growth Fund.
FIDUCIARY INTERNATIONAL, INC. See: Special Growth Fund.
GLOBEFLEX CAPITAL, L.P. See: Special Growth Fund.
JACOBS LEVY EQUITY MANAGEMENT INC. See: Diversified Equity Fund.
SIRACH CAPITAL MANAGEMENT, INC. See: Special Growth Fund.
WESTPEAK INVESTMENT ADVISORS, L.P. See: Diversified Equity Fund.
EQUITY III FUND
BARCLAYS GLOBAL FUND ADVISORS. See: Diversified Equity Fund.
EQUINOX CAPITAL MANAGEMENT, INC. See: Diversified Equity Fund.
WESTPEAK INVESTMENT ADVISORS, L.P. See: Diversified Equity Fund.
EQUITY Q FUND
BARCLAYS GLOBAL FUND ADVISORS. See: Diversified Equity Fund.
FRANKLIN PORTFOLIO ASSOCIATES LLC. See: Quantitative Equity Fund.
J.P. MORGAN INVESTMENT MANAGEMENT, INC. See: Quantitative Equity Fund.
JACOBS LEVY EQUITY MANAGEMENT INC. See: Diversified Equity Fund.
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INTERNATIONAL FUND
DELAWARE INTERNATIONAL ADVISERS LIMITED. See: International Securities Fund.
FIDELITY MANAGEMENT TRUST COMPANY. See: International Securities Fund.
J.P. MORGAN INVESTMENT MANAGEMENT, INC. See: Quantitative Equity Fund.
MASTHOLM ASSET MANAGEMENT, LLC. See: International Securities Fund.
MONTGOMERY ASSET MANAGEMENT, LLC. See: International Securities Fund.
OECHSLE INTERNATIONAL ADVISORS, LLC. See: International Securities Fund.
SANFORD C. BERNSTEIN & CO., INC. See: Diversified Equity Fund
THE BOSTON COMPANY ASSET MANAGEMENT, INC.See: International Securities Fund.
FIXED INCOME I FUND
LINCOLN CAPITAL MANAGEMENT COMPANY. See: Diversified Bond Fund.
PACIFIC INVESTMENT MANAGEMENT COMPANY. See: Diversified Bond Fund.
STANDISH, AYER & WOOD, INC. See: Diversified Bond Fund.
FIXED INCOME III FUND
LAZARD ASSET MANAGEMENT. See: Multistrategy Bond Fund.
MILLER, ANDERSON & SHERRERD, LLP. See: Multistrategy Bond Fund.
PACIFIC INVESTMENT MANAGEMENT COMPANY. See: Diversified Bond Fund.
STANDISH, AYER & WOOD, INC. See: Diversified Bond Fund.
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RATINGS OF DEBT INSTRUMENTS
CORPORATE AND MUNICIPAL BOND RATINGS.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S):
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great period of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time may
be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal and interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification in its corporate bond rating system. The modifier I
indicates that the security ranks in the higher end of its generic
category; the modifier 2 indicates a mid-range ranking; and modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS GROUP ("S&P"):
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
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BBB -- Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. While bonds with this rating normally
exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than debt in
higher rated categories.
BB, B, CCC, CC, C -- Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
BB -- Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
BB rating category is also used for debt subordinated to senior debt
that is assigned an actual implied BBB- rating.
B -- Bonds rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC -- Bonds rated CCC have a currently identifiable vulnerability to
default, and are dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating. The C rating
has been used to cover a situation where a bankruptcy petition has been
filed but debt service payments are continued.
C1 -- The rating C1 is reserved for income bonds on which no interest
is being paid.
D -- Bonds rated D are in payment default. The D rating is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes such
payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within the
appropriate category.
Debt obligations of issuers outside the United States and its
territories are rated on the same basis as domestic issues. The ratings
measure the creditworthiness of the obligor but do not take into
account currency exchange and related uncertainties.
STATE, MUNICIPAL NOTES AND TAX EXEMPT DEMAND NOTES.
MOODY'S:
Moody's rating for state, municipal and other short-term obligations
will be designated Moody's Investment Grade ("MIG"). This distinction
is in recognition of the differences between short-term credit risk and
long-term risk.
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Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in bond risk are of lesser importance in the short run.
Symbols used are as follows:
MIG-1--Notes bearing this designation are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing or both.
MIG-2--Notes bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding group.
S&P:
A S&P note rating, reflects the liquidity concerns and market access
risks unique to notes. Notes due in 3 years or less will likely receive a
note rating. Notes maturing beyond 3 years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assessment:
-- Amortization schedule (the larger the final maturity relative
to other maturities, the more likely it will be treated as a note).
-- Source of payment (the more dependent the issue is on the
market for its refinancing, the more likely it will be treated as a
note).
Note rating symbols are as follows:
SP-1--Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
S&P assigns "dual" ratings to all long-term debt issues that have
as part of their provisions a variable rate demand or double feature.
The first rating addresses the likelihood of repayment of
principal and interest as due, and the second rating, addresses only
the demand feature. The long-term debt rating symbols are used to
denote the put option (for example, "AAA/A-I+") or if the nominal
maturity is short, a rating of "SP- I+/AAA" is assigned.
COMMERCIAL PAPER RATINGS.
MOODY'S:
Commercial paper rated Prime by Moody's is based upon its evaluation of
many factors, including: (1) management of the issuer; (2) the issuer's
industry or industries and the speculative-type risks which may be inherent
in certain areas; (3) the issuer's products in relation to competition and
customer acceptance; (4) liquidity; (5) amount and quality of long-term
debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the
issue; and (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and
preparations to meet such obligations. Relative differences in these
factors determine whether the issuer's commercial paper is rated Prime-1,
Prime-2, or Prime-3.
Prime-1 - indicates a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics: (1) leading market positions in
well established industries; (2) high rates of return on funds employed;
(3) conservative capitalization structures with moderate reliance on debt
and ample asset protection; (4) broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of
alternative liquidity.
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Prime-2 - indicates a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
S&P:
Commercial paper rated A by S&P has the following characteristics:
liquidity ratios are adequate to meet cash requirements. Long-term senior
debt is rated A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend
with allowance made for unusual circumstances. Typically, the issuer's
industry is well established and the issuer has a strong position within
the industry. The reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determine whether the
issuer's commercial paper is rated A-1, A-2, or A-3.
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.
DUFF & PHELPS, INC.:
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations
with maturities of under one year, including commercial paper, the
uninsured portion of certificates of deposit, unsecured bank loans, master
notes, bankers' acceptances, irrevocable letters of credit, and current
maturities of long-term debt. Asset-backed commercial paper is also rated
according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is
the level of an obligor's reliance on short-term funds on an ongoing basis.
The distinguishing feature of Duff & Phelps' short-term ratings is the
refinement of the traditional 'I' category. The majority of short-term debt
issuers carries the highest rating, yet quality differences exist within
that tier. As a consequence, Duff & Phelps has incorporated gradations of
'I +' (one plus) and 'I (one minus) to assist investors in recognizing
those differences.
Duff 1+--Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources
of funds, is outstanding, and safety is just below risk-free US Treasury
short- term obligations.
Duff 1--Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.
Duff 2--High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very
small.
Good Grade
Duff 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Satisfactory Grade
Duff 3--Satisfactory liquidity and other protection factors qualify issue
as to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
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Non-Investment Grade
Duff 4--Speculative investment characteristics. Liquidity is not sufficient
to ensure against disruption in debt service. Operating factors and market
access may be subject to a high degree of variation.
Default
Duff 5--Issuer failed to meet scheduled principal and/or interest payments.
IBCA, INC.:
In addition to conducting a careful review of an institution's reports and
published figures, IBCA's analysts regularly visit the companies for
discussions with senior management. These meetings are fundamental to the
preparation of individual reports and ratings. To keep abreast of any
changes that may affect assessments, analysts maintain contact throughout
the year with the management of the companies they cover.
IBCA's analysts speak the languages of the countries they cover, which is
essential to maximize the value of their meetings with management and to
properly analyze a company's written materials. They also have a thorough
knowledge of the laws and accounting practices that govern the operations
and reporting of companies within the various countries.
Often, in order to ensure a full understanding of their position, companies
entrust IBCA with confidential data. While this confidential data cannot be
disclosed in reports, it is taken into account when assigning ratings.
Before dispatch to subscribers, a draft of the report is submitted to each
company to permit correction of any factual errors and to enable
clarification of issues raised.
IBCA's Rating Committees meet at regular intervals to review all ratings
and to ensure that individual ratings are assigned consistently for
institutions in all the countries covered. Following the Committee
meetings, ratings are issued directly to subscribers. At the same time, the
company is informed of the ratings as a matter of courtesy, but not for
discussion.
A1+ -- Obligations supported by the highest capacity for timely repayment.
A1 -- Obligations supported by a very strong capacity for timely repayment.
A2 -- Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
B1 -- Obligations supported by an adequate capacity for timely repayment.
Such capacity is more susceptible to adverse changes in business, economic,
or financial conditions than for obligations in higher categories.
B2 -- Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial
conditions.
C1 -- Obligations for which there is an inadequate capacity to ensure
timely repayment.
D1 -- Obligations which have a high risk of default or which are currently
in default.
FITCH INVESTORS SERVICE, INC. ("FITCH"):
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes and
municipal and investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
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Fitch short-term ratings are as follows:
F-1+ -- Exceptionally strong credit quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1 -- Very strong credit quality. Issues assigned this rating, reflect an
assurance of timely payment only slightly less in degree than issues rated
F- I+.
F-2 -- Good credit quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned 'F- 1 +' and 'F- 1' ratings.
F-3 -- Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment
is adequate, however, near-term adverse changes could cause these
securities to be rated below investment grade.
F-5 -- Weak credit quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely payment
and are vulnerable to near-term adverse changes in financial and economic
conditions.
D -- Default. Issues assigned this rating are in actual or imminent payment
default.
THOMSON BANKWATCH ("TBW") SHORT-TERM RATINGS:
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
These ratings are derived exclusively from a quantitative analysis of publicly
available information. Qualitative judgments have not been incorporated. The
ratings are intended to be applicable to all operating entities of an
organization but there may be in some cases more credit liquidity and/or risk in
one segment of the business than another.
The TBW short-term rating applies only to unsecured instruments that have a
maturity of one year or less, and reflects the likelihood of an untimely payment
of principal or interest.
TBW-1 The highest category; indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-l."
TBW-3 The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
FINANCIAL STATEMENTS
The 1999 annual financial statements of the Funds, including notes to the
financial statements and financial highlights and the Report of Independent
Accountants, are included in FRIC's Annual Reports to Shareholders. Copies of
these Annual Reports accompany this Statement and are incorporated herein by
reference.
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GLOSSARY
BANK INSTRUMENTS -- Include certificates of deposit, bankers' acceptances
and time deposits, and may include European certificates of deposit ("ECDs"),
European time deposits ("ETDs") and Yankee certificates of deposit ("Yankee
CDs"). ECDs are dollar denominated certificates of deposit issued by foreign
branches of US and foreign banks; ETDs are US dollar denominated time deposits
in a foreign branch of a US bank or a foreign bank; and Yankee CDs are
certificates of deposit issued by a US branch of a foreign bank demonimated is
US dollars and held in the United States.
BRADY BONDS -- Product of the "Brady Plan," under which bonds are issued in
exchange for cash and certain of the country's outstanding commercial bank
loans.
BOARD -- The Board of Trustees of FRIC.
CASH RESERVES -- The Funds, other than the Money Market Funds, are
authorized to invest its cash reserves (i.e., funds awaiting investment in the
specific types of securities to be acquired by a Fund) in money market
instruments and in debt securities of comparable quality to the Fund's permitted
investments. As an alternative to a Fund directly investing in money market
instruments, the Funds and their money managers may elect to invest the Fund's
cash reserves in FRIC's Money Market Fund. To prevent duplication of fees,
FRIMCo waives its management fee on that portion of a Fund's assets invested in
FRIC's Money Market Fund.
CODE -- Internal Revenue Code of 1986, as amended.
CONVERTIBLE SECURITY -- This is a fixed-income security (a bond or
preferred stock) that may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stock in a
corporation's capital structure but are usually subordinated to similar
non-convertible securities. The price of a convertible security is influenced by
the market value of the underlying common stock.
COVERED CALL OPTION -- A call option is "covered" if the Fund owns the
underlying securities, has the right to acquire the securities without
additional consideration, has collateral assets sufficient to meet its
obligations under the option or owns an offsetting call option.
CUSTODIAN -- State Street Bank and Trust Company, FRIC's custodian and
portfolio accountant.
DEPOSITORY RECEIPTS -- These include American Depository Receipts ("ADRs"),
European Depository Receipts, Global Depository Receipts, and other similar
securities convertible into securities of foreign issuers. ADRs are receipts
typically issued by a United States bank or trust company evidencing ownership
of the underlying securities. Generally, ADRs in registered form are designed
for use in US securities markets.
DERIVATIVES -- These include forward currency exchange contracts, stock
options, currency options, stock and stock index options, futures contracts,
swaps and options on futures contracts on US government and foreign government
securities and currencies.
DISTRIBUTOR -- Russell Fund Distributors, Inc., the organization that sells
the Shares of the Funds under a contract with FRIC.
EQUITY DERIVATIVE SECURITIES -- These include, among other instruments,
options on equity securities, warrants and futures contracts on equity
securities.
FINANCIAL INTERMEDIARY -- A bank trust department, registered investment
adviser, broker-dealer or other financial services organization that has been
selected by FRIMCo or by FRIC's Distributor.
FNMA -- Federal National Mortgage Association.
FORWARD COMMITMENTS -- Each Fund may agree to purchase securities for a
fixed price at a future date beyond customary settlement time (a "forward
commitment" or "when-issued" transaction), so long as the transactions are
consistent
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with the Fund's ability to manage its portfolio and meet redemption requests.
When effecting these transactions, liquid assets of a Fund of a dollar amount
sufficient to make payment for the portfolio securities to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
FORWARD CURRENCY CONTRACTS -- This is a contract individually negotiated
and privately traded by currency traders and their customers and creates an
obligation to purchase or sell a specific currency for an agreed-upon price at a
future date. The Funds generally do not enter into forward contracts with terms
greater than one year, and they typically enter into forward contracts only
under two circumstances. First, if a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the US dollar price of the security by entering into a forward
contract to buy the amount of a foreign currency needed to settle the
transaction. Second, if the Fund's money managers believe that the currency of a
particular foreign country will substantially rise or fall against the US
dollar, the Fund may enter into a forward contract to buy or sell the currency
approximating the value of some or all of the Fund's portfolio securities
denominated in the currency. A Fund will not enter into a forward contract if,
as a result, it would have more than one-third of its assets committed to such
contracts (unless it owns the currency that it is obligated to deliver or has
caused the Custodian to segregate segregable assets having a value sufficient to
cover its obligations). Although forward contracts are used primarily to protect
a Fund from adverse currency movements, they involve the risk that currency
movements will not be accurately predicted.
FRIC -- Frank Russell Investment Company, an open-end management investment
company which is registered with the SEC.
FRIMCO -- Frank Russell Investment Management Company, FRIC's investment
adviser, administrator and transfer and dividend paying agent.
FUNDS-- The 23 investment series of FRIC described in this Statement. Each
Fund is considered a separate registered investment company (or RIC) for federal
income tax purposes, and each Fund has its own investment objective, policies
and restrictions.
FUTURES AND OPTIONS ON FUTURES -- An interest rate futures contract is an
agreement to purchase or sell debt securities, usually US government securities,
at a specified date and price. For example, a Fund may sell interest rate
futures contracts (i.e., enter into a futures contract to sell the underlying
debt security) in an attempt to hedge against an anticipated increase in
interest rates and a corresponding decline in debt securities it owns. A Fund
will have collateral assets equal to the purchase price of the portfolio
securities represented by the underlying interest rate futures contracts it has
an obligation to purchase.
GNMA -- Government National Mortgage Association
ILLIQUID SECURITIES -- The Funds, other than the Money Market Funds, will
not purchase or otherwise acquire any security if, as a result, more than 15% of
a Fund's net assets (taken at current value) would be invested in securities,
including repurchase agreements maturing in more than seven days, that are
illiquid because of the absence of a readily available market or because of
legal or contractual resale restrictions. In the case of the Money Market Funds,
this restriction is 10% of each Fund's net assets. No Fund will invest more than
10% of its respective net assets (taken at current value) in securities of
issuers that may not be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"). These policies do not
include (1) commercial paper issued under Section 4(2) of the 1933 Act, or (2)
restricted securities eligible for resale to qualified institutional purchasers
pursuant to Rule 144A under the 1933 Act that are determined to be liquid by the
money managers in accordance with Board-approved guidelines.
INSTITUTIONAL FUNDS -- Equity I, Equity II, Equity III, Equity Q,
International, Fixed Income I and Fixed Income III Funds, each a Fund of FRIC.
INVESTMENT GRADE -- Investment grade debt securities are those rated within
the four highest grades by S&P (at least BBB) or Moody's (at least Baa), or
unrated debt securities deemed to be of comparable quality by a money manager
using Board-approved guidelines.
LENDING PORTFOLIO SECURITIES -- Each Fund, other than each Money Market
Fund, may lend portfolio securities with a value of up to 33 1/3% of each Fund's
total assets. These loans may be terminated at any time. A Fund will receive
either cash (and agree to pay a "rebate" interest rate), US government or US
government agency obligations as collateral in an
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amount equal to at least 102% (for loans of US securities) or 105% (for non-US
securities) of the current market value of the loaned securities. The collateral
is daily "marked-to-market," and the borrower will furnish additional collateral
in the event that the value of the collateral drops below 100% of the market
value of the loaned securities. If the borrower of the securities fails
financially, there is a risk of delay in recovery of the securities or loss of
rights in the collateral. Consequently, loans are made only to borrowers which
are deemed to be of good financial standing.
LIQUIDITY PORTFOLIO -- FRIMCo will manage or will select a money manager to
exercise investment discretion for approximately 5%-15% of Diversified Equity,
Equity Income, Quantitative Equity, International Securities, Real Estate
Securities, Emerging Markets, Special Growth, Tax-Managed Large Cap, Equity I,
Equity II, Equity III, Equity Q and International Funds' assets assigned to a
Liquidity portfolio. The Liquidity portfolio will be used to temporarily create
an equity exposure for cash balances until those balances are invested in
securities or used for Fund transactions.
MONEY MARKET FUNDS-- Money Market, US Government Money Market and Tax-Free
Money Market Funds, each a Fund of FRIC. Each Money Market Fund seeks to
maintain a stable net asset value of $1 per share.
MOODY'S -- Moody's Investors Service, Inc., an NRSRO
MUNICIPAL OBLIGATIONS -- Debt obligations issued by states, territories and
possessions of the United States and the District of Columbia, and their
political subdivisions, agencies and instrumentalities, or multi-state agencies
or authorities the interest from which is exempt from federal income tax,
including the alternative minimum tax, in the opinion of bond counsel to the
issuer. Municipal obligations include debt obligations issued to obtain funds
for various public purposes as well as certain industrial development bonds
issued by or on behalf of public authorities. Municipal obligations may include
project, tax anticipation, revenue anticipation, bond anticipation, and
construction loan notes; tax-exempt commercial paper; fixed and variable rate
notes; obligations whose interest and principal are guaranteed or insured by the
US government or fully collateralized by US government obligations; industrial
development bonds; and variable rate obligations.
NET ASSET VALUE (NAV)-- The value of a Fund is determined by deducting the
Fund's liabilities from the total assets of the portfolio. The net asset value
per share is determined by dividing the net asset value of the Fund by the
number of its Shares that are outstanding.
NRSRO -- A nationally recognized statistical rating organization, such as
S&P or Moody's
NYSE -- New York Stock Exchange
OPTIONS ON SECURITIES, SECURITIES INDEXES AND CURRENCIES -- A Fund may
purchase call options on securities that it intends to purchase (or on
currencies in which those securities are denominated) in order to limit the risk
of a substantial increase in the market price of such security (or an adverse
movement in the applicable currency). A Fund may purchase put options on
particular securities (or on currencies in which those securities are
denominated) in order to protect against a decline in the market value of the
underlying security below the exercise price less the premium paid for the
option (or an adverse movement in the applicable currency relative to the US
dollar). Prior to expiration, most options are expected to be sold in a closing
sale transaction. Profit or loss from the sale depends upon whether the amount
received is more or less than the premium paid plus transaction costs. A Fund
may purchase put and call options on stock indexes in order to hedge against
risks of stock market or industry-wide stock price fluctuations.
PFIC-- A passive foreign investment company. Emerging Markets Fund may
purchase interests in an issuer that is considered a PFIC under the Code.
PRIME RATE -- The interest rate charged by leading US banks on loans to
their most creditworthy customers
REPURCHASE AGREEMENTS -- A Fund may enter into repurchase agreements with a
bank or broker-dealer that agrees to repurchase the securities at the Fund's
cost plus interest within a specified time (normally the next business day). If
the party agreeing to repurchase should default and if the value of the
securities held by the Fund (102% at the time of agreement) should fall below
the repurchase price, the Fund could incur a loss. Subject to the overall
limitations described in "Illiquid Securities" in this Glossary, a Fund will not
invest more than 15% (10%, in the case of each Money Market Fund) of its net
assets (taken at current market value) in repurchase agreements maturing in more
than seven days.
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REVERSE REPURCHASE AGREEMENTS -- A Fund may enter into reverse repurchase
agreements to meet redemption requests when a money manager determines that
selling portfolio securities would be inconvenient or disadvantageous. A reverse
repurchase agreement is a transaction where a Fund transfers possession of a
portfolio security to a bank or broker-dealer in return for a percentage of the
portfolio security's market value. The Fund retains record ownership of the
transferred security, including the right to receive interest and principal
payments. At an agreed upon future date, the Fund repurchases the security by
paying an agreed upon purchase price plus interest. Liquid assets of the Fund
equal in value to the repurchase price, including any accrued interest, are
segregated on the Fund's records while a reverse repurchase agreement is in
effect.
RUSSELL 1000-Registered Trademark- INDEX. The Russell 1000 Index
consists of the 1,000 largest US companies by capitalization (i.e., market
price per share times the number of shares outstanding). The smallest company
in the Index at the time of selection has a capitalization of approximately
$1 billion. The Index does not include cross-corporate holdings in a
company's capitalization. For example, when IBM owned approximately 20% of
Intel, only 80% of the total shares outstanding of Intel were used to
determine Intel's capitalization. Also not included in the Index are
closed-end investment companies, companies that do not file a Form 10-K
report with the SEC, foreign securities, and American Depository Receipts.
The Index's composition is changed annually to reflect changes in market
capitalization and share balances outstanding. The Russell 1000-Registered
Trademark- Index is used as the basis for Quantitative Equity Fund's
performance because FRIMCo believes it represents the universe of stocks in
which most active money managers invest and is representative of the
performance of publicly traded common stocks most institutional investors
purchase.
RUSSELL -- Frank Russell Company, consultant to FRIC and to the Funds
S&P -- Standard & Poor's Ratings Group, an NRSRO
S&P 500 -- Standard & Poor's 500 Composite Price Index
SEC -- US Securities and Exchange Commission
SHARES-- The Class Shares in the Funds described in the Prospectuses. Each
Class Share of a Fund represents a share of beneficial interest in the Fund
STATEMENT -- FRIC's Statement of Additional Information
TRANSFER AGENT -- FRIMCo, in its capacity as FRIC's transfer and dividend
paying agent
US -- United States
US GOVERNMENT OBLIGATIONS -- These include US Treasury bills, notes, bonds
and other obligations issued or guaranteed by the US government, its agencies or
instrumentalities. US Treasury bills, notes and bonds, and GNMA participation
certificates, are issued or guaranteed by the US government. Other securities
issued by US government agencies or instrumentalities are supported only by the
credit of the agency or instrumentality (for example, those issued by the
Federal Home Loan Bank) whereas others, such as those issued by FNMA, have an
additional line of credit with the US Treasury.
VARIABLE RATE OBLIGATION-- Municipal obligations with a demand feature that
typically may be exercised within 30 days. The rate of return on variable rate
obligations is readjusted periodically according to a market rate, such as the
Prime rate. Also called floating rate obligations.
WARRANTS -- Typically, a warrant is a long-term option that permits the
holder to buy a specified number of shares of the issuer's underlying common
stock at a specified exercise price by a particular expiration date. A warrant
not exercised or disposed of by its expiration date expires worthless.
1940 ACT-- The Investment Company Act of 1940, as amended. The 1940 Act
governs the operations of FRIC and the Funds.
1933 ACT -- The Securities Act of 1933, as amended.
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FRANK RUSSELL INVESTMENT COMPANY
File No. 2-71299 and 811-3153
1933 Act Post-Effective
Amendment. No. 46
1940 Act Amendment No. 46
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
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(a) 1.1 Master Trust Agreement (incorporated by reference to
Item 24(b)(1)(a) filed under Post- Effective Amendment No.
32)
1.2 Amendment No. 1 to Master Trust Agreement dated
November 29, 1984 (incorporated by reference to
Item 24(b)(1)(b) filed under Post-Effective Amendment No.
32)
1.3 Amendment No. 2 to Master Trust Agreement dated May 29, 1985
(incorporated by reference to Item 24(b)(1)(c) filed under
Post-Effective Amendment No. 32)
1.4 Amendment No. 3 to Master Trust Agreement dated January 26,
1987 (incorporated by reference to
Item 24(b)(1)(d) filed under Post-Effective Amendment No.
32)
1.5 Amendment No. 4 to Master Trust Agreement dated
February 23, 1989 (incorporated by reference to
Item 24(b)(1)(e) filed under Post-Effective Amendment No.
32)
1.6 Amendment No. 5 to Master Trust Agreement dated May 11, 1992
(incorporated by reference to Item 24(b)(1)(f) filed under
Post-Effective Amendment No. 32)
1.7 Amendment No. 6 to Master Trust Agreement dated March 19,
1996 (incorporated by reference to
Item 24(b)(1)(g) filed under Post-Effective Amendment No.
32)
1.8 Amendment No. 7 to Master Trust Agreement dated April 22,
1996 (incorporated by reference to
Item 24(b)(1)(h) filed under Post-Effective Amendment No.
33)
1.9 Amendment No. 8 to Master Trust Agreement dated November 4,
1996 (incorporated by reference to
Item 24(b)(1)(i) filed under Post-Effective Amendment No.
36)
1.10 Amendment No. 9 to Master Trust Agreement dated April 27,
1998 (incorporated by reference to Item 24(b)(1)(j) filed
under Post-Effective Amendment No. 40)
1.11 Amendment No. 10 to Master Trust Agreement dated April 27,
1998 (incorporated by reference to Item 24(b)(1)(k) filed
under Post-Effective Amendment No. 40)
1.12 Amendment No. 11 to Master Trust Agreement dated June 3,
1998 (incorporated by reference to Item 24(b)(1)(l) filed
under Post-Effective Amendment No. 40)
1.13 Amendment No. 12 to Master Trust Agreement dated October 5,
1998 (incorporated by reference to Item 24(b)(1)(m) filed
under Post-Effective Amendment No. 41)
1.14 Amendment No. 13 to Master Trust Agreement dated
November 9, 1998 (incorporated by reference to
Item 24(b)(1)(n) filed under Post-Effective Amendment No.
41)
1.15 Amendment No. 14 to Master Trust Agreement dated April 26,
1999 (incorporated by reference to Item 24(b)(1)(n) filed
under Post-Effective Amendment No. 44)
1.16 Amendment No. 15 to Master Trust Agreement dated June 28,
1999 (incorporated by reference to Item 24(b)(1)(n) filed
under Post-Effective Amendment No. 44)
1.17 Amendment No. 16 to Master Trust Agreement dated August 9,
1999 (incorporated by reference to Item 24(b)(1)(n) filed
under Post-Effective Amendment No. 44)
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1.18 Amendment No. 17 to Master Trust Agreement dated August 9,
1999 (incorporated by reference to Item 24(b)(1)(n) filed
under Post-Effective Amendment No. 44)
1.19 Amendment No. 18 to Master Trust Agreement dated August 9,
1999
1.20 Amendment No. 19 to Master Trust Agreement dated August 9,
1999
(b) 1.1 Bylaws dated August 8, 1984 (incorporated by reference to
Item 24(b)(2) filed under Post-Effective Amendment No. 38)
(c) 1.1 Form of Shares of Beneficial Interest for the Equity I,
Equity II, Equity III, Fixed Income I, Fixed Income II,
International and Money Market Funds (incorporated by
reference to Item 24(b)(4)(a) filed under Post-Effective
Amendment No. 39)
1.2 Form of Shares of Beneficial Interest for the Diversified
Equity, Special Growth, Equity Income, Diversified Bond,
Volatility Constrained Bond, International Securities,
Limited Volatility Tax Free and U.S. Government Money
Market Funds (incorporated by reference to
Item 24(b)(4)(b) filed under Post-Effective Amendment No.
39)
1.3 Form of Shares of Beneficial Interest for the Quantitative
Equity, Equity Q and Tax Free Money Market Funds
(incorporated by reference to Item 24(b)(4)(c) filed under
Post-Effective Amendment No. 39)
1.4 Form of Shares of Beneficial Interest for the Real Estate
Securities Fund (incorporated by reference to
Item 24(b)(4)(d) filed under Post-Effective Amendment No.
39)
(d) 1.1 Advisory Agreement with Frank Russell Investment Management
Company dated January 1, 1999 (incorporated by reference
to Item 23(4)(a)(1) filed under Post-Effective Amendment
No. 42)
1.2 Form of Letter Agreement adding Tax-Managed Equity
Aggressive Strategy (later renamed Tax-Managed Global
Equity), Tax-Managed Aggressive Strategy, Tax-Managed
Moderate Strategy, Tax-Managed Conservative Strategy and
Tax-Managed Small Cap Funds to the Advisory Agreement
(incorporated by reference to Item 23(4)(a)(2) filed under
Post-Effective Amendment No. 44)
2.1 Service Agreement with Frank Russell Company and Frank
Russell Investment Management Company dated May 1, 1987
(incorporated by reference to Item 24(b)(5)(b)(1) filed
under Post-Effective Amendment No. 38)
2.2 Letter Agreement with Frank Russell Company and Frank
Russell Investment Management Company dated May 1, 1989
adding Real Estate Securities Fund to the Service
Agreement (incorporated by reference to
Item 24(b)(5)(b)(2) filed under Post-Effective Amendment
No. 38)
2.3 Amendment No. 1 to Service Agreement dated July 1, 1992 with
Frank Russell Company and Frank Russell Investment
Management Company changing services and fees
(incorporated by reference to Item 24(b)(5)(b)(3) filed
under Post-Effective Amendment No. 38)
2.4 Letter Agreement dated August 24, 1992 adding Fixed Income
III, Multistrategy Bond and Emerging Markets Funds to the
Service Agreement (incorporated by reference to
Item 24(b)(5)(b)(4) filed under Post-Effective Amendment
No. 38)
2.5 Amendment No. 2 to the Service Agreement dated August 1995
with Frank Russell Company and Frank Russell Investment
Management Company (incorporated by reference to
Item 24(b)(5)(b)(5) filed under Post-Effective Amendment
No. 32)
2.6 Letter Agreement dated March 14, 1996 with State Street Bank
and Trust Company for development of a Tax Accounting
System (incorporated by reference to
Item 24(b)(5)(b)(7) filed under Post-Effective Amendment
No. 32)
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3.1 Yield Calculation Services Agreement dated August 2, 1988
with State Street Bank and Trust Company
3.2 Letter Agreement to the Yield Calculation Services Agreement
dated May 1, 1989 adding the Real Estate Securities Fund
3.3 Letter Agreement to the Yield Calculation Services Agreement
dated August 24, 1992 adding the Fixed Income III and
Multistrategy Bond Funds
3.4 Letter Agreement to the Yield Calculation Services Agreement
dated April 12, 1996 adding the Equity T Fund (later
renamed the Tax-Managed Large Cap Fund) (incorporated by
reference to Item 24(b)(5)(b)(6) filed under Post-Efective
Amendment No. 32)
3.5 Letter Agreement to the Yield Calculation Services Agreement
dated January 28, 1997 adding Aggressive Strategy,
Balanced Strategy, Moderate Strategy, Conservative
Strategy and Equity Balanced Strategy Funds (incorporated
by reference to Item 24(b)(5)(b)(8) filed under
Post-Effective Amendment No. 36)
3.6 Letter Agreement to the Yield Calculation Services Agreement
dated January 26, 1999 redesignating Class C Shares as
Class E Shares and the existing shares of Institutional
Funds to Class I Shares (incorporated by reference to
Item 23(4)(b)(9) filed under Post-Effective Amendment No.
42)
3.7 Letter Agreement to the Yield Calculation Services Agreement
dated January 26, 1999 redesignating Premier Adviser
Class Shares as Premier Class Shares and Premier
Institutional Class Shares as Class E Shares (incorporated
by reference to Item 23(4)(b)(10) filed under
Post-Effective Amendment No. 42)
3.8 Form of Letter Agreement to the Yield Calculation Services
Agreement adding Tax-Managed Equity Aggressive Strategy
(later renamed Tax-Managed Global Equity), Tax-Managed
Aggressive Strategy, Tax-Managed Moderate Strategy,
Tax-Managed Conservative Strategy and Tax-Managed Small
Cap Funds (incorporated by reference to Item 23(4)(b)(11)
filed under Post-Effective Amendment No. 44)
4.1 Form of Portfolio Management Contract, as amended, with
Money Managers and Frank Russell Investment Management
Company (incorporated by reference to
Item 23(4)(c)(3) filed under Post-Effective Amendment No.
44)
5.1 Administrative Agreement with Frank Russell Investment
Management Company dated January 1, 1999 (incorporated by
reference to Item 23(4)(d)(1) filed under Post-Effective
Amendment No. 42)
5.2 Form of Letter Agreement to the Administrative Agreement
adding Tax-Managed Equity Aggressive Strategy (later
renamed Tax-Managed Global Equity), Tax-Managed Aggressive
Strategy, Tax-Managed Moderate Strategy, Tax-Managed
Conservative Strategy and Tax-Managed Small Cap Funds.
(incorporated by reference to Item 23(4)(d)(2) filed under
Post-Effective Amendment No. 44)
(e) 1.1 Distribution Agreement with Russell Fund Distributors, Inc.
dated January 1, 1999 due to change in control
(incorporated by reference to Item 23(5)(a)(16) filed
under Post-Effective Amendment No. 42)
1.2 Letter Agreement to the Distribution Agreement with Russell
Fund Distributors adding Class C Shares of Short Term Bond
Fund and Class C and E Shares of Tax Exempt Bond Fund
(incorporated by reference to Post-Effective Amendment No.
42)
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1.3 Form of Letter Agreement adding Tax-Managed Equity
Aggressive Strategy (later renamed Tax-Managed Global
Equity), Tax-Managed Aggressive Strategy, Tax-Managed
Moderate Strategy, Tax-Managed Conservative Strategy and
Tax-Managed Small Cap Funds to the Distribution Agreement.
(incorporated by reference to Item 23(5)(a)(8) filed under
Post-Effective Amendment No. 44)
(f) 1.1 Bonus or Profit Sharing Plans (none)
(g) 1.1 Custodian Contract with State Street Bank and Trust Company
dated October 31, 1988 (incorporated by reference to
Item 24(b)(8)(a) filed under Post-Effective Amendment No.
38)
1.2 Letter Agreement dated May 1, 1989 adding Real Estate
Securities Fund to the Custodian Contract (incorporated by
reference to Item 24(b)(8)(b) filed under Post-Effective
Amendment No. 38)
1.3 Letter Agreement dated August 24, 1992 adding Fixed Income
III and Multistrategy Bond Funds to the Custodian Contract
(incorporated by reference to Item 24(b)(8)(c) filed
under Post-Effective Amendment No. 38)
1.4 Letter Agreement dated October 27, 1992 adding Emerging
Markets Fund to the Custodian Contract (incorporated by
reference to Item 24(b)(8)(d) filed under Post-Effective
Amendment No. 38)
1.5 Amendment No. 1 to Custodian Contract dated January 31, 1994
with State Street Bank and Trust Company amending Section
3.5 of the Agreement (incorporated by reference to
Item 24(b)(8)(e) filed under Post-Effective Amendment No.
38)
1.6 Form of Amendment to Custodian Contract with State Street
Bank and Trust Company amending Sections 2.2 and 2.7 of
the Agreement (incorporated by reference to
Item 24(b)(8)(f) filed under Post-Effective Amendment No.
38)
1.7 Amendment dated October 31, 1998 to the Custodian Contract
with State Street Bank amending Section 2.7 of the
Agreement (incorporated by reference to
Item 24(b)(8)(g) filed under Post-Effective Amendment No.
38)
1.8 Amendment to the Fee Schedule of the Custodian Contract with
State Street Bank and Trust Company (incorporated by
reference to Item 24(b)(8)(h) filed under Post-Effective
Amendment No. 38)
1.9 Amendment to the Custodian Contract dated August 11, 1995
with State Street Bank and Trust Company for addition of
Omnibus accounts (incorporated by reference to
Item 24(b)(8)(i) filed under Post-Effective Amendment No.
32)
1.10 Amendment to the Custodian Contract dated April 18, 1994
with State Street Bank and Trust Company amending Section
7 of the Fee Schedule for all Funds except the Emerging
Markets Fund (incorporated by reference to
Item 24(b)(8)(j) filed under Post-Effective Amendment No.
32)
1.11 Amendment to the Custodian Contract dated August 7, 1995
with State Street Bank and Trust Company amending Section
7 of the Fee Schedule for the Emerging Markets Fund
(incorporated by reference to Item 24(b)(8)(k) filed under
Post-Effective Amendment No. 32)
1.12 Amendment to the Custodian Contract dated April 12, 1996
with State Street Bank and Trust Company adding Equity T
Fund (later renamed Tax-Managed Large Cap Fund)
(incorporated by reference to Item 24(b)(8)(l) filed under
Post-Effective Amendment No. 32)
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1.13 Amendment to the Custodian Contract dated January 28, 1997
with State Street Bank and Trust Company adding Aggressive
Strategy, Balanced Strategy, Moderate Strategy,
Conservative Strategy and Equity Balanced Strategy Funds
(incorporated by reference to Item 24(b)(8)(m) filed under
Post-Effective Amendment No. 36)
1.14 Form of Amendment to the Custodian Contract with State
Street Bank and Trust Company adding Tax-Managed Equity
Aggressive Strategy (later renamed Tax-Managed Global
Equity), Tax-Managed Aggressive Strategy, Tax-Managed
Moderate Strategy, Tax-Managed Conservative Strategy and
Tax-Managed Small Cap Funds to the Custodian Agreement
(incorporated by reference to Item 23(7)(n) filed under
Post-Effective Amendment No. 44)
(h) 1.1 Transfer and Dividend Disbursing Agency Agreement dated
April 1, 1988 with Frank Russell Investment Management
Company (incorporated by reference to
Item 24(b)(9)(a)(1) filed under Post-Effective Amendment
No. 38)
1.2 Letter Agreement and Amended Schedule A dated May 1, 1989
adding Real Estate Securities Fund to the Transfer and
Dividend Disbursing Agency Agreement (incorporated by
reference to Item 24(b)(9)(a)(2) filed under
Post-Effective Amendment No. 38)
1.3 Letter Agreement and Amended Schedule A dated August 24,
1992 adding Fixed Income III, Multistrategy Bond and
Emerging Markets Funds to the Transfer and Dividend
Disbursing Agency Agreement (incorporated by reference to
Item 24(b)(9)(a)(3) filed under Post-Effective Amendment
No. 38)
1.4 Letter Agreement and Amended Schedule A dated August 11,
1995 adding omnibus accounts to the Transfer Agency and
Dividend Disbursing Agency Agreement (incorporated by
reference to Item 24(b)(9)(a)(4) filed under
Post-Effective Amendment No. 32)
1.5 Letter Agreement dated April 10, 1996 adding Equity T Fund
(later renamed Tax-Managed Large Cap Fund) to the Transfer
and Dividend Disbursing Agency Agreement (incorporated by
reference to Item 24(b)(9)(a)(5) filed under
Post-Effective Amendment No. 32)
1.6 Letter Agreement and Amended Schedule A dated November 5,
1996 adding Aggressive Strategy, Balanced Strategy,
Moderate Strategy, Conservative Strategy and Equity
Balanced Strategy Funds to the Transfer and Dividend
Disbursing Agency Agreement (incorporated by reference to
Item 24(b)(9)(a)(6) filed under Post-Effective
Amendment No. 36)
1.7 Form of Letter Agreement and Amended Schedule to Transfer
and Dividend Disbursing Agreement redesignating Class C
Shares as Class E Shares and the existing shares of the
Institutional Funds as Class I Shares (incorporated by
reference to Item 23(8)(a)(7) filed under Post-Effective
Amendment No. 42)
1.8 Letter Agreement to Transfer and Dividend Disbursing
Agreement dated December 1, 1998 redesignating Premier
Adviser Class Shares as Premier Class Shares and Premier
Institutional Class Shares as Class E Shares (incorporated
by reference to Item 23(5)(a)(7) filed under
Post-Effective Amendment No. 42)
1.9 Form of Letter Agreement to Transfer and Dividend Disbursing
Agency Agreement for reimbursement for lost shareholder
search expenses (incorporated by reference to
Item 23(8)(a)(9) filed under Post-Effective Amendment No.
43)
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1.10 Form of Letter Agreement adding Tax-Managed Equity
Aggressive Strategy (later renamed Tax-Managed Global
Equity), Tax-Managed Aggressive Strategy, Tax-Managed
Moderate Strategy, Tax-Managed Conservative Strategy and
Tax-Managed Small Cap Funds to Transfer and Dividend
Disbursing Agency Agreement (incorporated by reference to
Item 23(8)(a)(10) filed under Post-Effective Amendment No.
44)
1.11 Form of Letter Agreement and Amended Schedule A revising fee
schedule with respect to Transfer and Dividend Disbursing
Agency Agreement
2.1 General forms of Frank Russell Investment Management
Company's Asset Management Services Agreements with Bank
Trust Departments and with other clients (incorporated by
reference to Item 24(b)(9)(b) filed under Post-Effective
Amendment No. 38)
2.2 General forms of Frank Russell Investment Management
Company's Asset Management Services Agreement with its
clients (incorporated by reference to
Item 24(b)(9)(c) filed under Post-Effective Amendment
No. 38)
2.3 General form of Frank Russell Investment Management
Company's Asset Management Services Agreement with Private
Investment Consulting clients of Frank Russell Company
(incorporated by reference to Item 24(b)(9)(c) filed under
Post-Effective Amendment No. 38)
2.4 General Form of Frank Russell Investment Management Company
Asset Management Services Agreement with non-compete
clause customers (incorporated by reference to
Item 24(b)(9)(f) filed under Post-Effective Amendment No.
38)
4.1 Letter Agreements regarding fee waivers & reimbursements
5.1 Credit Agreement dated as of December 30, 1999 among Frank
Russell Investment Company, Bank of America, N.A., State
Street Bank and Trust Company and Other Banks
6.1 Form of Revised Shareholder Servicing Plan (incorporated by
reference to Item 23.8(e)(1) filed under Post-Effective
Amendment No. 44)
(i) 1.1 Opinion and Consent of Counsel
(j) 1.1 Other Opinions - Consent of Independent Accountants
1.2 Limited Powers of Attorney of Frank Russell Investment
Company Trustees dated January 15, 1996 with respect to
Amendments to the SEC Registration Statements of Frank
Russell Investment Company (incorporated by reference to
Item 24(b)(11)(b) filed under Post Effective Amendment No.
38)
1.3 Limited Powers of Attorney of additional Frank Russell
Investment Company Trustees dated December, 1999 with
respect to Amendments to the SEC Registration Statements
of Frank Russell Investment Company
(k) 1.1 Financial Statements omitted from Item 22 (none)
(l) 1.1 Agreement dated October 5, 1981 related to Initial Capital
provided by Frank Russell Company (incorporated by
reference to Item 24(b)(13) filed under Post-Effective
Amendment No. 38)
(m) 1.1 Form of revised Rule 12b-1 Distribution Financing Plan
(incorporated by reference to Item 23.13(a) filed under
Post-Effective Amendment No. 44)
(n) 1.1 Financial Data Schedule (none)
(o) 1.1 Form of Multiple Class Plan Pursuant to Rule 18f-3
(incorporated by reference to Item 24.15(b) filed under
Post-Effective Amendment No. 44)
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(p) Codes of Ethics of the following investment advisors and
sub-advisors:
1.1 Frank Russell Investment Management Company
1.2 AEW Capital Management, L.P.
1.3 Alliance Capital Management L.P.
1.4 Barclays Global Fund Advisors N.A.
1.5 BlackRock Financial Management
1.6 The Boston Company Asset Management
1.7 CapitalWorks International Partners
1.8 Cohen & Steers
1.9 Delaware International Advisors Limited
1.10 Delphi Management, Inc.
1.11 Equinox Capital Management, Inc.
1.12 Fidelity Management Trust Company
1.13 Fiduciary International, Inc.
1.14 Foreign & Colonial Emerging Markets Limited
1.15 Franklin Portfolio Associates LLC
1.16 Geewax, Terker & Company
1.17 Genesis Asset Managers, Ltd.
1.18 GlobeFlex Capital, L.P.
1.19 Jacobs Levy Equity Management, Inc.
1.20 J.P. Morgan Investment Management, Inc.
1.21 Lazard Asset Management
1.22 Lincoln Capital Moanagement Company
1.23 Marsico Capital Management, LLC
1.24 Mastholm Asset Management, LLC
1.25 MFS Institutional Advisors, Inc.
1.26 Miller, Anderson & Sherrerd, LLP
1.27 Montgomery Asset Management LLC
1.28 Nicholas Applegate Capital Management
1.29 Oechsle International Advisors, LLC
1.30 Pacific Investment Management Company
1.31 Peachtree Asset Management
1.32 Sanford C. Bernstein & Co., Inc.
1.33 Schroders Capital Management International Limited
1.34 Security Capital Global Capital Management Group
1.35 Sirach Capital Management, Inc.
1.36 Standish, Ayer & Wood, Inc.'s
1.37 STW Fixed Income Management Ltd.
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <C> <S>
1.38 Strong Capital Management
1.39 Suffolk Capital Management Ltd.
1.40 Turner Investment Partners
1.41 Weiss, Peck & Greer, L.L.C.
1.42 Westpeak Investment Advisors, L.P.
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 25. INDEMNIFICATION
Incorporated by reference to Item 27 filed under Post-Effective Amendment
No. 6.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
See Registrant's prospectus sections "The Purpose of the Fund--Multi-Style,
Multi-Manager Diversification," "The Money Managers," "Money Manager Profiles,"
and "Management of the Funds," the Statement of Additional Information sections
"Structure and Governance--Trustees and Officers," and "Operation of Investment
Company--Consultant."
ITEM 27. PRINCIPAL UNDERWRITERS
(a) SSgA Funds and Russell Insurance Funds
(b) Russell Fund Distributors, Inc. is the principal underwriter of the
Registrant. The directors and officers of Russell Fund Distributors,
Inc., their principal business address, and positions and offices with
the Registrant and Russell Fund Distributors, Inc. are set forth below:
<TABLE>
<CAPTION>
NAME AND
PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICERS WITH REGISTRANT POSITION AND OFFICES WITH UNDERWRITER
- -------------------------- --------------------------------------- -------------------------------------
<S> <C> <C>
Lynn L. Anderson Trustee, President, Chief Executive Director, Chairman of the Board and
Officer, Chairman of the Board Chief Executive Officer
Karl J. Ege Secretary and General Counsel Secretary and General Counsel
Randall P. Lert Director of Investments Director
J. David Griswold None Assistant Secretary and Associate
General Counsel
Gregory J. Lyons Assistant Secretary Assistant Secretary
B. James Rohrbacher None Director of Compliance and Internal
Audit, Chief Compliance Officer
Linda L. Gutmann None Treasurer and Controller
Carla L. Anderson None Assistant Secretary
John James None Assistant Secretary
</TABLE>
(c) Inapplicable.
II-8
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts and records required to be maintained by section 31(a) of the
1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained in the following
locations:
<TABLE>
<S> <C>
FRIC FRIMCO
Frank Russell Investment Company Frank Russell Investment
909 A Street Management Company
Tacoma, Washington 98402 909 A Street
Tacoma, Washington 98402
SS MM
State Street Bank & Trust Company Money Manager SEE, Prospectus Section
1776 Heritage Drive JA4N "Money Manager Profiles" for Names
North Quincy, Massachusetts 02171 and Addresses
</TABLE>
<TABLE>
<C> <C> <S>
RULE 31A-1
(a) Records forming basis for financial statements - at
principal offices of SS, FRIC, FRIMCo, and MM for each
entity
(b) FRIC Records:
(1) SS - Journals, etc.
(2) SS - Ledgers, etc.
(3) Inapplicable
(4) FRIC - Corporate charter, etc.
(5) MM - Brokerage orders
(6) MM - Other portfolio purchase orders
(7) SS - Contractual commitments
(8) SS and FRIC - Trial balances
(9) MM - Reasons for brokerage allocations
(10) MM - Persons authorizing purchases and sales
(11) FRIC and MM - Files of advisory material
(12) --
(c) Inapplicable
(d) FRIMCo - Broker-dealer records, to the extent applicable
(e) Inapplicable
(f) FRIMCo and MM - Investment adviser records
</TABLE>
ITEM 29. MANAGEMENT SERVICES
None except as described in Parts A and B.
ITEM 30. UNDERTAKINGS
Registrant has elected to include its Management's discussion of Fund
performance required under N-1A, Item 5A in its annual report. Registrant
therefore undertakes to provide annual reports without charge to any recipient
of a Prospectus who requests the information.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Frank Russell Investment Company
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to rule 485(b) of the Securities Act of 1933 and
has duly caused this Post Effective Amendment No. 46 to its Registration
Statements to be signed on its behalf by the undersigned thereto duly
authorized, in the City of Tacoma, and State of Washington, on this 26th day of
April, 2000.
<TABLE>
<S> <C> <C>
FRANK RUSSELL INVESTMENT COMPANY
Registrant
By: /s/ LYNN L. ANDERSON
-----------------------------------------
Lynn L. Anderson,
TRUSTEE AND CHAIRMAN OF THE BOARD
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on April 26, 2000.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S> <C>
/s/ LYNN L. ANDERSON
------------------------------------------- Trustee and Chairman of the
Lynn L. Anderson Board
/s/ MARK E. SWANSON Treasurer, in his capacity
------------------------------------------- as Chief Accounting
Mark E. Swanson Officer
-------------------------------------------
Paul E. Anderson* Trustee
-------------------------------------------
Paul Anton, PhD* Trustee
-------------------------------------------
William E. Baxter* Trustee
-------------------------------------------
Kristianne Blake* Trustee
-------------------------------------------
Lee C. Gingrich* Trustee
-------------------------------------------
Eleanor W. Palmer* Trustee
-------------------------------------------
Raymond P. Tennison, Jr.* Trustee
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ GREGORY J. LYONS
-------------------------------------- ASSISTANT SECRETARY
Gregory J. Lyons
</TABLE>
* Original Powers of Attorney authorizing the President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary, and each of them
singly to sign this Amendment on behalf of each member of the Board of Trustees
of Frank Russell Investment Company which have been filed with the Securities
and Exchange Commission.
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NAME OF EXHIBIT EXHIBIT NUMBER
- --------------- ------------------------
<S> <C>
Amendment No. 18 to Master Trust Agreement dated August 9,
1999...................................................... (a)1.19
Amendment No. 20 to Master Trust Agreement dated August 9,
1999...................................................... (a)1.20
Yield Calculation Services Agreement dated August 2, 1988
with State Street Bank and Trust Company.................. (d)3.1
Letter Agreement to the Yield Calculation Services Agreement
dated May 1, 1989 adding the Real Estate Securities
Fund...................................................... (d)3.2
Letter Agreement to the Yield Calculation Services Agreement
dated August 24, 1992 adding the Fixed Income III and
Multistrategy Bond Funds.................................. (d)3.3
Form of Letter Agreement and Amended Schedule A with respect
to Transfer and Dividend Disbursing Agency Agreement...... (h)1.11
Letter Agreements regarding fee waivers and
reimburesments............................................ (h)4.1
Credit Agreement............................................ (h)5.1
Opinion and Consent of Counsel.............................. (i)1.1
Consent of Independent Accountants.......................... (j)1.1
Limited Power of Attorney................................... (j)1.3
Frank Russell Investment Management Company Code of
Ethics.................................................... (p)1.1
AEW Capital Management, L.P. Code of Ethics................. (p)1.2
Alliance Capital Management L.P. Code of Ethics............. (p)1.3
Barclays Global Fund Advisors N.A. Code of Ethics........... (p)1.4
BlackRock Financial Management Code of Ethics............... (p)1.5
The Boston Company Asset Management Code of Ethics.......... (p)1.6
CapitalWorks Investment Partners Code of Ethics............. (p)1.7
Cohen & Steers Code of Ethics............................... (p)1.8
Delaware International Advisors Limited Code of Ethics...... (p)1.9
Delphi Management, Inc. Code of Ethics...................... (p)1.10
Equinox Capital Management, Inc. Code of Ethics............. (p)1.11
Fidelity Management Trust Company Code of Ethics............ (p)1.12
Fiduciary International, Inc. Code of Ethics................ (p)1.13
Foreign & Colonial Emerging Markets Limited Code of
Ethics.................................................... (p)1.14
Franklin Portfolio Associates LLC Code of Ethics............ (p)1.15
Geewax, Terker & Company Code of Ethics..................... (p)1.16
Genesis Asset Managers, Ltd. Code of Ethics................. (p)1.17
GlobeFlex Capital, L.P. Code of Ethics...................... (p)1.18
Jacobs Levy Equity Management, Inc. Code of Ethics.......... (p)1.19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME OF EXHIBIT EXHIBIT NUMBER
- --------------- ------------------------
<S> <C>
J.P. Morgan Investment Management, Inc. Code of Ethics...... (p)1.20
Lazard Asset Management Code of Ethics...................... (p)1.21
Lincoln Capital Management Company Code of Ethics........... (p)1.22
Marsico Capital Management, LLC Code of Ethics.............. (p)1.23
Mastholm Asset Management, LLC Code of Ethics............... (p)1.24
MFS Institutional Advisors, Inc. Code of Ethics............. (p)1.25
Miller, Anderson & Sherrerd, LLP Code of Ethics............. (p)1.26
Montgomery Asset Management LLC Code of Ethics.............. (p)1.27
Nicholas Applegate Capital Management Code of Ethics........ (p)1.28
Oechsle International Advisors, LLC Code of Ethics.......... (p)1.29
Pacific Investment Management Company Code of Ethics........ (p)1.30
Peachtree Asset Management Code of Ethics................... (p)1.31
Sanford C. Bernstein & Co., Inc. Code of Ethics............. (p)1.32
Schroders Capital Management International Limited Code of
Ethics.................................................... (p)1.33
Security Capital Global Capital Management Group Code of
Ethics.................................................... (p)1.34
Sirach Capital Management, Inc. Code of Ethics.............. (p)1.35
Standish, Ayer & Wood, Inc.'s Code of Ethics................ (p)1.36
STW Fixed Income Management Ltd. Code of Ethics............. (p)1.37
Strong Capital Management Code of Ethics.................... (p)1.38
Suffolk Capital Management Ltd. Code of Ethics.............. (p)1.39
Turner Investment Partners Code of Ethics................... (p)1.40
Weiss, Peck & Greer, L.L.C. Code of Ethics.................. (p)1.41
Westpeak Investment Advisors, L.P. Code of Ethics........... (p)1.42
</TABLE>
<PAGE>
FRANK RUSSELL INVESTMENT COMPANY
FILE NO. 2-71299
FILE NO. 811-3153
EXHIBITS
Listed in Part C, Item 23
To Post-Effective Amendment No. 46
and Amendment No. 46
to
Registration Statement on Form N-1A
Under
Securities Act of 1933
and
Investment Company Act of 1940
<PAGE>
Exhibit (a)1.19
FRANK RUSSELL INVESTMENT COMPANY
AMENDMENT TO MASTER TRUST AGREEMENT
Regarding Redesignation of Sub-Trust
AMENDMENT NO. 18 to the Amended Master Trust Agreement dated July 26, 1984
(referred to herein as the "Agreement"), done this 22nd day of November, 1999,
by the Trustees under such Agreement.
WITNESSETH:
WHEREAS, Section 4.1 of the Agreement authorizes the Trustees to
establish and designate sub-trusts and classes thereof; and
WHEREAS, The trustees wish to provide for the redesignation of the name
of the Tax-Managed Equity Aggressive Strategy Fund Sub-Trust, and have
determined that such renaming of the Sub-Trust will not adversely
impact the Shareholders of such Sub-Trust; and
WHEREAS, the Trustees propose that such redesignation shall be
immediately effective; and
NOW, THEREFORE, the Trustees hereby amend the Agreement as set forth
below to redesignate the name of such Sub-Trust and to provide for such
further actions as necessary and appropriate in furtherance thereof.
REDESIGNATION OF SUB-TRUSTS
Without limiting the authority of the Trustees set forth in Section 4.1 of the
Agreement to establish and designate any further sub-trust, and without
effecting rights and preferences of the twenty-seven existing sub-trusts, the
trustees hereby redesignate the sub-trust named "Tax-Managed Equity Aggressive
Strategy Fund" as the "Tax-Managed Global Equity Fund."
The undersigned hereby certify that the Amendment set forth above has been duly
adopted in accordance with the provisions of the Master Trust Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals for
themselves and their assigns, as of the day and year first above written. This
instrument may be executed in one or more counterparts, all of which shall
together constitute a single instrument.
/S/ LYNN L. ANDERSON /S/ ELEANOR W. PALMER
- ---------------------- ------------------------
Lynn L. Anderson Eleanor W. Palmer
/S/ PAUL E. ANDERSON /S/ LEE C. GINGRICH
- ---------------------- -------------------------
Paul E. Anderson Lee C. Gingrich
/S/ PAUL ANTON /S/ WILLIAM E. BAXTER
- ---------------------- -------------------------
Paul Anton William E. Baxter
<PAGE>
Exhibit (a)1.20
FRANK RUSSELL INVESTMENT COMPANY
AMENDMENT TO MASTER TRUST AGREEMENT
Regarding Designations of Sub-Trusts
and Classes of Shares
AMENDMENT NO. 19 to the Amended Master Trust Agreement dated July 26, 1984
(referred to herein as the "Agreement"), done this 22nd day of November, 1999,
by the Trustees under such Agreement.
WITNESSETH:
WHEREAS, Section 4.1 of the Agreement authorizes the Trustees to
establish and designate sub-trusts and classes thereof; and
WHEREAS, Section 4.2 of the Agreement provides that the Trustees may
fix and determine certain relative rights and preferences of the shares
of the sub-trusts and classes thereof in accordance with the provisions
of such Section 4.2; and
WHEREAS, the Trustees wish to establish and designate additional
sub-trusts and classes of shares of interest in such sub-trusts, and
fix and determine certain relative rights and obligations of the shares
of said classes of such sub-trusts; and
WHEREAS, Section 4.1 of the Agreement provides that a Trustee may act
for such purpose without shareholder approval;
NOW, THEREFORE, the Trustees hereby establish and designate the
following sub-trusts, authorize the designation of classes of shares
and fix the rights and preferences of the shares thereof as set forth
herein.
ESTABLISHMENT AND DESIGNATION OF SUB-TRUSTS AND CLASSES.
Without limiting the authority of the Trustees set forth in Section 4.1 of the
Agreement to establish and designate any further classes of any sub-trusts, and
without affecting the rights and performances of any existing sub-trust or class
of any existing sub-trust, the Trustees hereby establish and designate a new
Class A for the Diversified Equity, Special Growth, Equity Income, Quantitative
Equity, International Securities, Emerging Markets, Real Estate Securities,
Short Term Bond, Diversified Bond, Multistrategy Bond, Tax-Managed Large Cap
(formerly Equity T), Tax-Managed Small Cap, Tax Exempt Bond, Equity Aggressive
Strategy, Aggressive Strategy, Balanced Strategy, Moderate Strategy,
Conservative Strategy, Tax-Managed Global Equity, Tax-Managed Aggressive
Strategy, Tax-Managed Moderate Strategy and Tax-Managed Conservative Strategy
Funds (the "Class A Funds").
<PAGE>
In furtherance thereof, the Trustees direct that new Class A Shares of the Class
A Funds shall have all the relative rights and preferences set forth in Section
4.2 of the Agreement, shall represent an equal proportionate interest in the
underlying assets and liabilities of the applicable Sub-Trust, and shall
generally have identical voting, dividend, liquidation and other rights,
preferences, powers, restrictions, limitations, obligations, qualifications and
terms and conditions as all other Shares of the applicable Sub-Trust, except
that:
- each Class A Share offered in connection with a shareholder
services ("Shareholder Services Plan") will bear, as a charge
against distributable income or gains or as a reduction in
interest, certain fees under its respective Shareholder
Services Plan and will have exclusive voting rights on matters
pertaining to the Shareholder Services Plan of the Class and
any related agreements;
- each Class A Share of a Sub-Trust shall contain such
conversion feature as may be required to comply with
regulations applicable to the Sub-Trust or to the issuance of
Shares of the Sub-Trust;
- each Class A Share of a Sub-Trust will bear, as a charge
against distributable income or gains or as a reduction in
interest, differing amounts of certain expenses attributable
to the Class;
- the Board shall provide for differing payments of dividends
from income or distributions of gains on a Class A Share of a
Sub-Trust to reflect different charges against such income or
gains or otherwise to equalize the net asset values of the
Classes or, in the absence of such policies, the net asset
value per share of different Classes of a Sub-Trust may differ
at certain times;
- each Class A Share of a Sub-Trust may be accorded such
different exchange privileges from Shares of another Class as
the Board may deem proper from time to time;
- each Class A Share of a Sub-Trust shall be subject to such
different conditions of redemption, as shall be set forth in
the Trust's registration statement from time to time;
- each Share of any Class of a Sub-Trust will vote exclusively
on matters solely affecting Shares of that Class, and shall
not vote upon matters which do not affect such Class;
- each Class A Share of a Sub-Trust will have a different class
designation from any other Class of that Sub-Trust; and
<PAGE>
- each Class A Share of a Sub-Trust may have such additional
rights and preferences, or be subject to such restrictions and
qualifications, as the Trustees by resolution may determine,
consistent with the provisions of the 1940 Act and the
Internal Revenue Code, as amended, and not otherwise
identified above.
The undersigned hereby certify that the Amendment set forth above has been duly
adopted in accordance with the provisions of the Master Trust Agreement.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals for
themselves and their assigns, as of the day and year first above written. This
instrument may be executed in one or more counterparts, all of which shall
together constitute a single instrument.
/S/ LYNN L. ANDERSON /S/ ELEANORW. PALMER
- -------------------------- ----------------------------
Lynn L. Anderson Eleanor W. Palmer
/S/ PAUL E. ANDERSON /S/ LEE C. GINGRICH
- -------------------------- ----------------------------
Paul E. Anderson Lee C. Gingrich
/S/ PAUL ANTON /S/ WILLIAM E. BAXTER
- -------------------------- ----------------------------
Paul Anton William E. Baxter
<PAGE>
Exhibit (d)3.1
YIELD CALCULATION SERVICES AGREEMENT
AGREEMENT made between Frank Russell Investment Company, a
Massachusetts business trust, organized and existing under the laws of
Massachusetts having its principal place of business at 1201 Pacific Avenue,
Tacoma, Washington 98401 (the "Fund") and State Street Bank and Trust Company
("State Street") having its principal place of business at 225 Franklin Street,
Boston, Massachusetts 02110, hereinafter called "State Street."
WHEREAS, the Fund and State Street have heretofore entered into a
Custodian Agreement dated January 2, 1985, as amended;
WHEREAS, the Fund desires to disclose in its prospectus, statements of
additional information and advertising, certain performance results;
WHEREAS, the Fund is a "series" type investment company registered
under the Investment Company Act of 1940 and currently has 18 separate series
("Series");
WHEREAS, the Fund desires State Street to compute the performance
results of the Fund's Series in accordance with the provisions of Release No.
33-6753 and Release No. 1C-16245 (February 2, 1988) (the "Releases") promulgated
by the Securities and Exchange Commission, and any subsequent amendments to,
published interpretations of or general conventions accepted by the staff of the
Securities and Exchange Commission with respect to such Releases;
WHEREAS, State Street is willing to perform such calculations.
NOW THEREFORE, the parties hereto agree as follows:
<PAGE>
(1) State Street shall compute the yield, or tax equivalent yield, for
each of the Fund's Series, except its Money Market and International Series, for
stated periods of time, all as specified in Schedule 1 to Exhibit A hereto, and
promptly communicate the result of such computation, and all supporting
documentation relating to the computation, to the Fund;
(2) State Street will derive from the records it generates and
maintains for the Fund or obtain from Fund designated third party providers of
price or statistical data the items of data set forth in Schedule 2 to Exhibit A
hereto necessary for such computation, which Exhibit may be separately amended
or supplemented by the parties hereto from time to time as may be appropriate;
(3) The Fund or its designee shall provide State Street with the items
of data set forth on Exhibit B hereto required for such computation, which
Exhibit may be separately amended or supplemented by the parties hereto from
time to time as may be appropriate;
(4) State Street shall have no responsibility to review, confirm or
otherwise assume any duty with respect to the accuracy or correctness of any
data supplied to it by the Fund, any of the Fund's designated agents or by
designated third party providers which the Fund or its designee may have
selected pursuant to Section 2 hereof;
(5) The Fund shall provide, from time to time as may be appropriate,
and State Street shall be entitled to rely on, the written standards and
guidelines to be followed by State Street in interpreting and applying the
computation methods set forth in the Releases as they specifically apply to the
Fund. In the event that the computation methods in the Releases or the
application to the Fund of a standard or guideline is not
<PAGE>
free from doubt or in the event there is any question of interpretation as to
the characterization of a particular security or any aspect of a security or a
payment with respect thereto (e.g., original issue discount, participating debt
security, income or return of capital, etc.) or otherwise or as to any other
element of the computation which is pertinent to the Fund, the Fund or its
designated agent shall have the full responsibility for making the determination
of how the security, or payment is to be treated for purposes of the computation
and how the computation is to be made and shall inform State Street thereof on a
timely basis. All standards, guidelines and other information described herein
shall initially be set forth on Exhibit C hereto. State Street shall have no
responsibility to made independent determinations with respect to any item which
is covered by this Section, and shall not be responsible for the failure of its
computations to reflect such determinations which have not been communicated to
State Street by the Fund;
(6) The Fund shall keep State Street informed of all publicly available
information and of any non-public advice or information obtained by the Fund
subsequent to the date of this Agreement from its accountants or by its
personnel or the personnel of its investment adviser related to the computations
to be undertaken by State Street pursuant to this Agreement and State Street
shall not be charged with knowledge of such information unless it has been
furnished to State Street in writing;
(7) So long as and to the extent that State Street acts with reasonable
care, State Street shall be kept indemnified by and shall be without liability
to the Fund for its performance of its duties under this Agreement. The Fund
shall indemnify State Street for any expenses, assessments, claims or
liabilities which it may incur in connection with
<PAGE>
this Agreement, except as may arise from its own negligent action, negligent
failure to act or willful misconduct. Any liability of State Street hereunder to
each Fund shall be limited to an amount not to exceed fees paid under this
Agreement by each Fund for the immediately preceding 12 month period. In no
event shall State Street be liable for claims of consequential damage arising
out of an incorrect yield or tax equivalent yield performed by it under this
Agreement;
(8) This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated, may be amended at any time
by mutual agreement of the parties hereto and may be terminated by either party
by an instrument in writing delivered or mailed postage prepaid to the other
party such termination to take effect no sooner than thirty (30) days after the
day of such delivery or mailing;
(9) For performance of its services, State Street shall receive such
compensation, if any, as agreed upon and shown in Exhibit D; which Exhibit may
be separately amended or supplemented by the parties hereto from time to time as
may be appropriate;
(10) If the Fund forms additional Series for which it desires State
Street to perform the services covered by this Agreement, this Agreement or the
applicable exhibits or both, as necessary, shall be amended by the parties.
(11) In connection with the operation of this Agreement, State Street
and the Fund may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provision shall be in writing signed by each party and shall be
annexed hereto;
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and on behalf by a duly authorized representative as of 2nd
day of August, 1988.
FRANK RUSSELL INVESTMENT COMPANY
By: /s/ George W. Weber
------------------------------------
George W. Weber
Vice President, Head of Operations
STATE STREET BANK AND TRUST COMPANY
By: /s/ ED Hawkins, Jr.
------------------------------------
ED Hawkins, Jr.
Vice President
<PAGE>
EXHIBIT A
Computations to be made and data to be generated or obtained from
sources other than the Fund by State Street Bank and Trust Company in connection
with computations for each of the Fun's Series, except its Money Market and
International Series, under Securities and Exchange Commission Releases 33-6753
and 1C-16245.
SCHEDULE 1
Computations to be made: Check one or more
Eff. Tax Equiv.
Yield Yield Yield
----- ----- ----------
Time Periods [ X ] [ ] [ ]
30 day: Daily
Interim Period: N/A
SCHEDULE 2
Data Generated by Obtained From
Items State Street (identify source)
----- ------------ -----------------
1. N/A
2.
3.
4.
5.
<PAGE>
EXHIBIT B
Data to be supplied to State Street Bank and Trust Company in
connection with computations for each of the Fund's Series, except its Money
Market and International Series, under Securities and Exchange Commission
Releases 33-6753 and 1C-16245.
Data How Supplied and When
Items By Whom Supplied
----- ---------------- --------
1. Call/Put Date Money Manager on On each trade date
notification of trade plus one
<PAGE>
EXHIBIT C
Standards and guidelines to be followed by State Street Bank and Trust
Company in interpreting and applying computation methods indicated on Exhibit B.
PHASE I - JULY 1, 1988 - JULY 31, 1988 (APPLIES ONLY TO FIXED INCOME I FUND,
FIXED INCOME II FUND, DIVERSIFIED BOND FUND, VOLATILITY CONSTRAINED BOND FUND,
AND LIMITED VOLATILITY TAX FREE FUND).
GENERAL
On a daily trade date basis State Street will provide a Daily Income Report
which will include the following:
- Yield-to-maturity for each individual security from which a
daily income amount will be calculated based upon month-end
market values.
- Adjustments for buys will be made on contractual settlement
date.
- Adjustments for sells will be made on contractual settlement
date. For partial sells, the last market price of security will
be used for YTM calculations from T + 1 until settlement date.
For sells in which the entire position is sold, we will use sale
price for YTM calculation. SEC Q&A of 5/13/88 question #7
indicates last sale price should be used.
- Short-term securities will be those securities designated as
short-term by the advisor. Daily income amounts will be
calculated for these short-term securities using coupon rate x
outstanding principal amount. Note: The SEC has defined
short-term securities to be those with a maturity of less than
60 days.
- With respect to mortgage backed securities, daily income amounts
will be calculated using book income based upon coupon rate and
outstanding principal amount.
- No Fund yields will be calculated and no other information will
be provided from July 1 through August 1, 1988.
<PAGE>
PHASE II - AUGUST 1, 1988 UNTIL IMPLEMENTATION OF PHASE III
(APPLIES TO THE SAME SERIES AS DID PHASE I).
GENERAL
- Yield will be calculated based upon a rolling 30-day average. A
yield will be determine based upon each day's market value. The
yield will consist of the sum of the last 30 days' income
including adjustments per the trial balance for zero coupon
bonds and short-term bonds net of 30 days expenses for the
period. A factor will be generated each day and a new 30-day
yield calculated. This is Option C of the SEC Q&A question #1 of
their 5/13/88 release.
- Adjustments for buys will be made on contractual settlement
date.
- Adjustments for sells will be made on contractual settlement
date. For sells, the last market price of security will be used
for YTM calculations from T + 1 until settlement date. SEC Q&A
of 5/13/88 question #7 indicates last sale price should be used.
- Short-term securities will be those securities designated as
short-term by the money manager. Note: The SEC has defined
short-term securities to be those with a maturity of less than
60 days.
Put/call date, in conjunction with put/call price, will be
substituted for maturity date upon instructions from the money
manager. Unless instructed otherwise, State Street will use
maturity date.
- In determining average daily shares outstanding and the corresponding
30 days rolling income amounts, shares and income amounts for weekends
will be based on the values as of the following Monday. The following
business day will also be used for holidays.
MUNICIPALS
A comparison will be made daily of market value to current OID basis.
1. If OID basis is higher than market value, OID basis will be used in
YTM calculation.
2. If OID basis is less than market value, market value will be used in
YTM calculation.
3. If security is currently priced at a discount and did not have
any original discount (OID), use par value as basis for YTM
calculation.
<PAGE>
ASSET BACKED SECURITIES WHICH ARE RECEIVING PREPAYMENTS
- Yields will be calculated using book income based upon coupon
rate and outstanding principal amount.
- Adjustments for one period's gains or losses from principal
paydowns are included in the interest income.
- Adjustments for one period's principal paydowns will be
estimated and adjusted for actual when received.
The parties agree that this Exhibit C shall be amended as soon as
practicable after the implementation of Phase III to reflect revised standards
and guidelines. THE PHASE III STANDARDS AND GUIDELINES WILL APPLY TO ALL OF THE
FUND'S SERIES THEN EXISTING EXCEPT THE FUND'S MONEY MARKET AND INTERNATIONAL
SERIES.
<PAGE>
EXHIBIT D
No fee shall be currently payable to State Street for its services
under this Agreement. It is anticipated that a fee will begin to be paid to
State Street beginning on or about September 1, 1988. This fee is to be
negotiated between the parties and will become effective upon the amendment of
this Exhibit D.
<PAGE>
Exhibit (d)3.2
LETTER AGREEMENT
May 1, 1989
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
Dear Sirs:
Pursuant to Section 14 of the Yield Calculation Services Agreement of Frank
Russell Investment Company, dated January 2, 1985, the Frank Russell Investment
Company Advises you that it is creating a new fund to be named the Real Estate
Securities Fund (the "Fund") and that the Fund desires for State Street Bank and
Trust Company to compute the performance results of the Fund series with respect
to the Funds pursuant to the terms and conditions of the Yield Calculation
Service Agreement.
Please indicate your acceptance to amend the Yield Calculation Service Agreement
by executing the acceptance copy of this letter agreement and returning it to
the undersigned.
Sincerely,
FRANK RUSSELL INVESTMENT COMPANY
BY: /s/ GEORGE W. WEBER
--------------------------------
George W. Weber
Vice President - Operations
Accepted this 24th day of April, 1989
STATE STREET BANK AND TRUST COMPANY
By: /s/
--------------------------------
Its: Vice President
--------------------------------
<PAGE>
Exhibit (d)3.3
LETTER AGREEMENT
August 24, 1992
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
Dear Sirs:
Pursuant to Section 14 of the Yield Calculation Services Agreement of Frank
Russell Investment Company, dated January 2, 1985, the Frank Russell Investment
Company advises you that it is creating two new funds to be named the Fixed
Income III and Multistrategy Bond Funds (the "Funds") and that the Funds desires
for State Street Bank and Trust Company to compute the performance results of
the Funds series with respect to the Funds pursuant to the terms and conditions
of the Yield Calculation Service Agreement.
Please indicate your acceptance to amend the Yield Calculation Service Agreement
by executing the acceptance copy of this letter agreement and returning it to
the undersigned.
Sincerely,
FRANK RUSSELL INVESTMENT COMPANY
By: /s/ George W. Weber
----------------------------------
George W. Weber
Director of Operations
Accepted this 22nd day of September, 1992
STATE STREET BANK AND TRUST COMPANY
By: /s/
----------------------------------
Its: Vice President
----------------------------------
<PAGE>
Exhibit (h) 1.11
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
Re: Amended Schedule A to Transfer and Dividend Disbursing Agency Agreement
-----------------------------------------------------------------------
Dear Sirs:
Pursuant to Sections 21 and 25 of the Transfer and Dividend Disbursing agency
Agreement between Frank Russell Investment Company (the "Investment Company")
and Frank Russell Investment Management Company ("FRIMCo") dated April 1, 1988,
we hereby advise you that we desire to amend Schedule A of the Transfer and
Dividend Disbursing Agency Agreement to revise the fees to be paid by you in
return for our services to you under that agreement as set forth in the attached
Transfer Agent Fee Schedule.
Please indicate your acceptance of the attached amendment of Schedule A by
executing the acceptance copy of this letter agreement and returning it to the
undersigned.
Sincerely,
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/ Eric A. Russell
-----------------------------------
Eric A. Russell
President
Accepted this 30th day of November, 1999.
FRANK RUSSELL INVESTMENT COMPANY
By: /s/ Lynn L. Anderson
-----------------------------------
Lynn L. Anderson
President
Schedule A
- ----------
[Redacted]
<PAGE>
Exhibit (h)4.1
April 30, 2000
Mr. Mark E. Swanson
Treasurer
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
RE: Frank Russell Investment Company Tax-Managed Global Equity Fund
Dear Mark:
Frank Russell Investment Management Company ("FRIMCo"), as adviser to Frank
Russell Investment Company ("FRIC"), agrees to waive, until February 28, 2001,
its 0.20% advisory fee with respect to FRIC's Tax-Managed Global Equity Fund.
This waiver, which supercedes any prior voluntary waiver or reimbursement
arrangements for that Fund, may, at FRIMCo's option, continue after that date,
but may be revised or eliminated at any time thereafter without notice. If this
arrangement is acceptable to you, please sign below to indicate your acceptance
and agreement and return a copy of this letter to me.
Sincerely,
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/
---------------------------------
Lynn L. Anderson
Chairman of the Board
Accepted and Agreed:
FRANK RUSSELL INVESTMENT COMPANY
By: /s/
---------------------------------
Mark E. Swanson
Treasurer
<PAGE>
April 30, 2000
Mr. Mark E. Swanson
Treasurer
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
RE: Frank Russell Investment Company Equity Aggressive Strategy Fund
Dear Mark:
Frank Russell Investment Management Company ("FRIMCo"), as adviser to Frank
Russell Investment Company ("FRIC"), agrees to waive, with respect to FRIC's
Equity Aggressive Strategy Fund, (i) its 0.20% advisory fee until February 28,
2001 and (ii) its 0.05% administrative fee until November 30, 2000. This waiver,
which supersedes any prior voluntary waiver or reimbursement arrangements for
that Fund may, at FRIMCo's option, continue after that date, but may be revised
or eliminated at any time thereafter without notice. If this arrangement is
acceptable to you, please sign below to indicate your acceptance and agreement
and return a copy of this letter to me.
Sincerely,
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/
---------------------------------
Lynn L. Anderson
Chairman of the Board
Accepted and Agreed:
FRANK RUSSELL INVESTMENT COMPANY
By: /s/
---------------------------------
Mark E. Swanson
Treasurer
<PAGE>
Mr. Mark E. Swanson
Treasurer
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
RE: Frank Russell Investment Company Aggressive Strategy Fund
Dear Mark:
Frank Russell Investment Management Company ("FRIMCo"), as adviser to Frank
Russell Investment Company ("FRIC"), agrees to waive, with respect to FRIC's
Aggressive Strategy Fund, (i) its 0.20% advisory fee until February 28, 2001 and
(ii) its 0.05% administrative fee until November 30, 2000. This waiver, which
supersedes any prior voluntary waiver or reimbursement arrangements for that
Fund may, at FRIMCo's option, continue after that date, but may be revised or
eliminated at any time thereafter without notice. If this arrangement is
acceptable to you, please sign below to indicate your acceptance and agreement
and return a copy of this letter to me.
Sincerely,
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/
---------------------------------
Lynn L. Anderson
Chairman of the Board
Accepted and Agreed:
FRANK RUSSELL INVESTMENT COMPANY
By: /s/
---------------------------------
Mark E. Swanson
Treasurer
<PAGE>
April 30, 2000
Mr. Mark E. Swanson
Treasurer
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
RE: Frank Russell Investment Company Balanced Strategy Fund
Dear Mark:
Frank Russell Investment Management Company ("FRIMCo"), as adviser and
administrator to Frank Russell Investment Company ("FRIC"), agrees to waive,
with respect to FRIC's Balanced Strategy Fund, (i) its 0.20% advisory fee until
February 28, 2001 and (ii) its 0.05% administrative fee until November 30, 2000.
This waiver, which supersedes any prior voluntary waiver or reimbursement
arrangements for that Fund, may, at FRIMCo's option, continue after that date,
but may be revised or eliminated at any time thereafter without notice. If this
arrangement is acceptable to you, please sign below to indicate your acceptance
and agreement and return a copy of this letter to me.
Sincerely,
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/
---------------------------------
Lynn L. Anderson
Chairman of the Board
Accepted and Agreed:
FRANK RUSSELL INVESTMENT COMPANY
By: /s/
---------------------------------
Mark E. Swanson
Treasurer
<PAGE>
April 30, 2000
Mr. Mark E. Swanson
Treasurer
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
RE: Frank Russell Investment Company Moderate Strategy Fund
Dear Mark:
Frank Russell Investment Management Company ("FRIMCo"), as adviser and
administrator to Frank Russell Investment Company ("FRIC"), agrees to waive,
with respect to FRIC's Moderate Strategy Fund, (i) its 0.20% advisory fee until
February 28, 2001 and (ii) its 0.05% administrative fee until November 30, 2000.
This waiver, which supersedes any prior voluntary waiver or reimbursement
arrangements for that Fund, may, at FRIMCo's option, continue after that date,
but may be revised or eliminated at any time thereafter without notice. If this
arrangement is acceptable to you, please sign below to indicate your acceptance
and agreement and return a copy of this letter to me.
Sincerely,
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/
---------------------------------
Lynn L. Anderson
Chairman of the Board
Accepted and Agreed:
FRANK RUSSELL INVESTMENT COMPANY
By: /s/
---------------------------------
Mark E. Swanson
Treasurer
<PAGE>
April 30, 2000
Mr. Mark E. Swanson
Treasurer
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
RE: Frank Russell Investment Company Conservative Strategy Fund
Dear Mark:
Frank Russell Investment Management Company ("FRIMCo"), as adviser and
administrator to Frank Russell Investment Company ("FRIC"), agrees to waive,
with respect to FRIC's Conservative Strategy Fund, (i) its 0.20% advisory fee
until February 28, 2001 and (ii) its 0.05% administrative fee until November 30,
2000. This waiver, which supersedes any prior voluntary waiver or reimbursement
arrangements for that fund, may, at FRIMCo's option, continue after that date,
but may be revised or eliminated at any time thereafter without notice. If this
arrangement is acceptable to you, please sign below to indicate your acceptance
and agreement and return a copy of this letter to me.
Sincerely,
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/
---------------------------------
Lynn L. Anderson
Chairman of the Board
Accepted and Agreed:
FRANK RUSSELL INVESTMENT COMPANY
By: /s/
---------------------------------
Mark E. Swanson
Treasurer
<PAGE>
April 30, 2000
Mr. Mark E. Swanson
Treasurer
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
RE: Frank Russell Investment Company Tax-Managed Small Cap Fund
Dear Mark:
Frank Russell Investment Management Company ("FRIMCo"), as adviser and
administrator to Frank Russell Investment Company ("FRIC"), agrees to waive,
until February 28, 2001, up to the full amount of its aggregate 1.03% combined
advisory and administrative fees and to reimburse expenses that exceed 1.25% of
the average daily net assets on an annual basis with respect to FRIC's
Tax-Managed Small Cap Fund. This waiver and reimbursement arrangement, which
supercedes any prior voluntary waiver or reimbursement arrangements for that
Fund, may, at FRIMCo's option, continue after that date, but may be revised or
eliminated at any time thereafter without notice. If this arrangement is
acceptable to you, please sign below to indicate your acceptance and agreement
and return a copy of this letter to me.
Sincerely,
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/
---------------------------------
Lynn L. Anderson
Chairman of the Board
Accepted and Agreed:
FRANK RUSSELL INVESTMENT COMPANY
By: /s/
---------------------------------
Mark E. Swanson
Treasurer
<PAGE>
April 30, 2000
Mr. Mark E. Swanson
Treasurer
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
RE: Frank Russell Investment Company Tax Free Money Market Fund
Dear Mark:
Frank Russell Investment Management Company ("FRIMCo"), as adviser and
administrator to Frank Russell Investment Company ("FRIC"), agrees to waive,
until February 28, 2001, 0.10% its 0.25% combined advisory and administrative
fees with respect to FRIC's Tax Free Money Market Fund. This waiver, which
supersedes any prior voluntary waiver or reimbursement arrangements for that
fund, may, at FRIMCo's option, continue after that date, but may be revised or
eliminated at any time thereafter without notice. If this arrangement is
acceptable to you, please sign below to indicate your acceptance and agreement
and return a copy of this letter to me.
Sincerely,
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/
---------------------------------
Lynn L. Anderson
Chairman of the Board
Accepted and Agreed:
FRANK RUSSELL INVESTMENT COMPANY
By: /s/
---------------------------------
Mark E. Swanson
Treasurer
<PAGE>
April 30, 1999
Mr. Mark E. Swanson
Treasurer
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
RE: Frank Russell Investment Company Money Market Fund
Dear Mark:
Frank Russell Investment Management Company ("FRIMCo"), as adviser and
administrator to Frank Russell Investment Company ("FRIC"), agrees to waive,
until February 28, 2001, 0.15% of its aggregate 0.25% combined advisory and
administrative fees with respect to FRIC's Money Market Fund. This waiver, which
supersedes any prior voluntary waiver or reimbursement arrangements, may, at
FRIMCo's option, continue after that date, but may be revised or eliminated at
any time thereafter without notice. If this arrangement is acceptable to you,
please sign below to indicate your acceptance and agreement and return a copy of
this letter to me.
Sincerely,
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/
---------------------------------
Lynn L. Anderson
Chairman of the Board
Accepted and Agreed:
FRANK RUSSELL INVESTMENT COMPANY
By: /s/
---------------------------------
Mark E. Swanson
Treasurer
<PAGE>
April 30, 1999
Mr. Mark E. Swanson
Treasurer
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
RE: Frank Russell Investment Company US Government Money Market Fund
Dear Mark:
Frank Russell Investment Management Company ("FRIMCo"), as adviser and
administrator to Frank Russell Investment Company ("FRIC"), agrees to waive,
until February 28, 2001, a portion of its aggregate 0.25% combined advisory and
administrative fees for all expenses that exceed 0.30% of the average daily net
assets of FRIC's US Government Money Market Fund. This waiver, which supersedes
any prior voluntary waiver or reimbursement arrangements, may, at FRIMCo's
option, continue after that date, but may be revised or eliminated at any time
thereafter without notice. If this arrangement is acceptable to you, please sign
below to indicate your acceptance and agreement and return a copy of this letter
to me.
Sincerely,
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/
---------------------------------
Lynn L. Anderson
Chairman of the Board
Accepted and Agreed:
FRANK RUSSELL INVESTMENT COMPANY
By: /s/
---------------------------------
Mark E. Swanson
Treasurer
<PAGE>
April 30, 2000
Mr. Mark E. Swanson
Treasurer
Frank Russell Investment Company
909 A Street
Tacoma, WA 98402
RE: Frank Russell Investment Company LifePoints Funds
Dear Mark:
Reference is hereby made to those Special Servicing Agreements, each dated as of
February 8, 1999 (except the Agreement with the Tax-Managed Global Equity Fund
which is dated as of August 23, 1999) (the "Agreements"), among certain Funds of
Frank Russell Investment Company, Frank Russell Investment Management Company
("FRIMCo"), as adviser and administrator to Frank Russell Investment Company
("FRIC"), and each of the following FRIC Funds: Equity Aggressive Strategy Fund,
Aggressive Strategy Fund, Balanced Strategy Fund, Moderate Strategy Fund,
Conservative Strategy Fund and Tax-Managed Global Equity (the "Funds").
FRIMCO agrees to pay, until February 28, 2001, all Expenses (as that term is
defined in the Agreements) of the Funds not paid by the Underlying Funds (as
that term is defined in the Agreements) pursuant to Section 2 of the Agreements.
This agreement to pay, which supercedes any prior voluntary agreement to pay
Expenses for the Funds may, at FRIMCo's option, continue after that date, but
may be revised or eliminated at any time thereafter without notice.
If this arrangement is acceptable to you, please sign below to indicate your
acceptance and agreement and return a copy of this letter to me.
Sincerely,
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/
---------------------------------
Lynn L. Anderson
Chairman of the Board
Accepted and Agreed:
FRANK RUSSELL INVESTMENT COMPANY
By: /s/
---------------------------------
Mark E. Swanson
Treasurer
<PAGE>
Exhibit (h)5.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
Dated as of December 30, 1999
among
THE INVESTMENT COMPANIES PARTY HERETO,
BANK OF AMERICA, NATIONAL ASSOCIATION,
as Administrative Agent,
STATE STREET BANK AND TRUST COMPANY,
as Operations Agent
and
THE OTHER BANKS PARTY HERETO
Arranged by
BANC OF AMERICA SECURITIES L.L.C.,
as Sole Lead Arranger and Sole Book Manager
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
I DEFINITIONS AND INTERPRETATION 1
1.1. Defined Terms 1
1.2. Interpretation 1
1.3. Accounting Terms 2
1.4. Assumptions Regarding Structure 2
1.5. Authority of Company; Company Disclaimer 3
II THE CREDITS 3
2.1. Amounts and Terms of Commitments 3
2.2. Notes 4
2.3. Procedure for Borrowing 4
2.4. Voluntary Termination or Reduction of Commitments 5
2.5. Prepayments 5
2.6. Repayment 5
2.7. Interest 5
2.8. Fees 6
2.9. Computation of Fees and Interest 6
2.10. Payments 7
2.11. Payments by the Banks to the Operations Agent 7
2.12. Sharing of Payments, etc. 8
2.13. Source of Repayment 8
2.14. Swing Loan Facility 9
2.15 Repayment of Swing Loans 9
2.16. Discretionary Facility 9
2.17. Notice of Swing Loan 9
2.18. Failure to Repay Swing Loans 10
III TAXES, YIELD PROTECTION AND ILLEGALITY 10
3.1. Taxes 10
3.2. Capital Adequacy Regulation 11
3.3. Certificates of Banks 12
3.4. Substitution of Banks 12
3.5. Survival 12
IV CONDITIONS TO BORROWING 12
4.1. Conditions of Initial Loan 12
4.2. All Borrowings 14
<PAGE>
PAGE
----
V REPRESENTATIONS AND WARRANTIES 15
5.1. Existence 15
5.2. Authorization 15
5.3. No Conflicts 15
5.4. Validity and Binding Effect 16
5.5. No Default 16
5.6. Financial Statements 16
5.7. Litigation 16
5.8. Liens 16
5.9. Partnerships 16
5.10. Purpose 16
5.11. Compliance and Government Approvals 17
5.12. Pension and Welfare Plans 17
5.13. Taxes 17
5.14. Subsidiaries; Investments 17
5.15. Full Disclosure 17
5.16. Investment Policies 17
5.17. Tax Status 17
5.18. Status of Loans 18
VI COVENANTS 18
6.1. Financial Statements and Other Reports 18
6.2. Notices 19
6.3. Existence 19
6.4. Nature of Business 20
6.5. Books, Records and Access 20
6.6. Insurance 20
6.7. Investment Policies and Restrictions 20
6.8. Taxes 21
6.9. Compliance 21
6.10. Pension Plans 21
6.11. Merger, Purchase and Sale 21
6.12. Asset Coverage Ratio 22
6.13. Liens 22
6.14. Guaranties 22
6.15. Other Agreements 22
6.16. Transactions with Related Parties 22
6.17. Other Indebtedness 22
6.18. Changes to Organization Documents, etc. 23
6.19. Violation of Investment Restrictions, etc. 23
6.20. Proceeds of Loans 23
6.21. Service Providers to Funds 23
6.22. Outstanding Loans 23
<PAGE>
PAGE
----
VII EVENTS OF DEFAULT 23
7.1. Events of Default 23
7.2. Remedies 25
8.1. Appointment and Authorization 26
8.2. Delegation of Duties 26
8.3. Liability of Agents 26
8.4. Reliance by Agents 26
8.5. Notice of Default 27
8.6. Credit Decision 27
8.7. Indemnification of Agents 28
8.8. Agents in Individual Capacity 28
8.9. Successor Agent 28
8.10. Withholding Tax 29
IX MISCELLANEOUS PROVISIONS 30
9.1. Amendments and Waivers 30
9.2. Notices 31
9.3. No Waiver; Cumulative Remedies 32
9.4. Costs and Expenses 32
9.5. Funds Indemnification 32
9.6. Payments Set Aside 33
9.7. Successors and Assigns 33
9.8. Confidentiality 34
9.9. Set-off 35
9.10. Notification of Addresses, Lending Offices, etc. 35
9.11. Counterparts 35
9.12. Survival 35
9.13. Disclaimer 36
9.14. Severability 36
9.15. No Third Parties Benefited 36
9.16. Governing Law and Jurisdiction 36
9.17. Waiver of Jury Trial 36
9.18. Entire Agreement 37
<PAGE>
SCHEDULE I Definitions
SCHEDULE II Commitments and Pro Rata Shares
SCHEDULE III Offshore and Domestic Lending Offices,
Addresses for Notices
SCHEDULE IV List of Funds
EXHIBIT 2.2 Form of Note
EXHIBIT 2.3 Form of Loan Request/Repayment
EXHIBIT 2.14 Form of Allocation Notice
EXHIBIT 4.1(c)-1 Form of Opinion of Counsel to the Funds
EXHIBIT 5.7-1 Schedule of Litigation
EXHIBIT 5.7-2 Schedule of Contingent Liabilities
EXHIBIT 6.1 Form of Borrowing Base Certificate
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of December 30, 1999, is made by and
among FRANK RUSSELL INVESTMENT COMPANY (the "COMPANY"), as agent for each of the
Funds listed on the signature pages hereto or hereafter added hereto, the
various banks (as defined in Section 2(a)(5) of the Act) as are or may become
party hereto (collectively, the "BANKS") (none of which is affiliated (as
defined in the Act) with any of the Funds or the Company), BANK OF AMERICA,
NATIONAL ASSOCIATION ("BOFA"), as administrative agent (in such capacity, the
"ADMINISTRATIVE AGENT") for the Banks and STATE STREET BANK AND TRUST COMPANY
("STATE STREET"), as operations agent (in such capacity, the "OPERATIONS AGENT")
for the Banks.
W I T N E S S E T H:
WHEREAS, the Funds are subtrusts of the Company, which is an investment
company registered under the Act;
WHEREAS, the Funds desire to obtain Commitments from the Banks pursuant
to which Loans, in a maximum aggregate principal amount at any one time
outstanding not to exceed $75,000,000, will be made to such Funds from time to
time prior to the Commitment Termination Date;
WHEREAS, the Banks are willing, on the terms and subject to the
conditions hereinafter set forth, to extend such Commitments and make such Loans
to the Funds; and
WHEREAS, the proceeds of the Loans will be used for the Funds'
temporary liquidity purposes as allowed under the Act.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1. DEFINED TERMS. Unless a clear contrary intention appears, terms
defined in SCHEDULE I have the same respective meanings when used in this
Agreement.
1.2. INTERPRETATION. In this Agreement, unless a clear contrary
intention appears:
(a) the singular number includes the plural number and
VICE VERSA;
<PAGE>
(b) reference to any Person includes such Person's
successors and assigns but, if applicable, only if such successors and
assigns are permitted by this Agreement, and reference to a Person in a
particular capacity excludes such Person in any other capacity or
individually;
(c) reference to any gender includes each other gender;
(d) reference to any agreement (including this Agreement),
document or instrument means such agreement, document or instrument as
amended or modified and in effect from time to time in accordance with
the terms thereof and, if applicable, the terms hereof and the other
Credit Documents and reference to any promissory note includes any
promissory note which is an extension or renewal thereof or a
substitute or replacement therefor;
(e) reference to any applicable law means such applicable
law as amended, modified, codified, replaced or reenacted, in whole or
in part, and in effect from time to time, including rules and
regulations promulgated thereunder, and reference to any section or
other provision of any applicable law means that provision of such
applicable law from time to time in effect and constituting the
substantive amendment, modification, codification, replacement or
reenactment of such section or other provision;
(f) reference to any ARTICLE, SECTION, ANNEX, SCHEDULE or
EXHIBIT means such ARTICLE or SECTION hereof or ANNEX, SCHEDULE or
EXHIBIT hereto;
(g) "hereunder", "hereof", "hereto" and words of similar
import shall be deemed references to this Agreement as a whole and not
to any particular ARTICLE, SECTION or other provision hereof;
(h) "including" (and with the correlative meaning
"include") means including without limiting the generality of any
description preceding such term;
(i) "or" is not exclusive; and
(j) relative to the determination of any period of time,
"from" means "from and including" and "to" and "through" mean "to but
excluding".
1.3. ACCOUNTING TERMS. In this Agreement, unless expressly otherwise
provided, accounting terms shall be construed and interpreted, and accounting
determinations and computations shall be made, in accordance with GAAP.
1.4. ASSUMPTIONS REGARDING STRUCTURE. The parties acknowledge and agree
that the Funds are not separately existing legal entities entitled to enter into
contractual agreements or to execute instruments, and for these reasons, the
Company is executing this Agreement and the relevant Notes on behalf of the
Funds.
<PAGE>
1.5. AUTHORITY OF COMPANY; COMPANY DISCLAIMER. Each of the Funds hereby
confirms that the Company has been duly authorized to act on behalf of such Fund
for purposes of this Agreement and the relevant Notes and to take all actions
which such Fund is entitled or required to take hereunder or thereunder,
including, without limitation, requesting the making, continuation or conversion
of Loans on behalf of a Fund pursuant to SECTION 2, reducing or terminating the
Commitments as to one or more Funds, and executing and delivering Loan Requests,
Borrowing Base Certificates and any and all other certificates, reports,
financial information and notices required to be delivered to the Agent
hereunder. Notwithstanding the foregoing or anything to the contrary contained
in this Agreement, the parties hereto acknowledge and agree that (a) in taking
any such action hereunder or under a Note, the Company is acting solely in its
capacity as agent for the Funds and not in its individual capacity, (b) none of
the Company, nor any shareholder of any Fund, nor any of its officers, trustees,
employees or agents (with the Company, collectively, "COMPANY PERSONS") shall
have any liability whatsoever for any action taken or omitted to be taken by any
of them in connection with this Agreement or any Note nor shall any of them be
bound by or liable for any indebtedness, liability or obligation hereunder or
under any Note and (c) no Company Person shall be responsible in any manner to
the Banks for the truth, completeness or accuracy of any statement,
representation, warranty or certification contained in this Agreement or in any
information, report, certificate or other document furnished by the Company on
behalf of any Fund in connection with this Agreement, including, without
limitation, any Loan Request, any Borrowing Base Certificate, and any
certificate or notice furnished pursuant to SECTION 6.1 or 6.2 hereof. The
Agents and the Banks further acknowledge that they have been provided a copy of
Article VI of the Company's Declaration of Trust as filed with the Secretary of
the Commonwealth of Massachusetts and understand and agree that they are bound
by the limitation of liability provisions contained therein pertaining to the
Company, Company Persons and shareholders of the Funds.
<PAGE>
ARTICLE II
THE CREDITS
2.1. AMOUNTS AND TERMS OF COMMITMENTS. Each Bank severally agrees, on
the terms and conditions set forth herein, to make Committed Loans to the Funds
from time to time on any Business Day during the period from the Closing Date to
the Commitment Termination Date equal to its Pro Rata Share of the aggregate
amount of the Borrowing requested by any Fund to be made on such day. The
Commitment of each Bank and the outstanding principal amount of Loans made by
each Bank hereunder shall not exceed at any time the aggregate amount set forth
on SCHEDULE II (such amount as the same may be reduced under SECTION 2.5 or as a
result of one or more assignments as permitted herein, the Bank's "COMMITMENT");
PROVIDED, HOWEVER, that, after giving effect to any Borrowing, the aggregate
principal amount of all outstanding Loans shall not at any time exceed the
Commitment Amount, and PROVIDED that the aggregate principal amount of all Loans
outstanding from time to time to any Fund shall not exceed the Borrowing Base
for such Fund. Within the limits of each Bank's Commitment, and subject to the
other terms and conditions hereof, a Fund may borrow under this SECTION 2.1,
repay under the terms hereof and reborrow under this SECTION 2.1.
2.2. NOTES. (a) The Loans made by each Bank to each Fund shall
be evidenced by one or more accounts or records maintained by such Bank in the
ordinary course of business. The accounts or records maintained by the Agent and
each Bank shall be conclusive absent manifest error of the amount of the Loans
made by the Banks to each Fund and the interest and payments thereon. Any
failure so to record or any error in doing so shall not, however, limit or
otherwise affect the obligation of such Fund hereunder to pay any amount owing
with respect to the Loans.
(b) Upon the request of any Bank made through the Agent, the Loans made by
such Bank to each Fund may be evidenced by one or more Notes, instead of loan
accounts. Each such Bank shall endorse on the schedules annexed to its
Note(s) the date, amount and maturity of each Loan made by it and the amount
of each payment of principal made by the applicable Fund with respect
thereto. Each such Bank is irrevocably authorized by each Fund to endorse its
Note(s) and each Bank's record shall be conclusive absent manifest error;
PROVIDED, HOWEVER, that the failure of a Bank to make, or an error in making,
a notation thereon with respect to any Loan shall not limit or otherwise
affect the obligations of the applicable Fund hereunder or under any such
Note to such Bank.
2.3. PROCEDURE FOR BORROWING. (a) Each Borrowing shall be made upon the
borrowing Fund's irrevocable written notice delivered to the Operations Agent in
the form of a loan request ("LOAN REQUEST") substantially in the form of EXHIBIT
2.3 hereto (which notice must be received on a Business Day by the Operations
Agent prior to 9:00 a.m. (Pacific time) on the Borrowing Date for which a
Committed Loan is requested, specifying:
<PAGE>
(A) the amount of the Borrowing, which shall be in
an aggregate minimum amount of $1,000,000 or any multiple of $1,000,000
in excess thereof; and
(B) the requested Borrowing Date, which shall be a
Business Day.
In the event that more than one Loan Request is delivered on any
Business Day, the Operations Agent shall, for purposes of ensuring that the
aggregate of the then-outstanding Loans and the Loans which are the subject of
the Loan Requests will not exceed the Commitment Amount, process the Loan
Requests in the order of receipt.
(b) The Operations Agent will promptly notify each Bank of
its receipt of any Loan Request and of the amount of such Bank's Pro Rata Share
of that Borrowing.
(c) Each Bank will make the amount of its Pro Rata
Share of each Borrowing available to the Operations Agent for the account of
the borrowing Fund at the Operations Agent's Payment Office by 10:00 a.m.
(Pacific time) on the Borrowing Date requested by the borrowing Fund in funds
immediately available to the Operations Agent for deposit to the account
which the Operations Agent shall from time to time specify by notice to the
Banks. The proceeds of all such Committed Loans will then be made available
to the Fund by the Operations Agent in accordance with written instructions
provided to the Operations Agent by the Fund in like funds as received by the
Operations Agent. No Bank's obligation to make any Committed Loan shall be
affected by any other Bank's failure to make any Committed Loan.
2.4. VOLUNTARY TERMINATION OR REDUCTION OF COMMITMENTS. The Funds may,
upon not less than five Business Days' prior notice to the Operations Agent,
terminate the Commitments, or permanently reduce the Commitments by an aggregate
minimum amount of $1,000,000 or any multiple of $1,000,000 in excess thereof;
UNLESS, after giving effect thereto and to any prepayments of Loans made on the
effective date thereof, the then-outstanding principal amount of the Loans would
exceed the amount of the Commitment Amount then in effect. Once reduced in
accordance with this Section, the Commitment Amount may not be increased. Any
reduction or termination of the Commitment Amount shall be applied to each Bank
according to its Pro Rata Share. Any reduction of the Commitment Amount shall be
subject to the payment on the effective date of such reduction or termination of
an amount equal to the commitment fee that would have been payable on the amount
of such reduction or termination to the Commitment Termination Date, if such
reduction or termination had not occurred.
2.5. PREPAYMENTS. (a) If at any time the outstanding balance of a
Fund's Indebtedness shall exceed the then-current Borrowing Base of such Fund
and at such time there are Loans outstanding to such Fund, such Fund shall
immediately prepay the outstanding principal amount of such Loans in an amount
equal to such excess, together with interest accrued thereon.
<PAGE>
(b) Any Fund may, at any time or from time to time,
upon notice pursuant to a Repayment Notice by 9:00 a.m. (Pacific time) to the
Operations Agent, ratably prepay Committed Loans in whole or in part, in
minimum amounts of $1,000,000 or any multiple of $1,000,000 in excess thereof
without premium or penalty. The Operations Agent will promptly notify each
Bank of its receipt of any such notice, and of such Bank's Pro Rata Share of
such prepayment. If such notice is given by the Company, the Company shall
make such prepayment and the payment amount specified in such notice shall be
due and payable on the date specified therein.
2.6. REPAYMENT. Each Fund shall repay to the Operations Agent
for the benefit of the Banks on the Commitment Termination Date the aggregate
principal amount of its Loans outstanding on such date without liability for any
Loan(s) made to any other Fund together with accrued interest and fees.
2.7. INTEREST. (a) Each Loan shall bear interest on the
outstanding principal amount thereof from the applicable Borrowing Date at a
rate per annum equal to the Federal Funds Rate PLUS the Applicable Margin.
(b) Interest on each Loan shall be paid on the fifteenth
day of each January, April, July and October for the prior calendar quarter and
on the Commitment Termination Date for the period then ending. During the
existence of any Event of Default, interest shall be paid on demand of the Agent
at the request or with the consent of the Majority Banks.
(c) During the period from the date hereof to and
including February 27, 2000, all interest rates set forth in SECTIONS 2.7(a)
shall be increased by 1.25% per annum.
(d) Notwithstanding subsection (a) or (b) of this Section,
if any amount of principal of or interest on any Loan, or any other amount
payable hereunder or under any other Credit Document, is not paid in full when
due (whether at stated maturity or by acceleration, demand or otherwise), the
Fund which requested such Loan agrees to pay interest on such unpaid principal
or other amount from the date such amount becomes due until the date such amount
is paid in full, and after as well as before any entry of judgment thereon to
the extent permitted by law, payable on demand at a fluctuating rate per annum
equal to the Base Rate plus 2%.
(e) Anything herein to the contrary notwithstanding, the
obligations of any Fund to any Bank hereunder shall be subject to the limitation
that payments of interest shall not be required for any period for which
interest is computed hereunder, to the extent (but only to the extent) that
contracting for or receiving such payment by such Bank would be contrary to the
provisions of any law applicable to such Bank limiting the highest rate of
interest that may be lawfully contracted for, charged or received by such Bank,
and in such event the Fund shall pay such Bank interest at the highest rate
permitted by applicable law.
<PAGE>
2.8. FEES. (a) ARRANGEMENT, AGENCY FEES. Subject to the
Allocation Notice requirements of SECTION 2.13(a), each Fund shall pay fees to
the Agents for their own accounts, as required by the letter agreement ("FEE
LETTER") among the Company, and the Agents, dated December 30, 1999.
(b) COMMITMENT FEES. Subject to the Allocation Notice
requirements of SECTION 2.13(a), each Fund shall pay to the Operations Agent for
the account of each Bank a commitment fee on the average daily unused portion of
such Bank's Commitments, computed on a quarterly basis in arrears on the last
Business Day of each calendar quarter based upon the daily utilization for that
quarter as calculated by the Operations Agent, equal to 0.10% per annum;
provided, however, that Swing Loans shall not be deemed usage for the purpose of
calculating the Commitment Fee. Such commitment fee shall accrue from the date
of this Agreement to the Commitment Termination Date and shall be due and
payable quarterly on the fifteenth day of each January, April, July and October
commencing April 15, 2000 for the prior calendar quarter, with the final payment
to be made on the Commitment Termination Date. The commitment fees provided in
this subsection shall accrue at all times after the above-mentioned commencement
date, including at any time during which one or more conditions in ARTICLE IV
are not met.
2.9. COMPUTATION OF FEES AND INTEREST. (a) All computations of
fees and interest shall be made on the basis of a 360-day year and actual days
elapsed (which results in more interest being paid than if computed on the basis
of a 365- or 366-day year). Interest and fees shall accrue during each period
during which interest or such fees are computed from the first day thereof to
the last day thereof.
(b) Each determination of an interest rate by the Agent
shall be conclusive and binding on the relevant Fund and the Banks in the
absence of manifest error. The Operations Agent will, at the request of a
relevant Fund or any Bank, deliver to such Fund or Bank, as the case may be, a
statement showing the quotations used by the Operations Agent in determining any
interest rate and the resulting interest rate.
2.10. PAYMENTS. (a) All payments to be made by a Fund shall be
made without set-off, recoupment or counterclaim. Except as otherwise expressly
provided herein, all such payments shall be made to the Operations Agent for the
account of the Banks at the Operations Agent's Payment Office and shall be made
in Dollars and in immediately available funds no later than 10:00 a.m. (Pacific
time) on the date specified herein. The Operations Agent will promptly
distribute to each Bank its Pro Rata Share (or other applicable share as
expressly provided herein) of such payment in like funds as received. Any
payment received by the Operations Agent later than 10:00 a.m. (Pacific time)
shall be deemed to have been received on the following Business Day, and any
applicable interest or fee shall continue to accrue.
<PAGE>
(b) Whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Operations Agent receives notice from a
Fund prior to the date on which any payment is due to the Banks that such Fund
will not make such payment in full as and when required, the Operations Agent
may assume that the Fund has made such payment in full to the Operations Agent
on such date in immediately available funds, and the Operations Agent may (but
shall not be so required), in reliance upon such assumption, distribute to each
Bank on such due date an amount equal to the amount then due such Bank. If and
to the extent the Fund has not made such payment in full to the Operations
Agent, each Bank shall repay to the Operations Agent on demand such amount
distributed to such Bank, together with interest thereon at the Federal Funds
Rate for each day from the date such amount is distributed to such Bank until
the date repaid.
2.11. PAYMENTS BY THE BANKS TO THE OPERATIONS AGENT. (a) Unless
the Operations Agent receives notice from a Bank on or prior to the Closing Date
or, with respect to any Borrowing after the Closing Date, at least one Business
Day prior to the date of such Borrowing, that such Bank will not make available
as and when required hereunder to the Operations Agent for the account of the
relevant Fund the amount of that Bank's Pro Rata Share of the Borrowing, the
Operations Agent may assume that each Bank has made such amount available to the
Operations Agent in immediately available funds on the Borrowing Date and the
Operations Agent may (but shall not be so required), in reliance upon such
assumption, make available to the Fund on such date a corresponding amount. If
and to the extent any Bank shall not have made its full amount available to the
Operations Agent in immediately available funds and the Operations Agent in such
circumstances has made available to the relevant Fund such amount, that Bank
shall on the Business Day following such Borrowing Date make such amount
available to the Operations Agent, together with interest at the Federal Funds
Rate for each day during such period. A notice of the Operations Agent submitted
to any Bank with respect to amounts owing under this subsection (a) shall be
conclusive, absent manifest error. If such amount is so made available, such
payment to the Operations Agent shall constitute such Bank's Committed Loan on
the date of Borrowing for all purposes of this Agreement. If such amount is not
made available to the Operations Agent on the Business Day following the
Borrowing Date, the Operations Agent will notify the Fund of such failure to
fund, and upon demand by the Operations Agent, the relevant Fund shall pay such
amount to the Operations Agent for the Operations Agent's account, together with
interest thereon for each day elapsed since the date of such Borrowing, at a
rate per annum equal to the interest rate applicable at the time to the Loans
comprising such Borrowing.
(b) The failure of any Bank to make any Committed Loan on
any Borrowing Date shall not relieve any other Bank of any obligation hereunder
to make a Committed Loan on such Borrowing Date, but no Bank shall be
responsible for the
<PAGE>
failure of any other Bank to make the Committed Loan to be made by such other
Bank on any Borrowing Date.
2.12. SHARING OF PAYMENTS, ETC. If, other than as expressly
provided elsewhere herein, any Bank shall obtain on account of the Committed
Loans made by it any payment (whether voluntary, involuntary, through the
exercise of any right of set-off or otherwise) in excess of its Pro Rata Share,
such Bank shall immediately (a) notify the Operations Agent of such fact and (b)
purchase from the other Banks such participations in the Committed Loans made by
them as shall be necessary to cause such purchasing Bank to share the excess
payment pro rata with each of them; PROVIDED, HOWEVER, that if all or any
portion of such excess payment is thereafter recovered from the purchasing Bank,
such purchase shall to that extent be rescinded and each other Bank shall repay
to the purchasing Bank the purchase price paid therefor, together with an amount
equal to such paying Bank's ratable share (according to the proportion of (i)
the amount of such paying Bank's required repayment to the purchasing Bank to
(ii) the total amount so recovered from the purchasing Bank) of any interest or
other amount paid or payable by the purchasing Bank in respect of the total
amount so recovered. Each Fund agrees that any Bank so purchasing a
participation from another Bank may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off with respect
to such participation) as fully as if such Bank were the direct creditor of the
relevant Fund in the amount of such participation. The Operations Agent will
keep records (which shall be conclusive and binding in the absence of manifest
error) of participations purchased under this Section and will in each case
notify the Banks following any such purchases or repayments.
2.13. SOURCE OF REPAYMENT. (a) Notwithstanding any other
provision of this Agreement, the parties agree that the assets and liabilities
of each Fund are separate and distinct from the assets and liabilities of each
other Fund and that no Fund shall be liable or shall be charged for any debt,
obligation, liability, fee or expense arising under this Agreement, the Notes or
out of or in connection with any transaction other than one entered into by or
on behalf of itself. The Funds shall (i) as provided in SECTION 4.1(F), (ii) to
the extent feasible, at least five Business Days in advance of a date on which a
payment in respect of a debt, obligation, liability, fee or expense arising
hereunder (other than principal of or interest on a Loan) shall be due and
payable and (iii) upon request of the Administrative Agent, cause to be provided
to the Administrative Agent an Allocation Notice; PROVIDED, HOWEVER, should the
Funds fail to deliver to the Administrative Agent an Allocation Notice with
respect to such amounts within five Business Days following a request for the
same by the Administrative Agent, the Funds shall be liable therefor to the
Administrative Agent and/or the Banks in the proportion set forth in the
Allocation Notice most recently delivered to the Administrative Agent.
(b) Nothing in this SECTION 2.13 shall affect the Banks'
rights against Company Persons as provided in SECTION 1.5.
2.14. SWING LOAN FACILITY. Subject to the terms and conditions
set forth in this Agreement, during the period from the date hereof to but not
including the
<PAGE>
Commitment Termination Date, the Swing Lender agrees to make available to each
Fund a loan facility (the "Swing Loan Facility") under which the Swing Lender
may from time to time in its sole discretion make loans (the "Swing Loans") on
any Business Day to the Funds, as may be requested by the Funds in accordance
with SECTION 2.17 hereof. At no time shall (i) the aggregate outstanding
principal amount of all Swing Loans made to the Funds hereunder exceed the Swing
Loan Facility Amount, (ii) the aggregate amount of all Committed Loans and Swing
Loans exceed the Commitment Amount, (iii) the aggregate amount of Committed
Loans and Swing Loans to any Fund exceed such Fund's Borrowing Base or (iv) the
Loans made by any Bank exceed its Commitment. Within the limits of the
provisions of this Article II, each Fund may borrow, prepay pursuant to SECTION
2.15 and reborrow under this SECTION 2.14. Swing Loans shall bear interest at
the same rate applicable to the Committed Loans.
2.15. REPAYMENT OF SWING LOANS. Notwithstanding any other
provision of this Agreement, the principal amount of each Swing Loan to a Fund
shall be repaid by such Fund upon the earlier to occur of (i) seven (7) Business
Days after the date such Swing Loan is made, or (ii) the Commitment Termination
Date. Any Fund may repay the Swing Loans on any Business Day in whole or in a
minimum aggregate amount of $1,000,000 or an integral multiple of $1,000,000 in
excess thereof upon delivery of a Repayment Notice prior to 9:00 a.m. (Pacific
time) on such Business Day.
2.16. DISCRETIONARY FACILITY. The Funds acknowledge and agree
that the Swing Lender has no obligation to make Swing Loans hereunder, and that
the decision whether or not to make a Swing Loan requested by a Fund hereunder
is within the sole and exclusive discretion of the Swing Lender.
2.17. NOTICE OF SWING LOAN. Not later than 12:00 p.m., Pacific
time, on the Business Day on which a proposed Swing Loan is to be made, the
Swing Lender must have received a Loan Request by facsimile that a Swing Loan be
made on that Business Day, stating that such Loan shall be a Swing Line Loan,
and specifying the amount of the requested Swing Line Loan.
2.18. FAILURE TO REPAY SWING LOANS. (i) If the outstanding
principal amount of any Swing Loan is not repaid when due pursuant to the terms
of this Agreement, each Bank (other than the Swing Lender) irrevocably agrees
that it will, upon receipt of a notice from the Swing Lender, promptly transfer
to the Swing Lender, in immediately available funds, an amount equal to such
Bank's Pro Rata Share of the then aggregate outstanding principal amount of all
Swing Loans, and thereafter such Lender's Pro Rata Share of such Loans shall
constitute a Committed Loan made by such Lender hereunder.
(ii) If for any reason a Committed Loan cannot be made pursuant
to the preceding clause (i) upon the occurrence of any Event of Default, the
Swing Lender shall have the option, which shall be exercisable by the Swing
Lender in its sole discretion, to sell and transfer to each Bank, pursuant to
the terms and conditions set forth herein, an undivided interest and
participation, to the extent of such Bank's Pro Rata Share, in all outstanding
Swing Loans. Forthwith upon notice from the Swing Lender to the Banks
<PAGE>
that the Swing Lender has elected to exercise the option set forth in the
immediately preceding sentence, the Swing Lender shall be deemed irrevocably and
unconditionally to have sold and transferred to each Bank without recourse and
each Bank shall have deemed to have irrevocably and unconditionally purchased
and received, an undivided interest and participation, to the extent of such
Bank's Pro Rata Share, in all outstanding Swing Loans. Each Bank shall promptly
pay to the Swing Lender in immediately available funds an amount equal to such
Bank's Pro Rata Share of the outstanding principal amount of such Swing Loans.
Any amount payable to the Swing Lender pursuant to this SECTION 2.18(II) and not
paid upon notice of such payment received from the Swing Lender shall bear
interest until paid at the Base Rate. If the Lenders make any payment in respect
of Swing Loans as contemplated by this SECTION 2.18(II) and thereafter the Swing
Lender receives a payment on account of any such Swing Loan, the Swing Lender
shall promptly pay to each Bank, which funded its participation therein, an
amount equal to such Bank's Pro Rata Share thereof. The obligation of each Bank
to make payments under this SECTION 2.18(II) shall be unconditional and
irrevocable and shall be made under all circumstances. If any payment received
on account of any Swing Loan and distributed to a Bank as a participant under
this SECTION 2.18(II) is thereafter recovered from the Swing Lender in
connection with any bankruptcy or insolvency proceeding relating to the
applicable Fund or otherwise, each Bank which received such distribution shall,
upon demand by the Swing Lender, repay to the Swing Lender such Bank's Pro Rata
Share of the amount so recovered together with an amount equal to such Bank's
Pro Rata Share (according to the proportion of (A) the total of such Lender's
required repayment to (B) the total amount so recovered) of any interest or
other amount paid or payable by the Swing Lender in respect of the total amount
so recovered.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.1. TAXES. (a) Any and all payments by a Fund to each Bank or
the Operations Agent under this Agreement and any other Credit Document shall be
made free and clear of, and without deduction or withholding for, any Taxes. In
addition, each Fund shall pay all Other Taxes.
(b) Each Fund agrees to indemnify and hold harmless each
Bank and the Operations Agent for the full amount of Taxes or Other Taxes in
connection with a payment by it (including any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable by it under this Section) paid by the Bank
or the Operations Agent and any liability (including penalties, interest,
additions to tax and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Payment under this indemnification shall be made within 30 days after the date
the Bank or the Operations Agent makes written demand therefor.
<PAGE>
(c) If a Fund shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to any Bank or the Operations Agent, then:
(i) the sum payable shall be increased as necessary
so that after making all required deductions and withholdings
(including deductions and withholdings applicable to additional sums
payable under this Section), such Bank or the Operations Agent, as the
case may be, receives an amount equal to the sum it would have received
had no such deductions or withholdings been made;
(ii) the Fund shall make such deductions and
withholdings;
(iii) the Fund shall pay the full amount deducted
or withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) the Fund shall also pay to the Operations
Agent for the account of such Bank, at the time interest is paid, all
additional amounts which the respective Bank specifies as necessary to
preserve the after-tax yield the Bank would have received if such Taxes
or Other Taxes had not been imposed but without duplication as to
clause (i).
(d) Within 30 days after the date of any payment by a
Fund of Taxes or Other Taxes, the Fund shall furnish the Operations Agent the
original or a certified copy of a receipt evidencing payment thereof or other
evidence of payment satisfactory to the Operations Agent.
(e) If a Fund is required to pay additional amounts to any
Bank or the Operations Agent pursuant to subsection (c) of this Section, then
such Bank shall use reasonable efforts (consistent with legal and regulatory
restrictions) to change the jurisdiction of its Lending Office so as to
eliminate any such additional payment by the Fund which may thereafter accrue,
if such change in the judgment of such Bank is not otherwise disadvantageous to
such Bank.
<PAGE>
3.2 CAPITAL ADEQUACY REGULATION. If any Bank shall have
determined that (i) the introduction of any Capital Adequacy Regulation, (ii)
any change in any Capital Adequacy Regulation, (iii) any change in the
interpretation or administration of any Capital Adequacy Regulation by any
central bank or other Governmental Authority charged with the interpretation or
administration thereof or (iv) compliance by the Bank (or its Lending Office) or
any corporation controlling the Bank with any Capital Adequacy Regulation
affects or would affect the amount of capital required or expected to be
maintained by the Bank or any corporation controlling the Bank and (taking into
consideration such Bank's or such corporation's policies with respect to capital
adequacy and such Bank's desired return on capital) determines that the amount
of such capital is increased as a consequence of its Commitment, Loans, credits
or other obligations under this Agreement, then, upon demand of such Bank to the
affected Fund through the Operations Agent, the affected Fund shall pay to the
Bank, from time to time as specified by the Bank, additional amounts sufficient
to compensate the Bank for such increase. If all the Funds are so affected, the
payments by the Funds shall be subject to the Allocation Notice requirements
under SECTION 2.13(A).
3.3. CERTIFICATES OF BANKS. Any Bank claiming reimbursement or
compensation under this ARTICLE III shall deliver to the affected Fund (with a
copy to the Operations Agent) a certificate setting forth in reasonable detail
the amount payable to the Bank hereunder, and such certificate shall be
conclusive and binding on such Fund in the absence of manifest error.
3.4. SUBSTITUTION OF BANKS. Upon the receipt by a Fund from any
Bank (an "AFFECTED BANK") of a claim for compensation under SECTION 3.2, such
Fund may: (i) request the Affected Bank to use its best efforts to obtain a
replacement bank or financial institution satisfactory to such Fund to acquire
and assume all or a ratable part of all of such Affected Bank's Loans and
Commitment (a "REPLACEMENT BANK"); (ii) request one or more of the other Banks
to acquire and assume all or part of such Affected Bank's Loans and Commitment
(it being understood that no such other Bank shall be in any way required to
effect any such acquisition and assumption); (iii) designate a Replacement Bank
or (iv) upon three Business Days' notice to the Agent, repay all Loans and other
amounts due to such Bank, terminate the Commitment of such Bank and reduce the
Commitment Amount by the amount of such Bank's Commitment. Any such designation
of a Replacement Bank under clause (i) or (iii) shall be subject to the prior
written consent of the Agents (which consent shall not be unreasonably withheld)
and payment in full of all amounts due and owing hereunder to the Affected Bank.
3.5. SURVIVAL. The agreements and obligations of the Funds in
this ARTICLE III shall survive the payment of all other Obligations.
<PAGE>
ARTICLE IV
CONDITIONS TO BORROWING
4.1. CONDITIONS OF INITIAL LOAN. This Agreement shall take
effect from the first day that the Administrative Agent shall have received
counterparts hereof signed by the Company on behalf of each of the Funds, the
Administrative Agent and the Banks, and each of the conditions set forth in this
SECTION 4.1 has been waived by the Administrative Agent and each Bank or met.
(a) The Agents shall have received from the Company a
certificate, dated the date hereof, of its Secretary or Assistant Secretary
as to
(i) resolutions of its board of trustees then in full
force and effect authorizing the execution, delivery and performance of
this Agreement, the Notes and each other Credit Document to be executed
by it;
(ii) the incumbency and signatures of those of its
officers or agents authorized to act with respect to this Agreement,
the Notes and each other Credit Document executed by it;
(iii) the Company's valid existence as evidenced by a
certificate issued by the secretary of state and appended to the state
of its relevant certificate of its Secretary or Assistant Secretary;
and
(iv) the fact that the agreements delivered by the Funds
pursuant to SECTION 4.1(D) constitute all such agreements between the
Funds and the Adviser;
upon which certificates the Administrative Agent and each Bank may conclusively
rely until they shall have received a further certificate from the Company
cancelling or amending such prior certificate.
(b) The Administrative Agent shall have received an
opinion, dated the date hereof and addressed to the Agents and all Banks, from
Stradley Ronon Stevens & Young, L.L.P., counsel to the Funds, substantially in
the form of EXHIBIT 4.1(B)-1, which the Company hereby expressly authorizes and
instructs such counsel to prepare and deliver.
(c) The Administrative Agent shall have received evidence
of payment of all accrued and unpaid fees, costs and expenses to the extent then
due and payable on the Closing Date, together with Attorney Costs of the
Administrative Agent to the extent invoiced prior to or on the Closing Date,
plus such additional amounts of Attorney Costs as shall constitute the
Administrative Agent's reasonable estimate of Attorney Costs incurred or to be
incurred by it through the closing proceedings (provided that such estimate
shall not thereafter preclude final settling of accounts between the Funds and
the
<PAGE>
Administrative Agent), including any such costs, fees and expenses arising
under or referenced in SECTION 2.8(A) and those then due and payable pursuant to
SECTION 9.4.
(d) The Administrative Agent shall have received copies of
each investment advisory agreement between the Company and the Adviser.
(e) The Agents shall have received an initial Borrowing
Base Certificate for each Fund.
(f) The Administrative Agent shall have received an
initial Allocation Notice.
(g) The Administrative Agent shall have received copies of
the most recent prospectus and statement of additional information for each
Fund.
4.2. ALL BORROWINGS. The obligation of each Bank to fund any Loan on
the occasion of any Borrowing (including the initial Borrowing) or of the Swing
Lender to fund any Swing Loan (including the initial Swing Loan) by a Fund shall
be subject to the satisfaction of each of the conditions precedent set forth in
this SECTION 4.2.
(a) No Default shall have occurred and be continuing with
respect to the borrowing Fund.
(b) The representations and warranties of the borrowing
Fund contained in ARTICLE V (except to the extent such representations and
warranties relate solely to an earlier date, in which case they shall be true
and correct as of such earlier date) shall be true and correct in all material
respects on and as of the date of such Borrowing, both immediately before and
after giving effect to such Borrowing, as if then made.
(c) Except as disclosed by the borrowing Fund to the Agent
and the Banks pursuant to SECTION 5.7, no labor controversy, litigation,
arbitration or governmental investigation or proceeding shall be pending and no
development shall have occurred with respect to such matters, or, to the
knowledge of such Fund, threatened against it, which, in the reasonable opinion
of the Banks, might materially affect the Fund's consolidated business,
operations, assets, revenues, properties or prospects or which purports to
affect the legality, validity or enforceability of this Agreement, the Notes or
any other Credit Document.
(d) The Operations Agent shall have received a Loan
Request for such Borrowing. Each of the delivery of a Loan Request and the
acceptance by the relevant Fund of the proceeds of such Borrowing shall
constitute a representation and warranty by such Fund that on the date of such
Borrowing (both immediately before and after giving effect to such Borrowing and
the application of the proceeds thereof) or continuation or conversion, as the
case may be, the statements made in SECTIONS 4.2(a), (b), (c), and (f) are true
and correct.
<PAGE>
(e) The Operations Agent shall have received with
respect to the borrowing Fund a duly executed FRB Form FR U-1 as required
pursuant to FRB Regulation U (12 C.F.R. Section 221.1 et seq.), in form and
substance satisfactory to the Operations Agent and its counsel, together with
all information requested by the Operations Agent in connection therewith,
including updates of information, if any, required by such Regulation U.
(f) Both before and after the Loan in question, the
borrowing Fund's Asset Coverage Ratio
shall be at least 10 to 1.
Any instrument, agreement or other document to be received by an Agent
pursuant to this ARTICLE IV, and any other condition precedent required to be
met or satisfied under this ARTICLE IV, shall be in form and substance
reasonably satisfactory to each Agent and each Bank and in sufficient copies for
each Bank.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Banks and the Agents to enter into this
Agreement and to make Loans hereunder, each Fund and, to the extent hereinafter
set forth, the Company, represents and warrants individually and not jointly
unto the Agents and each Bank with respect to itself as set forth in this
ARTICLE V. The representations and warranties contained in this ARTICLE V shall
be deemed to be repeated each time that a Fund requests that a Loan be made as
provided in ARTICLE IV.
5.1. EXISTENCE. The Company is an open-end management
investment company within the meaning of the Act and is duly organized, validly
existing and in good standing under the laws of the state of its organization.
Each Fund is a series of shares of beneficial interest in the Company (which
shares have been and will be duly authorized, validly issued, fully paid and
non-assessable) and legally constitutes a fund or portfolio permitted to be
marketed to investors pursuant to the provisions of the Act.
5.2. AUTHORIZATION. The Company is duly authorized to execute
and deliver this Agreement and the Notes of each of the Funds and, so long as
this Agreement shall remain in effect, each Fund will continue to be duly
authorized to borrow monies hereunder on its own behalf and to perform its
obligations under this Agreement and its Notes. The execution, delivery and
performance by the Company and the Funds of this Agreement and the Notes and the
Borrowings of each Fund do not and will not require any consent or approval of
or registration with any governmental agency or authority.
5.3. NO CONFLICTS. The execution, delivery and performance by the
Company and each Fund of this Agreement and the Notes do not and, so long as
this Agreement shall remain in effect with respect to them, will not (i)
conflict with any
<PAGE>
provision of law, (ii) conflict with the Organization Documents of the Company,
(iii) conflict with any material agreement binding upon them, (iv) conflict with
the Fund's most recent prospectus or its most recent statement of additional
information, (v) conflict with any court or administrative order or decree
applicable to them or (vi) require or result in the creation or imposition of
any Lien on any of the Fund's assets.
5.4. VALIDITY AND BINDING EFFECT. This Agreement is, and the
Notes when duly executed and delivered will be, the legal, valid and binding
obligation of each Fund, enforceable against it in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, receivership, fraudulent conveyance, fraudulent transfer,
moratorium or other similar laws of general application affecting the
enforcement of creditors' rights or by general principles of equity limiting the
availability of equitable remedies.
5.5. NO DEFAULT. No Fund is in default under any agreement or
instrument to which it is a party or by which any of its respective properties
or assets is bound or affected, other than minor defaults that could not
reasonably be expected to result in a Material Adverse Change. To the best of
each Fund's knowledge, no Default with respect to it has occurred and is
continuing.
5.6. FINANCIAL STATEMENTS. With respect to each Fund, its most
recent audited statement of assets and liabilities and its most recent
semi-annual asset statement, copies of which have been or will be furnished to
the Banks, have been prepared in conformity with GAAP applied on a basis
consistent with that of the preceding Fiscal Year or period and present fairly
its financial condition as at such dates and the results of its operations for
the periods then ended, subject (in the case of the interim financial statement)
to year-end audit adjustments. Since the date of its most recent statement of
assets and liabilities and such semi-annual asset statement, there has been no
Material Adverse Change.
5.7. LITIGATION. With respect to each Fund, no claims,
litigation, arbitration proceedings or governmental proceedings that could
reasonably be expected to result in a Material Adverse Change are pending or, to
the best of its knowledge, threatened against or are affecting it. Other than
any liability incident to such claims, litigation or proceedings or provided for
or disclosed in the financial statements referred to in SECTION 5.6, it has no
contingent liabilities which are material to it other than those incurred in the
ordinary course of business.
5.8. LIENS. With respect to each Fund, none of its property,
revenues or assets is subject to any Lien, except (i) Liens in favor of the
Banks, if any, (ii) Liens for current Taxes not delinquent or Taxes being
contested in good faith and by appropriate proceedings and as to which such
reserves or other appropriate provisions as may be required by GAAP are being
maintained, (iii) Liens in connection with the payment of initial and variation
margin in connection with authorized futures and options transactions and
collateral arrangements with respect to options, futures contracts, options on
futures contracts, when issued or delayed delivery securities or other
authorized investments, (iv)
<PAGE>
Liens arising under any custodian agreement to which it or the Company is a
party and (v) Liens in connection with reverse repurchase transactions.
5.9. PARTNERSHIPS. With respect to each Fund, it is not a
general partner or joint venturer in any partnership or joint venture.
5.10. PURPOSE. With respect to each Fund, the proceeds of the
Loans will be used by it for temporary liquidity purposes, which purposes are
permitted under the Act and by its prospectus and statement of additional
information. Neither the making of any Loan nor the use of the proceeds thereof
will violate or be inconsistent with the provisions of Federal Reserve Board
Regulations T, U or X. It acknowledges that Loans made to it may be deemed by
the Federal Reserve Board to be "purpose loans" under Regulation U because of
the status of each Fund as an investment company (or the functional equivalent
thereof).
5.11. COMPLIANCE AND GOVERNMENT APPROVALS. Each Fund and the
Company are in compliance with all statutes and governmental rules and
regulations applicable to them, including, without limitation, the Act. No
authorization or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body or other person is required for
the due execution, delivery or performance by the Company and the Funds of this
Agreement, the Notes or any of the other Credit Documents.
5.12. PENSION AND WELFARE PLANS. Neither the Company nor any
Fund has established or maintained, or is liable under, any Plan.
5.13. TAXES. The Company and each Fund has filed all tax returns
that are required to have been filed and has paid, or made adequate provisions
for the payment of, all of its Taxes that are due and payable, except such
Taxes, if any, as are being contested in good faith and by appropriate
proceedings and as to which such reserves or other appropriate provisions as may
be required by GAAP have been maintained. Neither the Company nor any Fund is
aware of any proposed assessment against it for additional Taxes (or any basis
for any such assessment) which might be material in amount to it. The Company
and the Funds have substantially complied with all requirements of the Code
applicable to regulated investment companies so as to be relieved of federal
income tax on net investment income and net capital gains distributed to
shareholders.
5.14. SUBSIDIARIES; INVESTMENTS. Neither the Company nor any
Fund has Subsidiaries or equity investments or any interest in any other Person
other than portfolio securities (including investment company securities) which
may have been acquired in the ordinary course of business.
5.15. FULL DISCLOSURE. No representation or warranty contained
in this Agreement or in any other document or instrument furnished by the
Company or any Fund to the Banks in connection herewith contains any untrue
statement of any material fact as of the date when made or omits to state any
material fact necessary to make the
<PAGE>
statements herein or therein not misleading as of the date when made in light
of the circumstances in which the same were made.
5.16. INVESTMENT POLICIES. Each Fund's assets are being invested
substantially in accordance with the investment policies and restrictions set
forth in each of its most recent prospectus and its most recent statement of
additional information.
5.17. TAX STATUS. The Company has taken all steps reasonably
necessary to maintain its status as a regulated investment company under the
Code with respect to net investment income and net capital gains.
5.18. STATUS OF LOANS. Each Fund's obligation in connection with
the repayment of any Loans made to it hereunder shall at all times constitute
its unconditional Indebtedness and will rank at least PARI PASSU in priority of
payment with all of its other present and future unsecured and unsubordinated
Indebtedness.
ARTICLE VI
COVENANTS
From the date of this Agreement and thereafter until the expiration or
termination of the Commitments and until all Obligations have been paid or
performed in full, each Fund and the Company shall perform the obligations made
applicable to it in this ARTICLE VI.
6.1. FINANCIAL STATEMENTS AND OTHER REPORTS. Each Fund shall
deliver to the Operations Agent, with sufficient copies for each Bank:
(a) As soon as available and in any event within 60 days
after the end of each of its Fiscal Years, a copy of its annual audited
statement of assets and liabilities, including a statement of
investments, prepared in conformity with GAAP and certified by an
independent certified public accountant who, in the commercially
reasonable judgment of the Majority Banks, shall be satisfactory to the
Majority Banks, together with a certificate from such accountant (i)
acknowledging to the Banks such accountant's understanding that the
Banks are relying on such statement of assets and liabilities, (ii)
containing a computation of, and showing compliance with, the financial
ratio contained in SECTION 6.12 and (iii) to the effect that, in making
the examination necessary for the signing of such statement of assets
and liabilities, such accountant has not become aware of any Default
that has occurred and is continuing, or if such accountant has become
aware of any such event, describing it and the steps, if any, being
taken to cure it;
(b) Within 60 days after the end of the first six months
of its Fiscal Year, a copy of its published semi-annual asset
statement, prepared in conformity with GAAP;
<PAGE>
(c) Within 15 days after the end of each calendar quarter
with respect to each Fund to which Loans are outstanding, (i) a
certificate substantially in the form of EXHIBIT 6.1 ("BORROWING BASE
CERTIFICATE") setting forth its borrowing base (as calculated in the
manner contemplated by the form of Borrowing Base Certificate)
("BORROWING BASE") and (ii) a certificate signed by an Authorized
Officer certifying that, to the best of such Person's knowledge, no
Default has occurred and is continuing or, if an Event of Default has
occurred and is continuing, the steps being taken to remedy the same;
(d) (i) Within 15 days following the filing thereof, any
preliminary proxy materials filed with the Securities and Exchange
Commission and (ii) within 15 days after the same become available,
copies of its current prospectus and statement of additional
information (marked to show changes from the prospectus and statement
of additional information most recently delivered to the Banks), EXCEPT
that if its investment policies are changed materially (including any
change in its ability to borrow hereunder), copies of a revised
prospectus (or a prospectus supplement) and statement of additional
information (marked to show changes from the prospectus (or prospectus
supplement) and statement of additional information most recently
delivered to the Banks) reflecting any such changes shall be provided
to the Agent within 15 days after the same become available; and
(e) Promptly from time to time such other reports or
information as any of the Banks may reasonably request.
6.2. NOTICES. Each Fund shall notify the Banks in writing of
any of the following immediately upon learning of the occurrence thereof,
describing the same and, if applicable, stating the steps being taken by the
Person(s) affected with respect thereto:
(a) the occurrence of a Default;
(b) the institution of any litigation, arbitration
proceeding or governmental proceeding which is likely to result in a
Material Adverse Change with respect to such Fund;
(c) the entry of any judgment or decree against it if the
aggregate amount of all judgments and decrees then outstanding against
it exceeds 5% of its Net Asset Value after deducting (i) the amount
with respect to which it is insured and with respect to which the
insurer has assumed responsibility in writing and (ii) the amount for
which it is otherwise indemnified if the terms of such indemnification
and the Person providing such indemnification are satisfactory to the
Majority Banks;
(d) the occurrence of a change of its name (whether of its
legal name or a "d/b/a" designation). The Company, on behalf of each of
the affected Fund(s),
<PAGE>
shall promptly execute and deliver to each Bank a new Note (with
respect to any Loans then evidenced by Notes) for each such Fund
executed in its new name, together with such other documents in
connection therewith as the Banks shall reasonably request; and
(e) any final action having been taken by the board of
trustees of the Company of a change in such Fund's Adviser,
distributor, administrator, custodian, fund accountant or auditor;
PROVIDED that a mailing to shareholders with respect to any of the
foregoing shall not be deemed to be sufficient notice hereunder.
6.3. EXISTENCE. Each Fund, except as specified in SECTION 6.11
(a), shall maintain and preserve its existence as a registered investment
company, within the meaning of the Act, and maintain and preserve all rights,
privileges, licenses, copyrights, trademarks, trade names, franchises and other
authority to the extent material and necessary for the conduct of its business
in the ordinary course, unless any such Fund has no Loans outstanding and has
irrevocably notified the Administrative Agent (which shall thereupon promptly
notify the Banks) that it shall not request any Loans hereunder.
6.4. NATURE OF BUSINESS. Each Fund shall continue in, and limit
its operations to, the business of an open-end management investment company,
within the meaning of the Act, and maintain in full force and effect at all
times all governmental licenses, registrations, permits and approvals necessary
for the continued conduct of its business, including, without limitation, its
registration with the Securities and Exchange Commission under the Act as an
open-end investment company.
6.5. BOOKS, RECORDS AND ACCESS. Each Fund shall maintain
complete and accurate books and records in which full and correct entries in
conformity with GAAP shall be made of all transactions in relation to its
business and activities; upon reasonable notice, the Fund shall permit access by
the Banks to its books and records during normal business hours and permit the
Banks to make copies of such books and records.
6.6. INSURANCE. The Company and each Fund shall maintain in
full force and effect insurance to such extent and against such liabilities as
is commonly maintained by companies similarly situated, including, but not
limited to (i) such fidelity bond coverage as shall be required by Rule 17g-1
promulgated under the Act or any similar or successor provision and (ii) errors
and omissions, director and officer liability and other insurance against such
risks and in such amounts (and with such co-insurance and deductibles) as is
usually carried by other companies of established reputation engaged in the same
or similar businesses and similarly situated and will, upon request of the
Administrative Agent, furnish to the Banks a certificate of an Authorized
Officer setting forth the nature and extent of all insurance maintained by the
Company or such Fund in accordance with this Section.
6.7. INVESTMENT POLICIES AND RESTRICTIONS. No Fund, without
prior written notice to the Administrative Agent of at least two weeks, shall
rescind, amend or modify
<PAGE>
any investment policy described as "fundamental" in any prospectus or any
registration statement(s) that may be on file with the Securities and Exchange
Commission with respect thereto (collectively herein, a "PROPOSED CHANGE"). If,
in the reasonable judgment of the Majority Banks, such proposed change will
result in a change in the Banks' analysis of the creditworthiness of the
affected Fund, the Administrative Agent shall notify the relevant Fund of such
decision; thereafter, if such proposed change is implemented with respect to
such Fund, the Banks may terminate their Commitments to lend to such Fund, and
all Loans outstanding to such Fund shall become immediately due and payable.
(b) Each Fund's investment in any of its assets shall be
made in accordance with its investment policies and restrictions set forth in
its most recent prospectus and statement of additional information.
6.8. TAXES. The Company and each Fund shall pay when due all of
its Taxes, unless and only to the extent that such Taxes are being contested in
good faith and by appropriate proceedings and it shall have set aside on its
books such reserves or other appropriate provisions therefor as may be required
by GAAP. The Company and the Funds shall at all times comply with all
requirements of the Code applicable to regulated investment companies, to such
effect as not to be subject to federal income taxes on net investment income and
net capital gains distributed to its shareholders.
6.9. COMPLIANCE. The Company and each Fund shall comply in all
material respects with all statutes and governmental rules and regulations
applicable to it, including, without limitation, the Act.
6.10. PENSION PLANS. Neither the Company nor any Fund will enter
into, or incur any liability relating to, any Plan without the prior written
consent of the Administrative Agent and the Banks.
6.11. MERGER, PURCHASE AND SALE. Neither the Company nor any
Fund shall:
(a) be a party to any merger or consolidation; PROVIDED,
HOWEVER, that the Company or any Fund can merge or consolidate with any
other Person in accordance with 17 C.F.R. Section 270.17a-8 if (i) such
merger or consolidation complies in all material respects with the
requirements of 17 C.F.R. Section 270.17a-8 and all rules promulgated
in connection therewith, (ii) the surviving entity assumes all of the
obligations to the Banks of the merging or consolidating Company and/or
Funds prior to such merger or consolidation and (iii) in the good faith
judgment of all the Banks the financial condition and investment
policies and restrictions of the surviving entity are not fundamentally
different from those of the merging or consolidating Company and/or
Funds prior to such merger or consolidation;
(b) except as permitted by SECTION 6.11(a) and except for
sales or other dispositions of portfolio securities in the ordinary
course of its business or to meet
<PAGE>
shareholder redemption requests, sell, transfer, convey, lease or
otherwise dispose of all or any part of its assets; PROVIDED, HOWEVER,
that any Fund or the Company can sell substantially all of its assets
to another Person in accordance with 17 C.F.R. Section 270.17a-8 if
(i) such sale complies in all material respects with the requirements
of 17 C.F.R. Section 270.17a-8 and all rules promulgated in connection
therewith, (ii) the purchasing entity assumes all obligations to the
Banks of the selling Fund prior to such sale and (iii) in the good
faith judgment of all the Banks, the financial condition and
investment policies and restrictions of the purchasing entity are not
fundamentally different from those of the selling Fund prior the to
asset sale; or
(c) except as permitted by SECTION 6.11(a), purchase or
otherwise acquire all or substantially all the assets of any Person
without the review and consent thereto of all the Banks, which consent
shall not be unreasonably withheld.
6.12. ASSET COVERAGE RATIO. Each Fund shall not at any time
permit its Asset Coverage Ratio to be less than 10 to 1 or such other more
restrictive ratio as may be set forth in any prospectus with respect to such
Fund. In calculating the ratio set forth in this SECTION 6.12, a Fund may not
treat as an asset Indebtedness owing to such Fund by any investment company
advised by the Adviser unless the Asset Coverage Ratio of such investment
company is at least 10 to 1.
6.13. LIENS. No Fund shall create or permit to exist any Lien
with respect to any property, revenues or assets now owned or hereafter acquired
by it, except (i) Liens in favor of the Banks, if any, (ii) Liens for current
Taxes not delinquent or Taxes being contested in good faith and by appropriate
proceedings and as to which such reserves or other appropriate provisions as may
be required by GAAP are being maintained, (iii) Liens incurred in the ordinary
course of business in connection with authorized futures and options
transactions and collateral arrangements with respect to options, futures
contracts, options on futures contracts, when issued or delayed delivery
securities or other authorized investments, (iv) Liens arising under any
custodian agreement to which the Company is a party and (v) Liens in connection
with reverse repurchase agreements; PROVIDED, HOWEVER, the value of any of its
assets subject to a Lien shall be excluded from calculation of its Borrowing
Base.
6.14. GUARANTIES. No Fund shall become or be a guarantor or
surety of, or otherwise become or be responsible in any manner (whether by
agreement to purchase any obligations, stock, assets, goods or services, or to
supply or advance any funds, assets, goods or services, or otherwise) with
respect to, any undertaking of any other Person, except for the endorsement, in
the ordinary course of collection, of instruments payable to it or its order.
6.15. OTHER AGREEMENTS. Neither the Company nor any Fund shall enter
into any agreement containing any provision that would be violated or breached
by
<PAGE>
performance of its obligations hereunder or under any instrument or document
delivered or to be delivered by it hereunder or in connection herewith.
6.16. TRANSACTIONS WITH RELATED PARTIES. No Fund shall enter
into or be a party to any transaction or arrangement, including, without
limitation, the purchase, sale, loan, lease or exchange of property or the
rendering of any service, with any Related Party, except in the ordinary course
of and pursuant to the reasonable requirements of its business and upon fair and
reasonable terms no less favorable to it than would be obtainable in a
comparable arm's-length transaction with a Person not a Related Party, PROVIDED
that any such transaction must be made in substantial compliance with Section 17
of the Act or an exemption therefrom.
6.17. OTHER INDEBTEDNESS. No Fund shall incur or permit to exist
any Indebtedness, other than (i) the Loans; (ii) Indebtedness owing to its
custodian that will not exceed 10% of its then-current Net Asset Value; and
(iii) reverse repurchase transactions in an amount not exceeding that permitted
by the Fund's investment policies and restrictions.
6.18. CHANGES TO ORGANIZATION DOCUMENTS, ETC. Neither the
Company nor any Fund shall make or permit to be made any material changes to its
Organization Documents without the prior written consent of the Majority Banks.
6.19. VIOLATION OF INVESTMENT RESTRICTIONS, ETC. No Fund shall
violate or take any action which would result in a violation of any of the
investment restrictions or fundamental investment policies of such Fund as from
time to time in effect.
6.20. PROCEEDS OF LOANS. Each Fund shall utilize the proceeds of
each Loan made to it to provide temporary liquidity funding allowed under the
Act. None of the proceeds of any Loan shall be used directly for the purpose,
whether immediate, incidental or ultimate, of acquiring any "margin stock"
within the meaning of Regulation U.
6.21. SERVICE PROVIDERS TO FUNDS. No Fund shall change its
auditor except to another "Big 5" accounting firm unless the Majority Banks
provide their prior written consent to such change, which consent shall not be
withheld by the Majority Banks unless, based upon their reasonable judgment, the
Majority Banks in good faith conclude that such change will result in a change
in the creditworthiness of such Fund.
<PAGE>
6.22. OUTSTANDING LOANS. No Fund shall have Loans outstanding
for a period in excess of 30 consecutive days.
ARTICLE VII
EVENTS OF DEFAULT
7.1. EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default with respect to a Fund under this Agreement (it being
understood that an Event of Default with respect to a Fund shall not constitute
an Event of Default with respect to any other Fund):
(a) Default in payment by a Fund (i) when and as
required to be paid herein of any amount of principal of any Loan or
(ii) within five days after the same becomes due of any interest, fee
or any other amount payable hereunder or under any other Credit
Document.
(b) Default by a Fund in the payment when due,
whether by acceleration or otherwise (subject to any applicable grace
period), of any Indebtedness of, or guaranteed by, such Fund in excess
of 5% of such Fund's then-current Net Asset Value.
(c) Any event or condition shall occur that results
in the acceleration of the maturity of any Indebtedness of, or
guaranteed by, a Fund or enables the holder or holders of such other
Indebtedness or any trustee or agent for such holders (any required
notice of default having been given and any applicable grace period
having expired) to accelerate the maturity of such other Indebtedness
in excess of 5% of such Fund's then-current total Net Asset Value.
(d) Default by a Fund in the payment when due,
whether by acceleration or otherwise, or in the performance or
observance (subject to applicable grace periods, if any, having
expired) of (i) any obligation or agreement of such Fund to or with a
Bank (other than any obligation or agreement of such Fund hereunder or
under such Fund's Notes) or (ii) any material obligation or agreement
of such Fund to or with any other Person, except only to the extent
that the existence of any such default is being contested by such Fund
in good faith and by appropriate proceedings and such Fund shall have
set aside on its books such reserves or other appropriate provisions
therefor as may be required by GAAP, PROVIDED that the amount of such
obligation arising from any default is in excess of 5% of such Fund's
then-current total Net Asset Value.
(e) A Fund (i) ceases or fails to be solvent, or
generally fails to pay, or admits in writing its inability to pay, its
debts as they become due, subject to applicable grace periods, if any,
whether at stated maturity or otherwise; (ii) voluntarily ceases to
conduct its business in the ordinary course; (iii) commences
<PAGE>
any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing.
(f) (i) Any involuntary Insolvency Proceeding is
commenced or filed against a Fund, or any writ, judgment, warrant of
attachment, execution or similar process is issued or levied against a
substantial part of its assets, and any such proceeding or petition
shall not be dismissed, or such writ, judgment, warrant of attachment,
execution or similar process shall not be released, vacated or fully
bonded within 60 days after commencement, filing or levy; (ii) a Fund
admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief (or similar order under
non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) it
acquiesces in the appointment of a receiver, trustee, custodian,
conservator, liquidator, mortgagee in possession (or agent therefor) or
other similar Person for itself or a substantial portion of its
property or business.
(g) A Fund shall default in the performance of its
agreement under SECTION 6.4, 6.7, 6.11 or 6.12.
(h) A Fund shall default in the performance of its
other agreements herein set forth (and not constituting an Event of
Default under any of the other subsections of this SECTION 7.1), and
such default shall continue for 30 days (or three Business Days in the
case of the agreement contained in the last sentence of the definition
of "Total Assets") after notice thereof to such Fund from the Agent.
(i) Any representation or warranty made by a Fund
herein, or in any schedule, statement, report, notice, certificate or
other writing furnished by it on or as of the date as of which the
facts set forth therein are stated or certified, is untrue or
misleading in any material respect when made or deemed made or any
certification made or deemed made by it to the Banks is untrue or
misleading in any material respect on or as of the date made or deemed
made.
(j) There shall be entered against a Fund one or
more judgments or decrees which, when taken together, will exceed 5% of
such Fund's Net Asset Value, excluding those judgments or decrees (i)
that shall have been stayed or discharged less than 30 calendar days
from the entry thereof and (ii) those judgments and decrees for and to
the extent which such Fund is insured and with respect to which the
insurer has assumed responsibility in writing or for and to the extent
which such Fund is otherwise indemnified if the terms of such
indemnification and the Person providing such indemnification are
satisfactory to the Majority Banks.
(k) A Fund shall no longer be in compliance with
all material provisions of the Act after giving effect to all notice,
cure and contest periods thereunder.
<PAGE>
(l) A party other than Frank Russell Investment
Management Company or one of its Affiliates shall become the Adviser of
a Fund, or such Fund is in breach of the covenant set forth in SECTION
6.21.
(m) A Fund shall violate or take any action that
would result in a violation of any of its investment restrictions or
fundamental investment policies as from time to time in effect, except
for violations or the taking of such actions that could not reasonably
be expected to result in a Material Adverse Change.
(n) There occurs a Change in Control of a Fund's
Adviser.
7.2. REMEDIES. If any Event of Default described in SECTION 7.1
shall have occurred and be continuing, the Administrative Agent, upon the
direction of the Majority Lenders, shall declare the Commitments to be
terminated with respect to the applicable Fund and such Fund's obligations under
its Notes to be due and payable, whereupon such Commitments shall immediately
terminate with respect to such Fund and such Fund's Notes shall become
immediately due and payable, all without advance notice of any kind (except that
if an event described in SECTION 7.1(e) or SECTION 7.1(f) occurs, the
Commitments shall immediately terminate with respect to such Fund and the
obligations under the Notes with respect to such Fund shall become immediately
due and payable without declaration or advance notice of any kind). The
Administrative Agent shall promptly advise such Fund of any such declaration,
but failure to do so shall not impair the effect of such declaration. If an
Event of Default shall have occurred, the Administrative Agent may exercise on
behalf of itself and the Banks all rights and remedies available to it and the
Banks against such Fund under the Credit Documents or applicable law.
ARTICLE VIII
THE AGENTS
8.1. APPOINTMENT AND AUTHORIZATION. Each Bank hereby
irrevocably (subject to SECTION 8.9) appoints, designates and authorizes each
Agent to take such action on its behalf under the provisions of this Agreement
and each other Credit Document and to exercise such powers and perform such
duties as are expressly delegated to it by the terms of this Agreement or any
other Credit Document, together with such powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary contained elsewhere in
this Agreement or in any other Credit Document, neither Agent shall have any
duties or responsibilities, except those expressly set forth herein, nor shall
either Agent have or be deemed to have any fiduciary relationship with any Bank,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Credit Document or
otherwise exist against either Agent.
<PAGE>
8.2. DELEGATION OF DUTIES. Each Agent may execute any of its
duties under this Agreement or any other Credit Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. Each Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
8.3. LIABILITY OF AGENTS. None of the Agent-Related Persons
shall (i) be liable for any action taken or omitted to be taken by any of them
under or in connection with this Agreement or any other Credit Document or the
transactions contemplated hereby (except for such Person's own gross negligence
or willful misconduct) or (ii) be responsible in any manner to any of the Banks
for any recital, statement, representation or warranty made by the Company or a
Fund or any officer or agent thereof contained in this Agreement or in any other
Credit Document, or in any certificate, report, statement or other document
referred to or provided for in, or received by either Agent under or in
connection with, this Agreement or any other Credit Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Credit Document, or for any failure of the Company or a Fund or any
other party to any Credit Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Bank to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in or conditions of this Agreement or any other Credit
Document or to inspect the properties, books or records of the Company or a
Fund.
8.4. RELIANCE BY AGENTs. (a) Each Agent shall be entitled to
rely, and shall be fully protected in relying, upon any writing, resolution,
notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or
telephone message, statement, or other document or conversation believed by it
to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including
counsel to the Funds), independent accountants and other experts selected by
such Agent. Each Agent shall be fully justified in failing or refusing to take
any action under this Agreement or any other Credit Document unless it shall
first receive such advice or concurrence of the Majority Banks as it deems
appropriate, and if it so requests, it shall first be indemnified to its
satisfaction by the Banks against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action. Each
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement or any other Credit Document in accordance with a
request or consent of the Majority Banks and such request, and any action taken
or failure to act pursuant thereto shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the
conditions specified in SECTION 4.1, each Bank that has executed this Agreement
shall be deemed to have consented to, approved or accepted, or be satisfied with
each document or other matter either sent by either Agent to such Bank for
consent, approval, acceptance or satisfaction, or required thereunder to be
consented to, approved by, acceptable or satisfactory to the Bank.
<PAGE>
8.5. NOTICE OF DEFAULT. Neither Agent shall be deemed to have
knowledge or notice of the occurrence of any Default, except with respect to
defaults in the payment of principal, interest and fees required to be paid to
such Agent for the account of the Banks, unless such Agent shall have received
written notice from a Bank or a Fund referring to this Agreement, describing
such Default and stating that such notice is a "notice of default". Such Agent
will notify the Banks of its receipt of any such notice. Such Agent shall take
such action with respect to such Default as may be requested by the Majority
Banks in accordance with ARTICLE VII; PROVIDED, HOWEVER, that unless and until
such Agent has received any such request, such Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable or in the best interest of the Banks.
8.6. CREDIT DECISION. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it and that no
act by either Agent hereinafter taken, including any review of the affairs of
the Funds, shall be deemed to constitute any representation or warranty by any
Agent-Related Person to any Bank. Each Bank represents to the Agents that it
has, independently and without reliance upon any Agent-Related Person and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, prospects, operations,
property, financial and other condition, and creditworthiness of the Funds, and
all applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Funds hereunder. Each Bank also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Credit Documents and to
make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition, and
creditworthiness of the Funds. Except for notices, reports and other documents
expressly herein required to be furnished to the Banks by either Agent, such
Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the business, prospects, operations,
property, financial and other condition, or creditworthiness of the Funds which
may come into the possession of any of the Agent-Related Persons.
8.7. INDEMNIFICATION OF AGENTS. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the Funds
and without limiting the obligation of the Funds to do so), pro rata, from and
against any and all Indemnified Liabilities; PROVIDED, HOWEVER, that no Bank
shall be liable for the payment to the Agent-Related Persons of any portion of
such Indemnified Liabilities resulting solely from such Person's gross
negligence or willful misconduct. Without limitation of the foregoing, each Bank
shall reimburse each Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including Attorney Costs) incurred by such Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
<PAGE>
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Credit Document, or any
document contemplated by or referred to herein, to the extent that such Agent is
not reimbursed for such expenses by or on behalf of the Funds. The undertaking
in this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of either Agent.
8.8. AGENTS IN INDIVIDUAL CAPACITY. BofA, State Street and
their respective Affiliates may make loans to, issue letters of credit for the
account of, accept deposits from, acquire equity interests in and generally
engage in any kind of banking, trust, financial advisory, underwriting or other
business with the Funds and their Affiliates as though neither BofA nor State
Street were an Agent hereunder and without notice to or consent of the Banks.
The Banks acknowledge that, pursuant to such activities, BofA, State Street or
their respective Affiliates may receive information regarding the Funds or their
Affiliates (including information that may be subject to confidentiality
obligations in favor of the Funds) and acknowledge that neither Agent shall be
under any obligation to provide such information to them. With respect to its
Loans, BofA and State Street shall have the same rights and powers under this
Agreement as any other Bank and may exercise the same as though it were not an
Agent, and the terms "Bank" and "Banks" include BofA and State Street in its
individual capacities.
8.9. SUCCESSOR AGENT. Either Agent may, and at the request of
the Majority Banks shall, resign as an Agent upon 30 days' notice to the Banks,
the Company and each Fund. If an Agent resigns under this Agreement, the
Majority Banks shall appoint from among the Banks a successor agent for the
Banks, which successor agent shall be subject to approval by the Funds. If no
successor agent is appointed prior to the effective date of the resignation of
an Agent, such Agent may appoint, after consulting with the Banks and the Funds,
a successor agent from among the Banks. Upon the acceptance of its appointment
as successor agent hereunder, such successor agent shall succeed to all the
rights, powers and duties of the retiring Agent and the term "Agent" shall mean
such successor agent, and the retiring Agent's appointment, powers and duties as
Agent shall be terminated. After any retiring Agent's resignation hereunder as
Agent, the provisions of this ARTICLE VIII and SECTIONS 9.4 and 9.5 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement. If no successor agent has accepted appointment as
Agent by the date which is 30 days following a retiring Agent's notice of
resignation, the retiring Agent's resignation shall nevertheless thereupon
become effective, and the Banks shall perform all of the duties of the Agent
hereunder until such time, if any, as the Majority Banks appoint a successor
agent as provided for above.
8.10. WITHHOLDING TAX. If any Bank is a "foreign corporation,
partnership or trust" within the meaning of the Code and such Bank claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the Code, such Bank agrees with and in favor of the Operations Agent to
deliver to the Operations Agent:
(i) if such Bank claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty,
properly completed IRS Forms
<PAGE>
1001 and W-8 before the payment of any interest in the first calendar
year and before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this Agreement;
(ii) if such Bank claims that interest paid under
this Agreement is exempt from United States withholding tax because it
is effectively connected with a United States trade or business of such
Bank, two properly completed and executed copies of IRS Form 4224
before the payment of any interest is due in the first taxable year of
such Bank and in each succeeding taxable year of such Bank during which
interest may be paid under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required
under the Code or other laws of the United States as a condition to
exemption from, or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Operations Agent of any change in
circumstances that would modify or render invalid any claimed exemption or
reduction.
(b) If any Bank claims exemption from or reduction of
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Bank sells, assigns, grants a participation in, or otherwise transfers all
or part of the Obligations of a Fund to such Bank, such Bank agrees to notify
the Operations Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of such Fund to such Bank. To the extent of such
percentage amount, the Operations Agent will treat such Bank's IRS Form 1001 as
no longer valid.
(c) If any Bank claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Operations Agent sells,
assigns, grants a participation in, or otherwise transfers all or part of the
Obligations of a Fund to such Bank, such Bank agrees to undertake sole
responsibility for complying with the withholding tax requirements imposed by
Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the
applicable withholding tax, the Operations Agent may withhold from any interest
payment to such Bank an amount equivalent to the applicable withholding tax
after taking into account such reduction. If the forms or other documentation
required by subsection (a) of this Section are not delivered to the Operations
Agent, then the Operations Agent may withhold from any interest payment to such
Bank not providing such forms or other documentation an amount equivalent to the
applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that the Operations Agent
did not properly withhold tax from amounts paid to or for the account of any
Bank (because the appropriate form was not delivered, was not properly executed,
or because such Bank failed to notify the Operations Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason),
<PAGE>
such Bank shall indemnify the Operations Agent fully for all amounts paid,
directly or indirectly, by the Operations Agent as tax or otherwise, including
penalties and interest, and including any taxes imposed by any jurisdiction on
the amounts payable to the Operations Agent under this Section, together with
all costs and expenses (including Attorney Costs). The obligation of the Banks
under this subsection shall survive the payment of all Obligations and the
resignation or replacement of the Operations Agent.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement or any other Credit Document, and no consent with
respect to any departure by the Company or any Fund therefrom, shall be
effective unless the same shall be in writing and signed by the Majority Banks
(or by the Administrative Agent at the written request of the Majority Banks)
and the Funds and acknowledged by the Administrative Agent, and then any such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; PROVIDED, HOWEVER, that no such waiver,
amendment, or consent shall, unless in writing and signed by all the Banks and
the Funds and acknowledged by the Agents, do any of the following:
(a) increase or extend the Commitments of any Bank (or
reinstate any Commitment(s) terminated pursuant to SECTION 7.1);
(b) postpone or delay any date fixed by this Agreement or
any other Credit Document for any payment of principal, interest, fees or other
amounts due to the Banks (or any of them) hereunder or under any other Credit
Document;
(c) reduce the principal of, or the rate of interest
specified herein on, any Loan, or (subject to CLAUSE (II) below) any fees or
other amounts payable hereunder or under any other Credit Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which is required for the Banks
or any of them to take any action hereunder; or
(e) amend this Section, SECTION 2.12, SECTION 6.12 or any
provision herein providing for consent or other action by all Banks;
and, PROVIDED FURTHER, that (i) no amendment, waiver or consent shall, unless in
writing and signed by an Agent in addition to the Majority Banks or all the
Banks, as the case may be, affect the rights or duties of such Agent under this
Agreement or any other Credit Document and (ii) the Fee Letter may be amended,
or rights or privileges thereunder waived, in a writing executed by the parties
thereto.
<PAGE>
9.2 NOTICES. (a) All notices, requests and other
communications shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission, PROVIDED that any matter
transmitted by any Fund by facsimile (i) shall be immediately confirmed by a
telephone call to the recipient at the number specified on SCHEDULE III and (ii)
shall be followed promptly by delivery of a hard copy original thereof) and
mailed, faxed or delivered to the address or facsimile number specified for
notices on SCHEDULE III, or, as directed to the Funds or the Agents, to such
other address as shall be designated by such party in a written notice to the
other parties, and as directed to any other party, at such other address as
shall be designated by such party in a written notice to the Funds and the
Agents.
(b) All such notices, requests and communications shall,
when transmitted by overnight delivery or faxed, be effective when delivered for
overnight (next-day) delivery or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; PROVIDED that
notices pursuant to ARTICLE II or VIII shall not be effective until actually
received by the applicable Agent.
(c) Any agreement of the Agents and the Banks herein to
receive certain notices by telephone or facsimile is solely for the convenience
and at the request of the Funds. The Agents and the Banks shall be entitled to
rely on the authority of any Person purporting to be a Person authorized by a
Fund to give such notice, and the Agents and the Banks shall not have any
liability to such Fund or other Person on account of any action taken or not
taken by the Agents or the Banks in reliance upon such telephonic or facsimile
notice. The obligation of the Funds to repay the Loans shall not be affected in
any way or to any extent by any failure by the Agents and the Banks to receive
written confirmation of any telephonic or facsimile notice or the receipt by the
Agents and the Banks of a confirmation which is at variance with the terms
understood by the Agents and the Banks to be contained in the telephonic or
facsimile notice.
9.3. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and
no delay in exercising, on the part of any Agent or any Bank, any right, remedy,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.
9.4. COSTS AND EXPENSES. Subject to the allocation provisions
of SECTION 2.13 the Funds shall:
(a) whether or not the transactions contemplated hereby
are consummated, pay or reimburse BofA and State Street (including in their
capacities as Agents) within ten (10) Business Days after demand for all
reasonable costs and expenses incurred by BofA and State Street (including in
their capacities as Agents) in connection with the development, preparation,
delivery, administration and execution of, and any amendment, supplement, waiver
or modification to (in each case, whether or not consummated), this Agreement,
any Credit Document and any other documents prepared
<PAGE>
in connection herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, including reasonable Attorney Costs incurred by
BofA and State Street (including in their capacities as Agents) with respect
thereto; PROVIDED, HOWEVER, notwithstanding anything to the contrary in the
foregoing, the responsibility of a Fund to reimburse either BofA or State Street
for Attorney Costs in connection with the development, preparation, delivery and
execution of this Agreement and such other documents and the consummation of
such transactions shall be limited to the reasonable fees and disbursements of
outside counsel to BofA; and
(b) pay or reimburse each Agent, the Arranger and each
Bank within five Business Days after demand for all costs and expenses
(including Attorney Costs) incurred by them in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies under this
Agreement or any other Credit Document during the existence of an Event of
Default or after acceleration of the Loans (including in connection with any
"workout" or restructuring regarding the Loans and including in any Insolvency
Proceeding or appellate proceeding).
9.5. FUNDS INDEMNIFICATION. (a) Whether or not the transactions
contemplated hereby are consummated, the Funds shall indemnify and hold the
Agent-Related Persons, and each Bank and each of its respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"INDEMNIFIED PERSON"), harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans and the termination, resignation or replacement of any
Agent or replacement of any Bank) be imposed on, incurred by or asserted against
any such Person in any way relating to or arising out of this Agreement or any
document contemplated by or referred to herein, or the transactions contemplated
hereby, or any action taken or omitted by any such Person under or in connection
with any of the foregoing, including with respect to any investigation,
litigation or proceeding (including any Insolvency Proceeding or appellate
proceeding) related to or arising out of this Agreement or the Loans or the use
of the proceeds thereof, whether or not any Indemnified Person is a party
thereto (all the foregoing, collectively, the "INDEMNIFIED LIABILITIES");
PROVIDED that no Fund shall have an obligation hereunder to any Indemnified
Person to the extent Indemnified Liabilities result from the gross negligence or
willful misconduct of such Indemnified Person. The agreements in this Section
shall survive payment of all other Obligations.
(b) Promptly after receipt by an Indemnified Person under
subsection (a) above of notice of the commencement of any action, such
Indemnified Person shall, if a claim in respect thereof is to be made against a
Fund under such subsection, notify such Fund in writing of the commencement
thereof, but the omission so to notify such Fund shall not relieve it from any
liability which it may have to any Indemnified Person otherwise than under such
subsection. In case any such action shall be brought against any Indemnified
Person and it shall notify the relevant Fund of the commencement thereof, the
indemnifying Fund shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other Fund similarly notified, to assume
the defense
<PAGE>
thereof, with counsel reasonably satisfactory to such Indemnified Person (who
shall not, except with the consent of the Indemnified Person, be counsel to the
indemnifying Fund(s)), and after notice from the indemnifying Fund(s) to such
Indemnified Person of its election so to assume the defense thereof; PROVIDED
that in no event shall any settlement or compromise of any such claims, actions
or demands be made without the consent of the Indemnified Person, the consent of
which shall not be unreasonably withheld.
(c) The agreements in this SECTION 9.5 shall survive
payment of all other Obligations.
9.6. PAYMENTS SET ASIDE. To the extent that a Fund makes a
payment to the Operations Agent or the Banks, or the Operations Agent or the
Banks exercise their right of set-off, and such payment or the proceeds of such
set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by the Operations Agent or such Bank in its discretion)
to be repaid to a trustee, receiver or any other party, in connection with any
Insolvency Proceeding or otherwise, then (a) to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such set-off had not occurred and (b) each Bank severally agrees to pay to the
Operations Agent upon demand its pro rata share of any amount so recovered from
or repaid by the Operations Agent.
9.7. SUCCESSORS AND ASSIGNS. (a) The provisions of this
Agreement shall be binding upon and shall inure to the benefit of each Fund,
each Agent and the Banks and their respective successors and assigns, except
that no Fund may assign or otherwise transfer any of its rights under this
Agreement without the prior written consent of the Banks. One or more additional
Funds may become party hereto upon the written approval of all the Banks.
(b) The Loans are being made by the Banks in the ordinary
course of their business and not with a view toward distribution, it being
understood that each Bank may sell participations and assignments in its
Commitments and the Loans as provided herein. Any Bank may at any time assign,
subject to the relevant Fund's consent and the Operation Agent's consent and
subject to the payment of a $3,000 processing fee to the Operations Agent, which
consents shall not be unreasonably withheld, to one or more banks (as defined in
Section 2(a)(5) of the Act) not an affiliate (as defined in the Act) of the
Company or any Fund (each an "ASSIGNEE") all, or a proportionate part of all, of
its rights under this Agreement and such Fund's Notes. Any Bank may at any time
grant to one or more banks (as defined in Section 2(a)(5) of the Act) not an
affiliate (as defined in the Act) of the Company or any Fund or (each a
"PARTICIPANT") participating interests in its Commitments or any or all of its
Loans. In the event of any such grant by a Bank of a participating interest to a
Participant, whether or not upon notice to the relevant Fund, such Bank shall
remain responsible for the performance of its obligations hereunder, and the
relevant Fund shall continue to deal solely and directly with such Bank in
connection
<PAGE>
with the Bank's rights and obligations under this Agreement. Any agreement
pursuant to which such Bank may grant such a participating interest shall
provide that the Bank shall retain the sole right and responsibility to enforce
the obligations of the relevant Fund hereunder, including, without limitation,
the right to approve any amendment, modification or waiver of any provision of
this Agreement; PROVIDED that such participation agreement may provide that such
Bank will not agree to any modification, amendment or waiver of this Agreement
(i) which increases or decreases the Commitments of the Bank, (ii) reduces the
principal of or rate of interest on any Loan or fees hereunder or (iii)
postpones the date fixed for any payment of principal of or interest on any Loan
or any fees hereunder without the consent of the Participant. The relevant Fund
agrees that each Participant shall, to the extent provided in its participation
agreement, be entitled to the benefits of ARTICLE III hereof with respect to its
participating interest.
(c) Any Bank may at any time assign all or any portion of
its rights under this Agreement and the Notes to a Federal Reserve Bank. No such
assignment shall release such Bank from its obligations hereunder.
(d) No Assignee, Participant or other transferee of a
Bank's rights shall be entitled to receive any greater payment under SECTION 3.1
hereof than such Bank would have been entitled to receive with respect to the
rights transferred, unless such transfer is made with the Company's or any
Fund's prior written consent or at a time when the circumstances giving rise to
such greater payment did not exist.
9.8 CONFIDENTIALITY. Each Bank agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all written information identified as
"confidential" or "secret" by a Fund and provided to it by or on behalf of the
Fund, or by an Agent on such Fund's behalf, under this Agreement or any other
Credit Document, and neither it nor any of its Affiliates shall use any such
information other than in connection with or in enforcement of this Agreement
and the other Credit Documents, except to the extent such information (i) was or
becomes generally available to the public other than as a result of disclosure
by the Bank or (ii) was or becomes available on a non-confidential basis from a
source other than the Fund, provided that such source is not bound by a
confidentiality agreement with the Fund known to the Bank; PROVIDED, HOWEVER,
that any Bank may disclose such information (A) at the request or pursuant to
any requirement of any Governmental Authority to which the Bank is subject or in
connection with an examination of such Bank by any such authority; (B) pursuant
to subpoena or other court process; (C) when required to do so in accordance
with the provisions of any applicable Requirement of Law; (D) to the extent
reasonably required in connection with any litigation or proceeding to which any
Agent, any Bank or their respective Affiliates may be party; (E) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under any other Credit Document; (F) to such Bank's independent auditors and
other professional advisors; (G) to any Participant or Assignee, actual or
potential, PROVIDED that such Person agrees in writing to keep such information
confidential to the same extent as required by the Banks hereunder; (H) as to
any Bank or its Affiliate, as
<PAGE>
expressly permitted under the terms of any other document or agreement regarding
confidentiality to which such Fund is party or is deemed party with such Bank or
such Affiliate; and (I) to its Affiliates.
9.9. SET-OFF. In addition to any rights and remedies of the
Banks provided by law, if, as to a Fund, an Event of Default exists and is
continuing or the Loans have been accelerated, each Bank is authorized at any
time and from time to time, without prior notice to the relevant Fund (any such
notice being waived by such Fund to the fullest extent permitted by law), to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held by, and other indebtedness at any time
owing by, such Bank to or for the credit or the account of the Fund against any
and all Obligations owing to such Bank, now or hereafter existing, irrespective
of whether or not either Agent or such Bank shall have made demand under this
Agreement or any Credit Document and although such Obligations may be contingent
or unmatured provided that any such appropriation and application shall be
subject to the provisions of SECTION 2.12. Each Bank agrees promptly to notify
the affected Fund and the Agents after any such set-off and application made by
such Bank; PROVIDED, HOWEVER, that the failure to give such notice shall not
affect the validity of such set-off and application.
9.10. NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Bank
shall notify the Agents in writing of any changes in the address to which
notices to the Bank should be directed, of addresses of any Lending Office, of
payment instructions in respect of all payments to be made to it hereunder and
of such other administrative information as either Agent shall reasonably
request.
9.11. COUNTERPARTS. This Agreement may be executed in any number
of separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
9.12. SURVIVAL. The obligations of the Funds under SECTIONS 2.8,
9.4 and 9.5, and the obligations of the Banks under SECTIONS 8.7 AND 9.8, shall
in each case survive any termination of this Agreement, the payment in full of
all Obligations and the termination of all Commitments. The representations and
warranties made by the Company and the Funds in this Agreement and in each other
Credit Document shall survive the execution and delivery of this Agreement and
each such other Credit Document.
9.13. DISCLAIMER. None of the shareholders, trustees, officers,
employees and other agents of the Company or any Fund shall be personally bound
by or liable for any indebtedness, liability or obligation hereunder or under
the Notes, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder. Nothing in this SECTION 9.13
shall affect the Bank's rights against Company Persons as provided in SECTION
1.5.
<PAGE>
9.14. SEVERABILITY. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
9.15. NO THIRD PARTIES BENEFITED. This Agreement is made and
entered into for the sole protection and legal benefit of the Company and the
Funds, the Banks, the Agents and the Agent-Related Persons, and their permitted
successors and assigns, and no other Person shall be a direct or indirect legal
beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any of the other Credit Documents.
9.16. GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT AND THE
NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF ILLINOIS; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS
ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY AND EACH OF THE AGENTS
AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. THE COMPANY AND EACH OF THE AGENTS
AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE
COMPANY, THE AGENTS AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
ILLINOIS LAW.
9.17. WAIVER OF JURY TRIAL. THE COMPANY, THE BANKS AND THE AGENTS EACH
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER CREDIT
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. THE COMPANY, THE
BANKS AND THE AGENTS EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY.
<PAGE>
WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE
RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY
ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO
CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER CREDIT
DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
AND THE OTHER CREDIT DOCUMENTS.
9.18. ENTIRE AGREEMENT. This Agreement, together with the other
Credit Documents, embodies the entire agreement and understanding among the
Company, the Banks and the Agents and supersedes all prior or contemporaneous
agreements and understandings of such Persons, verbal or written, relating to
the subject matter hereof and thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
FRANK RUSSELL INVESTMENT COMPANY, as
agent for the Funds listed in Schedule IV
By /s/ Mark Swanson
-----------------------------------
Title Treasurer & Chief Accounting
--------------------------------
OFFICER
Address: 909 A Street
Tacoma, Washington 98402
Facsimile No.: (253)596-3284
Attention: General Counsel
with a copy to:
Address: Stradley Ronon Stevens & Young, L.L.P.
2600 One Commerce Square
Philadelphia, PA 19103-7098
Facsimile No.: (215)564-8120
Attention: Kevin Kundra
<PAGE>
BANK OF AMERICA, NATIONAL
ASSOCIATION, as Administrative Agent and
as a Bank
By /s/ John G. Hayes
------------------------------
Title Principal
---------------------------
<PAGE>
STATE STREET BANK AND TRUST COMPANY,
as Operations Agent and as a Bank
By /s/ John T. Daley
------------------------------
Title Vice President
---------------------------
<PAGE>
SCHEDULE I
DEFINITIONS
"ACT" means the Investment Company Act of 1940.
"ADMINISTRATIVE AGENT" is defined in the preamble and includes each other
Person as shall have subsequently been appointed as the successor Administrative
Agent pursuant to Section 8.9.
"ADVISOR" means Frank Russell Investment Management Company.
"AFFILIATE" means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
"AGENT" means the Administrative Agent or the Operations Agent.
"AGENT-RELATED PERSONS" means BofA, State Street and any successor agent
arising under SECTION 8.9, together with their respective Affiliates (including,
in the case of BofA, the Arranger), and the officers, directors, employees,
agents and attorneys-in-fact of such Persons and Affiliates.
"AGREEMENT" means this Credit Agreement.
"ALLOCATION NOTICE" means a notice, substantially in the form of EXHIBIT
2.13, furnished to the Agent by or on behalf of each Fund setting forth, as of
the date of such notice, the manner of allocation of liability for amounts that
shall become jointly due and payable by the Funds under the Credit Documents
which specifically excludes (without limitation) principal and interest with
respect to Loans. The allocation of liability among the Funds as set forth in an
Allocation Notice shall be effective from the date of receipt thereof by the
Agent until a later dated Allocation Notice is delivered to the Agent.
"APPLICABLE MARGIN" means 0.50%.
"ARRANGER" means Banc of America Securities L.L.C. as lead arranger and
sole book manager.
"ASSET COVERAGE RATIO" means, with respect to any Fund, an amount equal
to the Total Assets of such Fund less (a) all Indebtedness not represented by
Senior Securities
<PAGE>
and (b) the value of assets subject to Liens, divided by the aggregate amount of
all Senior Securities representing Indebtedness of such Fund. For the purpose of
calculating the Asset Coverage Ratio, the amount of any Indebtedness deducted
from Total Assets shall be equal to the greater of (x) the outstanding amount of
such Indebtedness and (y) the fair market value of all assets securing such
Indebtedness.
"ASSIGNEE" is defined in SECTION 9.7(b).
"ATTORNEY COSTS" means and includes any and all fees and disbursements of
any law firm or other external counsel, the allocated cost of internal legal
services and all disbursements of internal counsel.
"AUTHORIZED OFFICER" means, relative to any Fund, those of its officers
or agents whose signatures and incumbency shall have been certified to the
Agents and the Banks pursuant to SECTION 4.1(a).
"BANKS" is defined in the PREAMBLE.
"BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978.
"BASE RATE" means a fluctuating rate per annum equal to the higher of (a)
the Federal Funds Rate plus 1/2 of 1% and, (b) the rate of interest in effect
for such day as publicly announced from time to time by State Street as its
"prime rate." Such rate is a rate set by State Street based upon various factors
including State Street's costs and desired return, general economic conditions
and other factors, and is used as a reference point for pricing some loans,
which may be priced at, above, or below such announced rate. Any change in the
prime rate announced by State Street shall take effect at the opening of
business on the day specified in the public announcement of such change.
"BofA" is defined in the PREAMBLE.
"BORROWING" means a borrowing hereunder consisting of Committed Loans of
the same Type made to a Fund on the same day by the Banks under ARTICLE II and,
other than in the case of Federal Funds Rate Loans, having the same Interest
Period.
"BORROWING BASE" has the meaning set forth in SECTION 6.1(c).
"BORROWING BASE CERTIFICATE" means a Borrowing Base Certificate as
defined in SECTION 6.1(c) and substantially in the form of EXHIBIT 6.1 attached
hereto.
"BORROWING DATE" means any date on which a Borrowing or a Swing Loan
occurs under SECTION 2.3 or SECTION 2.14.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which commercial banks in Boston are authorized or required by law to close.
<PAGE>
"CAPITAL ADEQUACY REGULATION" means any guideline, request or directive
of any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"CHANGE IN CONTROL" means Northwestern Mutual Life Insurance Company
shall fail to own directly or indirectly at least 51% of the voting stock of the
Adviser.
"CLOSING DATE" means the date on which all conditions precedent set forth
in SECTION 4.1 are satisfied or waived by all the Banks (or, in the case of
SECTION 4.1(c), waived by the Person entitled to receive such payment).
"CODE" means the Internal Revenue Code of 1986.
"COMMITTED LOAN" means an extension of credit by the Banks pursuant to
SECTION 2.1.
"COMMITMENT" means, relative to any Bank, such Bank's obligation to make
Committed Loans pursuant to SECTION 2.1.
"COMMITMENT AMOUNT" means, on any date, $75,000,000, as such amount may
be reduced from time to time pursuant to SECTION 2.4.
"COMMITMENT TERMINATION DATE" means with respect to any Fund the earliest
to occur of:
a) the Scheduled Commitment Termination Date;
a) the date on which the Commitments terminate in accordance with the
provisions of this Agreement; and
a) the date on which any Event of Default with respect to that Fund
described in SECTION 7.1(e) or SECTION 7.1(f) occurs.
Upon the occurrence of any event described in CLAUSE (b) or (c) above,
the Commitments shall terminate automatically and without further action.
"COMPANY" is defined in the preamble.
"COMPANY PERSONS" is defined in SECTION 1.5.
"CONTINGENT OBLIGATION" means, as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without recourse,
(a) with respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person (i) to purchase, repurchase
or otherwise acquire such primary obligations or any
<PAGE>
security therefor, (ii) to advance or provide funds for the payment or discharge
of any such primary obligation, or to maintain working capital or equity capital
of the primary obligor, or otherwise to maintain the net worth or solvency or
any balance sheet item, level of income or financial condition of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (iv)
otherwise to assure or hold harmless the holder of any such primary obligation
against loss in respect thereof (each, a "GUARANTY OBLIGATION"); (b) with
respect to any Surety Instrument issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings or payments;
(c) to purchase any materials, supplies or other property from, or to obtain the
services of, another Person if the relevant contract or other related document
or obligation requires that payment for such materials, supplies or other
property, or for such services, shall be made regardless of whether delivery of
such materials, supplies or other property is ever made or tendered, or such
services are ever performed or tendered; or (d) in respect of any Swap Contract.
The amount of any Contingent Obligation shall, in the case of Guaranty
Obligations, be deemed equal to the stated or determinable amount of the primary
obligation in respect of which such Guaranty Obligation is made or, if not
stated or if indeterminable, the maximum reasonably anticipated liability in
respect thereof, and in the case of other Contingent Obligations, shall be equal
to the maximum reasonably anticipated liability in respect thereof.
"CREDIT DOCUMENTS" means this Agreement, any Notes, the Fee Letter and
all other documents delivered to any Agent or any Bank in connection herewith.
"DEFAULT" means any Event of Default or any condition, occurrence or
event which, with notice or lapse of time or both, would, unless cured or
waived, constitute an Event of Default.
"DOLLAR" and the symbol "$" mean the lawful money of the United States.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"EVENT OF DEFAULT" means any of the events described in SECTION 7.1.
"FEDERAL FUNDS RATE" means, at the relevant time of reference thereto,
the rate that appears on the Bloomberg Page BTMM, as quoted by Garvin Guy
Butler, as of 9:30 a.m. (New York time), as the "Federal Funds Ask Rate", or, if
unavailable, by any other federal funds broker of recognized standing as
determined by the Operations Agent.
"FEE LETTER" means the letter agreement referred to in SECTION 2.8.
"FISCAL QUARTER" means any quarter of a Fiscal Year.
"FISCAL YEAR" means any period of twelve consecutive calendar months
ending on the last day of such twelve-month period; references to a Fiscal Year
with a number
<PAGE>
corresponding to any calendar year (E.G., the "1999 Fiscal Year") refer to the
Fiscal Year ending on or before December 31 during such calendar year.
"FRB" means the Board of Governors of the Federal Reserve System and any
Governmental Authority succeeding to any of its principal functions.
"FUND" means each series or class of shares of the Company which
constitutes a "series" under the Act, which is a signatory to this Agreement or
which becomes a signatory to this Agreement following the approval of all the
Banks.
"GAAP" means United States generally accepted accounting principles.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"GUARANTY OBLIGATION" has the meaning specified in the definition of
"Contingent Obligation."
"INDEBTEDNESS" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business on ordinary terms); (c)
all non-contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures or
similar instruments, including, without limitation, obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses;
(e) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to property acquired by the Person (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property); (f) all obligations as lessee under
leases that have been or should be, in accordance with GAAP, recorded as capital
leases; (g) all net obligations with respect to Swap Contracts; (h) all
indebtedness referred to in CLAUSES (a) through (g) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property (including accounts
and contracts rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; (i) all Guaranty
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in CLAUSES (a) through (g) above; (j) all Contingent Obligations;
and (k) all other items which, in accordance with GAAP, would be included as
liabilities on the liability side of the balance sheet of such Person as of the
date at which Indebtedness is to be determined.
"INDEMNIFIED LIABILITIES" is defined in SECTION 9.5.
<PAGE>
"INDEMNIFIED PERSONS" is defined in SECTION 9.5.
"INSOLVENCY PROCEEDING" means, with respect to any Person, (a) any case,
action or proceeding before any court or other Governmental Authority relating
to bankruptcy, reorganization, insolvency, liquidation, receivership,
dissolution, winding-up or relief of debtors or (b) any general assignment for
the benefit of creditors, composition, marshalling of assets for creditors, or
other similar arrangement in respect of its creditors generally or any
substantial portion of its creditors, undertaken under U.S. Federal, state or
foreign law, including the Bankruptcy Code.
"IRS" means the Internal Revenue Service and any Governmental Authority
succeeding to any of its principal functions under the Code.
"LENDING OFFICE" means, as to any Bank, the office or offices of such
Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore
Lending Office", as the case may be, on such Bank's signature page hereto or in
the case of an Assignee Bank, in the Bank Assignment Agreement or such other
office or offices as such Bank may from time to time notify to the Company and
the Agent.
"LIEN" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, segregated asset
arrangement established in connection with reverse repurchase transactions,
encumbrance, lien (statutory or other), or preferential arrangement of any kind
or nature whatsoever in respect of any property (including those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease, any financing lease
having substantially the same economic effect as any of the foregoing, or the
filing of any financing statement naming the owner of the asset to which such
lien relates as debtor, under the Uniform Commercial Code or any comparable law)
and any contingent or other agreement to provide any of the foregoing, but not
including the interest of a lessor under an operating lease.
"LOAN" means either a Committed Loan or a Swing Loan.
"LOAN REQUEST" means a request for a Loan given by a Fund to the Agent,
substantially in the form of EXHIBIT 2.3.
"MAJORITY BANKS" means, at any time, at least two Banks then holding in
excess of 50% of the then aggregate unpaid principal amount of the Committed
Loans or, if no such principal amount is then outstanding, at least two Banks
then having at least in excess of 50% of the Commitments.
"MATERIAL ADVERSE CHANGE" means any change that is material and adverse
to (x) the condition (financial or otherwise), business or prospects of a Fund
or (y) the ability of a Fund to duly and punctually pay and perform all or any
of its Obligations.
<PAGE>
"NET ASSET VALUE" means, at any date, Total Assets less Total
Liabilities.
"NON-UNITED STATES PERSON" means any corporation, partnership,
association or trust that is organized under the laws of a jurisdiction other
than the United States of America or one of its states.
"NOTE" means the promissory note of a Fund, substantially in the form set
forth as EXHIBIT 2.2.
"OBLIGATIONS" means all obligations (monetary or otherwise) of a Fund to
the Banks and the Agents under the Credit Documents and the Fee Letter,
including (a) all obligations to make payments to the Banks of, and in respect
of the principal amount of and interest on, any Loan and (b) all obligations of
a Fund to the Banks and the Agents in respect of fees, costs, expenses and
indemnification under SECTIONS 9.4 and 9.5.
"OPERATIONS AGENT" is defined in the preamble and includes each other
Person as shall have subsequently been appointed as the successor Operations
Agent pursuant to Section 8.9.
"OPERATIONS AGENT'S PAYMENT OFFICE" means the address for payments set
forth on the signature page hereto in relation to the Operations Agent or such
other address as the Operations Agent may from time to time specify.
"ORGANIZATION DOCUMENTS" means, for the Company, its declaration of
trust, bylaws, and all applicable resolutions of its board of trustees (or any
committee thereof).
"OTHER TAXES" means any present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies that arise from
any payment made hereunder or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement or any other Credit Documents.
"PARTICIPANT" is defined in SECTION 9.7(b).
"PERSON" means any natural person, corporation, limited liability
company, partnership, firm, association, trust, government, governmental agency
or any other entity, whether acting in an individual, fiduciary or other
capacity.
"PLAN" means any "pension plan" or "welfare benefit plan" as such terms
are defined in ERISA.
"PRO RATA SHARE" means, as to any Bank at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) at such
time of such Bank's Commitment divided by the combined Commitments of all Banks,
as set forth on SCHEDULE II, as such amount may be adjusted from time to time as
a result of an assignment made by such Bank pursuant to SECTION 9.7 or
otherwise.
<PAGE>
"REGULATION U" means the FRB's Regulation U.
"RELATED PARTY" means, with respect to a Fund and for purposes of SECTION
6.16 only, any Person (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
such Fund, (ii) which beneficially owns or holds 5% or more of the equity
interest of such Fund or (iii) 5% or more of the equity interest of which is
beneficially owned or held by such Fund. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"REPAYMENT NOTICE" means a notice of repayment of a Loan given by a Fund
to the Agent, substantially in the form of EXHIBIT 2.3.
"REPLACEMENT BANK" is defined in SECTION 3.4.
"REQUIREMENT OF LAW" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"SCHEDULED COMMITMENT TERMINATION DATE" means December 28, 2000; PROVIDED
that the Scheduled Commitment Termination Date may be extended for successive
364-day periods upon the written request of the Company therefor received by the
Administrative Agent and the Banks not less than 45 days prior to the
then-existing Scheduled Commitment Termination Date, and the receipt by the
Company of the agreement by the Administrative Agent and the Banks (which shall
be entirely at the sole discretion of the Administrative Agent and each Bank,
none of whom has any obligation regarding such extension) to such requested
extension. No agreement regarding any particular extension shall create any
obligation of the Administrative Agent or any Bank regarding any subsequent
extension.
"SENIOR SECURITY" means any bond, debenture, note or similar obligation
or instrument constituting a security and evidencing Indebtedness (including,
without limitation, all Loans under this Agreement).
"STATE STREET" is defined in the preamble.
"SUBSIDIARY" means, with respect to any Person, any other Person of which
more than 50% of the outstanding equity having ordinary voting power to elect a
majority of the board of directors (or similar board) of such other Person
(irrespective of whether at the time equity of any other class or classes of
such Person shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by such
Person and one or more other Subsidiaries of such Person, or by one or more
other Subsidiaries of such Person.
<PAGE>
"SURETY INSTRUMENTS" means all letters of credit (including standby and
commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds
and similar instruments.
"SWAP CONTRACT" means any agreement (including any master agreement and
any agreement, whether or not in writing, relating to any single transaction)
that is an interest rate swap agreement, basis swap, forward rate agreement,
commodity swap, commodity option, equity or equity index swap or option, bond
option, interest rate option, forward foreign exchange agreement, rate cap,
collar or floor agreement, currency swap agreement, cross-currency rate swap
agreement, swaption, currency option or any other similar agreement (including
any option to enter into any of the foregoing).
"SWING LENDER" means State Street.
"SWING LOAN" is defined in SECTION 2.14.
"SWING LOAN FACILITY" is defined in SECTION 2.14.
"SWING LOAN FACILITY AMOUNT" means $10,000,000.
"TAXES" means any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Bank and each Agent, such taxes (including income
taxes or franchise taxes) as are imposed on or measured by each Bank's net
income by the jurisdiction (or any political subdivision thereof) under the laws
of which such Bank or Agent, as the case may be, is organized or maintains a
lending office.
"TOTAL ASSETS" means, with respect to a Fund as of any date, the
aggregate amount of all items that would be set forth as assets on a balance
sheet of such Fund on such date prepared in accordance with GAAP. The assets of
a Fund shall be valued in accordance with the Act, the rules and regulations
under the Act, and the valuation procedures set forth in its most recent
statement of additional information. Upon the written request of the Agent, a
Fund shall promptly furnish all such information as the Agent shall reasonably
request relating to the value of any portfolio security or other asset of such
Fund or the assignment of values thereto by such Fund or any other Person.
"TOTAL LIABILITIES" means, with respect to a Fund as of any date, the
aggregate amount of all items that would be set forth as liabilities on a
balance sheet of such Fund on such date prepared in accordance with GAAP.
"TYPE" has the meaning specified in the definition of "Loan."
"UNITED STATES" or "U.S." means the United States of America, its 50
States and the District of Columbia.
<PAGE>
SCHEDULE II
COMMITMENTS
AND PRO RATA SHARES
<TABLE>
<CAPTION>
Pro Rata
Bank Commitment Share
- ---- ---------- --------
<S> <C> <C>
Bank of America, National $40,000,000 53.3333334%
Association
State Street Bank and $35,000,000 46.6666666%
Trust Company
TOTAL $75,000,000 100%
</TABLE>
<PAGE>
SCHEDULE III
OFFSHORE AND DOMESTIC LENDING OFFICES,
ADDRESSES FOR NOTICES
BANK OF AMERICA, N.A.
as Administrative Agent
231 South LaSalle Street
Chicago, IL 60697
Attention: John G. Hayes
Telephone: (312) 828-1632
Facsimile: (312) 987-0889
BANK OF AMERICA, N. A.
LENDING OFFICE: 101 North Tryon Street
Charlotte, North Carolina 28255
NOTICES (OTHER THAN LOAN REQUESTS AND NOTICES OF CONVERSION/CONTINUATION):
Attention: Edna Benson / Doug Gibson
Telephone: (704) 386-8201 / (704) 386-0482
Facsimile: (704) 409-0058 / (704) 409-0067
STATE STREET BANK AND TRUST COMPANY, AS OPERATIONS AGENT
2 Ave de Lafayette
2nd Floor
Boston, MA 02111
Attention: Kurt MacLellan
Telephone: (617)662-2303
Facsimile: (617)662-2324
<PAGE>
STATE STREET BANK AND TRUST COMPANY
LENDING OFFICE: 225 Franklin Street
Boston, MA 02110
NOTICES (OTHER THAN LOAN REQUESTS AND NOTICES OF CONVERSION/CONTINUATION):
225 Franklin Street
Boston, MA 02110
Attention: Ned Siegel
Telephone: (617)662-2314
Facsimile: (617)662-2325
<PAGE>
Schedule IV
FRANK RUSSELL INVESTMENT COMPANY
FUND
Equity I Fund
Equity II Fund
Equity III Fund
Equity Q Fund
Fixed Income I Fund
Short Term Bond Fund
Fixed Income III Fund
International Fund
Emerging Markets Fund
Diversified Equity Fund
Special Growth Fund
Equity Income Fund
Quantitative Equity Fund
International Securities Fund
Real Estate Securities Fund
Diversified Bond Fund
Multistrategy Bond Fund
Money Market Fund
Tax Exempt Bond Fund
U.S. Government Money Market Fund
Tax Free Money Market Fund
Aggressive Strategy Fund
Balanced Strategy Fund
Moderate Strategy Fund
Conservative Strategy Fund
Equity Aggressive Strategy Fund
Tax-Managed Global Equity Fund
Tax-Managed Aggressive Strategy Fund
Tax-Managed Moderate Strategy Fund
Tax-Managed Conservative Strategy Fund
Tax-Managed Large Cap Fund
Tax-Managed Small Cap Fund
<PAGE>
EXHIBIT 2.2
Non-Negotiable
PROMISSORY NOTE
$__,000,000.00 _________, ________: as of ________ __, 199_
FOR VALUE RECEIVED, the undersigned Fund ("Fund"), promises to pay to
_____________________ (the "Bank"), as set forth in the Credit Agreement
hereinafter referred to and on the Commitment Termination Date (as defined in
the Credit Agreement) the principal sum of ____________________ AND 00/100
DOLLARS ($__,000,000.00) or, if less, the then aggregate unpaid principal amount
of Loans (as defined in the Credit Agreement) as has been borrowed by the Fund
under the Credit Agreement. The Fund may borrow, repay and reborrow hereunder in
accordance with the provisions of the Credit Agreement. All Loans and all
payments of principal shall be recorded by the holder in its records.
Anything in this Note to the contrary notwithstanding, the Fund shall be
liable hereunder only for Loans borrowed by the Fund under the Credit Agreement
and other obligations with respect thereto. The sole source of repayment of the
principal of and interest on each Loan hereunder and other obligations with
respect thereto made with respect to the Fund shall be the revenues and assets
of such Fund and not from any other asset of the Company or any other Fund as a
series of the Company.
The Fund further promises to pay to the order of the Bank interest on the
aggregate unpaid principal amount hereof from time to time outstanding from the
date hereof until paid in full at the rates per annum which shall be determined
in accordance with the provisions of the Credit Agreement. Accrued interest
shall be payable on the dates specified in the Credit Agreement.
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds.
This Note is the Note referred to in, and evidences indebtedness incurred
under, a Credit Agreement dated as of __________, 1999 (herein, as it may be
amended, modified or supplemented from time to time, called the "Credit
Agreement") among the Fund, certain banks, Bank of America, National
Association, as Administrative Agent, and State Street Bank and Trust Company,
as Operations Agent, to which Credit Agreement reference is made for a statement
of the terms and provisions thereof, including those under which the Fund is
permitted and required to make prepayments and repayments of principal of such
indebtedness and under which such indebtedness may be declared to be immediately
due and payable.
<PAGE>
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
This Note is made under and governed by the internal laws of the State of
Illinois.
FRANK RUSSELL INVESTMENT
COMPANY, as agent for
[NAME OF FUND]
By:
---------------------
Title:
------------------
<PAGE>
LOANS AND PRINCIPAL PAYMENTS
- -----------------------------------------------------------
<TABLE>
<CAPTION>
Amount of Unpaid
Amount of Principal Principal Notation
Date Loan Made Repaid Total Total Made by
- ---- --------- ------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 2.3
FORM OF LOAN REQUEST/REPAYMENT
Reference is made to that certain Credit Agreement, dated as of , 1999
(the "Credit Agreement"), among the borrowers party thereto, various banks party
thereto, Bank of America, National Association as Administrative Agent and State
Street Bank and Trust Company, as Operations Agent. Capitalized terms used
herein and not otherwise defined shall have the meanings given to such terms in
the Credit Agreement. Pursuant to the terms of the Credit Agreement, the
undersigned, on behalf of and with respect to the [NAME OF FUND], hereby
requests:
(1) Committed Loans / Swing Loan [CIRCLE ONE]
(2) Borrowing / Repayment [CIRCLE ONE]
under the Credit Agreement at follows:
(3) The Business Day of the proposed borrowing / repayment [CIRCLE
ONE] is ____________________.
(4) This Fund's outstanding principal as of the preceding Business
Day is: $____________________.
(5) The amount of borrowing/repayment being requested by this
notice is: $____________________.
(increments of $1,000,000.00 above the minimum of $1,000,000.00)
(6) The new amount of principal outstanding subsequent to this request
will be: $____________________.
The undersigned, on behalf of and with respect to [NAME OF FUND],
represents and warrants as follows:
1. The purpose for which such Loans will be used is
- ----------------------------------------------------------------.
2. As of ____________________*, (i) the Asset Coverage Ratio of such Fund
was as set forth in SUBPARAGRAPH (e) below and (ii) the Borrowing Base of such
Fund was as set forth in SUBPARAGRAPH (f) below, calculated as follows:
____________________
Use immediately preceding Business Day.
<PAGE>
(a) Net Asset Value plus proposed
Loan ------------------
(b) MINUS (without duplication)
value of Assets subject
to Liens (including, without
limitation, margin and asset
allocation arrangements) ------------------
(c) Indebtedness not represented
by Senior Securities ------------------
(d) Adjusted Net Asset Value
((a) minus (b) minus (c)) ------------------
(e) Senior Securities Representing
Indebtedness ------------------
(f) Asset Coverage Ratio ((d) divided
by (e)) ------------------
(g) Borrowing Base ((d) times 10%) ------------------
3. The undersigned further certifies, on behalf of the Fund, that (a) the
proceeds of such Loan will be utilized solely by the Fund designated above, (b)
to the best of its knowledge, no Default has occurred and is continuing as of
the date of this Borrowing Certificate and (c) the Asset Coverage Ratio of the
Fund as set forth in its prospectus is not more restrictive than 10 to 1.
<PAGE>
4. The undersigned further certifies, on behalf of the Fund, that, with
respect to the Fund, there has not been outstanding as of the close of business
(Boston time) on the day preceding the proposed Borrowing Date for the requested
Loan any Loan that had been outstanding for at least thirty days.
Date: Frank Russell Investment Company, on
---------------- behalf of
[NAME OF FUND]
By:
------------------------
Title:
<PAGE>
EXHIBIT 2.14
FORM OF ALLOCATION NOTICE
Date:_________ , _____
To: State Street Bank and Trust Company, as Operations Agent for the Banks
party to the Credit Agreement dated as of _______, 1999 (the "CREDIT
AGREEMENT") among the investment companies party thereto, certain banks
thereto, Bank of America, National Association, as Administrative Agent
and State Street Bank and Trust Company, as Operations Agent
Ladies and Gentlemen:
Reference is made to the Credit Agreement (the terms defined therein
being used herein as therein defined). This instrument is an Allocation Notice
as contemplated by the Credit Agreement.
The allocation of liability of the Funds as set forth herein shall be
effective from the date hereof until a later dated Allocation Notice is
delivered to the Operations Agent.
<TABLE>
<CAPTION>
================================================================================
Name of Fund % Allocation
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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100%
================================================================================
</TABLE>
FRANK RUSSELL INVESTMENT COMPANY
ON BEHALF OF [LIST FUNDS]
By
---------------------------
Title
------------------------
<PAGE>
_______, 1999
EXHIBIT 4.1(c)-1
FORM OF OPINION OF COUNSEL TO THE FUNDS
[TO BE TYPED ON COUNSEL'S LETTERHEAD]
__________, 1999
To Bank of America, National Association,
as Administrative Agent, State Street
Bank and Trust Company, as Operations Agent
and the Banks listed on Schedule I to the Credit Agreement
Ladies and Gentlemen:
This opinion is being furnished to you pursuant to Section 4.1(c) of the Credit
Agreement dated as of _________, 1999 (as amended or modified and in effect from
time to time, the "Credit Agreement") among Frank Russell Investment Company
(the "Company"), on behalf of certain Funds listed therein (the "Funds"),
various banks party thereto, Bank of America, National Association, as
Administrative Agent and State Street Bank and Trust Company, as Operations
Agent. Terms defined in the Credit Agreement and not otherwise defined herein
are used herein with the meanings so defined.
We have acted as counsel to the Company and the Funds in connection with the
preparation of the Credit Agreement and as such are familiar with the
proceedings taken by them in connection therewith. In that regard, we have
examined such certificates, documents and records, and have made such
examination of laws, as we have deemed necessary to enable us to render the
opinions expressed below. In addition, we have examined and relied as to matters
of fact upon representations and warranties contained in the Credit Agreement
and in certificates, copies of which have been furnished to you, and upon the
covenants contained in the Credit Agreement as to the application of the
proceeds of the Loans made pursuant thereto.
[ASSUMPTIONS]
Based on the foregoing, we are of the opinion that:
1. The Company is a legally organized and validly existing business trust
under the laws of _____________.
<PAGE>
2. Each Fund has powers adequate for the execution, delivery and
performance of the Credit Agreement and the Notes and for the carrying on of the
business now conducted by it.
3. The Credit Agreement has been duly authorized, executed and delivered
by the Company as agent for the Funds and is a legal, valid and binding
obligation of each such Fund, enforceable in accordance with its terms.
[4. THE NOTES HAVE BEEN DULY AUTHORIZED, EXECUTED AND DELIVERED BY THE
COMPANY ON BEHALF OF THE RELEVANT FUND AND ARE LEGAL, VALID AND BINDING
OBLIGATIONS OF EACH SUCH FUND, ENFORCEABLE IN ACCORDANCE WITH ITS TERMS.]
5. The execution and delivery of Credit Agreement [AND THE NOTES
DESCRIBED IN PARAGRAPH 4] hereof do not, and the performance by each of the
relevant Funds of the terms thereof applicable to such Funds will not, result in
any violation of, be in conflict with, constitute a default under, or, result in
the creation of a lien under, any term or provision of: (i) the articles of
incorporation or by-laws of the Company, (ii) any material provision in any
material indenture, mortgage, agreement, or contract to which the Company on
behalf of the relevant Fund is a party or by which any of such Fund's properties
may be bound, (iii) any law, statute or governmental regulation, including
without limitation, the 1940 Act, or (iv) to our knowledge, any writ, order, or
decision binding on the Company or the Company on behalf of the relevant Fund,
as the case may be.
6. No consent or approval of any governmental authority is required to be
obtained by the Company or any Fund in connection with the execution, delivery
or performance of the Credit Agreement [OR THE NOTES], nor for borrowings
thereunder in accordance with the limits set forth in the Fund's Registration
Statement.
7. The Company is a registered, open-end management investment company
under the 1940 Act. The shares of beneficial interest of each Fund are
registered for sale under the 1933 Act.
[QUALIFICATIONS]
The foregoing opinion is solely for your benefit and may not be relied on by any
person other than you.
Very truly yours,
<PAGE>
EXHIBIT 6.1
FORM OF BORROWING BASE CERTIFICATE
Reference is made to that certain Credit Agreement, dated as of __________,
1999 (the "Credit Agreement"), among certain investment companies party thereto,
various banks party thereto, Bank of America, National Association, as
Administrative Agent and State Street Bank and Trust Company, as Operations
Agent. Capitalized terms used herein and not otherwise defined shall have the
meanings given to such terms in the Credit Agreement.
Pursuant to the terms of the Credit Agreement, the undersigned, on behalf
of and with respect to the [NAME OF FUND] (the "Fund"), hereby represents and
certifies to the Agent and the Banks that as of __________ __, _____, (i) the
Borrowing Base of the Fund was the amount shown in SUBPARAGRAPH (e) below and
(ii) the Asset Coverage Ratio was the ratio set forth in SUBPARAGRAPH (f) below,
each calculated as follows:
(a) Net Asset Value -------------------
(b) MINUS (without duplication)
value of Assets subject
to Liens (including, without
limitation, margin and asset
allocation arrangements) -------------------
(c) Indebtedness Not Represented
by Senior Securities -------------------
(d) Adjusted Net Asset Value
((a) minus (b) minus (c)) -------------------
(e) Borrowing Base ((d) times 10%) -------------------
(f) Senior Securities Representing
Indebtedness -------------------
(g) Asset Coverage Ratio ((d) divided
by (f)) -------------------
The Asset Coverage Ratio of the Fund as set forth in its prospectus is not
more restrictive than 10 to 1.
Date: __________, on behalf of
------------------- [NAME OF FUND]
By:
--------------------------------
Title: [MUST BE AN AUTHORIZED OFFICER]
<PAGE>
April 20, 2000
Frank Russell Investment Company
909 A Street
Tacoma, Washington 98402
Re: FRANK RUSSELL INVESTMENT COMPANY
--------------------------------
Ladies and Gentlemen:
We have previously executed an opinion with respect to the legality of
the issuance of shares of the Trust. We hereby consent to the continued use
of that opinion as an exhibit to Post-effective Amendment No. 46 to the
Registration Statement of the Trust, covering the registration of the shares
of the Trust under the Securities Act of 1933, as amended, and we further
consent to any reference in the Registration Statement of the Trust to the
fact that this opinion concerning the legality of the issue has been rendered
by us.
Sincerely,
STRADLEY, RONON, STEVENS & YOUNG, LLP
By: /s/ Steven M. Felsenstein
-----------------------------------
Steven M. Felsenstein, a Partner
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment to the Registration Statement on Form N-1A of our reports dated
February 17, 2000 relating to the financial statements, which appear in the 1999
Annual Reports to Shareholders of Frank Russell Investment Company, which are
incorporated by reference in this Registration Statement. We also consent to the
references to us under the headings "Financial Highlights" and "Independent
Accountants" in such Registration Statement.
/s/
- ---------------------------
PricewaterhouseCoopers LLP
Seattle, Washington
April 24, 2000
<PAGE>
Exhibit (j)1.3
LIMITED POWER OF ATTORNEY
with respect to
AMENDMENTS TO THE SECURITIES AND EXCHANGE COMMISSION
REGISTRATION STATEMENTS
of
FRANK RUSSELL INVESTMENT COMPANY
Know by all men these presents that the undersigned hereby constitutes and
appoints the persons holding the offices of President, Treasurer, any Assistant
Treasurer, Secretary or any Assistant Secretary of Frank Russell Investment
Company from time to time, and each of them, his or her attorneys-in-fact, each
with the power of substitution, for him or her in any and all capacities, to
sign amendments to Securities and Exchange Commission registration statements of
Frank Russell Investment Company, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her substitutes, may do or cause to be done by
virtue hereof.
/s/ Raymond P. Tennison, Jr.
---------------------------------
Raymond P. Tennison, Jr.
Trustee, Frank Russell Investment
Company
12/14/99
- -----------
Date
<PAGE>
Exhibit (j)1.3
LIMITED POWER OF ATTORNEY
with respect to
AMENDMENTS TO THE SECURITIES AND EXCHANGE COMMISSION
REGISTRATION STATEMENTS
of
FRANK RUSSELL INVESTMENT COMPANY
Know by all men these presents that the undersigned hereby constitutes and
appoints the persons holding the offices of President, Treasurer, any Assistant
Treasurer, Secretary or any Assistant Secretary of Frank Russell Investment
Company from time to time, and each of them, his or her attorneys-in-fact, each
with the power of substitution, for him or her in any and all capacities, to
sign amendments to Securities and Exchange Commission registration statements of
Frank Russell Investment Company, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her substitutes, may do or cause to be done by
virtue hereof.
/s/ Kristianne Blake
---------------------------------
Kristianne Blake
Trustee, Frank Russell Investment
Company
12/20/99
- --------------
Date
<PAGE>
FRANK RUSSELL GROUP OF COMPANIES
CORPORATE CODE OF ETHICS
MARCH 2000
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
TAB 1 - INTRODUCTION
I. Overview 1
II. Purpose 1
III. Applicability 1
1. General 1
2. Non-U.S. Offices 2
TAB 2 - ETHICAL STANDARDS
I. Introduction 3
II. Statement of Purpose and Values 3
III. Ethics Hotline 3
IV. Dispute Resolution 4
TAB 3 - MAINTAINING CONFIDENTIALITY
I. Obligation to Maintain Confidentiality 5
II. Client Information 5
1. Sound Business Practice 5
2. Duty as Agent 5
3. Confidentiality Agreements 6
4. Nondisclosure Agreements 6
III. Public Statements by Associates of the FRC Group 6
TAB 4 - INSIDER TRADING AND OTHER TRADING PRACTICES
I. Policy Statement 8
II. Penalties 8
TAB 5 - FIREWALLS / WATCH LIST POLICIES AND PROCEDURES
I. Overview 9
II. Monitoring the Effectiveness of Firewalls 9
III. Watch List Procedures 9
IV. Additional Procedures 10
TAB 6 - PERSONAL SECURITIES ACCOUNTS AND TRANSACTION REPORTING
I. Reporting of Personal Securities Accounts 11
II. Reporting of Private Securities Transactions 11
III. Approval of Securities Transactions for Access Persons 12
IV. Other Reporting Obligations 12
1. SEC Rule 17j-1 Amendments 12
2. Disinterested Trustees or Directors 13
<PAGE>
V. Restrictions and Exceptions Under PSA and Transaction
Reporting Requirements 13
1. Initial Public Offerings 13
2. Accounts Maintained by an Investment Advisor 13
3. Exempted Securities 14
TAB 7 - OUTSIDE BUSINESS AFFILIATIONS, EMPLOYMENT, AND COMPENSATION
I. General Policy 15
II. Service as a Director 15
III. Service on the Board of Charitable Organizations 15
TAB 8 - GIFTS
I. General Policy 17
II. Accepting Gifts 17
III. Gift Reporting Procedures 18
IV. Giving Gifts 18
V. Honoraria 19
TAB 9 - USE OF COMPUTER RESOURCES AND INFORMATION ASSETS
I. Overall Corporate Policy 20
II. Specific Standards 20
TAB 10 - SANCTIONS 21
TAB 11 - GLOSSARY 22
Tab 12 - Forms 26
</TABLE>
<PAGE>
INTRODUCTION
I. OVERVIEW
The Frank Russell Group of Companies (the "FRC GROUP", or "the Company")* is
one of the world's leading investment management and consulting firms. In
that regard, the FRC Group provides a full range of financial services
designed to meet all levels of investment needs, including consulting and
problem-solving tools to complete investment plan implementation, the
management of mutual and commingled trust fund instruments, and the design of
investment educational tools for use by individual investors and their
advisors, as well as by pension plan sponsors and their plan participants.
The overall mission of the FRC Group is to improve the financial security of
institutions and individuals.
This mission and the business activities supporting it are carried out in one of
the most heavily regulated industries in the world-the securities industry.
Regulatory agencies overseeing this industry impose strict standards of conduct
with regard to the fiduciary responsibilities of persons and business entities
advising clients with regard to, and/or effecting transactions in securities.
Regulatory requirements regarding the implementation of codes of ethics and the
monitoring of personal securities transactions give rise to the need for the FRC
Group CORPORATE CODE OF ETHICS (the "Code"). It is, therefore, of the utmost
importance that the ASSOCIATES of the FRC Group read, understand, and act in
accordance with the requirements and strictures of the Code. FOR THE CONVENIENCE
OF ASSOCIATES OF THE FRC GROUP, THE CODE OF ETHICS CAN BE ACCESSED ON THE
RUSSELL INTRANET SITE (INSITE) UNDER "TIMELY INFORMATION" . . . "CODE OF
ETHICS." THIS DOCUMENT INCLUDES A "FORMS" BUTTON THAT WILL ALLOW ACCESS TO THE
VARIOUS REPORTING FORMS REFERENCED IN THIS CODE.
II. PURPOSE
The purpose of the Code is to describe and implement the FRC Group policies
and procedures concerning:
- The maintenance of confidential client and internal FRC Group
corporate information;
- The prohibitions against engaging in insider trading by Associates of
the FRC Group; and
- The reporting of transactions in securities and other subject events
and occurrences.
III. APPLICABILITY
1. GENERAL
The information contained in this Code applies to all ASSOCIATES of the FRC
Group, whether located in the United States or at one of the Company's
offices located outside the United States.
NEW ASSOCIATES: At the time of hire, new Associates will be provided with
the then current copy of the Code. This document is a condition of
employment with the FRC Group, and Associates are required to acknowledge
that he or she has read the Code, understands its provisions, and agrees to
abide by its requirements. An executed Acknowledgment form and all
applicable reporting forms are to be returned to the FRC Group Human
Resources Department by the new Associate's start date. Any questions
regarding the Code should be
- ------------------
* All substantive terms appearing in BOLD print are defined in TAB 11 - GLOSSARY
of this Corporate Code of Ethics.
<PAGE>
directed to the FRC Compliance Department at 253-573-4860.
ALL ASSOCIATES: Every year, the FRC GROUP COMPLIANCE DEPARTMENT located at
the corporate headquarters in Tacoma, Washington, U.S.A. and in non-U.S.
offices located in Toronto, Canada; London, England; Tokyo, Japan; and
Sydney, Australia ("the FRC Compliance Department") distributes to all
Associates a current Code that incorporates all amendments or replacements.
EACH ASSOCIATE IS REQUIRED ANNUALLY TO ACKNOWLEDGE THAT HE OR SHE HAS READ
THE CODE, UNDERSTANDS ITS PROVISIONS, AND AGREES TO ABIDE BY ITS
REQUIREMENTS.
The Code is intended for the exclusive use of the Associates of the FRC
Group in connection with their job-related duties. It should not be read,
shown, or given to anyone outside of the FRC Group without the permission
of the FRC Compliance Department.
Violation of any of the policies described in this Code may lead to
disciplinary action, including termination of employment (see TAB 10 -
SANCTIONS).
Any questions you may have about this Code can be directed to the FRC
Compliance Department; or, in the Company's offices located outside the
United States, Associates should direct their questions to the local
Compliance Officer supporting those offices.
2. NON-U.S. OFFICES
Associates employed in non-U.S. offices of the FRC Group are fully subject
to the requirements set forth in the Code. Each non-U.S. office has
developed a Code consistent with that which has been adopted by the
Company's headquarters in Tacoma, but which has been modified as necessary
to adhere to local laws, regulations and best practices in operation in
each jurisdiction. Any questions regarding the Code or its application to
Associates in non-U.S. offices should be directed to the local Compliance
Officer supporting those offices.
<PAGE>
ETHICAL STANDARDS
I. INTRODUCTION
The FRC Group is recognized for adhering to the highest standards of ethics in
its business dealings. The reputation of the FRC Group is both highly valued and
valuable, and the maintenance of this reputation is critical to the continued
success of its business. Each Associate has the personal obligation to protect
the company's reputation by conducting business according to the highest
ethical, moral and legal standards.
II. STATEMENT OF PURPOSE AND VALUES
The cornerstones of the FRC Group commitment to business ethics are its
insistence on nonnegotiable integrity and the notion that Associates are the
most important element in our continued success. Associate understanding and
support of our values are the keys to accomplishing the purpose set forth in our
Statement of Purpose: Improve financial security for people.
These values are embodied in the Company's values statement:
- - We value integrity, in an environment of mutual trust and respect,
including fairness, teamwork, tolerance, family and community, in our
process of providing added value to our clients.
- - We value our Associates, families, and clients, who are critical to our
success. We especially appreciate our Associates' commitment to the
Company, and in return seek to provide opportunities for them to develop.
- - We require honest profitability for continued success, and we reward our
Associates accordingly. We seek to exceed client expectations. We aspire to
a higher set of values than required by law.
III. ETHICS HOTLINE
To support its commitment to integrity, the FRC Group has implemented a
confidential Ethics Hotline for Associates to report suspected instances of
unethical or illegal conduct or violations of company policy on the part of
another Associate, contractor or vendor. The Hotline is available 24 hours a
day, every day (including holidays) by calling 1-800-93-ALERT.
The Hotline is answered by an outside agency, which relays complaints to the FRC
Group's Legal Department for further action. The Legal Department refers all
complaints to a designated senior manager, who ensures that all reports are
investigated and, if required, that appropriate corrective action is taken.
Calls may be made on an anonymous basis, if desired. Each caller is assigned a
case number, which the caller may thereafter use in all follow-up communications
in order to maintain confidentiality.
Every effort is made to ensure confidentiality while allowing matters to be
properly investigated and resolved. No Associate's reputation will be put at
risk solely by raising concerns either through the Ethics Hotline or through any
other procedure. Retaliation against an Associate who uses the Hotline to raise
concerns or who participates in the investigation of a complaint is strictly
prohibited and may be grounds for termination of employment.
<PAGE>
IV. DISPUTE RESOLUTION
In addition to the Hotline, the FRC Group provides a confidential means for
Associates to bring grievances to the attention of management through its formal
and informal dispute resolution processes.
The informal dispute resolution process may be used for a situation or problem
that causes an Associate dissatisfaction with his or her general working
environment. The Associate should discuss the situation or problem with his or
her immediate supervisor. If a resolution is not achieved during this
discussion, the Associate should then discuss the matter with the department
manager and, if needed, the division manager. The Human Resources Director or
other specialists in the Human Resources Department, as appropriate, and/or the
Associate's division manager, will work with the Associate to help resolve the
matter to the satisfaction of all parties involved.
The formal dispute resolution process may be used when a problem or situation is
serious in nature. The Associate should present a written statement of the
problem or concern to his or her immediate supervisor. The supervisor will work
with the Associate to resolve the situation. If the problem is not resolved to
the satisfaction of the Associate, a written complaint should be sent to the
department manager and division manager. The complaint should include a request
for a meeting to discuss the problem or situation that is the subject of the
complaint. This request should receive a response in writing within five working
days, and a meeting with the Associate should be scheduled at the earliest
possible date. If this meeting does not produce a satisfactory solution, the
Associate should forward the written complaint to the Human Resources Director
who will investigate the complaint to determine a fair and equitable solution
within five working days. The solution will be presented in writing to the
Associate in a formal meeting with the division manager and the Human Resources
Director.
<PAGE>
MAINTAINING CONFIDENTIALITY
I. OBLIGATION TO MAINTAIN CONFIDENTIALITY
The obligation of all FRC Group Associates to maintain the confidentiality of
client and internal FRC Group corporate information arises largely from four
different sources: (1) sound business practice, (2) duty as agent for the
client, (3) specific confidentiality agreements into which the FRC Group may
enter from time to time, and (4) specific agreements executed between Associates
and the FRC Group. In addition, all Associates have an obligation to comply with
applicable laws prohibiting the use of MATERIAL, NONPUBLIC INFORMATION, however
obtained, in connection with INSIDER TRADING activity. Insider trading
prohibitions are discussed in detail in TAB 4 - INSIDER TRADING AND OTHER
TRADING PRACTICES.
II. CLIENT INFORMATION
All FRC Group Associates must treat client information as confidential unless it
is clearly in the public domain. Information must be kept confidential until an
appropriate supervisor has determined that disclosure is permissible.
1. SOUND BUSINESS PRACTICE
Sound business practice dictates that client information be kept
confidential. In order for the FRC Group to serve its clients effectively,
it must have access to sensitive information that the client often does not
wish disclosed to the public. The failure to keep such information
confidential may cause clients to withhold such information, making it more
difficult to serve their needs.
Clients have the right to expect from the FRC Group, at a minimum, the same
level of professional conduct maintained by other organizations in the
financial services industry. The failure to adhere to industry standards
could cause existing and potential clients to doubt the competence and
integrity of the FRC Group.
2. DUTY AS AGENT
The FRC Group has the obligation, under general principles of agency law,
to maintain the confidences of its clients. The FRC Group, while acting as
agent for its clients, must conduct its business activities in such a
manner as to avoid adversely affecting clients' interests. All entities
within the FRC Group (and, by extension, each of their Associates) must at
all times behave as would an ordinarily prudent person in similar
circumstances while acting on behalf of clients. If the unwarranted
disclosure of confidential information concerning any client results in
demonstrable financial harm to that client, the FRC Group may be liable for
some or all of the resulting damage.
3. CONFIDENTIALITY AGREEMENTS
From time to time, Associates of the FRC Group are asked to enter into
specific agreements with clients and others requiring that information be
kept confidential. These agreements impose a duty on members of the FRC
Group that is independent of those duties imposed by law. The terms of
these agreements usually require that the FRC Group hold to standards of
confidentiality that exceed those that would be imposed by law.
4. NONDISCLOSURE AGREEMENTS
<PAGE>
All Associates are required to sign a Nondisclosure Agreement at the time
of hire. It is a condition of employment that this agreement be executed
and placed in the Associate's permanent file. By signing this document, the
Associate agrees that he/she will not disclose to anyone outside the FRC
Group, for any purposes other than the prosecution of work-related duties,
any confidential or proprietary FRC Group information. Further, the
Associate agrees to not disclose any such confidential or proprietary
information to anyone INSIDE the FRC Group except on a "NEED TO KNOW"
basis. If questions arise as to what comprises such confidential or
proprietary information, or to whom, if anyone, inside or outside of the
FRC Group it may be disclosed, the Associate should consult with the FRC
Legal Department.
III. PUBLIC STATEMENTS BY ASSOCIATES OF THE FRC GROUP
From time to time FRC Group Associates are asked to comment publicly on matters
pertaining to the investment industry, financial market activity, and other
issues involving both factual, opinion and policy matters. This activity is a
vital part of FRC Group's program of increasing its public visibility by
providing timely and thoughtful commentary on matters of interest to the many
communities we serve. The FRC Group Code of Ethics and the Employee
Nondisclosure Agreement signed by each of our Associates restrict the disclosure
of "confidential information." Because of the increasing visibility the FRC
Group enjoys in the marketplace, it is important that the FRC Group provides a
clear policy statement designed to give further guidance to our Associates,
particularly those who are communicating regularly with persons outside the
Company.
The purpose of this policy statement is to make clear to all Associates that in
the following situations comments to the public, including comments to clients,
customers, suppliers, friends and family (including spouse, significant other,
children, and parents) are inappropriate.
Under no circumstances may an FRC Group Associate discuss with persons outside
the Russell organization any information concerning its business strategies, its
product design or development plans, its product distribution plans, and the
identity and nature of its arrangements with potential business partners. The
premature announcement of such matters could have a devastating impact on the
FRC Group's planned business strategies and may well violate the terms of
confidentiality agreements the FRC Group has with other organizations.
Furthermore, such improper disclosure could result in illegal "INSIDER TRADING"
if the parties with whom the FRC Group is dealing are publicly held institutions
(which is often the case) and the information is deemed material (which is quite
possible). Also, as a general rule, the dissemination of such information
internally within the FRC Group should be restricted only to those who have a
"NEED TO KNOW" in order to facilitate a particular strategic project.
All inquiries received from anyone outside the Russell organization concerning
the FRC Group's strategic plans should be rejected as inappropriate for comment.
If the person seeking such information is persistent, they should be referred
either to the FRC Group General Counsel or the Manager of Public Relations. The
proper response by Associates in all cases will be the following:
"Russell is a private company and we do not discuss our strategic plans with the
public."
If an FRC Group Associate is asked to comment on a rumor concerning the FRC
Group, the response in all cases will be the following:
<PAGE>
"We do not respond to or comment on unsubstantiated rumors or speculation,
whether involving Russell or other parties."
Violations of this Policy will be considered a serious breach of an Associate's
obligations to the FRC Group and will result in disciplinary action, including
the possibility of termination of employment for "cause." (See TAB 10 -
SANCTIONS)
The statements set forth in this Policy are in furtherance of and not a
substitution for the provisions set forth in any Employee Nondisclosure
Agreement between an Associate and the Company.
In those cases where there may appear to be a conflict between this policy and a
fiduciary, contractual or other obligation to a particular FRC Group client,
Associates should contact an attorney in the Legal Department directly before
speaking with the client.
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INSIDER TRADING AND OTHER TRADING PRACTICES
I. POLICY STATEMENT
INSIDER TRADING is illegal and is strictly prohibited. If there are any
questions after reviewing this policy statement, you should consult the FRC
Compliance Department and/or Legal Department. In the company's offices located
outside the United States, Associates should consult with the local Compliance
Officer supporting those offices, who will in turn consult with the Legal
Department, as necessary.
Associates in possession of MATERIAL, NONPUBLIC INFORMATION are considered
insiders and must preserve the confidentiality of such information and abstain
from trading until the INSIDER information is disclosed and made public. It is a
fundamental policy of the FRC Group that:
- - No Associate, while in possession of MATERIAL, NONPUBLIC INFORMATION
concerning any company, shall purchase or sell, or recommend or direct the
purchase or sale, of any SECURITY of such company for the following
accounts: (a) entities within the FRC Group; (b) clients of the FRC Group;
(c) accounts in which he or she has a direct or indirect BENEFICIAL
OWNERSHIP INTEREST; and (d) accounts over which the Associate has
discretionary authority or a power of attorney.
- - No Associate may purchase or sell a security if the Associate knows or
could reasonably ascertain that the purchase or sale: (a) would be
detrimental, or potentially detrimental, to any member of the FRC Group or
to any client of any member of the FRC Group; (b) is designed to benefit
the Associate by taking advantage of the market effect of purchases and
sales of securities by any member of the FRC Group or any client of any
member of the FRC Group; or (c) competes with transactions of any member of
the FRC Group or their respective clients.
- - No Associate shall disclose material, nonpublic information concerning
any company to any person outside the FRC Group, except for disclosures
that: (a) have been authorized by the Company; (b) are necessary for the
performance of FRC Group services; and (c) have been authorized by the
Compliance Department. An Associate who communicates material, nonpublic
information to another who trades on such information may be subject to
sanctions as set forth in this section under "Penalties" and/or in TAB 10 -
SANCTIONS, as though the Associate had directly bought or sold the
securities himself or herself.
- - Any Associate who, in the course of his or her employment, obtains
material, nonpublic information that is later disclosed to the general
public must allow sufficient time to elapse for the investing public to
assimilate and evaluate the information before taking any action for his or
her personal account on the basis of the disclosed facts.
- - No Associate may execute a personal securities transaction on a day during
which the Associate knows that the FRC Group or an FRC Group client has a
pending buy or sell order in place in that same security until that order
is executed or withdrawn.
II. PENALTIES
Penalties for trading in reliance on, or communicating to others who thereafter
trade in reliance on, material, nonpublic information can be severe, both for
the individuals involved and their employers. Such penalties vary among the
different countries in which the FRC Group does business and can include, but
are not necessarily limited to, fines and/or disgorgement of profits and
potential civil or criminal legal action.
<PAGE>
FIREWALLS / WATCH LIST POLICIES AND PROCEDURES
I. OVERVIEW
FRC Group Associates have a duty to maintain the confidentiality of client
information and information regarding firm-related activities that may involve
issuers of publicly traded securities. Associates working with, or who may come
into contact with, MATERIAL, NONPUBLIC INFORMATION in connection with a specific
client engagement of the FRC Group, or other significant corporate undertaking
of the FRC Group, owe a special duty to maintain the confidentiality of
information that may result from those activities. Applicable securities laws
make it illegal to trade in or to tip others regarding securities while in
possession of material, nonpublic information regarding those securities or
their issuer. In order to permit the FRC Group to continue its normal business
activities while in possession of material, nonpublic information, the FRC Group
has established strict procedures ("Firewalls') to prevent the flow of such
information to any business units and/or Associates except those with a
legitimate NEED TO KNOW such information.
II. MONITORING THE EFFECTIVENESS OF FIREWALLS
In order to ensure that the Firewall policies and procedures are effective and
have not been violated, the FRC Group has established a "Watch List" procedure
which will allow for the FRC Group to monitor trading in securities of companies
about which the Company or its Associates are in possession of material,
nonpublic information.
In order to ensure that the identities of companies appearing on the Watch List
remain confidential, distribution of the list is limited and carefully
controlled. Because of the Company's Firewall procedures, and the fact that the
Watch List is confidential, most Associates are able to continue their normal
investment activities even if those activities involve securities of a company
appearing on the Watch List. The only Associates whose activities are restricted
are those who are recipients of the list as well as those who are "over the
wall" and have received confidential nonpublic information with respect to a
company appearing on the list. These individuals may not, either directly or
indirectly, purchase, sell, recommend or discuss securities of the company(ies)
appearing on the list, nor may they pass on to anyone else the fact that a
company(ies) appears on the list or any information they have received
concerning any company(ies) on the list.
III. WATCH LIST PROCEDURES
- - CREATION AND MAINTENANCE OF THE WATCH LIST - The FRC Compliance Department,
through its Director of Compliance, is responsible for creating and
maintaining the Watch List. Information about a company to be placed on the
Watch List will be provided by the Project Head or other authorized member
of the Project Team. Information to be provided will include: 1) the name
of the issuer(s) involved in the engagement or proposed transaction and any
code names assigned; 2) the name of any contra-party(ies) to the engagement
or proposed transaction; 3) the date of the assignment or date upon which
monitoring of securities transactions should begin; 4) the nature of the
engagement or proposed transaction; and 5) the names of all Associates who
have knowledge of the information.
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- - DUTIES AND RESPONSIBILITIES OF THE PROJECT HEAD - In addition to his/her
responsibility for initial reporting to the FRC Compliance Department of a
company to be placed on the Watch List, the Project Head is also
responsible for: 1) maintaining confidentiality of information received in
connection with an engagement or proposed transaction; 2) ensuring that any
changes or additional information relating to the engagement or proposed
transaction that are germane to this Watch List procedure are communicated
to the Compliance Department; 3) approving any additional Associates that
are brought "over the wall" on an engagement or proposed transaction,
particularly those Associates from other business units of the FRC Group,
and notifying the Compliance Department of such additions; and 4) notifying
the Compliance Department of any instances in which confidential
information may have been inadvertently passed to someone outside the scope
of the engagement or proposed transaction.
- - MONITORING OF SECURITIES ON THE WATCH LIST - The FRC Compliance Department
is responsible for reviewing and monitoring the trading by Associates of
securities of companies on the Watch List. As soon as practicable after
receipt, the Compliance Department will review duplicate confirmations of
transactions for all PERSONAL SECURITIES ACCOUNTs of Associates. Any
transactions noted in securities on the Watch List will be subject to
further inquiry as deemed appropriate by the Director of Compliance
Officer.
- - DELETION FROM THE WATCH LIST - It is the responsibility of the Project Head
or other authorized member of the Project Team to contact the FRC
Compliance Department regarding a decision to delete a company from the
Watch List. A determination will be made as to whether the company should
be deleted or whether any follow-on procedures or monitoring should be
conducted. While a public announcement may have been made, a "deal" likely
will not settle for some period of time thereafter. Given that MATERIAL,
NONPUBLIC INFORMATION could still develop during the period of time between
announcement and settlement, it may be prudent to continue Watch List
monitoring for an appropriate period of time after announcement of a
transaction.
IV. ADDITIONAL PROCEDURES
- - ACCOUNTING PROCEDURES - Information concerning the billing or payment of
client fees and expenses may "tip" Associates as to the existence of an
engagement or proposed transaction. To preserve the confidentiality of such
information, the Project Head will, with the assistance of the Controller,
select a limited number of accounting personnel to handle all accounting
work on the engagement or proposed transaction. Code names will be utilized
for all communications with assigned accounting personnel. The Project Head
will promptly notify assigned accounting personnel of any new or changed
information that is relevant to the engagement or proposed transaction.
- - SECURITY OVER PROJECT FILES - Confidential information relating to an
engagement or proposed transaction should be provided with an appropriate
level of security in order to preserve that confidentiality. Code names
should be assigned whenever possible and utilized in communications.
Hardcopy files should be maintained in locking file cabinets; electronic
files should be maintained in special system libraries. In all cases,
access should be limited to only those Associates actively participating on
the Project Team. Transmission of hardcopy information internally should be
made using "Confidential" envelopes. Use of electronic mail should be
avoided unless proper encryption protocols are utilized.
<PAGE>
PERSONAL SECURITIES ACCOUNTS AND TRANSACTION REPORTING
This section of the FRC Code of Ethics covers the policies and procedures of the
FRC Group in connection with establishing and maintaining a PERSONAL SECURITIES
ACCOUNT ("PSA") and transaction and other reporting obligations. Terms used in
this section are defined in the Glossary section (See Tab 11 - Glossary).
I. REPORTING OF PERSONAL SECURITIES ACCOUNTS
1. All Associates must report to the FRC Group any EXISTING PSAs carried in
their name or in which the Associate has a BENEFICIAL OWNERSHIP INTEREST.
PSAs must be reported to the FRC Compliance Department, or, for offices
located outside the United States, the local Compliance Officer supporting
those offices. Such reports are to be made on the PERSONAL SECURITIES
ACCOUNT REPORT which can be found in the Forms Tab (TAB 12) or on Russell
InSite.
For Associates in the United States, recent amendments to Rule 17j-1 of the
Investment Company Act of 1940 require that the FRC Compliance Department
be provided with a listing of all PSAs and ALL securities beneficially
owned or held, whether in a PSA or held directly by the Associate, WITHIN
10 DAYS OF BECOMING EMPLOYED WITH THE FRC GROUP. (See further discussion in
this section.)
2. All Associates must also report, and receive prior approval for, any NEW
PSAs they wish to open. Approval may be obtained by submitting a PERSONAL
SECURITIES ACCOUNT REPORT to the FRC Compliance Department, or, for offices
located outside the United States, the local Compliance Officer supporting
those offices.
3. The FRC Compliance Department will provide the FINANCIAL INSTITUTION
maintaining the PSA a letter indicating that the Associate has the FRC
Group's permission to maintain the account. The letter will also direct the
Financial Institution to forward duplicate transaction confirmations and
monthly statements to a dedicated, confidential post office box maintained
by the FRC Compliance Department.
II. REPORTING OF PRIVATE SECURITIES TRANSACTIONS
PRIVATE SECURITIES TRANSACTIONs are those transactions that may occur outside an
established securities account maintained with a broker/dealer, investment
advisor or other financial institution. FRC Associates may not engage in any
Private Securities Transactions without having received the prior written
approval of the FRC Compliance Department. Requests for approval may be made on
the APPROVAL REQUEST FOR A PRIVATE SECURITIES TRANSACTION form that can be found
in the Forms Tab or on Russell InSite. The definition of a Private Securities
Transaction should be construed broadly. Any questions regarding such
transactions should be directed to the FRC Compliance Department.
Approval of such transactions will take into consideration the following:
- - Whether the investment opportunity should be reserved for the FRC Group or
its clients;
- - Whether the investment opportunity is being offered to an Associate by
virtue of his or her position with the FRC Group; and
- - Whether the investment represents a potential conflict of interest with an
FRC Group client.
<PAGE>
Additionally, Associates are required to disclose their interest in any such
security to the senior manager of their respective business unit and the FRC
Compliance Department when that Associate plays a part in the FRC Group's
consideration of the issuer of that security(s) on behalf of FRC Group clients.
Under such circumstances, any decisions regarding that issuer will be made by
other Associates with no personal interest in that issuer.
III. APPROVAL OF SECURITIES TRANSACTIONS FOR ACCESS PERSONS
Associates who are deemed to be ACCESS PERSONS must seek approval of their
COVERED SECURITIES TRANSACTIONS from the FRC Compliance Department, or, for
offices located outside the United States, the local Compliance Officer
supporting those offices. (SEE TAB 11 - GLOSSARY for the definition of ACCESS
PERSON and a listing of business units included within that definition.)
Associates who are Access Persons will be requested to provide the date of the
transaction of that security(ies), whether the transaction is a buy or a sale,
the name of the security and number of shares to be purchased or sold. Approvals
of market order transactions are valid for the day they are given. Any
transaction not executed must be RE-APPROVED before being entered on a
subsequent day. "Good 'til canceled" orders will not require re-approval unless
the Associate changes the terms of the order or withdraws the order and
subsequently re-enters it with the Financial Institution at a later time.
All requests for approval of securities transactions may be obtained by calling
Extension 4860 (or from outside at 253-573-4860). This is a dedicated telephone
line maintained in the FRC Compliance Department which is manned for transaction
approval purposes and general compliance questions during normal business hours.
Calls to this telephone line outside of normal business hours will be directed
to leave a voice mail message outlining the details of the transaction as noted
above. In addition, Associates may also email transaction details via the online
Personal Securities Transaction Approval form. This form can be found in the
Code of Ethics under "Timely Information" on the Russell Intranet site (InSite).
Click on the Forms button to bring up this document. An example of this form is
also included for reference in the Forms section (TAB 12).
IV. OTHER REPORTING OBLIGATIONS
1. SEC RULE 17j-1 AMENDMENTS
The U.S. Securities and Exchange Commission has recently approved amendments to
Rule 17j-1 of the Investment Company Act of 1940. These amendments mandate
certain new reporting obligations for Associates in the U.S. that have not
previously been required under the FRC Group Code of Ethics. The FRC Compliance
Department has developed an "Associate Profile" that is designed to assist
Associates in meeting their obligations under these reporting requirements. The
components of these new reporting requirements are as follows:
A. INITIAL HOLDINGS REPORT
As noted earlier in this section, all new Associates must report ALL
securities owned or beneficially held and all PSAs WITHIN 10 DAYS OF
BECOMING EMPLOYED BY THE FRC GROUP. This reporting obligation can be met
during the new hire process by completing the PERSONAL SECURITIES ACCOUNT
REPORT for approval of existing PSAs AND by providing the FRC Group at that
same time a copy of the most recent monthly statement for all such
accounts. Human Resources will collect these
<PAGE>
documents and forward them immediately to the FRC Compliance Department.
B. ANNUAL HOLDINGS REPORT
All FRC Associates must report annually ALL securities owned or
beneficially held, whether those securities are held in a PSA or are held
directly by the Associate. In connection with securities held personally
(example: stocks held in a safety deposit box), the Associate must report
those holdings on a SECURITIES HOLDINGS REPORT which can be found in the
Forms section (Tab 12).
To facilitate the annual holdings reporting obligation, the FRC Compliance
Department will provide Associates at the beginning of each year with a
copy of an "Associate Profile" that summarizes all reported PSAs, Private
Securities Transactions or securities held outside of a PSA, and other
reporting information required by the FRC Group Code of Ethics. For
Associates who maintain a securities license, the "Associate Profile" will
also provide a summary of this information. Associates will be required to
review and update the Profile and return it along with their Code of Ethics
Acknowledgment.
C. QUARTERLY TRANSACTIONS REPORT
FRC Associates are also required to report all securities transactions on a
quarterly basis. FRC Associates will be deemed to have fulfilled this
reporting obligation as long as all PSAs and Private Securities
Transactions have been reported and approved as discussed earlier in this
Tab and the FRC Compliance Department is receiving duplicate transaction
confirmations and monthly statements as noted earlier.
2. DISINTERESTED TRUSTEES OR DIRECTORS
A DISINTERESTED TRUSTEE OR DIRECTOR of FRTC, FRIC, RIF or the SSgA Funds is
required to report a transaction in securities only if such trustee or director,
at the time of the transaction, knew or should have known that during the 15-day
period immediately preceding or after the date of the transaction such security
is or was purchased or sold by any fund portfolio or was considered for purchase
or sale in the fund portfolio or by the fund's investment advisor.
V. RESTRICTIONS AND EXCEPTIONS UNDER PSA AND TRANSACTION REPORTING REQUIREMENTS
1. INITIAL PUBLIC OFFERINGS
All FRC Associates are prohibited from acquiring any securities in an initial
public offering, in order to preclude any possibility of profiting improperly
from their positions on behalf of the FRC Group. Associates are free to trade in
such securities as soon as the underwriting has terminated.
2. ACCOUNTS MAINTAINED BY AN INVESTMENT ADVISOR
FRC Associates may maintain PSAs with an investment advisor that are managed on
a DISCRETIONARY basis. If the account is managed on a discretionary basis, the
Associate has given the advisor the authority to purchase and sell securities in
the account without the Associate's prior knowledge or consent. FRC Associates
who are ACCESS PERSONS and who maintain accounts managed on a
<PAGE>
discretionary basis are NOT required to seek approval of covered securities
transactions, provided that the following conditions are met:
- At the time such account is initially reported to the FRC Compliance
Department, the Associate will provide a copy of the executed
discretionary advisory agreement with the PERSONAL SECURITIES ACCOUNT
REPORT.
- The Associate will provide the FRC Compliance Department with an
additional written representation that transactions in the account
are, in fact, effected on a discretionary basis by the investment
advisor.
- In the event that the Associate participates in any decision
regarding purchases or sales in the account, that transaction must be
submitted for approval by the FRC Compliance Department as noted
earlier in this Tab.
- On an annual basis, the Associate will be required to provide a
written representation that he or she has not participated in any
purchase or sale decisions in the previous twelve months.
3. EXEMPTED SECURITIES
The reporting and approval requirements described above apply to any investment
instrument categorized as a SECURITY. However, for purposes of the Code, the
definition of "security" does not include the following:
- U.S. Government securities
- Bankers' acceptances
- Bank certificates of deposit
- Commercial paper
- High-quality, short-term debt instruments, including repurchase
agreements
- Shares of registered, open-end investment companies (mutual funds) or
open-end unit trusts
- Transactions in securities of issuer-sponsored dividend reinvestment
programs
- Transactions in securities of an employer-sponsored stock purchase
plan or upon the exercise of employee stock options
As the foregoing investment instruments fall outside the definition of
"security" as provided in the Glossary section of the Code, FRC Associates
are not required to report transactions or seek approval of transactions in
these instruments.
<PAGE>
OUTSIDE BUSINESS AFFILIATIONS,
EMPLOYMENT, AND COMPENSATION
I. GENERAL POLICY
No FRC Group Associate may maintain any outside business affiliations
(directorships, governorships or trusteeships) with business organizations,
outside employment, or receive compensation from any source, without PRIOR
APPROVAL of their manager AND the FRC Compliance Department or, for offices
located outside the United States, the local non-U.S. Associate's manager and
the Compliance Officer supporting those offices. Requests for approval of all
such affiliations must be made on the OUTSIDE BUSINESS AFFILIATION, EMPLOYMENT
OR COMPENSATION form which can be found in the Forms Tab (TAB 12) or on Russell
InSite. Termination of such affiliations must be reported to the FRC Compliance
Department or appropriate Compliance Officer in non-U.S.
offices.
II. SERVICE AS A DIRECTOR
FRC Group Associates may be asked to serve on the boards of directors of
publicly traded companies as well as private companies. Such service carries
with it certain risks and business considerations for the FRC Group and, as
such, should be strictly limited to those engagements that are specifically
approved by the FRC Group. Approval of service as a director will be based on a
determination that: (a) board service would be consistent with the interests of
the FRC Group and its clients; and (b) no conflict of interest exists with
respect to the nature of the entity with which the Associate is a board member
and the duties of the Associate within the FRC Group. Associates serving on
boards of directors of publicly traded companies must be especially mindful of
the FRC Group policy on maintaining client confidentiality.
III. SERVICE ON THE BOARD OF CHARITABLE ORGANIZATIONS
FRC Group Associates generously provide their time, talents and monetary support
to many worthy charitable and civic organizations in their communities. The FRC
Group is justifiably proud that many Associates also serve as officers,
directors, trustees or fund-raisers for these organizations.
From time to time, these organizations may need to procure, either directly or
indirectly, the services that the FRC Group provides. In such cases, the
Associate may expect to either provide those services on behalf of the FRC
Group; or be compensated by the FRC Group as a result of the use of these
services; or, be directed business by an unrelated service provider recommended
by the Associate to the organization with which they are associated.
For the benefit of the charitable organization, the FRC Group and the Associate,
the following guidelines apply WHENEVER the FRC Group is providing or is
expected to provide services, directly or indirectly, to the organization with
which the Associate is affiliated:
1. The Associate must disclose his or her employment by the FRC Group; and,
2. If the Associate expects to be compensated by the FRC Group in connection
with, or as a result of, the services provided by the FRC Group or an
unrelated service provider recommended by the Associate,
<PAGE>
the Associate must disclose this fact; and,
3. If the Associate is a member of the body that decides whether to employ the
FRC Group or an unrelated service provider which is expected to utilize the
services of the FRC Group, the Associate must abstain from participating in
the selection of the FRC Group or the service provider; and,
4. All of the foregoing must be memorialized in writing to the appropriate
officer of the board of the charitable organization or in the minutes of
the applicable meeting(s) of the governing body at which the selection is
to be made.
<PAGE>
GIFTS
I. GENERAL POLICY
Giving or accepting gifts, hospitality, payments or preferential treatment to or
from clients or vendors/suppliers of the FRC Group may be a conflict of
interest. Of course, FRC Group Associates acting in a nonbusiness capacity may
give or accept gifts motivated by family or personal relationships that exist
outside of the company. However, if the giver or recipient is a client or a
vendor/supplier of the FRC Group, the Associate should carefully consider the
context of the exchange in order to avoid any appearance of bribery or other
motive which could embarrass or expose to liability the Associate, the FRC Group
or its clients or vendors/suppliers.
II. ACCEPTING GIFTS
It is FRC Group policy that Associates conduct business in a manner that makes
it clear that their first loyalty is to the FRC Group rather than to their
personal benefit. UNLESS THE ACCEPTANCE OF A GIFT FROM A CLIENT OR
VENDOR/SUPPLER QUALIFIES UNDER THE EXCEPTIONS LISTED BELOW, FRC GROUP ASSOCIATES
ARE PROHIBITED FROM:
- - Accepting gifts of cash or gift certificates in any amount;
- - Soliciting for themselves or for a third party (other than the FRC Group)
anything of value from anyone in return for any business, service or
confidential information; or,
- - Accepting anything of value (other than salary, wages, fees or other
compensation paid by the FRC Group) from anyone in connection with FRC
Group business, either before or after a transaction is discussed or
completed.
Associates may accept gifts (other than cash or gift certificates) or
acts of hospitality of reasonable value without violating the
provisions of this policy. In most cases, a gift or act of hospitality
of $100 or less (or, for non-U.S. offices, a reasonably comparable
amount in local currency) will be considered to be of reasonable value
and may be accepted, provided:
- No effort is made to influence the intended recipient's
professional judgment;
- The intended recipient's judgment is not affected by acceptance
of the gift or hospitality;
- The intended recipient has not solicited the gift or hospitality;
and,
- The gift or hospitality offered is timely reported to the
Compliance Department for review and approval on a case-by-case basis.
Associates should tactfully refuse a gift or act of hospitality with a
fair market value of more than $100 (or, for non-U.S. offices, a
reasonably comparable amount in local currency), unless to do so would
embarrass the giver and/or prejudice a business relationship. Such a
gift will become the property of the FRC Group and/or be donated to
charity.
<PAGE>
Certain gifts and acts of hospitality are acceptable and not subject to the gift
reporting provisions so long as they meet the criteria noted above. Such gifts
or acts of hospitality are:
- - Meals, refreshments, travel arrangements or accommodations may be accepted
if:
- They are of reasonable value;
- They are offered in the course of a meeting or other occasion for
the purpose of providing an opportunity for a business discussion
or to foster a better business relationship; and,
- The expense incurred would have been paid by the FRC Group as a
reasonable business expense had the other party not paid it.
- - Advertising or promotional materials (items containing a company's name and
or logo) of reasonable value such as pens, pencils, notepads, key chains,
calendars, tote bags, and similar items;
- - Discounts and rebates on merchandise or services that do not exceed those
offered to other clients;
- - Gifts of reasonable value that are presented in connection with commonly
recognized events such as holidays, weddings, births of children,
promotions, new jobs or retirements;
- - Awards by civic, charitable, educational or religious organizations for
recognition of services or accomplishments; and,
- - Attendance at sporting events and other entertainment events at the expense
of the giver, so long as the expense is reasonable and both the Associate
and the giver are present.
III. GIFT REPORTING PROCEDURES
Associates must report in writing any gift received in a business context that
does not qualify under the types of acceptable gifts noted above. The report
should contain the following:
- - The name of the recipient;
- - The name of the giver;
- - The gift or act of hospitality received and its approximate market value;
and,
- - The date received.
The report should be sent to the FRC Compliance Department, or, for offices
located outside the United States, the local Compliance Officer supporting those
offices, and may be sent either through interoffice or electronic mail. A
permanent record of gift reports will be maintained.
IV. GIVING GIFTS
Giving or offering gifts or acts of hospitality to any FRC Group client,
vendor/supplier or competitor with the intention of influencing the recipient's
judgment in favor of the FRC Group is prohibited.
Gifts or acts of hospitality may be offered if all of the following conditions
apply:
- - No effort is made to influence the intended recipient's judgment;
- - The value of the gift or hospitality is worth less than $100 (or, for
non-U.S. offices, a reasonably comparable amount in local currency);
<PAGE>
- - The gift is not in the form of cash or a gift certificate, and;
- - All gifts or acts of hospitality to clients or vendors/suppliers paid for
by the FRC Group are claimed on the standard expense report.
FRC Group Associates should be especially sensitive to giving gifts to persons
associated with ERISA funds, since acceptance might be deemed to be a use of
plan assets to obtain a personal gain, which could expose both the recipient and
the FRC Group to legal action, public censure and financial penalties.
Associates should also be aware of the U.S. Foreign Corrupt Practices Act of
1977, which generally prohibits the payment of anything of value by anyone
affiliated with a U.S. company (including employees or agents of non-U.S.
affiliates of a U.S. company) to a foreign official (including through an
intermediary) for the purpose of obtaining or retaining business. Penalties for
violations of the Act are severe, including potential criminal sanctions and
fines in excess of $1 million. Even an investigation under the Act can adversely
affect FRC's relations with clients and future foreign business.
V. HONORARIA
FRC Group Associates are frequently requested to speak at events sponsored by
business, educational, civic, and charitable organizations. Such speaking
engagements may involve Associates specifically as representatives of the FRC
Group, but also in a personal capacity as members of these various communities.
Once again, the FRC Group is proud of the fact that its Associates are sought
after for participation in such events. In connection with such events, these
organizations will frequently offer to pay an honorarium and/or reimburse the
speaker for reasonable and customary travel expenses incurred in attending the
event.
In order to address any potential conflicts of interest that may arise,
Associates are expected to notify the senior management of their respective
business unit regarding ANY engagement that the Associate wishes to accept at
which the Associate will be functioning as a representative of the FRC Group,
and to provide details of the subject of the speech and the intended audience.
All speaking engagements in which the organization offers to pay an honorarium
are deemed by the FRC Group to be fully subject to this policy and, as such,
require the prior written approval of the senior manager of the business unit
AND the FRC Compliance Department, or, for offices located outside of the United
States, the local Compliance Officer supporting those offices. In addition,
approval of such activities is subject to the following:
1. Honoraria offered for speaking engagements in which the Associate is
serving specifically in their capacity as a representative of the FRC Group
may not be accepted and should be politely declined. Should the
organization insist that the honorarium be accepted, the Associate may
accept, but should advise the organization that the honorarium will become
the property of the FRC Group and/or be donated to charity.
2. Any offers by the organization of a "speakers gift" to an Associate serving
in their capacity as a representative of the FRC Group are subject to the
FRC Gifts Policy as described in Sections II and III of this tab.
<PAGE>
USE OF COMPUTER RESOURCES AND INFORMATION ASSETS
I. OVERALL CORPORATE POLICY
Information asset usage is governed by a corporate security policy and
accompanying standards that delineate the terms and conditions for the usage of
Russell information assets and computer resources and systems. These state, in
part, that all information and data stored on or transmitted over the FRC Group
network system, and all transactional records generated by using this system,
are the property of the FRC Group and may be used by the FRC Group for any
purpose. The FRC Group reserves the right to monitor, access, and disclose all
activities and information on this system to appropriate FRC Group personnel and
other persons. Without limitation, anyone using this system expressly consents
to such monitoring, access or disclosure by the FRC Group and is advised that if
such actions by the FRC Group reveal possible evidence of criminal activity, the
FRC Group may provide the evidence obtained through such monitoring, access or
disclosure to law enforcement officials.
II. SPECIFIC STANDARDS
In addition to the above, the FRC Group Information Systems Security Policy and
Standards set forth specific computing resource and information asset usage
standards which must be adhered to. Use of FRC's computer network, computing
resources and information assets is intended for the express purpose of
supporting Frank Russell Company business-related activities. Business units
retain the authority to approve individual usage in line with the
above-mentioned standards. These standards are specifically set forth in the
usage agreement that all permanent employees and contractors are required to
sign upon commencing employment. These standards and the complete policy
statement on computing security, resource, and information asset usage can be
found on the Russell Intranet site (InSite) under "Services" . . . "Security
Services" (http://intra3.russell.com/security). ALL permanent Associates and
contractors are REQUIRED to read and familiarize themselves with these standards
and their intent.
<PAGE>
SANCTIONS
Any violation of the rules and requirements set forth in the Code may result in
the imposition of such sanctions as the FRC Group General Counsel and senior
management of the FRC Group, as applicable, may deem appropriate under the
circumstances. These sanctions can include, but are not limited to: (a) removal
or suspension from office; (b) a letter of censure; (c) restitution to the
appropriate member of the FRC Group or client of the FRC Group, as management
deems appropriate; and/or (d) termination of employment for "cause."
<PAGE>
GLOSSARY
ACCESS PERSONS. (1) Any director, officer or member of senior management of the
Frank Russell Group of Companies; (2) any Associate of the Frank Russell Group
of Companies (a) who, in connection with his or her regular duties, makes,
participates in, obtains, or involuntarily receives information regarding the
purchase or sale of a security by any account or fund managed by, or client of,
the Frank Russell Group of Companies, (b) whose functions relate to the making
of any recommendations with respect to such purchases or sales, or (c) whose
functions give them access to money manager research data or any information of
the sort available to the Associates described in clauses (a) or (b) above; and
(3) any other persons or departments that may be categorized as Access Persons
by the FRC Compliance Department.
All Associates performing the following functions or working in the following
departments and/or business units are deemed to be Access Persons:
- Investment Management Group--including non-U.S. offices
- Investment Policy and Research--including non-U.S. offices
- Consulting--including non-U.S. offices
- Chairman/President's Office
- Members of FRC Executive and Operating Committees
- Frank Russell Securities--including Transition Management
- Frank Russell Capital
ASSOCIATE. Any officer, director, trustee, controlling person, general partner,
or employee of any of the entities within the FRC Group.
BENEFICIAL OWNERSHIP INTEREST. An Associate or immediate family member shall be
considered to have a beneficial ownership interest in a Personal Securities
Account if he or she obtains benefits from the account substantially equivalent
to whole or partial, direct or indirect ownership. Associates and immediate
family members are also deemed to have a Beneficial Interest in accounts in
which they have the power, directly or indirectly, to make investment decisions.
Examples include, but are not limited to, accounts for trusts, partnerships and
corporations in which an Associate or immediate family member maintains an
interest or derives a benefit.
COVERED SECURITIES TRANSACTIONS. Transactions in the investment instruments
included in the definition of "securities" given below and not specifically
excepted from that definition either in the text of the Code or in the
above-mentioned definition of "securities."
DISCRETIONARY ACCOUNTS. Accounts in which the client gives a broker-dealer,
investment advisor, or other financial institution discretion as to the purchase
or sale of securities or commodities, including selection, timing, and price to
be paid or received. By so doing the client empowers the financial institution
to buy and sell without the client's prior knowledge or consent, although the
client may set broad guidelines for managing the account (e.g., limiting
investments in blue chip stocks or banning investment in "sin" stocks).
DISINTERESTED TRUSTEE OR DIRECTOR. A disinterested trustee or director of the
FRIC, RIF or SSgA Funds is a trustee or director who is not an interested
trustee or director of the FRIC, RIF or SSgA Funds within
<PAGE>
the meaning of Section 2(a)(10) of the 1940 Act.
- - FRC Compliance Department. When used in this Code, this term refers to the
FRC Group Compliance Department located at the corporate headquarters in
Tacoma, Washington, U.S.A. and also includes those compliance officers
located in certain non-U.S. offices of the FRC Group with a strong dotted
line reporting relationship back to the Tacoma headquarters.
FRC GROUP. Refers collectively to Frank Russell Company ("FRC") and each of its
subsidiaries and affiliates, including:
- - Frank Russell Capital Inc. ("Russell Capital")
- - Frank Russell Investment Company ("FRIC")
- - Frank Russell Investment Management Company ("FRIMCo")
- - Frank Russell Securities, Inc. ("FRS")
- - Frank Russell Trust Company ("FRTC")
- - Russell Insurance Funds ("RIF")
- - Russell Real Estate Advisors, Inc. ("RREA")
- - Russell Fund Distributors, Inc. ("RFD")
- - SSgA Funds
- - Russell Investment Management Ltd.
- - Russell Private Capital Party Ltd.
- - Frank Russell Company Limited
- - Frank Russell Canada Limited/Limitee
- - Frank Russell Company Pty. Limited
- - Frank Russell Company K.K.
- - Frank Russell Company (N.Z.) Limited
- - Frank Russell Investments (Cayman) Ltd.
- - Frank Russell Investments (Ireland) Ltd.
- - Frank Russell Investments (Japan) Ltd.
- - Frank Russell Investments (Singapore) PLC
- - Frank Russell Japan Co. Ltd.
- - Frank Russell Company , S.A.
- - Russell Systems Limited
<PAGE>
FINANCIAL INSTITUTION. See "PERSONAL SECURITIES ACCOUNT."
IMMEDIATE FAMILY. Shall include spouse, minor children, dependents and other
relatives who share the same residence as the Associate and depend on the
Associate for support.
INSIDER. Includes officers, directors, trustees and employees of a company.
Under current judicial interpretation, the company must reasonably expect a
person to whom material, nonpublic information is disclosed to keep such
information confidential, and the relationship between the company and such
person must at least imply a duty of confidentiality before the person will be
considered an insider. In addition, a person can be a temporary insider if he or
she enters into a special, confidential relationship in the conduct of a
company's affairs and as a result of that relationship is given access to
information solely for the company's purposes. Temporary insiders can include,
among others, a company's attorneys, accountants, consultants, bank lending
officers, and the employees of such organizations. Any of the FRC Group member
companies may become a temporary insider of a company it advises or for which it
performs other services. In such cases insider status would likely extend to all
Associates of the FRC Group member company who are personally in possession of
material, nonpublic information about the client company.
INSIDER TRADING. Trading in a security while in possession of material,
nonpublic information (whether or not one is an insider) or communicating
material, nonpublic information to others in connection with trading activity.
Law concerning insider trading, like any law, is subject to change. Generally,
insider trading law prohibits:
- - Trading in securities of a company by an insider while in possession of
material, nonpublic information relating to that company;
- - Trading by a noninsider in the securities of a company while in possession
of material, nonpublic information relating to that company, where the
information either was: (a) disclosed to the noninsider in violation of an
insider's duty to keep it confidential; or (b) misappropriated by the
noninsider; or
- - Communicating material, nonpublic information to others not authorized to
receive such information.
MATERIAL INFORMATION. MATERIAL INFORMATION is generally defined as information
for which there is a substantial likelihood that a reasonable investor would
consider it important in making an investment decision, or information that is
reasonably certain to have a substantial effect on the price of a company's
securities. Information that Associates should consider material includes, but
is not limited to: dividend changes; earnings estimates; changes in previously
released earnings estimates; significant merger, acquisition, disposition,
refinancing, restructuring, or other similar proposals or agreements; major
litigation; liquidity problems; and extraordinary management developments.
NEED TO KNOW. Generally, a need to know exists when an Associate REQUIRES such
information in order to effectively perform his or her duties on behalf of
clients (or prospective clients). A need to know does not exist simply because
the information MAY help another individual or business unit in activities that
are unrelated to performance of the particular services requested by the client.
NONPUBLIC INFORMATION. Information is nonpublic until it has been effectively
communicated to the marketplace. FRC Group Associates should consider all client
information to be nonpublic unless it can be shown that the information has been
previously publicly disclosed. Effective public disclosure of information
implies that sufficient time has passed since public dissemination and that the
information is known generally in the financial marketplace. For example,
information found in a report filed with the
<PAGE>
SEC or appearing in DOW JONES, REUTERS ECONOMIC SERVICES, THE WALL STREET
JOURNAL, or other publications of general circulation would be considered
public.
PERSONAL SECURITIES ACCOUNT ("PSA"). A securities trading account maintained by
an FRC Associate or a member of their immediate family with a broker-dealer,
investment advisor, bank or other financial institution (collectively,
"Financial Institutions").
PRIVATE SECURITIES TRANSACTION. A Private Securities Transaction is a
transaction that may occur outside a securities brokerage account and includes,
but is not limited to: private placements, unregistered securities, private
partnerships and investment partnerships.
SECURITY. This term has the same meaning as that set forth in Section 2(a)(36)
of the 1940 Act and includes commodities contracts as defined in Section
2(a)(1)(a) of the Commodity Exchange Act. So, GENERALLY SPEAKING, securities
include the following: any note; stock; bond; debenture; evidence of
indebtedness; certificate of interest or participation in any profit sharing
agreement; collateral trust certificate; preorganization certificate of
subscription; transferable share; investment contract; voting-trust certificate;
certificate of deposit for a security; fractional undivided interest in oil,
gas, or other mineral rights; any put, call, straddle, option, or privilege on
any security (including a certificate of deposit) or on any group or index of
securities (including any interest therein or based on the value thereof); or
any put, call, straddle, option, or privilege entered into on a national
securities exchange relating to foreign currency; or, in general, any interest
or instrument commonly known as a "security;" or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, guarantee
of, or warrant or right to subscribe to or purchase any of the foregoing.
HOWEVER, FOR PURPOSES OF THIS CODE, SECURITIES DO NOT INCLUDE SECURITIES ISSUED
BY THE GOVERNMENTS OF THE UNITED STATES, THE UNITED KINGDOM, FRANCE, ITALY,
GERMANY, CANADA, AND JAPAN; BANKERS' ACCEPTANCES; BANK CERTIFICATES OF DEPOSIT;
COMMERCIAL PAPER; HIGH-QUALITY, SHORT-TERM DEBT INSTRUMENTS, INCLUDING
REPURCHASE AGREEMENTS; SHARES OF REGISTERED, OPEN-END INVESTMENT COMPANIES
(MUTUAL FUNDS) OR OPEN-END UNIT TRUSTS; SECURITIES PURCHASED UNDER
ISSUER-SPONSORED DIVIDEND REINVESTMENT PROGRAMS; AND SECURITIES PURCHASED UNDER
AN EMPLOYER-SPONSORED STOCK PURCHASE PLAN OR UPON THE EXERCISE OF EMPLOYEE STOCK
OPTIONS.
<PAGE>
SUMMARY OF FORMS
----------------
<TABLE>
<S> <C>
I. ACKNOWLEDGMENT 27
(To be signed upon employment and during annual
acknowledgment process)
II. PERSONAL SECURITIES ACCOUNT REPORT 28
(Request approval to MAINTAIN or OPEN a PSA)
III. APPROVAL REQUEST FOR A PRIVATE SECURITIES TRANSACTION 29
(Request approval before making a private securities
transaction)
IV. PERSONAL SECURITIES TRANSACTION APPROVAL 30
(Online request for approval of personal
securities transaction.
Sample of form found on Russell InSite.)
V. SECURITIES HOLDINGS REPORT 31
(Report personally held securities, such as stock certificates)
VI. OUTSIDE BUSINESS AFFILIATION, EMPLOYMENT
OR COMPENSATION 32-33
(Request approval for outside business affiliation)
</TABLE>
<PAGE>
ACKNOWLEDGMENT
--------------
I,_______________________________________, acknowledge that I have received
Printed Name
the Frank Russell Group of Companies Corporate Code of Ethics (the "Code")
dated ________________, 20___. I have read the Code and understand its policies
and provisions, and I agree to be bound by the terms and conditions set forth
therein.
I further certify that I have reported all Personal Securities Accounts, all
Private Securities Transactions, and all other reportable items required to be
disclosed pursuant to the requirements of the Code.
Dated:__________________________________, 20___
By:____________________________________________
Signature
Print Name:____________________________________
Department Name:_______________________________
Return to the FRC Group Compliance Department
<PAGE>
PERSONAL SECURITIES ACCOUNT REPORT
----------------------------------
Associate Name: ___________________________ Date: _____________, 20___
Position: __________________________________ Dept.:____________________
Check one:
/__/ I hereby submit and request permission to MAINTAIN the following
pre-existing Personal Securities Account(s). I understand that if my
request is approved, I must comply with all provisions of the Corporate
Code of Ethics with respect to Personal Securities Accounts. With this
request, I am giving FRC Compliance Department the right to receive
duplicate statements and trade confirmations for this account.
/__/ I hereby request permission to OPEN a Personal Securities Account. I
understand that I must comply with all provisions of the Corporate Code of
Ethics with respect to Personal Securities Accounts. With this request, I
am giving FRC Compliance Department the right to receive duplicate
statements and trade confirmations for this account.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF FINANCIAL INSTITUTION AND
NAME OF ACCOUNT OWNER ACCOUNT NO. REGISTERED REPRESENTATIVE MAINTAINING ACCOUNT
--------------------- ----------- ---------------------------------------------
<S> <C> <C>
</TABLE>
Signed:______________________________________ Date: _____________, 20___
Please note that your financial institution maintaining the above account(s)
will be directed to send duplicate trade confirmations and monthly statements to
a private post office box, not the FRC Group's regular mailing address, to
ensure privacy.
ACKNOWLEDGED BY:
Manager:_____________________________________ Date: _____________, 20___
<PAGE>
*******************************************************************************
COMPLIANCE DEPARTMENT USE ONLY
We have reviewed and approved this Personal Securities Account. A letter
requesting duplicate trade confirmations and monthly statements has been mailed
to the financial institution(s) noted above.
Reviewed by: ________________________________ Date: _____________, 20___
APPROVAL REQUEST FOR A PRIVATE SECURITIES TRANSACTION
-----------------------------------------------------
To: FRC Group Compliance Department (or Appropriate Person in non-U.S. Office)
From: ______________________________________ (Name)____________________ (Title)
______________________________________ (Name of Department)
THE UNDERSIGNED REQUESTS APPROVAL OF THE FOLLOWING SECURITIES TRANSACTION:
Issuer:___________________ Is the Issuer a publicly traded company? Yes___ No___
Buy: _____ Sell: _____ Anticipated date of transaction:_______________________
Description of Securities:_____________________________________________________
Number of shares/units:______________________ Cost/Proceeds___________________
Name of Person from whom I propose to purchase or to whom I propose to sell:
__________________________________________________
To your knowledge, is this investment being offered to others? Yes___ No___
Are you providing any service or advice to this Issuer? Yes___ No___ If yes,
please describe the service or advice:_________________________________________
Signed:______________________________________ Date: _____________, 20___
*******************************************************************************
TO BE COMPLETED BY THE REQUESTER'S MANAGER
I have reviewed and approve this request for permission to engage in the Private
Securities Transaction described. In connection with the request, I have the
following comments:____________________________________________________________
_______________________________________________________________________________
Name of Manager (print):_______________________________
Signed:______________________________________ Date: _____________, 20___
*******************************************************************************
COMPLIANCE DEPARTMENT USE ONLY
<PAGE>
To:__________________________________________(Associate Requesting Approval)
Your request for permission to engage in the Private Securities Transaction
described on this form has been approved. If any of the details of that
transaction change, please advise me before the transaction is completed.
Reviewed by:_________________________________ Date: _____________, 20___
<PAGE>
InSite form goes here:
PERSONAL SECURITIES TRANSACTION APPROVAL
<PAGE>
SECURITIES HOLDINGS REPORT
--------------------------
Associate's Name: ___________________________ Hire Date:________________
Position: ___________________________________ Dept.:____________________
Under the penalties of perjury, I declared that the following securities
holdings are in my name, or are those over which I have beneficial ownership:
<TABLE>
<CAPTION>
Security Name/ Number of Principal Account Number
Symbol Shares Amount Broker Name Account Owner
------ ------ ------ ----------- -------------
<S> <C> <C> <C> <C>
</TABLE>
I hereby give the Frank Russell Company Compliance Department permission to
contact the broker/dealer where my account(s) is/are maintained for the purposes
of receiving duplicate statements and confirms.
Signed:______________________________________ Date: _____________, 20___
*******************************************************************************
COMPLIANCE DEPARTMENT USE ONLY
We have reviewed and approved this personal securities account report.
Reviewed by:_________________________________ Date: _____________, 20___
<PAGE>
OUTSIDE BUSINESS AFFILIATION,
EMPLOYMENT OR COMPENSATION
--------------------------
No Associate may maintain any outside affiliations (e.g., officer or director,
governor, trustee, etc.) with any business organization, outside employment, or
receive compensation from any source without prior approval of the Associate's
manager and the FRC Compliance Department, or, for offices located outside the
United States, the local Compliance Officer supporting those offices. Please
provide the information requested below, sign and submit the form to your
manager for approval. You will be informed if approval is granted.
To: FRC Group Compliance Department (or Appropriate Person in non-U.S. Office)
From: ______________________________________ (Name)____________________ (Title)
______________________________________ (Name of Department)
1. Organization with which you wish to become affiliated, organization or person
by whom you wish to be employed or compensated:
a. Name:_________________________________________________________________
b. Address:______________________________________________________________
c. Nature of business:___________________________________________________
d. Does the organization have publicly traded securities?________________
e. If so, where are they traded?_________________________________________
f. Is the organization a client of the FRC Group?________________________
g. If so, in what capacity?______________________________________________
2. State the nature of your proposed affiliation and employment, or the nature
of the services for which you will be compensated, and briefly describe your
duties:________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
3. On what date will your proposed affiliation, employment or compensation
begin?____________________________
4. a. Will you be compensated? ______________________
b. If so, how much?_______________________________
5. State the nature and extent of your financial interest, if any, in the
organization:__________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
Continued . . .
6. State the amount of time you will devote to the business and indicate whether
you will devote any time to the business during normal working hours:
_______________________________________________________________________________
*******************************************************************************
I, the undersigned, hereby request approval of the outside business affiliation,
employment or compensation described herein.
Signed: _____________________________________
Date: _____________________________________, 20____
*******************************************************************************
TO BE COMPLETED BY THE REQUESTER'S MANAGER
I have reviewed and approved this request for the outside business affiliation,
employment or compensation described on this request. In connection with the
request, I have the following comments:
_______________________________________________________________________________
_______________________________________________________________________________
Name of Manager (print):___________________________________
Signature: ________________________________________________
Date: ________________________________________, 20____
*******************************************************************************
COMPLIANCE DEPARTMENT USE ONLY
To: ______________________________________ (Associate Requesting Approval)
The outside business affiliation, employment or compensation described above has
been approved. Please advise, in writing, your manager and the Compliance
Department, or the appropriate person in a non-U.S. office, if any of the
information in this request changes materially.
Reviewed by:_________________________________________
Date: _____________________________________, 20____
<PAGE>
CODE OF ETHICS AND BUSINESS PRACTICES
AEW CAPITAL MANAGEMENT, L.P.
AEW REAL ESTATE ADVISORS, INC.
AEW ADVISORS, INC.
AEW MANAGEMENT AND ADVISORS, L.P.
<PAGE>
I. INTRODUCTION
AEW Capital Management ("AEW" or the "Firm") puts its clients' interests
first and expects each of its employees to do the same. AEW expects its
employees to hold themselves to the highest standard of conduct. It is of
paramount importance to AEW that our clients never have reason to doubt their
decision to place their faith and confidence in us. It is the policy of AEW
that investment advisory services of AEW and all related activities comply
fully with the highest principles of fiduciary responsibility and with the
provisions of the Investment Advisors Act of 1940 and the rules and
regulations thereunder, as well as other federal and state statutes and
regulations pertaining to AEW's activities.
One of the most valued assets of the Firm is the dedication, service and
integrity of its employees. AEW constantly strives to maintain the highest
level of ethical business practices, which its clients expect and deserve.
Exactly what constitutes an unethical business practice or a conflict of
interest is both a moral and legal question. The Firm recognizes and respects
each employee's right to engage in activities outside of his or her
employment which are private in nature and do not in any way conflict with
or reflect poorly on the Firm. Management reserves the right, however, to
determine when an employee's activities represent a conflict with the Firm's
interest and to take whatever action is necessary to resolve the situation.
To this end, all employees of AEW and its subsidiaries (including, without
limitation, AEW Real Estate Advisors, Inc., AEW Advisors, Inc. and AEW
Management and Advisors, L.P.) are required to abide by the following policies
and guidelines (as used herein, the term "AEW" or the "Firm" shall include,
as appropriate, subsidiaries of AEW Capital Management, L.P.). Failure to
comply with them may result in sanctions up to and including termination of
employment, and, in some instances, damages in civil lawsuits or criminal
penalties which could involve fines and/or imprisonment. If you should have
any questions about these policies and guidelines or their applicability to
any given situation, you should immediately contact the Firm's Compliance
Officer or, in his absence, the General Counsel.
II. CONFLICTS OF INTEREST
Prohibited Conduct:
You may not:
- Use your position in the Firm or knowledge of its clients' affairs for
outside personal gain.
- Misuse proprietary or privileged information or reveal confidential
data to outsiders.
- Simultaneously be employed by or do consulting work for another firm,
particularly if that firm is a competitor with or supplier to AEW.
<PAGE>
- Have, either directly or through a family member or other relative, a
significant ownership interest or other participation in a firm with which
AEW does business.
- Serve on the Board of Directors of a publicly-traded company, absent
prior authorization of the President of AEW. If Board service is authorized,
appropriate "FORMAL SCREEN" procedures will be adopted and enforced.
- Accept gifts or excessive entertainment from any person or entity
doing business or seeking to do business with AEW. (See Employee Handbook for
details on this policy).
- Pay, solicit or accept bribes or kickbacks.
- Engage in any other form of conduct raising an issue regarding a
possible conflict of interest with AEW or one or more of its clients.
III. INSIDER TRADING
GENERAL RULE: Neither you nor any member of your family may trade in
any type of securities of an issuer, either personally or on behalf of AEW or
others, while in possession of material, nonpublic information about issuer,
I.E., inside information and insider trading. In addition, you may not
communicate material, nonpublic information to others.
DEFINITIONS:
"MATERIAL" means information about an issuer, its prospects or
securities which is likely to be considered important by reasonable investors
in determining whether or not to trade in securities of an issuer or which
could affect the market price of that issuer's securities. Some examples of
material information are information about earnings and cash flow, dividend
action, pending acquisitions and dispositions, major personnel changes, etc.
"NONPUBLIC" means information that has not been disclosed generally
to the marketplace. In this case, a press release or newspaper or magazine
article are among the best evidence of the public nature of information.
IV. TRADING IN REAL ESTATE SECURITIES
GENERAL RULE FOR ALL EMPLOYEES: No employee shall purchase or sell,
directly or indirectly, or by reason of any such transaction acquire, any
direct or indirect legal or beneficial ownership of any securities of any
real estate investment trust, partnership, limited liability company,
business trust or other type of entity that invests primarily in commercial,
industrial, office, retail or multi-family residential real estate,
mortgages, hotels or other interests in real estate ("Real Estate
Securities") without submitting a prior written request to and receiving
approval from the Compliance Officer on the form attached as EXHIBIT B. ANY
QUESTIONS AS TO WHAT CONSTITUTES REAL ESTATE SECURITIES SHOULD BE ADDRESSED
TO THE COMPLIANCE OFFICER.
<PAGE>
EXCEPTIONS:
MUTUAL FUND SHARES: Shares of open-end mutual funds that invest in
Real Estate Securities should not be considered to be Real Estate Securities
and hence may be traded by employees without obtaining approval in advance.
INDEPENDENTLY MANAGED DISCRETIONARY ACCOUNTS: Employees who have
arrangements with investment managers who manage their investment accounts on
a discretionary basis do not need to pre-clear transactions in Real Estate
Securities in such accounts, PROVIDED THAT such employees shall not make
recommendations or give instructions to such investment managers with respect
to any decision to buy or sell particular Real Estate Securities in such
accounts without prior approval from the Compliance officer as provided above.
RULE FOR ALL PERSONS INVOLVED IN TRADING OR RECOMMENDING SECURITIES FOR
CLIENT ACCOUNTS: Any employee of AEW who recommends or executes trades in
Real Estate Securities for client accounts shall not purchase or sell, or by
reason of any such transaction acquire any direct or indirect beneficial
interest in, Real Estate Securities which are the primary focus of such
client accounts. Any other purchase or sale of Real Estate Securities by such
persons shall require pre-clearance as provided above. The Firm will, from
time to time, directly identify the employees who are subject to this
limitation.
REPORTING:
INITIAL REPORT: Upon adoption of this Code or commencement of
employment, if later, you must complete and return a copy of EXHIBIT A to the
Firm's Compliance Officer.
REQUEST PERMISSION TO TRADE: If you are eligible to seek permission
to trade in Real Estate Securities, you must complete a copy of EXHIBIT B,
in duplicate, and have it approved in writing by the Compliance Officer prior
to the trade.
PERIODIC REPORT: If you have received permission to purchase or sell
any Real Estate Securities and have actually purchased or sold such securities
during a calendar quarter ending March 31, June 30, September 30 or December
31, you must within ten days after the end of that quarter complete a copy
of EXHIBIT C and return it to the Compliance Officer.
ANNUAL REPORT: Once each year, you will be asked to complete, sign
and return to the Firm's Compliance Officer a copy of the form attached as
EXHIBIT D.
SPECIAL MUTUAL FUND REPORTING: If you won 5% or more of the total
outstanding securities of any registered investment company that invests in
Real Estate Securities, you should note such holdings on the periodic and
annual reports discussed above.
<PAGE>
V. CONCLUSION
This Code of Ethics is adopted pursuant to the Investment Advisers Act
of 1940, as amended, and the Investment Company Act of 1940, as amended. This
Code supersedes the prior Code of Ethics and Business Practices of Aldrich,
Eastman & Waltch, L.P. and Aldrich, Eastman & Waltch, Inc., and, with respect
to AEW Real Estate Advisors, Inc. AEW Advisors, Inc. and AEW Management and
Advisors, L.P., this Code supersedes the Conduct and Ethics Policy of Copley
Real Estate Advisors, Inc., Copley Investment Group, Inc. and Affiliates.
Depending on your responsibilities and duties at AEW, you may be bound by
one or more additional codes of ethics or trading policies. For example, AEW
Commercial Mortgage Securities Fund, Inc., for which AEW acts as investment
adviser, has its own Code of Ethics. In addition, BBC Investment Advisors,
L.P., and affiliate of AEW, has its own code of ethics. If you are deemed to
be subject to any such other Codes, you will receive a separate memorandum
from the Compliance Officer.
This Code is intended to be as straight forward and concise as possible.
Regardless of length, it is impossible to cover all of the types of conflicts
of interests and restricted conduct and the nuances thereto. Compliance with
this Code is your responsibility. Do not hesitate to obtain advice on the
interpretation of this Code from the Compliance Officer.
<PAGE>
EXHIBIT A
AEW CAPITAL MANAGEMENT
To the Compliance Officer of AEW Capital Management:
1. I hereby acknowledge receipt of a copy of the Code of Ethics and
Business Practices (the "Code").
2. I hereby certify that I am in compliance with the Code and will comply
with it in the future.
3. As of the date below, I had a direct or indirect beneficial ownership
in the following Real Estate Securities:
<TABLE>
<CAPTION>
Type of Interest
Name of Securities Number of Shares Direct or Indirect
<S> <C> <C>
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
Date:______________ Signature:______________
Print Name:_____________
</TABLE>
<PAGE>
EXHIBIT B
AEW CAPITAL MANAGEMENT
REQUEST FOR PERMISSIONS TO ENGAGE IN
PERSONAL SECURITIES TRANSACTION
To the Compliance Officer of AEW Capital Management:
On each of the dates proposed below, I hereby request permission to effect a
transaction in securities as indicated below on behalf of myself, my family
(spouse, minor children or adults living in my household), trusts of which I
am trustee or other account in which I have a beneficial ownership interest
or legal title, and which are required to be pre-approved pursuant to the
Code of Ethics and Business Practices adopted by AEW.
<TABLE>
<CAPTION>
DATE OF DOLLAR NATURE OF
TRANSACTION AMOUNT TRANSACTION
(OR PROPOSED) NO. OF OF (PURCHASE, PROPOSED
SECURITY TRANSACTION SHARES TRANSACTION SALE, OTHER) BROKER/DEALER
<S> <C> <C> <C> <C> <C>
- -------- ------------ ------ ----------- ----------- ---------------
- -------- ------------ ------ ----------- ----------- ---------------
- -------- ------------ ------ ----------- ----------- ---------------
- -------- ------------ ------ ----------- ----------- ---------------
- -------- ------------ ------ ----------- ----------- ---------------
- -------- ------------ ------ ----------- ----------- ---------------
- -------- ------------ ------ ----------- ----------- ---------------
</TABLE>
With respect to transactions in the securities set forth in the table above,
I hereby certify that:
(a) I have no knowledge of the existence of any conflict of interest which
may involve AEW or an AEW Client in connection with my proposed
transaction[s]; and
(b) Such transactions are in compliance with the AEW Code of Ethics and
Business Practices.
Date:______________ Signature:______________
Print Name:_____________
==============================================================================
In accordance with the provisions of the Code of Ethics and Business
Practices of AEW, the transaction[s] proposed to be effected as set forth in
this Report [is] [are]:
Authorized [ ] Not Authorized [ ]
Signature:____________________ Date: ________, 19__
Compliance Officer
IF AUTHORIZED FOR TRADING, SAID APPROVAL IS ONLY VALID FOR THE DATE OR DATES
INDICATED IN THIS AUTHORIZATION.
==============================================================================
<PAGE>
EXHIBIT C
AEW CAPITAL MANAGEMENT
SECURITIES TRANSACTIONS REPORT FOR THE CALENDAR QUARTER ENDED:
___________, 19__
To the Compliance Officer of AEW Capital Management:
During the quarter referred to above, the following transactions were
effected in securities of which I had, or by reason of such transactions
acquired, direct or indirect beneficial ownership, and which are required to
be reported pursuant to AEW's Code of Ethics and Business Practices.
<TABLE>
<CAPTION>
DOLLAR NATURE OF
AMOUNT TRANSACTION BROKER/DEALER
DATE OF NO. OF OF (PURCHASE, THROUGH WHOM
SECURITY TRANSACTION SHARES TRANSACTION SALE, OTHER) PRICE EFFECTED
<S> <C> <C> <C> <C> <S> <C>
- -------- ------------ ------ ----------- ----------- -------- ---------------
- -------- ------------ ------ ----------- ----------- -------- ---------------
- -------- ------------ ------ ----------- ----------- -------- ---------------
- -------- ------------ ------ ----------- ----------- -------- ---------------
- -------- ------------ ------ ----------- ----------- -------- ---------------
- -------- ------------ ------ ----------- ----------- -------- ---------------
- -------- ------------ ------ ----------- ----------- -------- ---------------
</TABLE>
(a) I have no knowledge of the existence of any personal conflict of
interest relationship which may involve AEW or an AEW Client in connection
with the transaction[s] described herein; and
(b) I am in compliance with AEW's Code of Ethics and Business Practices.
Date:______________ Signature:______________
Print Name:_____________
<PAGE>
EXHIBIT D
AEW CAPITAL MANAGEMENT
ANNUAL CERTIFICATION
To the Compliance Officer of AEW Capital Management:
I have read and understand AEW's Code of Ethics and Business Practices and
recognize that I am subject thereto.
I hereby certify that, during the year ended December 31, ____, I have
complied with the requirements of the Code and have reported all securities
transactions required to be reported pursuant to the Code.
I hereby certify that I have no knowledge of the existence of any personal
conflict of interest relationship which may involve AEW or any AEW client.
As of December 31, ____, I had a direct or indirect beneficial ownership in
the following Real Estate Securities:
<TABLE>
<CAPTION>
Type of Interest
Name of Securities Number of Shares Direct or Indirect
<S> <C> <C>
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
- ------------------- ---------------- ------------------------
Date:______________ Signature:______________
Print Name:_____________
</TABLE>
<PAGE>
FEBRUARY 2000
AS AMENDED AND RESTATED
ALLIANCE CAPITAL MANAGEMENT L.P.
CODE OF ETHICS AND STATEMENT OF POLICY AND PROCEDURES REGARDING
PERSONAL SECURITIES TRANSACTIONS
1. PURPOSES
(a) Alliance Capital Management L.P. ("Alliance", "we" or "us") is a
registered investment adviser and acts as investment manager or
adviser to investment companies and other Clients. In this
capacity, we serve as fiduciaries and owe our Clients an undivided
duty of loyalty. We must avoid even the appearance of a conflict
that may compromise the trust Clients have placed in us and must
insist on strict adherence to fiduciary standards and compliance
with all applicable federal and state securities laws. Adherence
to this Code of Ethics and Statement of Policy and Procedures
Regarding Personal Securities Transactions (the "Code and
Statement") is a fundamental condition of service with us, any of
our subsidiaries or our general partner (the "Alliance Group").
(b) The Code and Statement is intended to comply with Rule 17j-1 under
the Investment Company Act which applies to us because we serve as
an investment adviser to registered investment companies. Rule
17j-1 specifically requires us to adopt a code of ethics that
contains provisions reasonably necessary to prevent our "access
persons" (defined in Rule 17j-1 to cover persons such as officers,
directors, portfolio managers, traders, research analysts and
others) from engaging in fraudulent conduct, including insider
trading. Each investment company we advise has also adopted a code
of ethics with respect to its access persons. As set forth in
Section 3 below, our Code and Statement applies to all Employees
and all other individuals who are Access Persons. The Code and
Statement is also intended to comply with the provisions of Rule
204-2 under the Investment Advisers Act of 1940 (the "Advisers
Act") which requires us to maintain records of securities
transactions in which certain of our personnel have any Beneficial
Ownership.
(c) All Employees and all other individuals who are Access Persons
(collectively, "you") also serve as fiduciaries with respect to
our Clients and in this capacity you owe an undivided duty of
loyalty to our Clients. As part of this duty and as expressed
throughout the Code and Statement, you must at all times:
(i) Place the interests of our Clients first;
(ii) Conduct all personal securities transactions consistent
with this Code and Statement and in such a manner that
avoids any actual or potential conflict of interest or any
abuse of your responsibility and position of trust; and
<PAGE>
(iii) Abide by the fundamental standard that you not take
inappropriate advantage of your position.
(d) This Code and Statement does not attempt to identify all possible
conflicts of interests and literal compliance with each of the
specific procedures will not shield you from liability for
personal trading or other conduct which violates your fiduciary
duties to our Clients. In addition to the specific prohibitions
contained in this Code and Statement, you are also subject to a
general requirement not to engage in any act or practice that
would defraud our Clients. This general prohibition includes, in
connection with the purchase or sale of a Security held or to be
acquired or sold (as this phrase is defined below in Section 2(k))
by a Client:
(i) Making any untrue statement of a material fact;
(ii) Creating materially misleading impressions by omitting to
state or failing to provide any information necessary to
make any statements made, in light of the circumstances in
which they are made, not misleading;
(iii) Making investment decisions, changes in research ratings
and trading decisions other than exclusively for the
benefit of and in the best interest of our Clients;
(iv) Using information about investment or trading decisions or
changes in research ratings (whether considered, proposed
or made) to benefit or avoid economic injury to you or
anyone other than our Clients;
(v) Taking, delaying or omitting to take any action with
respect to any research recommendation, report or rating or
any investment or trading decision for a Client in order to
avoid economic injury to you or anyone other than our
Clients;
(vi) Purchasing or selling a Security on the basis of knowledge
of a possible trade by or for a Client;
(vii) Revealing to any other person (except in the normal course
of your duties on behalf of a Client) any information
regarding Securities transactions by any Client or the
consideration by any Client of Alliance of any such
Securities transactions; or
(viii) Engaging in any manipulative practice with respect to any
Client.
(e) The provisions contained in this Code and Statement MUST be
followed when making a personal securities transaction. These
policies and procedures, which must be followed, are considerably
more restrictive and time-consuming than those applying to
investments in the mutual funds and other Clients we advise. If
you are not
<PAGE>
prepared to comply with these policies and procedures, you must
forego personal trading.
<PAGE>
2. DEFINITIONS
The following definitions apply for purposes of the Code and Statement in
addition to the definitions contained in the text itself.
(a) "ACCESS PERSON" means any director or officer of the general
partner of Alliance, as well as any of the following persons:
(i) any Employee who, in connection with his or her regular
functions or duties --
(A) makes, participates in, or obtains information
regarding the purchase or sale of a Security by a
Client, or whose functions relate to the making of
any recommendations with respect to such purchases
or sales;
(B) obtains information from any source regarding any
change, or consideration of any change in Alliance's
internal research coverage, a research rating or an
internally published view on a Security or issuer;
or
(C) obtains information from any source regarding the
placing or execution of an order for a Client
account; and
(ii) any natural person having the power to exercise a
controlling influence over the management or policies of
Alliance (unless that power is solely the result of his or
her position with Alliance) who:
(A) obtains information concerning recommendations made
to a Client with regard to the purchase or sale of a
Security;
(B) obtains information from any source regarding any
change, or consideration of any change in research
coverage, research rating or a published view on a
Security or issuer; and
(C) obtains information from any source regarding the
placing or execution of an order for a Client
account.
(b) A SECURITY IS "BEING CONSIDERED FOR PURCHASE OR SALE" WHEN:
(i) an Alliance research analyst issues research information
(including as part of the daily morning call) regarding
initial coverage of, or changing a rating with respect to,
a Security;
(ii) a portfolio manager has indicated (during the daily morning
call or otherwise) his or her intention to purchase or sell
a Security;
<PAGE>
(iii) a portfolio manager places an order for a Client; or
(iv) a portfolio manager gives a trader discretion to execute an
order for a Client over a specified period of time.
(c) "BENEFICIAL OWNERSHIP" is interpreted in the same manner as in
determining whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 ("Exchange
Act"), Rule 16a-1 and the other rules and regulations thereunder
and includes ownership by any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or
otherwise, has or shares a direct or indirect pecuniary interest
in a Security. For example, an individual has an indirect
pecuniary interest in any Security owned by the individual's
spouse. Beneficial Ownership also includes, directly or
indirectly, through any contract, arrangement, understanding,
relationship, or otherwise, having or sharing "voting power" or
"investment power," as those terms are used in Section 13(d) of
the Exchange Act and Rule 13d-3 thereunder.
(d) "CLIENT" means any person or entity, including an investment
company, for which Alliance serves as investment manager or
adviser.
(e) "COMPLIANCE OFFICER" refers to Alliance's Compliance Officer.
(f) "CONTROL" has the same meaning set forth in Section 2(a)(9) of the
Investment Company Act.
(g) "EMPLOYEE" refers to any person who is an employee of any member
of the Alliance Group, including both part-time employees, as well
as consultants (acting in the capacity of a portfolio manager,
trader or research analyst) under the control of Alliance who, but
for their status as consultants, would otherwise come within the
definition of Access Person.
(h) "INITIAL PUBLIC OFFERING" means an offering of securities
registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the
reporting requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934.
(i) "INVESTMENT PERSONNEL" refers to:
(i) any Employee who acts in the capacity of a portfolio
manager, research analyst or trader;
(ii) any Employee who assists someone acting in the capacity of
a portfolio manager, research analyst or trader and as an
assistant has access to information generated or used by
portfolio managers, research analysts and traders
(including, for example, assistants who have access to the
Alliance Investment
<PAGE>
Review or the Alliance International Investment Review);
(iii) any Employee who receives the Alliance Investment Review or
the Alliance International Investment Review; or
(iv) any natural person who Controls Alliance and who obtains
information concerning recommendations made to a Client
regarding the purchase or sale of securities by the Client.
(j) "LIMITED OFFERING" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Sections
4(2) or 4(6) thereof or pursuant to Rules 504, 505 or 506 under
the Securities Act of 1933.
(k) "PERSONAL ACCOUNT" refers to any account (including, without
limitation, a custody account, safekeeping account and an account
maintained by an entity that may act in a brokerage or a principal
capacity) in which an Access Person or Employee has any Beneficial
Ownership and any such account maintained by or for a financial
dependent. For example, this definition includes Personal Accounts
of:
(i) an Access Person's or Employee's spouse, including a
legally separated or divorced spouse who is a financial
dependent,
(ii) financial dependents residing with the Access Person or
Employee, and
(iii) any person financially dependent on an Access Person or
Employee who does not reside with that person, including
financially dependent children away at college.
(l) "PURCHASE OR SALE OF A SECURITY" includes, among other
transactions, the writing or purchase of an option to sell a
Security and any short sale of a Security.
(m) "SECURITY" has the meaning set forth in Section 2(a)(36) of the
Investment Company Act and any derivative thereof, commodities,
options or forward contracts, except that it shall not include
shares of open-end investment companies registered under the
Investment Company Act, securities issued by the Government of the
United States, short-term debt securities that are government
securities within the meaning of Section 2(a)(16) of the
Investment Company Act, bankers' acceptances, bank certificates of
deposit, commercial paper, and such other money market instruments
as are designated by the Compliance Officer.
<PAGE>
(n) "SECURITY HELD OR TO BE ACQUIRED OR SOLD" means:
(i) any Security which, within the most recent 15 days (1) is
or has been held by a Client or (2) is being or has been
considered by a Client (to the extent known by Alliance) or
Alliance for purchase by the Client; and
(ii) any option to purchase or sell, and any Security
convertible into or exchangeable for, a Security.
(o) "SUBSIDIARY" refers to either of the following types of entities
with respect to which Alliance, directly or indirectly, through
the ownership of voting securities, by contract or otherwise has
the power to direct or cause the direction of management or
policies of such entity:
(i) any U.S. entity engaged in money management; and
(ii) any non-U.S. entity engaged in money management for U.S.
accounts.
3. APPLICATION
(a) This Code and Statement applies to all Employees and to all other
individuals who are Access Persons. Please note that certain
provisions apply to all Employees while other provisions apply
only to Access Persons and others apply only to certain categories
of Access Persons who are also Investment Personnel (e.g.,
portfolio managers and research analysts).
(b) Alliance will provide a copy of this Code and Statement to all
Employees and all individuals who are Access Persons. In addition,
the Compliance Officer will maintain lists of Access Persons and
Investment Personnel, including a separate list of portfolio
managers and research analysts.
4. LIMITATIONS ON PERSONAL SECURITIES TRANSACTIONS
(A) ALL EMPLOYEES
It is the responsibility of each Employee to ensure that all
personal securities transactions are made in strict compliance
with the restrictions and procedures in the Code and Statement and
otherwise comply with all applicable legal and regulatory
requirements.
EMPLOYEES MUST HOLD ALL SECURITIES IN A PERSONAL ACCOUNT. This
requirement applies to all types of personal securities
transactions including, for example, the purchase of Securities in
a private placement or other direct investment. In addition,
Employees may not take physical possession of certificates or
other formal evidence of ownership.
<PAGE>
Personal securities transactions for Employees may be effected
only in a Personal Account and in accordance with the following
provisions:
(i) DESIGNATED BROKERAGE ACCOUNTS
All Personal Accounts of an Employee that are
maintained as brokerage accounts must be held only at
the following designated broker-dealers: Donaldson,
Lufkin & Jenrette, Merrill Lynch & Co., and Charles
Schwab.
(ii) SECURITIES BEING CONSIDERED FOR CLIENT PURCHASE OR SALE
An Employee may not purchase or sell a Security, or engage in any
short sale of a Security, in a Personal Account if, at the time of
the transaction, the Security is being considered for purchase or
sale for a Client or is being purchased or sold for a Client. The
following non-exhaustive list of examples illustrates this
restriction:
- An Alliance research analyst issues research information
(including as part of the daily morning call) regarding
initial coverage of, or changing a rating with respect to,
a Security.
- A portfolio manager has, during the daily morning call,
indicated his or her intention to purchase or sell a
Security.
- A portfolio manager places an order in the Security to
purchase or sell the Security for a Client.
- An open order in the Security exists on the trading desk.
- An open limit order exists on the trading desk, and it is
reasonably likely that the Security will reach that limit
price in the near future.
(iii) RESTRICTED LIST
A Security may not be purchased or sold in a Personal Account if,
at the time of the transaction, the Security appears on the
Alliance Daily Restricted List and is restricted for Employee
transactions. The Daily Restricted List is made available each
business day to all Employees via Lotus Notes and the Alliance
Alert.
(iv) PRECLEARANCE REQUIREMENT
An Employee may not purchase or sell, directly or indirectly, any
Security in which the Employee has (or after such transaction
would have) any Beneficial Ownership unless the Employee obtains
the prior written approval to the transaction from the Compliance
Department and, in the case of Investment
<PAGE>
Personnel, the head of the business unit in which the Employee
works. A request for preclearance must be made in writing in
advance of the contemplated transaction and must state:
a. the name of the Security involved,
b. the number of shares or principal amount to be purchased or
sold, and
c. a response to all questions contained in the appropriate
pre-clearance form.
Preclearance requests will be acted on only between the hours of
10:00 a.m. and 3:30 p.m. Any approval given under this paragraph
will remain in effect only until the end of the trading day on
which the approval was granted.
When a Security is being considered for purchase or sale for a
Client or is being purchased or sold for a Client following the
approval on the same day of a personal trading request form with
respect to the same security, the Compliance Department is
authorized to cancel the personal order if (x) it has not been
executed and the order exceeds a market value of $50,000 or (y)
the Compliance Department determines, after consulting with the
trading desk and the appropriate business unit head (if
available), that the order, based on market conditions, liquidity
and other relevant factors, could have an adverse impact on a
Client or on a Client's ability to purchase or sell the Security
or other Securities of the issuer involved.
(v) AMOUNT OF TRADING
No more than an aggregate of 20 securities transactions may occur
in an Employee's Personal Accounts in any consecutive thirty-day
period.
(vi) DISSEMINATION OF RESEARCH INFORMATION
An Employee may not buy or sell any Security that is the subject
of "significantly new" or "significantly changed" research during
a forty-eight hour period commencing with the first publication or
release of the research. The terms "significantly new" and
"significantly changed" include:
a. the initiation of coverage by an Alliance research
analysts;
b. any change in a research rating or position by an Alliance
research analyst (unless the research analyst who makes the
change advises the Compliance Department in writing that
the change is the result of an unanticipated widely
disseminated announcement or market event, e.g., the
announcement of a major earnings warning as opposed to the
research analysts independently rethinking his or her
subjective
<PAGE>
assessment of the security); and
c. any other rating, view, opinion, or advice from an Alliance
research analyst, the issuance (or reissuance) of which in
the opinion of such research analyst or head of research
would be reasonably likely to have a material effect on the
price of the security.
(b) ACCESS PERSONS
In addition to the requirements set forth in paragraph (a) of this
Section 4, the following restrictions apply to all Access Persons:
(i) SHORT SALES
No Access Person shall engage in any short sale of a
Security if, at the time of the transaction, any Client has
a long position in such Security (except that an Access
Person may engage in short sales against the box and
covered call writing provided that these personal
securities transactions do not violate the prohibition
against short-term trading).
(ii) SHORT-TERM TRADING
All Access Persons are subject to a mandatory buy and hold
of all Securities for 60 calendar days. An Access Person
may, however, after 30 calendar days, sell a Security if
the sale price is lower than the original purchase price
(i.e., at a loss on the original investment). Any trade
made in violation of this paragraph shall be unwound, or,
if that is not practicable, all profits from the short-term
trading must be disgorged as directed by the Compliance
Officer.
(iii) NON-EMPLOYEE ACCESS PERSONS
Any non-Employee Access Person with actual knowledge that a
Security is being considered for purchase or sale for a
Client may not purchase or sell such Security.
(c) INVESTMENT PERSONNEL
In addition to the requirements set forth in paragraphs (a) and
(b) of this Section 4, the following restrictions apply to all
Investment Personnel:
(i) INITIAL PUBLIC OFFERINGS
No Investment Personnel shall acquire any direct or
indirect Beneficial Ownership in any Securities in any
Initial Public Offering.
(ii) LIMITED OFFERINGS
<PAGE>
No Investment Personnel shall acquire any Beneficial
Ownership in any Securities in any Limited Offering of
Securities unless the Compliance Officer and the business
unit head give express prior written approval and document
the basis for granting or denying approval after due
inquiry. The Compliance Officer, in determining whether
approval should be given, will take into account, among
other factors, whether the investment opportunity should be
reserved for a Client and whether the opportunity is being
offered to the individual by virtue of his or her position
with the Alliance Group. Investment Personnel so authorized
to acquire Securities in a Limited Offering must disclose
that investment when they play a part in any Client's
subsequent consideration of an investment in the issuer,
and in such a case, the decision of Alliance to purchase
Securities of that issuer for a Client will be subject to
an independent review by Investment Personnel with no
personal interest in such issuer.
(iii) BOARD MEMBER OR TRUSTEE
No Investment Personnel shall serve on any board of
directors or trustees or in any other management capacity
of any private or public company without prior written
authorization from the Compliance Officer based upon a
determination that such service would not be inconsistent
with the interests of any Client. This prohibition does not
include non-profit corporations, charities or foundations;
however, approval from the Investment Personnel's
supervisor is necessary.
(iv) RECEIPT OF GIFTS
No Investment Personnel shall receive any gift or other
thing of more than DE MINIMIS value from any person or
entity, other than a member of the Alliance Group, that
does business with Alliance on behalf of a Client,
provided, however, that receipt of the following shall not
be prohibited:
a. an occasional breakfast, luncheon, dinner or
reception, ticket to a sporting event or the
theater, or comparable entertainment, that is not so
frequent, so costly, nor so extensive as to raise
any question of impropriety;
b. a breakfast, luncheon, dinner, reception or cocktail
party in conjunction with a bona fide business
meeting; and
c. a gift approved in writing by the Compliance
Officer.
(d) PORTFOLIO MANAGERS
<PAGE>
In addition to the requirements set forth in paragraphs (a), (b)
and (c) of this Section 4, the following restrictions apply to all
persons acting in the capacity of a portfolio manager of a Client
account:
<PAGE>
(i) BLACKOUT PERIODS
No person acting in the capacity of a portfolio manager
shall buy or sell a Security for a Personal Account within
seven calendar days before and after a Client trades in
that Security. In the case of Client accounts managed by
more than one portfolio manager, this restriction will
apply to the portfolio manager who makes the decision to
purchase or sell the relevant Security. If a portfolio
manager engages in such a personal securities transaction
during a blackout period, the Compliance Officer will break
the trade or, if the trade cannot be broken, the Compliance
Officer will direct that any profit realized on the trade
be disgorged.
(ii) ACTIONS DURING BLACKOUT PERIODS
No person acting in the capacity of a portfolio manager
shall delay or accelerate a Client trade due to a previous
purchase or sale of a Security for a Personal Account. In
the event that a portfolio manager determines that it is in
the best interest of a Client to buy or sell a Security for
the account of the Client within seven days of the purchase
or sale of the same Security in a Personal Account, the
portfolio manager should contact the Compliance Officer
immediately who may direct that the trade in the Personal
Account be canceled or take other appropriate relief.
(iii) TRANSACTIONS CONTRARY TO CLIENT POSITIONS
No person acting in the capacity of a portfolio manager
shall purchase or sell a Security in a Personal Account
contrary to investment decisions made on behalf of a
Client, unless the portfolio manager represents and
warrants in the personal trading request form that (x) it
is appropriate for the Client account to buy, sell or
continue to hold that Security and (y) the decision to
purchase or sell the Security for the Personal Account
arises from the need to raise or invest cash or some other
valid reason specified by the portfolio manager and
approved by the Compliance Officer and is not otherwise
based on the portfolio manager's view of how the Security
is likely to perform.
(e) RESEARCH ANALYSTS
In addition to the requirements set forth in paragraphs
(a), (b), (c) of this Section 4, the following restrictions
apply to all persons acting in the capacity of a research
analyst:
(i) BLACKOUT PERIODS
No person acting as a research analyst shall buy or
sell a Security within seven calendar days before
and after making a change in a rating or other
published
<PAGE>
view with respect to that Security. If a research
analyst engages in such a personal securities
transaction during a blackout period, the Compliance
Officer will break the trade or, if the trade cannot
be broken, the Compliance Officer will direct that
any profit realized on the trade be disgorged.
(ii) ACTIONS DURING BLACKOUT PERIODS
No person acting as a research analyst shall delay
or accelerate a rating or other published view with
respect to any Security because of a previous
purchase or sale of a Security in such person's
Personal Account. In the event that a research
analyst determines that it is appropriate to make a
change in a rating or other published view within
seven days of the purchase or sale of the same
Security in a Personal Account, the research analyst
should contact the Compliance Officer immediately
who may direct that the trade in the Personal
Account be canceled or take other appropriate
relief.
(iii) ACTIONS CONTRARY TO RATINGS
No person acting as a research analyst shall
purchase or sell a Security (to the extent such
Security is included in the research analyst's
research universe) contrary to an outstanding rating
or a pending ratings change, unless (x) the research
analyst represents and warrants in the personal
trading request form that (as applicable) there is
no reason to change the outstanding rating and (y)
the research analyst's personal trade arises from
the need to raise or invest cash or some other valid
reason specified by the research analyst and
approved by the Compliance Officer and is not
otherwise based on the research analyst's view of
how the security is likely to perform.
5. EXEMPTED TRANSACTIONS
(a) The pre-clearance requirements, as described in Section 4(a)(iv)
of this Code and Statement, do not apply to:
(i) NON-VOLITIONAL TRANSACTIONS
Purchases or sales that are non-volitional (including, for
example, any Security received as part of an individual's
compensation) on the part of an Employee (and any Access
Person who is not an Employee) or are pursuant to a
dividend reinvestment plan (up to an amount equal to the
cash value of a regularly declared dividend, but not in
excess of this amount).
(ii) EXERCISE OF PRO RATA ISSUED RIGHTS
Purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of the issuer's
Securities, to the extent such rights were acquired from
such issuer, and sales of such rights so acquired. This
<PAGE>
exemption applies only to the exercise or sale of rights
that are issued in connection with a specific upcoming
public offering on a specified date, as opposed to rights
acquired from the issuer (such as warrants or options),
which may be exercised from time-to-time up until an
expiration date. This exemption does not apply to the sale
of stock acquired pursuant to the exercise of rights.
(b) The restrictions on effecting transactions in a (1) Security being
considered for purchase or sale, as described in Sections 4(a)(ii)
and 4(b)(iii) or (2) that is the subject of "significantly new" or
"significantly changed" research, as described in Section 4(a)(vi)
of this Code and Statement, do not apply to:
(i) NON-VOLITIONAL TRANSACTIONS
Purchases or sales that are non-volitional (including, for
example, any Security received as part of an individual's
compensation) on the part of an Access Person or are
pursuant to a dividend reinvestment plan (up to an amount
equal to the cash value of a regularly declared dividend,
but not in excess of this amount).
(ii) EXERCISE OF PRO RATA ISSUED RIGHTS
Purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of the issuer's
Securities, to the extent such rights were acquired from
such issuer, and sales of such rights so acquired. This
exemption applies only to the exercise or sale of rights
that are issued in connection with a specific upcoming
public offering on a specified date, as opposed to rights
acquired from the issuer (such as warrants or options),
which may be exercised from time-to-time up until an
expiration date. This exemption does not apply to the sale
of stock acquired pursuant to the exercise of rights.
(iii) DE MINIMIS TRANSACTIONS -- FIXED INCOME SECURITIES
Any of the following Securities, if at the time of the
transaction, the Access Person has no actual knowledge that
the Security is being considered for purchase or sale by a
Client, that the Security is being purchased or sold by the
Client or that the Security is the subject of significantly
new or significantly changed research:
a. Fixed income securities transaction involving no
more than 100 units or having a principal amount not
exceeding $25,000; or
b. Non-convertible debt securities and non-convertible
preferred stocks which are rated by at least one
nationally recognized statistical rating
<PAGE>
organization ("NRSRO") in one of the three highest
investment grade rating categories.
(iv) DE MINIMIS TRANSACTIONS -- EQUITY SECURITIES
Any equity Securities transaction, or series of related
transactions, involving shares of common stock and
excluding options, warrants, rights and other derivatives,
provided
a. any orders are entered after 10:00 a.m. and before
3:00 p.m. and are not designated as "market on open"
or "market on close";
b. the aggregate value of the transactions do not
exceed (1) $10,000 for securities with a market
capitalization of less than $1 billion; (2) $25,000
for securities with a market capitalization of $1
billion to $5 billion and (3) $50,000 for securities
with a market capitalization of greater than $5
billion; and
c. the Access Person has no actual knowledge that the
Security is being considered for purchase or sale by
a Client, that the Security is being purchased or
sold by or for the Client or that the Security is
the subject of significantly new or significantly
changed research.
(c) NON-EMPLOYEE ACCESS PERSONS
The restrictions on Employees and Access Persons, as described in
Sections 4(a) and 4(b) of this Code and Statement, do not apply to
non-Employee Access Persons, if at the time of the transaction
involved, such person has no actual knowledge that the Security
involved is being considered for purchase or sale.
(d) EXTREME HARDSHIP
In addition to the exceptions contained in Section 5(a) and (b),
the Compliance Officer may, in very limited circumstances, grant
other exceptions under any Section of the Code and Statement on a
case-by-case basis, provided:
(i) The individual seeking the exception furnishes to the
Compliance Officer:
a. a written statement detailing the efforts made to
comply with the requirement from which the
individual seeks an exception;
b. a written statement containing a representation and
warranty that (1) compliance with the requirement
would impose a severe undue hardship on the
individual and (2) the exception would not, in any
manner or degree, harm or defraud the Client or
compromise the
<PAGE>
individual's or Alliance's fiduciary duty to any
Client; and
c. any supporting documentation that the Compliance
Officer may request;
(ii) The Compliance Officer conducts an interview with the
individual or takes such other steps the Compliance Officer
deems appropriate in order to verify that granting the
exception will not in any manner or degree, harm or defraud
the Client or compromise the individual's or Alliance's
fiduciary duty to any Client; and
(iii) The Compliance Officer maintains, along with statements
provided by the individual, a written record that contains:
a. the name of the individual;
b. the specific requirement of Section 4 from which the
individual sought an exception;
c. the name of the Security involved, the number of
shares or principal amount purchased or sold, and
the date or dates on which the Securities were
purchased or sold;
d. the reason(s) the individual sought an exception
from the requirements of Section 4;
e. the efforts the individual made to comply with the
requirements of Section 4 from which the individual
sought to be excepted; and
f. the independent basis upon which the Compliance
Officer believes that the exemption should be
granted.
(e) Any Employee or Access Person who acquires an interest in any
private investment fund (including a "hedge fund") or any other
Security that cannot be purchased and held in a Personal Account
shall be excepted from the requirement that all Securities be held
in a Personal Account, as described in Section 4(a) of this Code
and Statement. Such Employee or Access Person shall provide the
Compliance Officer with a written statement detailing the reason
why such Security cannot be purchased and held in a Personal
Account. Transactions in these Securities nevertheless remain
subject to all other requirements of this Code and Statement,
including applicable private placement procedures, preclearance
requirements and blackout period trading restrictions.
6. REPORTING
<PAGE>
(a) INITIAL HOLDINGS REPORTS BY ALL ACCESS PERSONS
Each Access Person must, at the time of becoming an Access Person,
provide an initial holdings report to the Compliance Officer
disclosing the following:
(i) all Securities beneficially owned by the Access Person
(including the title, number of shares and/or principal
amount of each Security beneficially owned);
(ii) the name of any broker-dealer or financial institution
where the Access Person maintains a Personal Account; and
(iii) the date the report is submitted by the Access Person.
This report must be submitted no later than 10 days after a
person becomes an Access Person. In the event that Alliance
already maintains a record of the required information via account
statements received from the Access Person's broker-dealer
(because, for example, a new Access Person is already an Alliance
Employee), the Access Person may satisfy this requirement by (i)
confirming in writing (which may include e-mail) the accuracy of
the record within 10 days after becoming an Access Person and (ii)
recording the date of the confirmation.
(a) ANNUAL HOLDINGS REPORTS BY ACCESS PERSONS
Each Access Person must, by January 30 of each year, provide an
annual holdings report to the Compliance Officer disclosing the
following:
(i) all Securities beneficially owned by the Access Person
(including the title, number of shares and/or principal
amount of each Security beneficially owned);
(ii) the name of any broker-dealer or financial institution
where the Access Person maintains a Personal Account; and
(iii) the date the report is submitted by the Access Person.
The first annual holdings report submitted will be for the
year ending December 31, 2000 and must be provided to the
Compliance Officer by January 30, 2001.
The information must be current as of a date not more than
30 days before the report is submitted. In the event that Alliance
already maintains a record of the required information via account
statements received from the Access Person's broker-dealer, an
Access Person may satisfy this requirement by (i) confirming in
writing (which may include e-mail) the accuracy of the record and
(ii) recording the date of the confirmation.
<PAGE>
(b) DISCLOSURE OF PERSONAL ACCOUNTS AND BENEFICIALLY OWNED SECURITIES
Upon commencement of employment with a member of the Alliance
Group, an Employee must:
(i) file with the Compliance Officer a list of all Personal
Accounts by completing the Employee Compliance Statement (a
copy of which is attached as Appendix A), and while so
employed maintain the list on a current basis; and
(ii) Disclose to the Compliance Officer all Securities holdings
in which the Employee has any Beneficial Ownership, and
thereafter on an annual basis, to the extent these
Securities do not appear on the Employee's account
statements.
(c) ACCESS PERSONS WHO ARE NOT EMPLOYEES OF ALLIANCE
Every Access Person who is not an Employee of Alliance, shall
report to the Compliance Officer the information described in
Section 6(a) and (b) as well as 6(e) below with respect to
transactions in any Security in which such Access Person has, or
by reason of such transaction acquires, any Beneficial Ownership
in the Security; provided, however, that such Access Person is not
required to make a report with respect to transactions effected in
any account over which the Access Person does not have any direct
or indirect influence or control, including such an account in
which an Access Person has any Beneficial Ownership.
(d) REPORT CONTENTS
Every report of a non-Employee Access Person required by Section
6(D) (b) above shall be in writing and shall be delivered not
later than ten days after the end of the calendar quarter in which
a transaction to which the report relates was effected, and shall
contain the following information:
(i) the date of the transaction, the title and the number of
shares, and the principal amount of each Security involved;
(ii) the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(iii) the price at which the transaction was effected; and
(iv) the name of the broker, dealer or bank with or through whom
the transaction was effected.
(e) REPORT REPRESENTATIONS
<PAGE>
Any such report may contain a statement that the report is not to
be construed as an admission by the person making the report that
he or she has any direct or indirect Beneficial Ownership in the
Security to which the report relates.
(f) MAINTENANCE OF REPORTS
The Compliance Officer shall maintain the information required by
Section 6 and such other records, if any, as are required by Rule
17j-1 under the Investment Company Act and Rule 204-2 under the
Advisers Act. All reports furnished pursuant to this Section will
be kept confidential, subject to the rights of inspection by the
Compliance Officer, the Transaction Compliance Committee, the
Securities and Exchange Commission and by other third parties
pursuant to applicable law.
7. ANNUAL VERIFICATIONS
Each person subject to this Code and Statement must certify annually that
he or she has read and understands this Code and Statement, recognizes
that he or she is subject thereto and has complied with its provisions
and disclosed or reported all personal Securities transactions required
to be disclosed or reported by this Code and Statement. Such certificates
and reports are to be given to the Compliance Officer.
8. SANCTIONS
Upon learning of a violation of this Code and Statement, any member of
the Alliance Group, with the advice of the Compliance Officer, may impose
such sanctions as it deems appropriate, including, among other things,
censure, suspension or termination of service. Individuals subject to
this Code and Statement who fail to comply with this Code and Statement
may also be violating the federal securities laws or other federal and
state laws. Any such person who is suspected of violating this Code and
Statement should be reported immediately to the Compliance Officer.
<PAGE>
CERTIFICATION
I hereby acknowledge receipt of the Code of Ethics and Statement of
Policy and Procedures Regarding Personal Securities Transactions (the "Code and
Statement") of Alliance Capital Management L.P. and its Subsidiaries. I certify
that I have read and understand the Code and Statement and recognize that I am
subject to its provisions. I also certify that I have complied with the
requirements of the Code and Statement and have disclosed or reported all
personal securities transactions required to be disclosed or reported pursuant
to the Code and Statement.
Name
-----------------------------------------
(PLEASE PRINT)
Signature
-----------------------------------------
Date
-----------------------------------------
<PAGE>
APPENDIX A
ALLIANCE CAPITAL MANAGEMENT L.P.
EMPLOYEE COMPLIANCE STATEMENT
I hereby certify that I have read and understand the Code of Ethics and
Statement of Policy and Procedures Regarding Personal Securities Transactions
(the "Code and Statement"), dated August 1999 and hereby agree, in consideration
of my continued employment by Alliance Capital Management L.P. or one of its
subsidiaries, to comply with the policies and procedures contained in the Code
and Statement.
1. In connection therewith, I agree to:
a. file with the Compliance Officer and maintain on a current basis a
list of ALL Personal Accounts (as defined in paragraph 2(h) of the
Code and Statement);
b. arrange to have duplicate trade confirmations and periodic
statements for EACH Personal Account submitted to the Compliance
Officer directly by the securities firm maintaining the
Account(s); and
c. be personally responsible for determining if any security
transaction for my Personal Account(s) is prohibited by the Code
and Statement or any other Alliance policy statement.
2. The following Personal Account(s) are maintained at the broker-dealer(s)
and/or financial institution(s) named below (if none write "none"):
a. registered in my name at the following BROKER-DEALER(S) AND/OR
FINANCIAL INSTITUTION(S):
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
b. registered in the name of my spouse at the following
BROKER-DEALER(S) AND/OR FINANCIAL INSTITUTION(S):
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
<PAGE>
c. registered in the name of a family member who resides with me at
the following BROKER-DEALER(S) AND/OR FINANCIAL INSTITUTION(S):
name of family member name of broker-dealer and/or financial
institution(s)
--------------------
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--------------------
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--------------------
-------------------------------------------------
d. registered in the name of any other person who resides with me
and is financially dependent on me at the following
BROKER-DEALER(S) AND/OR FINANCIAL INSTITUTION(S):
name of person name of broker-dealer and/or financial
institution(s)
--------------------
-------------------------------------------------
--------------------
-------------------------------------------------
--------------------
-------------------------------------------------
e. registered in the name of any other person who does not reside
with me, but who is financially dependent on me, at the following
BROKER-DEALER(S) AND/OR FINANCIAL INSTITUTION(S):
name of person name of broker-dealer and/or financial
institution(s)
--------------------
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--------------------
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--------------------
-------------------------------------------------
3. I have investment discretion over the following other account(s) at the
following BROKER-DEALER(S) AND/OR FINANCIAL INSTITUTION(S) (do NOT list
Client accounts):
name and description name of broker-dealer and/or
of account financial institution(s)
--------------------
-------------------------------------------------
--------------------
<PAGE>
-------------------------------------------------
--------------------
-------------------------------------------------
4. I will notify the Compliance Officer if a Personal Account is opened or
closed. If the answers to paragraphs a through e of Section 2 above are
all "none", I certify that neither I nor any member of my family who
resides with me, any other person who resides with me currently and is
financially dependent on me, or any other person who is financially
dependent on me maintains a BROKERAGE ACCOUNT OR OTHER TYPE OF FINANCIAL
ACCOUNT.
- ---------------------------- ------------------------------
Date Employee Signature
------------------------------
Type or print name
<PAGE>
BARCLAYS GLOBAL INVESTORS, N.A.
And its Subsidiaries:
BARCLAYS GLOBAL FUNDS ADVISORS
BARCLAYS GLOBAL INVESTORS SERVICES
CODE OF ETHICS
INTRODUCTION
Barclays Global Investors, N.A. and its subsidiaries Barclays Global Funds
Advisors (BGFA) and Barclays Global Investors Services (BGIS), collectively
referred to as "BGI", have adopted the following Code of Ethics regarding
personal securities transaction policies and procedures intended to prevent
their US officers, directors and employees from engaging in any fraudulent or
manipulative acts with respect to accounts managed or advised by BGI as set
forth in SEC 17 CFR 270 Rule 17j-1, SEC 17 CFR 275 Rule 204-2 and OCC Regulation
12 CFR 12.7. Policies and Procedures on Insider Trading and Chinese Walls are
included in Appendix A.
DEFINITIONS
"Securities" are defined as any SEC registered or privately placed equity and
fixed income security, future or option contract, or other related commodity
derivative investment. This includes closed-end mutual funds, unit investment
trusts, physical-form securities, and exchange traded funds. "Securities" do not
include US Treasuries and other direct obligations of the US Government,
banker's acceptance, commercial paper, and shares of registered open- end
investment companies.
"Employee" include any US directors, officers and employees of BGI and his/her
spouse, domestic partner, minor children, a relative who shares the employee's
home or other persons by reason of any contract, arrangement, understanding or
relationship that provides to the employee with sole or shared voting or
investment powers.
"Personal Account" includes any securities account or portfolio in which
securities are held for the employee in which the employee has a direct or
indirect pecuniary (monetary) interest. The term includes IRA and 401(k)
accounts in which securities can be purchased or sold.
<PAGE>
PROHIBITED TRADING ACTIVITIES
INSIDER TRADING
- - All employees are prohibited from engaging in insider trading or tipping.
Insider trading occurs when a personal securities transaction occurs on the
basis of or while in possession of material, nonpublic information. Information
is considered material if it could reasonably affect the employee's decision to
invest (or not to invest) in a security. Nonpublic information is that which is
generally not available to the ordinary investors in the marketplace.
Refer to Appendix A for further details on insider trading.
PARALLEL TRADING, FRONT RUNNING AND SHADOWING RESTRICTIONS
- - All employees are prohibited from conducting personal securities
transactions that are considered parallel trading, front running and
shadowing.
Shadowing and parallel trading occur when an employee observes a BGI trade or
trading pattern and places the same (or similar) trade in his/her account or
passes the information to others inside or outside of the company. Front running
occurs when an employee uses (or passes to others who use the information)
advance knowledge of a BGI trade to enter into a personal transaction in the
same security ahead of BGI's order and to capitalize on the impact of the BGI
order.
RESTRICTED TRADING ACTIVITIES
TRADING IN BARCLAYS PLC SECURITIES AND SECURITIES UNDERWRITTEN BY BARCLAYS'
AFFILIATES
- - All Members of the Board of Directors of BGI, members of the Management
Committee, employees reporting directly to BGI's Chief Financial Officer
and all employees within the U.S. and Global Finance and Treasury Groups
are prohibited from trading in the securities of Barclays PLC during the
period from the end of the accounting year or half year until the relevant
results are announced, i.e., from January 1 to the preliminary results
announcement in February and from July 1 to the interim results
announcement in August. During other times, these individuals must
pre-clear trades in Barclays PLC securities in accordance with the Barclays
PLC policy.
- - Access Persons are not permitted to purchase securities underwritten by
Barclays' affiliates as manager or co-manager for a period of sixty days
after an offering is commenced.
<PAGE>
REQUIREMENTS FOR ALL EMPLOYEES
REPORTING OF PERSONAL ACCOUNTS AND SECURITIES TRANSACTIONS
- - All employees must disclose all personal accounts to US Compliance and must
authorize US Compliance to receive duplicate trade confirmations and
account statements.
- - Upon employment, new employees must sign a document stating that they
understand and agree to abide by BGI's personal trading requirements,
restrictions and prohibitions.
ANNUAL CERTIFICATION
- - All employees must provide an annual certification of their personal
accounts and securities holdings.
- - All employees must certify at least annually their understanding and
compliance with the Code of Ethics.
60 DAY HOLDING PERIOD
- - Employees are required to hold securities including options and futures for
a minimum of 60 days, and to avoid short-term trading practices. US
Compliance may pre-approve exceptions to the 60 day holding period.
PRE-CLEARANCE PRIOR TO TRANSACTIONS IN IPOS, PRIVATE PLACEMENTS, OPTIONS, AND
FUTURES
- - All employees must obtain pre-clearance for transactions in IPOs, private
placements, options and futures. For options and futures, the employee must
execute the transaction by the end the next business day or request another
pre-clearance.
BLACKOUT PERIODS
- - Employees are restricted from trading securities in selected indexes during
a designated "blackout" period when the specific index is undergoing a
major scheduled reconstitution. US Compliance will notify employees of the
"blackout" periods which will include the period 15 days before and after a
major scheduled index reconstitution.
ADDITIONAL REQUIREMENTS FOR ACCESS PERSONS
Access persons include all employees whose Group 1) participates in making
securities
<PAGE>
purchase and sell recommendations or 2) may have access to timely and material
information concerning BGI's securities transactions. Access Persons also
include the Boards of Directors and officers of BGFA and BGIS.
US Compliance will identify BGI's Access Persons who are required to submit
reports under this Code of Ethics and inform them of their reporting and
securities preclearance obligations.
REPORTING OF SECURITIES TRANSACTIONS AND HOLDINGS
- - All Access Persons must provide a listing of securities holdings to US
Compliance within 10 calendar days from when a personal account is opened
and provide US Compliance with transaction information until such time as
US Compliance receives duplicate confirmations and statements.
- - All newly hired Access Persons must provide a complete listing of
securities holdings on their initial day of employment.
ACCESS PERSONS REQUIRING PRE-CLEARANCE BY MANAGEMENT AND US COMPLIANCE
All Access Persons, whose Group directly participates in making securities
purchase or sell recommendations or has timely and material knowledge of BGI's
securities transactions, must pre-clear their personal securities transactions
with their Group manager in addition to pre-clearance by US Compliance. The
manager will verify that there is no timely or material knowledge of trades
pending for specific securities within the Access Person's Group. These Groups
include Portfolio Management, Trading, Trading Operations, Client Order
Management, Transition Services, Index Research Group, Alpha Strategy Group and
other Groups identified by US Compliance from time to time.
ACCESS PERSONS REQUIRING PRE-CLEARANCE FROM US COMPLIANCE ONLY
- - The following Groups have access to information relating to BGI's
securities transactions. Employees within these Groups must pre-clear their
securities transactions with US Compliance. These Groups include Internal
Audit, US Compliance, US Risk Management, the US Executive Committee, US
members of the Management Committee, BGFA and BGIS Board of Directors and
officers. In addition, all BGI staff who have access to the following
systems must also pre-clear trades with US Compliance: Landmark, Bulk
Console, Beacon, Bidbook, Fifus, TOC, ITOC, TSC, IntelProd, Quantex and any
other systems identified by US Compliance from time to time.
Pre-clearance authorization is valid until the next day's closing of the
relevant market.
<PAGE>
Access Persons are not required to pre-clear transactions in accounts managed by
a registered investment advisor for which full discretion has been granted.
Documentation of such an arrangement must be provided and an exemption must be
obtained from US Compliance who will confirm the discretionary arrangement.
Pre-clearance is not required for transactions in automatic dividend
reinvestment plans, periodic stock purchase plans or in selling or exercising
rights obtained as a shareholder in an issue.
MONITORING OF PERSONAL SECURITIES TRANSACTIONS
POST TRADE REVIEW
- - US Compliance will review personal securities transactions to identify
violations of the Code of Ethics. Violations to this policy will be
reviewed by management and disciplinary action may be taken up to and
including dismissal.
ADOPTION AND APPROVAL OF BGI CODE OF ETHICS
- - US Compliance will present the BGI Code of Ethics for approval by the Board
of Directors or Trustees of all funds for which BGFA or BGIS is the
investment advisor. This will be done at the initiation of investment
advisory services provided by BGFA or BGIS to the fund and no later than
six months after a material change has been adopted. In connection with
each approval, BGFA and BGIS will certify to the board that they have
adopted procedures reasonably necessary to prevent the Access Persons from
materially violating the BGI Code of Ethics.
- - BGFA and BGIS will provide to the fund's board a written report describing
issues, material violations and sanctions, and will certify to the board
that procedures have been adopted which are intended to prevent Access
Persons from violating the BGI Code of Ethics. This report and
certification will be submitted Code of Ethics at least annually.
RECORDKEEPING REQUIREMENTS
BGI will follow the recordkeeping practices outlined below:
- - A copy of the Code of Ethics that is in effect, or at any time within the
past five years was in effect, will be maintained in an easily accessible
place.
- - A record of any violation of the Code of Ethics, and of any action taken as
a result of the violation, will be maintained in an easily accessible place
for at least five years after the end of the fiscal year in which the
violation occurs.
<PAGE>
- - A copy of each personal account statement, trade confirmation and any
information provided in lieu of a report will be retained for five years,
two years in an easily accessible location.
- - A record of all persons, currently or within the past five years, who are
or were required to make reports, and who are or were responsible for
reviewing these reports will be retained in an easily accessible location.
- - A copy of each report submitted to a fund board pursuant to the Code of
Ethics will be maintained for at least five years after the end of the
fiscal year in which it is made, two years in an easily accessible
location.
- - A record of any decision to approve and the reasons supporting the decision
to approve the acquisition by employees of IPOs and private placements will
be maintained for at least five years after the end of the fiscal year in
which the approval is granted.
<PAGE>
APPENDIX A
INSIDER TRADING AND CHINESE WALL POLICY
A. INTRODUCTION
The continued success of Barclays depends on its relationships with its
customers and on its well-deserved reputation as an institution grounded in
a tradition of integrity and ethical conduct in all of its dealings. To
maintain this high standard and, thus, Barclays' reputation in today's
regulatory and business climate, requires strict observance of ethical
behavior as well as of legal obligations created by the Federal securities
laws and specific contractual undertakings of Barclays such as
confidentiality agreements. This Policy emphasizes generally the importance
of adhering to professional and ethical conduct and provides specific
policies and, in certain instances, procedures, with respect to Personal
Securities Transactions and Chinese Walls. These guidelines will help
employees meet Barclays' contractual, ethical and statutory obligations.
BGI EMPLOYEES WHO VIOLATE THESE POLICIES AND PROCEDURES WILL BE SUBJECT TO
SUCH DISCIPLINARY ACTION AS MANAGEMENT DEEMS APPROPRIATE, INCLUDING A
LETTER OF CENSURE OR SUSPENSION, OR REMOVAL FROM OFFICE, OR SUMMARY
TERMINATION OF EMPLOYMENT.
B. INSIDER TRADING
All employees must strictly comply with Federal, provincial or state
securities laws in transactions on behalf of Barclays and in their own
personal transactions. Such securities laws prohibit trading on material
non-public information ("Insider Trading") or communicating such
information to others who may trade on it ("Tipping").
What constitutes material non-public information ("Inside Information")
must be determined on the basis of all pertinent circumstances. First, the
information must be material. Material information is generally defined as
(i) information for which there is a substantial likelihood that a
reasonable investor would consider it important in making his or her
investment decisions, or (ii) information that is reasonably certain to
have a substantial effect on the price of a company's securities. Second,
the information must be non-public. Information that has been communicated
to the market place is generally public and, therefore, not Inside
Information. For example, information found in a filing or a report made
with the Securities and Exchange Commission or appearing in newspapers,
industry journals, financial newsletters or other publications would be
considered public, although information obtained by word-of-mouth or
through rumors
<PAGE>
would not necessarily be public. Information that is known only inside a
company or to a limited number of outsiders such as accountants, bankers,
financial advisors or attorneys, is not public.
The following information will generally be Inside Information if not
publicly known: (a) information concerning a company, including information
concerning its business, financial matters and management, such as changes
in earnings or dividends, significant technical achievements, important
discoveries of natural resources, the obtaining or losing of major
contracts, or changes in management; and (b) information concerning a
company's securities, including the market for a security or its terms,
such as a prospective tender offer, merger or acquisition, prospective
block trade, prospective private placement or public offering, impending
stock dividend or stock split or proposed recapitalization. A BGI employee
who had any of the types of Inside Information described above would be
guilty of Tipping if he or she (a) either communicated the Information to
another person or (b) simply told another person, without explanation, to
buy or sell the securities of that company, and the other person did indeed
purchase such securities as a result of such Tipping. Similarly, a staff
member, possessing Inside Information, would be guilty of Insider Trading
if he or she bought or sold securities for his or her personal account, or
for BGI's account, based on that Inside Information.
C. CONFIDENTIALITY AND CHINESE WALL POLICY
Beyond simply complying with the letter of the law, employees are expected
to understand and observe the highest professional and ethical standards in
conducting BGI's business. All BGI employees have a duty to respect the
confidential nature of information received from customers and to use that
information only for the purpose for which it is provided, whether or not
that information is Inside Information and regardless of the basis on which
confidentiality is required - whether it be statutory requirements, ethical
considerations or contractual obligations. Maintaining strict standards
with respect to the confidentiality of information will accomplish several
goals. It will enable BGI to (a) preserve its reputation for corporate
integrity, (b) maintain compliance with the Federal securities laws, and
(c) reduce the occurrence of conflicts of interest both within divisions
(and even within teams) as well as between separate operating entities of
Barclays. Indeed, maintaining strict standards of confidentiality will
enable BGI to serve the needs of its customers more effectively.
In certain areas Chinese Walls will be, or have been, established to ensure
that employees have adopted procedures to safeguard the confidentiality of
information. The term "Chinese Wall" is a familiar one to most people.
However, what it means or how it actually operates in the workplace is
often misunderstood.
<PAGE>
A Chinese Wall is a barrier that controls or restricts the flow of
confidential information. It is essentially a system or set of procedures
designed to segregate information and prevent the communication of that
information between certain people or operating areas. The procedures that
comprise each Chinese Wall may vary depending on the location of the
particular wall or the times when it is operative. A Chinese Wall may need
to be in place only at certain times or on a constant basis. A Chinese Wall
may need to be located between various operating areas, between divisions,
between teams within a division and even, temporarily, between staff who
are on the same team but assigned to different accounts. The existence and
proper maintenance of Chinese Walls will allow Barclays to serve
simultaneously the needs of customers who have competing interests. For the
most part, the maintenance of Chinese Walls will reduce the occurrence of
conflicts of interest within Barclays as well as reduce the possibility of
abuse of Inside Information.
Regardless of the existence of specific Chinese Walls, the following
procedures should be observed by all employees at all times:
1. Never communicate confidential information to anyone outside Barclays
except for communications with auditors, approved counsel or other experts
who have been specifically engaged for certain matters. Communicate
confidential information inside Barclays only on a need-to-know basis.
2. Do not communicate confidential information through a Chinese Wall
unless permission is obtained from the appropriate designated manager or
the Manager of Compliance.
3. Never discuss confidential information in a public place such as an
elevator, a restaurant or a hallway.
4. Always log off your computer before leaving the area for any length of
time and at the end of the day.
5. Use systems and information solely for authorized activities.
6. Notify a supervisor of any unauthorized use or misuse of the system or
information or any activity that appears questionable.
7. Maintain the secrecy of passwords and other system access
identification.
8. Prevent others from using a terminal to which another employee has
logged on until that employee has logged off.
9. Keep documents and papers containing confidential information in
locked file
<PAGE>
cabinets or other secured facilities. Do not leave papers and documents
containing confidential information exposed on desks or credenzas.
<PAGE>
EMPLOYEE INVESTMENT TRANSACTION POLICY
For
BLACKROCK, INC.
And
ITS AFFILIATED COMPANIES
Effective March 1, 2000
<PAGE>
EMPLOYEE INVESTMENT TRANSACTION POLICY
TABLE OF CONTENTS
TABLE OF CONTENTS..............................................................i
I. PREAMBLE.................................................................1
A. General Principles..............................................1
B. The General Scope Of The Policy's Application To
Personal Investment Transactions................................3
C. The Organization Of This Policy.................................3
D. Questions.......................................................4
II. PERSONAL INVESTMENT TRANSACTIONS.........................................4
A. In General......................................................4
B. Reporting Obligations...........................................4
1. Use Of Broker-Dealers And Futures Commission
Merchants..............................................4
2. Initial Report.........................................4
3. New Accounts...........................................5
4. Timely Reporting Of Investment Transactions............6
5. Related Accounts.......................................6
6. Exemptions From Reporting..............................6
C. Prohibited Or Restricted Investment Transactions................7
1. Initial Public Offerings...............................7
2. Private Placements.....................................7
D. Investment Transactions Requiring Prior Notification............7
1. Prior Notification Procedure...........................8
2. Exemptions From Prior Notification.....................8
(a) Transactions Exempt From Prior Notification...9
(b) Securities Exempt From Prior Notification.....9
(c) Futures Contracts Exempt From Prior
Notification..................................9
E. Ban On Short-Term Trading Profits..............................10
<PAGE>
F. Blackout Periods...............................................10
1. Specific Blackout Periods............................10
2. Exemptions From Blackout Restrictions................11
III. INSIDE INFORMATION AND SERVICE AS A DIRECTOR............................11
A. Inside Information............................................11
B. Service As A Director.........................................12
IV. EXEMPTIONS..............................................................12
V. COMPLIANCE..............................................................13
A. Certifications.................................................13
1. Upon Receipt Of This Policy...........................13
2. Annual Certificate Of Compliance......................13
B. Supervisory Procedures.........................................14
1. The Compliance Committee..............................14
2. The Compliance Officer................................14
3. Post-Trade Monitoring And Investigations..............14
4. Remedial Actions......................................15
5. Reports Of Violations Requiring Significant
Remedial Action.......................................15
6. Annual Reports........................................15
VI. EFFECTIVE DATE..........................................................16
APPENDICES
I. Definitions Of Capitalized Terms
II. Acknowledgment Of Receipt Of The Policy
III. Annual Certification Of Compliance With The Policy
IV. Initial Report Of Accounts
V. Request For Duplicate Broker Reports
VI. Investment Transaction Prior Notification Form
VII. Fully Discretionary Account Form
-ii-
<PAGE>
EMPLOYEE INVESTMENT TRANSACTION POLICY
FOR BLACKROCK, INC. AND
ITS AFFILIATED COMPANIES
I. PREAMBLE
A. GENERAL PRINCIPLES
This Employee Investment Transaction Policy (the "Policy") is based on
the principle that you, as an officer, director or other Advisory Employee of an
Advisor affiliated with BlackRock, Inc. ("BlackRock"), owe a fiduciary duty of
undivided loyalty to the registered investment companies, institutional
investment clients, personal trusts and estates, guardianships, employee benefit
trusts, and other Advisory Clients which that Advisor serves.(1) Accordingly,
you must avoid transactions, activities, and relationships that might interfere
or appear to interfere with making decisions in the best interests of those
Advisory Clients.
At all times, you must observe the following GENERAL PRINCIPLES:
1. YOU MUST PLACE THE INTERESTS OF ADVISORY CLIENTS FIRST. As a
fiduciary you must scrupulously avoid serving your own
personal interests ahead of the interests of Advisory Clients.
You must adhere to this general fiduciary principle as well as
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(1) This Policy uses a number of CAPITALIZED TERMS, E.G., Advisor, Advisory
Client, Advisory Employee, Beneficial Ownership, Exempt Security, Fixed Income
Security, Fully Discretionary Account, Futures Contract, Immediate Family,
Investment Transaction, Personal Account, Portfolio Employee, Portfolio Manager,
Related Account, and Security. The first time a capitalized term is used, a
definition is stated in the text or in a footnote. The full definitions of these
capitalized terms are set forth in Appendix I. TO UNDERSTAND YOUR
RESPONSIBILITIES UNDER THE POLICY, IT IS IMPORTANT THAT YOU REVIEW AND
UNDERSTAND ALL OF THE DEFINITIONS OF CAPITALIZED TERMS IN APPENDIX I. As
indicated in Appendix I:
The term "ADVISOR" means any entity affiliated with BlackRock, whether
now in existence or formed after the date hereof, that is registered as
(i) an investment advisor under the Investment Advisers Act of 1940, as
amended, or (ii) a broker-dealer under the Securities Exchange Act of
1934, as amended, other than any such investment advisor or
broker-dealer that has adopted its own employee investment transaction
policy.
The term "ADVISORY CLIENT" means a registered investment company, an
institutional investment client, a personal trust or estate, a
guardianship, an employee benefit trust, or another client with which
the Advisor by which you are employed or with which you are associated
has an investment management, advisory or sub-advisory contract or
relationship.
The term "ADVISORY EMPLOYEE" means an officer, director, or employee of
an Advisor, or any other person identified as a "control person" on the
Form ADV or the Form BD filed by the Advisor with the U.S. Securities
and Exchange Commission, (1) who, in connection with his or her regular
functions or duties, generates, participates in, or obtains information
regarding that Advisor's purchase or sale of a Security by or on behalf
of an Advisory Client; (2) whose regular functions or duties relate to
the making of any recommendations with respect to such purchases or
sales; (3) who obtains information or exercises influence concerning
investment recommendations made to an Advisory Client of that Advisor;
or (4) who has line oversight or management responsibilities over
employees described in (1), (2) or (3), above.
<PAGE>
comply with the Policy's specific provisions. Technical
compliance with the Policy will not automatically insulate
from scrutiny any Investment Transaction(2) that indicates
an abuse of your fiduciary duties or that creates an
appearance of such abuse.
Your fiduciary obligation applies not only to your personal
Investment Transactions but also to actions taken on behalf of
Advisory Clients. In particular, you may not cause an Advisory
Client to take action, or not to take action, for your
personal benefit rather than for the benefit of the Advisory
Client. For example, you would violate this Policy if you
caused an Advisory Client to purchase a Security you owned for
the purpose of increasing the value of that Security. If you
are a Portfolio Employee,(3) you would also violate this
Policy if you made a personal investment in a Security that
might be an appropriate investment for an Advisory Client
without first considering the Security as an investment for
the Advisory Client.
- -----------------------
(2) For purposes of this Policy, the term "INVESTMENT TRANSACTION" means
any transaction in a Security or Futures Contract in which you have, or by
reason of the transaction will acquire, a Beneficial Ownership interest.
As a GENERAL MATTER, the term "SECURITY" means any stock, note, bond,
debenture or other evidence of indebtedness (including any loan participation or
assignment), limited partnership interest or investment contract OTHER THAN AN
EXEMPT SECURITY (as defined above). The term "Security" includes an OPTION on a
Security, an index of Securities, a currency or a basket of currencies,
including such an option traded on the Chicago Board of Options Exchange or on
the New York, American, Pacific or Philadelphia Stock Exchanges as well as such
an option traded in the over-the-counter market. The term "Security" does NOT
include a physical commodity or a Futures Contract.
The term "FUTURES CONTRACT" includes (a) a futures contract and an
option on a futures contract traded on a U.S. or foreign board of trade, such as
the Chicago Board of Trade, the Chicago Mercantile Exchange, the New York
Mercantile Exchange, or the London International Financial Futures Exchange (a
"Publicly-Traded Futures Contract"), as well as (b) a forward contract, a
"swap", a "cap", a "collar", a "floor" and an over-the-counter option (other
than an option on a foreign currency, an option on a basket of currencies, an
option on a Security or an option on an index of Securities) (a
"Privately-Traded Futures Contract").
As a GENERAL MATTER, you are considered to have a "BENEFICIAL
OWNERSHIP" interest in a Security or Futures Contract if you have the
opportunity, directly or indirectly, to profit or share in any profit derived
from a transaction in that Security or Futures Contract. YOU ARE PRESUMED TO
HAVE A BENEFICIAL OWNERSHIP INTEREST IN ANY SECURITY OR FUTURES CONTRACT HELD,
INDIVIDUALLY OR JOINTLY, BY YOU AND/OR BY A MEMBER OF YOUR IMMEDIATE FAMILY (AS
DEFINED BELOW). In addition, unless specifically excepted by the Compliance
Officer based on a showing that your interest or control is sufficiently
attenuated to avoid the possibility of a conflict, you will be considered to
have a Beneficial Ownership interest in a Security held by: (1) a JOINT ACCOUNT
to which you are a party, (2) a PARTNERSHIP in which you are a general partner,
(3) a LIMITED LIABILITY COMPANY in which you are a manager-member, (4) a TRUST
in which you or a member of your Immediate Family has an interest or (5) an
INVESTMENT CLUB in which you are a member.
See Appendix I for more complete definitions of the terms "Beneficial
Ownership," "Futures Contract," and "Security."
(3) The term "PORTFOLIO EMPLOYEE" means a Portfolio Manager or an Advisory
Employee who provides information or advice to a Portfolio Manager, who helps
execute a Portfolio Manager's decisions, or who directly supervises a Portfolio
Manager. The term "PORTFOLIO MANAGER" means any employee of an Advisor who has
the authority, whether sole or shared or only from time to time, to make
investment decisions or to direct trades affecting an Advisory Client.
-2-
<PAGE>
2. YOU MUST CONDUCT ALL OF YOUR PERSONAL INVESTMENT TRANSACTIONS
IN FULL COMPLIANCE WITH THIS POLICY, THE PNC CODE OF ETHICS,
AND THE OTHER POLICIES OF PNC BANK CORP. ("PNC") (including
the policies that prohibit insider trading or that restrict
trading in PNC Securities). BlackRock encourages you and your
family to develop personal investment programs. However, those
investment programs must remain within boundaries reasonably
necessary to insure that appropriate safeguards exist to
protect the interests of our Advisory Clients and to avoid
even the APPEARANCE of unfairness or impropriety. Doubtful
situations should be resolved in favor of our Advisory Clients
and against your personal Investment Transactions.
3. YOU MUST NOT TAKE INAPPROPRIATE ADVANTAGE OF YOUR POSITION.
The receipt of investment opportunities, perquisites, gifts or
gratuities from persons seeking to do business, directly or
indirectly, with BlackRock, an affiliate, or an Advisory
Client could call into question the independence of your
business judgment. Doubtful situations should be resolved
against your personal interests.
B. THE GENERAL SCOPE OF THE POLICY'S APPLICATION TO PERSONAL
INVESTMENT TRANSACTIONS
Rule 17j-1 under the Investment Company Act of 1940, as amended,
requires REPORTING of all personal Investment Transactions in Securities (other
than certain "Exempt Securities") by Advisory Employees, whether or not they are
Securities that might be purchased or sold by or on behalf of an Advisory
Client. This Policy implements that reporting requirement.
However, since a primary purpose of the Policy is to avoid conflicts of
interest arising from personal Investment Transactions in Securities and other
instruments that are held or might be acquired on behalf of Advisory Clients,
this Policy only places RESTRICTIONS on personal Investment Transactions in such
investments. This Policy also requires reporting and restricts personal
Investment Transactions in certain Futures Contracts which, although they are
not Securities, are instruments that Advisors buy and sell for Advisory Clients.
Although this Policy applies to all officers, directors and other
Advisory Employees of BlackRock, the Policy recognizes that Portfolio Managers,
and the other Portfolio Employees who provide them with advice and who execute
their decisions, occupy more sensitive positions than other Advisory Employees,
and that it is appropriate to subject their personal Investment Transactions to
greater restrictions.
C. THE ORGANIZATION OF THIS POLICY
The remainder of this Policy is divided into four main topics. Section
II concerns PERSONAL INVESTMENT TRANSACTIONS. Section III describes restrictions
that apply to Advisory Employees who receive INSIDE INFORMATION or seek to serve
on a BOARD OF DIRECTORS OR SIMILAR GOVERNING BODY. Section IV outlines the
procedure for seeking case-by-case EXEMPTIONS from the Policy's requirements.
Section V summarizes the methods for ensuring COMPLIANCE under this Policy. In
addition, the following APPENDICES are also a part of this Policy:
I. Definitions Of Capitalized Terms
II. Acknowledgment Of Receipt Of The Policy
III. Annual Certification Of Compliance With The Policy
IV. Initial Report Of Accounts
-3-
<PAGE>
V. Request For Duplicate Broker Reports
VI. Investment Transaction Prior Notification Form
VII. Fully Discretionary Account Form
D. QUESTIONS
Questions regarding this Policy should be addressed to the Compliance
Officer. If you have any question regarding the interpretation of this Policy or
its application to a potential Investment Transaction, you should consult the
Compliance Officer BEFORE you execute that transaction.
II. PERSONAL INVESTMENT TRANSACTIONS
A. IN GENERAL
Subject to the limited exceptions described below, you are required to
REPORT all Investment Transactions in Securities and Futures Contracts made by
you, a member of your Immediate Family, a trust or an investment club in which
you have an interest, or on behalf of any account in which you have an interest
or which you direct.(4) In addition, you must provide PRIOR NOTIFICATION of
certain Investment Transactions in Securities and Futures Contracts that an
Advisor holds or may acquire on behalf of an Advisory Client. (The exercise of
an option is an Investment Transaction for purposes of these requirements.) The
details of these reporting and prior notification requirements are described
below.
B. REPORTING OBLIGATIONS
1. USE OF BROKER-DEALERS AND FUTURES COMMISSION
MERCHANTS
YOU MUST USE A REGISTERED BROKER-DEALER OR FUTURES COMMISSION MERCHANT
to engage in any purchase or sale of a publicly traded Security or Futures
Contract. This requirement also applies to any purchase or sale of a Security or
Futures Contract in which you have, or by reason of the Investment Transaction
will acquire, a Beneficial Ownership interest. Thus, as a general matter, any
Securities or Futures Contract transactions by members of your Immediate Family
will need to be made through a registered broker-dealer or futures commission
merchant.
2. INITIAL REPORT
Within 10 days of commencing employment or within 10 days of any event
that causes you to become subject to this Policy, you must supply to the
Compliance Officer copies of the most recent statements for each and every
Personal Account and Related Account that holds or is likely to hold a Security
or Futures Contract in which you have a Beneficial Ownership interest, as well
as copies of confirmations for any and all transactions subsequent to the
effective dates of
- ---------------------------
(4) The term "IMMEDIATE FAMILY" means any of the following persons who
RESIDE IN YOUR HOUSEHOLD OR WHO DEPEND ON YOU FOR BASIC LIVING SUPPORT: your
spouse, any child, stepchild, grandchild, parent, stepparent, grandparent,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including any adoptive relationships.
-4-
<PAGE>
those statements.(5) These documents should be supplied to the Compliance
Officer by attaching them to the form attached hereto as Appendix IV.
On that same form you should supply the name of any registered
broker-dealer and/or futures commission merchant and the number for any Personal
Account and Related Account that holds or is likely to hold a Security or
Futures Contract in which you have a Beneficial Ownership interest for which you
CANNOT supply the most recent account statement. You must also certify, where
indicated on the form, that the contents of the form and the documents attached
thereto disclose all such Personal Accounts and Related Accounts.
In addition, you must also supply, where indicated on the form, the
following information for each Security or Futures Contract in which you have a
Beneficial Ownership interest, to the extent that this information is not
available from the statements attached to the form:
1. A description of the Security or Futures Contract,
including its name or title;
2. The quantity (E.G., in terms of numbers of shares,
units or contracts) and value (in dollars) of the
Security or Futures Contract; and
3. The custodian of the Security or Futures Contract.
- ----------------------------
(5) The term "PERSONAL ACCOUNT" means the following accounts that hold or
are likely to hold a Security or Futures Contract in which you have a Beneficial
Ownership interest:
- any account in your individual name;
- any joint or tenant-in-common account in which you have an
interest or are a participant;
- any account for which you act as trustee, executor, or custodian;
and
- any account over which you have investment discretion or have the
power (whether or not exercised) to direct the acquisition or
disposition of Securities or Futures Contracts (other than an
Advisory Client's account that you manage or over which you have
investment discretion), including the accounts of any individual
or entity that is managed or controlled directly or indirectly by
or through you, such as the account of an investment club to
which you belong. There is a presumption that you can control
accounts held by members of your Immediate Family sharing the
same household. This presumption may be rebutted only by
convincing evidence.
The term "RELATED ACCOUNT" means any account, other than a Personal
Account, that holds a Security or Futures Contract in which you have a direct or
indirect Beneficial Ownership interest (other than an account over which you
have no investment discretion and cannot otherwise exercise control) and any
account (other than an Advisory Client's account) of any individual or entity to
whom you give advice or make recommendations with regard to the acquisition or
disposition of Securities or Futures Contracts (whether or not such advice is
acted upon).
-5-
<PAGE>
3. NEW ACCOUNTS
Upon the opening of a new Personal Account or a Related Account that
holds or is likely to hold a Security or a Futures Contract in which you have a
Beneficial Ownership interest, you must give written notice to the Compliance
Officer of the name of the registered broker-dealer or futures commission
merchant for that account, the identifying number for that Personal Account or
Related Account and the date that the account was established.
4. TIMELY REPORTING OF INVESTMENT TRANSACTIONS
You must cause each broker-dealer or futures commission merchant that
maintains a Personal Account or a Related Account that holds a Security or a
Futures Contract in which you have a Beneficial Ownership interest to provide to
the Compliance Officer, on a timely basis, duplicate copies of confirmations of
all transactions in that account and of periodic statements for that account
("Duplicate Broker Reports"). A form for that purpose is attached hereto as
Appendix V.
In addition, you must report to the Compliance Officer, on a timely basis, any
transaction in a Security or Futures Contract in which you have or acquired a
Beneficial Ownership interest that was made without the use of a registered
broker-dealer or futures commission merchant.
5. RELATED ACCOUNTS
The reporting obligations described above also apply to any Related
Account (as defined in Appendix I) and to any Investment Transaction in a
Related Account.
It is important that you recognize that the definitions of "Personal
Account," "Related Account" and "Beneficial Ownership" in Appendix I probably
will require you to provide, or to arrange for the broker-dealer or futures
commission merchant to furnish, copies of reports for any account used by or for
a member of your Immediate Family or a trust in which you or a member of your
Immediate Family has an interest, as well as for any other accounts in which you
may have the opportunity, directly or indirectly, to profit or share in the
profit derived from any Investment Transaction in that account, including the
account of any investment club to which you belong.
6. EXEMPTIONS FROM REPORTING
You need not report Investment Transactions in any account, including a
Fully Discretionary Account,(6) over which neither you nor an Immediate Family
Member has or had any direct or indirect influence or control. For example,
Investment Transactions in the account of
- -------------------------
(6) The term "FULLY DISCRETIONARY ACCOUNT" means a Personal Account or
Related Account managed or held by a broker-dealer, futures commission merchant,
investment advisor or trustee as to which neither you nor an Immediate Family
Member: (a) exercises any investment discretion; (b) suggests or receives notice
of transactions prior to their execution; and (c) you do not otherwise has any
direct or indirect influence or control. In addition, to qualify as a Fully
Discretionary Account, the individual broker, registered representative or
merchant responsible for that account must not be responsible for nor receive
advance notice of any purchase or sale of a Security or Futures Contract on
behalf of an Advisory Client. To qualify an account as a Fully Discretionary
Account, the Compliance Officer must receive and approve a written notice, in
the form attached hereto as Appendix VIII, that the account meets the foregoing
qualifications as a Fully Discretionary Account.
-6-
<PAGE>
your spouse in an employee benefit plan would not have to be reported if neither
you nor your spouse has any influence or control over those Investment
Transactions.
You also need not report Investment Transactions in Exempt Securities
nor need you furnish, or require a broker-dealer or futures commission merchant
to furnish, copies of confirmations or periodic statements for accounts that
hold ONLY Exempt Securities.(7) This includes accounts that only hold U.S.
Government securities, money market interests, or shares in registered open-end
investment companies (I.E., mutual funds). This exemption from reporting will
end immediately, however, at such time as there is an Investment Transaction in
that account in a Security that is not an Exempt Security.
C. PROHIBITED OR RESTRICTED INVESTMENT TRANSACTIONS
1. INITIAL PUBLIC OFFERINGS
As an Advisory Employee, you may not acquire Beneficial Ownership of
any Security in an initial public offering, except that, with the approval of
the Compliance Committee and the General Counsel of BlackRock, you may acquire
Beneficial Ownership of a Security in an initial public offering directed or
sponsored by BlackRock. For purposes of this Policy, an initial public offering
shall not include the purchase of a Security in an initial public offering by
(i) a savings bank to its depositors, (ii) a mutual insurance company to its
policyholders, (iii) an issuer of debt securities (other than debt securities
convertible into common or preferred stock) or (iv) with respect to an Advisory
Employee employed by BlackRock International, Ltd. a building society to its
depositors.
2. PRIVATE PLACEMENTS
If you are a Portfolio Employee, you may not acquire Beneficial
Ownership of any Security in a private placement, or subsequently sell that
interest, unless you have received the prior written approval of the Compliance
Officer and of any supervisor designated by the Compliance Officer. Approval
will not be given unless a determination is made that the investment opportunity
should not be reserved for one or more Advisory Clients, and that the
opportunity to invest has not been offered to you by virtue of your position
with an Advisor.
If you have acquired Beneficial Ownership of Securities in a private
placement, you must DISCLOSE that investment to your supervisor when you play a
part in any consideration of any investment by an Advisory Client in the issuer
of the Securities, and any decision to make such an investment must be
INDEPENDENTLY REVIEWED by a Portfolio Manager who does not have a Beneficial
Ownership interest in any Securities of the issuer.
- ---------------------------
(7) The term "EXEMPT SECURITY" means any Security (as defined in Appendix
I) not included within the definition of Security in SEC Rule 17j-1(e)(5) under
the Investment Company Act of 1940, as amended, including:
1. A direct obligation of the Government of the United States;
2. Shares of registered open-end investment companies (I.E.,
mutual funds); and
3. HIGH QUALITY SHORT-TERM DEBT INSTRUMENTS, including, but not
limited to, bankers' acceptances, bank certificates of
deposit, commercial paper and repurchase agreements.
See Appendix I for a more complete definition of "Exempt Security."
-7-
<PAGE>
D. INVESTMENT TRANSACTIONS REQUIRING PRIOR NOTIFICATION
You must give prior notification to the Compliance Officer of ANY
Investment Transaction in Securities or Futures Contracts in a Personal Account
or Related Account, or in which you otherwise have or will acquire a Beneficial
Ownership interest, UNLESS that Investment Transaction, Security or Futures
Contract falls into one of the following categories that are identified as
"exempt from prior notification." The purpose of prior notification is to permit
the Compliance Officer and the Compliance Committee to take reasonable steps to
investigate whether that Investment Transaction is in accordance with this
Policy. Satisfaction of the prior notification requirement does not, however,
constitute approval or authorization of any Investment Transaction for which you
have given prior notification. As a result, the primary responsibility for
compliance with this Policy rests with you.
1. PRIOR NOTIFICATION PROCEDURE
Prior notification must be given by completing and submitting to the
Compliance Officer a copy of the prior notification form attached hereto as
Appendix VII. No Investment Transaction requiring prior notification may be
executed prior to notice by the Compliance Officer that the prior notification
process has been completed. The time and date of that notice will be reflected
on the prior notification form. Unless otherwise specified, an Investment
Transaction requiring prior notification must be placed and executed by the end
of trading in New York City or, in the case of Advisory Employees employed by
BlackRock International, Ltd., by the end of trading in the United Kingdom on
the day of notice from the Compliance Officer that the prior notification
process has been completed. If a proposed Investment Transaction is not executed
(with the exception of a limit order) within the time specified, you must repeat
the prior notification process before executing the transaction. A notice from a
Compliance Officer that the prior notification process has been completed is no
longer effective if you discover, prior to executing your Investment
Transaction, that the information on your prior notification form is no longer
accurate, or if the Compliance Officer revokes his or her notice for any other
reason.
The Compliance Officer may undertake such investigation as he or she
considers necessary to investigate whether an Investment Transaction for which
prior notification has been sought complies with the terms of this Policy and is
consistent with the general principles described at the beginning of this
Policy.
As part of that investigation, the Compliance Officer or a designee of
the Compliance Officer will determine whether there is a pending BUY or SELL
order in the same equity Security or Futures Contract, or a Related Security, on
behalf of an Advisory Client.(8) If such an order exists, the Compliance Officer
will not provide notice that the prior notification process has been completed
UNTIL the Advisory Client's order is executed or withdrawn.
2. EXEMPTIONS FROM PRIOR NOTIFICATION
Prior notification will not be required for the following Investment
Transactions, Securities and Futures Contracts. They are exempt only from the
Policy's prior notification
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(8) The term "RELATED SECURITY" means, as to any Security, any instrument
related in value to that Security, including, but not limited to, any option or
warrant to purchase or sell that Security, and any Security convertible into or
exchangeable for that Security.
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requirement, and, unless otherwise indicated, remain subject to the Policy's
other requirements, including its reporting requirements.
(a) TRANSACTIONS EXEMPT FROM PRIOR NOTIFICATION
Prior notification is not required for any of the following Investment
Transactions:
1. Any Investment Transaction in a Fully Discretionary Account
that has been approved as such by the Compliance Officer.
2. Purchases of Securities under dividend reinvestment plans.
3. Purchases of Securities by an exercise of rights issued to the
holders of a class of Securities PRO RATA, to the extent those
rights are issued with respect to Securities of which you have
Beneficial Ownership.
4. Acquisitions or dispositions of Securities as the result of a
stock dividend, stock split, reverse stock split, merger,
consolidation, spin-off or other similar corporate
distribution or reorganization applicable to all holders of a
class of Securities of which you have Beneficial Ownership.
5. Purchases of common stock of PNC Bank Corp. under the Employee
Stock Purchase Plan.
6. With respect to Advisory Employees who are employed by
BlackRock International, Inc., automatic investments by direct
debit into a personal equity plan (PEP), or similar type of
plan in Exempt Securities if the pre-notification process was
completed for the first such investment.
7. Investment Transactions made by a person who serves on the
Board of Directors of an Advisor and is not involved with the
Advisory operations of such Advisor nor engages in the type of
activities described under (1) (2) or (3) under the term
Advisory Employee as defined in Appendix I.
(b) SECURITIES EXEMPT FROM PRIOR NOTIFICATION
Prior notification is not required for an Investment Transaction in an
Exempt Security, as defined in Appendix I, E.G., U.S. Government securities,
shares in registered open-end investment companies (I.E., mutual funds) and
"high quality short-term debt instruments" (as defined in Appendix I).
(c) FUTURES CONTRACTS EXEMPT FROM PRIOR
NOTIFICATION
Prior notification is not required for an Investment Transaction in the
following Futures Contracts:
1. Currency futures.
2. U.S. Treasury futures.
3. Eurodollar futures.
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4. Physical commodity futures (E.G., contracts for future
delivery of grain, livestock, fiber or metals).
5. Futures contracts to acquire Fixed Income Securities issued by
a U.S. Government agency, a foreign government, or an
international or supranational agency.
6. Futures contracts on the Standard and Poor's 500 (S&P 500) or
the Dow Jones Industrial Average stock indexes.
7. For Advisory Employees who are employed by BlackRock
International, Ltd., futures contracts on the Financial Times
Stock Exchange 100 (FTSE) Index.
E. BAN ON SHORT-TERM TRADING PROFITS
You may not profit from the purchase and sale, or the sale and
purchase, within 60 calendar days, of the same Securities and/or Related
Security. Any such short-term trade must be reversed or unwound, or if that is
not practical, the profits must be disgorged and distributed in a manner
determined by the Compliance Committee.
This short-term trading ban does NOT apply to Investment Transactions
in Exempt Securities (as defined in Appendix I) or in Futures Contracts. This
ban also does NOT apply to a purchase or sale in connection with a Transaction
Exempt From Prior Notification (as described above in Section II.D.2.(a)), a
transaction in a Fully Discretionary Account or a transaction exempt from the
"blackout" periods pursuant to Section II.F.2 below.
You are considered to profit from a short-term trade if Securities of
which you have Beneficial Ownership (including Securities held by Immediate
Family members) are sold for more than their purchase price, even though the
Securities purchased and the Securities sold are held of record or beneficially
by different persons or entities.
F. BLACKOUT PERIODS
Your ability to engage in certain Investment Transactions may be
prohibited or restricted during the "blackout" periods described below:
1. SPECIFIC BLACKOUT PERIODS
a. You may not purchase or sell a Security, a
Related Security, or Futures Contract at a
time when you intend or know of another's
intention to purchase or sell that same
Security, a Related Security, or Futures
Contract, on behalf of an Advisory Client of
ANY Advisor (the "Specific Knowledge
Blackout Period").
b. In addition, if you are a PORTFOLIO
EMPLOYEE, you may not purchase or sell a
Security, a Related Security or a Futures
Contract which you are actively considering
or which you have actively considered and
rejected for purchase or sale for an
Advisory Client within the previous 15
CALENDAR DAYS (the "15-Day Blackout
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Period") unless the Compliance Officer,
after consultation with your supervisor, has
approved your Investment Transaction.(9)
c. Finally, if you are a PORTFOLIO MANAGER, you
may not purchase or sell a Security, a
Related Security, or Futures Contract within
7 CALENDAR DAYS before or after a
transaction in that Security, a Related
Security, or Futures Contract, by an
Advisory Client for which you are
responsible (the "7-Day Blackout Period").
For Portfolio Employees or Portfolio Managers, the Compliance Officer
will not give such notice until any applicable 15-Day Blackout Period or 7-Day
Blackout Period has expired or any required approvals or exemptions have been
obtained. An Investment Transaction that violates one of these Blackout
restrictions must be reversed or unwound, or if that is not practical, the
profits must be disgorged and distributed in a manner determined by the
Compliance Committee.
2. EXEMPTIONS FROM BLACKOUT RESTRICTIONS
The foregoing blackout period restrictions do NOT apply to Investment
Transactions in:
a. Exempt Securities, as defined in Appendix I.
b. Securities of a company listed on the Standard & Poor's 100 (S
& P 100) Index.
c. A Futures Contract Exempt From Prior Notification under this
Policy (as described above).
d. A Fully Discretionary Account.
e. With respect to Advisory Employees who are employed by
BlackRock International, Ltd., securities of a company listed
on the Financial Times Stock Exchange 100 (FTSE 100).
III. INSIDE INFORMATION AND SERVICE AS A DIRECTOR
A. INSIDE INFORMATION
As an employee of a subsidiary of PNC, you must comply with the PNC
Insider Trading Policy. A copy of that policy is included in Section E of the
PNC Code of Ethics. In addition, as an Advisory Employee, you must notify the
General Counsel of BlackRock if you receive or expect to receive material
non-public information about an entity that issues securities. The General
Counsel will determine the restrictions, if any, that will apply to your
communications and activities while in possession of that information. In
general, those restrictions will include:
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(9) SEC Rule 17j-1 places restrictions on the purchase or sale of any
"security held or to be acquired" by a registered investment company. Rule
17j-1(e)(6) defines a "security held or to be acquired" by a registered
investment company as including any security which, within the most recent 15
days, "is being or has been considered by such company or its investment adviser
for purchase by such company."
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1. An undertaking not to trade, either on your own
behalf or on behalf of an Advisory Client, in the
securities of the entity about which you have
material non-public information.
2. An undertaking not to disclose material non-public
information to other Advisory Employees.
3. An undertaking not to participate in discussions
with or decisions by other Advisory Employees
relating to the entity about which you have material
non-public information.
The General Counsel, in cooperation with the Compliance Officer, will maintain a
"restricted list" of entities about which Advisory Employees may have material
non-public information. This "restricted list" will be available to the
Compliance Officer when he or she conducts investigations or reviews related to
the Prior Notification Procedure described previously in Section II(D)(1) or the
Post-Trade Monitoring process described below in Section V(B)(3).
B. SERVICE AS A DIRECTOR
You may not serve on the board of directors or other governing board of
any entity unless you have received the prior written approval of the General
Counsel of PNC, to the extent such approval is required under the terms of the
PNC Code of Ethics, and the General Counsel of BlackRock. If permitted to serve
on a governing board, an Advisory Employee will be ISOLATED from those Advisory
Employees who make investment decisions regarding the securities of that entity,
through a "Chinese wall" or other procedures determined by the General Counsel
of BlackRock. In general, the "Chinese wall" or other procedures will include:
1. An undertaking not to trade or to cause a trade on
behalf of an Advisory Client in the securities of
the entity on whose board you serve.
2. An undertaking not to disclose material non-public
information about that entity to other Advisory
Employees.
3. An undertaking not to participate in discussions
with or decisions by other Advisory Employees
relating to the entity on whose board you serve.
Any entity on whose board an Advisory Employee serves will be included on the
"restricted list" referenced in subsection A, above.
IV. EXEMPTIONS
The Compliance Committee, in its discretion, may grant case-by-case
exceptions to any of the foregoing requirements, restrictions or prohibitions,
except that the Compliance Committee may not exempt any Investment Transaction
in a Security (other than an Exempt Security) or a Futures Contract from the
Policy's reporting requirements. Exemptions from the Policy's prior notification
requirements and from the Policy's restrictions on acquisitions in initial
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public offerings, short-term trading and trading during blackout periods will
require a determination by the Compliance Committee that the exempted
transaction does not involve a realistic possibility of violating the general
principles described at the beginning of this Policy. An application for a
case-by-case exemption, in accordance with this paragraph, should be made IN
WRITING to the Compliance Officer, who will promptly forward that written
request to the members of the Compliance Committee.
V. COMPLIANCE
A. CERTIFICATIONS
1. UPON RECEIPT OF THIS POLICY
Upon commencement of your employment or the effective date of this
Policy, whichever occurs later, you will be required to acknowledge receipt of
your copy of this Policy by completing and returning to the Compliance Officer a
copy of the form attached hereto as Appendix II. By that acknowledgment, you
will also agree:
1. To read the Policy, to make a reasonable effort to
understand its provisions, and to ask the Compliance
Officer questions about those provisions you find
confusing or difficult to understand.
2. To comply with the Policy, including its general
principles, its reporting requirements, its
prohibitions, its prior notification requirements,
its short-term trading and blackout restrictions.
3. To advise the members of your Immediate Family about
the existence of the Policy, its applicability to
their personal Investment Transactions, and your
responsibility to assure that their personal
Investment Transactions comply with the Policy.
4. To cooperate fully with any investigation or inquiry
by or on behalf of the Compliance Officer or the
Compliance Committee to determine your compliance
with the provisions of the Policy.
In addition, your acknowledgment will recognize that any failure to comply with
the Policy and to honor the commitments made by your acknowledgment may result
in disciplinary action, including dismissal.
2. ANNUAL CERTIFICATE OF COMPLIANCE
You are required to certify on an annual basis, on a copy of the form
attached hereto as Appendix III, that you have complied with each provision of
your initial acknowledgment (see above). In particular, your annual
certification will require that you certify that you have read and that you
understand the Policy, that you recognize that you are subject to its
provisions, that you complied with the requirements of the Policy during the
year just ended, and that you have disclosed, reported, or caused to be reported
all Investment Transactions required to be disclosed or reported pursuant to the
requirements of the Policy and that you have disclosed, reported or caused to be
reported all Personal Accounts and Related Accounts that hold or are likely to
hold a Security or Futures Contract in which you have a Beneficial Ownership
interest. In addition, you will be required to confirm the accuracy of the
record of information on file with the Advisor with respect to such Personal
Accounts and Related Accounts.
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B. SUPERVISORY PROCEDURES
1. THE COMPLIANCE COMMITTEE
The Policy will be implemented, monitored and reviewed by the
Compliance Committee. The initial members of the Compliance Committee will be
appointed by the management committee of BlackRock. The Compliance Committee, by
a simple majority of its members, may appoint new members of the Committee, may
replace existing members of the Committee, and may fill vacancies on the
Committee. Among other responsibilities, the Compliance Committee will consider
requests for case-by-case exemptions (described above) and will conduct
investigations (described below) of any actual or suspected violations of the
Policy. The Compliance Committee will determine what remedial actions, if any,
should be taken by an Advisor in response to a violation of the Policy. The
Compliance Committee will also provide reports (described below) regarding
significant violations of the Policy and the procedures to implement the Policy.
The Compliance Committee may recommend changes to those procedures or to the
Policy to the management of the Advisors. Finally, the Compliance Committee will
designate one person to act as Compliance Officer for all Advisors.
2. THE COMPLIANCE OFFICER
The Compliance Officer designated by the Compliance Committee will be
responsible for the day-to-day administration of the Policy for all Advisors,
subject to the direction and control of the Compliance Committee. Based on
information supplied by the management of each Advisor, the Compliance Officer
will forward a copy of the Policy to each Advisory Employee subject to the
Policy and will notify each such person of his or her designation as an Advisory
Employee, Portfolio Employee or Portfolio Manager. The Compliance Officer will
also be responsible for administration of the reporting and prior notification
functions described in the Policy, and will maintain the reports required by
those functions. In addition, the Compliance Officer will attempt to answer any
questions from an Advisory Employee regarding the interpretation or
administration of the Policy. When necessary or desirable, the Compliance
Officer will consult with the Compliance Committee about such questions. The
Compliance Officer may designate one or more Assistant Compliance Officers to
whom the Compliance Officer may delegate any of the duties described in this
paragraph or in the succeeding paragraph, and who shall be empowered to act on
the Compliance Officer's behalf when the Compliance Officer is absent or
unavailable.
3. POST-TRADE MONITORING AND INVESTIGATIONS
The Compliance Officer will review the Duplicate Broker Reports and
other information supplied for each Advisory Employee so that the Compliance
Officer can detect and prevent potential violations of the Policy. This
information may also be disclosed to the Advisor's auditors, attorneys and
regulators. If, based on his or her review of information supplied for an
Advisory Employee, or based on other information, the Compliance Officer
suspects that the Policy may have been violated, the Compliance Officer will
perform such investigations and make such inquiries as he or she considers
necessary. You should expect that, as a matter of course, the Compliance Officer
will make inquiries regarding any personal Investment Transaction in a Security
or Futures Contract that occurs on the same day as a transaction in the same
Security or Futures Contract on behalf of an Advisory Client. If the Compliance
Officer reaches a preliminary conclusion that an Advisory Employee may have
violated this Policy, the Compliance Officer will report that preliminary
conclusion in a timely manner to the Compliance Committee and will furnish to
the Committee all information that relates to the Compliance Officer's
preliminary conclusion. The Compliance Officer may also report his or her
preliminary conclusion and the information relating to that preliminary
conclusion to the Advisor's auditors, attorneys and regulators.
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Promptly after receiving the Compliance Officer's report of a possible
violation of the Policy, the Compliance Committee, with the aid and assistance
of the Compliance Officer, will conduct an appropriate investigation to
determine whether the Policy has been violated and will determine what remedial
action should be taken by the Advisor in response to any such violation(s). For
purposes of these determinations, a majority of the Compliance Committee will
constitute a quorum and action taken by a simple majority of that quorum will
constitute action by the Committee.
4. REMEDIAL ACTIONS
The remedial actions that may be recommended by the Compliance
Committee may include, but are not limited to, disgorgement of profits,
imposition of a fine, censure, demotion, suspension or dismissal. As part of any
sanction, E.G., for violation of the Policy's restrictions on short-term trading
or trading during blackout periods, you may be required to reverse or unwind a
transaction and to forfeit any profit or to absorb any loss from the
transaction. If an Investment Transaction may not be reversed or unwound, you
may be required to disgorge any profits associated with the transaction, which
profits will be distributed in a manner prescribed by the Compliance Committee
in the exercise of its discretion. Profits derived from Investment Transactions
in violation of this Policy may not be offset by any losses from Investment
Transactions in violation of this Policy. Finally, evidence suggesting
violations of criminal laws will be reported to the appropriate authorities, as
required by applicable law.
In determining what, if any, remedial action is appropriate in response
to a violation of the Policy, the Compliance Committee will consider, among
other factors, the gravity of your violation, the frequency of your violations,
whether any violation caused harm or the potential of harm to any Advisory
Client, whether you knew or should have known that your Investment Transaction
violated the Policy, whether you engaged in an Investment Transaction with a
view to making a profit on the anticipated market action of a transaction by an
Advisory Client, your efforts to cooperate with the Compliance Officer's
investigation, and your efforts to correct any conduct that led to a violation.
In rare instances, the Compliance Committee may find that, for equitable
reasons, no remedial action should be taken.
5. REPORTS OF VIOLATIONS REQUIRING SIGNIFICANT REMEDIAL
ACTION
In a timely manner, and not less frequently than annually, the
Compliance Committee will report to the management committee of BlackRock, and
to the directors or trustees of each investment company that is an Advisory
Client, any known Policy violation requiring significant remedial action (as
defined below) and the disposition of that violation. For this purpose, a
SIGNIFICANT REMEDIAL ACTION means any action that has a significant financial
effect on the violator. Evidence suggesting violations of criminal laws will be
reported to the appropriate authorities, as required by applicable law.
6. ANNUAL REPORTS
The Compliance Committee will furnish an annual report to the
management committee of BlackRock, and to the directors or trustees of each
investment company that is an Advisory Client, that, at a minimum, will:
1. Summarize existing procedures and restrictions concerning
personal investing by Advisory Employees and any changes in
those procedures and restrictions that were made during the
previous year;
2. Summarize any violations of the Policy that resulted in
significant remedial action during the previous year; and
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3. Describe any changes in existing procedures or restrictions
that the Compliance Committee recommends based upon its
experience under the Policy, evolving industry practices, or
developments in applicable laws or regulations.
VI. EFFECTIVE DATE
The provisions of this Policy will take effect on October 1, 1998.
Amendments to this Policy will take effect at the time such amendments are
promulgated and distributed to the Advisory Employees governed by this Policy.
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APPENDIX I
DEFINITIONS OF CAPITALIZED TERMS
The following definitions apply to the capitalized terms used in the
Policy:
ADVISOR
The term "Advisor" means any entity affiliated with BlackRock, whether
now in existence or formed after the date hereof, that is registered as (i) an
investment advisor under the Investment Advisers Act of 1940, as amended, or
(ii) a broker-dealer under the Securities Exchange Act of 1934, as amended,
other than any such investment advisor or broker-dealer that has adopted its own
employee investment transaction policy.
ADVISORY CLIENT
The term "Advisory Client" means a registered investment company, an
institutional investment client, a personal trust or estate, a guardianship, an
employee benefit trust, or another client with which the Advisor by which you
are employed or with which you are associated has an investment management,
advisory or sub-advisory contract or relationship.
ADVISORY EMPLOYEE
The term "Advisory Employee" means an officer, director, or employee of
an Advisor, or any other person identified as a "control person" on the Form ADV
or the Form BD filed by the Advisor with the U.S. Securities and Exchange
Commission, (1) who, in connection with his or her regular functions or duties,
generates, participates in, or obtains information regarding that Advisor's
purchase or sale of a Security by or on behalf of an Advisory Client; (2) whose
regular functions or duties relate to the making of any recommendations with
respect to such purchases or sales; or (3) who obtains information or exercises
influence concerning investment recommendations made to an Advisory Client of
that Advisor or who has line oversight or management responsibilities over
employees who obtain such information or who exercise such influence.
BENEFICIAL OWNERSHIP
As a GENERAL MATTER, you are considered to have a "Beneficial
Ownership" interest in a Security or Futures Contract if you have the
opportunity, directly or indirectly, to profit or share in any profit derived
from a transaction in that Security. YOU ARE PRESUMED TO HAVE A BENEFICIAL
OWNERSHIP INTEREST IN ANY SECURITY OR FUTURES CONTRACT HELD, INDIVIDUALLY OR
JOINTLY, BY YOU AND/OR BY A MEMBER OF YOUR IMMEDIATE FAMILY (AS DEFINED BELOW).
In addition, unless specifically excepted by the Compliance Officer based on a
showing that your interest or control is sufficiently attenuated to avoid the
possibility of a conflict, you will be considered to have a Beneficial Ownership
interest in a Security or Futures Contract held by: (1) a JOINT ACCOUNT to which
you are a party, (2) a PARTNERSHIP in which you are a general partner, (3) a
LIMITED LIABILITY COMPANY in which you are a manager-member, or (4) a TRUST in
which you or a member of your Immediate Family has a vested interest. Although
you may have a Beneficial Ownership interest in a Security or Futures Contract
held in a Fully Discretionary Account (as defined below), the application of
this Policy to such a Security or Futures Contract may be modified by the
special exemptions provided for Fully Discretionary Accounts.
As a TECHNICAL MATTER, the term "Beneficial Ownership" for purposes of
this Policy will be interpreted in the same manner as it would be under SEC Rule
16a-1(a)(2) in determining
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whether a person has beneficial ownership of a security for purposes of Section
16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder.
BLACKROCK
The term "BlackRock" means BlackRock, Inc.
COMPLIANCE COMMITTEE
The term "Compliance Committee" means the committee of persons who have
responsibility for implementing, monitoring and reviewing the Policy, in
accordance with Section V(B)(1) of the Policy.
COMPLIANCE OFFICER
The term "Compliance Officer" means the person designated by the
Compliance Committee as responsible for the day-to-day administration of the
Policy in accordance with Section V(B)(2) of the Policy.
DUPLICATE BROKER REPORTS
The term "Duplicate Broker Reports" means duplicate copies of
confirmations of transactions in your Personal or Related Accounts and of
periodic statements for those accounts.
EXEMPT SECURITY
The term "Exempt Security" means any Security (as defined below) not
included within the definition of Security in SEC Rule 17j-1(e)(5) under the
Investment Company Act of 1940, as amended, including:
1. A direct obligation of the Government of the United States;
2. Shares of registered open-end investment companies; and
3. HIGH QUALITY SHORT-TERM DEBT INSTRUMENTS, including, but not limited
to, bankers' acceptances, bank certificates of deposit, commercial
paper and repurchase agreements. For these purposes, a "HIGH QUALITY
SHORT-TERM DEBT INSTRUMENT" means any instrument having a maturity at
issuance of less than 366 days and which is rated in one of the highest
two rating categories by a Nationally Recognized Statistical Rating
Organization, or which is unrated but is of comparable quality.
4. For Advisory Employees employed by BlackRock International, Ltd.,
shares of authorized unit trusts, open-ended investment companies
(OEIC's) and direct obligations of the Government of the United
Kingdom.
FIXED INCOME SECURITIES
For purposes of this Policy, the term "Fixed Income Securities" means
fixed income Securities issued by agencies or instrumentalities of, or
unconditionally guaranteed by, the Government of the United States, corporate
debt Securities, mortgage-backed and other asset-backed Securities, fixed income
Securities issued by state or local governments or the political subdivisions
thereof, structured notes and loan participations, foreign government debt
Securities, and debt Securities of international agencies or supranational
agencies. For purposes
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of this Policy, the term "Fixed Income Securities" will not be interpreted to
include U.S. Government Securities or any other Exempt Security (as defined
above).
FULLY DISCRETIONARY ACCOUNT
The term "Fully Discretionary Account" means a Personal Account or
Related Account (as defined below) managed or held by a broker-dealer, futures
commission merchant, investment advisor or trustee as to which neither you nor
an Immediate Family Member (as defined below): (a) exercises any investment
discretion; (b) suggests or receives notice of transactions prior to their
execution; and (c) otherwise has any direct or indirect influence or control. In
addition, to qualify as a Fully Discretionary Account, the individual broker,
registered representative or merchant responsible for that account must not be
responsible for nor receive advance notice of any purchase or sale of a Security
or Futures Contract on behalf of an Advisory Client. To qualify an account as a
Fully Discretionary Account, the Compliance Officer must receive and approve a
written notice, in the form attached hereto as Appendix VIII, that the account
meets the foregoing qualifications as a Fully Discretionary Account.
FUTURES CONTRACT
The term "Futures Contract" includes (a) a futures contract and an
option on a futures contract traded on a U.S. or foreign board of trade, such as
the Chicago Board of Trade, the Chicago Mercantile Exchange, the New York
Mercantile Exchange, or the London International Financial Futures Exchange (a
"Publicly-Traded Futures Contract"), as well as (b) a forward contract, a
"swap", a "cap", a "collar", a "floor" and an over-the-counter option (other
than an option on a foreign currency, an option on a basket of currencies, an
option on a Security or an option on an index of Securities, which fall within
the definition of "Security") (a "Privately-Traded Futures Contract"). You
should consult with the Compliance Officer if you have any doubt about whether a
particular Investment Transaction you contemplate involves a Futures Contract.
For purposes of this definition, a Publicly-Traded Futures Contract is defined
by its expiration month, I.E., a Publicly-Traded Futures Contract on a U.S.
Treasury Bond that expires in June is treated as a separate Publicly-Traded
Futures Contract, when compared to a Publicly-Traded Futures Contract on a U.S.
Treasury Bond that expires in July.
IMMEDIATE FAMILY
The term "Immediate Family" means any of the following persons who
RESIDE IN YOUR HOUSEHOLD OR WHO DEPEND ON YOU FOR BASIC LIVING SUPPORT: your
spouse, any child, stepchild, grandchild, parent, stepparent, grandparent,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including any adoptive relationships.
INVESTMENT TRANSACTION
For purposes of this Policy, the term "Investment Transaction" means
any transaction in a Security or Futures Contract in which you have, or by
reason of the transaction will acquire, a Beneficial Ownership interest. The
exercise of an option to acquire a Security or Futures Contract is an Investment
Transaction in that Security or Futures Contract.
PERSONAL ACCOUNT
The term "Personal Account" means the following accounts that hold or
are likely to hold a Security or Futures Contract in which you have a Beneficial
Ownership interest:
- any account in your individual name;
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- any joint or tenant-in-common account in which you have an
interest or are a participant;
- any account for which you act as trustee, executor, or
custodian; and
- any account over which you have investment discretion or have
the power (whether or not exercised) to direct the acquisition
or disposition of Securities or Futures Contracts (other than
an Advisory Client's account that you manage or over which you
have investment discretion), including the accounts of any
individual or entity that is managed or controlled directly or
indirectly by or through you. There is a presumption that you
can control accounts held by members of your Immediate Family
sharing the same household. This presumption may be rebutted
only by convincing evidence.
POLICY
The term "Policy" means this Employee Investment Transaction Policy.
PORTFOLIO EMPLOYEE
The term "Portfolio Employee" means a Portfolio Manager or an Advisory
Employee who provides information or advice to a Portfolio Manager, who helps
execute a Portfolio Manager's decisions, or who directly supervises a Portfolio
Manager.
PORTFOLIO MANAGER
The term "Portfolio Manager" means any employee of an Advisor who has
the authority, whether sole or shared or only from time to time, to make
investment decisions or to direct trades affecting an Advisory Client.
RELATED ACCOUNT
The term "Related Account" means any account, other than a Personal
Account, that holds a Security or Futures Contract in which you have a direct or
indirect Beneficial Ownership interest (other than an account over which you
have no investment discretion and cannot otherwise exercise control) and any
account (other than an Advisory Client's account) of any individual or entity to
whom you give advice or make recommendations with regard to the acquisition or
disposition of Securities or Futures Contracts (whether or not such advice is
acted upon).
RELATED SECURITY
The term "Related Security" means, as to any Security, any instrument
related in value to that Security, including, but not limited to, any option or
warrant to purchase or sell that Security, and any Security convertible into or
exchangeable for that Security. For example, the purchase and exercise of an
option to acquire a Security is subject to the same restrictions that would
apply to the purchase of the Security itself.
SECURITY
As a GENERAL MATTER, the term "Security" means any stock, note, bond,
debenture or other evidence of indebtedness (including any loan participation or
assignment), limited partnership interest, or investment contract, OTHER THAN AN
EXEMPT SECURITY (as defined above). The term "Security" includes an OPTION on a
Security, an index of Securities, a currency or a basket of
A-4
<PAGE>
currencies, including such an option traded on the Chicago Board of Options
Exchange or on the New York, American, Pacific or Philadelphia Stock Exchanges
as well as such an option traded in the over-the-counter market. The term
"Security" does NOT include a physical commodity or a Futures Contract. The term
"Security" may include an interest in a limited liability company (LLC) or in a
private investment fund.
As a TECHNICAL MATTER, the term "Security" has the meaning set forth in
Section 2(a)(36) of the Investment Company Act of 1940, which defines a Security
to mean:
Any note, stock, treasury stock, bond debenture, evidence of
indebtedness, certificate of interest or participation in any
profit-sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a security,
fractional undivided interest in oil, gas, or other mineral rights, any
put, call, straddle, option, or privilege on any security (including a
certificate of deposit) or on any group or index of securities
(including any interest therein or based on the value thereof), or any
put, call, straddle, option, or privilege entered into on a national
securities exchange relating to foreign currency, or, in general, any
interest or instrument commonly known as a "security", or any
certificate of interest or instrument commonly known as a "security",
or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, warrant or right to
subscribe to or purchase any of the foregoing,
EXCEPT THAT the term "Security" does not include any Security that is an Exempt
Security (as defined above), a Futures Contract (as defined above), or a
physical commodity (such as foreign exchange or a precious metal).
A-5
<PAGE>
CONFIDENTIAL INFORMATION AND
SECURITIES TRADING POLICY
<PAGE>
CONTENTS
- ---------------------------
<TABLE>
<S> <C>
Page
INTRODUCTION ............................................................................ 1
PART I
APPLICABLE TO ALL ASSOCIATES
SECTION ONE
CONFIDENTIAL INFORMATION.................................................... 2
-Types of Confidential Information.......................................... 2
-Rules for Protecting Confidential Information.............................. 3
-Supplemental Procedures.................................................... 4
SECTION TWO
INSIDER TRADING AND TIPPING................................................. 5
-Legal Prohibitions......................................................... 5
-Mellon's Policy............................................................ 6
SECTION THREE
RESTRICTIONS ON THE FLOW OF INFORMATION
WITHIN MELLON (THE "CHINESE WALL").......................................... 7
-Rules for Maintaining the Chinese Wall..................................... 7
-Reporting Receipt of Material Nonpublic Information........................ 8
-Functions "Above the Wall"................................................. 9
-Supplemental Procedures.................................................... 9
SECTION FOUR
RESTRICTIONS ON TRANSACTIONS IN MELLON SECURITIES...........................10
-Beneficial Ownership.......................................................11
SECTION FIVE
RESTRICTIONS ON TRANSACTIONS IN OTHER SECURITIES............................12
SECTION SIX
CLASSIFICATION OF ASSOCIATES................................................14
-Insider Risk Associate.....................................................14
-Investment Associate.......................................................15
-Other Associate............................................................15
PART II
APPLICABLE TO INSIDER
RISK ASSOCIATES ONLY ............................................................................16
-Prohibition on Investments in Securities of Financial
Services Organizations....................................................16
-Conflict of Interest.......................................................17
-Preclearance for Personal Securities Transactions..........................17
-Personal Securities Transactions Reports...................................19
-Confidential Treatment.....................................................19
<PAGE>
PART III
APPLICABLE TO INVESTMENT
ASSOCIATES ONLY ............................................................................20
-Special Standards of Conduct for Investment Associates.....................20
-Preclearance for Personal Securities Transactions..........................21
-Personal Securities Transactions Reports...................................23
-Confidential Treatment.....................................................24
PART IV
APPLICABLE TO OTHER
ASSOCIATES ONLY ............................................................................25
-Preclearance for Personal Securities Transactions..........................25
-Personal Securities Transactions Reports...................................25
-Restrictions on Transactions in Other Securities...........................25
-Confidential Treatment.....................................................26
PART V
APPLICABLE TO NONMANAGEMENT
BOARD MEMBERS ............................................................................27
-Nonmanagement Board Member.................................................27
-Standards of Conduct for Nonmanagement Board Member........................27
-Preclearance for Personal Securities Transactions..........................28
-Personal Securities Transactions Reports...................................29
-Confidential Treatment.....................................................29
GLOSSARY
DEFINITIONS.................................................................30
INDEX OF EXHIBITS
.............................................................................33
</TABLE>
<PAGE>
INTRODUCTION
- --------------------------
Mellon Bank Corporation ("Mellon") and its associates,
and the registered investment companies for which The
Dreyfus Corporation ("Dreyfus") and/or Mellon serves as
investment adviser, sub-investment adviser or
administrator, are subject to certain laws and
regulations governing the use of confidential
information and personal securities trading. Mellon has
developed this CONFIDENTIAL INFORMATION AND SECURITIES
TRADING POLICY (THE "POLICY") to establish specific
standards to promote compliance with applicable laws.
Further, the Policy is intended to protect Mellon's
business secrets and proprietary information as well as
that of its customers and any entity for which it acts
in a fiduciary capacity.
The Policy set forth procedures and limitations which
govern the personal securities transactions of every
Mellon associate and certain other individuals
associated with the registered investment companies for
which Dreyfus and/or Mellon serves as investment
adviser, sub-investment adviser or administrator. The
Policy is designed to reinforce Mellon's reputation for
integrity by avoiding even the appearance of impropriety
in the conduct of Mellon's business.
Associates should be aware that they may be held
personally liable for any improper or illegal acts
committed during the course of their employment, and
that "ignorance of the law" is not a defense. Associates
may be subject to civil penalties such as fines,
regulatory sanctions including suspensions, as well as
criminal penalties.
Associates outside the United States are also subject to
applicable laws of foreign jurisdictions, which may
differ substantially from U.S. law and which may subject
such associates to additional requirements. Such
associates must comply with applicable requirements of
pertinent foreign laws as well as with the provisions of
the Policy. To the extent any particular portion of the
Policy is inconsistent with foreign law, associates
should consult the General Counsel or the Manager of
Corporate Compliance.
Any provision of this Policy may be waived or exempted
at the discretion of the Manager of Corporate
Compliance. Any such waiver or exemption will be
evidenced in writing and maintained in the Risk
Management and Compliance Department.
Associates must read the Policies and MUST
COMPLY with them. Failure to comply with the
provisions of the Policies may result in the
imposition of serious sanctions, including
but not limited to disgorgement of profits,
dismissal, substantial personal liability
and referral to law enforcement agencies or
other regulatory agencies. Associates should
retain the Policies in their records for
future reference. Any questions regarding
the Policies should be referred to the
Manager of Corporate Compliance or his/her
designee.
1
<PAGE>
PART I - APPLICABLE TO ALL ASSOCIATES
- ----------------------------
SECTION ONE
CONFIDENTIAL INFORMATION
As an associate you may receive information about
Mellon, its customers and other parties that, for
various reasons, should be treated as confidential. All
associates are expected to strictly comply with measures
necessary to preserve the confidentiality of
information.
TYPES OF CONFIDENTIAL INFORMATION - Although it is
impossible to provide an exhaustive list of information
that should remain confidential, the following are
examples of the general types of confidential
information that associates might receive in the
ordinary course of carrying out their job
responsibilities.
- INFORMATION OBTAINED FROM BUSINESS RELATIONS - An
associate might receive confidential information
regarding customers or other parties with whom Mellon
has business relationships. If released, such
information could have a significant effect on their
operations, their business reputations or the market
price of their securities. Disclosing such information
could expose both the associate and Mellon to liability
for damages.
- MELLON FINANCIAL INFORMATION - An associate might
receive financial information regarding Mellon before
such information has been disclosed to the public. It is
the policy of Mellon to disclose all material corporate
information to the public in such a manner that all
those who are interested in Mellon and its securities
have equal access to the information. Disclosing such
information to unauthorized persons could subject both
the associate and Mellon to liability under the federal
securities laws.
- MELLON PROPRIETARY INFORMATION - Certain nonfinancial
information developed by Mellon - such as business
plans, customer lists, methods of doing business,
computer software, source codes, databases and related
documentation - constitutes valuable Mellon proprietary
information. Disclosure of such information to
unauthorized persons could harm, or reduce a benefit to,
Mellon and could result in liability for both the
associate and Mellon.
- MELLON EXAMINATION INFORMATION - Banks and certain other
Mellon subsidiaries are periodically examined by
regulatory agencies. Certain reports made by those
regulatory agencies are the property of those agencies
and are strictly confidential. Giving information from
these reports to anyone not officially connected with
Mellon is a criminal offense.
- PORTFOLIO MANAGEMENT INFORMATION - Portfolio management
information relating to investment accounts or funds
managed by Mellon or Dreyfus, including investment
decisions or strategies developed for the benefit of
investment companies advised by Dreyfus, is for the
benefit of such account or fund. Disclosure or
exploitation of such information by an associate in an
unauthorized manner may cause detriment to such accounts
or funds and may subject the associate to liability
under the federal securities laws.
2
<PAGE>
RULES FOR PROTECTING CONFIDENTIAL INFORMATION - The
following are some basic rules to follow to protect
confidential information.
- LIMITED COMMUNICATION TO OUTSIDERS - Confidential
information should not be communicated to anyone outside
Mellon, except to the extent they need to know the
information in order to provide necessary services to
Mellon.
- LIMITED COMMUNICATION TO INSIDERS - Confidential
information should not be communicated to other
associates, except to the extent they need to know the
information to fulfill their job responsibilities and
their knowledge of the information is not likely to
result in misuse or a conflict of interest. In this
regard, Mellon has established specific restrictions
with respect to material nonpublic information in order
to separate and insulate different functional areas and
personnel within Mellon. Please refer to Section Three,
"Restrictions on The Flow of Information Within Mellon"
(The "Chinese Wall").
- CORPORATE USE ONLY - Confidential information should be
used only for Corporate purposes. Under no circumstances
may an associate use it, directly or indirectly, for
personal gain or for the benefit of any outside party
who is not entitled to such information.
- OTHER CUSTOMERS - Where appropriate, customers should be
made aware that associates will not disclose to them
other customers' confidential information or use the
confidential information of one customer for the benefit
of another.
- NOTIFICATION OF CONFIDENTIALITY - When confidential
information is communicated to any person, either inside
or outside Mellon, they should be informed of the
information's confidential nature and the limitations on
its further communication.
- PREVENTION OF EAVESDROPPING - Confidential matters
should not be discussed in public or in places, such as
in building lobbies, restaurants or elevators, where
unauthorized persons may overhear. Precautions, such as
locking materials in desk drawers overnight, stamping
material "Confidential" and delivering materials in
sealed envelopes, should be taken with written materials
to ensure they are not read by unauthorized persons.
- DATA PROTECTION - Data stored on personal computers and
diskettes should be properly secured to ensure they are
not accessed by unauthorized persons. Access to computer
files should be granted only on a need-to-know basis. At
a minimum, associates should comply with applicable
Mellon policies on electronic data security.
3
<PAGE>
- CONFIDENTIALITY AGREEMENTS - Confidentiality agreements
to which Mellon is a party must be complied with in
addition to, but not in lieu of, this Policy.
Confidentiality agreements that deviate from commonly
used forms should be reviewed in advance by the Legal
Department.
- CONTACT WITH THE PUBLIC - All contacts with
institutional shareholders or securities analysts about
Mellon must be made through the Investor Relations
Division of the Finance Department. All contacts with
the media and all speeches or other public statements
made on behalf of Mellon or about Mellon's businesses
must be cleared in advance by Corporate Affairs. In
speeches and statements not made on behalf of Mellon,
care should be taken to avoid any implication that
Mellon endorses the views expressed.
SUPPLEMENTAL PROCEDURES - Mellon entities, departments,
divisions and groups should establish their own
supplemental procedures for protecting confidential
information, as appropriate. These procedures may
include:
- establishing records retention and destruction policies;
- using code names;
- limiting the staffing of confidential matters (for
example, limiting the size of working groups and the use
of temporary employees, messengers and word processors);
and
- requiring written confidentiality agreements from
certain associates.
ANY SUPPLEMENTAL PROCEDURES SHOULD BE USED ONLY TO
PROTECT CONFIDENTIAL INFORMATION AND NOT TO CIRCUMVENT
APPROPRIATE REPORTING AND RECORDKEEPING REQUIREMENTS.
4
<PAGE>
SECTION TWO
INSIDER TRADING AND TIPPING
LEGAL PROHIBITIONS - Federal securities laws generally
prohibit the trading of securities while in possession
of "material nonpublic" information regarding the issuer
of those securities (insider trading). Any person who
passes along the material nonpublic information upon
which a trade is based (tipping) may also be liable.
"MATERIAL" - Information is material if there is a
substantial likelihood that a reasonable investor would
consider it important in deciding whether to buy, sell
or hold securities. Obviously, information that would
affect the market price of a security would be material.
Examples of information that might be material include:
- a proposal or agreement for a merger, acquisition or
divestiture, or for the sale or purchase of substantial
assets;
- tender offers, which are often material for the party
making the tender offer as well as for the issuer of the
securities for which the tender offer is made;
- dividend declarations or changes;
- extraordinary borrowings or liquidity problems;
- defaults under agreements or actions by creditors,
customers or suppliers relating to a company's credit
standing;
- earnings and other financial information, such as large
or unusual write-offs, write-downs, profits or losses;
- pending discoveries or developments, such as new
products, sources of materials, patents, processes,
inventions or discoveries of mineral deposits;
- a proposal or agreement concerning a financial
restructuring;
- a proposal to issue or redeem securities, or a
development with respect to a pending issuance or
redemption of securities;
- a significant expansion or contraction of operations;
- information about major contracts or increases or
decreases in orders;
- the institution of, or a development in, litigation or a
regulatory proceeding;
- developments regarding a company's senior management;
- information about a company received from a director of
that company; and
- information regarding a company's possible noncompliance
with environmental protection laws.
This list is not exhaustive. All relevant circumstances
must be considered when determining whether an item of
information is material.
5
<PAGE>
"NONPUBLIC" - Information about a company is nonpublic
if it is not generally available to the investing
public. Information received under circumstances
indicating that it is not yet in general circulation and
which may be attributable, directly or indirectly, to
the company or its insiders is likely to be deemed
nonpublic information.
If an associate can refer to some public source to show
that the information is generally available (that is,
available not from inside sources only) and that enough
time has passed to allow wide dissemination of the
information, the information is likely to be deemed
public. While information appearing in widely accessible
sources - such as newspapers - becomes public very soon
after publication, information appearing in less
accessible sources - such as regulatory filings - may
take up to several days to be deemed public. Similarly,
highly complex information might take longer to become
public than would information that is easily understood
by the average investor.
MELLON'S POLICY - Associates who possess material
nonpublic information about a company - whether that
company is Mellon, another Mellon entity, a Mellon
customer or supplier, or other company - may not trade
in that company's securities, either for their own
accounts or for any account over which they exercise
investment discretion. In addition, associates may not
recommend trading in those securities and may not pass
the information along to others, except to associates
who need to know the information in order to perform
their job responsibilities with Mellon. These
prohibitions remain in effect until the information has
become public.
Associates who have investment responsibilities should
take appropriate steps to avoid receiving material
nonpublic information. Receiving such information could
create severe limitations on their ability to carry out
their responsibilities to Mellon's fiduciary customers.
Associates managing the work of consultants and
temporary employees who have access to the types of
confidential information described in this Policy are
responsible for ensuring that consultants and temporary
employees are aware of Mellon's policy and the
consequences of noncompliance.
Questions regarding Mellon's policy on material
nonpublic information, or specific information that
might be subject to it, should be referred to the
General Counsel.
6
<PAGE>
SECTION THREE
RESTRICTIONS ON THE FLOW OF
INFORMATION WITHIN MELLON
(THE "CHINESE WALL")
As a diversified financial services organization, Mellon
faces unique challenges in complying with the
prohibitions on insider trading and tipping of material
nonpublic information and misuse of confidential
information. This is because one Mellon unit might have
material nonpublic information about a company while
other Mellon units may have a desire, or even a
fiduciary duty, to buy or sell that company's securities
or recommend such purchases or sales to customers. To
engage in such broad-ranging financial services
activities without violating laws or breaching Mellon's
fiduciary duties, Mellon has established a "Chinese
Wall" policy applicable to all associates. The "Chinese
Wall" separates the Mellon units or individuals that are
likely to receive material nonpublic information
(Potential Insider Functions) from the Mellon units or
individuals that either trade in securities - for
Mellon's account or for the accounts of others - or
provide investment advice (Investment Functions).
EXAMPLES OF POTENTIAL INSIDER FUNCTIONS - Potential
Insider Functions include, among others, certain
commercial lending, corporate finance, and credit policy
areas. Insider Risk Associates (see Section Six,
"Insider Risk Associates") should consider themselves to
be in Potential Insider Functions unless their
particular job responsibilities clearly indicate
otherwise.
EXAMPLES OF INVESTMENT FUNCTIONS - Investment Functions
include, among others, securities sales and trading,
investment management and advisory services, investment
research and various trust or fiduciary functions.
RULES FOR MAINTAINING THE "CHINESE WALL" - Without the
prior approval of the General Counsel, material
nonpublic information obtained by anyone in a Potential
Insider Function should not be communicated to anyone in
an Investment Function. To reduce the risk of material
nonpublic information being communicated, communications
between these associates in these functions must be
limited to the maximum extent consistent with valid
business needs.
PARTICULAR RULES -
- FILE RESTRICTIONS - Associates in Investment Functions
must not have access to commercial credit files,
corporate finance files, or any other Potential Insider
Function files that might contain material nonpublic
information. All such files that contain material
nonpublic information should be marked as "Confidential"
and, if feasible, segregated from nonconfidential files.
- ELECTRONIC DATA - Associates in Investment Functions
must not have access to personal computer or word
processing files of associates in Potential Insider
Functions.
- MEETINGS - Associates in Investment Functions must not
attend meetings between customers and associates in
Potential Insider Functions unless appropriate steps
have been taken to ensure that material nonpublic
information will not be disclosed or discussed.
- COMMITTEE SERVICE - Without the prior approval of the
General Counsel, associates other than those "Above the
Wall" (see page 9) must not serve simultaneously on a
committee having responsibility for any Investment
Function and a committee having responsibility for any
Potential Insider Function.
7
<PAGE>
- INFORMATION REQUESTS - Requests for nonmaterial
information or public information across the "Chinese
Wall" should be made in writing to an appropriate
associate in the applicable area. Associates sending or
receiving such a request should resolve any questions
regarding the materiality or nonpublic nature of the
requested information by consulting their department
head, who will contact the General Counsel, as
appropriate.
- INFORMATION BACKFLOW - Associates should take care to
avoid inadvertent backflow of information that may be
interpreted as the prohibited communication of material
nonpublic information. For example, the mere fact that
someone in a Potential Insider Function, such as a
mergers and acquisitions specialist, requests
information from an associate in an Investment Function
could give the latter person a clue as to possible
material developments affecting a customer.
- CUSTOMERS - Associates in Investment Functions must not
state or imply to customers that associates making
decisions or recommendations will have the benefit of
information from Mellon's Potential Insider Functions.
When appropriate, associates should inform customers of
Mellon's "Chinese Wall" policy.
- CONFLICTS OF INTEREST - Associates should not receive or
pass on any information that would create an undue risk
of Mellon or any associate having a conflict of interest
or breaching a fiduciary obligation.
REPORTING RECEIPT OF MATERIAL NONPUBLIC INFORMATION -
Associates in Investment Functions who receive any
suspected material nonpublic information must report
such receipt promptly to their department or entity
head. A department or entity head who receives
information believed to be material and nonpublic should
report the matter promptly to the General Counsel. If
the General Counsel determines that the information is
material and nonpublic, the affected department or
entity will:
- immediately SUSPEND ALL TRADING in the securities of the
issuer to which the information applies, as well as all
recommendations with respect to such securities. The
suspension will remain in effect as long as the
information remains both material and nonpublic.
- NOTIFY THE GENERAL COUNSEL before resuming transactions
or recommendations in the affected securities. The
General Counsel will advise as to possible further
steps, including ascertaining the validity and nonpublic
nature of the information with the issuer of the
securities; requesting the issuer of the securities, or
other appropriate parties, to disseminate the
information promptly to the public if the information is
valid and nonpublic; and publishing the information.
In certain circumstances, the department or entity head
may be able to demonstrate conclusively that the receipt
of the material nonpublic information has been confined
to an individual or small group of individuals and that
measures other than those described above will
comparably reduce the likelihood of trading on the basis
of the information. These measures might include
temporarily relieving individuals of responsibility for
any Investment Functions and preventing any contact
between those individuals and associates in Investment
Functions. In these circumstances, the department head,
with the approval of the General Counsel, may take those
measures rather than the measures described above.
8
<PAGE>
FUNCTIONS "ABOVE THE WALL" - Some functions at Mellon
are deemed to be "Above the Wall." For example, members
of senior management, Auditing, Risk Management and
Compliance, and the Legal Department will typically need
to have access to information on both sides of the
"Chinese Wall" to carry out their job responsibilities.
These individuals cannot rely on the procedural
safeguards of the "Chinese Wall" and, therefore, need to
be particularly careful to avoid any improper use or
dissemination of material nonpublic information.
SUPPLEMENTAL PROCEDURES - As appropriate, certain Mellon
departments or areas, such as Mellon Trust, should
establish their own procedures to reduce the possibility
of information being communicated to associates who
should not have access to that information.
9
<PAGE>
SECTION FOUR
RESTRICTIONS ON TRANSACTIONS
IN MELLON SECURITIES
Associates who engage in transactions involving Mellon
securities should be aware of their unique
responsibilities with respect to such transactions
arising from the employment relationship and should be
sensitive to even the appearance of impropriety.
The following restrictions apply to ALL transactions in
Mellon's publicly traded securities occurring in the
associate's own account and in all other accounts over
which the associate could be expected to exercise
influence or control (see provisions under "Beneficial
Ownership" below for a more complete discussion of the
accounts to which these restrictions apply). These
restrictions are to be followed in addition to any
restrictions that apply to particular officers or
directors (such as restrictions under Section 16 of the
Securities Exchange Act of 1934).
- SHORT SALES - Short sales of Mellon securities by
associates are prohibited.
- SALES WITHIN 60 DAYS OF PURCHASE - Sales of Mellon
securities within 60 days of acquisition are prohibited.
For purposes of the 60-day holding period, securities
will be deemed to be equivalent if one is convertible
into the other, if one entails a right to purchase or
sell the other, or if the value of one is expressly
dependent on the value of the other (e.g., derivative
securities).
In cases of extreme hardship, associates (other than
senior management) may obtain permission to dispose of
Mellon securities acquired within 60 days of the
proposed transaction, provided the transaction is
pre-cleared with the Manager of Corporate Compliance and
any profits earned are disgorged in accordance with
procedures established by senior management. The Manager
of Corporate Compliance reserves the right to suspend
the 60-day holding period restriction in the event of
severe market disruption.
- MARGIN TRANSACTIONS - Purchases on margin of Mellon's
publicly traded securities by associates is prohibited.
Margining Mellon securities in connection with a
cashless exercise of an employee stock option through
the Human Resources Department is exempt from this
restriction. Further, Mellon securities may be used to
collateralize loans or the acquisition of securities
other than those issued by Mellon.
- OPTION TRANSACTIONS - Option transactions involving
Mellon's publicly traded securities are prohibited.
Transactions under Mellon's Long-Term Incentive Plan or
other associate option plans are exempt from this
restriction.
- MAJOR MELLON EVENTS - Associates who have knowledge of
major Mellon events that have not yet been announced are
prohibited from buying and selling Mellon's publicly
traded securities before such public announcements, even
if the associate believes the event does not constitute
material nonpublic information.
- MELLON BLACKOUT PERIOD - Associates are prohibited from
buying or selling Mellon's publicly traded securities
during a blackout period, which begins the 16th day of
the last month of each calendar quarter and ends three
business days after Mellon publicly announces the
financial results for that quarter. In cases of extreme
hardship, associates (other than senior management) may
request permission from the Manager of Corporate
Compliance to dispose of Mellon securities during the
blackout period.
10
<PAGE>
BENEFICIAL OWNERSHIP - The provisions discussed above
apply to transactions in the associate's own name and to
all other accounts over which the associate could be
expected to exercise influence or control, including:
- accounts of a spouse, minor children or relatives to
whom substantial support is contributed;
- accounts of any other member of the associate's
household (e.g., a relative living in the same home);
- trust accounts for which the associate acts as trustee
or otherwise exercises any type of guidance or
influence;
- Corporate accounts controlled, directly or indirectly,
by the associate;
- arrangements similar to trust accounts that are
established for bona fide financial purposes and benefit
the associate; and
- any other account for which the associate is the
beneficial owner (see Glossary for a more complete legal
definition of "beneficial owner").
11
<PAGE>
SECTION FIVE
RESTRICTIONS ON TRANSACTIONS
IN OTHER SECURITIES
Purchases or sales by an associate of the securities of
issuers with which Mellon does business, or other third
party issuers, could result in liability on the part of
such associate. Associates should be sensitive to even
the appearance of impropriety in connection with their
personal securities transactions. Associates should
refer to the provisions under "Beneficial Ownership"
(Section Four, "Restrictions on Transactions in Mellon
Securities"), which are equally applicable to the
following provisions.
The Mellon Code of Conduct contains certain restrictions
on investments in parties that do business with Mellon.
Associates should refer to the Code of Conduct and
comply with such restrictions in addition to the
restrictions and reporting requirements set forth below.
The following restrictions apply to ALL securities
transactions by associates:
- CREDIT OR ADVISORY RELATIONSHIP - Associate may not buy
or sell securities of a company if they are considering
granting, renewing or denying any credit facility to
that company or acting as an adviser to that company
with respect to its securities. In addition, lending
associates who have assigned responsibilities in a
specific industry group are not permitted to trade
securities in that industry. This prohibition does not
apply to transactions in securities issued by open-end
investment companies.
- CUSTOMER TRANSACTIONS - Trading for customers and Mellon
accounts should always take precedence over associates'
transactions for their own or related accounts.
- FRONT RUNNING - Associates may not engage in "front
running," that is, the purchase or sale of securities
for their own accounts on the basis of their knowledge
of Mellon's trading positions or plans.
- INITIAL PUBLIC OFFERINGS - Mellon prohibits its
associates from acquiring any securities in an initial
public offering ("IPO").
- MARGIN TRANSACTIONS - Margin trading is a highly
leveraged and relatively risky method of investing that
can create particular problems for financial services
employees. For this reason, all associates are urged to
avoid margin trading.
Prior to establishing a margin account, the associate
must obtain the written permission of the Manager of
Corporate Compliance. Any associate having a margin
account prior to the effective date of this Policy must
notify the Manager of Corporate Compliance of the
existence of such account.
12
<PAGE>
All associates having margin accounts, other than
described below, must designate the Manager of Corporate
Compliance as an interested party on that account.
Associates must ensure that the Manager of Corporate
Compliance promptly receives copies of all trade
confirmations and statements relating to the account
directly from the broker. If requested by a brokerage
firm, please contact the Manager of Corporate Compliance
to obtain a letter (sometimes referred to as a "407
letter") granting permission to maintain a margin
account. Trade confirmations and statements are not
required on margin accounts established at Dreyfus
Investment Services Corporation for the sole purpose of
cashless exercises of employee stock options. In
addition, products may be offered by a broker/dealer
that, because of their characteristics, are considered
margin accounts but have been determined by the Manager
of Corporate Compliance to be outside the scope of this
Policy (e.g., a Cash Management Account which provides
overdraft protection for the customer). Any questions
regarding the establishment, use and reporting of margin
accounts should be directed to the Manager of Corporate
Compliance. Examples of an instruction letter to a
broker are shown in Exhibits B1 and B2.
- MATERIAL NONPUBLIC INFORMATION - Associates possessing
material nonpublic information regarding any issuer of
securities must refrain from purchasing or selling
securities of that issuer until the information becomes
public or is no longer considered material.
- NAKED OPTIONS, EXCESSIVE TRADING - Mellon discourages
all associates from engaging in short-term or
speculative trading, in trading naked options, in
trading that could be deemed excessive or in trading
that could interfere with an associate's job
responsibilities.
- PRIVATE PLACEMENTS - Associates are prohibited from
acquiring any security in a private placement unless
they obtain the prior written approval of the
Preclearance Compliance Officer (applicable only to
Investment Associates), the Manager of Corporate
Compliance and the associate's department head. Approval
must be given by all appropriate aforementioned persons
for the acquisition to be considered approved. After
receipt of the necessary approvals and the acquisition,
associates are required to disclose that investment when
they participate in any subsequent consideration of an
investment in the issuer for an advised account. Final
decision to acquire such securities for an advised
account will be subject to independent review.
- SCALPING - Associates may not engage in "scalping," that
is, the purchase or sale of securities for their own or
Mellon's accounts on the basis of knowledge of
customers' trading positions or plans or Mellon's
forthcoming investment recommendations.
- SHORT-TERM TRADING - Associates are discouraged from
purchasing and selling, or from selling and purchasing,
the same (or equivalent) securities within 60 calendar
days. With respect to Investment Associates only, any
profits realized on such short-term trades must be
disgorged in accordance with procedures established by
senior management.
13
<PAGE>
SECTION SIX
CLASSIFICATION OF ASSOCIATES
Associates are engaged in a wide variety of activities
for Mellon. In light of the nature of their activities
and the impact of federal and state laws and the
regulations thereunder, the Policy imposes different
requirements and limitations on associates based on the
nature of their activities for Mellon. To assist the
associates in complying with the requirements and
limitations imposed on them in light of their
activities, associates are classified into one of three
categories: Insider Risk Associate, Investment Associate
and Other Associate. Appropriate requirements and
limitations are specified in the Policy based upon the
associate's classification.
INSIDER RISK ASSOCIATE -
You are considered to be an Insider Risk Associate if
you are:
- employed in any of the following departments or
functional areas, however named, of a Mellon entity
other than Dreyfus (see Glossary for definition of
"Dreyfus"):
<TABLE>
<S> <C>
- Auditing - International
- Capital Markets - Leasing
- Corporate Affairs - Legal
- Credit Policy - Mellon Business Credit
- Credit Recovery - Middle Market
- Credit Review - Portfolio and Funds Management
- Domestic Corporate Banking - Risk Management and Compliance
- Finance - Strategic Planning
- Institutional Banking - Wholesale, Administration and Operations
</TABLE>
- a member of the Mellon Senior Management Committee,
provided that those members of the Mellon Senior
Management Committee who have management responsibility
for fiduciary activities or who routinely have access to
information about customers' securities transactions are
considered to be Investment Associates and are subject
to those provisions of the Policy pertaining to
Investment Associates;
- employed by a broker/dealer subsidiary of a Mellon
entity other than Dreyfus;
- an associate in the Stock Transfer business unit and
have been specifically designated as an Insider Risk
Associate by the Manager of Corporate Compliance; or
- an associate specifically designated as an Insider Risk
Associate by the Manager of Corporate Compliance.
14
<PAGE>
INVESTMENT ASSOCIATE -
You are considered to be an Investment Associate if you
are:
- a member of Mellon's Senior Management Committee who, as
part of his/her usual duties, has management
responsibility for fiduciary activities or routinely has
access to information about customers' securities
transactions;
- a Dreyfus associate;
- an associate of a Mellon entity registered under the
Investment Advisers Act of 1940;
- employed in the trust area of Mellon and:
- have the title of Vice President, First Vice
President or Senior Vice President; or
- have access to material, confidential information
regarding securities transactions by or on behalf
of Mellon customers; or
- an associate specifically designated as an Investment
Associate by the Manager of Corporate Compliance.
OTHER ASSOCIATE -
You are considered to be an Other Associate if you are
an associate of Mellon Bank Corporation or any of its
direct or indirect subsidiaries who is not either an
Insider Risk Associate or an Investment Associate.
15
<PAGE>
PART II - APPLICABLE TO INSIDER
RISK ASSOCIATES ONLY
- ---------------------------
PROHIBITION ON INVESTMENTS IN SECURITIES OF FINANCIAL
SERVICES ORGANIZATIONS
You are prohibited from acquiring any security issued by
a financial services organization if you are:
- a member of the Mellon Senior Management Committee. For
purposes of this restriction only, this prohibition also
applies to those members of the Mellon Senior Management
Committee who are considered Investment Associates.
- employed in any of the following departments of a Mellon
entity other than Dreyfus (see Glossary for definition
of "Dreyfus"):
- Strategic Planning - Finance
- Institutional Banking - Legal
- an associate specifically designated by the Manager of
Corporate Compliance and informed that this prohibition
is applicable to you.
FINANCIAL SERVICES ORGANIZATIONS - The term "security
issued by a financial services organization" includes
any security issued by:
<TABLE>
<S> <C>
- Commercial Banks - Bank Holding Companies
(other than Mellon) (other than Mellon)
- Thrifts - Savings and Loan Associations
- Insurance Companies - Broker/Dealers
- Investment Advisory Companies - Transfer Agents
- Shareholder Servicing Companies - Other Depository Institutions
</TABLE>
The term "securities issued by a financial services
organization" DOES NOT INCLUDE securities issued by
mutual funds, variable annuities or insurance policies.
Further, for purposes of determining whether a company
is a financial services organization, subsidiaries and
parent companies are treated as separate issuers.
EFFECTIVE DATE - The foregoing restrictions will be
effective upon adoption of this Policy. Securities of
financial services organizations properly acquired
before the later of the effective date of this Policy or
the date of hire may be maintained or disposed of at the
owner's discretion.
Additional securities of a financial services
organization acquired through the reinvestment of the
dividends paid by such financial services organization
through a dividend reinvestment program (DRIP) are not
subject to this prohibition, provided your election to
participate in the DRIP predates the later of the
effective date of this Policy or date of hire. Optional
cash purchases through a DRIP are subject to this
prohibition.
Within 30 days of the later of the effective date of
this Policy or date of becoming subject to this
prohibition, all holdings of securities of financial
services organizations must be disclosed in writing to
the Manager of Corporate Compliance. Periodically, you
will be asked to file an updated disclosure of all your
holdings of securities of financial services
organizations.
16
<PAGE>
CONFLICT OF INTEREST - No Insider Risk Associate may
engage in or recommend any securities transaction that
places, or appears to place, his or her own interests
above those of any customer to whom investment services
are rendered, including mutual funds and managed
accounts, or above the interests of Mellon.
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS - All
Insider Risk Associates must notify the Manager of
Corporate Compliance in writing and receive preclearance
before they engage in any purchase or sale of a
security. Insider Risk Associates should refer to the
provisions under "Beneficial Ownership" (Section Four,
"Restrictions on Transactions in Mellon Securities"),
which are equally applicable to these provisions.
EXEMPTIONS FROM REQUIREMENT TO PRECLEAR - Preclearance
is NOT required for the following transactions:
- purchases or sales of Exempt Securities (see Glossary);
- purchases or sales of municipal bonds;
- purchases or sales effected in any account over which an
associate has no direct or indirect control over the
investment decision-making process (e.g.,
nondiscretionary trading accounts). Nondiscretionary
trading accounts may only be maintained, without being
subject to preclearance procedures, when the Manager of
Corporate Compliance, after a thorough review, is
satisfied that the account is truly nondiscretionary;
- transactions that are non-volitional on the part of an
associate (such as stock dividends);
- the sale of stock received upon the exercise of an
associate stock option if the sale is part of a "netting
of shares" or "cashless exercise" administered by the
Human Resources Department (for which the Human
Resources Department will forward information to the
Manager of Corporate Compliance);
- the automatic reinvestment of dividends under a DRIP
(preclearance is required for OPTIONAL cash purchases
under a DRIP);
- purchases effected upon the exercise of rights issued by
an issuer pro rata to all holders of a class of
securities, to the extent such rights were acquired from
such issuer;
- sales of rights acquired from an issuer, as described
above; and/or
- those situations where the Manager of Corporate
Compliance determines, after taking into consideration
the particular facts and circumstances, that prior
approval is not necessary.
REQUESTS FOR PRECLEARANCE - All requests for
preclearance for a securities transaction shall be
submitted to the Manager of Corporate Compliance by
completing a Preclearance Request Form (see Exhibit C1).
The Manager of Corporate Compliance will notify the
Insider Risk Associate whether the request is approved
or denied, without disclosing the reason for such
approval or denial.
17
<PAGE>
Notifications may be given in writing or verbally by the
Manager of Corporate Compliance to the Insider Risk
Associate. A record of such notification will be
maintained by the Manager of Corporate Compliance.
However, it shall be the responsibility of the Insider
Risk Associate to obtain a written record of the Manager
of Corporate Compliance's notification within 24 hours
of such notification. The Insider Risk Associate should
retain a copy of this written record.
As there could be many reasons for preclearance being
granted or denied, Insider Risk Associates should not
infer from the preclearance response anything regarding
the security for which preclearance was requested.
Although making a preclearance request does not obligate
an Insider Risk Associate to do the transaction, it
should be noted that:
- preclearance authorization will expire at the end of the
third business day after it is received (the day
authorization is granted is considered the first
business day);
- preclearance requests should not be made for a
transaction that the Insider Risk Associate does not
intend to make; and
- Insider Risk Associates should not discuss with anyone
else, inside or outside Mellon, the response they
received to a preclearance request.
Every Insider Risk Associate must follow these
procedures or risk serious sanctions, including
dismissal. If you have any questions about these
procedures you should consult the Manager of Corporate
Compliance. Interpretive issues that arise under these
procedures shall be decided by, and are subject to the
discretion of, the Manager of Corporate Compliance.
RESTRICTED LIST - The Manager of Corporate Compliance
will maintain a list (the "Restricted List") of
companies whose securities are deemed appropriate for
implementation of trading restrictions for Insider Risk
Associates. Restricted List(s) will not be distributed
outside of the Risk Management and Compliance
Department. From time to time, such trading restrictions
may be appropriate to protect Mellon and its Insider
Risk Associates from potential violations, or the
appearance of violations, of securities laws. The
inclusion of a company on the Restricted List provides
no indication of the advisability of an investment in
the company's securities or the existence of material
nonpublic information on the company. Nevertheless, the
contents of the Restricted List will be treated as
confidential information to avoid unwarranted
inferences.
To assist the Manager of Corporate Compliance in
identifying companies that may be appropriate for
inclusion on the Restricted List, the department heads
of sections in which Insider Risk Associates are
employed will inform the Manager of Corporate Compliance
in writing of any companies they believe should be
included on the Restricted List, based upon facts known
or readily available to such department heads. Although
the reasons for inclusion on the Restricted List may
vary, they could typically include the following:
- Mellon is involved as a lender, investor or adviser in a
merger, acquisition or financial restructuring involving
the company;
- Mellon is involved as a selling shareholder in a public
distribution of the company's securities;
18
<PAGE>
- Mellon is involved as an agent in the distribution of the company's
securities;
- Mellon has received material nonpublic information on the company;
- Mellon is considering the exercise of significant creditors' rights
against the company; or
- The company is a Mellon borrower in Credit Recovery.
Department heads of sections in which Insider Risk Associates are
employed are also responsible for notifying the Manager of Corporate
Compliance in writing of any change in circumstances making it
appropriate to remove a company from the Restricted List.
PERSONAL SECURITIES TRANSACTIONS REPORTS
- BROKERAGE ACCOUNTS - All Insider Risk Associates are required to
instruct their brokers to submit directly to the Manager of Corporate
Compliance copies of all trade confirmations and statements relating
to their account. An example of an instruction letter to a broker is
contained in Exhibit B1.
- REPORT OF TRANSACTIONS IN MELLON SECURITIES - Insider Risk Associates
must also report in writing to the Manager of Corporate Compliance
within ten calendar days whenever they purchase or sell Mellon
securities if the transaction was not through a brokerage account as
described above. Purchases and sales of Mellon securities include the
following:
DRIP OPTIONAL CASH PURCHASES - Optional cash purchases under Mellon's
Dividend Reinvestment and Common Stock Purchase Plan (the "Mellon
DRIP").
STOCK OPTIONS - The sale of stock received upon the exercise of an
associate stock option unless the sale is part of a "netting of
shares" or "cashless exercise" administered by the Human Resources
Department (for which the Human Resources Department will forward
information to the Manager of Corporate Compliance).
It should be noted that the reinvestment of dividends under the DRIP,
changes in elections under Mellon's Retirement Savings Plan, the
receipt of stock under Mellon's Restricted Stock Award Plan and the
receipt or exercise of options under Mellon's Long-Term Profit
Incentive Plan are not considered purchases or sales for the purpose
of this reporting requirement.
An example of a written report to the Manager of Corporate Compliance
is contained in Exhibit A.
CONFIDENTIAL TREATMENT
THE MANAGER OF CORPORATE COMPLIANCE WILL USE HIS OR HER BEST EFFORTS
TO ASSURE THAT ALL REQUESTS FOR PRECLEARANCE, ALL PERSONAL SECURITIES
TRANSACTION REPORTS AND ALL REPORTS OF SECURITIES HOLDINGS ARE TREATED
AS "PERSONAL AND CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE
AVAILABLE FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES AND BY
OTHER PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO EVALUATE
COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
19
<PAGE>
PART III - APPLICABLE TO
INVESTMENT ASSOCIATES ONLY
- --------------------------
Because of their particular responsibilities, Investment Associates
are subject to different preclearance and personal securities
reporting requirements as discussed below.
SPECIAL STANDARDS OF CONDUCT FOR INVESTMENT ASSOCIATES
CONFLICT OF INTEREST - No Investment Associate may recommend a
securities transaction for a Mellon customer to whom a fiduciary duty
is owed, or for Mellon, without disclosing any interest he or she has
in such securities or issuer (other than an interest in publicly
traded securities where the total investment is equal to or less than
$25,000), including:
- any direct or indirect beneficial ownership of any securities of such
issuer;
- any contemplated transaction by the Investment Associate in such
securities;
- any position with such issuer or its affiliates; and
- any present or proposed business relationship between such issuer or
its affiliates and the Investment Associate or any party in which the
Investment Associate has a beneficial ownership interest (see
"Beneficial Ownership" in Section Four, "Restrictions On Transactions
in Mellon Securities").
PORTFOLIO INFORMATION - No Investment Associate may divulge the
current portfolio positions, or current or anticipated portfolio
transactions, programs or studies, of Mellon or any Mellon customer to
anyone unless it is properly within his or her job responsibilities to
do so.
MATERIAL NONPUBLIC INFORMATION - No Investment Associate may engage in
or recommend a securities transaction, for his or her own benefit or
for the benefit of others, including Mellon or its customers, while in
possession of material nonpublic information regarding such
securities. No Investment Associate may communicate material nonpublic
information to others unless it is properly within his or her job
responsibilities to do so.
SHORT-TERM TRADING - Any Investment Associate who purchases and sells,
or sells and purchases, the same (or equivalent) securities within any
60-calendar-day period is required to disgorge all profits realized on
such transaction in accordance with procedures established by senior
management. For this purpose, securities will be deemed to be
equivalent if one is convertible into the other, if one entails a
right to purchase or sell the other, or if the value of one is
expressly dependent on the value of the other (e.g., derivative
securities).
ADDITIONAL RESTRICTIONS FOR DREYFUS ASSOCIATES AND ASSOCIATES OF
MELLON ENTITIES REGISTERED UNDER THE INVESTMENT ADVISERS ACT OF 1940
ONLY ("40 Act Associates")
- OUTSIDE ACTIVITIES - No 40 Act associate may serve on the board of
directors/trustees or as a general partner of any publicly traded
company (other than Mellon) without the prior approval of the Manager
of Corporate Compliance.
20
<PAGE>
- GIFTS - All 40 Act associates are prohibited from accepting gifts from
outside companies, or their representatives, with an exception for
gifts of (1) a DE MINIMIS value and (2) an occasional meal, a ticket
to a sporting event or the theater, or comparable entertainment for
the 40 Act associate and, if appropriate, a guest, which is neither so
frequent nor extensive as to raise any question of impropriety. A gift
shall be considered DE MINIMIS if it does not exceed an annual amount
per person fixed periodically by the National Association of
Securities Dealers, which is currently $100 per person.
- BLACKOUT PERIOD - 40 Act associates will not be given clearance to
execute a transaction in any security that is being considered for
purchase or sale by an affiliated investment company, managed account
or trust, for which a pending buy or sell order for such affiliated
account is pending, and for two business days after the transaction in
such security for such affiliated account has been effected. This
provision does not apply to transactions effected or contemplated by
index funds.
In addition, portfolio managers for the investment companies are
prohibited from buying or selling a security within seven calendar
days before and after such investment company trades in that security.
Any violation of the foregoing will require the violator to disgorge
all profit realized with respect to such transaction.
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS - All Investment
Associates must notify the Preclearance Compliance Officer (see
Glossary) in writing and receive preclearance BEFORE they engage in
any purchase or sale of a security.
EXEMPTIONS FROM REQUIREMENT TO PRECLEAR - Preclearance is not required
for the following transactions:
- purchases or sales of "Exempt Securities" (see Glossary);
- purchases or sales effected in any account over which an associate has
no direct or indirect control over the investment decision-making
process (i.e., nondiscretionary trading accounts). Nondiscretionary
trading accounts may only be maintained, without being subject to
preclearance procedures, when the Preclearance Compliance Officer,
after a thorough review, is satisfied that the account is truly
nondiscretionary;
- transactions which are non-volitional on the part of an associate
(such as stock dividends);
- the sale of stock received upon the exercise of an associate stock
option if the sale is part of a "netting of shares" or "cashless
exercise" administered by the Human Resources Department (for which
the Human Resources Department will forward information to the manager
of Corporate Compliance);
- purchases which are part of an automatic reinvestment of dividends
under a DRIP (Preclearance is required for OPTIONAL cash purchases
under a DRIP);
- purchases effected upon the exercise of rights issued by an issuer PRO
RATA to all holders of a class of securities, to the extent such
rights were acquired from such issuer;
- sales of rights acquired from an issuer, as described above; and/or
- those situations where the Preclearance Compliance Officer determines,
after taking into consideration the particular facts and
circumstances, that prior approval is not necessary.
21
<PAGE>
REQUESTS FOR PRECLEARANCE - All requests for preclearance for a
securities transaction shall be submitted to the Preclearance
Compliance Officer by completing a Preclearance Request Form.
(Investment Associates other than Dreyfus associates are to use the
Preclearance Request Form shown as Exhibit C1. Dreyfus associates are
to use the Preclearance Request Form shown as Exhibit C2.)
The Preclearance Compliance Officer will notify the Investment
Associate whether the request is approved or denied without disclosing
the reason for such approval or denial.
Notifications may be given in writing or verbally by the Preclearance
Compliance Officer to the Investment Associate. A record of such
notification will be maintained by the Preclearance Compliance
Officer. However, it shall be the responsibility of the Investment
Associate to obtain a written record of the Preclearance Compliance
Officer's notification within 24 hours of such notification. The
Investment Associate should retain a copy of this written record.
As there could be many reasons for preclearance being granted or
denied, Investment Associates should not infer from the preclearance
response anything regarding the security for which preclearance was
requested.
Although making a preclearance request does not obligate an Investment
Associate to do the transaction, it should be noted that:
- preclearance authorization will expire at the end of the day on which
preclearance is given;
- preclearance requests should not be made for a transaction that the
Investment Associate does not intend to make; and
- Investment Associates should not discuss with anyone else, inside or
outside Mellon, the response the Investment Associate received to a
preclearance request.
Every Investment Associate must follow these procedures or risk
serious sanctions, including dismissal. If you have any questions
about these procedures, consult the Preclearance Compliance Officer.
Interpretive issues that arise under these procedures shall be decided
by, and are subject to the discretion of, the Manager of Corporate
Compliance.
RESTRICTED LIST - Each Preclearance Compliance Officer will maintain a
list (the "Restricted List") of companies whose securities are deemed
appropriate for implementation of trading restrictions for Investment
Associates in their area. From time to time, such trading restrictions
may be appropriate to protect Mellon and its Investment Associates
from potential violations, or the appearance of violations, of
securities laws. The inclusion of a company on the Restricted List
provides no indication of the advisability of an investment in the
company's securities or the existence of material nonpublic
information on the company. Nevertheless, the contents of the
Restricted List will be treated as confidential information in order
to avoid unwarranted inferences.
In order to assist the Preclearance Compliance Officer in identifying
companies that may be appropriate for inclusion on the Restricted
List, the head of the entity/department/area in which Investment
Associates are employed will inform the appropriate Preclearance
Compliance Officer in writing of any companies that they believe
should be included on the Restricted List based upon facts known or
readily available to such department heads.
22
<PAGE>
PERSONAL SECURITIES TRANSACTIONS REPORTS
- BROKERAGE ACCOUNTS - All Investment Associates are required to
instruct their brokers to submit directly to the Manager of Corporate
Compliance copies of all trade confirmations and statements relating
to their account. Examples of instruction letters to a broker are
contained in Exhibits B1 and B2.
- REPORT OF TRANSACTIONS IN MELLON SECURITIES - Investment Associates
must also report in writing to the Manager of Corporate Compliance
within ten calendar days whenever they purchase or sell Mellon
securities if the transaction was not through a brokerage account as
described above. Purchases and sales of Mellon securities include the
following:
DRIP OPTIONAL CASH PURCHASES - Optional cash purchases under Mellon's
Dividend Reinvestment and Common Stock Purchase Plan (the "Mellon
DRIP").
STOCK OPTIONS - The sale of stock received upon the exercise of an
associate stock option unless the sale is part of a "netting of
shares" or "cashless exercise" administered by the Human Resources
Department (for which the Human Resources Department will forward
information to the Manager of Corporate Compliance).
It should be noted that the reinvestment of dividends under the DRIP,
changes in elections under Mellon's Retirement Savings Plan, the
receipt of stock under Mellon's Restricted Stock Award Plan, and the
receipt or exercise of options under Mellon's Long-Term Profit
Incentive Plan are not considered purchases or sales for the purpose
of this reporting requirement.
An example of a written report to the Manager of Corporate Compliance
is contained in Exhibit A.
- STATEMENT OF SECURITIES HOLDINGS - Within ten days of receiving this
Policy and on an annual basis thereafter, all Investment Associates
must submit to the Manager of Corporate Compliance a statement of all
securities in which they presently have any direct or indirect
beneficial ownership other than Exempt Securities, as defined in the
Glossary. Investment Associates should refer to "Beneficial Ownership"
in Section Four, "Restrictions on Transactions in Mellon Securities,"
which is also applicable to Investment Associates. Such statements
should be in the format shown in Exhibit D. The annual report must be
submitted by January 31 and must report all securities holdings other
than Exempt Securities. The annual statement of securities holdings
contains an acknowledgment that the Investment Associate has read and
complied with this Policy.
- SPECIAL REQUIREMENT WITH RESPECT TO AFFILIATED INVESTMENT COMPANIES -
The portfolio managers, research analysts and other Investment
Associates specifically designated by the Manager of Corporate
Compliance are required within ten calendar days of receiving this
Policy (and by no later than ten calendar days after the end of each
calendar quarter) to report every transaction in the securities issued
by an affiliated investment company occurring in an account in which
the Investment Associate has a beneficial ownership interest. The
quarterly reporting requirement may be satisfied by notifying the
Manager of Corporate Compliance of the name of the investment company,
account name and account number for which such quarterly reports must
be submitted.
23
<PAGE>
CONFIDENTIAL TREATMENT
THE PRECLEARANCE COMPLIANCE OFFICER WILL USE HIS OR HER BEST EFFORTS
TO ASSURE THAT ALL REQUESTS FOR PRECLEARANCE, ALL PERSONAL SECURITIES
TRANSACTION REPORTS AND ALL REPORTS OF SECURITIES HOLDINGS ARE TREATED
AS "PERSONAL AND CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE
AVAILABLE FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES, AND BY
OTHER PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO EVALUATE
COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY. DOCUMENTS RECEIVED
FROM DREYFUS ASSOCIATES ARE ALSO AVAILABLE FOR INSPECTION BY THE
BOARDS OF DIRECTORS OF DREYFUS AND BY THE BOARDS OF DIRECTORS (OR
TRUSTEES OR MANAGING GENERAL PARTNERS, AS APPLICABLE) OF THE
INVESTMENT COMPANIES MANAGED OR ADMINISTERED BY DREYFUS.
24
<PAGE>
PART IV - APPLICABLE TO
OTHER ASSOCIATES ONLY
- -------------------------
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS - Except for private
placements, Other Associates ARE PERMITTED to engage in personal
securities transactions without obtaining prior approval from the
Manager of Corporate Compliance (for preclearance of private
placements, use the Preclearance Request Form shown as Exhibit C1.)
PERSONAL SECURITIES TRANSACTIONS REPORTS - Other Associates are NOT
required to report their personal securities transactions OTHER THAN
margin transactions and transactions involving Mellon securities as
discussed below. Other Associates are required to instruct their
brokers to submit directly to the Manager of Corporate Compliance
copies of all confirmations and statements pertaining to margin
accounts. Examples of an instruction letter to a broker are shown in
Exhibit B1.
REPORT OF TRANSACTIONS IN MELLON SECURITIES - Other Associates must
report in writing to the Manager of Corporate Compliance within ten
calendar days whenever they purchase or sell Mellon securities.
Purchases and sales of Mellon securities include the following:
- DRIP OPTIONAL CASH PURCHASES - Optional cash purchases under Mellon's
Dividend Reinvestment and Common Stock Purchase Plan (the "Mellon
DRIP").
- STOCK OPTIONS - The sale of stock received upon the exercise of an
associate stock option unless the sale is part of a "netting of
shares" or "cashless exercise" administered by the Human Resources
Department (for which the Human Resources Department will forward
information to the Manager of Corporate Compliance).
It should be noted that the reinvestment of dividends under the DRIP,
changes in elections under Mellon's Retirement Savings Plan, the
receipt of stock under Mellon's Restricted Stock Award Plan and the
receipt or exercise of options under Mellon's Long-Term Profit
Incentive Plan are not considered purchases or sales for the purpose
of this reporting requirement.
An example of a written report to the Manager of Corporate Compliance
is contained in Exhibit A.
RESTRICTIONS ON TRANSACTIONS IN OTHER SECURITIES
MARGIN TRANSACTIONS - Prior to establishing a margin account, Other
Associates must obtain the written permission of the Manager of
Corporate Compliance. Other Associates having a margin account prior
to the effective date of this Policy must notify the Manager of
Corporate Compliance of the existence of such account.
25
<PAGE>
All associates having margin accounts, other than described below,
must designate the Manager of Corporate Compliance as an interested
party on each account. Associates must ensure that the Manager of
Corporate Compliance promptly receives copies of all trade
confirmations and statements relating to the accounts directly from
the broker. If requested by a brokerage firm, please contact the
Manager of Corporate Compliance to obtain a letter (sometimes referred
to as a "407 letter") granting permission to maintain a margin
account. Trade confirmations and statements are not required on margin
accounts established at Dreyfus Investment Services Corporation for
the sole purpose of cashless exercises of Mellon employee stock
options. In addition, products may be offered by a broker/dealer that,
because of their characteristics, are considered margin accounts but
have been determined by the Manager of Corporate Compliance to be
outside the scope of this Policy (e.g., a Cash Management account
which provides overdraft protection for the customer). Any questions
regarding the establishment, use and reporting of margin accounts
should be directed to the Manager of Corporate Compliance. An example
of an instruction letter to a broker is shown in Exhibit B1.
PRIVATE PLACEMENTS - Other Associates are prohibited from acquiring
any security in a private placement unless they obtain the prior
written approval of the Manager of Corporate Compliance and the
Associate's department head. Approval must be given by both of the
aforementioned persons for the acquisition to be considered approved.
As there could be many reasons for preclearance being granted or
denied, Other Associates should not infer from the preclearance
response anything regarding the security for which preclearance was
requested.
Although making a preclearance request does not obligate an Other
Associate to do the transaction, it should be noted that:
- preclearance authorization will expire at the end of the third
business day after it is received (the day authorization is granted is
considered the first business day);
- preclearance requests should not be made for a transaction that the
Other Associate does not intend to make; and
- Other Associates should not discuss with anyone else, inside or
outside Mellon, the response they received to a preclearance request.
Every Other Associate must follow these procedures or risk serious
sanctions, including dismissal. If you have any questions about these
procedures you should consult the Manager of Corporate Compliance.
Interpretive issues that arise under these procedures shall be decided
by, and are subject to the discretion of, the Manager of Corporate
Compliance.
CONFIDENTIAL TREATMENT
THE MANAGER OF CORPORATE COMPLIANCE WILL USE HIS OR HER BEST EFFORTS
TO ASSURE THAT ALL REQUESTS FOR PRECLEARANCE, ALL PERSONAL SECURITIES
TRANSACTION REPORTS AND ALL REPORTS OF SECURITIES HOLDINGS ARE TREATED
AS "PERSONAL AND CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE
AVAILABLE FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES AND OTHER
PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO EVALUATE
COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
26
<PAGE>
PART V - APPLICABLE TO
NONMANAGEMENT BOARD MEMBER
- ---------------------
NONMANAGEMENT BOARD MEMBER -
You are considered to be a Nonmanagement Board Member if you are:
- a director of Dreyfus who is not also an officer or employee of
Dreyfus ("Dreyfus Board Member"); or
- a director, trustee or managing general partner of any investment
company who is not also an officer or employee of Dreyfus ("Mutual
Fund Board Member").
The term "Independent" Mutual Fund Board Member means those Mutual
Fund Board Members who are NOT deemed "interested persons" of an
investment company, as defined by the Investment Company Act of 1940,
as amended.
STANDARDS OF CONDUCT FOR NONMANAGEMENT BOARD MEMBER
OUTSIDE ACTIVITIES - Nonmanagement Board Members are prohibited from:
- accepting nomination or serving as a director, trustee or managing
general partner of an investment company not advised by Dreyfus,
WITHOUT the express prior approval of the board of directors of
Dreyfus and the board of directors/trustees or managing general
partners of the pertinent Dreyfus-managed fund(s) for which a
Nonmanagement Board Member serves as a director, trustee or managing
general partner;
- accepting employment with or acting as a consultant to any person
acting as a registered investment adviser to an investment company
without the express prior approval of the board of directors of
Dreyfus;
- owning Mellon securities if the Nonmanagement Board Member is an
"Independent" Mutual Fund Board Member, (since that would destroy his
or her "independent" status); and/or
- buying or selling Mellon's publicly traded securities during a
blackout period, which begins the 16th day of the last month of each
calendar quarter and ends three business days after Mellon publicly
announces the financial results for that quarter.
INSIDER TRADING AND TIPPING - The provisions set forth in Section Two,
"Insider Trading and Tipping," are applicable to Nonmanagement Board
Members.
27
<PAGE>
CONFLICT OF INTEREST - No Nonmanagement Board Member may recommend a
securities transaction for Mellon, Dreyfus or any Dreyfus-managed fund
without disclosing any interest he or she has in such securities or
issuer thereof (other than an interest in publicly traded securities
where the total investment is less than or equal to $25,000),
including:
- any direct or indirect beneficial ownership of any securities of such
issuer;
- any contemplated transaction by the Nonmanagement Board Member in such
securities;
- any position with such issuer or its affiliates; and
- any present or proposed business relationship between such issuer or
its affiliates and the Nonmanagement Board Member or any party in
which the Nonmanagement Board Member has a beneficial ownership
interest (see "Beneficial Ownership", Section Four, "Restrictions on
Transaction in Mellon Securities").
PORTFOLIO INFORMATION - No Nonmanagement Board Member may divulge the
current portfolio positions, or current or anticipated portfolio
transactions, programs or studies, of Mellon, Dreyfus or any
Dreyfus-managed fund, to anyone unless it is properly within his or
her responsibilities as a Nonmanagement Board Member to do so.
MATERIAL NONPUBLIC INFORMATION - No Nonmanagement Board Member may
engage in or recommend any securities transaction, for his or her own
benefit or for the benefit of others, including Mellon, Dreyfus or any
Dreyfus-managed fund, while in possession of material nonpublic
information. No Nonmanagement Board Member may communicate material
nonpublic information to others unless it is properly within his or
her responsibilities as a Nonmanagement Board Member to do so.
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS -
Nonmanagement Board Members ARE PERMITTED to engage in personal
securities transactions without obtaining prior approval from the
Preclearance Compliance Officer.
28
<PAGE>
PERSONAL SECURITY TRANSACTIONS REPORTS -
- "INDEPENDENT" MUTUAL FUND BOARD MEMBERS - Any "Independent" Mutual
Fund Board Members, as defined above, who effects a securities
transaction where he or she knew, or in the ordinary course of
fulfilling his or her official duties should have known, that during
the 15-day period immediately preceding or after the date of such
transaction, the same security was purchased or sold, or was being
considered for purchase or sale by Dreyfus (including any investment
company or other account managed by Dreyfus), are required to report
such personal securities transaction. In the event a personal
securities transaction report is required, it must be submitted to the
Preclearance Compliance Officer not later than ten days after the end
of the calendar quarter in which the transaction to which the report
relates was effected. The report must include the date of the
transaction, the title and number of shares or principal amount of the
security, the nature of the transaction (e.g., purchase, sale or any
other type of acquisition or disposition), the price at which the
transaction was effected and the name of the broker or other entity
with or through whom the transaction was effected. This reporting
requirement can be satisfied by sending a copy of the confirmation
statement regarding such transactions to the Preclearance Compliance
Officer within the time period specified. Notwithstanding the
foregoing, personal securities transaction reports are NOT required
with respect to any securities transaction described in "Exemption
from the Requirement to Preclear" in Part III.
- DREYFUS BOARD MEMBERS AND "INTERESTED" MUTUAL FUND BOARD MEMBERS -
Dreyfus Board Members and Mutual Fund Board Members who are
"interested persons" of an investment company, as defined by the
Investment Company Act of 1940, are required to report their personal
securities transactions. Personal securities transaction reports are
required with respect to any securities transaction other than those
described in "Exemptions from Requirement to Preclear" on Page 21.
Personal securities transaction reports are required to be submitted
to the Preclearance Compliance Officer not later than ten days after
the end of the calendar quarter in which the transaction to which the
report relates was effected. The report must include the date of the
transaction, the title and number of shares or principal amount of the
security, the nature of the transaction (e.g., purchase, sale or any
other type of acquisition or disposition), the price at which the
transaction was effected and the name of the broker or other entity
with or through whom the transaction was effected. This reporting
requirement can be satisfied by sending a copy of the confirmation
statement regarding such transactions to the Preclearance Compliance
Officer within the time period specified.
CONFIDENTIAL TREATMENT
THE PRECLEARANCE COMPLIANCE OFFICER WILL USE HIS OR HER BEST EFFORTS
TO ASSURE THAT ALL PERSONAL SECURITIES TRANSACTION REPORTS ARE TREATED
AS "PERSONAL AND CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE
AVAILABLE FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES AND OTHER
PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO EVALUATE
COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
29
<PAGE>
GLOSSARY
- -------------------
DEFINITIONS
- APPROVAL - written consent or written notice of nonobjection.
- ASSOCIATE - any employee of Mellon Bank Corporation or its direct or
indirect subsidiaries; does not include outside consultants or
temporary help.
- BENEFICIAL OWNERSHIP - securities owned of record or held in the
associate's name are generally considered to be beneficially owned by
the associate.
Securities held in the name of any other person are deemed to be
beneficially owned by the associate if by reason of any contract,
understanding, relationship, agreement or other arrangement, the
associate obtains therefrom benefits substantially equivalent to those
of ownership, including the power to vote, or to direct the
disposition of, such securities. Beneficial ownership includes
securities held by others for the associate's benefit (regardless of
record ownership), e.g. securities held for the associate or members
of the associate's immediate family, defined below, by agents,
custodians, brokers, trustees, executors or other administrators;
securities owned by the associate, but which have not been transferred
into the associate's name on the books of the company; securities
which the associate has pledged; or securities owned by a corporation
that should be regarded as the associate's personal holding
corporation. As a natural person, beneficial ownership is deemed to
include securities held in the name or for the benefit of the
associate's immediate family, which includes the associate's spouse,
the associate's minor children and stepchildren and the associate's
relatives or the relatives of the associate's spouse who are sharing
the associate's home, unless because of countervailing circumstances,
the associate does not enjoy benefits substantially equivalent to
those of ownership. Benefits substantially equivalent to ownership
include, for example, application of the income derived from such
securities to maintain a common home, meeting expenses that such
person otherwise would meet from other sources, and the ability to
exercise a controlling influence over the purchase, sale or voting of
such securities. An associate is also deemed the beneficial owner of
securities held in the name of some other person, even though the
associate does not obtain benefits of ownership, if the associate can
vest or revest title in himself at once, or at some future time.
In addition, a person will be deemed the beneficial owner of a
security if he has the right to acquire beneficial ownership of such
security at any time (within 60 days) including but not limited to any
right to acquire: (1) through the exercise of any option, warrant or
right; (2) through the conversion of a security; or (3) pursuant to
the power to revoke a trust, nondiscretionary account or similar
arrangement.
30
<PAGE>
With respect to ownership of securities held in trust, beneficial
ownership includes ownership of securities as a trustee in instances
where either the associate as trustee or a member of the associate's
"immediate family" has a vested interest in the income or corpus of
the trust, the ownership by the associate of a vested beneficial
interest in the trust and the ownership of securities as a settlor of
a trust in which the associate as the settlor has the power to revoke
the trust without obtaining the consent of the beneficiaries. Certain
exemptions to these trust beneficial ownership rules exist, including
an exemption for instances where beneficial ownership is imposed
solely by reason of the associate being settlor or beneficiary of the
securities held in trust and the ownership, acquisition and
disposition of such securities by the trust is made without the
associate's prior approval as settlor or beneficiary. "Immediate
family" of an associate as trustee means the associate's son or
daughter (including any legally adopted children) or any descendant of
either, the associate's stepson or stepdaughter, the associate's
father or mother or any ancestor of either, the associate's stepfather
or stepmother and his spouse.
To the extent that stockholders of a company use it as a personal
trading or investment medium and the company has no other substantial
business, stockholders are regarded as beneficial owners, to the
extent of their respective interests, of the stock thus invested or
traded in. A general partner in a partnership is considered to have
indirect beneficial ownership in the securities held by the
partnership to the extent of his pro rata interest in the partnership.
Indirect beneficial ownership is not, however, considered to exist
solely by reason of an indirect interest in portfolio securities held
by any holding company registered under the Public Utility Holding
Company Act of 1935, a pension or retirement plan holding securities
of an issuer whose employees generally are beneficiaries of the plan
and a business trust with over 25 beneficiaries.
Any person who, directly or indirectly, creates or uses a trust,
proxy, power of attorney, pooling arrangement or any other contract,
arrangement or device with the purpose or effect of divesting such
person of beneficial ownership as part of a plan or scheme to evade
the reporting requirements of the Securities Exchange Act of 1934
shall be deemed the beneficial owner of such security.
The final determination of beneficial ownership is a question to be
determined in light of the facts of a particular case. Thus, while the
associate may include security holdings of other members of his
family, the associate may nonetheless disclaim beneficial ownership of
such securities.
- "CHINESE WALL" POLICY - procedures designed to restrict the flow of
information within Mellon from units or individuals who are likely to
receive material nonpublic information to units or individuals who
trade in securities or provide investment advice. (see pages 12-14).
- CORPORATION - Mellon Bank Corporation.
- DREYFUS - The Dreyfus Corporation and its subsidiaries.
- DREYFUS ASSOCIATE - any employee of Dreyfus; does not include outside
consultants or temporary help.
31
<PAGE>
- EXEMPT SECURITIES - Exempt Securities are defined as:
- securities issued or guaranteed by the United States government
or agencies or instrumentalities;
- bankers' acceptances;
- bank certificates of deposit and time deposits;
- commercial paper;
- repurchase agreements; and
- securities issued by open-end investment companies.
- GENERAL COUNSEL - General Counsel of Mellon Bank Corporation or any
person to whom relevant authority is delegated by the General Counsel.
- INDEX FUND - an investment company which seeks to mirror the
performance of the general market by investing in the same stocks (and
in the same proportion) as a broad-based market index.
- INITIAL PUBLIC OFFERING (IPO) - the first offering of a company's
securities to the public.
- INVESTMENT COMPANY - a company that issues securities that represent
an undivided interest in the net assets held by the company. Mutual
funds are investment companies that issue and sell redeemable
securities representing an undivided interest in the net assets of the
company.
- MANAGER OF CORPORATE COMPLIANCE - - the associate within the Risk
Management and Compliance Department of Mellon Bank Corporation who is
responsible for administering the Confidential Information and
Securities Trading Policy, or any person to whom relevant authority is
delegated by the Manager of Corporate Compliance.
- MELLON - Mellon Bank Corporation and all of its direct and indirect
subsidiaries.
- NAKED OPTION - an option sold by the investor which obligates him or
her to sell a security which he or she does not own.
- NONDISCRETIONARY TRADING ACCOUNT - an account over which the
associated person has no direct or indirect control over the
investment decision-making process.
- OPTION - a security which gives the investor the right but not the
obligation to buy or sell a specific security at a specified price
within a specified time.
- PRECLEARANCE COMPLIANCE OFFICER - a person designated by the Manager
of Corporate Compliance, to administer, among other things,
associates' preclearance request for a specific business unit.
- PRIVATE PLACEMENT - an offering of securities that is exempt from
registration under the Securities Act of 1933 because it does not
constitute a public offering.
- SENIOR MANAGEMENT COMMITTEE - the Senior Management Committee of
Mellon Bank Corporation.
- SHORT SALE - the sale of a security that is not owned by the seller at
the time of the trade.
32
<PAGE>
INDEX OF EXHIBITS
- --------------------------
EXHIBIT A SAMPLE REPORT TO MANAGER OF CORPORATE COMPLIANCE
EXHIBIT B SAMPLE INSTRUCTION LETTER TO BROKER
EXHIBIT C PRECLEARANCE REQUEST FORM
EXHIBIT D PERSONAL SECURITIES HOLDINGS FORM
33
<PAGE>
EXHIBIT A
- ------------------------------------
SAMPLE REPORT TO MANAGER OF CORPORATE COMPLIANCE
<TABLE>
<S><C>
- -------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
MELLON INTEROFFICE
MEMORANDUM
Date: From: Associate
To: Manager, Corporate Compliance Dept:
Aim #:
Aim #: 151-4342 Phone:
Fax:
- ---------------------------------------------------------------------------------------------------------
RE: REPORT OF SECURITIES TRADE
Type of Associate: ____________ Insider Risk
____________ Investment
____________ Other
Type of Security: ____________ Mellon Bank Corporation
____________ Mellon Bank Corporation - optional cash
purchases under Dividend Reinvestment
and Common Stock Purchase Plan
____________ Mellon Bank Corporation - exercise of
an employee stock option
Attached is a copy of the confirmation slip for a securities
trade I engaged in on _____________________, 19xx.
or
On _____________________, 19xx, I (purchased/sold) _______________________
shares of ___________________________ through (broker). I will arrange
to have a copy of the confirmation slip for this trade delivered to you as soon
as possible.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
EXHIBIT B1
- ----------------------------------
FOR NON-DREYFUS ASSOCIATES
- --------------------------------------------------------------------------------
Date
Broker ABC
Street Address
City, State ZIP
Re: John Smith & Mary Smith
Account No. xxxxxxxxxxxxx
In connection with my existing brokerage accounts at your firm noted
above, please be advised that the Risk Management and Compliance
Department of Mellon Bank should be noted as an "Interested Party"
with respect to my accounts. They should, therefore, be sent copies of
all trade confirmations and account statements relating to my account.
Please send the requested documentation ensuring the account holder's
name appears on all correspondence to:
Manager, Corporate Compliance
Mellon Bank
P.O. Box 3130
Pittsburgh, PA 15230-3130
Thank you for your cooperation in this request.
Sincerely yours,
Associate
cc: Manager, Corporate Compliance (151-4342)
- --------------------------------------------------------------------------------
35
<PAGE>
EXHIBIT B2
- ---------------------------------
FOR DREYFUS ASSOCIATES
- --------------------------------------------------------------------------------
Date
Broker ABC
Street Address
City, State ZIP
Re: John Smith & Mary Smith
Account No. xxxxxxxxxxxxx
In connection with my existing brokerage accounts at your firm noted
above, please be advised that the Risk Management and Compliance
Department of Dreyfus Corporation should be noted as an "Interested
Party" with respect to my accounts. They should, therefore, be sent
copies of all trade confirmations and account statements relating to
my account.
Please send the requested documentation ensuring the account
holder's name appears on all correspondence to:
Compliance Officer at The Dreyfus Corporation
200 Park Avenue
Legal Department
New York, NY 10166
Thank you for your cooperation in this request.
Sincerely yours,
Associate
cc: Dreyfus Compliance
- --------------------------------------------------------------------------------
36
<PAGE>
EXHIBIT C1
- -----------------------------------
<TABLE>
<S><C>
PRECLEARANCE REQUEST FORM NON DREYFUS ASSOCIATES
- ----------------------------------------------------------------------------------------------------------------------------------
To: Manager, Corporate Compliance 151-4342 (All Insider and Other Associates)
Designated Preclearance Compliance Officer (All Investment Associates excluding Dreyfus)
- ----------------------------------------------------------------------------------------------------------------------------------
Associate Name: Title: Date:
- ----------------------------------------------------------------------------------------------------------------------------------
Phone #: AIM #: Social Security #: Department:
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
ACCOUNT INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------------
Account Name: Account Number: Name of Broker/Bank:
- ----------------------------------------------------------------------------------------------------------------------------------
Relationship to registered owner(s) (if other than associate)
- ----------------------------------------------------------------------------------------------------------------------------------
I hereby request approval to execute the following trade in the above account:
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
TRANSACTION DETAIL
- ----------------------------------------------------------------------------------------------------------------------------------
Buy: Sell: Security/Contract: No. of Shares:
- ----------------------------------------------------------------------------------------------------------------------------------
If sale, date acquired: Margin Transaction: Initial Public Offering: Private Placement:
/ / Yes / / Yes / / Yes
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
DISCLOSURE STATEMENT
- ----------------------------------------------------------------------------------------------------------------------------------
I hereby represent that, to the best of my knowledge, neither I nor the registered account holder is (1) attempting to benefit
personally from any existing business relationship between the issuer and Mellon or any Mellon-related fund or affiliate; (2)
engaging in any manipulative or deceptive trading activity; (3) in possession of any material non-public information concerning
the security to which is request relates.
- ---------------------------------------------------------------------------------------------------------------------------------
Associate Signature: Date:
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
COMPLIANCE OFFICER USE ONLY
- ---------------------------------------------------------------------------------------------------------------------------------
Approved: Disapproved: Authorized Signatory: Date:
- ---------------------------------------------------------------------------------------------------------------------------------
Comments:
- ---------------------------------------------------------------------------------------------------------------------------------
Note: This preclearance will lapse at the end of the day on ___________________________, 19__.
If you decide not to effect the trade, please notify me.
- ---------------------------------------------------------------------------------------------------------------------------------
Date: By:
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
EXHIBIT C2
- ---------------------------------------
<TABLE>
<S><C>
PRECLEARANCE REQUEST FORM DREYFUS ASSOCIATES ONLY
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
To: Dreyfus Compliance Officer
- ----------------------------------------------------------------------------------------------------------------------------------
Associate Name: Title: Date:
- ----------------------------------------------------------------------------------------------------------------------------------
Phone #: AIM #: Social Security #: Department:
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
ACCOUNT INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------------
Account Name: Account Number: Name of Broker/Bank:
- ----------------------------------------------------------------------------------------------------------------------------------
Relationship to registered owner(s) (if other than associate)
- ----------------------------------------------------------------------------------------------------------------------------------
I hereby request approval to execute the following trade in the above account:
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
TRANSACTION DETAIL
- ----------------------------------------------------------------------------------------------------------------------------------
Buy: Sell: Security/Contract: Symbol:
- ----------------------------------------------------------------------------------------------------------------------------------
Amount: Current Market Price: If sale, date acquired: Margin Transaction:
- ----------------------------------------------------------------------------------------------------------------------------------
Is this a New Issue? Is this a Private Placement?
/ / Yes / / No / / Yes / / No
- ----------------------------------------------------------------------------------------------------------------------------------
Reason for Transaction, identify source:
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
DISCLOSURE STATEMENT
- ----------------------------------------------------------------------------------------------------------------------------------
I hereby represent that, to the best of my knowledge, neither I nor the registered account holder is (1) attempting to benefit
personally from any existing business relationship between the issuer and Mellon or any Mellon-related fund or affiliate; (2)
engaging in any manipulative or deceptive trading activity; (3) in possession of any material non-public information concerning
the security to which is request relates.
- ----------------------------------------------------------------------------------------------------------------------------------
Associate Signature: Date:
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
COMPLIANCE OFFICER USE ONLY
- ----------------------------------------------------------------------------------------------------------------------------------
Approved: Disapproved: Authorized Signatory: Date:
- ----------------------------------------------------------------------------------------------------------------------------------
Comments:
- ----------------------------------------------------------------------------------------------------------------------------------
Note: This preclearance will lapse at the end of the day on _____________________________, 19__.
If you decide not to effect the trade, please notify me.
- ----------------------------------------------------------------------------------------------------------------------------------
Date: By:
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
EXHIBIT D1
- -------------------------------
Return to: Manager, Corporate Compliance
Mellon Bank
P.O. Box 3130
Pittsburgh, PA 15230-3130
<TABLE>
<S><C>
STATEMENT OF SECURITY HOLDINGS
As of _________________________
1. List of all securities in which you, your immediate family, any other member of your immediate household, or any
trust or estate of which you or your spouse is a trustee or fiduciary or beneficiary, or of which your minor
child is a beneficiary, or any person for whom you direct or effect transactions under a power of attorney or
otherwise, maintain a beneficial ownership - (see Glossary in Policy). If none, write NONE. Securities
issued or guaranteed by the U.S. government or its agencies or instrumentalities, bankers' acceptances, bank
certificates of deposit and time deposits, commercial paper, repurchase agreements and shares of registered
investment companies need NOT be listed. IF YOUR LIST IS EXTENSIVE, PLEASE ATTACH A COPY OF THE MOST RECENT
STATEMENT FROM YOUR BROKER(S), RATHER THAN LIST THEM ON THIS FORM.
-------------------------------------------------------------------------------------------------------------
NAME OF SECURITY TYPE OF SECURITY AMOUNT OF SHARES
-------------------------------------- -------------------------------------- -------------------------------
-------------------------------------- -------------------------------------- -------------------------------
-------------------------------------- -------------------------------------- -------------------------------
-------------------------------------- -------------------------------------- -------------------------------
2. List the names and addresses of any broker/dealers holding accounts in which you have a beneficial interest,
including the name of your registered representative (if applicable), the account registration and the
relevant account numbers. If none, write NONE.
--------------------------------------------------------------------------------------------------------------
BROKER/ ADDRESS NAME OF ACCOUNT ACCOUNT
DEALER REGISTERED REGISTRATION NUMBER(S)
REPRESENTATIVE
--------------------- -------------------- ------------------------- --------------------- -------------------
--------------------- -------------------- ------------------------- --------------------- -------------------
--------------------- -------------------- ------------------------- --------------------- -------------------
--------------------- -------------------- ------------------------- --------------------- -------------------
--------------------- -------------------- ------------------------- --------------------- -------------------
I certify that the statements made by me on this form are true, complete and correct to the best of my
knowledge and belief, and are made in good faith. I acknowledge I have read, understood and complied with the
Confidential Information and Securities Trading Policy.
--------------------------------------------------------------------------------------------------------------
Date: Printed Name:
--------------------------------------------------------------------------------------------------------------
Signature:
--------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
EXHIBIT D2
- --------------------------------------
Return to: Compliance Officer at the Dreyfus Corporation
200 Park Avenue
Legal Department
New York, NY 10166
STATEMENT OF SECURITY HOLDINGS
<TABLE>
<S><C>
As of _____________________________
1. List of all securities in which you, your immediate family, any other member of your immediate household, or
any trust or estate of which you or your spouse is a trustee or fiduciary or beneficiary, or of which your minor
child is a beneficiary, or any person for whom you direct or effect transactions under a power of attorney or
otherwise, maintain a beneficial interest. If none, write NONE. Securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities, bankers' acceptances, bank certificates of deposit and time
deposits, commercial paper, repurchase agreements and shares of registered investment companies need NOT be
listed. IF YOUR LIST IS EXTENSIVE, PLEASE ATTACH A COPY OF THE MOST RECENT STATEMENT FROM YOUR BROKER(S),
RATHER THAN LIST THEM ON THIS FORM.
-------------------------------------------------------------------------------------------------------------
NAME OF SECURITY TYPE OF SECURITY AMOUNT OF SHARES
-------------------------------------- -------------------------------------- -------------------------------
-------------------------------------- -------------------------------------- -------------------------------
-------------------------------------- -------------------------------------- -------------------------------
-------------------------------------- -------------------------------------- -------------------------------
2. List the names and addresses of any broker/dealers holding accounts in which you have a beneficial interest,
including the name of your registered representative (if applicable), the account registration and the
relevant account numbers. If none, write NONE.
--------------------------------------------------------------------------------------------------------------
BROKER/ ADDRESS NAME OF ACCOUNT ACCOUNT
DEALER REGISTERED REGISTRATION NUMBER(S)
REPRESENTATIVE
--------------------- -------------------- ------------------------- --------------------- -------------------
--------------------- -------------------- ------------------------- --------------------- -------------------
--------------------- -------------------- ------------------------- --------------------- -------------------
--------------------- -------------------- ------------------------- --------------------- -------------------
--------------------- -------------------- ------------------------- --------------------- -------------------
I certify that the statements made by me on this form are true, complete and correct to the best of my
knowledge and belief, and are made in good faith. I acknowledge I have read, understood and complied with the
Confidential Information and Securities Trading Policy.
--------------------------------------------------------------------------------------------------------------
Date: Printed Name:
--------------------------------------------------------------------------------------------------------------
Signature:
--------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
CODE OF CONDUCT AND
STATEMENT OF POLICY AND PROCEDURES
REGARDING TRADING FOR
PERSONAL ACCOUNTS
This memorandum is intended to serve as a guide to each partner, officer and
employee of CapitalWorks Investment Partners regarding his or her activities and
trading for personal accounts. The Code and Statement is intended to ensure that
the activities of partners, officers and employees of CapitalWorks Investment
Partners and their personal securities transactions are conducted in accordance
with the following principles:
1. A duty at all times to place first the interests of clients;
2. The requirement that all personal securities transactions be conducted
consistent with this Code and Statement and in such a manner to avoid
any actual or potential conflict of interest or any abuse of an
individual's responsibility and position of trust; and
3. The fundamental standard that partners, officers and employees of
CapitalWorks Investment Partners not take inappropriate advantage of
their positions.
In addition to the specific prohibitions on certain personal securities
transactions described in this Code and Statement, all partners, officers and
employees of CapitalWorks Investment Partners are prohibited from:
1. Employing any device, scheme or artifice to defraud any client;
2. Engaging in any act, practice or course of business which operates or
would operate as a fraud or deceit; and
3. Engaging in any manipulative practice with respect to any client.
DEFINITION OF PERSONAL ACCOUNT
For purposes of this Code and Statement, "personal accounts" include the account
of any partner, officer or employee of CapitalWorks Investment Partners, the
account of CapitalWorks Investment Partners, and any other account as to which
CapitalWorks Investment Partners or any partner, officer or employee has a
direct or indirect pecuniary interest or exercises direct or indirect control or
influence ("affiliated accounts"). Affiliated accounts include accounts of:
1. a spouse (other than a legally separated or divorced spouse) of a
partner, officer or employee;
2. a minor child or grandchild of a partner, officer or employee;
3. any other family member who resides with a partner, officer or employee
or whose account is managed by a partner, officer or employee; and
4. any entity or other account as to which a partner, officer or employee,
or any person specified in clauses 1 through 3 above, has a pecuniary
interest or exercises direct or indirect control or
<PAGE>
influence (such as a trust or estate, a partnership of which the person
is a partner or a corporation in which the person has a pecuniary
interest), except that affiliated accounts do not include, for this
purpose, CapitalWorks Cypress Fund, L.P., CapitalWorks Cypress Fund II,
L.P. and CapitalWorks Small Cap Fund, L.P.
A partner, officer or employee may, by written application to either John Wylie
or Jack Marshall, request a waiver from the application of part or all of this
Code and Statement to any personal account over which such person does not have
any direct or indirect influence or control; although neither Mr. Wylie nor Mr.
Marshall is, under any circumstances, obligated to grant any such waiver.
Note: Partners, officers and employees are cautioned that under the federal
securities laws, a wide variety of indirect interests, or accounts over which
partners, officers or employees may exercise direct or indirect control or
influence, may constitute a "personal account" and in case of any doubt or
uncertainty such persons are strongly urged to discuss the applicability of
these rules with either Mr. Wylie or Mr. Marshall, who may consult with legal
counsel.
RESTRICTIONS ON TRANSACTIONS FOR PERSONAL ACCOUNTS
1. A transaction for a personal account may not be effected without the
prior approval of Mr. Wylie or Mr. Marshall, and any transaction for a
personal account may be cancelled at the end of the day by either Mr.
Wylie or Mr. Marshall, as the case may be, and that execution given to
a client. Mr. Wylie or Mr. Marshall, as the case may be, shall promptly
notify the partner, director or employee of clearance or denial of
clearance to trade by indicating such action on the trading order
ticket.
2. Duplicates of all confirmations and monthly statements for each
personal account are required to be sent to CapitalWorks Investment
Partners to the attention of Laurie Appel. Mr. Wylie or Mr. Marshall,
in their sole discretion, may prohibit personal accounts from being
maintained at certain brokerage firms.
3. A security may not be purchased or sold for a personal account on a day
when the same security is purchased or sold for clients unless ALL of
the following conditions are met:
a. All client orders have been filled and there is no buying or
selling program in progress; and
b. The transaction for the personal account is on the same side
as the client.
4. A security held for a personal account which is still held for client
accounts may not be sold from the personal account unless there are no
existing unfilled client orders in the security and no buying or selling
program is underway.
5. When any partner, officer or employee recommends that a security be
bought or sold for client accounts, such person must disclose to Mr.
Wylie or Mr. Marshall if a position in that security is currently held
in a personal account in which such person has a direct or indirect
pecuniary interest or exercises direct or indirect control or
influence. Mr. Wylie or Mr. Marshall may restrict such person from
buying or selling the position from any personal account until a
specified period of time after the client orders have been filled and
there is no buying or selling program in progress.
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<PAGE>
6. Transactions in listed options are considered to be transactions in the
underlying security.
7. The foregoing restrictions do not apply to purchases and sales of U.S.
government securities, shares of money market funds or shares of
registered open-end investment companies.
8. Exceptions to these restrictions may be granted by either Mr. Wylie or
Mr. Marshall in the case of extenuating or unusual circumstances.
STATEMENT OF COMPLIANCE
Every partner, officer or employee of CapitalWorks Investment Partners
will be required upon the adoption of the Code and Statement by CapitalWorks
Investment Partners or the commencement of such person's employment with
CapitalWorks Investment Partners and, after that, annually, to execute a
statement (substantially in the form of Exhibit A hereto) to the effect that he
or she has read and understands, has complied with and will continue to comply
with, the procedures set forth in this Code and Statement.
ENFORCEMENT
Responsibility for enforcement of the Code and Statement will lie with Mr. Wylie
and Mr. Marshall. There shall be maintained a file by CapitalWorks Investment
Partners which will include all memoranda and other materials referred to in the
Code and Statement.
I have read and understand this Code of Conduct and Statement of Policy and
Procedures Regarding Trading of Personal Accounts and I agree that I will comply
in all respects with the procedures set forth therein, including, in particular,
the requirement that all transactions for personal accounts be approved in
advance by Mr. Wylie or Mr. Marshall.
Signature:
-------------------------------------
Print Name:
-------------------------
Date:
-------------------------------
3
<PAGE>
EXHIBIT A
ANNUAL STATEMENT OF COMPLIANCE WITH CODE OF CONDUCT AND
STATEMENT OF POLICY AND PROCEDURES REGARDING TRADING
FOR PERSONAL ACCOUNTS
I have read and understand the procedures set forth in the "Code of
Conduct and Statement of Policy and Procedures Regarding Trading for Personal
Accounts" (the "Procedures"). All transactions from ______________, 199__
through the date hereof for personal accounts in which I have an interest have
compiled with the Procedures and, in particular, were approved in advance by Mr.
Wylie or Mr. Marshall. Further, I agree that I will continue to comply in all
respects with the Procedures, including, in particular, the requirement that all
transactions for personal accounts be approved in advance by Mr. Wylie or Mr.
Marshall.
Date: ______________________ __________________________
Print Name
4
<PAGE>
COHEN & STEERS CAPITAL MANAGEMENT, INC.
CODE OF ETHICS
INTRODUCTION
This Code of Ethics shall apply to all directors, officers and employees of
Cohen & Steers Capital Management, Inc., and of each of its subsidiaries and
affiliates.
FOR PURPOSES OF THIS CODE:
(a) "Access Person" means any director, officer or employee of Cohen & Steers
Capital Management, Inc., and of each of its subsidiaries or affiliates ("Cohen
& Steers").
(b) Purchase or sale of a security includes, among other things, the writing of
any option to purchase or sell a security or any transaction by reason of which
a person acquires or disposes of any direct or indirect ownership in a security.
(c) A security is "being considered for purchase or sale" when a recommendation
to purchase or sell a security has been made and communicated and, with respect
to the person making the recommendation, when a person seriously considers
making such a recommendation.
THIS CODE APPLIES TO ALL TRANSACTIONS (OTHER THAN BONA FIDE CLIENT TRANSACTIONS)
IN ALL ACCOUNTS IN WHICH AN ACCESS PERSON MAY EXERCISE CONTROL OR HAS A
BENEFICIAL INTEREST. UPON DISCOVERING A VIOLATION OF THIS CODE, THE CHAIRMAN OR
PRESIDENT MAY IMPOSE SUCH SANCTIONS AS DEEMED APPROPRIATE, INCLUDING A LETTER OF
CENSURE OR SUSPENSION OR EVEN TERMINATION OF THE EMPLOYMENT OF THE VIOLATOR.
FURTHER, ANY PROFITS REALIZED IN CONNECTION WITH A VIOLATION OF THIS CODE WILL
BE REQUIRED TO BE DISGORGED.
PROHIBITED TRANSACTIONS
The following transactions are prohibited, except as provided for below:
(a) No Access Person shall purchase or sell any security that the Access Person
knew or reasonably should have known is being or has been considered for
purchase or sale for a Client, or is being purchased or sold by a Client.
<PAGE>
(b) No Access Person shall purchase or sell any security issued or guaranteed by
a real estate investment trust or other company engaged in the real estate
business (as defined below), except that an Access Person may invest in shares
of Cohen & Steers Realty Shares, Inc., Cohen & Steers Special Equity Fund, Inc.
and Cohen & Steers Equity Income Fund, Inc. and, with the written prior approval
of the Chairman or President, shares of Cohen & Steers Realty Income Fund, Inc.
and Cohen & Steers Total Return Realty Fund, Inc. (see Attachment A).
(c) No Access Person shall purchase any security issued in an initial public
offering.
(d) No Access Person shall purchase any security issued in a private placement
unless the Chairman or President approves the transaction in advance. In
determining whether or not to grant approval, the Chairman or President will
consider whether the investment opportunity should be reserved for a Client and
whether the opportunity is being offered by virtue of the Access Person's
position with Cohen & Steers. The general counsel shall maintain a written
record of decisions to permit these transactions, along with the reasons
supporting the decision. Any Access Person who has been authorized to acquire
securities in a private placement must disclose the investment to the Chairman
or President if the Access Person is involved in any subsequent consideration of
an investment in the issuer, and these investment decisions will be subject to
independent review by investment personnel with no personal interest in the
issuer.
(e) No Access Person shall execute any securities transaction on a day during
which any Client has a pending buy or sell order in that same security until
that order is executed or withdrawn. Furthermore, no Access Person shall buy or
sell a security within seven calendar days before or after a Client trades in
that security.
(f) No Access Person shall receive any gift of more than DE MINIMIS value from
any person or entity that does business with or on behalf of Cohen & Steers, its
affiliates and subsidiaries, or a Client.
(g) No Access Person shall serve on the board of directors of a publicly traded
company, unless approved in advance by the Chairman or President. This
authorization will be provided only if the Chairman or President concludes that
service on the board would be consistent with the interests of Clients. Access
Persons who have received this approval shall not trade for a Client or their
own account in the securities of the company while in possession of material,
non-public information ("Inside Information"). Cohen & Steers' Inside
Information Policy and Procedures provide further details on the obligations of
Access Persons concerning Inside Information.
<PAGE>
EXEMPTED TRANSACTIONS
The prohibitions of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the Access Person has
no direct or indirect influence (including any account that is managed on a
discretionary basis by a person other than the Access Person and with respect to
which the Access Person does not in fact influence or control the transactions).
(b) Purchases or sales that are non-volitional on the part of either the Access
Person or a Client.
(c) Purchases that are part of an automatic dividend reinvestment plan.
(d) Purchases effected upon the exercise of rights issued by an issuer PRO RATA
to all holders of a class of its securities, to the extent these rights were
acquired from the issuer, and sales of rights so acquired.
(e) Purchases or sales that receive the prior approval of the Chairman or
President of Cohen & Steers (such approving officer having no personal interest
in such purchases or sales) because they: (i) are only remotely potentially
harmful to any Client account, (ii) would be very unlikely to affect a highly
institutional market, or (iii) clearly are not related economically to the
securities to be purchased, or sold or held on behalf of a Client or (iv) are a
result of the sale of securities that were acquired prior to February 1995 (and
such person was an employee of Cohen & Steers Capital Management, Inc. prior to
February 1995) or acquired prior to the time a person became an employee of
Cohen & Steers. The general counsel shall maintain a written record of decisions
to permit these transactions, along with the reasons supporting the decision.
REPORTING
(a) Every Access Person shall report all transactions in any security in which
the Access Person has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership in the security; provided, however, that an Access
Person shall not be required to report transactions effected for any account
over which the Access Person does not have any direct or indirect influence or
control.
(b) Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
(i) the date of the transaction, the title, interest rate and maturity date
(if applicable), the number of shares, and the principal amount of the
security
<PAGE>
involved;
(ii) the nature of the transaction (I.E., purchase, sale or any other type
of acquisition or disposition);
(iii) the price at which the transaction was effected;
(iv) the name of the broker, dealer or bank with or through whom the
transaction was effected;
(v) with respect to any account established by the Access Person during the
quarter, the name of the broker, dealer or bank with whom the Access Person
established the account and the date the account was established; and
(vi) the date the report is submitted.
(c) Any report may contain a statement that the report shall not be construed as
an admission that the person making the report has any direct or indirect
beneficial ownership in the security to which the report relates.
(d) Every Access Person must provide a list of all personal securities holdings
no later than 10 days after commencement of employment ("Initial Holdings
Report") and no later than 30 days after the beginning of each year ("Annual
Holdings Report") thereafter (see Attachment B). Both the Initial Holdings
Report and Annual Holdings Report also shall provide the name of any broker,
dealer or bank with whom the Access Person maintained an account in which any
securities were held for the direct or indirect benefit of the Access Person.
Each Annual Holdings Report must provide information that is current as of a
date no more than 30 days before the report is submitted. Both the Initial
Holdings Report and the Annual Holdings Report shall state the date the report
is submitted by the Access Person.
(e) The Applicant's compliance administrator and general counsel shall be
responsible for reviewing all quarterly securities transaction reports, the
Initial Holdings Report and the Annual Holdings Report, and shall report to the
Chairman and President all potential violations of this Code of Ethics. The
Chairman and President, in consultation with the general counsel, shall
determine the appropriate response to any violation.
(f) All Access Persons must certify on the attached form initially and annually
thereafter that they have read and understand this Code of Ethics and that they
recognize that they are subject to the provisions of this Code. Furthermore, all
Access Persons must certify annually that they have complied with the
requirements of the Code of Ethics and that they have reported all personal
securities transactions and accounts required to be reported pursuant to the
Code.
<PAGE>
FUND BOARD APPROVAL AND REPORTING
The Board of Directors of each Cohen & Steers Fund, including a majority of the
Directors who are not "interested persons" (as defined in the Investment Company
Act of 1940), must approve this Code and any material changes to the Code. This
approval shall be based on a determination that the Code contains provisions
reasonably necessary to prevent Access Persons from engaging in any conduct
prohibited by Rule 17j-1 under the Investment Company Act of 1940. In connection
with this approval, Cohen & Steers shall provide a certification to the Board
that Cohen & Steers has adopted procedures reasonably necessary to prevent
Access Persons from violating the Code.
Cohen & Steers shall furnish annually to the Directors a written report (i)
describing any issues arising under the Code of Ethics and related supervisory
procedures, including but not limited to information about material violations
of the Code or procedures and sanctions imposed in response to the material
violations, and (ii) certifying that Cohen & Steers has adopted procedures that
are reasonably necessary to prevent Access Persons from violating the Code.
ADDITIONAL DEFINITIONS
(a) "Beneficial ownership" shall be interpreted in the same manner as it would
be in determining whether a person is subject to the provisions of Section 16 of
the Securities Exchange Act of 1934, and the rules and regulations thereunder,
except that the determination of direct or indirect beneficial ownership shall
apply to all securities which an Access Person has or acquires.
(b) "Security" shall have the meaning set forth in Section 2(a) (36) of the
Investment Company Act, except that it shall not include direct obligations of
the Government of the United States; bankers' acceptances, bank certificates of
deposit, commercial paper and high-quality short-term debt instruments,
including repurchase agreements; and shares of registered open-end investment
companies.
(c) A company is engaged in the "real estate business" if it derives at least
50% of its revenues from the ownership, construction, financing, management or
sale of commercial, industrial or residential real estate or has at least 50% of
its assets in such real estate. Any questions as to whether a company is engaged
in the real estate business should be referred to the Chairman or President.
<PAGE>
COHEN & STEERS CAPITAL MANAGEMENT, INC.
CERTIFICATION OF PERSONAL SECURITIES TRANSACTIONS
AND COMPLIANCE WITH THE CODE OF ETHICS
I hereby certify that I have received, read and understand the
Cohen & Steers Code of Ethics. Furthermore, I understand that I am
subject to the Code of Ethics and that any failure to follow the Code
could subject me to discipline, including the possible termination of
my employment with Cohen & Steers.
I further certify that, for the preceding calendar year, I
have complied with the requirements of the Code of Ethics in effect
for the year and that I have reported all personal securities
transactions, holdings and accounts required to be reported pursuant
to this Code.
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Name
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Signature
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Date
<PAGE>
DELAWARE INVESTMENTS
CODE OF ETHICS
- -------------------------------------------------------------------------------
[PICTURE]
<PAGE>
CODE OF ETHICS
--------------
DELAWARE MANAGEMENT BUSINESS TRUST
DELAWARE DISTRIBUTORS, L.P.
DELAWARE SERVICE COMPANY, INC.
DELAWARE MANAGEMENT TRUST COMPANY
DELAWARE INTERNATIONAL ADVISERS LTD.
DELAWARE CAPITAL MANAGEMENT, INC.
DELAWARE INVESTMENT RETIREMENT SERVICES, INC.
CREDO
- -----
IT IS THE DUTY OF ALL EMPLOYEES, OFFICERS AND DIRECTORS TO CONDUCT THEMSELVES
WITH INTEGRITY, AND AT ALL TIMES TO PLACE THE INTERESTS OF THE SHAREHOLDERS
FIRST. IN THE INTEREST OF THIS CREDO ALL PERSONAL SECURITIES TRANSACTIONS WILL
BE CONDUCTED CONSISTENT WITH THE CODE OF ETHICS AND IN SUCH A MANNER AS TO AVOID
ANY ACTUAL OR POTENTIAL CONFLICT OF INTEREST OR ANY ABUSE OF AN INDIVIDUAL'S
POSITION OF TRUST AND RESPONSIBILITY. THE FUNDAMENTAL STANDARD OF THIS CODE IS
THAT PERSONNEL SHOULD NOT TAKE ANY INAPPROPRIATE ADVANTAGE OF THEIR POSITIONS.
The Securities and Exchange Commission has adopted Rule 17j-1 under the
Investment Company Act of 1940. This Rule makes it unlawful for certain persons,
including any employee, officer or director of the Fund, in connection with the
purchase or sale by such person of a security held or to be acquired(1) by the
Fund:
(1) To employ any device, scheme or artifice to defraud the Fund;
(2) To make to the Fund any untrue statement of a material fact or omit
to state to the Fund a material fact necessary in order to make the statements
made, in light of the circumstances in which they are made, not misleading;
(3) To engage in any act, practice or course of business that operates
or would operate as a fraud or deceit upon the Fund; or
(4) To engage in any manipulative practice with respect to the Fund.
- ----------------------
(1) A security is deemed to be "held or to be acquired" if within the most
recent fifteen days it (i) is or had been held by the Fund or (ii) is being or
had been considered by the Fund or its investment adviser for purchase by the
Fund.
2
<PAGE>
The Rule also requires that the Fund and Delaware Management Business Trust
shall adopt a written code of ethics containing provisions reasonably necessary
to prevent persons from engaging in acts in violation of the above standard and
shall use reasonable diligence and institution procedures reasonably necessary
to prevent violations of the Code.
This Code of Ethics is being adopted by Delaware Management Business Trust
("DMBT") Delaware Management Business Trust ("DMST"), Delaware Distributors,
L.P., Delaware Service Company, Inc., Delaware management Trust Company,
Delaware International Advisers Ltd. ("International") and Delaware Capital
Management, Inc. ("DCM"), Delaware Investment Retirement Services, Inc.
("DIRSI"), (collectively "Delaware") in compliance with the requirement of Rule
17j-1 and to effect its purposes, the purposes of the Credo set forth above, and
the recommendations of the Investment Company Institute's Advisory Group on
Personal Investing.
DEFINITIONS
- -----------
"AFFILIATED PERSON" means any employee of the Funds or any subsidiary of
Delaware Management Holdings, Inc. and any other person so designated by the
Compliance Department.
"ACCESS PERSON" means any director, officer, general partner or advisory person
of the Fund and shall include all Interested Directors, Portfolio Mangers, other
Investment Personnel and all Advisory Persons.
"ADVISORY PERSON" mean (i) any employee, officer or interested director of
Delaware, who in connection with his/her regular functions or duties, normally
makes, participates in, or obtains current information regarding the purchase or
sale of a security by the Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales and (ii) any natural
person in a control relationship to any such company who regularly obtains
current information concerning recommendations made with regard to the purchase
or sale of a security by the Fund.
"INVESTMENT PERSONNEL" means portfolio managers, securities analysts and
traders, and those personnel who provide information and advice to a portfolio
manager or who help execute the portfolio manager's decisions.
A SECURITY IS BEING "CONSIDERED FOR PURCHASE OR SALE" OR IS "BEING PURCHASED OR
SOLD" when a recommendation to purchase or sell the security has been made and
communicated to the Order Room and with respect to the person making the
recommendation, when such person seriously considers making or when such person
knows or should know that another Advisory Person is seriously considering such
a recommendation.
"BENEFICIAL OWNERSHIP" shall be as defined in Section 16 or the Securities
Exchange Act of 1934 and the rules and regulations thereunder. Generally
speaking, a person who, directly or indirectly, through any contract,
arrangement understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in a security, is a "beneficial owner" of the
security. For instance:
- A person is normally regarded as the beneficial owner of
securities held by members of his or her immediate family
sharing the same household; and
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<PAGE>
- Ownership of derivative securities such as options, warrants
or convertible securities which confer the right to acquire
the underlying security at a fixed price constitutes
beneficial ownership of the underlying security itself.
"CONTROL" shall mean investment discretion in whole or in part of an account
regardless of beneficial ownership. Such as an account for which a person has
power of attorney or authority to effect transactions.
"SECURITY" shall have the meaning as set forth in Section 2(a)(36) of the
Investment Company Act of 1940, except that it shall not include securities
issued or guaranteed by the government of the United States or by any of it's
federal agencies, bankers' acceptances, bank certificates of deposit, commercial
paper and shares of open-end registered investment companies.
The purchase, sale or exercise of a derivative security shall constitute the
purchase or sale of the underlying security. However, the purchase or sale of
the debt instrument of an issuer which does not give the holder the right to
purchase the issuer's stock at a fixed price, does not constitute a purchase or
sale of the issuer's stock.
4
<PAGE>
PROHIBITED ACTIVITIES
---------------------
AFFILIATED PERSONS, ACCESS PERSONS, INVESTMENT PERSONNEL AND PORTFOLIO MANAGERS
The following restrictions apply to all Portfolio Managers, Investment
Personnel, Access Persons and Affiliated Persons. Access Persons include
Interested Directors of the Funds.
(a) No Affiliated or Access Person shall engage in any act, practice or course
of conduct, which would violate the provision of Rule 17j-1 set forth
above.
(b) No Affiliated or Access Person shall purchase or sell, directly or
indirectly, any security which to his/her knowledge is being actively
considered for purchase or sale by Delaware; except that this prohibition
shall not apply to:
(A) purchases or sales that are nonvolitional on the part of
either the Person or the Fund;
(B) purchases which are part of an automatic dividend reinvestment
plan;
(C) purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities,
to the extend such rights were acquired from such issuer, and
sales or such rights so acquired;
(D) other purchases and sales specifically approved by the
President or Chief Executive Officer, with the advice of the
General Counsel and the Compliance officer and deemed
appropriate because of unusual or unforeseen circumstances. A
list of securities excepted will be maintained by the
Compliance Department.
(c) No Affiliated or Access Person may execute a buy or sell order for an
account in which he or she has beneficial ownership or control until
the third trading day following the execution of a Delaware buy or sell
order in that same security.
(d) Despite any fault or impropriety, any Affiliated or Access Person who
executes a buy or sell for an account in which he/she has beneficial
ownership or control either (i) before the third trading day following the
execution of a Delaware order in the same security, or (ii) when there are
pending orders for a Delaware transaction as reflected on the Trader Order
Scan, shall forfeit any profits made (in the event of purchases) or loss
avoided (in the event of sales), whether realized or unrealized, in the
period from the date of the personal transaction to the end of the
proscribed trading period. Payment of the amount forfeited shall be made by
check or in cash to a charity of the person's choice and a copy of the
check or receipt must be forwarded to the Compliance Department.
(e) Each Affiliated or Access Person's personal transactions must be precleared
by using the Personal Transaction Preclearance Form. The form must be
submitted prior to entering any orders for personal transactions.
Preclearance is only valid for the day the form is submitted. If the order
is not executed the same day, the preclearance form must be resubmitted.
Regardless of preclearance, all transactions remain subject to the
provisions of (d) above.
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<PAGE>
INVESTMENT PERSONNEL AND PORTFOLIO MANAGERS
- -------------------------------------------
The following additional restrictions apply to all Investment Personnel and
Portfolio Managers.
(a) All Investment Personnel are prohibited from purchasing any initial public
offering.
(b) All Investment Personnel are prohibited from purchasing any private
placement without express PRIOR written consent by the Compliance
Department. All private placement holdings are subject to disclosure to the
Compliance Department. Any Investment Person that holds a private placement
must receive permission from the Compliance or Legal Departments prior to
any participation by such person in Delaware's consideration of an
investment in the same issuer.
(c) Short term trading resulting in a profit is prohibited. All opening
positions must be held for a period of 60 days, in the aggregate, before
they can be closed at a profit. Any short term trading profits are subject
to the disgorgement procedures outlined above and at the maximum level of
profit obtained. The closing of positions at a loss is not prohibited.
(d) All Investment Personnel are prohibited from receiving anything of more
than ADE MINIMIS value from any person or entity that does business with or
on behalf of any fund or client. Things of value may include, but not be
limited to, travel expenses, special deals or incentives.
(e) All Investment Personnel require PRIOR written approval from the Legal or
Compliance Department before they may serve on the board of directors of
any public company.
PORTFOLIO MANAGERS
- ------------------
The following additional restrictions apply to Portfolio Managers
(a) No Portfolio Manager may execute a buy or sell order for an account for
which he/she has beneficial ownership within seven calendar days before or
after an investment company or separate account that he/she manages trades
in that security.
(b) Despite any fault or impropriety, any Portfolio Manager who executes a
personal transaction within seven calendar days before or after an
investment company or separate account that he/she manages trades in that
security, shall forfeit any profits made (in the event or purchases) or
loss avoided (in the event of sales), whether realized or unrealized, in
the period from the date of the personal transaction to the end of the
prescribed trading period. Payment of the amount forfeited shall be made by
check or in cash to a charity of the person's choice and a copy of the
check or receipt must be forwarded to the Compliance Department.
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<PAGE>
REQUIRED REPORTS
AFFILIATED PERSONS, ACCESS PERSONS, INVESTMENT PERSONNEL, PORTFOLIO MANAGERS AND
DISINTERESTED DIRECTORS
The following reports are required to be made by all Affiliated Persons, Access
Persons, Investment Personnel and Portfolio Managers. Access Persons, Investment
Personnel and Portfolio Managers are Affiliated Persons by definition.
(a) All Affiliated Persons must disclose brokerage relationships at employment
and at the time of opening any new account.
(b) All Affiliated Persons will direct their brokers to supply to the
Compliance Department, on a timely basis, duplicate copies of all
confirmation and statements for all securities accounts. (In the U.K., all
contract notes and periodic statements)
(c) Each quarter, no later than the tenth day after the end of the calendar
quarter, each Affiliated Person will submit to the Compliance Department a
personal transaction summary showing all transactions in securities in
accounts which such person has or acquires any direct or indirect
beneficial ownership. Each Director who is not an interested person shall
submit the quarterly reports only for transactions where at the time of the
transaction the director knew, or in the ordinary course of fulfilling his
official duties as a director should have known, that during the fifteen
day period immediately preceding the date of the transaction by the
director, such security was purchased or sold by the Fund or was being
considered for purchase or sale by the Fund.
Every report will contain the following information:
(i) the date of the transaction, the name and the number of shares and the
principal amount of each security involved;
(ii) the nature of the transaction (i.e., purchase, sale or any other type
of acquisition or disposition);
(iii) the price at which the transaction was effected;
(iv) the name of the broker, dealer or bank effecting the transaction.
(d) If any security involved in a personal transaction is purchased or sold by
a Fund within fifteen days of the personal transaction, the Compliance
Department will request and the Affiliated person will provide additional
information relating to the circumstances surrounding the personal
transaction.
(e) All Affiliated Persons will certify annually that they have read and
complied with this Code of Ethics and all disclosure and reporting
requirements contained therein.
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<PAGE>
INVESTMENT PERSONNEL AND PROTFOLIO MANAGERS
- -------------------------------------------
In addition to the above reporting requirements, all Investment Personnel, which
includes Portfolio Managers by definition, must disclose all personal securities
holdings on commencement of employment and thereafter on an annual basis.
ADMINISTRATIVE PROCEDURES
(a) The Legal Department of Delaware will identify all Affiliated Persons,
Access Persons, Investment Personnel and Portfolio Managers.
(b) The Legal Department shall promptly report to the President or Chief
Executive Officer of Delaware Management Business Trust any apparent
violations of the prohibitions or reporting requirements contained in this
Code of Ethics. Such chief Executive Officer or President, or both in
conjunction, will review the reports made and determine whether or not the
Code of Ethics has been violated and shall determine what sanctions, if
any, should be imposed.
When the Legal Department finds that a transaction otherwise reportable above
could not reasonably be found to have resulted in a fraud, deceit or
manipulative practice in violation of Rule 17j-1(a), it may, in it's discretion,
lodge a written memorandum of such finding in lieu of reporting the transaction.
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DELPHI MANAGEMENT, INC.
CODE OF ETHICS
I. INTRODUCTION
A. GENERAL PRINCIPLES
This Code of Ethics (the "Code") establishes rules of conduct for
certain persons associated with Delphi Management, Inc. ("Delphi" or
the "Company" ) and is designed to govern their personal securities
activities. For purposes of this Code, all employees are considered
"Access Persons" (as defined below).
In general, in connection with personal securities transactions,
Access Persons should (1) always place the interests of Delphi's
clients first; (2) ensure that all personal securities transactions
are conducted consistent with this Code and in such a manner as to
avoid any actual or potential conflict of interest or any abuse of
an Access Person's position of trust and responsibility; and (3) not
take inappropriate advantage of their positions.
B. APPLICABILITY
For purposes of this Code, an "Access Person" is defined as any
officer, Director or employee of Delphi.
C. LEGAL REQUIREMENTS
Delphi is an investment adviser registered with the Securities and
Exchange Commission ("SEC"). Under the Investment Company Act of
1940, as amended (the "1940 Act"), the Investment Advisers Act of
1940, and rules adopted under these Acts, an adviser must adopt a
code of ethics which communicates the company's policies and
procedures regarding how its Access Persons must conduct themselves
in an ethical and professional manner. In accordance with these
Acts, this Code contains policies and procedures to prevent
conflicts of interest between the personal security transactions of
Access Persons and the securities transactions of Delphi's clients.
Accordingly, it is unlawful for any Access Person:
1. To employ any device, scheme or artifice to defraud Delphi's
clients;
2. To make any untrue statement of a material fact or omit to
state a material fact necessary in order to make the
statements made, in light of the circumstances under which
they are made, not misleading; or
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3. To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon a client.
It is the duty of Delphi's Compliance Officer to identify such
Access Persons on a continuing basis, to inform them of their duty
to report their personal trades, and to provide them with copies of
the Code.
II. RESTRICTIONS ON ACTIVITIES
A. PROHIBITED PURCHASES AND SALES
1. No Access Person shall purchase or sell, directly or
indirectly, any security (or related security) in which they
have, or by reason of such transaction acquire, any direct or
indirect beneficial ownership (as defined in Attachment A to
this Code) and which they know or should have known at the
time of such purchase or sale:
(a) is being or has been considered for purchase or sale by
Delphi; or
(b) is being purchased or sold by Delphi.
2. No Access Person shall disclose to other persons the
securities activities engaged in or contemplated by Delphi.
B. BLACKOUT PERIOD
1. Delphi requires that all Delphi employees not invest
personally in securities in which clients' assets are being
invested until 15 days after the last client transaction in
the security, for clients intended to be placed in the
security. Conversely, there is a 15-day waiting period for the
divestiture of a security, as well.
2. All employees must provide Delphi with confirms of their
individual transactions.
C. INTERESTED TRANSACTIONS
No Access Person shall recommend any securities transactions for a
client without having disclosed his or her interest, if any, in such
securities or the issuer thereof, including without limitation:
1. any direct or indirect beneficial ownership (as defined in
Attachment A to this Code) of any securities of such issuer;
2. any contemplated transaction by such person in such
securities;
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3. any position with such issuer or its affiliates; and
4. any present or proposed business relationship between such
issuer or its affiliates and such person or any party in
which such person has a significant interest.
D. INITIAL PUBLIC OFFERINGS AND LIMITED OFFERINGS
Except as provided below, no Delphi employee shall acquire any
securities in an initial public offering or a limited offering in
order to preclude any possibility of such person profiting from
their positions with Delphi.
Delphi employees may acquire securities for their personal accounts
in an initial public offering or a limited offering provided the
following conditions are met:
1. That prior to purchasing the securities, such person shall
preclear the trade with the designated Compliance Officer who
will if requested disclose the identity of the buyer and
explain that the purchase is permitted under the Code; and
[2. If the purchase is permitted, the sale of these securities is
subject to the 60-day Short Term Trading policy.
E. SHORT-TERM TRADING PATTERNS
Delphi employees are prohibited from trading individual securities
such that a security is bought and sold (or sold short and bought)
within sixty (60) calendar days. Trades made in violation of this
prohibition should be cancelled, if possible. Otherwise, any profits
realized on such short-term trades shall be subject to disgorgement.
Should an unusual circumstance exist, the Delphi employee should
consult the Compliance Officer prior to trading and upon a review of
the issues with Senior Management, an exception may be approved.]
[F. GIFTS
No Delphi employee shall receive any gift or other things of more
than DE MINIMIS value from any person or entity that does business
with or on behalf of Delphi.]
[G. SERVICE AS A DIRECTOR
No Delphi employee shall serve on the Board of Directors of any
publicly-traded company without prior authorization from the
Compliance Officer based upon a determination that such board
service would be consistent with the interests of Delphi and its
clients.]
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III. EXEMPT TRANSACTIONS
A. For purposes of this Code, the term "security" shall not include the
following:
1. direct obligations of the Government of the United States;
2. bankers' acceptances;
3. bank certificates of deposit;
4. commercial paper;
5. high quality short-term debt instruments, including repurchase
agreements; and
6. shares of registered open-end investment companies.
B. The prohibitions described in paragraph (B) of Article II shall not
apply to:
1. Purchases or sales effected in any account over which the
Access Person has no direct or indirect influence or control;
2. Purchases or sales that are non-volitional on the part of the
Access Person;
3. Purchases that are part of an automatic dividend reinvestment
plan;
4. Purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of its securities,
to the extent such rights were acquired from the issuer, and
sales of such rights so acquired; or
5. Subject to the advance approval of the Compliance Officer (as
defined below), purchases or sales which are only remotely
potentially harmful to the Company because such purchases or
sales would be unlikely to affect a highly institutional
market, or because such purchases or sales are clearly not
related economically to the securities held, purchased or sold
by the Company.
IV. COMPLIANCE PROCEDURES
A. PRECLEARANCE
All Delphi employees shall receive prior written approval from the
Compliance Officer before purchasing or selling securities. Any such
approved transaction must be completed by the close of business on
the next business day after approval is received unless it is
rescinded prior to execution. All Delphi employees shall disclose to
the Compliance Officer any factors relevant to the preclearance
review. All requests and responses will be documented and maintained
in accordance with the recordkeeping requirements of Rule 17j-1(f)
of under the 1940 Act.
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B. REPORTING OBLIGATIONS
1. Unless excepted by Section 2 of this Paragraph B, every Access
Person must report to the Compliance Officer as described
below.
(a) INITIAL HOLDINGS REPORTS (Attachment B). Not later than
10 days after the person becomes an Access Person, the
following information:
(i) the title, number of shares and principal amount
of each security in which the Access Person had
any direct or indirect beneficial ownership when
the person became an Access Person;
(ii) the name of any broker, dealer or bank with whom
the Access Person maintained an account in which
any securities were held for the direct or
indirect benefit of the Access Person as of the
date the person became an Access Person; and
(iii) the date that the report is signed and submitted
by the Access Person.
(b) QUARTERLY TRANSACTION REPORTS (Attachment C). Not later
than 10 days after the end of each calendar quarter, the
following information:
(i) With respect to any transaction during the quarter
in a security in which the Access Person had any
direct or indirect beneficial ownership:
(1) the date of the transaction, the title, the
interest rate and maturity date (if
applicable), the number of shares and the
principal amount of each security involved;
(2) the nature of the transaction (I.E.,
purchase, sale or any other type of
acquisition or disposition);
(3) the price of the security at which the
transaction was effected;
(4) the name of the broker, dealer or bank with
or through which the transaction was
effected; and
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(5) the date that the report is signed and
submitted by the Covered Person.
(ii) With respect to any account established by the
Access Person in which any securities were held
during the quarter for the direct or indirect
benefit of the Access Person:
(1) the name of the broker, dealer or bank with
whom the Access Person established the
account;
(2) the date that the account was established;
and
(3) the date that the report is signed and
submitted by the Access Person.
(iii) In the event that no reportable transactions
occurred during the quarter, the report should so
note and returned signed and dated.
(c) ANNUAL HOLDINGS REPORTS (Attachment D). Not later than
each January 30th, the following information (which
information must be current as of a date no more than 30
days before the report is submitted):
(i) the title, number of shares and principal amount
of each security in which the Access Person had
any direct or indirect beneficial ownership;
(ii) the name of any broker, dealer or bank with whom
the Access Person maintains an account in which
any securities are held for the direct or indirect
benefit of the Access Person; and
(iii) the date on which the report is signed and
submitted by the Access Person.
2. The following are the exceptions to the reporting requirements
outlined in Section 1 of this Paragraph B:
(a) A person need not make any report required under Section
1 of this Paragraph B with respect to transactions
effected for, and securities held in, any account over
which the person has no direct influence or control,
including such an account in which the person has any
beneficial ownership.
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(b) A person need not make a quarterly transaction report
under Section 1(b) of this Paragraph B if the report
would duplicate information contained in broker trade
confirmations or account statements received by the
Compliance Officer with respect to the person in the
time period required under Section 1(b), if all of the
information required under Section 1(b) is contained in
the broker trade confirmations or account statements.
3. Any report delivered pursuant to this Paragraph B may contain
a statement that the report shall not be construed as an
admission by the person making such report that he or she has
any direct or indirect beneficial ownership in the securities
to which the report relates.
C. CERTIFICATION OF COMPLIANCE
Each Access Person is required to certify annually that he or she
has read and understood the Code and recognizes that he or she is
subject to such Code. Further, each Access Person is required to
certify annually that he or she has complied with all the
requirements of the Code and that he or she has disclosed or
reported all personal securities transactions required to be
disclosed or reported pursuant to the requirements of the Code.
V. REVIEW BY THE BOARD OF DIRECTORS
The Compliance Officer shall promptly furnish to the Board of Directors of
Delphi all material information regarding any material violation of
Delphi's Code. At least annually, the Compliance Officer shall furnish to
the Board of Directors and the Board shall consider a written report
which:
A. Describes any recommended changes to the Code or procedures; and
B. Contains a summary of any material violations which occurred during
the past year which had not previously been reported to the Board of
Directors and the remedial action taken.
C. Certifies that Delphi has adopted procedures reasonably necessary to
prevent violation of its Code.
VI. SANCTIONS
Upon discovering that an Access Person has not complied with the
requirements of this Code, the designated Compliance Officer or other
management personnel, whichever is more appropriate under the
circumstances, may impose on that person whatever sanctions they deem
appropriate including, in addition to the actions specifically delineated
in other sections of this Code, a letter of censure or suspension or
termination of employment.
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VII. CONFIDENTIALITY
All information obtained from any Access Person hereunder shall be kept in
strict confidence, except that reports of securities transactions
hereunder may be made available to the SEC or any other regulatory or
self-regulatory organization to the extent required by law or regulation.
VIII. OTHER LAWS, RULES, AND STATEMENTS OF POLICY
Nothing contained in this Code shall be interpreted as relieving any
Access Person from acting in accordance with the provision of any
applicable law, rule, or regulation or any other statement of policy or
procedure governing the conduct of such person adopted by Delphi.
IX. RECORDS
Delphi shall maintain records in the manner and to the extent set forth
below, which records may be maintained on microfilm under the conditions
described in Rule 31a-2 under the 1940 Act and which shall be available for
examination by representatives of the SEC.
1. A copy of this Code of Ethics, and any other code of ethics which at
any time within the past five years has been in effect, shall be
preserved in an easily accessible place.
2. A record of any violation of this Code of Ethics, and of any action
taken as a result of such violation, shall be preserved in an easily
accessible place for a period of not less than five years following
the end of the fiscal year in which the violation occurs.
3. A copy of each report made by an Access Person pursuant to this Code
of Ethics shall be preserved for a period of not less than five
years from the end of the fiscal year in which the report is made,
the first two years in an easily accessible place.
4. A list of all persons who are, or within the past five years have
been, required to make reports pursuant to this Code of Ethics or
who are or were responsible for reviewing these report shall be
maintained in an easily accessible place.
5. A copy of each report required under Article V shall be preserved
for a period of not less than five years from the end of the fiscal
year in which it is made, the first two years in an early accessible
place.
6. A record of any decision, and the reasons supporting the decision,
to approve the acquisition by Delphi employees of securities under
Paragraph D of Article II,
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shall be preserved for a period of not less than five years from the
end of the fiscal year in which the approval is granted.
X. FURTHER INFORMATION
If any person has any questions with regard to the applicability of the
provisions of this Code generally, or with regard to any securities
transaction or transactions, such person should consult the Compliance
Officer.
Dated: February __, 2000
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ATTACHMENT A
"BENEFICIAL OWNERSHIP", for purposes of this Code, shall be determined in
accordance with the definition of "beneficial owner" set forth in Rule
16a-(a)(2) under the Securities Exchange Act of 1934, as amended, i.e., a person
must have a "direct or indirect pecuniary interest" to have "beneficial
ownership". Although the following list is not intended to be exhaustive,
pursuant to the rule, a person is generally regarded as the beneficial owner of
the following securities:
(i) securities held in the person's own name;
(ii) securities held with another in joint tenancy, community property or
other joint ownership;
(iii) securities held by a bank or broker as nominee or custodian on such
person's behalf of securities pledged as collateral for a loan;
(iv) securities held by members of the person's immediate family sharing the
same household ("immediate family" means any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships);
(v) securities held by a relative not residing in the person's home if the
person is a custodian, guardian or otherwise has controlling influence
over the purchase, sale or voting of such securities;
(vi) securities held by a trust in which the person is a beneficiary and has
or shares the power to make purchase or sales decisions;
(vii) securities held by a trust for which the person serves as a trustee and
in which the person has a pecuniary interest (including pecuniary
interests by virtue of performance fees and by virtue of holdings by the
person's immediate family);
(viii) securities held by a general partnership or limited partnership in which
the person is a general partner;
(ix) securities owned by a corporation in which the person has a control
position or in which the person has or shares investment control over the
portfolio securities (other than a registered investment company);
(x) securities in a portfolio giving the person certain performance related
fees; and
(xi) securities held by another person or entity pursuant to any agreement,
understanding, relationship or other arrangement giving the person any
direct or indirect pecuniary interest.
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EQUINOX CAPITAL MANAGEMENT
CODE OF ETHICS
All employees, Directors and Officers will be required to follow the regulations
stated below as they pertain to employee and employee-related trading. This type
of trading should include ACTIVITY FOR YOURSELF, AS WELL AS FOR YOUR SPOUSE,
MINOR CHILDREN, OR ANY PERSON WHO LIVES WITH YOU, AS WELL AS ANY OTHER ACCOUNT
WHICH YOU HAVE ANY DIRECT OR INDIRECT BENEFICIAL OWNERSHIP:
- All employees will be restricted from trading in any security traded
for ECM clients for the time frame detailed below. Specifically, once
a stock is recommended for purchase or sale, it will be restricted for
trade by ECM employees. It will be restricted until the buy/sell
program has been completed for all ECM clients. A SEVEN-DAY black-out
period between the completion of the trading program for ECM clients
and the beginning of the employee program will be in effect. The same
practice applies to a stock that is being reweighted in client
portfolios, whether it is from a cash addition or withdrawal. If an
employee has executed an order within the 7-day black-out period, in
front of or behind the trade, prior to their knowledge of a client
cash addition/withdrawal, the employee execution will stand as long as
the client receives the better execution price. If the employee has
received a better price, he will need to disgorge the difference to a
charity. In short, with limited exceptions, employees may not trade in
client names within seven days front and back of client activity in
that name.
- All employee trading must be approved PRIOR to execution. Trades
should be written up on a pre-printed trade ticket, then signed off by
Wendy Lee. If Wendy is not available, Ron Ulrich should sign the
ticket. If Ron or Wendy are not available, then Laurie Vicari should
sign the ticket. The ticket will then be time-stamped and returned to
you. You will not be able to execute your trade until you have
received a time-stamped trade ticket signifying approval. The signed
and time-stamped trade ticket completed with execution price should be
given back to Laurie Vicari for inclusion in employee trading files.
If trades have been entered at a limit and are not executed on the day
you received approval, the above procedure will need to be repeated
the following day. If the procedure is not repeated and the trade has
not been approved, you should cancel the standing order. WHEN SEEKING
APPROVAL FOR A SELL ORDER, THE CORRESPONDING BUY DOCUMENTATION MUST BE
HANDED IN AT THE SAME TIME FOR INCLUSION WITH THE ORDER MEMORANDA.
When trading while on the road, you will need to fax or email the
individuals above, in the order above, with the details of your trade
PRIOR TO EXECUTION. If doing a sell, you will need to fax the
corresponding buy info in order to receive approval. YOU MAY NOT
EXECUTE THE TRADE UNTIL YOU HAVE HEARD BACK VIA EMAIL OR FAX FROM THE
DESIGNATED PARTIES THAT YOUR TRADE HAS BEEN APPROVED. You should then
fax or email Laurie Vicari with the execution price that day. You will
be responsible for writing up a formal trade ticket upon your arrival
back to the office to which the fax or email will be attached to. You
will not receive approval for new trades if "on the road" trade
tickets have not been completed. Please note that again, if entering a
limit order, the same rules as above apply with regard to re-entering
trade information if the trade is not executed the same day.
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- ECM Compliance must receive copies of all security transaction
confirmations and monthly brokerage statements for all employee and
EMPLOYEE-RELATED accounts on a timely basis. These documents will then
be reviewed and approved by Ron Ulrich. Mutual fund activity need not
be disclosed, but ANY self-directed trading activity in any other type
of investment MUST be disclosed, including bond activity for both
employee and related accounts. Annual brokerage statements must be
received for accounts that have not had any activity during the year
and therefore would not generate interim statements. Within 10 days of
employment inception, each person shall provide the Compliance
Department with a list of security holdings as of the most recent
month end for the accounts that they are required to report.
- Employees and related accounts are prohibited from profiting in the
purchase and sale, or sale and purchase, of the same securities,
options or any other product within 60 calendar days. Any profits
realized on such short-term trades will be subject to disgorgement.
- Employees and related accounts are prohibited from participating in
private placement deals and IPO's.
- Employees are restricted from serving on the Board of Directors of any
company that is publicly traded.
- Employees are prohibited from accepting gifts having a monetary value
over $25, but are allowed to accept gifts such as tickets to sporting
events and theater events on an occasional basis, and may accept food
gifts as long as they are shared with staff.
Please note that in addition to filling out quarterly 17-j-1 Forms, you
will also be required to sign a yearly attestion letter affirming your knowledge
and compliance with the Company's Code of Ethics.
The above regulations will be strictly enforced, and failure to follow the
Code will result in disciplinary action.
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FIDELITY INVESTMENTS'
CODE OF ETHICS FOR PERSONAL INVESTING
January 1, 2000
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CODE OF ETHICS FOR PERSONAL INVESTING
This document constitutes the Code of Ethics adopted by the Fidelity Funds
(the "Funds"), the subsidiaries of FMR Corp. that serve as investment advisors
or principal underwriters and their affiliated companies (collectively, the
"Fidelity Companies") pursuant to the provisions of Rule 17j-1 under the
Investment Company Act of 1940 and of Rules 204-2(a)(12) and 204-2(a)(13)
under the Investment Advisers Act of 1940 (collectively, the "Rules").
I. PURPOSE AND SCOPE OF THIS CODE
A. PERSONAL SECURITIES TRANSACTIONS
This Code focuses on personal transactions in securities by persons
associated with the various Fidelity Companies. Accordingly, the Code
does not attempt to address all areas of potential liability under
applicable laws. For example, provisions of the Investment Company Act of
1940 prohibit various transactions between a fund and affiliated persons,
including the knowing sale or purchase of property to or from a fund on a
principal basis and joint transactions between a fund and an affiliated
person. This Code does not address these other areas of potential
violation. Accordingly, persons covered by this Code are advised to seek
advice from the Ethics Officer, or his or her designee (collectively, the
"Ethics Office"), before engaging in any transaction other than the
normal purchase or sale of fund shares or the regular performance of their
business duties if the transaction directly or indirectly involves
themselves and one or more of the Funds.
B. GUIDING PRINCIPLES
The Code is based on the principle that the officers, directors, partners
and employees of the Fidelity Companies owe a fiduciary duty to, among
others, the shareholders of the Funds to place the interests of the Fund
shareholders above their own and to conduct their personal securities
transactions in a manner which does not interfere with Fund transactions,
create an actual or potential conflict of interest with a Fund or
otherwise take unfair advantage of their relationship to the Funds.
Persons covered by this Code must adhere to this general principle as well
as comply with the Code's specific provisions. It bears emphasis that
technical compliance with the Code's procedures will not automatically
insulate from scrutiny trades which show a pattern of abuse of the
individual's fiduciary duties to the Fidelity Funds in general or a
specific Fund in particular. For officers and employees of Fidelity
Management & Research Company ("FMR") and its affiliates, the fiduciary
responsibility applies to all of the investment companies advised by FMR
or any of its affiliates as well as any account holding the assets of
third parties for which FMR or any of its affiliates acts in an investment
advisory capacity (both types of portfolios hereinafter referred to as the
"Fidelity Funds" or "Funds").
Recognizing that certain requirements are imposed on investment companies
and their advisers by virtue of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940, considerable thought has been given to
devising a code of ethics designed to provide legal protection to accounts
for which a fiduciary relationship exists and at the same time maintain an
atmosphere within which conscientious professionals may develop and
maintain investment skills. It is the combined judgment of the Fidelity
Companies and the Boards of the Funds that as a matter of policy a code of
ethics should not inhibit
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responsible personal investment by professional investment personnel,
within boundaries reasonably necessary to insure that appropriate
safeguards exist to protect the Funds. This policy is based on the
belief that personal investment experience can over time lead to
better performance of the individual's professional investment
responsibilities. The logical extension of this line of reasoning
is that such personal investment experience may, and conceivably
should, involve securities which are suitable for the Funds in
question. This policy quite obviously increases the possibility of
overlapping transactions. The provisions of this Code, therefore,
are designed to foster personal investments while minimizing
conflicts under these circumstances and establishing safeguards
against overreaching.
II. PERSONS (AND ACCOUNTS) TO WHOM THIS CODE APPLIES
Unless otherwise specified, each provision of this Code applies to all
members of the Board of the Funds, and all officers, directors, partners
and employees of every Fidelity Company. In addition, the provisions apply
to any individual designated and so notified in writing by the Ethics
Office. Where the applicability of a particular provision is more limited,
the provision will so state. For example, particular provisions may state
they are limited to:
A. ACCESS PERSONS
This category includes Investment Professionals, Senior Executives
and certain other employees specified in paragraph II. A. 2. below.
1. INVESTMENT PROFESSIONALS are (i) portfolio managers, research
analysts and traders employed by FMR; (ii) employees seconded to
FMR from Fidelity International Limited ("FIL") performing
similar functions; (iii) all employees of the Capital Markets
Division of Fidelity Investment Institutional Brokerage Group
("FIIBG"); (iv) officers (vice-president and above) and members
of the Boards of Directors of FMR; and (v) such other employees
as the Ethics Office may designate and so notify in writing.
2. SENIOR EXECUTIVES are (i) officers (vice-president and above)
and members of the Boards of Directors of FMR Corp.; (ii)
attorneys within Administrative and Government Affairs' ("AGA")
Legal Department; (iii) employees of the Fund Treasurer's
Department, the FMR Investment & Advisor Compliance Department
and the Compliance Systems Technology Group; and (iv) such other
employees as the Ethics Office may designate and so notify in
writing.
3. OTHER ACCESS PERSONS are all other employees who, in connection
with their regular duties, make, participate in, or obtain
timely information regarding the purchase or sale of a security
by a Fund or of any investment recommendation to a Fund. This
includes (i) employees of FMR, Fidelity Management Trust Company
("FMTC"), and Fidelity Pricing and Cash Management Services
("FPCMS"); (ii) other employees seconded from FIL to the
foregoing companies; (iii) all employees with access to the
BOS E (AS400 trading machine), BOS H (AS400 development
machine), INVIEW, BONDVIEW or OVERVIEW systems or any other
system containing timely information about the Funds' activities
or investment recommendations made to the Funds; (iv) all
employees within AGA's Operations Audit and Analysis Department,
and (v) such
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other employees as the Ethics Office may designate and so notify
in writing.
Although the Ethics Office seeks to notify Access Persons of
their status as such, you are required to comply with all
provisions applicable to Access Persons if you are within the
above definitions even if the Ethics Office does not notify you
of your status. Please contact the Ethics Office if you believe
you are an Access Person or if you are unsure of your status
under the Code.
B. NON-ACCESS TRUSTEES
1. Trustees of the Fidelity Group of Funds will generally be deemed
Access Persons; however, Trustees who fulfill both of the
following conditions will be deemed "Non-Access Trustees" and
treated as a separate category:
a) The Trustee is not an "interested person" (as defined in
Section 2(a)(19) of the Investment Company Act of 1940) of
any Fidelity Fund; and
b) The Trustee elects not to receive the Daily Directors'
Report and further elects not to have access to the INVIEW,
BONDVIEW, or OVERVIEW systems; PROVIDED that this condition
shall only be considered fulfilled as of the fifteenth day
after the Trustee has notified the Ethics Office of such
election.
C. PORTFOLIO MANAGERS.
This category includes employees whose assigned duties are to manage
any Fund, or portion thereof, and who have the power and authority to
make investment decisions on behalf of such Fund or portion thereof.
D. FIDELITY EMPLOYEES.
This category includes all employees of the Fidelity Companies,
including employees seconded to any Fidelity Company by FIL.
E. OTHER PERSONS.
These are persons as specified in a particular provision of the Code
or as designated by the Ethics Office.
F. COVERED ACCOUNTS (BENEFICIAL OWNERSHIP).
It bears emphasis that the provisions of the Code apply to
transactions in reportable securities for any account "beneficially
owned" by any person covered by the Code. The term "beneficial
ownership" is more encompassing than one might expect. For example,
an individual may be deemed to have beneficial ownership of
securities held in the name of a spouse, minor children, or relatives
sharing his or her home, or under other circumstances indicating a
sharing of financial interest. See the Appendix to this Code for a
more comprehensive explanation of beneficial ownership. Please
contact the Ethics Office if you are unsure as to whether you have
beneficial ownership of particular securities or accounts.
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III. PROVISIONS APPLICABLE TO FIDELITY EMPLOYEES AND THEIR ACCOUNTS
A. PROCEDURAL REQUIREMENTS
1. REPORTS ON REPORTABLE SECURITIES. Fidelity has established
certain procedures to monitor individual transactions in
reportable securities (as defined below) for compliance with
this Code, and to avoid situations which have the potential for
conflicts of interest with the Funds. You and all persons
subject to this Code are required to comply with the procedures
described below. Failure to follow these procedures or the
filing of a false, misleading or materially incomplete
report will itself constitute a violation of this Code.
Reports required under Section III.A.5. are necessary only for
transactions in reportable securities. If an investment is made
in an entity substantially all of whose assets are shares of
another entity or entities, the security purchased should be
reported and the underlying security or securities identified.
Furthermore, if an investment is made in a private placement,
this transaction must be reported. (See Exhibit B.)
"REPORTABLE SECURITIES" are all securities except:
a) U.S. Treasury Notes, Bills and Bonds;
b) money market instruments such as certificates of deposit,
banker's acceptances and commercial paper;
c) shares of registered open-end investment companies;
d) securities issued by FMR Corp.;
e) any obligations of agencies and instrumentalities of the
U.S. government if the remaining maturity is one year or
less; and
f) commodities and options and futures on commodities provided
that the purchase of these instruments may not be utilized
to indirectly acquire interests or securities which could
not be acquired directly or which could not be acquired
without reporting or pre-clearance. See Section III.B.4.
2. ACKNOWLEDGMENT. Each new Fidelity employee will be given a copy
of this Code of Ethics upon commencement of employment. Within 7
days thereafter, you must file an acknowledgment (Exhibit A.)
stating that you have read and understand the provisions of the
Code of Ethics, and provide a written list to the Ethics Office
of all brokerage accounts in which you are a beneficial owner of
any securities in the account (Exhibit E.). Additionally, your
acknowledgment accords Fidelity the authority to access at any
time records for any beneficially owned brokerage account for
the period of time you were employed by Fidelity.
3. ANNUAL UPDATE. Each year, on or before January 31, you must file
an annual update stating that you have reviewed the provisions
of the Code of Ethics, understand the provisions of the Code and
that the Code applies to you, and believe that your personal
transactions in reportable securities for the previous calendar
year, and those of your family members which are deemed to be
beneficially owned by you, have been reported as required under
the Code and were consistent with its provisions (Exhibit A.).
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4. USE OF BROKERS.
a) ALL FIDELITY EMPLOYEES must conduct all personal
and beneficially owned transactions in reportable
securities through a brokerage account at Fidelity
Brokerage Services, Inc. (FBSI), or with an approved broker
outside the U.S. (See Exhibit G.). By opening an account
with FBSI you agree to allow FBSI to forward to the Ethics
Office reports of your account transactions and to allow
the Ethics Office access to all account information. Upon
opening such an account you are required to notify FBSI of
your status as an employee.
b) HARDSHIP EXCEPTION: Under circumstances
evidencing special hardship and then only with the express
written approval of the Ethics Office, you may be granted a
waiver to establish accounts for trading reportable
securities with brokers other than FBSI or those approved
for the region (See Section VIII.). If you maintain an
account with an external broker pursuant to permission from
the Ethics Office, you must ensure duplicate reporting as
specified in "Transaction Reporting." (See
Section III.A.5.).
5. TRANSACTION REPORTING. Each employee must report personal
transactions in reportable securities to the Ethics Office.
Failure to file a report will be treated as the equivalent of a
report indicating that there were no transactions in reportable
securities. This reporting obligation may be met as follows:
a) FBSI Accounts: The Ethics Office will assume
responsibility for obtaining trade information from FBSI
for accounts in your name and all other related FBSI
accounts that have been disclosed to the Ethics Office by
you.
b) Non-FBSI (External) Accounts: If any transactions
in reportable securities are not being conducted through a
FBSI account (including those conducted through an approved
broker outside the U.S. or another external broker pursuant
to permission from the Ethics Office), you are responsible
for ensuring that the institution where the account is
maintained agrees to, and promptly provides, regular copies
of confirmations and statements directly to the Ethics
Office. These confirmations and statements must include the
trade date, security description, number of shares or
principal amount of each security, the nature of the
transaction (e.g., purchase or sale), the total price and
the name of the institution that effected the transactions.
If transactions cannot or are not reported by the external
institution in this fashion, permission to open the account
will not be granted or will be revoked by the Ethics
Office.
c) Failure to Report by External Brokers. As noted
above, employees are responsible for ensuring their
transactions in reportable securities not conducted through
a FBSI account are reported to the Ethics Office. If you
have executed transactions through an external broker and
the broker does not report the transactions as specified in
paragraph b) above, you must
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promptly forward the necessary information to the Ethics
Office. If account statements with the necessary
information are not available, you must complete the REPORT
OF SECURITIES TRANSACTIONS (Exhibit B) with the information
and forward it to the Ethics Office.
B. PROHIBITED ACTIVITIES
1. ACTIVITIES FOR PERSONAL BENEFIT. Inducing or causing a Fund to
take action, or to fail to take action, for personal benefit
rather than for the benefit of the Fund is prohibited. For
example, you would violate this Code by causing a Fund to
purchase a security you owned for the purpose of supporting or
increasing the price of that security. Causing a Fund to refrain
from selling a security in an attempt to protect a personal
investment, such as an option on that security, also would
violate this Code.
2. PROFITING FROM KNOWLEDGE OF FUND TRANSACTIONS. Using your
knowledge of Fund transactions to profit by the market effect of
such transactions is prohibited.
3. VIOLATIONS OF THE ANTIFRAUD LAWS AND REGULATIONS. Violations of
the antifraud provisions of the federal securities laws and the
rules and regulations promulgated thereunder, including the
antifraud provision of Rule 17j-1 under the Investment Company
Act of 1940, are prohibited. In that Rule, the Securities and
Exchange Commission specifically makes it unlawful for any
person affiliated with a Fund, investment adviser or principal
underwriter of a Fund in connection with the purchase or sale,
directly or indirectly, by such person of a "security held or to
be acquired" by such Fund:
"(1) To employ any device, scheme or artifice to defraud the
Fund;
(2) To make any untrue statement of a material fact to the Fund
or omit to state a material fact necessary in order to make
the statements made to the Fund, in light of the
circumstances under which they are made, not misleading;
(3) To engage in any act, practice or course of business that
operates or would operate as a fraud or deceit upon the
Fund; or
(4) To engage in any manipulative practice with respect to the
Fund."
Rule 17j-1 defines "security hold or to be acquired" very
broadly to include any security (other securities that are not
reportable securities) that, "within the most recent 15 days,
(i) is or has been held by such company, or (ii) is being or has
been considered by such company or its investment adviser for
purchase by such company, and (iii) any option to purchase or
sell, and any security convertible into or exchangeable for" a
reportable security. Thus the antifraud provisions of Rule 17j-1
may apply to transactions in securities even it not recently
traded by a Fund. Under Rule 17j-1, a sufficient nexus exists if
a fraud is effected in connection with a security held for a
long period in a portfolio or merely considered for inclusion in
a portfolio. In addition, the receipt of compensation in the
form of an opportunity to purchase a security that is intended
to induce a Fund to purchase other securities must be reported
under this Rule, whether or not the compensation is in the form
of an opportunity to
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purchase a security "held or to be acquired" by a Fund.
Moreover, the general antifraud provisions of the Securities
Exchange Act of 1934 and other federal securities statutes make
unlawful fraud in connection with the purchase or sale of
securities, even if such securities do not fall within the scope
of Rule 17j-1.
4. USE OF DERIVATIVES. Derivatives, including futures and options,
and other arrangements may not be used to evade the restrictions
of this Code. Accordingly, you may not use derivatives or other
arrangements with similar effects to take positions in
securities that the Code would prohibit if the positions were
taken directly. For purposes of this section, "futures" are
futures on securities or securities indexes; "options" are
options (puts or calls) on securities or securities indexes, or
options on futures on securities or securities indexes. Options
and futures on commodities are not "reportable securities"
except as specified in Section III. A. 1. f).
5. GIFTS AND HOSPITALITIES. The Fidelity Companies generally
prohibit employees from receiving gifts, gratuities, and other
from any person or entity that does business with the Funds or
with any Fidelity Company or from any entity which is a
potential portfolio investment for the Funds. Fidelity's Gifts
and Gratuities Policy, which is separate from this Code, sets
forth the specific policies, restrictions and procedures to be
observed by employees with respect to business-related gifts and
related matters.
6. RESTRICTED SECURITIES. From time to time, the Ethics Office may
place a security on a restricted list. Certain employees, as
designated on a case-by-case basis by the Ethics Office, may not
effect transactions in securities on the restricted list.
7. INVESTMENTS IN HEDGE FUNDS AND INVESTMENT CLUBS. You may not
invest in hedge funds or investment clubs because such funds or
clubs cannot normally be expected to comply with the provisions
of this Code.
C. RESTRICTED ACTIVITIES
The following are restricted by this Code of Ethics:
1. SHORT SALE ACTIVITIES. Purchasing puts to open, selling calls to
open or selling a security short where there is no corresponding
long position in the underlying security is prohibited; short
sales against the box are permitted. This prohibition includes
purchasing puts and selling calls on all market indexes with the
exception of the following indexes: S&P 100, S&P Mid Cap 400,
S&P 500, Morgan Stanley Consumer Index, FTSE 100 and Nikkei 225.
Short sales of the Fidelity Select Portfolios are also
prohibited.
2. PUBLIC OFFERINGS FOR WHICH NO PUBLIC MARKET PREVIOUSLY EXISTED.
The purchase of an initial public offering of securities for
which no public market in the same or similar securities of that
issuer has previously existed is prohibited except as noted
below. This prohibition includes "secondary" public offerings
(where the securities are offered publicly by a substantial
shareholder and not from the company's treasury) and so-called
"free stock offers" through the Internet, and applies both to
equity and debt securities.
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EXCEPTIONS. Exceptions from this prohibition may be granted in
special circumstances with the written permission of the Ethics
Office (e.g., receipt of securities or their subsequent sale by
an insurance policyholder or depositor of a company converting
from mutual to stock form).
3. EXCESSIVE TRADING. While active personal trading does not in and
of itself raise issues under Rule 17j-1, the Fidelity Companies
and Boards of the Funds believe that a very high volume of
personal trading can be time consuming and can increase the
possibility of actual or apparent conflicts with portfolio
transactions. Accordingly, an unusually high level of personal
trading activity is strongly discouraged and may be monitored by
the Ethics Office to the extent appropriate for the category of
person, and a pattern of excessive trading may lead to the
taking of appropriate action under the Code.
4. DISCRETIONARY AUTHORIZATION. You may not exercise investment
discretion over accounts in which you have no beneficial
interest. If you wish to do so, you must contact the Ethics
Office for approval.
IV. ADDITIONAL REQUIREMENTS APPLICABLE TO ACCESS PERSONS
Because of their access to information about Fund investments and/or
investment recommendations, Access Persons are necessarily subject to
somewhat greater restrictions and closer scrutiny than are other persons
subject to the Code. Accordingly, in addition to complying with the
provisions detailed in Section III of this Code, Access Persons are
required to comply with the provisions of this section.
A. DISCLOSURE OF PERSONAL SECURITIES HOLDINGS.
Access Persons must disclose in writing all personal securities
holdings owned directly or otherwise beneficially owned. (See
Exhibit F.)
1. INITIAL REPORT. Each new Access Person must file a holdings
disclosure within 7 days of the commencement of employment or of
being designation an Access Person.
2. ANNUAL REPORT. Each Access Person must file a holdings report
containing current information as of a date no more than 30 days
before the report is submitted.
B. ALL PERSONAL TRADES IN REPORTABLE SECURITIES MUST BE CLEARED IN
ADVANCE BY THE APPROPRIATE PRE-CLEARANCE DESK.
One of the most important objectives of this Code is to prevent
Access Persons from making personal trades on the basis of
information about portfolio transactions made by the Funds. Trading
on such information for personal benefit not only constitutes a
violation of this Code, but also may influence the market in the
security traded and thus prevent transactions for the Funds from
being conducted at the most favorable price. To further reduce the
possibility that Fund transactions will be affected by such trades,
Access Persons must comply with the following procedures before
effecting a personal transaction in any securities which are
"reportable securities":
1. PRE-CLEARANCE PROCEDURES.
a) On any day that you plan to trade a reportable security,
you must first contact the appropriate pre-clearance desk
for approval. (See Exhibit H.) (PLEASE NOTE THAT
PRE-CLEARANCE COMMUNICATIONS MAY
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BE RECORDED FOR THE PROTECTION OF FIDELITY AND ITS
EMPLOYEES.) By seeking pre-clearance, you will be deemed to
be advising the Ethics Office that you (i) do not possess
any material, nonpublic information relating to the
security, (ii) are not using knowledge of any proposed
trade or investment program relating to the Funds for
personal benefit; (iii) believe the proposed trade is
available to any market participant on the same terms; and
(iv) will provide any other relevant information requested
by the Ethics Office. The pre-clearance desk will consider
approval of the trade for execution only upon the day the
request is made. Generally, a pre-clearance request will
not be approved if the pre-clearance desk determines that
the trade will have a material influence on the market for
that security or will take advantage of, or hinder, trading
by the Funds. Additionally, the pre-clearance desk will
evaluate a pre-clearance request for a transaction to
determine if you are in compliance with the other
provisions of the Code relevant to such transaction.
Securities and transaction types that do not require
pre-clearance include the following: currency warrants;
rights subscriptions; gifting of securities; automatic
dividend reinvestments and options on the following
indexes: S&P 100, S&P Mid Cap 400, S&P 500, Morgan Stanley
Consumer Index, FTSE 100 and Nikkei 225.
b) Transactions in accounts beneficially owned by an employee
where investment discretion has been provided to a third
party in a written document and for which the employee
provides no input regarding investment decision making will
not be subject to pre-clearance. Transactions in reportable
securities in such accounts, however, still must be
reported under this Code.
c) In addition to any other sanctions provided for under the
Code (see Section IX. D.), failure to pre-clear a
transaction as required above may result in a requirement
to surrender any profits realized in connection with the
transaction.
C. GOOD-TILL-CANCELED ORDERS.
Access Persons may not place good-till-canceled orders.
Good-till-canceled orders may inadvertently cause an employee to
violate the pre-clearance provisions of this Code.
D. PURCHASE OF CLOSED-END FUNDS.
The purchase of closed-end funds for which a Fidelity Company
performs the pricing and bookkeeping services is prohibited without
prior approval by the Ethics Office.
V. ADDITIONAL REQUIREMENTS APPLICABLE TO INVESTMENT PROFESSIONALS AND SENIOR
EXECUTIVES
In addition to complying with the provisions detailed in Sections III and
IV of this Code, Investment Professionals and Senior Executives are
required to comply with the provisions of this section.
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A. PRIVATE PLACEMENTS.
Private placements are in many cases not suitable investments for the
Funds. However, in various circumstances, they may be suitable
investments. In order to avoid even the appearance of a conflict of
interest between their personal investment activities and their
fiduciary responsibility to the Funds' shareholders, Investment
Professionals and Senior Executives must follow the procedures
outlined below to participate in a private placement.
1. PRIOR APPROVAL TO PARTICIPATE.
You must receive written approval from your Division or
Department Head and the Ethics Office, utilizing Exhibit C,
prior to any purchase of a privately placed security. If you are
a Division or Department Head, then approval shall be received
from the President of FMR. (See Exhibit C.)
2. TRANSACTION REPORTING.
If approved, you must report the purchase to the Ethics Office
within 10 days of the end of the month in which the purchase
occurred, using the REPORT OF SECURITIES TRANSACTIONS form
(Exhibit B.).
3. IN THE EVENT OF SUBSEQUENT INVESTMENT BY A FUND OR FUNDS.
After approval is granted, if you have any material role in
subsequent consideration by any Fund of an investment in the
same or an affiliated issuer, you must disclose your interest in
the private placement investment to the person(s) making the
investment decision. Notwithstanding such a disclosure, any
decision by any Fund to purchase the securities of the issuer,
or an affiliated issuer, must be subject to an independent
review by your Division or Department Head.
B. SURRENDER OF SHORT-TERM TRADING PROFITS.
Short-term trading can be both time consuming and can increase the
possibility of actual or apparent conflicts with Fund transactions.
To reduce instances of short-term trading, the Fidelity Companies and
the Boards of the Funds have determined that Investment Professionals
and Senior Executives will be required to surrender short-term
trading profits.
Short-term trading profits are profits generated from the purchase
and sale of the same (or equivalent) security within 60 calendar
days. Transactions will be matched with any opposite transaction
within the most recent 60 calendar days. Options on the following
indexes are not subject to this provision: S&P 100, S&P Mid Cap 400,
S&P 500, Morgan Stanley Consumer Index, FTSE 100 and Nikkei 225.
Exhibit D contains further information and examples concerning
application of this policy.
C. PURCHASE OF SECURITIES OF CERTAIN BROKER-DEALERS.
Investment Professionals and Senior Executives, unless specifically
excluded by the Ethics Office, may not purchase securities of certain
broker-dealers or parent companies as identified from time to time by
the Ethics Office based upon the level and nature of services
provided to the Funds.
D. RESEARCH NOTES.
Investment Professionals and Senior Executives specifically
designated by the Ethics Office must wait two business days after the
day on which a research note
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is issued prior to trading for their beneficially owned accounts in
the securities of the issuer(s) that is the subject of the note.
E. AFFIRMATIVE DUTY TO RECOMMEND SUITABLE SECURITIES.
A portfolio manager or a research analyst may not fail to timely
recommend a suitable security to, or purchase or sell a suitable
security for, a Fund in order to avoid an actual or apparent conflict
with a personal transaction in that security. Before trading any
security, a portfolio manager or research analyst has an affirmative
duty to provide to Fidelity any material, public information that
comes from the company about such security in his or her possession.
As a result, portfolio managers or research analysts should (a)
confirm that a Research Note regarding such information on such
security is on file prior to trading in the security, or (b) if not,
should either contact the Director of Research or publish such
information in their possession and wait two business days prior to
trading in the security.
F. AFFIRMATIVE DUTY TO DISCLOSE.
Investment Professionals and Senior Executives who own a security, or
who have decided to effect a personal transaction in a security, have
an affirmative duty to disclose this information in the course of any
communication about that security when the purpose or reasonable
consequence of such communication is to influence a portfolio to buy,
hold or sell that security. The disclosure of ownership should be
part of the initial communication but need not be repeated in the
case of continuing communications directed to a specific person.
G. SERVICE AS A DIRECTOR OR TRUSTEE.
Service on a board of directors or Trustees poses several forms of
potential conflicts for employees. These include potentially
conflicting fiduciary duties to the company and a Fund, receipt of
possibly material, nonpublic information and conflicting demands on
the time of the employee. Accordingly, service by any Investment
Professional or Senior Executive on a board of directors of a
non-Fidelity publicly-traded or privately-held company likely to
issue shares is prohibited absent prior authorization. Approval will
be based upon a determination that the board service would be in the
best interests of the Funds and their shareholders. Requests for
approval of board service should be submitted in writing to the
Ethics Office.
VI. PROHIBITION ON CERTAIN TRADES BY PORTFOLIO MANAGERS
Portfolio managers are the people most familiar with the investment
decisions they are making for the Funds they manage. Even the appearance
of a portfolio manager trading the same securities for his or her personal
account on or about the same time as he or she is trading for the Fund is
not in the best interest of the Funds. Accordingly, as a portfolio
manager, you may not buy or sell a security your Fund has traded within 7
calendar days on either side of the Fund's trade date (i.e., date of
execution, not the settlement date). For example, assuming the day your
Fund trades a security is day 0, day 8 is the first day you may trade that
security for your own account. This prohibition is in addition to the
restrictions that apply generally to all persons subject to this Code and
those applicable to Access Persons. If application of this rule would work
to the disadvantage of a Fund (e.g., you sold a security on day 0 and on
day 3, after new events had occurred, determined that the Fund should buy
the same security) you must apply to the Ethics Officer for an exception
(see Section VIII. below).
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In addition to any other sanction provided for under the Code of Ethics
(see Section IX. D.), any profit realized from a transaction within the
prescribed period may be required to be surrender to FMR. Transactions in
accounts beneficially owned by you where investment discretion has been
provided to a third party in a written document and for which you provide
no input regarding investment decision making will not be subject to
this 7 day provision.
VII. NON-ACCESS TRUSTEES
Pursuant to Rule 17j-1, a Non-Access Trustee need not file reports of his
or her transactions in reportable securities unless at the time of the
transaction the Board member knew, or in the ordinary course of fulfilling
his or her duties as a Fidelity Fund Board member should have known: (a)
that one or more of the Funds had purchased or sold or was actively
considering the purchase or sale of that security within the 15-day period
preceding the Board members transaction, or (b) that one or more Funds
would be purchasing, selling or actively considering the purchase or sale
of that security within the 15 days following the Board member's
transaction. The knowledge in question is the Board member's knowledge at
the time of the Board member's transaction, not knowledge subsequently
acquired. Although a Non-Access Trustee is not required to report
transactions unless the above conditions are met, the Boards of Trustees
of the Funds have adopted a policy that requires a Non-Access Trustee to
report personal securities transactions on at least a quarterly basis.
VIII. WAIVERS AND EXCEPTIONS
A. REQUESTS TO WAIVER A PROVISION OF THE CODE OF ETHICS.
An employee may request in writing to the Ethics Office a waiver of
any Code of Ethics provision. If appropriate, the Ethics Office will
consult with the Ethics Oversight Committee (a committee which
consists of representatives from senior management) in considering
such request. The Ethics Office will inform you in writing whether or
not the waiver has been granted. If you are granted a waiver to any
Code of Ethics provision, you will be expected to comply with all
other provisions of the Code. You may contact the Ethics Office for
specific requirements.
B. EXCEPTIONS.
Special approval to make any trade prohibited by this Code may be
sought from the Ethics Office. Special approvals will be considered
on a case-by-case basis. The decision to grant special approval will
be based on whether the trade is consistent with the general
principles of this Code and whether the trade is consistent with the
interest of the relevant Fund(s). The Ethics Office will maintain a
written record of exceptions, if any, that are permitted.
IX. ENFORCEMENT
The Rules adopted by the SEC require that a code of ethics must not only
be adopted but must also be enforced with reasonable diligence.
Records of any violation of the Code and of the actions taken as a result
of such violations will be kept.
A. REVIEW.
The Ethics Office will review on a regular basis the reports filed
pursuant to this Code. In this regard, the Ethics Office will give
special attention to evidence, if
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any, of potential violations of the antifraud provisions of the
federal securities laws or the procedural requirements or ethical
standards set forth in this Code and the Statement of Policies and
Procedures with Respect to the Flow and Use of Material Nonpublic
(Inside) Information ("Insider Trading Policy Statement" to follow).
The policies and procedures described in this Code do not create any
obligations to any person or entity other than the Fidelity Companies
and the Funds. This Code is not a promise or contract, and it may be
modified at any time. The Fidelity Companies and the Funds retain the
discretion to decide whether this Code applies to a specific
situation, and how it should be interpreted.
B. BOARD REPORTING.
The Ethics Office will provide to the Boards of Trustees of the Funds
no less frequently than annually a summary of significant sanctions
imposed for material violations of this Code or the Insider Trading
Policy Statement.
C. VIOLATIONS.
When potential violations of the Code of Ethics or the Insider
Trading Policy Statement come to the attention of the Ethics Office,
the Ethics Office may investigate the matter. This investigation may
include a meeting with the employee. Upon completion of the
investigation, if necessary, the matter will be reviewed with senior
management or other appropriate parties, and a determination will be
made as to whether any sanction should be imposed as detailed below.
The employee will be informed of any sanction determined to be
appropriate.
D. SANCTIONS.
Since violations of the Code or the Insider Trading Policy Statement
will not necessarily constitute violations of federal securities
laws, the sanctions for violations of the Code or the Insider Trading
Policy Statement will vary. Sanctions may be issued by (i) the
appropriate Board(s) of Trustees of the Fund(s) or Fidelity Company,
(ii) senior management, (iii) the Ethics Office, or (iv) other
appropriate entity. Sanctions may include, but are not limited to,
(i) warning, (ii) fine or other monetary penalty, (iii) personal
trading ban, (iv) dismissal, and (v) referral to civil or criminal
authorities. Additionally, other legal remedies may be pursued.
E. APPEALS PROCEDURES.
If you feel that you are aggrieved by any action rendered with
respect to a violation of the Code of Ethics or a waiver request, you
may appeal the determination by providing the Ethics Office with a
written explanation within 30 days of being informed of such
determination. The Ethics Office will arrange for a review by senior
management or other appropriate party and will advise you whether the
action will be imposed, modified or withdrawn. During the review
process, you will have an opportunity to submit a written statement.
In addition, you may elect to be represented by counsel of your own
choosing.
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APPENDIX -- BENEFICIAL OWNERSHIP
As used in the Code of Ethics, beneficial ownership will be interpreted using
Section 16 of the Securities Exchange Act of 1934 ("1934 Act" ) as a general
guideline, except that the determination of such ownership will apply to all
securities, including debt and equity securities. For purposes of Section 16, a
beneficial owner means:
Any person who, directly or indirectly, through any contract,
arrangement, understanding relationship, or otherwise, has or
shares a direct or indirect pecuniary interest in the
securities.
In general, "pecuniary interest" means the opportunity, directly or indirectly,
to profit or share in any profit derived from a transaction in the subject
securities.
Using the above-described definition as a broad outline, the ultimate
determination of beneficial ownership will be made in light of the facts of the
particular case. Key factors to be considered are the ability of the person to
benefit from the proceeds of the security, and the degree of the person's
ability to exercise control over the security.
1. SECURITIES HELD BY FAMILY MEMBERS. As a general rule, a person is regarded
as having an indirect pecuniary interest in, and therefore is the
beneficial owner of, securities held by any child, stepchild, grandchild,
parent, step-parent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law (collectively, "immediate family") sharing the same
household. Adoptive relationships are included for purposes of determining
whether securities are held by a member of a person's immediate family.
2. SECURITIES HELD BY A CORPORATION OR SIMILAR ENTITY. A person shall not be
regarded as having a direct or indirect pecuniary interest in, and
therefore shall not be the beneficial owner of, portfolio securities held
by a corporation or similar entity in which the person owns securities
provided that (i) the person is not a controlling shareholder of the
entity or (ii) the person does not have or share investment control over
the entity's portfolio securities. "Portfolio securities" means all
securities owned by an entity other than securities issued by the entity.
Business trusts are treated as corporations for these purposes. In
addition, the 1934 Act makes no distinction between public and private
corporations for purposes of determining beneficial ownership.
3. SECURITIES HELD IN TRUST. In general, a person's interest in a trust will
amount to an indirect pecuniary interest in the securities held by that
trust. However, the following persons shall generally not be deemed
beneficial owners of the securities held by a trust:
a) Beneficiaries, unless (i) the beneficiary has or shares investment
control with the trustees with respect to transactions in the trust's
securities, (ii) the beneficiary has investment control without
consultation with the trustee, or (iii) if the trustee does not
exercise exclusive investment control, the beneficiary will be the
beneficial owner to the extent of his or her pro rata interest in the
trust.
b) Trustees, unless the trustee has a pecuniary interest in any holding
or transaction in the securities held by the trust. A trustee will be
deemed to have a pecuniary interest in the trust's holdings if at
least one beneficiary of the trust is a member of the trustee's
immediate family.
c) Settlors, unless a settlor reserves the right to revoke the trust
without the consent of another person; provided, however, that if the
settlor does not exercise or
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share investment control over the issuer's securities held by the
trust the settlor will not be deemed to be the beneficial owner of
those securities.
Indirect pecuniary interest for purposes of Section 16 also includes a general
partner's proportionate interest in the portfolio securities held by a general
or limited partnership.
Finally, beneficial ownership is not deemed to be conferred by virtue of an
interest in:
a) portfolio securities held by any holding company registered under the
Public Utility Holding Company Act of 1935;
b) portfolio securities held by any investment company registered under
the Investment Company Act of 1940; or
c) securities comprising part of a broad-based publicly-traded market
basket or index of stocks approved for trading by the appropriate
federal governmental authority.
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EXAMPLES OF BENEFICIAL OWNERSHIP
1. Securities Held by Family Members
(a) Example 1-A:
X and Y are married. Although Y has an independent source of income from
a family inheritance and segregates her funds from those of her husband,
Y contributes to the maintenance of the family home. X and Y have engaged
in joint estate planning and have the same financial adviser. Since X and
Y's resources are clearly significantly directed towards their common
property, they will be deemed to be beneficial owners of each other's
securities.
(b) Example 1-B:
X and Y are separated and have filed for divorce. Neither party
contributes to the support of the other. X has no control over the
financial affairs of his wife and his wife has no control over his
financial affairs. Neither X nor Y is a beneficial owner of the other's
securities.
(c) Example 1-C:
X's adult son Z lives in X's home. Z is self-supporting and contributes
to household expenses. X is a beneficial owner of Z's securities.
(d) Example 1-D:
X's mother A lives alone and is financially independent. X has power of
attorney over his mother's estate, pays all her bills and manages her
investment affairs. X borrows freely from A without being required to pay
back funds with interest, if at all. X takes out personal loans from A's
bank in A's name, the interest from such loans being paid from A's
account. X is a significant heir of A's estate. X is a beneficial owner
of A's securities.
2. Securities Held by a Company
(a) Example 2-A
0 is a holding company with 5 shareholders. X owns 30% of the shares in
the company. X will be presumed to have beneficial ownership of the
securities owned by 0.
3. Securities Held in Trust
(a) Example 3-A:
X is trustee of a trust created for his two minor children. When both of
X's children reach 21, each will receive an equal share of the corpus of
the trust. X is a beneficial owner of the securities in the trust.
(b) Example 3-B,
X is trustee of an irrevocable trust for his daughter. X is a director of
the issuer of the equity securities held by the trust. The daughter is
entitled to the income of the trust until she is 25 years old, and is
then entitled to the corpus. If the daughter dies before reaching 25,
X is entitled to the corpus. X should report the holdings and
transactions of the trust as his own.
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AS OF MARCH 1, 2000
FIDUCIARY INTERNATIONAL, INC.
CODE OF ETHICS (THE "CODE") ADOPTED PURSUANT TO RULE 17j-1
UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE "ACT")
1. STATEMENT OF GENERAL PRINCIPLES
The Fiduciary International, Inc. ("FII") Code of Ethics is based on the
principle that the employees, officers and directors of FII owe a fiduciary duty
to, among others, the shareholders of the FII-advised funds, to conduct their
personal securities transactions in a manner which does not interfere with fund
transactions or otherwise take unfair advantage of their relationship to the
funds. All FII officers must adhere to this general principle as well as comply
with the specific provisions set forth herein. It bears emphasis that technical
compliance with these provisions will not automatically insulate from scrutiny
transactions that show a pattern of compromise or abuse of the individual's
fiduciary duties to the funds. Accordingly, all FII employees, officers and
directors must seek to avoid any actual or potential conflicts between their
personal interest and the interests of our clients. In sum, all FII employees,
officers and directors shall place the interests of our clients before our
personal interests.
Rule 17j-1 under the Act generally proscribes fraudulent or manipulative
practices effected by associated persons of such companies with respect to
purchases or sales of securities held or to be acquired by investment companies.
The purpose of the Code is to establish procedures consistent with the
Act and Rule 17j-1 to give effect to the following general prohibitions as set
forth in Rule 17j-1.
(a) It shall be unlawful for any affiliated person of or
principal underwriter for a registered investment company, or any affiliated
person of an investment adviser of or principal underwriter for a registered
investment company, in connection with the purchase or sale, directly or
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indirectly, by such person of a security held or to be acquired, as defined in
this section, by such registered investment company
(1) To employ any device, scheme or artifice to defraud
such registered investment company;
(2) To make to such registered investment company any
untrue statement of a material fact or omit to state to such registered
investment company a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not misleading;
(3) To engage in any act, practice, or course of
business which operated or would operate as a fraud or deceit upon any such
registered investment company; or
(4) To engage in any manipulative practice with respect
to such registered investment company.
2. DEFINITIONS
(a) "Access Person" means any director, officer or Advisory Person
(including any Investment Personnel, as that term is defined herein) of FII.
(b) "Advisory Person: means (i) any officer of FII who, in connection
with his or her regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a security by a Fund, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales; and (ii) any natural person in a control relationship to a
Fund who obtains information concerning recommendations made to a Fund with
regard to the purchase or sale of a security.
(c) "Beneficial Ownership" will be interpreted in the same manner as
it would be in determining which security holdings of a person are subject to
the reporting and short swing profit provisions of Section 16 of the Securities
Exchange Act of 1934 and the rules and regulations thereunder, except that the
determination of direct or indirect beneficial ownership will apply to all
securities which an Access Person has or acquires. Employees of FII will be
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deemed to have ownership of securities in the accounts of their spouses,
dependent relatives, members of the same household, trustee and custodial
accounts or any other account in which they have a financial interest or over
which they have investment discretion (other than Funds or accounts managed for
clients of Fiduciary Trust Company International or any of its subsidiaries,
including any collective funds for employee benefits trusts and any common trust
funds).
(d) "Compliance Officer" means the person designated by the Chairman
of FII (including his or her designee) as having responsibility for compliance
with the requirements of the Code.
(e) "Control" will have the same meaning as that set forth in
Section 2(a)(9) of the Act.
(f) "Fund" means any mutual fund for which Fiduciary International,
Inc. serves as advisor including, but not limited to, VanEck Global Leaders
Fund, FRIC Equity II Fund, FRIC Special Growth Fund, CIGNA Charter Funds/Small
Company Stock Growth Fund, Davis International Total Return Fund, FTI Municipal
Bond Fund, FTI Bond Fund, FTI Large Cap EQUITY Growth Fund, FTI Large Cap EQUITY
Growth & Income Fund, FTI Small Cap EQUITY Fund and FTI International Equity
Fund.
(g) "Investment Personnel" means Portfolio Managers and any Advisory
Persons who provide investment information and/or advice to the Portfolio
Managers and/or help execute the Portfolio Manager's investment decisions,
including securities analysts and traders.
(h) "Portfolio Manager" means any Advisory Person who has the direct
responsibility and authority to make investment decisions for a Fund.
(i) "Purchase or sale of a Security" includes, INTER ALIA, the writing
of an option to purchase or sell a security.
(j) "Security" will have the meaning set forth in Section 2(a)(36) of
the Act, except that it will not include shares of registered open-end
investment companies, direct obligations of the government of the United States
and any derivative, option or warrant relating thereto, short-term debt
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securities which are "government securities" within the meaning of Section
2(a)(16) of the Act, bankers' acceptances, bank certificates of deposit,
commercial paper, high quality short-term debt instruments, including repurchase
agreements, and such other money market instruments as are designated by the
Compliance Officer. Foreign currencies are not considered a "security" for the
purpose of the Code. For purposes of the Code, an "equivalent Security" is one
that has substantial economic relationship to another Security. This would
include, among other things, (1) a Security that is convertible into another
Security, (2) with respect to an equity Security, a Security having the same
issuer (including a private issue by the same issuer) and any derivative, option
or warrant relating to that Security and (3) with respect to a fixed-income
Security, a Security having the same issuer, maturity, coupon and rating any
derivative, option or warrant relating to that Security.
3. APPLICABILITY
The prohibitions described below will only apply to a transaction in a
Security in which the designated Access Person has, or by reason of such
transaction acquires, any direct or indirect Beneficial Ownership.
4. PROHIBITED PURCHASES AND SALES
A. INITIAL PUBLIC OFFERINGS
No Investment Personnel may acquire any Securities (equity or fixed
income) in an initial public offering.
B. PRIVATE PLACEMENTS
No Investment Personnel may acquire any Securities in a private placement
without express prior approval.
(i) Prior approval must be obtained in accordance with the
preclearance procedure described in Section 6 below. Such approval will take
into account, among other factors, whether the investment opportunity should be
reserved for a Fund and its shareholders and whether the
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opportunity is being offered to the Investment Personnel by virtue of his or her
position with a Fund.
(ii) Investment Personnel who have been authorized to acquire
Securities in a private placement must disclose that investment to the chief
investment officer (including his or her designee) of Fiduciary Trust Company
International ("FTCI") (or of any unit or subdivision thereof) or the Compliance
Officer when the Investment Personnel play a part in any subsequent
consideration of an investment by a Fund in the issuer. In such circumstances, a
Fund's decision to purchase Securities of the issuer will be subject to an
independent review by appropriate personnel with no personal interest in the
issuer.
C. BLACKOUT PERIODS
(i) Access Persons are prohibited from executing a Securities
transaction on a day during which any Fund has a pending "buy" or "sell" order
in the same or an equivalent Security and until such time as that order is
executed or withdrawn.
A "pending `buy' or `sell' order" exists when a decision to purchase or
sell a Security has been made and communicated.
(ii) Portfolio Managers are prohibited from buying or selling a
Security within seven calendar days before or after a Fund which they manage
"trades" in the same or an equivalent Security.
(iii) If trades are effected during the period proscribed in (i) or (ii)
above, except as provided in (iv) below with respect to (i) above, any profits
realized on such trades will be immediately required to be disgorged to a
charity selected by the Chairman.
(iv) Except for Portfolio Managers with respect to activity in a fund
which they manage, a transaction by Access Persons inadvertently effected during
the period proscribed in (i) above will not be considered a violation of the
Code and disgorgement will not be required so long as the transaction was
effected in accordance with the preclearance procedures described in Section 6
below and without prior knowledge by such Access Persons of
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trading by any Fund in the same or an equivalent Security. PORTFOLIO MANAGERS
ARE DEEMED TO HAVE PRIOR KNOWLEDGE OF ACTIVITY IN THE FUNDS THEY MANAGE.
D. SHORT-TERM TRADING PROFITS
Except as provided in Section 5 below, Investment Personnel are
prohibited from profiting from a purchase and sale, or sale and purchase, of the
same or an equivalent Security within any 60-calendar day period. If trades are
effected during the proscribed period, any profits realized on such trades will
be immediately required to be disgorged to a charity selected by the Chairman.
5. EXEMPTED TRANSACTIONS
A. The following transactions will be exempt from the preclearance
provisions of Section 6 below and from Section 4(c) (Blackout Periods) and 4(D)
(Short-Swing Trading Profits) above:
(a) Purchases or sales of Securities effected in any account over
which the Access Person has no direct or indirect influence or control or in any
account of the Access Person which is managed on a discretionary basis by a
person other than such Access Person and with respect to which such Access
Person does not in fact influence or control such transactions.
(b) Purchases or sales of Securities which are non-volitional on the
part of the Access Person.
(c) Purchases that are made by reinvesting cash dividends pursuant to
an automatic dividend reinvestment program ("DRIP") (this exception does not
apply to optional cash purchases or to the decision to begin or stop
participating in a DRIP);
B. The prohibitions of Section 4(C)(i) (Blackout Periods) - except
for Portfolio Managers with respect to activity in a Fund they manage - and
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4(D) (Short-Swing Trading Profits) will not apply to the following (but
preclearances will still be required):
(a) Purchases or sales of Securities (or their equivalents) that are
not eligible for purchase or sale by any Fund.
(b) Any equity Securities transaction, or series of related
transactions effected over a 30 day calendar day period, involving 500 shares or
less in the aggregate, if (i) the Access Person has no prior knowledge of
activity in such security by a Fund and (ii) the issuer is listed on a major
securities exchange (including, but not limited to NYSE, NASDAQ and AMEX) or has
a market capitalization (outstanding shares multiplied by the current price per
share) greater that $1 billion (or a corresponding market capitalization in
foreign markets).
(c) Any fixed income Securities transaction, or series of related
transactions effected over a 30 calendar day period, involving 100 units
($100,000 principal amount) or less in the aggregate, if the Access Person has
no prior knowledge of transactions in such Securities by a Fund.
(d) Any transaction in index options effected on a broad-based index
if the Access Person has no prior knowledge of activity in such index by a Fund.
(e) Purchases effected upon the exercise of rights issued by an issuer
PRO RATA to all holders of a class of its securities, to the extent such rights
were acquired from such issuer. See also, the definition of "Security."
(f) Purchases or sales of Securities which receive the prior approval
of the Compliance Officer (such person having no personal interest in such
purchases or sales), based on a determination that no abuse is involved and that
such purchases and sales are not likely to have any economic impact on a Fund or
on its ability to purchase or sell Securities of the same class or other
Securities of the same issuer.
6. PRECLEARANCE
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Access Persons must preclear all personal Securities investments with the
exception of those identified in subpart A of Section 5 above. Preclearance
forms MUST BE FILLED OUT IN THEIR ENTIRETY in order to comply with the
requirements of this Section. Any preclearance form submitted without the date,
the number of shares to be traded and the name/ticker symbol of the security
will be considered a failure to preclear and will be in violation of the Code.
All requests for preclearance must be submitted to the appropriate
trading desk for approval. All approved orders must be executed by the end of
the calendar day preclearance is granted; provided, however, that approved
orders for Securities traded in foreign markets may be executed within two (2)
business days from the date preclearance is granted. If any order is not timely
executed, a request for preclearance must be resubmitted.
The provisions of this Section prohibit all Access Persons from entering
limit orders in their personal accounts unless their broker is further
instructed that the order is only good until the end of that calendar day. The
provisions of this Section prohibit all Access Persons from entering
good-till-cancel orders in their personal accounts.
When transactions are submitted for preclearance, the Trading Desk will
date-stamp the preclearance form. Forms are date-stamped on the day they are
received. The form will be considered to have been submitted on the date
indicated by the Trading Desk's date stamp. Access Persons should confirm that
the date stamps on their preclearance forms correspond to the trade date for
which they have requested preclearance. If any discrepancy is noted, the Access
Person should contact Kathleen Morrisey that day to report the error. Unless
notified of an error on the trade date, any discrepancy will be noted as an
untimely preclearance violation and will be reported in accordance with the
procedures set forth in paragraph 13.
7. ON-LINE TRADING
Access Persons are permitted to execute trades on-line through any
account that is held in accordance with Fiduciary Trust Company's Designated
Broker Program. Designated Brokers are Charles Schwab & Co., Inc., Salomon Smith
Barney (the Brockelman Group) and Fiduciary
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Financial Services. However, trades entered on-line after the close of business
will not be executed until the following business day. Therefore, the employee
must provide backup documentation to the Compliance Officer evidencing the entry
date of the transaction (which should coincide with the date of the
pre-clearance form).
8. REPORTING RECORDS OF SECURITIES TRANSACTIONS AND POST-TRADE REVIEW
Access Persons are required to direct their brokers to supply to the
Compliance Officer, on a timely basis, duplicate copies of confirmations of all
personal Securities transactions and copies of periodic statements for all
Securities accounts in which such Access Person has a Beneficial Ownership
interest. Compliance with this Code requirement will be deemed to satisfy the
reporting requirements imposed on Access Persons under Rule 17j-1(c).
The Compliance Officer will periodically review the personal investment
activity of all Access Persons.
9. DISCLOSURE OF PERSONAL HOLDINGS
Upon commencement of employment and thereafter on an annual basis, Access
Persons must disclose all personal Securities holdings.
10. GIFTS
Access Persons are prohibited from receiving any gift or other thing of
more than $100 in value from any person or entity that does business with or on
behalf of a Fund. Occasional business meals or entertainment (theatrical or
sporting events, etc.) are permitted so long as they are not excessive in number
or cost.
11. SERVICE AS A DIRECTOR
Investment Personnel are prohibited from serving on the boards of
directors of publicly traded companies, absent prior authorization by the
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Chairman based upon a determination that the board service would be consistent
with the interests of a Fund and its shareholders. In the limited instances that
such board service is authorized, Investment Personnel will be isolated from
those making investment decisions affecting the transactions in Securities
issued by any publicly traded company on whose board such Investment Personnel
serves as a director through the use of "Chinese Wall" or other procedures
designed to address the potential conflicts of interest.
12. CERTIFICATE OF COMPLIANCE WITH THE CODE
Access Persons are required to certify annually as follows:
(i) that they have read and understood the Code;
(ii) that they recognize that they are subject to the Code;
(iii) that they have complied with the requirements of the Code; and
(iv) that they have disclosed or reported all personal Securities
transactions required to be disclosed or reported pursuant to the requirements
of the Code.
13. CODE VIOLATIONS
Each month, independent accountants will review the transactions of all
Access Persons to determine if any Code of Ethics violations have been
committed. The Compliance Officer will notify any Access Person of any violation
of the Code of Ethics by way of a memo which will detail the transaction in
question as well as the reason that the transaction is a violation of the Code.
The Access Person will be required to confirm receipt of the notification. A
fully executed copy of this memo will be forwarded to the Access Person's
department head and personnel file.
All material violations (Same Day and Seven-Day Blackout Periods and
Short Term Trading Profit Violations) will be reported to the Chairman of FII by
the Compliance Officer as soon as all information regarding the violation is
available. The Chairman may take such action as he or she deems appropriate.
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All violations of the Code will be reported to the Chairman of FII on a
quarterly basis. The Chairman may take such action as he or she deems
appropriate.
All violations of the Code will be reported to the Board of Directors of
the Fund on an annual basis.
14. FTCI POLICY MANUAL
FII's written policy with regard to misuse of material non-public
information required to be maintained pursuant to Section 204A of the Investment
Advisers Act of 1940 is contained in the FTCI Company Policy Manual (`FTCI
Manual") as in effect on any given date. All persons subject to the provisions
of the Code are also subject to the FTCI Manual and are expected to be familiar
with and abide by the provisions of such Manual. When a provision of the Code or
the FTCI Manual, respectively, requires a higher level of compliance, such more
stringent provision shall apply.
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EXHIBIT A
DEFINITION OF BENEFICIAL OWNERSHIP
The term "beneficial ownership" of securities would include not only
ownership of securities held by an Access Persons for his or her own benefit,
whether in bearer form or registered in his or her own name or otherwise, but
also ownership of securities held for his or her benefit by others (regardless
of whether or how they are registered) such as custodians, brokers, executors,
administrators, or trustees (including trusts in which he or she has only a
remainder interest), and securities held for his or her account by pledgees, and
securities owned by a partnership which he or she should regard as a personal
holding corporation. Correspondingly, this term would exclude securities held by
an Access Person for the benefit of someone else.
Ordinarily, this term would not include securities held by executors or
administrators in estates in which an Access Person is a legatee or beneficiary
unless there is a specific legacy to such person or such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.
Securities held in the name of another should be considered as
"beneficially" owned by an Access Person where such person enjoys "benefits
substantially equivalent to ownership". The SEC has said that although the final
determination of beneficial ownership is a question to be determined in the
light of the facts of the particular case, generally a person is regarded as the
beneficial owner of securities held in the name of his or her spouse and their
minor children. Absent special circumstances, such relationship ordinarily
results in such person obtaining benefits substantially equivalent to ownership,
e.g., application of the income derived from such securities to maintain a
common home, to meet expenses which such person otherwise would meet from other
sources, or the ability to exercise a controlling influence over the purchase,
sale or voting or such securities.
An Access Person also may be regarding as the beneficial owner of
securities held in the name of another person, if by reason of any contract,
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understanding, relationship, agreement or other arrangement, he obtains
therefrom benefits substantially equivalent to those of ownership. Moreover, the
fact that the holder is a relative or relative of a spouse and sharing the same
home as an access person may in itself indicate that the Access Person would
obtain benefits substantially equivalent to those of ownership from securities
held in the name of such relative. Thus, absent countervailing facts, it is
expected that securities held by relatives who share the same home as an Access
Person will be treated as being beneficially owned by the Access Person.
An Access Person is also regarded as the beneficial owner of securities
held in the name of a spouse minor children or other person, even though he or
she does not obtain therefrom the aforementioned benefits of ownership, if he or
she can best revest title in himself or herself at once or at some future time.
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Compliance for Individuals
This section should be read by all employees of the Group. It deals with
matters which affect them as an employee of a regulated investment business.
Individuals should also read the section on "Compliance for Business Areas -
General" and the other specific business area sections applicable to their
responsibilities.
This section covers:
- EMPLOYEE DEALING
- GIFTS AND INDUCEMENTS
- EXTERNAL APPOINTMENTS
- TRAINING AND COMPETENCE
EMPLOYEE DEALING
INTRODUCTION
This is an area which has always attracted attention from the regulators and
is of importance to all employees. The section comprises:
- WHY DO WE HAVE EMPLOYEE DEALING RULES
- WHO DO THE RULES APPLY TO
- WHEN YOU CAN NOT DEAL - TIMING
- WHEN YOU CAN NOT DEAL - PARTICULAR TYPES OF TRANSACTION
- EXEMPT TRANSACTIONS
- DEALING CLEARANCE
- DEALING THROUGH THE F&C GROUP DEALING DESK
- DEALING THROUGH EXTERNAL BROKERS
- DISCLOSURE OF PERSONAL HOLDINGS
- ANNUAL CONFIRMATION OF COMPLIANCE
- COMPLIANCE DEPARTMENT RESPONSIBILITIES
- ENFORCEMENT
WHY DO WE HAVE EMPLOYEE DEALING RULES?
Dealing in securities is fundamental to the business of the Group and no
personal dealing activities will be tolerated which might in any way endanger
the business reputation of the Group. Furthermore, the personal dealings of
employees must not interfere with the performance of their duties.
The overriding principle in all our dealings for clients is that we place the
interests of our clients first. To assist in ensuring that we live up to this
principle in relation to staff dealing arrangements, the Foreign & Colonial
Group has adopted these employee dealing rules (in U.S. terminology a Code of
Ethics). They are designed to ensure that employee dealing is undertaken in
such a way that it avoids actual or potential conflicts of interest, that the
employee does not abuse their position of trust and responsibility and the
employee does not take inappropriate advantage of their positions.
The employee dealing rules can thus be said primarily to provide protection
to the firm's clients but also protection for the firm itself and for the
individual employees. All employees should remember that the spirit of these
rules is as important as the letter of the rules.
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This formal set of rules is a requirement both of our U.K. Regulators IMRO
and our U.S. Regulators the SEC.
WHO DO THE RULES APPLY TO?
These rules, except in one particular instance which is highlighted, apply
equally to all employees (in U.S. terminology access persons). Employees for
these purposes include Directors, full time employees, part-time and
temporary employees, consultants and secondees of all regulated Group
companies. They also apply to employees of MFS who work from Exchange House.
In relation to certain restrictions on dealing prior to deals for a client
the rules only apply to investment personnel. Investment personnel for these
purposes include all fund managers, members of the chief investment offices
(both global teams and performance measurement teams), MFS employees who work
from Exchange House and the Group Dealing Desk.
Employees should take all reasonable steps within their power to ensure that
any member of their immediate family does not contravene the requirements of
these rules.
If any employee is unsure of whether they are allowed to deal in a particular
investment they should consult the Group Compliance Department.
IF IN DOUBT ASK.
WHEN YOU CAN NOT DEAL - TIMING
Employees are prohibited from dealing at certain specified times as follows:-
1. INSIDER DEALING:
Employees must not engage in dealings which constitute insider dealing
and/or may contravene the provisions of the relevant statutory
provisions. Further details of these statutory requirements, offences
against which are punishable by imprisonment, are set out in
APPENDIX 8.
2. CLOSED PERIODS:
Employees can not deal in the Group's listed closed end funds
(investment trusts), nor may any employee join or leave a Group
Savings Scheme (PIP, PEP or PSP) investing in such Funds or make
occasional purchases through a scheme during the Fund's "closed
periods". The closed periods are prescribed by Stock Exchange rules
and are calculated by reference to expected results announcement dates.
The expected closed periods for the current year are detailed in
APPENDIX 7. Stocks currently within their closed periods are listed on
the "Restricted List" prepared by the Compliance Department and
circulated to Fund Managers, the Dealing Desk and certain others, at
the beginning of each week.
3. RESTRICTED LIST:
In addition to the closed period for investment trusts, the Compliance
Department maintains a list of stocks "The Restricted List" where
dealings are restricted due to particular circumstances surrounding
our client holdings. Dealings may be possible but
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will only be approved by Compliance after specific consultation with
the client Fund Manager concerned.
4. DEALING AFTER CLIENT DEALS (TRADES IN SAME DIRECTION):
To ensure that the customer always comes first where a trade has been
executed for a client fund no employee may deal in the same direction
(i.e. both client and employee buying or both client and employee
selling) until the day following completion of all client trades.
5. DEALING AFTER CLIENT DEALS (TRADES IN OPPOSITE DIRECTION)
Where a trade has been executed for a client fund and an employee
wishes also to deal but in the opposite direction (i.e. client buys
and employee sells or client sells and employee buys) the employee
trade must wait 7 calendar days to remove any suggestion that the
employee might benefit from any market affect of the client trade.
6. DEALING BEFORE CLIENT TRADES (FRONT RUNNING):
No "investment personnel" is permitted to deal in the 7 calendar days
before an order is placed for or under consideration for a client fund.
This is to remove any suggestion that such employees might benefit
from dealing ahead of the firm's clients.
7. BAN ON SHORT-TERM TRADING PROFITS:
Front running typically involves a quick trading pattern to capitalise
on a short lived market impact of a particular client trade or series
of trades. As an additional deterrent to such activities all employees
are prohibited from profiting from the purchase and sale (or sale and
purchase) of the same security within 30 calendar days. Any profits
realised on such short term trades will have to be surrendered either
to any client affected by the trading pattern or to a charity selected
by the Compliance Director.
WHEN YOU CAN NOT DEAL - PARTICULAR TYPES OF TRANSACTIONS:
By their nature certain types of transaction may give rise to particular
conflicts of interest or may have a high risk of breaching "the client comes
first principle". For these reasons such trades are prohibited or discouraged.
The types of trades are:
1. SPECULATIVE TRADING:
Employees must not engage in speculative dealing. When considering
what is speculative, regard shall be had to the ability of the
employee to settle as well as the nature of the investment made. The
Compliance Department may require evidence from employees, prior to
approving trades, to indicate that their resources are sufficient to
settle trades they wish to undertake.
2. UNQUOTED AND ILLIQUIDS:
As the illiquid nature of such stocks significantly increases the
potential risk of conflict with the Group's investment activities,
employees are discouraged from dealing in unquoted stocks or in those
quoted on the Stock Exchange's new Alternative Investment Market
("AIM"). Special permission to deal in such stock may, in exceptional
circumstances, be given by the Compliance Director who will consult an
executive director of Foreign & Colonial Ventures to discuss any
possible conflict before giving such permission. Employees must be
aware that there may be significant delays before permission to
realise holdings is given and they may, therefore, be forced to hold
such stocks for periods longer than they wish.
3. NEW ISSUES:
Employees are not permitted to participate in any new public issues
unless it can be
<PAGE>
proved, to the satisfaction of the Compliance Department, that the
issue is genuinely open to all the public and that the potential
allocations to the employee would not affect any proposed client
orders. Employees are also reminded of the rules on short-term trading
profits.
4. SHORT SALES:
Employees may not undertake a short sale in any security.
5. CERTAIN OPTIONS TRANSACTIONS:
Employees may not write (sell to open) options and futures contracts
and they may not buy a put option on any security held in a client
portfolio.
EXEMPT TRANSACTIONS
Employees may seek to be excluded from all or any part of these rules for a
given situation. In doing so, employees must submit a full written
explanation of the individual circumstances to the Compliance Director. Any
exception requires the prior written authority of the Compliance Director.
Dealings in the following categories of investments are exempt from the
provisions of the Employee Dealing Rules:
- Existing regular payments to a saving scheme in Investment Trusts, or
commencing/ceasing regular payments to a saving scheme in Investment
Trusts outside the prohibited periods (Note: lump sum purchases through
the PIP require Authorisation to Deal). This applies to F&C and non-F&C
schemes;
- a "bed-and-breakfast" transaction at market value.
All employees should note that "Authorisation to Deal" must be sought for all
New issues of shares or securities, Privatisation issues, starting PEPs where
the employee chooses the stock, the Group's open-ended funds both on and
offshore and transactions in profit sharing shares.
Consideration will be given on a case-by-case basis by the Compliance
Director to excluding individual arrangements which have been established by
or for employees where a third party has full discretion over the management
of the portfolio. In such circumstances, the Compliance Department may seek
additional assurances from the employee that they have no involvement in the
management of such funds.
DEALING CLEARANCE
Before dealing, an employee must fill in an Authorisation to Deal form
(APPENDIX 13) and seek the relevant approvals as detailed below.
1. If the employee is an investment personnel they must obtain the
signature of the head of the appropriate investment desk or his
nominated deputy to indicate that deals in the proposed stock are not
proposed in the next 7 calendar days. (i.e. for U.K. stocks from the
U.K. Desk or German stocks from the European Desk). This clearance is
only required for trades by investment personnel.
2. For all employees, the form must then be submitted to the Compliance
Director or his
<PAGE>
nominated deputy. Prior to approval, the Compliance Director or his
nominated deputy will check the restricted list.
3. When approved by Compliance, the employee must submit the
Authorisation to Deal Form to the Chief Dealer within 30 minutes for
checking of customer order priority. Approval will only be given if no
customer orders are held or have been executed that day. When approved,
the deal may be executed.
DEALING THROUGH THE F&C GROUP DEALING DESK
With effect from 1 February 1997, employees of the Group are no longer
permitted to make use of the Group Dealing Desk for personal account deals. All
such deals must be placed with approved external brokers.
DEALING THROUGH AN APPROVED EXTERNAL BROKER
All personal account transactions must be placed through an approved
external broker.
PRE-APPROVAL OF BROKERS
All employees wishing to use an external broker must, prior to any
dealing, complete a letter to their broker in the form set out below
and send a copy to the Compliance Department. Employees must note that
this constitutes authorisation of the broker, not any particular
transaction, which must subsequently be covered by an Authorisation to
Deal Form. Employees must still comply with the prohibitions laid down
and the "Dealing Clearance" procedures set out above in respect of
individual transactions.
SPECIAL ARRANGEMENTS FOR UK MARKET DEALS
The Group has made special arrangements with UK broker, Charles
Stanley, who will undertake UK market trades for F&C Group staff at
preferential rates. Details of how to open an account with this broker
may be obtained from Alan Line on the F&C Central Dealing Desk who is
also willing to pass trade instructions on to Charles Stanley for F&C
Group employees.
If employees deal through Charles Stanley for U.K. trades, there is no
need to seek pre-approval of this broker from Compliance. For all
other brokers, employees must comply with the requirements set out
above.
FORM OF LETTER TO BE SENT TO OUTSIDE BROKERS BY EMPLOYEES WISHING TO
DEAL IN SECURITIES FOR THEIR OWN ACCOUNT
-----------------------------------------------------------------------
To the Broking Firm
Dear Sirs,
In conformity with my conditions of employment I hereby irrevocably
instruct you to send copies of all contract notes and advice notes for
bargains executed by you on my behalf to:
The Compliance Department
Foreign & Colonial
8th Floor
Exchange House
Primrose Street
<PAGE>
London EC2A 2NY
My employer also wishes me to advise you that:-
a) on no account should I be given any credit or special terms by you
beyond your normal arrangements;
b) short sales are not permitted and in general dealings should not be
of a speculative nature;
c) in accepting these instructions you are authorised by the company
to act on my behalf.
I hereby authorise you to provide the company's Compliance Officer
with any information which he may request regarding the operation of
my account.
Yours faithfully,
A. N. Employee.
------------------------------------------------------------------------
EXECUTING DEALS THROUGH EXTERNAL BROKERS
Once all the required authorisations have been obtained, the employee
is free to place the order with the approved external broker. No deal
may be placed until all approvals have been obtained. The employee
must issue instructions to their external broker within 30 minutes of the
dealing desk clearance time. The approved Authorisation to Deal Form
must be returned to the Compliance Department immediately.
DISCLOSURE OF PERSONAL HOLDINGS
To assist in the Compliance monitoring of employee transactions, all
employees are required to disclose all personal securities holdings upon
commencement of employment with a Group company and annually thereafter. The
minimum level of information required is a listing of securities names.
Employees may initially chose not to provide details of numbers of shares
held or values though the Compliance Department reserve the right to request
further information should the need arise.
ANNUAL CONFIRMATION OF COMPLIANCE WITH EMPLOYEE DEALING RULES
Once a year in May the Group Compliance Department will seek confirmation
from employees that they have complied in full with the employee dealing rules
in the previous 12 month period.
COMPLIANCE DEPARTMENT RESPONSIBILITIES
Compliance with these rules will be monitored by the Group Compliance
Department. The Compliance Department will prepare summary reports of
activity on a monthly basis and any departures from these procedures will be
reported to the Executive Committee.
In view of the close working relationship with Massachusetts Financial
Services ("MFS"), it is important to ensure that the sharing of investment
information between our two firms does not lead to breaches of the spirit of
the regulations. We have decided that no preclearance of
<PAGE>
proposed employee trades by the two Compliance Departments should be necessary
initially but Foreign & Colonial and MFS Compliance Departments will exchange
historic trade information on at least a quarterly basis to ensure that there
is no pattern in employee trading which would indicate breaches of the spirit
of the rules due to the exchange of investment information.
STOCK EXCHANGE CONTINUING OBLIGATIONS
Employees who are also Directors of any of the Group's Stock Exchange listed
investment trusts are reminded that, in addition to obtaining Compliance
clearance of transactions in the shares of the investment trust of which they
are a Director, they must also notify Company Secretaries of any purchases and
sales so that the necessary Stock Exchange notifications can be made.
ENFORCEMENT
A copy of these rules is given to every employee on commencement of
employment, or on any amendment to the rules. Compliance with these rules
forms part of the employee's contract of employment.
Any employee whose personal dealings breach the letter or spirit of these
rules may, at the discretion of the Compliance Director, be prohibited from
dealing on their own account and may be required to surrender any profits
which resulted from the offending trading.
Any abuse or attempt to circumvent these rules will be considered as grounds
for disciplinary action in accordance with the normal Group procedures.
Failure to comply with the rules is a serious disciplinary offence and may
result in dismissal.
- ------------------------------------------------------------------------------
Issued: January 1999
<PAGE>
CONFIDENTIAL INFORMATION AND
SECURITIES TRADING POLICY
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
Page
<S> <C> <C>
- ---------------------------
INTRODUCTION ............................................................................ 1
PART I
APPLICABLE TO ALL ASSOCIATES
SECTION ONE
CONFIDENTIAL INFORMATION.................................................... 2
-Types of Confidential Information.......................................... 2
-Rules for Protecting Confidential Information.............................. 3
-Supplemental Procedures.................................................... 4
SECTION TWO
INSIDER TRADING AND TIPPING................................................. 5
-Legal Prohibitions......................................................... 5
-Mellon's Policy............................................................ 6
SECTION THREE
RESTRICTIONS ON THE FLOW OF INFORMATION
WITHIN MELLON (THE "CHINESE WALL").......................................... 7
-Rules for Maintaining the Chinese Wall..................................... 7
-Reporting Receipt of Material Nonpublic Information........................ 8
-Functions "Above the Wall"................................................. 9
-Supplemental Procedures.................................................... 9
SECTION FOUR
RESTRICTIONS ON TRANSACTIONS IN MELLON SECURITIES...........................10
-Beneficial Ownership.......................................................11
SECTION FIVE
RESTRICTIONS ON TRANSACTIONS IN OTHER SECURITIES............................12
SECTION SIX
CLASSIFICATION OF ASSOCIATES................................................14
-Insider Risk Associate.....................................................14
-Investment Associate.......................................................15
-Other Associate............................................................15
PART II
APPLICABLE TO INSIDER
RISK ASSOCIATES ONLY ............................................................................16
-Prohibition on Investments in Securities of Financial
Services Organizations....................................................16
-Conflict of Interest.......................................................17
-Preclearance for Personal Securities Transactions..........................17
-Personal Securities Transactions Reports...................................19
-Confidential Treatment.....................................................19
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
<CAPTION>
<S> <C> <C>
PART III
APPLICABLE TO INVESTMENT
ASSOCIATES ONLY ............................................................................20
-Special Standards of Conduct for Investment Associates.....................20
-Preclearance for Personal Securities Transactions..........................21
-Personal Securities Transactions Reports...................................23
-Confidential Treatment.....................................................24
PART IV
APPLICABLE TO OTHER
ASSOCIATES ONLY ............................................................................25
-Preclearance for Personal Securities Transactions..........................25
-Personal Securities Transactions Reports...................................25
-Restrictions on Transactions in Other Securities...........................25
-Confidential Treatment.....................................................26
PART V
APPLICABLE TO NONMANAGEMENT
BOARD MEMBERS ............................................................................27
-Nonmanagement Board Member.................................................27
-Standards of Conduct for Nonmanagement Board Member........................27
-Preclearance for Personal Securities Transactions..........................28
-Personal Securities Transactions Reports...................................29
-Confidential Treatment.....................................................29
GLOSSARY
DEFINITIONS.................................................................30
INDEX OF EXHIBITS ............................................................................33
</TABLE>
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
INTRODUCTION
- -----------------------------------------
Mellon Bank Corporation ("Mellon") and its associates,
and the registered investment companies for which The
Dreyfus Corporation ("Dreyfus") and/or Mellon serves
as investment adviser, sub-investment adviser or
administrator, are subject to certain laws and
regulations governing the use of confidential
information and personal securities trading. Mellon
has developed this CONFIDENTIAL INFORMATION AND
SECURITIES TRADING POLICY (THE "POLICY") to establish
specific standards to promote compliance with
applicable laws. Further, the Policy is intended to
protect Mellon's business secrets and proprietary
information as well as that of its customers and any
entity for which it acts in a fiduciary capacity.
The Policy set forth procedures and limitations which
govern the personal securities transactions of every
Mellon associate and certain other individuals
associated with the registered investment companies
for which Dreyfus and/or Mellon serves as investment
adviser, sub-investment adviser or administrator. The
Policy is designed to reinforce Mellon's reputation
for integrity by avoiding even the appearance of
impropriety in the conduct of Mellon's business.
Associates should be aware that they may be held
personally liable for any improper or illegal acts
committed during the course of their employment, and
that "ignorance of the law" is not a defense.
Associates may be subject to civil penalties such as
fines, regulatory sanctions including suspensions, as
well as criminal penalties.
Associates outside the United States are also subject
to applicable laws of foreign jurisdictions, which may
differ substantially from U.S. law and which may
subject such associates to additional requirements.
Such associates must comply with applicable
requirements of pertinent foreign laws as well as with
the provisions of the Policy. To the extent any
particular portion of the Policy is inconsistent with
foreign law, associates should consult the General
Counsel or the Manager of Corporate Compliance.
Any provision of this Policy may be waived or exempted
at the discretion of the Manager of Corporate
Compliance. Any such waiver or exemption will be
evidenced in writing and maintained in the Risk
Management and Compliance Department.
Associates must read the Policies and
MUST COMPLY with them. Failure to comply
with the provisions of the Policies may
result in the imposition of serious
sanctions, including but not limited to
disgorgement of profits, dismissal,
substantial personal liability and
referral to law enforcement agencies
or other regulatory agencies. Associates
should retain the Policies in their
records for future reference. Any
questions regarding the Policies should
be referred to the Manager of Corporate
Compliance or his/her designee.
1
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
PART I - APPLICABLE TO ALL ASSOCIATES
- -----------------------------------------
SECTION ONE
CONFIDENTIAL INFORMATION
As an associate you may receive information about
Mellon, its customers and other parties that, for
various reasons, should be treated as confidential.
All associates are expected to strictly comply with
measures necessary to preserve the confidentiality of
information.
TYPES OF CONFIDENTIAL INFORMATION - Although it is
impossible to provide an exhaustive list of
information that should remain confidential, the
following are examples of the general types of
confidential information that associates might receive
in the ordinary course of carrying out their job
responsibilities.
- INFORMATION OBTAINED FROM BUSINESS RELATIONS - An
associate might receive confidential information
regarding customers or other parties with whom Mellon
has business relationships. If released, such
information could have a significant effect on their
operations, their business reputations or the market
price of their securities. Disclosing such information
could expose both the associate and Mellon to
liability for damages.
- MELLON FINANCIAL INFORMATION - An associate might
receive financial information regarding Mellon before
such information has been disclosed to the public. It
is the policy of Mellon to disclose all material
corporate information to the public in such a manner
that all those who are interested in Mellon and its
securities have equal access to the information.
Disclosing such information to unauthorized persons
could subject both the associate and Mellon to
liability under the federal securities laws.
- MELLON PROPRIETARY INFORMATION - Certain nonfinancial
information developed by Mellon - such as business
plans, customer lists, methods of doing business,
computer software, source codes, databases and related
documentation - constitutes valuable Mellon
proprietary information. Disclosure of such
information to unauthorized persons could harm, or
reduce a benefit to, Mellon and could result in
liability for both the associate and Mellon.
- MELLON EXAMINATION INFORMATION - Banks and certain
other Mellon subsidiaries are periodically examined by
regulatory agencies. Certain reports made by those
regulatory agencies are the property of those agencies
and are strictly confidential. Giving information from
these reports to anyone not officially connected with
Mellon is a criminal offense.
- PORTFOLIO MANAGEMENT INFORMATION - Portfolio
management information relating to investment accounts
or funds managed by Mellon or Dreyfus, including
investment decisions or strategies developed for the
benefit of investment companies advised by Dreyfus, is
for the benefit of such account or fund. Disclosure or
exploitation of such information by an associate in an
unauthorized manner may cause detriment to such
accounts or funds and may subject the associate to
liability under the federal securities laws.
2
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
RULES FOR PROTECTING CONFIDENTIAL INFORMATION - The
following are some basic rules to follow to protect
confidential information.
- LIMITED COMMUNICATION TO OUTSIDERS - Confidential
information should not be communicated to anyone
outside Mellon, except to the extent they need to know
the information in order to provide necessary services
to Mellon.
- LIMITED COMMUNICATION TO INSIDERS - Confidential
information should not be communicated to other
associates, except to the extent they need to know the
information to fulfill their job responsibilities and
their knowledge of the information is not likely to
result in misuse or a conflict of interest. In this
regard, Mellon has established specific restrictions
with respect to material nonpublic information in
order to separate and insulate different functional
areas and personnel within Mellon. Please refer to
Section Three, "Restrictions on The Flow of
Information Within Mellon" (The "Chinese Wall").
- CORPORATE USE ONLY - Confidential information should
be used only for Corporate purposes. Under no
circumstances may an associate use it, directly or
indirectly, for personal gain or for the benefit of
any outside party who is not entitled to such
information.
- OTHER CUSTOMERS - Where appropriate, customers should
be made aware that associates will not disclose to
them other customers' confidential information or use
the confidential information of one customer for the
benefit of another.
- NOTIFICATION OF CONFIDENTIALITY - When confidential
information is communicated to any person, either
inside or outside Mellon, they should be informed of
the information's confidential nature and the
limitations on its further communication.
- PREVENTION OF EAVESDROPPING - Confidential matters
should not be discussed in public or in places, such
as in building lobbies, restaurants or elevators,
where unauthorized persons may overhear. Precautions,
such as locking materials in desk drawers overnight,
stamping material "Confidential" and delivering
materials in sealed envelopes, should be taken with
written materials to ensure they are not read by
unauthorized persons.
- DATA PROTECTION - Data stored on personal computers
and diskettes should be properly secured to ensure
they are not accessed by unauthorized persons. Access
to computer files should be granted only on a
need-to-know basis. At a minimum, associates should
comply with applicable Mellon policies on electronic
data security.
3
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
- CONFIDENTIALITY AGREEMENTS - Confidentiality
agreements to which Mellon is a party must be complied
with in addition to, but not in lieu of, this Policy.
Confidentiality agreements that deviate from commonly
used forms should be reviewed in advance by the Legal
Department.
- CONTACT WITH THE PUBLIC - All contacts with
institutional shareholders or securities analysts
about Mellon must be made through the Investor
Relations Division of the Finance Department. All
contacts with the media and all speeches or other
public statements made on behalf of Mellon or about
Mellon's businesses must be cleared in advance by
Corporate Affairs. In speeches and statements not made
on behalf of Mellon, care should be taken to avoid any
implication that Mellon endorses the views expressed.
SUPPLEMENTAL PROCEDURES - Mellon entities,
departments, divisions and groups should establish
their own supplemental procedures for protecting
confidential information, as appropriate. These
procedures may include:
- establishing records retention and destruction
policies;
- using code names;
- limiting the staffing of confidential matters (for
example, limiting the size of working groups and the
use of temporary employees, messengers and word
processors); and
- requiring written confidentiality agreements from
certain associates.
ANY SUPPLEMENTAL PROCEDURES SHOULD BE USED ONLY TO
PROTECT CONFIDENTIAL INFORMATION AND NOT TO CIRCUMVENT
APPROPRIATE REPORTING AND RECORDKEEPING REQUIREMENTS.
4
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
SECTION TWO
INSIDER TRADING AND TIPPING
LEGAL PROHIBITIONS - Federal securities laws generally
prohibit the trading of securities while in possession
of "material nonpublic" information regarding the
issuer of those securities (insider trading). Any
person who passes along the material nonpublic
information upon which a trade is based (tipping) may
also be liable.
"MATERIAL" - Information is material if there is a
substantial likelihood that a reasonable investor
would consider it important in deciding whether to
buy, sell or hold securities. Obviously, information
that would affect the market price of a security would
be material. Examples of information that might be
material include:
- a proposal or agreement for a merger, acquisition or
divestiture, or for the sale or purchase of
substantial assets;
- tender offers, which are often material for the party
making the tender offer as well as for the issuer of
the securities for which the tender offer is made;
- dividend declarations or changes;
- extraordinary borrowings or liquidity problems;
- defaults under agreements or actions by creditors,
customers or suppliers relating to a company's credit
standing;
- earnings and other financial information, such as
large or unusual write-offs, write-downs, profits or
losses;
- pending discoveries or developments, such as new
products, sources of materials, patents, processes,
inventions or discoveries of mineral deposits;
- a proposal or agreement concerning a financial
restructuring;
- a proposal to issue or redeem securities, or a
development with respect to a pending issuance or
redemption of securities;
- a significant expansion or contraction of operations;
- information about major contracts or increases or
decreases in orders;
- the institution of, or a development in, litigation or
a regulatory proceeding;
- developments regarding a company's senior management;
- information about a company received from a director
of that company; and
- information regarding a company's possible
noncompliance with environmental protection laws.
This list is not exhaustive. All relevant
circumstances must be considered when determining
whether an item of information is material.
5
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
"NONPUBLIC" - Information about a company is nonpublic
if it is not generally available to the investing
public. Information received under circumstances
indicating that it is not yet in general circulation
and which may be attributable, directly or indirectly,
to the company or its insiders is likely to be deemed
nonpublic information.
If an associate can refer to some public source to
show that the information is generally available (that
is, available not from inside sources only) and that
enough time has passed to allow wide dissemination of
the information, the information is likely to be
deemed public. While information appearing in widely
accessible sources - such as newspapers - becomes
public very soon after publication, information
appearing in less accessible sources - such as
regulatory filings - may take up to several days to be
deemed public. Similarly, highly complex information
might take longer to become public than would
information that is easily understood by the average
investor.
MELLON'S POLICY - Associates who possess material
nonpublic information about a company - whether that
company is Mellon, another Mellon entity, a Mellon
customer or supplier, or other company - may not trade
in that company's securities, either for their own
accounts or for any account over which they exercise
investment discretion. In addition, associates may not
recommend trading in those securities and may not pass
the information along to others, except to associates
who need to know the information in order to perform
their job responsibilities with Mellon. These
prohibitions remain in effect until the information
has become public.
Associates who have investment responsibilities should
take appropriate steps to avoid receiving material
nonpublic information. Receiving such information
could create severe limitations on their ability to
carry out their responsibilities to Mellon's fiduciary
customers.
Associates managing the work of consultants and
temporary employees who have access to the types of
confidential information described in this Policy are
responsible for ensuring that consultants and
temporary employees are aware of Mellon's policy and
the consequences of noncompliance.
Questions regarding Mellon's policy on material
nonpublic information, or specific information that
might be subject to it, should be referred to the
General Counsel.
6
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
SECTION THREE
RESTRICTIONS ON THE FLOW OF
INFORMATION WITHIN MELLON
(THE "CHINESE WALL")
As a diversified financial services organization,
Mellon faces unique challenges in complying with the
prohibitions on insider trading and tipping of
material nonpublic information and misuse of
confidential information. This is because one Mellon
unit might have material nonpublic information about a
company while other Mellon units may have a desire, or
even a fiduciary duty, to buy or sell that company's
securities or recommend such purchases or sales to
customers. To engage in such broad-ranging financial
services activities without violating laws or
breaching Mellon's fiduciary duties, Mellon has
established a "Chinese Wall" policy applicable to all
associates. The "Chinese Wall" separates the Mellon
units or individuals that are likely to receive
material nonpublic information (Potential Insider
Functions) from the Mellon units or individuals that
either trade in securities - for Mellon's account or
for the accounts of others - or provide investment
advice (Investment Functions).
EXAMPLES OF POTENTIAL INSIDER FUNCTIONS - Potential
Insider Functions include, among others, certain
commercial lending, corporate finance, and credit
policy areas. Insider Risk Associates (see Section
Six, "Insider Risk Associates") should consider
themselves to be in Potential Insider Functions unless
their particular job responsibilities clearly indicate
otherwise.
EXAMPLES OF INVESTMENT FUNCTIONS - Investment
Functions include, among others, securities sales and
trading, investment management and advisory services,
investment research and various trust or fiduciary
functions.
RULES FOR MAINTAINING THE "CHINESE WALL" - Without the
prior approval of the General Counsel, material
nonpublic information obtained by anyone in a
Potential Insider Function should not be communicated
to anyone in an Investment Function. To reduce the
risk of material nonpublic information being
communicated, communications between these associates
in these functions must be limited to the maximum
extent consistent with valid business needs.
PARTICULAR RULES -
- FILE RESTRICTIONS - Associates in Investment Functions
must not have access to commercial credit files,
corporate finance files, or any other Potential
Insider Function files that might contain material
nonpublic information. All such files that contain
material nonpublic information should be marked as
"Confidential" and, if feasible, segregated from
nonconfidential files.
- ELECTRONIC DATA - Associates in Investment Functions
must not have access to personal computer or word
processing files of associates in Potential Insider
Functions.
- MEETINGS - Associates in Investment Functions must not
attend meetings between customers and associates in
Potential Insider Functions unless appropriate steps
have been taken to ensure that material nonpublic
information will not be disclosed or discussed.
- COMMITTEE SERVICE - Without the prior approval of the
General Counsel, associates other than those "Above
the Wall" (see page 9) must not serve simultaneously
on a committee having responsibility for any
Investment Function and a committee having
responsibility for any Potential Insider Function.
7
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
- INFORMATION REQUESTS - Requests for nonmaterial
information or public information across the "Chinese
Wall" should be made in writing to an appropriate
associate in the applicable area. Associates sending
or receiving such a request should resolve any
questions regarding the materiality or nonpublic
nature of the requested information by consulting
their department head, who will contact the General
Counsel, as appropriate.
- INFORMATION BACKFLOW - Associates should take care to
avoid inadvertent backflow of information that may be
interpreted as the prohibited communication of
material nonpublic information. For example, the mere
fact that someone in a Potential Insider Function,
such as a mergers and acquisitions specialist,
requests information from an associate in an
Investment Function could give the latter person a
clue as to possible material developments affecting a
customer.
- CUSTOMERS - Associates in Investment Functions must
not state or imply to customers that associates making
decisions or recommendations will have the benefit of
information from Mellon's Potential Insider Functions.
When appropriate, associates should inform customers
of Mellon's "Chinese Wall" policy.
- CONFLICTS OF INTEREST - Associates should not receive
or pass on any information that would create an undue
risk of Mellon or any associate having a conflict of
interest or breaching a fiduciary obligation.
REPORTING RECEIPT OF MATERIAL NONPUBLIC INFORMATION -
Associates in Investment Functions who receive any
suspected material nonpublic information must report
such receipt promptly to their department or entity
head. A department or entity head who receives
information believed to be material and nonpublic
should report the matter promptly to the General
Counsel. If the General Counsel determines that the
information is material and nonpublic, the affected
department or entity will:
- immediately SUSPEND ALL TRADING in the securities of
the issuer to which the information applies, as well
as all recommendations with respect to such
securities. The suspension will remain in effect as
long as the information remains both material and
nonpublic.
- NOTIFY THE GENERAL COUNSEL before resuming
transactions or recommendations in the affected
securities. The General Counsel will advise as to
possible further steps, including ascertaining the
validity and nonpublic nature of the information with
the issuer of the securities; requesting the issuer of
the securities, or other appropriate parties, to
disseminate the information promptly to the public if
the information is valid and nonpublic; and publishing
the information.
In certain circumstances, the department or entity
head may be able to demonstrate conclusively that the
receipt of the material nonpublic information has been
confined to an individual or small group of
individuals and that measures other than those
described above will comparably reduce the likelihood
of trading on the basis of the information. These
measures might include temporarily relieving
individuals of responsibility for any Investment
Functions and preventing any contact between those
individuals and associates in Investment Functions. In
these circumstances, the department head, with the
approval of the General Counsel, may take those
measures rather than the measures described above.
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FUNCTIONS "ABOVE THE WALL" - Some functions at Mellon
are deemed to be "Above the Wall." For example,
members of senior management, Auditing, Risk
Management and Compliance, and the Legal Department
will typically need to have access to information on
both sides of the "Chinese Wall" to carry out their
job responsibilities. These individuals cannot rely on
the procedural safeguards of the "Chinese Wall" and,
therefore, need to be particularly careful to avoid
any improper use or dissemination of material
nonpublic information.
SUPPLEMENTAL PROCEDURES - As appropriate, certain
Mellon departments or areas, such as Mellon Trust,
should establish their own procedures to reduce the
possibility of information being communicated to
associates who should not have access to that
information.
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SECTION FOUR
RESTRICTIONS ON TRANSACTIONS
IN MELLON SECURITIES
Associates who engage in transactions involving Mellon
securities should be aware of their unique
responsibilities with respect to such transactions
arising from the employment relationship and should be
sensitive to even the appearance of impropriety.
The following restrictions apply to ALL transactions
in Mellon's publicly traded securities occurring in
the associate's own account and in all other accounts
over which the associate could be expected to exercise
influence or control (see provisions under "Beneficial
Ownership" below for a more complete discussion of the
accounts to which these restrictions apply). These
restrictions are to be followed in addition to any
restrictions that apply to particular officers or
directors (such as restrictions under Section 16 of
the Securities Exchange Act of 1934).
- SHORT SALES - Short sales of Mellon securities by
associates are prohibited.
- SALES WITHIN 60 DAYS OF PURCHASE - Sales of Mellon
securities within 60 days of acquisition are
prohibited. For purposes of the 60-day holding period,
securities will be deemed to be equivalent if one is
convertible into the other, if one entails a right to
purchase or sell the other, or if the value of one is
expressly dependent on the value of the other (e.g.,
derivative securities).
In cases of extreme hardship, associates (other than
senior management) may obtain permission to dispose of
Mellon securities acquired within 60 days of the
proposed transaction, provided the transaction is
pre-cleared with the Manager of Corporate Compliance
and any profits earned are disgorged in accordance
with procedures established by senior management. The
Manager of Corporate Compliance reserves the right to
suspend the 60-day holding period restriction in the
event of severe market disruption.
- MARGIN TRANSACTIONS - Purchases on margin of Mellon's
publicly traded securities by associates is
prohibited. Margining Mellon securities in connection
with a cashless exercise of an employee stock option
through the Human Resources Department is exempt from
this restriction. Further, Mellon securities may be
used to collateralize loans or the acquisition of
securities other than those issued by Mellon.
- OPTION TRANSACTIONS - Option transactions involving
Mellon's publicly traded securities are prohibited.
Transactions under Mellon's Long-Term Incentive Plan
or other associate option plans are exempt from this
restriction.
- MAJOR MELLON EVENTS - Associates who have knowledge of
major Mellon events that have not yet been announced
are prohibited from buying and selling Mellon's
publicly traded securities before such public
announcements, even if the associate believes the
event does not constitute material nonpublic
information.
- MELLON BLACKOUT PERIOD - Associates are prohibited
from buying or selling Mellon's publicly traded
securities during a blackout period, which begins the
16th day of the last month of each calendar quarter
and ends three business days after Mellon publicly
announces the financial results for that quarter. In
cases of extreme hardship, associates (other than
senior management) may request permission from the
Manager of Corporate Compliance to dispose of Mellon
securities during the blackout period.
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BENEFICIAL OWNERSHIP - The provisions discussed above
apply to transactions in the associate's own name and
to all other accounts over which the associate could
be expected to exercise influence or control,
including:
- accounts of a spouse, minor children or relatives to
whom substantial support is contributed;
- accounts of any other member of the associate's
household (e.g., a relative living in the same home);
- trust accounts for which the associate acts as trustee
or otherwise exercises any type of guidance or
influence;
- Corporate accounts controlled, directly or indirectly,
by the associate;
- arrangements similar to trust accounts that are
established for bona fide financial purposes and
benefit the associate; and
- any other account for which the associate is the
beneficial owner (see Glossary for a more complete
legal definition of "beneficial owner").
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SECTION FIVE
RESTRICTIONS ON TRANSACTIONS
IN OTHER SECURITIES
Purchases or sales by an associate of the securities
of issuers with which Mellon does business, or other
third party issuers, could result in liability on the
part of such associate. Associates should be sensitive
to even the appearance of impropriety in connection
with their personal securities transactions.
Associates should refer to the provisions under
"Beneficial Ownership" (Section Four, "Restrictions on
Transactions in Mellon Securities"), which are equally
applicable to the following provisions.
The Mellon Code of Conduct contains certain
restrictions on investments in parties that do
business with Mellon. Associates should refer to the
Code of Conduct and comply with such restrictions in
addition to the restrictions and reporting
requirements set forth below.
The following restrictions apply to ALL securities
transactions by associates:
- CREDIT OR ADVISORY RELATIONSHIP - Associate may not
buy or sell securities of a company if they are
considering granting, renewing or denying any credit
facility to that company or acting as an adviser to
that company with respect to its securities. In
addition, lending associates who have assigned
responsibilities in a specific industry group are not
permitted to trade securities in that industry. This
prohibition does not apply to transactions in
securities issued by open-end investment companies.
- CUSTOMER TRANSACTIONS - Trading for customers and
Mellon accounts should always take precedence over
associates' transactions for their own or related
accounts.
- FRONT RUNNING - Associates may not engage in "front
running," that is, the purchase or sale of securities
for their own accounts on the basis of their knowledge
of Mellon's trading positions or plans.
- INITIAL PUBLIC OFFERINGS - Mellon prohibits its
associates from acquiring any securities in an initial
public offering ("IPO").
- MARGIN TRANSACTIONS - Margin trading is a highly
leveraged and relatively risky method of investing
that can create particular problems for financial
services employees. For this reason, all associates
are urged to avoid margin trading.
Prior to establishing a margin account, the associate
must obtain the written permission of the Manager of
Corporate Compliance. Any associate having a margin
account prior to the effective date of this Policy
must notify the Manager of Corporate Compliance of the
existence of such account.
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All associates having margin accounts, other than
described below, must designate the Manager of
Corporate Compliance as an interested party on that
account. Associates must ensure that the Manager of
Corporate Compliance promptly receives copies of all
trade confirmations and statements relating to the
account directly from the broker. If requested by a
brokerage firm, please contact the Manager of
Corporate Compliance to obtain a letter (sometimes
referred to as a "407 letter") granting permission to
maintain a margin account. Trade confirmations and
statements are not required on margin accounts
established at Dreyfus Investment Services Corporation
for the sole purpose of cashless exercises of employee
stock options. In addition, products may be offered by
a broker/dealer that, because of their
characteristics, are considered margin accounts but
have been determined by the Manager of Corporate
Compliance to be outside the scope of this Policy
(e.g., a Cash Management Account which provides
overdraft protection for the customer). Any questions
regarding the establishment, use and reporting of
margin accounts should be directed to the Manager of
Corporate Compliance. Examples of an instruction
letter to a broker are shown in Exhibits B1 and B2.
- MATERIAL NONPUBLIC INFORMATION - Associates possessing
material nonpublic information regarding any issuer of
securities must refrain from purchasing or selling
securities of that issuer until the information
becomes public or is no longer considered material.
- NAKED OPTIONS, EXCESSIVE TRADING - Mellon discourages
all associates from engaging in short-term or
speculative trading, in trading naked options, in
trading that could be deemed excessive or in trading
that could interfere with an associate's job
responsibilities.
- PRIVATE PLACEMENTS - Associates are prohibited from
acquiring any security in a private placement unless
they obtain the prior written approval of the
Preclearance Compliance Officer (applicable only to
Investment Associates), the Manager of Corporate
Compliance and the associate's department head.
Approval must be given by all appropriate
aforementioned persons for the acquisition to be
considered approved. After receipt of the necessary
approvals and the acquisition, associates are required
to disclose that investment when they participate in
any subsequent consideration of an investment in the
issuer for an advised account. Final decision to
acquire such securities for an advised account will be
subject to independent review.
- SCALPING - Associates may not engage in "scalping,"
that is, the purchase or sale of securities for their
own or Mellon's accounts on the basis of knowledge of
customers' trading positions or plans or Mellon's
forthcoming investment recommendations.
- SHORT-TERM TRADING - Associates are discouraged from
purchasing and selling, or from selling and
purchasing, the same (or equivalent) securities within
60 calendar days. With respect to Investment
Associates only, any profits realized on such
short-term trades must be disgorged in accordance with
procedures established by senior management.
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SECTION SIX
CLASSIFICATION OF ASSOCIATES
Associates are engaged in a wide variety of activities
for Mellon. In light of the nature of their activities
and the impact of federal and state laws and the
regulations thereunder, the Policy imposes different
requirements and limitations on associates based on
the nature of their activities for Mellon. To assist
the associates in complying with the requirements and
limitations imposed on them in light of their
activities, associates are classified into one of
three categories: Insider Risk Associate, Investment
Associate and Other Associate. Appropriate
requirements and limitations are specified in the
Policy based upon the associate's classification.
INSIDER RISK ASSOCIATE -
You are considered to be an Insider Risk Associate if
you are:
- employed in any of the following departments or
functional areas, however named, of a Mellon entity
other than Dreyfus (see Glossary for definition of
"Dreyfus"):
- Auditing
- Capital Markets
- Corporate Affairs
- Credit Policy
- Credit Recovery
- Credit Review
- Domestic Corporate Banking
- Finance
- Institutional Banking
- International
- Leasing
- Legal
- Mellon Business Credit
- Middle Market
- Portfolio and Funds Management
- Risk Management and Compliance
- Strategic Planning
- Wholesale, Administration and Operations
- a member of the Mellon Senior Management Committee,
provided that those members of the Mellon Senior
Management Committee who have management
responsibility for fiduciary activities or who
routinely have access to information about customers'
securities transactions are considered to be
Investment Associates and are subject to those
provisions of the Policy pertaining to Investment
Associates;
- employed by a broker/dealer subsidiary of a Mellon
entity other than Dreyfus;
- an associate in the Stock Transfer business unit and
have been specifically designated as an Insider Risk
Associate by the Manager of Corporate Compliance; or
- an associate specifically designated as an Insider
Risk Associate by the Manager of Corporate Compliance.
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INVESTMENT ASSOCIATE -
You are considered to be an Investment Associate if
you are:
- a member of Mellon's Senior Management Committee who,
as part of his/her usual duties, has management
responsibility for fiduciary activities or routinely
has access to information about customers' securities
transactions;
- a Dreyfus associate;
- an associate of a Mellon entity registered under the
Investment Advisers Act of 1940;
- employed in the trust area of Mellon and:
- have the title of Vice President, First Vice
President or Senior Vice President; or
- have access to material, confidential information
regarding securities transactions by or on behalf
of Mellon customers; or
- an associate specifically designated as an Investment
Associate by the Manager of Corporate Compliance.
OTHER ASSOCIATE -
You are considered to be an Other Associate if you are
an associate of Mellon Bank Corporation or any of its
direct or indirect subsidiaries who is not either an
Insider Risk Associate or an Investment Associate.
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PART II - APPLICABLE TO INSIDER
RISK ASSOCIATES ONLY
- -----------------------------------------
PROHIBITION ON INVESTMENTS IN SECURITIES OF FINANCIAL
SERVICES ORGANIZATIONS
You are prohibited from acquiring any security issued
by a financial services organization if you are:
- a member of the Mellon Senior Management Committee.
For purposes of this restriction only, this
prohibition also applies to those members of the
Mellon Senior Management Committee who are considered
Investment Associates.
- employed in any of the following departments of a
Mellon entity other than Dreyfus (see Glossary for
definition of "Dreyfus"):
- Strategic Planning - Finance
- Institutional Banking - Legal
- an associate specifically designated by the Manager of
Corporate Compliance and informed that this
prohibition is applicable to you.
FINANCIAL SERVICES ORGANIZATIONS - The term "security
issued by a financial services organization" includes
any security issued by:
- Commercial Banks
(other than Mellon)
- Thrifts
- Insurance Companies
- Investment Advisory Companies
- Shareholder Servicing Companies
- Bank Holding Companies
(other than Mellon)
- Savings and Loan Associations
- Broker/Dealers
- Transfer Agents
- Other Depository Institutions
The term "securities issued by a financial services
organization" DOES NOT INCLUDE securities issued by
mutual funds, variable annuities or insurance
policies. Further, for purposes of determining whether
a company is a financial services organization,
subsidiaries and parent companies are treated as
separate issuers.
EFFECTIVE DATE - The foregoing restrictions will be
effective upon adoption of this Policy. Securities of
financial services organizations properly acquired
before the later of the effective date of this Policy
or the date of hire may be maintained or disposed of
at the owner's discretion.
Additional securities of a financial services
organization acquired through the reinvestment of the
dividends paid by such financial services organization
through a dividend reinvestment program (DRIP) are not
subject to this prohibition, provided your election to
participate in the DRIP predates the later of the
effective date of this Policy or date of hire.
Optional cash purchases through a DRIP are subject to
this prohibition.
Within 30 days of the later of the effective date of
this Policy or date of becoming subject to this
prohibition, all holdings of securities of financial
services organizations must be disclosed in writing to
the Manager of Corporate Compliance. Periodically, you
will be asked to file an updated disclosure of all
your holdings of securities of financial services
organizations.
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CONFLICT OF INTEREST - No Insider Risk Associate may
engage in or recommend any securities transaction that
places, or appears to place, his or her own interests
above those of any customer to whom investment
services are rendered, including mutual funds and
managed accounts, or above the interests of Mellon.
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS -
All Insider Risk Associates must notify the Manager of
Corporate Compliance in writing and receive
preclearance before they engage in any purchase or
sale of a security. Insider Risk Associates should
refer to the provisions under "Beneficial Ownership"
(Section Four, "Restrictions on Transactions in Mellon
Securities"), which are equally applicable to these
provisions.
EXEMPTIONS FROM REQUIREMENT TO PRECLEAR - Preclearance
is NOT required for the following transactions:
- purchases or sales of Exempt Securities (see
Glossary);
- purchases or sales of municipal bonds;
- purchases or sales effected in any account over which
an associate has no direct or indirect control over
the investment decision-making process (e.g.,
nondiscretionary trading accounts). Nondiscretionary
trading accounts may only be maintained, without being
subject to preclearance procedures, when the Manager
of Corporate Compliance, after a thorough review, is
satisfied that the account is truly nondiscretionary;
- transactions that are non-volitional on the part of an
associate (such as stock dividends);
- the sale of stock received upon the exercise of an
associate stock option if the sale is part of a
"netting of shares" or "cashless exercise"
administered by the Human Resources Department (for
which the Human Resources Department will forward
information to the Manager of Corporate Compliance);
- the automatic reinvestment of dividends under a DRIP
(preclearance is required for OPTIONAL cash purchases
under a DRIP);
- purchases effected upon the exercise of rights issued
by an issuer pro rata to all holders of a class of
securities, to the extent such rights were acquired
from such issuer;
- sales of rights acquired from an issuer, as described
above; and/or
- those situations where the Manager of Corporate
Compliance determines, after taking into consideration
the particular facts and circumstances, that prior
approval is not necessary.
REQUESTS FOR PRECLEARANCE - All requests for
preclearance for a securities transaction shall be
submitted to the Manager of Corporate Compliance by
completing a Preclearance Request Form (see Exhibit
C1).
The Manager of Corporate Compliance will notify the
Insider Risk Associate whether the request is approved
or denied, without disclosing the reason for such
approval or denial.
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Notifications may be given in writing or verbally by
the Manager of Corporate Compliance to the Insider
Risk Associate. A record of such notification will be
maintained by the Manager of Corporate Compliance.
However, it shall be the responsibility of the Insider
Risk Associate to obtain a written record of the
Manager of Corporate Compliance's notification within
24 hours of such notification. The Insider Risk
Associate should retain a copy of this written record.
As there could be many reasons for preclearance being
granted or denied, Insider Risk Associates should not
infer from the preclearance response anything
regarding the security for which preclearance was
requested.
Although making a preclearance request does not
obligate an Insider Risk Associate to do the
transaction, it should be noted that:
- preclearance authorization will expire at the end of
the third business day after it is received (the day
authorization is granted is considered the first
business day);
- preclearance requests should not be made for a
transaction that the Insider Risk Associate does not
intend to make; and
- Insider Risk Associates should not discuss with anyone
else, inside or outside Mellon, the response they
received to a preclearance request.
Every Insider Risk Associate must follow these
procedures or risk serious sanctions, including
dismissal. If you have any questions about these
procedures you should consult the Manager of Corporate
Compliance. Interpretive issues that arise under these
procedures shall be decided by, and are subject to the
discretion of, the Manager of Corporate Compliance.
RESTRICTED LIST - The Manager of Corporate Compliance
will maintain a list (the "Restricted List") of
companies whose securities are deemed appropriate for
implementation of trading restrictions for Insider
Risk Associates. Restricted List(s) will not be
distributed outside of the Risk Management and
Compliance Department. From time to time, such trading
restrictions may be appropriate to protect Mellon and
its Insider Risk Associates from potential violations,
or the appearance of violations, of securities laws.
The inclusion of a company on the Restricted List
provides no indication of the advisability of an
investment in the company's securities or the
existence of material nonpublic information on the
company. Nevertheless, the contents of the Restricted
List will be treated as confidential information to
avoid unwarranted inferences.
To assist the Manager of Corporate Compliance in
identifying companies that may be appropriate for
inclusion on the Restricted List, the department heads
of sections in which Insider Risk Associates are
employed will inform the Manager of Corporate
Compliance in writing of any companies they believe
should be included on the Restricted List, based upon
facts known or readily available to such department
heads. Although the reasons for inclusion on the
Restricted List may vary, they could typically include
the following:
- Mellon is involved as a lender, investor or adviser in
a merger, acquisition or financial restructuring
involving the company;
- Mellon is involved as a selling shareholder in a
public distribution of the company's securities;
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<PAGE>
- Mellon is involved as an agent in the distribution of
the company's securities;
- Mellon has received material nonpublic information on
the company;
- Mellon is considering the exercise of significant
creditors' rights against the company; or
- The company is a Mellon borrower in Credit Recovery.
Department heads of sections in which Insider Risk
Associates are employed are also responsible for
notifying the Manager of Corporate Compliance in
writing of any change in circumstances making it
appropriate to remove a company from the Restricted
List.
PERSONAL SECURITIES TRANSACTIONS REPORTS
- BROKERAGE ACCOUNTS - All Insider Risk Associates are
required to instruct their brokers to submit directly
to the Manager of Corporate Compliance copies of all
trade confirmations and statements relating to their
account. An example of an instruction letter to a
broker is contained in Exhibit B1.
- REPORT OF TRANSACTIONS IN MELLON SECURITIES - Insider
Risk Associates must also report in writing to the
Manager of Corporate Compliance within ten calendar
days whenever they purchase or sell Mellon securities
if the transaction was not through a brokerage account
as described above. Purchases and sales of Mellon
securities include the following:
DRIP OPTIONAL CASH PURCHASES - Optional cash purchases
under Mellon's Dividend Reinvestment and Common Stock
Purchase Plan (the "Mellon DRIP").
STOCK OPTIONS - The sale of stock received upon the
exercise of an associate stock option unless the sale
is part of a "netting of shares" or "cashless
exercise" administered by the Human Resources
Department (for which the Human Resources Department
will forward information to the Manager of Corporate
Compliance).
It should be noted that the reinvestment of dividends
under the DRIP, changes in elections under Mellon's
Retirement Savings Plan, the receipt of stock under
Mellon's Restricted Stock Award Plan and the receipt
or exercise of options under Mellon's Long-Term Profit
Incentive Plan are not considered purchases or sales
for the purpose of this reporting requirement.
An example of a written report to the Manager of
Corporate Compliance is contained in Exhibit A.
CONFIDENTIAL TREATMENT
THE MANAGER OF CORPORATE COMPLIANCE WILL USE HIS OR
HER BEST EFFORTS TO ASSURE THAT ALL REQUESTS FOR
PRECLEARANCE, ALL PERSONAL SECURITIES TRANSACTION
REPORTS AND ALL REPORTS OF SECURITIES HOLDINGS ARE
TREATED AS "PERSONAL AND CONFIDENTIAL." HOWEVER, SUCH
DOCUMENTS WILL BE AVAILABLE FOR INSPECTION BY
APPROPRIATE REGULATORY AGENCIES AND BY OTHER PARTIES
WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO EVALUATE
COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
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PART III - APPLICABLE TO
INVESTMENT ASSOCIATES ONLY
- -----------------------------------------
Because of their particular responsibilities,
Investment Associates are subject to different
preclearance and personal securities reporting
requirements as discussed below.
SPECIAL STANDARDS OF CONDUCT FOR INVESTMENT ASSOCIATES
CONFLICT OF INTEREST - No Investment Associate may
recommend a securities transaction for a Mellon
customer to whom a fiduciary duty is owed, or for
Mellon, without disclosing any interest he or she has
in such securities or issuer (other than an interest
in publicly traded securities where the total
investment is equal to or less than $25,000),
including:
- any direct or indirect beneficial ownership of any
securities of such issuer;
- any contemplated transaction by the Investment
Associate in such securities;
- any position with such issuer or its affiliates; and
- any present or proposed business relationship between
such issuer or its affiliates and the Investment
Associate or any party in which the Investment
Associate has a beneficial ownership interest (see
"Beneficial Ownership" in Section Four, "Restrictions
On Transactions in Mellon Securities").
PORTFOLIO INFORMATION - No Investment Associate may
divulge the current portfolio positions, or current or
anticipated portfolio transactions, programs or
studies, of Mellon or any Mellon customer to anyone
unless it is properly within his or her job
responsibilities to do so.
MATERIAL NONPUBLIC INFORMATION - No Investment
Associate may engage in or recommend a securities
transaction, for his or her own benefit or for the
benefit of others, including Mellon or its customers,
while in possession of material nonpublic information
regarding such securities. No Investment Associate may
communicate material nonpublic information to others
unless it is properly within his or her job
responsibilities to do so.
SHORT-TERM TRADING - Any Investment Associate who
purchases and sells, or sells and purchases, the same
(or equivalent) securities within any 60-calendar-day
period is required to disgorge all profits realized on
such transaction in accordance with procedures
established by senior management. For this purpose,
securities will be deemed to be equivalent if one is
convertible into the other, if one entails a right to
purchase or sell the other, or if the value of one is
expressly dependent on the value of the other (e.g.,
derivative securities).
ADDITIONAL RESTRICTIONS FOR DREYFUS ASSOCIATES AND
ASSOCIATES OF MELLON ENTITIES REGISTERED UNDER THE
INVESTMENT ADVISERS ACT OF 1940 ONLY ("40 Act
Associates")
- OUTSIDE ACTIVITIES - No 40 Act associate may serve on
the board of directors/trustees or as a general
partner of any publicly traded company (other than
Mellon) without the prior approval of the Manager of
Corporate Compliance.
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- GIFTS - All 40 Act associates are prohibited from
accepting gifts from outside companies, or their
representatives, with an exception for gifts of (1) a
DE MINIMIS value and (2) an occasional meal, a ticket
to a sporting event or the theater, or comparable
entertainment for the 40 Act associate and, if
appropriate, a guest, which is neither so frequent nor
extensive as to raise any question of impropriety. A
gift shall be considered DE MINIMIS if it does not
exceed an annual amount per person fixed periodically
by the National Association of Securities Dealers,
which is currently $100 per person.
- BLACKOUT PERIOD - 40 Act associates will not be given
clearance to execute a transaction in any security
that is being considered for purchase or sale by an
affiliated investment company, managed account or
trust, for which a pending buy or sell order for such
affiliated account is pending, and for two business
days after the transaction in such security for such
affiliated account has been effected. This provision
does not apply to transactions effected or
contemplated by index funds.
In addition, portfolio managers for the investment
companies are prohibited from buying or selling a
security within seven calendar days before and after
such investment company trades in that security. Any
violation of the foregoing will require the violator
to disgorge all profit realized with respect to such
transaction.
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS -
All Investment Associates must notify the Preclearance
Compliance Officer (see Glossary) in writing and
receive preclearance BEFORE they engage in any
purchase or sale of a security.
EXEMPTIONS FROM REQUIREMENT TO PRECLEAR - Preclearance
is not required for the following transactions:
- purchases or sales of "Exempt Securities" (see
Glossary);
- purchases or sales effected in any account over which
an associate has no direct or indirect control over
the investment decision-making process (i.e.,
nondiscretionary trading accounts). Nondiscretionary
trading accounts may only be maintained, without being
subject to preclearance procedures, when the
Preclearance Compliance Officer, after a thorough
review, is satisfied that the account is truly
nondiscretionary;
- transactions which are non-volitional on the part of
an associate (such as stock dividends);
- the sale of stock received upon the exercise of an
associate stock option if the sale is part of a
"netting of shares" or "cashless exercise"
administered by the Human Resources Department (for
which the Human Resources Department will forward
information to the manager of Corporate Compliance);
- purchases which are part of an automatic reinvestment
of dividends under a DRIP (Preclearance is required
for OPTIONAL cash purchases under a DRIP);
- purchases effected upon the exercise of rights issued
by an issuer PRO RATA to all holders of a class of
securities, to the extent such rights were acquired
from such issuer;
- sales of rights acquired from an issuer, as described
above; and/or
- those situations where the Preclearance Compliance
Officer determines, after taking into consideration
the particular facts and circumstances, that prior
approval is not necessary.
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CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
REQUESTS FOR PRECLEARANCE - All requests for
preclearance for a securities transaction shall be
submitted to the Preclearance Compliance Officer by
completing a Preclearance Request Form. (Investment
Associates other than Dreyfus associates are to use
the Preclearance Request Form shown as Exhibit C1.
Dreyfus associates are to use the Preclearance Request
Form shown as Exhibit C2.)
The Preclearance Compliance Officer will notify the
Investment Associate whether the request is approved
or denied without disclosing the reason for such
approval or denial.
Notifications may be given in writing or verbally by
the Preclearance Compliance Officer to the Investment
Associate. A record of such notification will be
maintained by the Preclearance Compliance Officer.
However, it shall be the responsibility of the
Investment Associate to obtain a written record of the
Preclearance Compliance Officer's notification within
24 hours of such notification. The Investment
Associate should retain a copy of this written record.
As there could be many reasons for preclearance being
granted or denied, Investment Associates should not
infer from the preclearance response anything
regarding the security for which preclearance was
requested.
Although making a preclearance request does not
obligate an Investment Associate to do the
transaction, it should be noted that:
- preclearance authorization will expire at the end of
the day on which preclearance is given;
- preclearance requests should not be made for a
transaction that the Investment Associate does not
intend to make; and
- Investment Associates should not discuss with anyone
else, inside or outside Mellon, the response the
Investment Associate received to a preclearance
request.
Every Investment Associate must follow these
procedures or risk serious sanctions, including
dismissal. If you have any questions about these
procedures, consult the Preclearance Compliance
Officer. Interpretive issues that arise under these
procedures shall be decided by, and are subject to the
discretion of, the Manager of Corporate Compliance.
RESTRICTED LIST - Each Preclearance Compliance Officer
will maintain a list (the "Restricted List") of
companies whose securities are deemed appropriate for
implementation of trading restrictions for Investment
Associates in their area. From time to time, such
trading restrictions may be appropriate to protect
Mellon and its Investment Associates from potential
violations, or the appearance of violations, of
securities laws. The inclusion of a company on the
Restricted List provides no indication of the
advisability of an investment in the company's
securities or the existence of material nonpublic
information on the company. Nevertheless, the contents
of the Restricted List will be treated as confidential
information in order to avoid unwarranted inferences.
In order to assist the Preclearance Compliance Officer
in identifying companies that may be appropriate for
inclusion on the Restricted List, the head of the
entity/department/area in which Investment Associates
are employed will inform the appropriate Preclearance
Compliance Officer in writing of any companies that
they believe should be included on the Restricted List
based upon facts known or readily available to such
department heads.
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CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
PERSONAL SECURITIES TRANSACTIONS REPORTS
- BROKERAGE ACCOUNTS - All Investment Associates are
required to instruct their brokers to submit directly
to the Manager of Corporate Compliance copies of all
trade confirmations and statements relating to their
account. Examples of instruction letters to a broker
are contained in Exhibits B1 and B2.
- REPORT OF TRANSACTIONS IN MELLON SECURITIES -
Investment Associates must also report in writing to
the Manager of Corporate Compliance within ten
calendar days whenever they purchase or sell Mellon
securities if the transaction was not through a
brokerage account as described above. Purchases and
sales of Mellon securities include the following:
DRIP OPTIONAL CASH PURCHASES - Optional cash purchases
under Mellon's Dividend Reinvestment and Common Stock
Purchase Plan (the "Mellon DRIP").
STOCK OPTIONS - The sale of stock received upon the
exercise of an associate stock option unless the sale
is part of a "netting of shares" or "cashless
exercise" administered by the Human Resources
Department (for which the Human Resources Department
will forward information to the Manager of Corporate
Compliance).
It should be noted that the reinvestment of dividends
under the DRIP, changes in elections under Mellon's
Retirement Savings Plan, the receipt of stock under
Mellon's Restricted Stock Award Plan, and the receipt
or exercise of options under Mellon's Long-Term Profit
Incentive Plan are not considered purchases or sales
for the purpose of this reporting requirement.
An example of a written report to the Manager of
Corporate Compliance is contained in Exhibit A.
- STATEMENT OF SECURITIES HOLDINGS - Within ten days of
receiving this Policy and on an annual basis
thereafter, all Investment Associates must submit to
the Manager of Corporate Compliance a statement of all
securities in which they presently have any direct or
indirect beneficial ownership other than Exempt
Securities, as defined in the Glossary. Investment
Associates should refer to "Beneficial Ownership" in
Section Four, "Restrictions on Transactions in Mellon
Securities," which is also applicable to Investment
Associates. Such statements should be in the format
shown in Exhibit D. The annual report must be
submitted by January 31 and must report all securities
holdings other than Exempt Securities. The annual
statement of securities holdings contains an
acknowledgment that the Investment Associate has read
and complied with this Policy.
- SPECIAL REQUIREMENT WITH RESPECT TO AFFILIATED
INVESTMENT COMPANIES - The portfolio managers,
research analysts and other Investment Associates
specifically designated by the Manager of Corporate
Compliance are required within ten calendar days of
receiving this Policy (and by no later than ten
calendar days after the end of each calendar quarter)
to report every transaction in the securities issued
by an affiliated investment company occurring in an
account in which the Investment Associate has a
beneficial ownership interest. The quarterly reporting
requirement may be satisfied by notifying the Manager
of Corporate Compliance of the name of the investment
company, account name and account number for which
such quarterly reports must be submitted.
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<PAGE>
CONFIDENTIAL TREATMENT
THE PRECLEARANCE COMPLIANCE OFFICER WILL USE HIS OR
HER BEST EFFORTS TO ASSURE THAT ALL REQUESTS FOR
PRECLEARANCE, ALL PERSONAL SECURITIES TRANSACTION
REPORTS AND ALL REPORTS OF SECURITIES HOLDINGS ARE
TREATED AS "PERSONAL AND CONFIDENTIAL." HOWEVER, SUCH
DOCUMENTS WILL BE AVAILABLE FOR INSPECTION BY
APPROPRIATE REGULATORY AGENCIES, AND BY OTHER PARTIES
WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO EVALUATE
COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
DOCUMENTS RECEIVED FROM DREYFUS ASSOCIATES ARE ALSO
AVAILABLE FOR INSPECTION BY THE BOARDS OF DIRECTORS OF
DREYFUS AND BY THE BOARDS OF DIRECTORS (OR TRUSTEES OR
MANAGING GENERAL PARTNERS, AS APPLICABLE) OF THE
INVESTMENT COMPANIES MANAGED OR ADMINISTERED BY
DREYFUS.
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<PAGE>
PART IV - APPLICABLE TO
OTHER ASSOCIATES ONLY
- -----------------------------------------
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS -
Except for private placements, Other Associates ARE
PERMITTED to engage in personal securities
transactions without obtaining prior approval from the
Manager of Corporate Compliance (for preclearance of
private placements, use the Preclearance Request Form
shown as Exhibit C1.)
PERSONAL SECURITIES TRANSACTIONS REPORTS - Other
Associates are NOT required to report their personal
securities transactions OTHER THAN margin transactions
and transactions involving Mellon securities as
discussed below. Other Associates are required to
instruct their brokers to submit directly to the
Manager of Corporate Compliance copies of all
confirmations and statements pertaining to margin
accounts. Examples of an instruction letter to a
broker are shown in Exhibit B1.
REPORT OF TRANSACTIONS IN MELLON SECURITIES - Other
Associates must report in writing to the Manager of
Corporate Compliance within ten calendar days whenever
they purchase or sell Mellon securities. Purchases and
sales of Mellon securities include the following:
- DRIP OPTIONAL CASH PURCHASES - Optional cash purchases
under Mellon's Dividend Reinvestment and Common Stock
Purchase Plan (the "Mellon DRIP").
- STOCK OPTIONS - The sale of stock received upon the
exercise of an associate stock option unless the sale
is part of a "netting of shares" or "cashless
exercise" administered by the Human Resources
Department (for which the Human Resources Department
will forward information to the Manager of Corporate
Compliance).
It should be noted that the reinvestment of dividends
under the DRIP, changes in elections under Mellon's
Retirement Savings Plan, the receipt of stock under
Mellon's Restricted Stock Award Plan and the receipt
or exercise of options under Mellon's Long-Term Profit
Incentive Plan are not considered purchases or sales
for the purpose of this reporting requirement.
An example of a written report to the Manager of
Corporate Compliance is contained in Exhibit A.
RESTRICTIONS ON TRANSACTIONS IN OTHER SECURITIES
MARGIN TRANSACTIONS - Prior to establishing a margin
account, Other Associates must obtain the written
permission of the Manager of Corporate Compliance.
Other Associates having a margin account prior to the
effective date of this Policy must notify the Manager
of Corporate Compliance of the existence of such
account.
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CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
All associates having margin accounts, other than
described below, must designate the Manager of
Corporate Compliance as an interested party on each
account. Associates must ensure that the Manager of
Corporate Compliance promptly receives copies of all
trade confirmations and statements relating to the
accounts directly from the broker. If requested by a
brokerage firm, please contact the Manager of
Corporate Compliance to obtain a letter (sometimes
referred to as a "407 letter") granting permission to
maintain a margin account. Trade confirmations and
statements are not required on margin accounts
established at Dreyfus Investment Services Corporation
for the sole purpose of cashless exercises of Mellon
employee stock options. In addition, products may be
offered by a broker/dealer that, because of their
characteristics, are considered margin accounts but
have been determined by the Manager of Corporate
Compliance to be outside the scope of this Policy
(e.g., a Cash Management account which provides
overdraft protection for the customer). Any questions
regarding the establishment, use and reporting of
margin accounts should be directed to the Manager of
Corporate Compliance. An example of an instruction
letter to a broker is shown in Exhibit B1.
PRIVATE PLACEMENTS - Other Associates are prohibited
from acquiring any security in a private placement
unless they obtain the prior written approval of the
Manager of Corporate Compliance and the Associate's
department head. Approval must be given by both of the
aforementioned persons for the acquisition to be
considered approved.
As there could be many reasons for preclearance being
granted or denied, Other Associates should not infer
from the preclearance response anything regarding the
security for which preclearance was requested.
Although making a preclearance request does not
obligate an Other Associate to do the transaction, it
should be noted that:
- preclearance authorization will expire at the end of
the third business day after it is received (the day
authorization is granted is considered the first
business day);
- preclearance requests should not be made for a
transaction that the Other Associate does not intend
to make; and
- Other Associates should not discuss with anyone else,
inside or outside Mellon, the response they received
to a preclearance request.
Every Other Associate must follow these procedures or
risk serious sanctions, including dismissal. If you
have any questions about these procedures you should
consult the Manager of Corporate Compliance.
Interpretive issues that arise under these procedures
shall be decided by, and are subject to the discretion
of, the Manager of Corporate Compliance.
CONFIDENTIAL TREATMENT
THE MANAGER OF CORPORATE COMPLIANCE WILL USE HIS OR
HER BEST EFFORTS TO ASSURE THAT ALL REQUESTS FOR
PRECLEARANCE, ALL PERSONAL SECURITIES TRANSACTION
REPORTS AND ALL REPORTS OF SECURITIES HOLDINGS ARE
TREATED AS "PERSONAL AND CONFIDENTIAL." HOWEVER, SUCH
DOCUMENTS WILL BE AVAILABLE FOR INSPECTION BY
APPROPRIATE REGULATORY AGENCIES AND OTHER PARTIES
WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO EVALUATE
COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
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<PAGE>
PART V - APPLICABLE TO
NONMANAGEMENT BOARD MEMBER
- -----------------------------------------
NONMANAGEMENT BOARD MEMBER -
You are considered to be a Nonmanagement Board Member
if you are:
- a director of Dreyfus who is not also an officer or
employee of Dreyfus ("Dreyfus Board Member"); or
- a director, trustee or managing general partner of any
investment company who is not also an officer or
employee of Dreyfus ("Mutual Fund Board Member").
The term "Independent" Mutual Fund Board Member means
those Mutual Fund Board Members who are NOT deemed
"interested persons" of an investment company, as
defined by the Investment Company Act of 1940, as
amended.
STANDARDS OF CONDUCT FOR NONMANAGEMENT BOARD MEMBER
OUTSIDE ACTIVITIES - Nonmanagement Board Members are
prohibited from:
- accepting nomination or serving as a director, trustee
or managing general partner of an investment company
not advised by Dreyfus, WITHOUT the express prior
approval of the board of directors of Dreyfus and the
board of directors/trustees or managing general
partners of the pertinent Dreyfus-managed fund(s) for
which a Nonmanagement Board Member serves as a
director, trustee or managing general partner;
- accepting employment with or acting as a consultant to
any person acting as a registered investment adviser
to an investment company without the express prior
approval of the board of directors of Dreyfus;
- owning Mellon securities if the Nonmanagement Board
Member is an "Independent" Mutual Fund Board Member,
(since that would destroy his or her "independent"
status); and/or
- buying or selling Mellon's publicly traded securities
during a blackout period, which begins the 16th day of
the last month of each calendar quarter and ends three
business days after Mellon publicly announces the
financial results for that quarter.
INSIDER TRADING AND TIPPING - The provisions set forth
in Section Two, "Insider Trading and Tipping," are
applicable to Nonmanagement Board Members.
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<PAGE>
CONFLICT OF INTEREST - No Nonmanagement Board Member
may recommend a securities transaction for Mellon,
Dreyfus or any Dreyfus-managed fund without disclosing
any interest he or she has in such securities or
issuer thereof (other than an interest in publicly
traded securities where the total investment is less
than or equal to $25,000), including:
- any direct or indirect beneficial ownership of any
securities of such issuer;
- any contemplated transaction by the Nonmanagement
Board Member in such securities;
- any position with such issuer or its affiliates; and
- any present or proposed business relationship between
such issuer or its affiliates and the Nonmanagement
Board Member or any party in which the Nonmanagement
Board Member has a beneficial ownership interest (see
"Beneficial Ownership", Section Four, "Restrictions on
Transaction in Mellon Securities").
PORTFOLIO INFORMATION - No Nonmanagement Board Member
may divulge the current portfolio positions, or
current or anticipated portfolio transactions,
programs or studies, of Mellon, Dreyfus or any
Dreyfus-managed fund, to anyone unless it is properly
within his or her responsibilities as a Nonmanagement
Board Member to do so.
MATERIAL NONPUBLIC INFORMATION - No Nonmanagement
Board Member may engage in or recommend any securities
transaction, for his or her own benefit or for the
benefit of others, including Mellon, Dreyfus or any
Dreyfus-managed fund, while in possession of material
nonpublic information. No Nonmanagement Board Member
may communicate material nonpublic information to
others unless it is properly within his or her
responsibilities as a Nonmanagement Board Member to do
so.
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS -
Nonmanagement Board Members ARE PERMITTED to engage in
personal securities transactions without obtaining
prior approval from the Preclearance Compliance
Officer.
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<PAGE>
PERSONAL SECURITY TRANSACTIONS REPORTS -
- "INDEPENDENT" MUTUAL FUND BOARD MEMBERS - Any
"Independent" Mutual Fund Board Members, as defined
above, who effects a securities transaction where he
or she knew, or in the ordinary course of fulfilling
his or her official duties should have known, that
during the 15-day period immediately preceding or
after the date of such transaction, the same security
was purchased or sold, or was being considered for
purchase or sale by Dreyfus (including any investment
company or other account managed by Dreyfus), are
required to report such personal securities
transaction. In the event a personal securities
transaction report is required, it must be submitted
to the Preclearance Compliance Officer not later than
ten days after the end of the calendar quarter in
which the transaction to which the report relates was
effected. The report must include the date of the
transaction, the title and number of shares or
principal amount of the security, the nature of the
transaction (e.g., purchase, sale or any other type of
acquisition or disposition), the price at which the
transaction was effected and the name of the broker or
other entity with or through whom the transaction was
effected. This reporting requirement can be satisfied
by sending a copy of the confirmation statement
regarding such transactions to the Preclearance
Compliance Officer within the time period specified.
Notwithstanding the foregoing, personal securities
transaction reports are NOT required with respect to
any securities transaction described in "Exemption
from the Requirement to Preclear" in Part III.
- DREYFUS BOARD MEMBERS AND "INTERESTED" MUTUAL FUND
BOARD MEMBERS - Dreyfus Board Members and Mutual Fund
Board Members who are "interested persons" of an
investment company, as defined by the Investment
Company Act of 1940, are required to report their
personal securities transactions. Personal securities
transaction reports are required with respect to any
securities transaction other than those described in
"Exemptions from Requirement to Preclear" on Page 21.
Personal securities transaction reports are required
to be submitted to the Preclearance Compliance Officer
not later than ten days after the end of the calendar
quarter in which the transaction to which the report
relates was effected. The report must include the date
of the transaction, the title and number of shares or
principal amount of the security, the nature of the
transaction (e.g., purchase, sale or any other type of
acquisition or disposition), the price at which the
transaction was effected and the name of the broker or
other entity with or through whom the transaction was
effected. This reporting requirement can be satisfied
by sending a copy of the confirmation statement
regarding such transactions to the Preclearance
Compliance Officer within the time period specified.
CONFIDENTIAL TREATMENT
THE PRECLEARANCE COMPLIANCE OFFICER WILL USE HIS OR
HER BEST EFFORTS TO ASSURE THAT ALL PERSONAL
SECURITIES TRANSACTION REPORTS ARE TREATED AS
"PERSONAL AND CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS
WILL BE AVAILABLE FOR INSPECTION BY APPROPRIATE
REGULATORY AGENCIES AND OTHER PARTIES WITHIN AND
OUTSIDE MELLON AS ARE NECESSARY TO EVALUATE COMPLIANCE
WITH OR SANCTIONS UNDER THIS POLICY.
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<PAGE>
GLOSSARY
- -----------------------------------------
DEFINITIONS
- APPROVAL - written consent or written notice of
nonobjection.
- ASSOCIATE - any employee of Mellon Bank Corporation or
its direct or indirect subsidiaries; does not include
outside consultants or temporary help.
- BENEFICIAL OWNERSHIP - securities owned of record or
held in the associate's name are generally considered
to be beneficially owned by the associate.
Securities held in the name of any other person are
deemed to be beneficially owned by the associate if by
reason of any contract, understanding, relationship,
agreement or other arrangement, the associate obtains
therefrom benefits substantially equivalent to those
of ownership, including the power to vote, or to
direct the disposition of, such securities. Beneficial
ownership includes securities held by others for the
associate's benefit (regardless of record ownership),
e.g. securities held for the associate or members of
the associate's immediate family, defined below, by
agents, custodians, brokers, trustees, executors or
other administrators; securities owned by the
associate, but which have not been transferred into
the associate's name on the books of the company;
securities which the associate has pledged; or
securities owned by a corporation that should be
regarded as the associate's personal holding
corporation. As a natural person, beneficial ownership
is deemed to include securities held in the name or
for the benefit of the associate's immediate family,
which includes the associate's spouse, the associate's
minor children and stepchildren and the associate's
relatives or the relatives of the associate's spouse
who are sharing the associate's home, unless because
of countervailing circumstances, the associate does
not enjoy benefits substantially equivalent to those
of ownership. Benefits substantially equivalent to
ownership include, for example, application of the
income derived from such securities to maintain a
common home, meeting expenses that such person
otherwise would meet from other sources, and the
ability to exercise a controlling influence over the
purchase, sale or voting of such securities. An
associate is also deemed the beneficial owner of
securities held in the name of some other person, even
though the associate does not obtain benefits of
ownership, if the associate can vest or revest title
in himself at once, or at some future time.
In addition, a person will be deemed the beneficial
owner of a security if he has the right to acquire
beneficial ownership of such security at any time
(within 60 days) including but not limited to any
right to acquire: (1) through the exercise of any
option, warrant or right; (2) through the conversion
of a security; or (3) pursuant to the power to revoke
a trust, nondiscretionary account or similar
arrangement.
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<PAGE>
With respect to ownership of securities held in trust,
beneficial ownership includes ownership of securities
as a trustee in instances where either the associate
as trustee or a member of the associate's "immediate
family" has a vested interest in the income or corpus
of the trust, the ownership by the associate of a
vested beneficial interest in the trust and the
ownership of securities as a settlor of a trust in
which the associate as the settlor has the power to
revoke the trust without obtaining the consent of the
beneficiaries. Certain exemptions to these trust
beneficial ownership rules exist, including an
exemption for instances where beneficial ownership is
imposed solely by reason of the associate being
settlor or beneficiary of the securities held in trust
and the ownership, acquisition and disposition of such
securities by the trust is made without the
associate's prior approval as settlor or beneficiary.
"Immediate family" of an associate as trustee means
the associate's son or daughter (including any legally
adopted children) or any descendant of either, the
associate's stepson or stepdaughter, the associate's
father or mother or any ancestor of either, the
associate's stepfather or stepmother and his spouse.
To the extent that stockholders of a company use it as
a personal trading or investment medium and the
company has no other substantial business,
stockholders are regarded as beneficial owners, to the
extent of their respective interests, of the stock
thus invested or traded in. A general partner in a
partnership is considered to have indirect beneficial
ownership in the securities held by the partnership to
the extent of his pro rata interest in the
partnership. Indirect beneficial ownership is not,
however, considered to exist solely by reason of an
indirect interest in portfolio securities held by any
holding company registered under the Public Utility
Holding Company Act of 1935, a pension or retirement
plan holding securities of an issuer whose employees
generally are beneficiaries of the plan and a business
trust with over 25 beneficiaries.
Any person who, directly or indirectly, creates or
uses a trust, proxy, power of attorney, pooling
arrangement or any other contract, arrangement or
device with the purpose or effect of divesting such
person of beneficial ownership as part of a plan or
scheme to evade the reporting requirements of the
Securities Exchange Act of 1934 shall be deemed the
beneficial owner of such security.
The final determination of beneficial ownership is a
question to be determined in light of the facts of a
particular case. Thus, while the associate may include
security holdings of other members of his family, the
associate may nonetheless disclaim beneficial
ownership of such securities.
- "CHINESE WALL" POLICY - procedures designed to
restrict the flow of information within Mellon from
units or individuals who are likely to receive
material nonpublic information to units or individuals
who trade in securities or provide investment advice.
(see pages 12-14).
- CORPORATION - Mellon Bank Corporation.
- DREYFUS - The Dreyfus Corporation and its
subsidiaries.
- DREYFUS ASSOCIATE - any employee of Dreyfus; does not
include outside consultants or temporary help.
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<PAGE>
- EXEMPT SECURITIES - Exempt Securities are defined as:
- securities issued or guaranteed by the United
States government or agencies or instrumentalities;
- bankers' acceptances;
- bank certificates of deposit and time deposits;
- commercial paper;
- repurchase agreements; and
- securities issued by open-end investment companies.
- GENERAL COUNSEL - General Counsel of Mellon Bank
Corporation or any person to whom relevant authority
is delegated by the General Counsel.
- INDEX FUND - an investment company which seeks to
mirror the performance of the general market by
investing in the same stocks (and in the same
proportion) as a broad-based market index.
- INITIAL PUBLIC OFFERING (IPO) - the first offering of
a company's securities to the public.
- INVESTMENT COMPANY - a company that issues securities
that represent an undivided interest in the net assets
held by the company. Mutual funds are investment
companies that issue and sell redeemable securities
representing an undivided interest in the net assets
of the company.
- MANAGER OF CORPORATE COMPLIANCE - - the associate
within the Risk Management and Compliance Department
of Mellon Bank Corporation who is responsible for
administering the Confidential Information and
Securities Trading Policy, or any person to whom
relevant authority is delegated by the Manager of
Corporate Compliance.
- MELLON - Mellon Bank Corporation and all of its direct
and indirect subsidiaries.
- NAKED OPTION - an option sold by the investor which
obligates him or her to sell a security which he or
she does not own.
- NONDISCRETIONARY TRADING ACCOUNT - an account over
which the associated person has no direct or indirect
control over the investment decision-making process.
- OPTION - a security which gives the investor the right
but not the obligation to buy or sell a specific
security at a specified price within a specified time.
- PRECLEARANCE COMPLIANCE OFFICER - a person designated
by the Manager of Corporate Compliance, to administer,
among other things, associates' preclearance request
for a specific business unit.
- PRIVATE PLACEMENT - an offering of securities that is
exempt from registration under the Securities Act of
1933 because it does not constitute a public offering.
- SENIOR MANAGEMENT COMMITTEE - the Senior Management
Committee of Mellon Bank Corporation.
- SHORT SALE - the sale of a security that is not owned
by the seller at the time of the trade.
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<PAGE>
INDEX OF EXHIBITS
- -----------------------------------------
EXHIBIT A SAMPLE REPORT TO MANAGER OF CORPORATE COMPLIANCE
EXHIBIT B SAMPLE INSTRUCTION LETTER TO BROKER
EXHIBIT C PRECLEARANCE REQUEST FORM
EXHIBIT D PERSONAL SECURITIES HOLDINGS FORM
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CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
EXHIBIT A
- -----------------------------------------
SAMPLE REPORT TO MANAGER OF CORPORATE COMPLIANCE
- --------------------------------------------------------------------------------
MELLON INTEROFFICE
MEMORANDUM
Date: From: Associate
To: Manager, Corporate Compliance Dept:
Aim #:
Aim #: 151-4342 Phone:
Fax:
- --------------------------------------------------------------------------------
RE: REPORT OF SECURITIES TRADE
Type of Associate: ____________ Insider Risk
____________ Investment
____________ Other
Type of Security: ____________ Mellon Bank Corporation
____________ Mellon Bank Corporation -
optional cash purchases under
Dividend Reinvestment and Common
Stock Purchase Plan
____________ Mellon Bank Corporation -
exercise of an employee stock
option
Attached is a copy of the confirmation slip for a securities trade
I engaged in on _____________________, 19xx.
or
On __________________, 19xx, I (purchased/sold) ____________________
shares of ___________________________ through (broker). I will
arrange to have a copy of the confirmation slip for this trade
delivered to you as soon as possible.
- --------------------------------------------------------------------------------
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CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
EXHIBIT B1
- -----------------------------------------
FOR NON-DREYFUS ASSOCIATES
- --------------------------------------------------------------------------------
Date
Broker ABC
Street Address
City, State ZIP
Re: John Smith & Mary Smith
Account No. xxxxxxxxxxxxx
In connection with my existing brokerage accounts at your firm noted
above, please be advised that the Risk Management and Compliance
Department of Mellon Bank should be noted as an "Interested Party"
with respect to my accounts. They should, therefore, be sent copies
of all trade confirmations and account statements relating to my
account.
Please send the requested documentation ensuring the account
holder's name appears on all correspondence to:
Manager, Corporate Compliance
Mellon Bank
P.O. Box 3130
Pittsburgh, PA 15230-3130
Thank you for your cooperation in this request.
Sincerely yours,
Associate
cc: Manager, Corporate Compliance (151-4342)
- --------------------------------------------------------------------------------
35
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
EXHIBIT B2
- -----------------------------------------
FOR DREYFUS ASSOCIATES
- --------------------------------------------------------------------------------
Date
Broker ABC
Street Address
City, State ZIP
Re: John Smith & Mary Smith
Account No. xxxxxxxxxxxxx
In connection with my existing brokerage accounts at your firm noted
above, please be advised that the Risk Management and Compliance
Department of Dreyfus Corporation should be noted as an "Interested
Party" with respect to my accounts. They should, therefore, be sent
copies of all trade confirmations and account statements relating to
my account.
Please send the requested documentation ensuring the account
holder's name appears on all correspondence to:
Compliance Officer at The Dreyfus Corporation
200 Park Avenue
Legal Department
New York, NY 10166
Thank you for your cooperation in this request.
Sincerely yours,
Associate
cc: Dreyfus Compliance
- --------------------------------------------------------------------------------
36
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
EXHIBIT C1
- -----------------------------------------
<TABLE>
<S><C>
PRECLEARANCE REQUEST FORM NON DREYFUS ASSOCIATES
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
To: Manager, Corporate Compliance 151-4342 (All Insider and Other Associates)
Designated Preclearance Compliance Officer (All Investment Associates Excluding Dreyfus)
- ------------------------------------------------------------------------------------------------------------
Associate Name: Title: Date:
- ------------------------------------------------------------------------------------------------------------
Phone #: AIM #: Social Security #: Department:
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
ACCOUNT INFORMATION
- ------------------------------------------------------------------------------------------------------------
Account Name: Account Number: Name of Broker/Bank:
- ------------------------------------------------------------------------------------------------------------
Relationship to registered owner(s) (if other than associate)
- ------------------------------------------------------------------------------------------------------------
I hereby request approval to execute the following trade in the above account:
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
TRANSACTION DETAIL
- ------------------------------------------------------------------------------------------------------------
Buy: Sell: Security/Contract: No. of Shares:
- ------------------------------------------------------------------------------------------------------------
If sale, date acquired: Margin Transaction: Initial Public Offering: Private Placement:
Yes Yes Yes
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
DISCLOSURE STATEMENT
- ------------------------------------------------------------------------------------------------------------
I hereby represent that, to the best of my knowledge, neither I nor the registered account holder is (1)
attempting to benefit personally from any existing business relationship between the issuer and Mellon or
any Mellon-related fund or affiliate; (2) engaging in any manipulative or deceptive trading activity; (3) in
possession of any material non-public information concerning the security to which is request relates.
- ------------------------------------------------------------------------------------------------------------
Associate Signature: Date:
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
COMPLIANCE OFFICER USE ONLY
- ------------------------------------------------------------------------------------------------------------
Approved: Disapproved: Authorized Signatory: Date:
- ------------------------------------------------------------------------------------------------------------
Comments:
- ------------------------------------------------------------------------------------------------------------
Note: This preclearance will lapse at the end of the day on ___________________, 19___.
If you decide not to effect the trade, please notify me.
- ------------------------------------------------------------------------------------------------------------
Date: By:
- ------------------------------------------------------------------------------------------------------------
</TABLE>
37
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
EXHIBIT C2
- -----------------------------------------
<TABLE>
<S><C>
PRECLEARANCE REQUEST FORM DREYFUS ASSOCIATES ONLY
- ------------------------------------------------------------------------------------------------------------
To: Dreyfus Compliance Officer
- ------------------------------------------------------------------------------------------------------------
Associate Name: Title: Date:
- ------------------------------------------------------------------------------------------------------------
Phone #: AIM #: Social Security #: Department:
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
ACCOUNT INFORMATION
- ------------------------------------------------------------------------------------------------------------
Account Name: Account Number: Name of Broker/Bank:
- ------------------------------------------------------------------------------------------------------------
Relationship to registered owner(s) (if other than associate)
- ------------------------------------------------------------------------------------------------------------
I hereby request approval to execute the following trade in the above account:
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
TRANSACTION DETAIL
- ------------------------------------------------------------------------------------------------------------
Buy: Sell: Security/Contract: Symbol:
- ------------------------------------------------------------------------------------------------------------
Amount: Current Market Price: If sale, date acquired: Margin Transaction:
- ------------------------------------------------------------------------------------------------------------
Is this a New Issue? Is this a Private Placement?
Yes No Yes No
- ------------------------------------------------------------------------------------------------------------
Reason for Transaction, identify source:
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
DISCLOSURE STATEMENT
- ------------------------------------------------------------------------------------------------------------
I hereby represent that, to the best of my knowledge, neither I nor the registered account holder is (1)
attempting to benefit personally from any existing business relationship between the issuer and Mellon or
any Mellon-related fund or affiliate; (2) engaging in any manipulative or deceptive trading activity; (3) in
possession of any material non-public information concerning the security to which is request relates.
- ------------------------------------------------------------------------------------------------------------
Associate Signature: Date:
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
COMPLIANCE OFFICER USE ONLY
- ------------------------------------------------------------------------------------------------------------
Approved: Disapproved: Authorized Signatory: Date:
- ------------------------------------------------------------------------------------------------------------
Comments:
- ------------------------------------------------------------------------------------------------------------
Note: This preclearance will lapse at the end of the day on ___________________, 19___.
If you decide not to effect the trade, please notify me.
- ------------------------------------------------------------------------------------------------------------
Date: By:
- ------------------------------------------------------------------------------------------------------------
</TABLE>
38
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
EXHIBIT D1
- -----------------------------------------
Return to: Manager, Corporate Compliance
Mellon Bank
P.O. Box 3130
Pittsburgh, PA 15230-3130
STATEMENT OF SECURITY HOLDINGS
As of ____________________
1. List of all securities in which you, your immediate family, any other
member of your immediate household, or any trust or estate of which you
or your spouse is a trustee or fiduciary or beneficiary, or of which your
minor child is a beneficiary, or any person for whom you direct or effect
transactions under a power of attorney or otherwise, maintain a
beneficial ownership - (see Glossary in Policy). If none, write NONE.
Securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, bankers' acceptances, bank certificates of deposit and
time deposits, commercial paper, repurchase agreements and shares of
registered investment companies need NOT be listed. IF YOUR LIST IS
EXTENSIVE, PLEASE ATTACH A COPY OF THE MOST RECENT STATEMENT FROM YOUR
BROKER(S), RATHER THAN LIST THEM ON THIS FORM.
<TABLE>
<CAPTION>
<S><C>
---------------------------------------------------------------------------------------------------
NAME OF SECURITY TYPE OF SECURITY AMOUNT OF SHARES
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
</TABLE>
2. List the names and addresses of any broker/dealers holding accounts in
which you have a beneficial interest, including the name of your
registered representative (if applicable), the account registration and
the relevant account numbers. If none, write NONE.
<TABLE>
<CAPTION>
<S><C>
---------------------------------------------------------------------------------------------------
BROKER/ ADDRESS NAME OF ACCOUNT ACCOUNT
DEALER REGISTERED REGISTRATION NUMBER(S)
REPRESENTATIVE
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
</TABLE>
I certify that the statements made by me on this form are true, complete and
correct to the best of my knowledge and belief, and are made in good faith. I
acknowledge I have read, understood and complied with the Confidential
Information and Securities Trading Policy.
-----------------------------------------------------------------------------
Date: Printed Name:
-----------------------------------------------------------------------------
Signature:
-----------------------------------------------------------------------------
39
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
EXHIBIT D2
- -----------------------------------------
Return to: Compliance Officer at the Dreyfus Corporation
200 Park Avenue
Legal Department
New York, NY 10166
STATEMENT OF SECURITY HOLDINGS
As of
1. List of all securities in which you, your immediate family, any other
member of your immediate household, or any trust or estate of which you
or your spouse is a trustee or fiduciary or beneficiary, or of which your
minor child is a beneficiary, or any person for whom you direct or effect
transactions under a power of attorney or otherwise, maintain a
beneficial interest. If none, write NONE. Securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities,
bankers' acceptances, bank certificates of deposit and time deposits,
commercial paper, repurchase agreements and shares of registered
investment companies need NOT be listed. IF YOUR LIST IS EXTENSIVE,
PLEASE ATTACH A COPY OF THE MOST RECENT STATEMENT FROM YOUR BROKER(S),
RATHER THAN LIST THEM ON THIS FORM.
<TABLE>
<CAPTION>
<S><C>
---------------------------------------------------------------------------------------------------
NAME OF SECURITY TYPE OF SECURITY AMOUNT OF SHARES
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
</TABLE>
2. List the names and addresses of any broker/dealers holding accounts in
which you have a beneficial interest, including the name of your
registered representative (if applicable), the account registration and
the relevant account numbers. If none, write NONE.
<TABLE>
<CAPTION>
<S><C>
---------------------------------------------------------------------------------------------------
BROKER/ ADDRESS NAME OF ACCOUNT ACCOUNT
DEALER REGISTERED REGISTRATION NUMBER(S)
REPRESENTATIVE
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
</TABLE>
I certify that the statements made by me on this form are true, complete and
correct to the best of my knowledge and belief, and are made in good faith.
I acknowledge I have read, understood and complied with the Confidential
Information and Securities Trading Policy.
-----------------------------------------------------------------------------
Date: Printed Name:
-----------------------------------------------------------------------------
Signature:
-----------------------------------------------------------------------------
40
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY-019 03/22/00
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CHANGES TO PROCEDURES
IN THE ADMINISTRATION OF THE
CONFIDENTIAL INFORMATION
AND
SECURITIES TRADING POLICY
APRIL 1999
QUESTION HOTLINE: 412-234-0810
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CHANGES TO PROCEDURES IN THE ADMINISTRATION OF THE
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY
APRIL 1999
TABLE OF CONTENTS
Page
----
I Purpose 3
II Definitions 3
- Access Decision Makers (ADM)
- Micro-Cap Access Decision Makers (MCADM)
III The Investment Ethics Committee 3
IV Changes to Procedures 4
a) Private Placements 4
b) Micro-Cap Securities 5
c) Blackout Period 5
d) Quarterly Reporting 5
e) Contemporaneous Disclosure 6
Exhibit A Investment Ethics Committee Designees 8
Exhibit B Quarterly Securities Report 9
Exhibit C Russell 200 Profile 14
Exhibit D Instructions for Accessing Securities Trading Compliance Site 16
on Mellon's Intranet
Exhibit E Notice of Personal Securities Holdings - Equity 18
Exhibit F Notice of Personal Securities Holdings - Fixed Income 19
Question Hotline: 412-234-0810
2
<PAGE>
CHANGES TO PROCEDURES IN THE ADMINISTRATION OF THE
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY
I. PURPOSE
It is imperative that Mellon and its affiliates avoid even the appearance of a
conflict between the personal securities trading of its employees and its
fiduciary duties to investment companies and managed account clients. Potential
conflicts of interest are most acute with respect to personal securities trading
by those employees most responsible for directing managed fund and account
trades: portfolio managers and research analysts. In order to avoid even the
appearance of impropriety, and in addition to the already existing requirements
and oversight provided by the Confidential Information and Securities Trading
Policy, an Investment Ethics Committee has been formed. The Committee, in turn,
has established the following additional practices which apply to Access
Decision Makers. These practices supplement existing preclearance requirements
and do not limit the authority of any Mellon affiliate to impose additional
restrictions or limitations.
II. DEFINITIONS
ACCESS DECISION MAKERS (ADM) - Persons designated as such by the Investment
Ethics Committee. Generally, this will be portfolio managers and research
analysts who make recommendations or decisions regarding the purchase or sale of
equity, convertible debt, and non-investment grade debt securities for mutual
funds and other managed accounts. Portfolio managers in Mellon Private Capital
Management are generally ADMs; other personal trust officers are generally not
ADMs unless the investment discretion they exercise warrants ADM designation.
Traders are not ADMs. Portfolio managers of funds which are limited to
replicating an index are not ADMs.
MICRO-CAP ACCESS DECISION MAKERS (MCADM) - ADMs designated as such by the
Investment Ethics Committee. Generally, this will be ADMs who make
recommendations or decisions regarding the purchase or sale of any security of
an issuer with a common equity market capitalization equal to or less than
two-hundred fifty million dollars.
III. THE INVESTMENT ETHICS COMMITTEE
The Investment Ethics Committee is composed of investment, legal, compliance,
and audit management representatives of Mellon and its affiliates. The members
of the Investment Ethics Committee are:
<TABLE>
<S> <C>
President and Chief Investment Officer of The Dreyfus Corporation Stephen Canter, Chair
Chief Executive Officer of a DII Subsidiary William Rydell, Vice Chair
General Counsel, Mellon Bank Corporation Michael Bleier
Chief Risk Management Officer, Mellon Trust Sarah Collins
Manager of Corporate Compliance, Mellon Bank Corporation Kevin Harm
Corporate Chief Auditor, Mellon Bank Corporation Robert Parkinson
Chief Investment Officer of Mellon Private Asset Management Vernon Winters
</TABLE>
3
<PAGE>
CHANGES TO PROCEDURES IN THE ADMINISTRATION OF THE
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY
The chief or senior investment officer and the Preclearance Compliance Officer
at each Mellon affiliate, working together, will be designees of the Investment
Ethics Committee. The Investment Ethics Committee will meet periodically to
review the actions taken by its designees and to consider issues related to
personal securities trading and investment activity by ADMs. If ADMs have any
questions about these procedures, they should consult their Preclearance
Compliance Officer or other Investment Ethics Committee designee listed on
Exhibit A. However, interpretive issues that arise under these procedures shall
be decided by, and are subject to the discretion of, the Investment Ethics
Committee.
IV. CHANGES TO PROCEDURES
a) PRIVATE PLACEMENTS
Participation in private placements is prohibited without the prior written
approval of the Investment Ethics Committee. The Committee will generally
not approve an ADM's acquiring in a private placement, beneficial ownership
of any security of an issuer in which any managed fund or account invests
within the ADM's fund complex or subsidiary. Private placements include
certain co-operative investments in real estate, co-mingled investment
vehicles such as hedge funds, and investments in family owned businesses.
For the purpose of this procedure, time-shares and cooperative investments
in real estate used as a primary or secondary residence are not considered
to be private placements.
When considering requests for participation in private placements, the
Investment Ethics Committee will take into account the specific facts and
circumstances of the request prior to reaching a decision whether to
authorize a private placement investment by an ADM. These factors include,
among other things, whether the opportunity is being offered to an
individual by virtue of his or her position with Mellon or its affiliates,
or his or her relationship to a managed fund or account. The Investment
Ethics Committee will also consider whether a fund or account managed by
the ADM could invest in securities of the issuer in which the ADM is
seeking to invest. At its discretion, the Investment Ethics Committee may
request any and all information and/or documentation necessary to satisfy
itself that no actual or potential conflict, or appearance of a conflict,
exists between the proposed private placement purchase and the interests of
any managed fund or account.
ADMs who have prior holdings of securities obtained in a private placement
must request the written authorization of the Investment Ethics Committee
to continue holding the security. This request for authorization must be
initiated within 90 days of the effective date of these procedures or
within 90 days of becoming an ADM, whichever is applicable.
To request authorization for prior holdings or new proposed acquisitions of
securities issued in an eligible private placement, contact the Manager of
Corporate Compliance.
4
<PAGE>
CHANGES TO PROCEDURES IN THE ADMINISTRATION OF THE
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY
b) MICRO-CAP SECURITIES
Unless specifically authorized in writing by the Investment Ethics
Committee, MCADMs are prohibited from voluntarily obtaining beneficial
ownership of any security of an issuer with a common equity market
capitalization of $100 million or less at the time of acquisition. If any
ADM involuntarily acquires such a micro-cap security through inheritance,
gift, or spin-off, this fact must be disclosed in a memo to the ADM's
Preclearance Compliance Officer within 10 business days of the ADM's
knowledge of this fact. A copy of this memo should be attached to the ADM's
next Quarterly Securities Report. A copy of this report is attached as
Exhibit B.
MCADMs must obtain on their Preclearance Request Forms the written
authorization of their immediate supervisor and their Chief Investment
Officer prior to voluntarily obtaining, or disposing of, a beneficial
ownership of any security of an issuer with a common equity market
capitalization of more than $100 million but less than or equal to $250
million at the time of acquisition.
MCADMs who have prior holdings of securities of an issuer with a common
equity market capitalization of $250 million or less must disclose on their
next Quarterly Securities Report that they have not yet received CIO
authorization for these holdings. The Preclearance Compliance Officer will
utilize these forms to request the appropriate authorizations.
c) BLACKOUT PERIOD (CIST Policy, Page 21)
ADMs (other than research analysts without portfolio decision-making
authority) are prohibited from buying or selling a security within seven
calendar days before and after their investment company or portfolio trades
in that security. If such ADMs effect such a personal transaction, these
individuals must disgorge any and all profit realized from such
transaction.
d) QUARTERLY REPORTING
ADMs are required to submit quarterly to their Preclearance Compliance
Officer the Quarterly Securities Report attached as Exhibit B. This report
must be submitted within 30 days of each quarter end and includes
information on:
- securities beneficially owned at any time during the quarter which were
also either recommended for a transaction or in the portfolio managed by
the ADM during the quarter.
- positions obtained in private placements.
- securities of issuers with a common equity market capitalization of $250
million or less at security acquisition or at March 31, 1999, whichever
is later, which were beneficially owned at any time during the quarter.
- Securities transactions which were not completed through a brokerage
account, such as gifts, inheritance, spin-offs from securities held
outside brokerage accounts, or other transfers.
5
<PAGE>
CHANGES TO PROCEDURES IN THE ADMINISTRATION OF THE
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY
e) CONTEMPORANEOUS DISCLOSURE
ADMs must obtain written authorization prior to making or acting upon a
portfolio recommendation in a security which they own personally. This
authorization must be obtained immediately prior to the first such
portfolio recommendation in each calendar month from the ADM's CIO or other
Investment Ethics Committee designee listed in the middle column of
Exhibit A. The following personal securities holdings are exempt from the
requirement to obtain written authorization immediately preceding a
portfolio recommendation or transaction:
- Securities exempted from the Corporation's Confidential Information and
Securities Trading Policy, such as open-end mutual funds, US Treasury
and Agency Securities, commercial paper, certificates of deposit,
bankers acceptances, and repurchase agreements.
- Securities held in accounts over which the ADM has no investment
discretion, which are professionally managed by a non-family member, and
where the ADM has no actual knowledge that such account is currently
holding the same or equivalent security at the time of the portfolio
recommendation.
- Personal equity holdings of approximately 200 large capitalization US
stocks. Compliance will reconstitute this list of exempted securities
each August based on the 200 largest market capitalization stocks in the
Russell 1000. The current list of these exempted securities is attached
as Exhibit C and is also available on Mellon's intranet. Instructions
for accessing this site are included on Exhibit D.
- Personal equity holdings of securities of non-US issuers with a common
equity market capitalization of $20 billion or more.
- Personal holdings of debt securities which do not have a conversion
feature and are rated BBB or better.
- Personal holdings of Index Managers who have no investment discretion in
replicating an index.
- Personal holdings of Portfolio Managers in Mellon Private Capital
Management and Mellon Private Asset Management if the Portfolio Manager
exactly replicates the model or clone portfolio. A disclosure form is
required if the Portfolio Manager recommends securities which are not in
the clone or model portfolio or recommends a model or clone security in
a different percentage than model or clone amounts. Disclosure forms are
also required when the Portfolio Manager recommends individual
securities to clients, even if Mellon shares control of the investment
process with other parties.
6
<PAGE>
CHANGES TO PROCEDURES IN THE ADMINISTRATION OF THE
CONFIDENTIAL INFORMATION AND SECURITIES TRADING POLICY
If a personal securities holding does not fall under one of these
exemptions, the ADM must complete and forward a disclosure form (See
Exhibits E and F) for authorization by the CIO or designee, immediately
prior to the first recommendation or transaction in the security in the
current calendar month. Disclosure forms for subsequent transactions in the
same security are not required for the remainder of the calendar month as
long as purchases (or sales) in all portfolios do not exceed the maximum
number of shares, options, or bonds disclosed on the disclosure form. If
the ADM seeks to effect a transaction or makes a recommendation in a
direction opposite to the most recent disclosure form, a new disclosure
form must be completed prior to the transaction or recommendation.
Once the CIO's authorization is obtained, the ADM may make the
recommendation or trade the security in the managed portfolio without
Compliance's signature. However, the ADM must deliver the authorization
form to the Preclearance Compliance Officer on the day of the CIO's
authorization. Compliance will forward a copy of the completed form for the
ADM's files. The ADM is responsible for following-up with the Preclearance
Compliance Officer in the event a completed form is not returned to the ADM
within 5 business days. It is recommended that the ADM retain completed
forms for two years.
7
<PAGE>
EXHIBIT A
SELECTED INVESTMENT ETHICS COMMITTEE DESIGNEES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
CHIEF INVESTMENT OFFICER, CHIEF PRECLEARANCE COMPLIANCE
ENTITY EXECUTIVE OFFICER, OFFICER
OR OTHER INVESTMENT ETHICS OR OTHER INVESTMENT ETHICS
COMMITTEE DESIGNEE COMMITTEE DESIGNEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Certus Robert A. McCormish John Ford
Eric Baumhoff Robert A. McCormish
John Ford
- -----------------------------------------------------------------------------------------------------------
The Dreyfus Corporation Steve Canter Janice Hayles
Richard Hoey Michelle Johnson
Jeffrey Friedman
Kevin McClintock
- -----------------------------------------------------------------------------------------------------------
Franklin Portfolio Associates John Nagorniak John Cone
John Cone John Nagorniak
- -----------------------------------------------------------------------------------------------------------
Founders Asset Management, LLC Richard Sabo Ken Christoffersen
Scott Chapman Allen French
- -----------------------------------------------------------------------------------------------------------
Mellon Bond Paul R. McCann Janet Lion
David B. Chittim Susan Mularski
William F. Adam Christine Nabors
Laurie A. Carroll
Gregory D. Curran
Gerald A. Thomas
- -----------------------------------------------------------------------------------------------------------
Mellon Capital Management Tom Loeb Chris Carr
Tom Hazuka Bernadette Bolger
Charlie Jacklin Brenda Oakley
James Tufts Barbara Daugherty
Tom Hazuka
Charlie Jacklin
Jim Tufts
- -----------------------------------------------------------------------------------------------------------
Mellon Equity Bill Rydell Karen Werley
Patricia K. Nichols
- -----------------------------------------------------------------------------------------------------------
Mellon Private Asset Management Vernon Winters Sue Gulasky
Jim Wadsworth Charlotte Isaacs
Bert Mullins
David Kain
Gene Cervi
Joe Banko
- -----------------------------------------------------------------------------------------------------------
Mellon Private Capital Management Joe Banko Sue Gulasky
Bill White Charlotte Isaacs
Bill Ouzts
- -----------------------------------------------------------------------------------------------------------
TBC Asset Management Scott Powers Jennifer Terraciano
Quinn Stills Ann Marie Swanson
Fran DeAngelis
- -----------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
EXHIBIT B
QUARTERLY SECURITIES REPORT
FOR USE BY PORTFOLIO MANAGERS, RESEARCH ANALYSTS, AND OTHER ACCESS DECISION
MAKERS (ADMS) MUST BE COMPLETED WITHIN 30 DAYS OF EACH QUARTER END
<TABLE>
<CAPTION>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME: QUARTER ENDED:
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
DESIGNATION Please mark those entities for which you serve as an ADM.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
/ / Certus Asset Advisors / / Founders Asset Management / / Mellon Equity Associates
/ / The Dreyfus Corporation / / Mellon Bond Associates / / Mellon Private Asset Management
/ / Franklin Portfolio Associates / / Mellon Capital Management / / TBC Asset Management
/ / Other (please list)
----------------------------------------------------------------------------------------------
I have been designated as a Micro-Cap Access Decision Maker (MCADM) / / Yes / / No
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
INSTRUCTIONS:
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- - Include all requested security holdings in which you have beneficial ownership, even if you may exercise no investment
discretion. At your option, you may fulfill your obligations to report securities over which you exercise no investment
discretion by including copies of all statements received during the quarter. On these statements, circle each security
position and security transaction in securities which were also either 1) held by a portfolio you managed during the quarter,
or 2) were recommended by you for a transaction during the quarter. Indicate on the statement the market capitalization of
securities with a common equity market capitalization of $250 million or less at March 31, 1999 or date of acquisition,
whichever is later.
- - Information should be provided as of quarter end unless otherwise instructed.
- - Complete all sections, even if the response is "none" or "not applicable".
- - Include in the right-most column of the equity, debt, and micro-cap sections of this report your personal transactions in
securities you recommended or held in portfolios you managed during the quarter, even if you did not hold personally the
security at quarter end.
- - Forward the completed report to your Preclearance Compliance Officer within 30 days of each calendar quarter end.
- - Refer questions to your Preclearance Compliance Officer or the Corporate Compliance Hotline at 412-234-0810.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-1- 9
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES List only those equity securities which you owned at any time during the quarter which were also either
1) held by a portfolio you managed during the quarter, or 2) were recommended by you for a transaction
during the quarter. Exclude open-end mutual funds, private placements, and equity securities issued by
Russell 200 companies or companies with a common equity market capitalization of $250 million or less at
March 31, 1999, or at acquisition, whichever occurs later.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER SECURITY TYPE TOTAL SIZE OF SIZE OF POSITION TRANSACTIONS IN YOUR
(common, POSITION (number of HELD OUTSIDE PERSONAL ACCOUNTS DURING THE QUARTER
preferred, calls, shares or options, BROKERAGE
puts, short sales, including those held ACCOUNTS
etc.) outside brokerage DATE OF SHARES SHARES
accounts) TRADE BOUGHT SOLD
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
/ / Check here if a continuation sheet is attached.
</TABLE>
-2- 10
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
DEBT SECURITIES List only non-investment grade debt or debt with convertible features which you owned at any time during
the quarter which were also either 1) held by a portfolio you managed during the quarter, or 2) were
recommended by you for a transaction during the quarter. Exclude US Treasury and Agency Securities,
open-end mutual funds, certificates of deposit, and other exempt securities as defined on page 32 of
Mellon's Confidential Information and Securities Trading Policy. Also exclude debt securities issued by
companies with a common equity market capitalization of $250 million or less at March 31, 1999, or at
acquisition, whichever is later.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER CUSIP NUMBER SECURITY TYPE POSITION SIZE TRANSACTIONS IN YOUR
(high yield (face PERSONAL ACCOUNTS DURING THE QUARTER
and / or amount of DATE OF FACE AMOUNT FACE AMOUNT
convertible) bonds) TRADE BOUGHT SOLD
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
/ / Check here if a continuation sheet is attached.
<CAPTION>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
PRIVATE PLACEMENTS Exclude co-operative investments in real estate if a time-share or used as your primary or secondary
residence. Include commingled investment vehicles such as hedge funds.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER BRIEF DESCRIPTION APPROXIMATE DATE WAS ANY SECURITY DID YOU RECOMMEND
HOLDING OF THIS ISSUER HELD A TRANSACTION IN ANY
AUTHORIZED BY THE IN A PORTFOLIO YOU SECURITY OF THIS
INVESTMENT ETHICS MANAGED DURING ISSUER DURING THE
COMMITTEE THE QUARTER? QUARTER?
YES NO YES NO
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
/ / Check here if a continuation sheet is attached.
</TABLE>
-3- 11
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
BROKERAGE ACCOUNTS Include all brokerage accounts, even if some are "non-discretionary" accounts over which you exercise no
investment discretion.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NAME OF ACCOUNT NAME OF BROKER/DEALER ACCOUNT NUMBER DO YOU HAVE THE POWER TO
(Mr. & Mrs. John Doe; Jane Smith EXERCISE INVESTMENT
Testamentary Trust) DISCRETION OVER THIS
ACCOUNT?
YES NO
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
/ / Check here if a continuation sheet is attached.
<CAPTION>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSACTIONS OUTSIDE Include securities transactions which were not completed through a brokerage account during the quarter,
BROKERAGE ACCOUNTS such as gifts, inheritance, spin-offs from securities held outside brokerage accounts, or other transfers.
Exclude open-end mutual funds, automatic reinvestment of dividends, US Treasury and Agency Securities,
and other exempt securities as defined on page 32 of Mellon's Confidential Information and Securities
Trading Policy.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER SECURITY TYPE SIZE OF TRANSACTION WAS THIS SECURITY HELD IN A
(common, preferred, (number of shares, face of PORTFOLIO YOU MANAGED DURING THE
high yield, convertible bonds, etc.) QUARTER OR DID YOU RECOMMEND A
debt, investment TRANSACTION IN THIS SECURITY
grade debt, etc.) POSITION POSITION DURING THE QUARTER?
INCREASE DECREASE YES NO
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
/ / Check here if a continuation sheet is attached.
</TABLE>
-4- 12
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
MICRO-CAP HOLDINGS Include all positions other than private placements in companies with a common equity market
capitalization of $250 million or less at March 31, 1999, or at time of purchase, whichever is later.
If security was involuntarily acquired during the quarter, attach a copy of the notice sent to your
Preclearance Compliance Officer.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER SECURITY POSITION MARKET DATE OF WAS ANY SECURITY OF TRANSACTIONS IN YOUR PERSONAL
TYPE SIZE (face CAPITALIZATION CIO THIS ISSUER HELD IN A ACCOUNTS DURING THE QUARTER
(debt, amount of AT MARCH 31, AUTHORIZA-- PORTFOLIO YOU
common, bonds, 1999, OR AT TION MANAGED THIS QUARTER
preferred, number of TIME OF IF YOU ARE OR DID YOU
etc.) shares, PURCHASE, AN RECOMMEND A
etc.) WHICHEVER IS MCADM TRANSACTION IN ANY FACE FACE
LATER SECURITY OF THIS ISSUER DATE OR OR
DURING THE QUARTER? OF SHARES SHARES
YES NO TRADE BOUGHT SOLD
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
/ / Check here if a continuation sheet is attached.
</TABLE>
- --------------------------------------------------------------------------------
CERTIFICATION AND SIGNATURE
- --------------------------------------------------------------------------------
I certify that this report is complete and correct to the best of my knowledge
and belief. I have read, understood, and complied with the Confidential
Information and Securities Trading Policy and the Changes to Procedures to this
Policy issued in April 1999.
Signature: Date:
-------------------------------- -------------------
Print Name: S. S. #:
-------------------------------- -------------------
Return completed forms to your Preclearance Compliance Officer within 30 days of
each calendar quarter end.
- --------------------------------------------------------------------------------
-5- 13
<PAGE>
EXHIBIT C
RUSSELL 200 COMPANIES
<TABLE>
<CAPTION>
COMPANY TICKER CUSIP COMPANY TICKER CUSIP
------- ------ ----- ------- ------ -----
<C> <C> <C> <C> <C> <C>
3COM Corp COMS 88553510 Clear Channel Communications CCU 18450210
Abbott Laboratories ABT 00282410 Coca-Cola Co KO 19121610
Aetna Inc AET 00811710 Colgate-Palmolive Co CL 19416210
Airtouch Communications ATI 00949T10 Columbia/HCA Hlthcr COL 19767710
Albertsons Inc ABS 01310410 Comcast Corp -Cl A CMCSK 20030020
Alliedsignal Inc ALD 01951210 Comerica Inc CMA 20034010
Allstate Corp ALL 02000210 Compaq Computer Corp CPQ 20449310
Aluminum Co Of America AA 02224910 Computer Associates CA 20491210
America Online Inc AOL 02364J10 Computer Sciences Co CSC 20536310
American Express AXP 02581610 Conagra Inc CAG 20588710
American General Corp AGC 02635110 Consolidated Edison ED 20911510
American Home Products AHP 02660910 Costco Companies Inc COST 22160Q10
American International AIG 02687410 CSX Corp CSX 12640810
Ameritech Corp AIT 03095410 CVS Corp CVS 12665010
Amgen Inc AMGN 03116210 Dayton Hudson Corp DH 23975310
Amoco Corp AN 03190510 Deere & Co DE 24419910
Amr Corp/De AMR 00176510 Dell Computer Corp DELL 24702510
Anheuser-Busch Cos I BUD 03522910 Delta Air Lines Inc DAL 24736110
AON Corp AOC 03738910 Disney (Walt) Company DIS 25468710
Applied Materials Inc AMAT 03822210 Dow Chemical DOW 26054310
Archer-Daniels-Midland ADM 03948310 Du Pont (E I) De Nemours DD 26353410
Assoc Fst Capital Cp AFS 04600810 Duke Energy Corp DUK 26439910
AT&T Corp T 00195710 Eastman Kodak Co EK 27746110
Atlantic Richfield Co ARC 04882510 Edison International EIX 2 8102010
Automatic Data Processing AUD 05301510 Electronic Data Syst EDS 28566110
Bank Of New York Co BK 06405710 EMC Corp/Ma EMC 26864810
Bank One Corp ONE 06423A10 Emerson Electric Co EMR 29101110
BankAmerica Corp BAC 06605F10 Enron Corp ENE 29356110
Bankboston Corp BKB 06605R10 Exxon Corp XON 30229010
Bankers Trust Corp BT 06636510 Fannie Mae FNM 31358610
Baxter International BAX 07181310 Fed Home Loan Mtg Co FRE 31340030
Bell Atlantic Corp BEL 07785310 Federated Dept Store FD 31410H10
Bellsouth Corp BLS 07986010 Fifth Third Bancorp FITB 31677310
Bestfoods BFO 08658U10 First Data Corp FDC 31996310
BMC Software Inc BMCS 05592110 First Union Corp (N FTU 33735810
Boeing Co BA 09702310 Fleet Financial Group FLT 33891510
Bristol Myers Squibb BMY 11012210 Ford Motor Co F 34537010
Brlngtn Nthrn Santa BNI 12189T10 Fort James Corp FJ 34747110
Campbell Soup Co CPB 13442910 FPL Group Inc FPL 30257110
Cardinal Health Inc CAH 14149Y10 Gannett Co GCI 36473010
Caterpillar Inc CAT 14912310 Gap Inc GPS 36476010
CBS Corp CBS 12490K10 General Electric Co GE 36960410
Cendant Corp CD 15131310 General Mills Inc GIS 37033410
Chase Manhattan Corp CMB 16161A10 General Motors Corp GM 37044210
Chevron Corp CHV 16675110 General Re Corp GRN 37056310
Chrysler Corp C 17119610 Gillette Co G 37576610
Chubb Corp CB 17123210 Goodyear Tire & Rubb GT 38255010
Cigna Corp CI 12550910 GTE Corp GTE 36232010
Cisco Systems Inc CSCO 17275R10 Guidant Corp GDT 40169810
Citigroup Inc C 17296710 Halliburton Co HAL 40621610
</TABLE>
14
<PAGE>
EXHIBIT C
RUSSELL 200 COMPANIES
<TABLE>
<CAPTION>
COMPANY TICKER CUSIP COMPANY TICKER CUSIP
------- ------ ----- ------- ------ -----
<C> <C> <C> <C> <C> <C>
Hartford Finl Svcs G HIG 41651510 PG&E Corp PCG 69331C10
HBO & Co HBOC 40410010 Pharmacia & Upjohn I PNU 71694110
Healthsouth Corp HRC 42192410 Philip Morris Cos In MO 71815410
Heinz (H J) Co HNZ 42307410 Phillips Petroleum C P 71850710
Hewlett-Packard Co HWP 42823610 Pioneer Hi-Bred Inte PHB 72368610
Home Depot Inc HD 43707610 Pitney Bowes Inc PBI 72447910
Honeywell Inc HON 43850610 PNC Bank Corp PNC 69347510
Household Internatio HI 44181510 PPG Industries Inc PPG 69350610
Illinois Tool Works ITW 45230810 Procter & Gamble Co PG 74271810
Intel Corp INTC 45814010 Ralston Purina Co RAL 75127730
Intl Business Machines IBM 45920010 Raytheon Co -Cl B RTN/B 75511140
Intl Paper Co IP 46014610 Republic Industries RII 76051610
Johnson & Johnson JNJ 47816010 Safeway Inc SWY 78651420
Keycorp KEY 49326710 Sara Lee Corp SLE 80311110
Kimberly-Clark Corp KMB 49436810 SBC Communications I SBC 78387G10
Kroger Co KR 50104410 Schering-Plough SGP 80660510
Level 3 Commun Inc LVLT 52729N10 Sears Roebuck & Co S 81238710
Lilly (Eli) & Co LLY 53245710 Service Corp Interna SRV 81756510
Lockheed Martin Corp LMT 53983010 Southern Co SO 84258710
Lowes Cos LOW 54866110 Sprint Corp FON 85206110
Lucent Technologies LU 54946310 State Street Corp STT 85747710
Marsh & Mclennan Cos MMC 57174810 Sun Microsystems Inc SUNW 86681010
Masco Corp MAS 57459910 Suntrust Banks Inc STI 86791410
Mattel Inc MAT 57708110 Tele-Comm Lbrty Mdia LBTYA 87924V50
May Department Store MAY 57777810 Tele-Comm TCI Grp - TCOMA 87924V10
MBNA Corp KRB 55262L10 Tellabs Inc TLAB 87966410
Mcdonalds Corp MCD 58013510 Texaco Inc TX 88169410
MCI Communications MCIC 55267310 Texas Instruments In TX N 88250810
Mediaone Group Inc UMG 58440J10 Texas Utilities Co TXU 88284810
Medtronic Inc MDT 58505510 Time Warner Inc TWX 88731510
Mellon Bank Corp MEL 58550910 U S Bancorp/De USB 90297310
Merck & Co MRK 58933110 U S West Inc USW 91273H10
Merrill Lynch & Co MER 59018810 Union Pacific Corp UNP 90781810
Microsoft Corp MSFT 59491810 United Healthcare Co UNH 91058110
Minnesota Mining & M MMM 60405910 United Technologies UTX 91301710
Mobil Corp MOB 60705910 USX-Marathon Group MRO 90290582
Monsanto Co MTC 61166210 Viacom Inc -Cl B VIA B 92552430
Morgan (J P) & Co JPM 61688010 Wachovia Corp WB 92977110
Morgan Stanly Dean Witter MWD 61744644 Wal-Mart Stores WMT 93114210
Motorola Inc MOT 62007610 Walgreen Co WAG 93142210
National City Corp NCC 63540510 Warner-Lambert Co WLA 93448810
Nielsen Media Research NMR 65392930 Washington Mutual In WM 93932210
Norfolk Southern Corp NSC 65584410 Waste Management Inc WMI 94106L10
Occidental Petroleum OXY 67459910 Wells Fargo Co WFC 94974610
Oracle Corp ORCL 68389X10 Williams Cos Inc WMB 96945710
Penney (J C) Co JCP 70816010 Worldcom Inc/Ga -Cl WCOM 98155K10
Pepsico Inc PEP 71344810 Xerox Corp XRX 98412110
Pfizer Inc PFE 71708110
</TABLE>
15
<PAGE>
EXHIBIT D
INSTRUCTIONS FOR ACCESSING SECURITIES TRADING COMPLIANCE SITE
ON MELLON'S INTRANET
- --------------------------------------------------------------------------------
Forms are available on the Securities Trading Compliance site on the Mellon
intranet, but can not be completed on-line unless you have installed Adobe
Acrobat. For users who prefer to complete the forms on-line, Compliance will
send, via e-mail every 60 days, the forms in a file format which allows users to
complete forms on-line.
- --------------------------------------------------------------------------------
For Mellon OneWeb users, the applicable forms and updated Russell list(1) are
available on the Mellon intranet. To access this site, perform the following:
- OPEN the Mellon OneWeb homepage at http://intra.mellonbank.com/.
- CLICK on SUPPORT DEPTS.
- CLICK on SECURITIES TRADING COMPLIANCE (under the "Compliance" group
heading).
You will see the following documents available in PDF (Portable Document
Format). Users will need Adobe Acrobat Reader(2) to open and print the forms.
- Changes to Procedures in the Administration of the Confidential
Information and Securities Trading Policy
- Investment Ethics Committee Designees (Exhibit A)
- Quarterly Securities Report Form ( Exhibit B)
- Russell 200 Companies List (Exhibit C)
- Instructions for Accessing Securities Trading Compliance Site on Mellon's
Intranet (Exhibit D)
- Notice of Personal Securities Holding - Equity Form (Exhibit E)
- Notice of Personal Securities Holding - Fixed Income Form (Exhibit F)
- Preclearance Request Form (under development)
To access a particular form, e.g., the Quarterly Securities Report, perform the
following:
- DOUBLE-CLICK on QUARTERLY SECURITIES REPORT.
- You have two options to access the form.
1) To open file inside the browser and print:
- Select OPEN IT.
- CLICK on OK.
- The form will appear. Print and complete manually.
2) To transfer the PDF file to your server to open and print:
- SELECT SAVE IT TO DISK.
- CLICK on OK.
- DESIGNATE wherever you want the file to be stored.
- CLICK on SAVE.
- ACCESS the file from the location you designated on your server.
- A dialog box will appear. OPEN the file with Adobe Acrobat
Reader.
- The form will appear. Print and complete manually.
- ------------------------------------
(1) A new Russell 200 Companies List will be posted on August 1st each year.
Updates to this list will be made every two months on the first of the month
to reflect mergers and name changes occurring between these annual updates.
(2) If you do not have Adobe Acrobat Reader, you can download a free copy by
going to the Adobe Acrobat website via the link established on the Securities
Trading Compliance site, or by going to the Adobe Acrobat website directly at
http://www.adobe.com/prodindex/acrobat/readstep.html.
16
<PAGE>
EXHIBIT D
- --------------------------------------------------------------------------------
PRIVACY/CONFIDENTIALITY
Risk Management and Compliance (RMC) owns the intranet site where these forms
are located. Only designated RMC and IM&R Analysis & Special Projects associates
have rights, and therefore can gain access, to the directory. Users will not be
able to complete the forms on-line unless they have Adobe Acrobat (different
from Adobe Acrobat Reader mentioned above). If users have access to Adobe
Acrobat and have completed the forms on-line, they can not save their completed
forms on the intranet. Users who opt to complete their forms on-line should
exercise caution when saving the documents on their network server (i.e., don't
save them on the shared drive or any other location where others may have
access). Questions on the intranet site may be directed to Donna Szeto at
617-722-7344.
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR DOWNLOADING AND INSTALLING THE ADOBE ACROBAT READER
You can download a free copy of the Acrobat Reader by going to the Adobe website
via the link established on the Securities Trading Compliance site, or by going
to the Adobe website directly at
http://www.adobe.com/prodindex/acrobat/readstep.html. The Adobe Acrobat Reader
downloading process can take anywhere between 5 and 25 minutes, depending on
your computer system. To download the Acrobat Reader, perform the following:
- Either CLICK on FREE ADOBE-Registered Trademark- ACROBAT -Registered
Trademark- Reader or SCROLL down the page to the "Get the free Acrobat
Reader" section.
- In Step 1, perform the following:
- VERIFY that ENGLISH is selected for the Language.
- SELECT appropriate platform from the pull-down menu.
- VERIFY that USA is selected for the Location.
- In Step 2, perform the following:
- SELECT BUSINESS DOCUMENTS.
- TYPE your e-mail address (e.g., [email protected]) in the "E-mail
address" field.
- In Step 3, CLICK on DOWNLOAD.
- A confirmation will appear indicating that you are downloading Acrobat
Reader. During this downloading process, you may experience an error
message to the effect that the proxy server timed out and the requested
item could not be loaded. If this happens, simply repeat the above
instructions until the Acrobat Reader is downloaded successfully.
- Once the downloading is complete, a dialog box will appear prompting you
to either open the software or save it to disk. CLICK on SAVE IT TO DISK.
- CLICK on OK.
- A dialog box may appear indicating that the disk drive is not accessible.
CLICK on CANCEL.
- DESIGNATE where you want the software to be located
(e.g., c:\winnt\profiles\xbzrf9v\start menu\programs).
- CLICK on SAVE.
To install the Acrobat Reader, perform the following:
- After the downloading process is complete, QUIT your Web browser.
- LOCATE where you saved the Acrobat Reader software.
- DOUBLE-CLICK the newly downloaded file.
- FOLLOW the instructions on the screen.
- If there is a failure at any point during the installation of Acrobat
Reader, the installer performs a complete uninstall. For this reason, it
is important NOT TO CLOSE the installer application by clicking its close
box in the upper right corner of the background window after clicking the
"Thank You" dialog box that appears at the end of the installation. If
you wait for a second or two, the installer will automatically close the
background windows after the installation is complete.
- --------------------------------------------------------------------------------
18
<PAGE>
EXHIBIT E
NOTICE OF PERSONAL SECURITIES HOLDING - EQUITY
Pre-authorization Form for Portfolio Recommendations/Transactions
(For use by Portfolio Managers, Research Analysts, and other ADMs to inform
CIOs of their personal holdings in securities where portfolio recommendations
or transactions are being considered in the same or equivalent security.)
- --------------------------------------------------------------------------------
Completion of this form is not required when the ADM's holdings consist of
open-end mutual funds, index positions, or equity securities issued by one of
the approximately 200 largest Russell companies or by non-US companies with
common equity market capitalization of $20 billion or more. This form is also
not required for trades by Index Managers and for certain clone or model
portfolio transactions as described more fully in the Changes to Procedures in
the Administration of the Confidential Information and Securities Trading
Policy.
ALL OTHER HOLDINGS REQUIRE DISCLOSURE BEFORE
THE FIRST PORTFOLIO TRADE OR RECOMMENDATION IN EACH CALENDAR MONTH.
- --------------------------------------------------------------------------------
<TABLE>
<S><C>
- -----------------------------------------------------------------------------------------------------------------------------
ADM Personal Holdings Information:
- -----------------------------------------------------------------------------------------------------------------------------
1. Name of security: CUSIP: Ticker symbol:
- -----------------------------------------------------------------------------------------------------------------------------
2. Current market value of ADM's holdings: $ Number of shares/options:
- -----------------------------------------------------------------------------------------------------------------------------
3. Approximate date of last transaction:
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Subject Security Information:*
- -----------------------------------------------------------------------------------------------------------------------------
4. Proposed portfolio trade or recommendation based on current assets (check one): / / Buy / / Sell
- -----------------------------------------------------------------------------------------------------------------------------
Maximum number of shares expected to be bought (or sold) during month (all portfolios):
- -----------------------------------------------------------------------------------------------------------------------------
Current market price per share or option: $
- -----------------------------------------------------------------------------------------------------------------------------
Approximate total market value of maximum trades at current market price (all portfolios): $
- -----------------------------------------------------------------------------------------------------------------------------
5. Average daily trading volume for last five business days (in shares)
- -----------------------------------------------------------------------------------------------------------------------------
6. Approximate size of current position in proposed security in portfolios for which I serve as ADM
- in shares or options:
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
ADM DISCLOSURE STATEMENT: I hereby represent that to the best of my knowledge, this is an appropriate investment
recommendation 1) based on my research, or 2) an appropriate transaction based on the objectives, policies, philosophy,
and style of the portfolio(s) for which this transaction is being recommended. Neither I nor the registered account holder
is (1) attempting to personally benefit from an existing or future business relationship between the issuer and Mellon
or any Mellon-related fund or affiliate; (2) engaging in any manipulative or deceptive trading activity; or (3) in
possession of any material non-public information concerning the security to which this request relates.
- -----------------------------------------------------------------------------------------------------------------------------
ADM Signature Printed Name Date
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
RECOMMENDATION/TRANSACTION IS: (CIRCLE ONE) AUTHORIZED ** NOT AUTHORIZED
- -----------------------------------------------------------------------------------------------------------------------------
CIO Signature Printed Name Date
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
RECEIVED BY COMPLIANCE:
- -----------------------------------------------------------------------------------------------------------------------------
Compliance Signature Printed Name Date
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Answer item 4 by totaling the maximum number of shares or options expected to
be bought (if a buy strategy) or sold (if a sell strategy) during the current
calendar month for all portfolios for which you serve as an ADM. Research
analysts may omit item 6 and may limit their response to item 4 to indicating
whether this is a buy or sell recommendation.
**Once the CIO's authorization is obtained, the ADM may make recommendations or
trade the security in the managed portfolio without Compliance's signature.
However, the ADM must deliver this form to Compliance on the day of the CIO's
authorization.
19
<PAGE>
Exhibit F
NOTICE OF PERSONAL SECURITIES HOLDING - FIXED INCOME
Pre-authorization Form for Portfolio Recommendations/Transactions
(For use by Portfolio Managers, Research Analysts, and other ADMs to inform
CIOs of their personal holdings in securities where portfolio recommendations
or transactions are being considered in the same or equivalent security.)
- --------------------------------------------------------------------------------
Completion of this form is not required under the following conditions:
a) If ADM's security holdings consist of "exempt securities" such as USTreasury
and Agency Securities, Commercial Paper, and Certificates of Deposit.
b) If ADM's holdings are investment grade (i.e., Moody's "Baa3" rating or
higher, or S & P's "BBB-" rating or higher) and the security has no
conversion feature.
ALL OTHER HOLDINGS REQUIRE DISCLOSURE BEFORE
THE FIRST PORTFOLIO TRADE OR RECOMMENDATION IN EACH CALENDAR MONTH.
- --------------------------------------------------------------------------------
<TABLE>
<S><C>
- -----------------------------------------------------------------------------------------------------------------------------
ADM PERSONAL HOLDINGS INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------
1. Name of security: CUSIP:
- -----------------------------------------------------------------------------------------------------------------------------
2. Current market value of ADM's holdings: $ Number of bonds:
- -----------------------------------------------------------------------------------------------------------------------------
3. Approximate date of last transaction:
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
SUBJECT SECURITY INFORMATION:*
- -----------------------------------------------------------------------------------------------------------------------------
4. Proposed portfolio trade or recommendation based on current assets (check one): / / Buy / / Sell
- -----------------------------------------------------------------------------------------------------------------------------
Market value per bond: $ Size of issue:
- -----------------------------------------------------------------------------------------------------------------------------
Maturity date: Coupon rate:
- -----------------------------------------------------------------------------------------------------------------------------
Credit rating: Source of rating:
- -----------------------------------------------------------------------------------------------------------------------------
Maximum market value of trades for month: $ Conversion feature: / / Yes / / No
- -----------------------------------------------------------------------------------------------------------------------------
5. Approximate size of current position in proposed security in portfolios for which I serve as an ADM
(in face amount of bonds):
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
ADM DISCLOSURE STATEMENT: I hereby represent that to the best of my knowledge, this is an appropriate investment
recommendation 1) based on my research, or 2) an appropriate transaction based on the objectives, policies, philosophy,
and style of the portfolio(s) for which this transaction is being recommended. Neither I nor the registered account
holder is (1) attempting to personally benefit from an existing or future business relationship between the issuer and
Mellon or any Mellon-related fund or affiliate; (2) engaging in any manipulative or deceptive trading activity; or (3) in
possession of any material non-public information concerning the security to which this request relates.
- -----------------------------------------------------------------------------------------------------------------------------
ADM Signature Printed Name Date
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
RECOMMENDATION/TRANSACTION IS: (CIRCLE ONE) AUTHORIZED** NOT AUTHORIZED
- -----------------------------------------------------------------------------------------------------------------------------
CIO Signature Printed Name Date
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
RECEIVED BY COMPLIANCE:
- -----------------------------------------------------------------------------------------------------------------------------
Compliance Signature Printed Name Date
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Answer item 4 by totaling the maximum number of bonds expected to be bought
(if a buy strategy) or sold (if a sell strategy) during the current calendar
month at current market price for all portfolios for which you serve as an
ADM. Research analysts may omit item 5 and may limit their response to item 4
to indicating whether this is a buy or sell recommendation.
**Once the CIO's authorization is obtained, the ADM may make recommendations or
trade the security in the managed portfolio without Compliance's signature.
However, the ADM must deliver this form to Compliance on the day of the CIO's
authorization.
20
<PAGE>
THIS PAGE LEFT INTENTIONALLY BLANK
21
<PAGE>
CODE OF ETHICS
AND
INSIDER TRADING POLICY
GENERAL
Geewax, Terker & Company ("Employer"), a registered investment
advisor, has adopted this Code of Ethics and Insider Trading Policy pursuant of
to the requirements of Rule 17j-1 under the Investment Company Act of 1940 and
the Investment Advisers Act of 1940.
1. DEFINITIONS
(a) "Covered Person" means Employer and each partner and employee of
Employer.
(b) "Covered Account" means the investment account of a Covered Person
and the investment account(s) of the spouse, minor children and adults living
in the same house as a Covered Person, including a trust in which any such
person has a beneficial interest or as to which a Covered Person serves as
trustee.
(c) "Security" shall have the meaning set forth in Section 2(a)(36) of
the Investment Company Act of 1940 (see Appendix), except the following
exempt securities -- securities issued by the Government of the United States
or by federal agencies and which are direct obligations of the United States,
bankers acceptances, certificates of deposit, commercial paper and shares of
registered open-end investment companies and securities which mature not more
than one year from the acquisition date that are guaranteed by the U.S.
Government.
(d) "Beneficial Ownership" shall have the meaning ascribed thereto
under Section 16 of the Securities Exchange Act of 1934.
(e) A security is "being considered for purchase or sale" or is "being
purchased or sold" when an analyst or portfolio manager of Employer has
decided to purchase or sell the security for a Client Account.
<PAGE>
(f) "Client Account" means the investment account of any person, firm,
trust, partnership, foundation, corporation, syndicate, Fund or other entity
that is managed by Employer.
(g) "Fund" means an investment company, which is registered under the
Investment Company Act of 1940, as to which Employer serves as investment
advisor or sub-advisor.
2. CONDUCT OF COVERED PERSONS
(a) No Covered Person, in connection with the purchase or sale by such
Person of a security (or an option for such security) which is also held, or
within the most recent 15 days has been held, or which is being considered by
Employer for purchase, by a Fund:
i) shall employ any device, scheme, or artifice to defraud such
Fund;
ii) make to the Fund any untrue statement of a material fact, or omit
to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not misleading;
iii) engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon the Fund; or
iv) engage in any manipulative practice with respect to the Fund.
(b) It is the ongoing responsibility of Employer's securities analysts and
portfolio managers to prepare and maintain, on a daily basis, a current schedule
of securities that are being purchased or sold, or being considered for purchase
or sale, for Client Accounts (a "Schedule of Securities"). It shall be the
responsibility of John J. Geewax ("Mr. Geewax") to maintain such Schedule in
Employer's trading room where it shall be available for review by Covered
Persons. Except for transactions in exempt securities, as defined in section
1(c) above,
2
<PAGE>
it is the obligation of every Covered Person to review the then current Schedule
of Securities before engaging in any personal securities transactions or
recommending the purchase or sale of any security to any person having a
beneficial interest in a Covered Account.
(c) No Covered Person shall purchase or sell, directly or indirectly, any
security, or right, warrant or option for such security, in which he or she has,
or by reason of such transaction acquires, any direct or indirect Beneficial
Ownership and (i) which to his or her actual knowledge is then being considered
for purchase or sale, or is being purchased or sold by Employer for a Client
Account or (ii) which is listed on the then current Schedule of Securities.
(d) No Covered Person shall inform any person who has a beneficial
interest in a Covered Account of the identity of any security referred to in
clause (i) or (ii) of paragraph 2(c) above.
(e) Only occasional meals/tickets and holiday gifts from broker dealers
may be accepted by a Covered Person.
(f) No Covered person shall acquire any equity securities in an initial
public offering or private placement without the prior approval of Mr. Geewax or
Mr. Terker.
(g) No Covered Person shall serve on the Board of Directors of any
publicly traded company without the prior approval of either Mr. Geewax or Mr.
Terker.
EXEMPTED TRANSACTIONS
The prohibition of paragraphs (a) and (c) of section 2 above shall not apply to:
(a) Purchases or sales effected in any Covered Account over which a
Covered Person has no direct or indirect influence or control.
3
<PAGE>
(b) Purchases or sales of securities which are not eligible for purchase
or sale by any Client Account.
(c) Acquisition or dispositions which are non-volitional on the part of
either the Covered Person or a Client Account.
(d) Purchases which are part of an automatic dividend reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such rights were
acquired from such issuer, and sales of rights so acquired.
4. PROCEDURAL MATTERS
(a) Mr. Geewax shall:
(i) Furnish a copy of this Code of Ethics and Insider Trading
Policy to each Covered Person and obtain from each such Person a written
acknowledgment of the receipt thereof.
(ii) Receive and maintain the reports provided for by Section 5 of
this Code.
(iii) Decide whether the facts contained in any report filed hereunder
when any such report indicates that a Covered Person engaged in a
transaction in a security that within 15 days thereof was held by a Client
Account or was to be acquired by such Account.
(iv) Maintain the records required by paragraph (d) of Rule 17j-1.
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5. REPORTING
(a) Within 15 days after the end of each month every Covered Person shall
provide Mr. Geewax with a report of all transactions for the purchase or sale of
securities in a Covered Account, which identifies the broker or dealer that
effected the transaction, the securities and the nature of the transaction, the
trade and settlement dates and purchase or sale price. Mr. Geewax will review
these confirmations to detect violations of the Code of Ethics. Mr. Geewax will
be responsible, in his sole discretion, to determine whether a violation has
occurred.
(b) Every Covered Person shall certify annually that :
(i) they have read and understand the Code of Ethics and recognize
that they are subject thereto;
(ii) they have complied with the requirements of the Code of Ethics;
and
(iii) they have reported all personal securities transactions required
to be reported pursuant to the requirements of the Code of Ethics.
6. VIOLATIONS
Upon deciding that a violation of this Code has occurred, Mr. Geewax
shall impose such sanctions as they deem appropriate under the circumstances,
including fine, disgorgement of profits, termination or suspension of employment
with, or without compensation.
SECTION II. POLICY STATEMENT ON INSIDER TRADING
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Employer forbids any Covered Person from trading, either personally or
on behalf of a Client Account, on material nonpublic information, or
communicating material nonpublic information to other persons in violation of
the law. This conduct is frequently referred to as "insider trading". Employer's
policy applies to every Covered Person and extends to activities within and
outside their duties for Employer. Every Covered Person must read and retain a
copy of this policy statement. Any questions regarding Employer's Policy and
procedures should be referred to Mr. Geewax.
The term "insider trading" is not defined in the federal securities
laws, but generally is used to refer to the use of material nonpublic
information to trade in securities (whether or not one is an "insider") or to
communications of material nonpublic information to others.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
i) trading by an insider, while in possession of material
nonpublic information, or
ii) trading by a non-insider, while in possession of material
nonpublic information, where the information either was
disclosed to the non-insider in violation of an insider's
duty to keep it confidential or was misappropriated, or
iii) communicating material nonpublic information to others.
The elements of insider trading and the penalties for such unlawful
conduct are discussed below. If, after reviewing this policy statement, you have
any questions you should consult Mr. Geewax.
1. WHO IS AN INSIDER?
The concept of "insider" is broad. It includes partners and employees
of a company. In addition, a person can be a "temporary insider" if he or she
enters into a special confidential relationship in the conduct of a company's
affairs and as a result is given access to information solely for the company's
purposes. A temporary insider can include among others, a company's attorneys,
accountants, consultants, bank lending officers, and the employees of
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<PAGE>
such organizations. In addition, Employer may become a temporary insider of a
company it advises or for which it performs other services. According to the
Supreme Court, the company must expect the outsider to keep the disclosed
nonpublic information confidential and the relationship must at least imply such
a duty before the outsider will be considered an insider.
2. WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of a company's securities. Information that Covered Persons should
consider material includes, but is not limited to: dividend changes, earnings
estimates, changes in previously released earnings estimates, significant merger
or acquisition proposals or agreements, major litigation, liquidation problems,
and extraordinary management developments.
Material information does not have to relate to a company's business.
For example, in CARPENTER V. U.S., 108 U.S. 316 (1987), the Supreme Court
considered material certain information about the contents of a forthcoming
newspaper column that was expected to affect the market price of a security. In
that case, a WALL STREET JOURNAL reporter was found criminally liable for
disclosing to others the dates that reports on various companies would appear in
the JOURNAL and whether those reports would be favorable or not.
3. WHAT IS NONPUBLIC INFORMATION?
Information is nonpublic until it has been effectively communicated to the
market place. One must be able to point to some fact to show that the
information is generally public. For example, information found in a report
filed with the SEC, or appearing in DOW JONES, REUTERS ECONOMIC SERVICES, THE
WALL STREET JOURNAL or other publications of general circulation would be
considered public.
4. BASIS FOR LIABILITY.
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i) fiduciary duty theory
In 1980, the Supreme Court found that there is no general duty to
disclose before trading on material nonpublic information, but that such a
duty arises only where there is a fiduciary relationship. That is, there
must be a relationship between the parties to the transaction such that one
party has a right to expect that the other party will disclose any material
nonpublic information or refrain from trading. CHIARELLA V. U.S., 445 U.S.
22 (1980).
In DIRKS V. SEC, 463 U.S. 646 (1983), the Supreme Court stated
alternate theories under which non-insiders can acquire the fiduciary duties
of insiders: they can enter into a confidential relationship with the company
through which they gain information (I.E., attorneys, accountants), or they
can acquire a fiduciary duty to the company's shareholders as "tippees" if
they are aware or should have been aware that they have been given
confidential information by an insider who has violated his fiduciary duty to
the company's shareholders.
However, in the "tippee" situation, a breach of duty occurs
only if the insider personally benefits, directly or indirectly from the
disclosure. The benefit does not have to be pecuniary, but can be a gift, a
reputational benefit that will translate into future earnings, or even
evidence of relationship that suggests a QUID PRO QUO.
ii) misappropriation theory
Another basis for insider trading liability is the
"misappropriation" theory, where liability is established when trading occurs
on material nonpublic information that was stolen or misappropriated from any
other person. In U.S. V. CARPENTER, SUPRA, the Court found, in 1987, a
columnist defrauded THE WALL STREET JOURNAL when he stole information from
the JOURNAL and used it for trading in the securities markets. It should be
noted that the misappropriation theory can be used to reach a variety of
individuals not previously thought to be encompassed under the fiduciary duty
theory.
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5. PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material nonpublic
information are severe, both for individuals involved in such unlawful conduct
and their employers. A person can be subject to some or all of the penalties
below even if he or she does not personally benefit from the violation.
Penalties include:
i) civil injunctions
ii) treble damages
iii) disgorgement of profits
iv) jail sentences
v) fines for the person who committed the violation of up to three
times the profit gained or loss avoided, whether or not the person actually
benefitted, and
vi) fines for the employer or other controlling person of up to the
greater of $1,000.00 or three times the amount of the profit gained or loss
avoided.
In addition, any violation of this policy statement can be expected to
result in serious sanctions by Employer, including dismissal of the persons
involved.
SECTION III. PROCEDURES TO IMPLEMENT EMPLOYER'S INSIDER TRADING POLICY
The following procedures have been established to aid Covered Persons
to avoid insider trading and to aid Employer in preventing, detecting and
imposing sanctions against insider trading. Every Covered Person of Employer
must follow these procedures or risk serious sanctions, including dismissal,
substantial personal liability and criminal penalties. If you have any questions
about these procedures, you should consult Mr. Geewax.
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1. Identifying Inside Information
Before trading for yourself or others, including Client Accounts, in
the securities of a company about which you may have potential inside
information, ask yourself the following questions:
i) Is the information material? Is this information that an
investor would consider important in making his or her investment decisions? Is
this information that would substantially effect the market price of the
securities if generally disclosed?
ii) Is the information nonpublic? To whom has this information
been provided? Has the information been effectively communicated to the
marketplace by being published in REUTERS, THE WALL STREET JOURNAL, or other
publications of general circulation?
If, after consideration of the above, you believe that the information
is material and nonpublic, or if you have questions as to whether the
information is material and nonpublic, you should take the following steps:
i) Report the matter immediately to Mr. Geewax.
ii) Do not purchase or sell the securities on behalf of yourself
or others, including Client Accounts.
iii) Do not communicate the information inside or outside Employer,
other than to Mr. Geewax.
iv) After Mr. Geewax has reviewed the issue, you will be
instructed to continue the prohibitions against trading and communication, or
you will be allowed to trade and communicate the information.
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The Undersigned has read, understands and agrees to abide by, the Geewax, Terker
& Company Code of Ethics and Insider Trading Policy and has retained a copy of
the said document.
_____________________ ____________________________________
Date Signature
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APPENDIX
"Security means any note, stock, treasury stock, bond, debenture, evidence of
indebtedness, certificate of interest or participation in any profit-sharing
agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege
on any security (including a certificate of deposit) or on any group or index
of securities (including any interest therein or based on the value thereof),
or any put, call, straddle option, or privilege entered into in a national
securities exchange relating to foreign currency, or, in general, any interest
or instrument commonly known as a "security", or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, guarantee
of, or warrant or right to subscribe to or purchase, any of the foregoing.
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GENESIS CODE OF ETHICS
The company has adopted the following as its Code of Ethics:
1. INTEGRITY
GAML will observe high standards of integrity and fair dealing.
2. SKILL, CARE AND DILIGENCE
GAML will act with due skill, care and diligence.
3. MARKET PRACTICE
GAML will observe high standards of market conduct. It will also, to the extent
endorsed for the purpose of these Ethics, comply with any code or standard as in
force from time to time and as it applies to the company either according to its
terms or by rulings made under it.
4. INFORMATION ABOUT CUSTOMERS
GAML will seek from clients which it advises or for whom it exercises
discretion, any information about their circumstances and investment objectives
which might reasonably be expected to be relevant in enabling it to fulfil its
responsibilities to them.
5. INFORMATION FOR CUSTOMERS
GAML will take reasonable steps to give each client it advises, in a
comprehensible and timely way, any information needed to enable him to make a
balanced and informed decision. GAML will similarly be ready to provide a client
with a full and fair account of the fulfilment of its responsibilities to him.
6. CONFLICT OF INTEREST
GAML will either avoid any conflict of interest arising or, where conflicts
arise, will ensure fair treatment to all its Clients by disclosure, internal
rules of confidentiality, declining to act, or otherwise. GAML will not unfairly
place its interests above those of its Clients and, where a properly informed
Client would reasonably expect that the company would place his interests above
its own, the company should live up to that expectation.
<PAGE>
7. CUSTOMER ASSETS
GAML does not intend to hold Client Assets as part of its business. However,
were the company to have control of or be otherwise responsible for assets
belonging to a Client it will arrange proper protection for them, by way of
segregation and identification of those assets or otherwise.
8. FINANCIAL RESOURCES
GAML will ensure that it maintains adequate financial resources to meet its
investment business commitments and to withstand the risks to which its business
is subject.
9. INTERNAL ORGANISATION
GAML will organise and control its internal affairs in a responsible manner,
keeping proper records, and where the firm employs staff or is responsible for
the conduct of investment business by non members of staff, will ensure that
there are adequate arrangements in place to ensure that personnel are suitable,
adequately trained and properly supervised and that there exist well-defined
compliance procedures.
10. RELATIONS WITH REGULATORS
GAML will deal with its regulators in an open and cooperative manner and keep
the regulators promptly informed of anything concerning the company which might
reasonably be expected to be disclosed to it.
<PAGE>
PERSONAL ACCOUNT DEALING
7.1 INTRODUCTION
All staff members, including officers, of the Genesis Group - including GAML -
will have been asked to sign two notices in respect of personal dealings in
securities: a Personal Account Notice and an Insider Dealing Notice. The other
parts of this section set out in detail the rules to be observed when dealing
for your own account.
7.2 RELEVANT TRANSACTIONS
These Rules apply to all transactions in Investments (including taking up rights
in a rights issue, exercising options, conversion or subscription rights and
buying or selling investments under any offer, including a takeover or tender
offer) carried out - or sought to be carried out - by or on behalf of any GAML
officer, employee, connected person or advisory representative.
"Investments"" in this context has the meaning given in the UK Financial
Services Act 1986 and includes:
a) shares in British or foreign companies;
b) corporate issues of debenture stock, loan stock, bonds, notes,
certificates of deposit, commercial paper or other debt instruments;
c) warrants to subscribe for investments falling within a) and b) above;
d) depository receipts or other types of instrument relating to
investments falling within a), b) or c) above;
e) unregulated unit trusts, mutual funds and similar schemes in the United
Kingdom or elsewhere;
f) options, whether on any other investment in this list, on sterling or
another currency or on gold, palladium or silver; or an option on an
option;
g) futures, i.e. a contract for the purchase or sale at a future date but
at a pre-agreed price of any other investment on this list, any
currency, gold or silver or any similar asset;
h) contracts for differences e.g. Footsie, S&P 500 or contracts on
indices;
i) investments which are similar or related to any of the foregoing.
A "connected person" means anyone connected with the officer or employee
concerned by reason of a domestic or business relationship (other than as arises
solely because that person is a client of the company), such that the officer or
employee has influence over that person's judgement as to how to invest his
property or exercise any rights attaching to his investments.
An "advisory representative" under US law means any partner, officer or director
of the adviser; any employee who makes, participates in making, or whose
activities relate to making any recommendation; any employee who in the course
of his duties obtains any information about securities recommendations prior to
their effective dissemination; and any control person, affiliate of a control
person, or affiliate of an affiliate of a control person who obtains information
about securities recommendations prior to their effective dissemination. This
will include staff of Participating Affiliates.
7.3 PROHIBITED DEALINGS
A person covered by these Rules is prohibited from buying or selling - or giving
instructions to a third party to buy or sell - on his/her behalf or for his/her
benefit an investment if he/she knows or should reasonably know that any one or
more of the following circumstances exists:
a) that to do so would contravene the provisions of the UK Criminal
Justice Act 1993 (a summary of which is attached as Appendix 1) (see
also 7.6 below); or
b) that GAML or any member or affiliate of the Genesis Group intends to
publish a recommendation or piece of research or analysis concerning
that investment or any related investment, until such time as the
Customer(s) for whom the publication was principally intended has had,
or is likely to have had, a reasonable opportunity to react to it; or
c) that GAML or any member or affiliate of the Genesis Group has advised a
Customer, or has made a decision to deal for a discretionary Customer
in that investment, until the order or decision in question has been
executed or cancelled; or
d) that to do so would, or would be likely to, involve him/her in a
conflict between his/her own interest and that of any Customer or
his/her duty to any Customer.
If a person covered by these Rules is precluded by any part of these Rules from
themselves entering into any transaction, such person must not, for his own
benefit or for the benefit of a connected person of his:
i) advise or cause any other person to enter into such a
transaction; or
ii) communicate any information or opinion to any other person if
they know, or have reason to believe, that the other person
will as a result enter into such a transaction or cause or
advise someone else to do so.
7.4 PERMITTED DEALINGS AND PROCEDURES
A person covered by these Rules is permitted to carry out transactions in
Investments, other than Prohibited Dealings (see 7.3 above), subject to the
following conditions and procedures:
a) Dealing
<PAGE>
i) In Emerging Markets or House stocks (see Note below) BEFORE a transaction is
entered into or a purchase or sale order is placed with a third party, a Dealing
Form must be completed which gives details of the proposed transaction (size,
way and nature of investment). This form, which is available from the Compliance
Officer, must be signed as approved by a Director of the Company other than the
person making the application, and lodged with the Compliance officer. In giving
such approval for transactions in House stocks, account will be taken of the
requirements of the "Yellow Book" of the London Stock Exchange (see Appendix 2
attached).
ii) In other stocks.
Prior approval is not required but the provisions of b) and c) below apply.
b) Reporting.
Within 7 days of a transaction being executed the officer or employee concerned
must report such transaction in writing to the Compliance Officer and submit a
copy of the relevant contract note or equivalent document.
c) Disclosure
When seeking to effect a transaction with a third party for a person covered by
these Rules the officer or employee concerned must:
i) inform that third party that the proposed transaction is for a person
covered by these Rules; and
ii) not request or accept from that third party any credit or special
dealing facilities in connection with that transaction.
Note: Emerging Market stocks are those defined as such by the Board of Directors
of Genesis. House stocks are those listed Companies and Funds which are managed
by a Member or affiliate of the Genesis Group.
7.5 RECORDKEEPING OF PERSONAL SECURITIES TRANSACTIONS
There are detailed requirements of the Advisers Act and of the SEC to keep
records of personal securities transactions. These are set out in Section
8.2(a)(ii) of this manual.
7.6 INSIDER TRADING LAWS OF THE USA
The Advisers Act has explicit requirements regarding Insider Trading (a summary
of which is attached as Appendix 4) and the US Congress has significantly
increased the penalties for insider trading. The SEC has made the review of the
required policies and procedures a "focal point" in its adviser inspections.
<PAGE>
The Directors of GAML believe that the policies and procedures set out in
Section 7 of this manual also meet the requirements of US law and of the US
regulatory authorities.
<PAGE>
CODE OF ETHICS AND CONDUCT
GLOBEFLEX CAPITAL, L.P.
(REVISED JULY 1999)
As an investment adviser, GlobeFlex Capital, L.P. ("GlobeFlex") is a fiduciary.
It and ALL of its employees owe its clients the highest duty of loyalty. It is
crucial to GlobeFlex that each employee of GlobeFlex (an "Employee") avoid
conduct that is or may be inconsistent with GlobeFlex's duty of loyalty to its
clients. It is also important for Employees to avoid actions that, while they
may not actually involve a conflict of interest or an abuse of a client's trust,
may have the appearance of impropriety.
Because GlobeFlex serves as a sub-adviser to a registered investment company (a
"Fund Client"), GlobeFlex is required to adopt a code of ethics setting forth
policies and procedures, including the imposition of restrictions on itself and
Employees, to the extent reasonably necessary to prevent certain violations of
rules under the Investment Company Act of 1940. This Code of Ethics and Conduct
(the "Code") is intended to set forth those policies and procedures and, beyond
that, to state GlobeFlex's broader policies regarding GlobeFlex's and its
Employees' discharge of their duty of loyalty to clients.
I.
GENERAL
BASIC PRINCIPLES. This Code is based on a few basic principles that are at the
core of our fiduciary duty and that should pervade all professional, as well as
all investment-related personal, activities of all Employees: (i) the interests
of GlobeFlex's clients come before GlobeFlex's or Employees' interests; (ii)
each Employee's professional activities and personal investment activities must
be conducted in a way that is consistent with this Code and avoid any actual or
potential conflict between the interests of clients and those of GlobeFlex or
the Employee; (iii) those activities must be conducted in a way that avoids any
abuse of an Employee's position of trust with and responsibility to GlobeFlex
and its clients, including taking inappropriate advantage of that position.
CATEGORIES OF EMPLOYEES. Beyond these general principles, the Code imposes
specific procedures, restrictions and standards on Employees' activities. These
specific provisions recognize that different Employees have different
responsibilities, different levels of control over investment decision making
for client accounts, and different levels of access to information about
investment decisionmaking and implementation. In general, those with greater
control and greater access face greater potentials for conflicts of interest in
their personal investment activities and have more direct duties to clients. For
these purposes, Employees are divided into three groups:
1. PORTFOLIO MANAGERS are Employees who have direct responsibility
and authority to make investment decisions for client accounts,
or who regularly participate in making investment decisions;
2. INVESTMENT EMPLOYEES include all Portfolio Managers as well as
all Employees, such as analysts, who provide information and
advice to one or more Portfolio Managers and those who execute
the Portfolio Managers' decisions (I.E., traders); and
<PAGE>
3. ACCESS PERSONS include all Portfolio Managers, all other
Investment Employees, and all Employees who, in the course of
their normal duties, obtain information about clients' purchases
or sales of securities. Because of GlobeFlex's small size and the
range of duties that Employees may have, ALL EMPLOYEES ARE
CONSIDERED "ACCESS PERSONS," and "Access Person" procedures,
standards and restrictions that might be imposed only on a
limited subset of employees in another, larger organization,
apply to ALL GlobeFlex Employees.
COMPLIANCE OFFICER. Many of the specific procedures, standards, and restrictions
described in this Code involve consultation with the "Compliance Officer."
Jennifer O'Connell is the Compliance Officer. In her absence, Medy Papa, will be
the acting Compliance Officer.
"SECURITY." For purposes of this Code (and the Insider Trading Policy attached
as Appendix 3,) the term "security" includes not only stocks, but also options,
rights, warrants, futures contracts, convertible securities or other securities
that are related to a security in which GlobeFlex's clients may effect
transactions or as to which GlobeFlex may make recommendations (sometimes also
referred to as "related securities").
"COVERED ACCOUNTS." Many of the procedures, standards and restrictions in this
Code govern activities in "Covered Accounts." Securities accounts of which
GlobeFlex is a beneficial owner are generally considered "Covered Accounts."
However, investment partnerships of which GlobeFlex is a general partner or from
which GlobeFlex receives fees based on capital gains are generally not
considered Covered Accounts despite the fact that GlobeFlex or Employees may be
considered to have an indirect beneficial ownership interest in them.
In addition, Covered Accounts include each securities account registered in an
Employee's name AND each account or transaction in which an Employee has any
direct OR INDIRECT "beneficial ownership interest." The term "beneficial
ownership interest" has a very broad meaning, discussed more completely below
and in Appendix 1, and can include accounts of corporations owned by the
Employee and even accounts owned by certain family members. IT IS VERY IMPORTANT
TO REVIEW APPENDIX 1 IN DETERMINING COMPLIANCE WITH REPORTING REQUIREMENTS AND
TRADING RESTRICTIONS.
SPECIFIC RULES ARE NOT EXCLUSIVE. This Code's procedures, standards, and
restrictions do not and cannot address each potential conflict of interest.
Rather, they attempt to prevent some of the more common types of problems.
Ethics and faithful discharge of our fiduciary duties require adherence to the
spirit of this Code and an awareness that activities other than personal
securities transactions could involve conflicts of interest. (For example,
accepting favors from broker-dealers could involve an abuse of an Employee's
position. GlobeFlex is a natural object of cultivation by securities dealers and
it is possible that this consideration could impair GlobeFlex's objectivity.) If
there is any doubt about a transaction for a reportable account or for an
Employee's personal account, the Compliance Officer should be consulted.
II.
RULES APPLICABLE TO ALL EMPLOYEES
All Employees must comply with the following policies.
ILLEGAL ACTIVITIES. Although our fiduciary duties require more than simply
avoiding illegal and inappropriate
<PAGE>
behavior, at a minimum all Employees should be aware that, as a matter of policy
and the terms of their employment with GlobeFlex, the following types of
activities are strictly prohibited:
(1) Using any device, scheme or artifice to defraud, or engaging in
any act, practice, or course of conduct that operates or would
operate as a fraud or deceit upon, any client or prospective
client or any party to any securities transaction in which
GlobeFlex or any of its clients is a participant;
(2) Making any untrue statement of a material fact or omitting to
state to any person a material fact necessary in order to make
the statements GlobeFlex has made to such person, in light of the
circumstances under which they are made, not misleading;
(3) Engaging in any act, practice, or course of business that is
fraudulent, deceptive, or manipulative, particularly with respect
to a client or prospective client; and
(4) Causing GlobeFlex, acting as principal for its own account or for
any account in which GlobeFlex or any person associated with
GlobeFlex (within the meaning of the Investment Advisers Act) to
sell any security to or purchase any security from a client in
violation of any applicable law, rule or regulation of a
governmental agency.
"INSIDER TRADING." It is GlobeFlex's policy that no Employee may engage in what
is commonly known as "insider trading": (i) trading, either in a Covered Account
or on behalf of any other person (including client accounts), on the basis of
material nonpublic information; or (ii) communicating material nonpublic
information to others in violation of the law. GlobeFlex has adopted an "Insider
Trading Policy" that describes more fully what constitutes "insider trading" and
the legal penalties for engaging in it. That policy is attached to this Code as
Appendix 3. Each Employee must review the Insider Trading Policy annually and
sign an acknowledgment that he or she has done so. Employees should refer to the
Insider Trading Policy (as well as this Code) whenever an Employee believes he
or she may have material nonpublic information.
FRONTRUNNING AND SCALPING. It is GlobeFlex's policy that no Employee may engage
in what is commonly known as "frontrunning" or "scalping": buying or selling
securities in a Covered Account, prior to clients, in order to benefit from any
price movement that may be caused by client transactions or GlobeFlex's
recommendations regarding the security.(1) To prevent frontrunning or
scalping,(2) no Employee may buy or sell a security when he or she knows
GlobeFlex is actively considering the security for purchase or sale (as
applicable) in client accounts. The Chief Investment Officer will maintain a
current list (the "List") of securities (i) as to which GlobeFlex has
"Recommendation Information" or (ii) that are held in any client account, and
will make the List available to the Compliance Officer for consultation in
determining whether or not to clear a proposed transaction, as described below.
Any decision by GlobeFlex that it will purchase or sell a particular security
for its clients' accounts or that it will recommend that its clients buy or sell
a particular security is considered "Recommendation Information." Recommendation
Information also includes any research that could reasonably be expected to lead
to a buy or sell decision or recommendation.
- ---------------------
(1) These practices may also constitute illegal "insider trading".
(2) Some of the specific trading rules described below are also intended,
in part, to prevent frontrunning and scalping.
<PAGE>
PRECLEARANCE. No Employee may buy, sell, or pledge any security for any Covered
Account without obtaining written clearance from the Compliance Officer BEFORE
the transaction, specifying the securities involved, dated, and signed by the
Compliance Officer. IT IS EACH EMPLOYEE'S RESPONSIBILITY TO BRING PROPOSED
TRANSACTIONS TO THE COMPLIANCE OFFICER'S ATTENTION AND TO OBTAIN FROM THE
COMPLIANCE OFFICER FOLLOWUP WRITTEN DOCUMENTATION OF ANY ORAL CLEARANCE.
Transactions effected without preclearance are subject, in the Compliance
Officer's discretion (after consultation with other members of management, if
appropriate), to being reversed or, if the Employee made profits on the
transaction, to disgorgement of such profits. Additionally, the Compliance
Officer's trades shall be approved by the alternate officer and vice versa.
The Compliance Officer need not specify the reasons for any decision to clear or
deny clearance for any proposed transaction. As a general matter, due to the
difficulty of showing that an Employee did not know of client trading activity
or Recommendation Information, the Compliance Officer should not be expected to
clear transactions in securities as to which GlobeFlex has Recommendation
Information, although the Compliance Officer may determine that a particular
transaction in such a security does not, under the circumstances, create the
appearance of impropriety and permit it.(3)
Transaction orders must be placed within three trading days after the day
approval is granted.
"BLACKOUT" PERIOD. No Employee may buy a security, including a related security,
at any time when a Client owns a security of the same class or a related
security. In addition, no Employee may (i) BUY a security within seven calendar
days BEFORE any client account BUYS the same or a related security, (ii) SELL
such a security within seven days BEFORE any client account SELLS the same or a
related security, (iii) SELL a security within seven days AFTER any client
account has BOUGHT the same or a related security or (iv) BUY a security within
seven days AFTER any client account has SOLD the same or a related security. The
Compliance Officer may grant exemptions to the foregoing rules where strict
adherence would result in prejudice to a client's interest (for example, when an
Employee has sold a security and, before the expiration of seven days, external
events make it important for a client to sell the same or a related security
quickly). No Employee may execute a transaction in a security on any day during
which there is pending for any client any order in the same security until the
order is executed or withdrawn. This rule applies whether or not the Compliance
Officer has cleared the transaction (E.G. earlier in the day than the time at
which an order was first placed for a Client). If an Employee completes a
transaction during a "blackout" period, he or she may be required to turn over
any profits realized on the transaction, in most cases for crediting to client
accounts.
LIMITATION ON SHORT-TERM TRADING. No Employee may engage in the purchase and
sale, or sale and purchase, for a Covered Account of the same (or equivalent)
securities within any period of 60 calendar days. In most cases, any profits
realized by an Employee on trades within the 60-day period must be disgorged to
GlobeFlex for crediting to client accounts.
OPTIONS AND SIMILAR DERIVATIVE SECURITIES. No Covered Account may buy, own, or
trade in any options or futures contracts on any securities or securities
indices; PROVIDED that the Compliance Officer may grant exceptions in
circumstances in which she determines that no potential exists for the
appearance of impropriety and that this prohibition would result in unreasonable
hardship for the Employee or other beneficial owners of a Covered Account. For
example, it may be inappropriate to prohibit the spouse of an Employee from
receiving and owning employee stock options from his or her employer, provided
the exercise of the options is
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(3) For example, if an Employee seeks to sell a security he or she has
owned for a significant time and GlobeFlex is considering buying the
same or a related security for clients, the Compliance Officer may
determine no appearance of impropriety exists.
<PAGE>
subject to preclearance and the other rules applicable to securities
transactions by Covered Accounts.(4)
COMMISSIONS. Employees may negotiate with broker-dealers regarding the
commissions charged for their personal transactions but may not enter into any
arrangement for a Covered Account to pay commissions at a rate that is better
than the rate available to clients through similar negotiations.
GIFTS. No Employee may receive any gift or other thing of more than nominal
value from any person or entity that does business with or on behalf of any
client.
DUTIES OF CONFIDENTIALITY. All Recommendation Information and all information
relating to clients' portfolios and activities is STRICTLY CONFIDENTIAL.
Consideration of a particular purchase or sale for a client account may not be
disclosed except to authorized persons.
III.
RULES APPLICABLE TO INVESTMENT EMPLOYEES
All Investment Employees (which include all Portfolio Managers) must comply with
the following policies.
NEW ISSUE SECURITIES. No Investment Employee may purchase new publicly offered
issues of any securities ("New Issue Securities") for any Covered Account in the
public offering of those securities. Generally, Investment Employees may not
purchase or recommend New Issue Securities for Covered Accounts until at least
one day after the public offering has been completed.
PRIVATE PLACEMENTS. As with all transactions, purchases (or recommendations) of
securities for Covered Accounts in private placements must be cleared in advance
by the Compliance Officer. In determining whether to approve any such
transaction for an Investment Employee, the Compliance Officer will consider,
among other factors, whether the investment opportunity should be reserved for
client accounts and whether the investment opportunity is being offered to the
Investment Employee by virtue of his or her position with GlobeFlex.(5) An
Investment Employee who has acquired securities in a private placement must
notify the Compliance Officer if he or she is to participate in subsequent
consideration of an investment by client accounts in securities of the same
issuer. In such circumstances, a decision to acquire securities of that issuer
for client accounts must be reviewed independently by an Investment Employee
with no personal interest in that issuer prior to placing an order. If no such
Investment Employee exists, the transaction may not be effected for client
accounts without specific client approval.
BEST EXECUTION. It is GlobeFlex's general policy in selecting brokers to effect
transactions to seek "best execution." This generally means prompt and efficient
execution of the transaction at the best obtainable price. When an Investment
Employee involved in broker selection believes that more than one broker can
satisfy the objective of best execution, preference may be given to brokers who
provide services to GlobeFlex that qualify
- -------------------------
(4) In such a circumstance, if the employer's securities are held in
client accounts, a further exemption will be required to allow the
ownership and exercise of the options and the ownership and/or sale of
the underlying stock.
(5) In making this determination, the Compliance Officer will often be
expected to consult with the Portfolio Managers.
<PAGE>
as "research" services under applicable law. In any event, the broker's
commissions or other transaction compensation must be reasonable in relation to
the value of the brokerage and "research" services provided. Clients other than
ERISA plans and Fund Clients may agree to certain brokerage practices that
involve consideration of factors other than price, execution, and "research"
services. A more detailed description of the factors that may be considered is
set forth in GlobeFlex's Form ADV (Schedule F, Item 12A. and B.).
SERVICE AS A DIRECTOR. No Investment Employee may serve as a director of a
publicly-held company without prior approval by the Compliance Officer and Chief
Investment Officer (or another Investment Employee, if the Chief Investment
Officer is the proposed board member) based upon a determination that service as
a director would be in the best interests of any Client and its shareholders. In
the limited instances in which such service is authorized, Investment Employees
serving as directors will be isolated from other Investment Employees who are
involved in making decisions as to the securities of that company through
procedures determined by the Compliance Officer to be appropriate in the
circumstances.
IV.
RULES APPLICABLE TO PORTFOLIO MANAGERS
Section removed effective July 1999
V.
EMPLOYEE REPORTING
REPORT OF HOLDINGS. Each Employee must, upon commencement of employment,
disclose to the Compliance Officer the identities, amounts, and locations of all
securities owned in all Covered Accounts -- I.E., accounts in which he or she
has a "beneficial ownership interest." In addition, each Employee must disclose
similar information within thirty (30) days after the end of each calendar year
while employed by GlobeFlex.
BROKERAGE ACCOUNTS. Each Employee must instruct each broker, bank, or other
financial institution in which the Employee has a Covered Account (I.E., a
securities trading account in which the Employee has any direct or indirect
beneficial ownership interest) to provide GlobeFlex with duplicates of all trade
confirmations and all monthly or other periodic statements.
MONTHLY REPORTS. Each Employee must report to the Compliance Officer by the
tenth of each month all securities transactions in all of the Employee's Covered
Accounts during the preceding month. In addition, each Employee must report all
transactions for the account of each person or entity (i) that is not a client
of GlobeFlex and (ii) for whom the Employee manager provides investment
management services or to whom the Employee gives investment or voting advice.
Appendix 2 sets forth a form for reporting those transactions.(6)
In filing Monthly Reports, Employees must note that:
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(6) If possible, all reportable transactions should be listed on a single
form. If necessary, because of the number of transactions, attach a
second form and mark it "continuation." All information called for in
each column must be completed for every security listed on the report.
<PAGE>
a. Each Employee must file a report every month whether or not there
were any reportable transactions.
b. Reports must show all sales, purchases, OR OTHER ACQUISITIONS OR
DISPOSITIONS, including gifts, the rounding out of fractional
shares, exercises of conversion rights, exercises or sales of
subscription rights and receipts of stock dividends or stock
splits.
c. Monthly reports as to family and other Covered Accounts that are
fee-paying clients of GlobeFlex, need merely list the account
number; transactions need not be itemized.
d. Employees need not report transactions in direct obligations of
the U.S. Government or shares of registered open-end investment
companies (other than Fund Clients).
1/2 OF 1% HOLDINGS. GlobeFlex may limit its investment of client assets in
securities if Employees have positions in related securities that exceed levels
the Chief Investment Officer or the Portfolio Manager managing the client
account considers appropriate. To help Portfolio Managers make these decisions,
a special Item #3 in the Monthly Report form requires each Employee to identify
any company of which he or she "beneficially owns" more than 1/2 of 1% of the
outstanding voting shares and specify the amount held. The Employee must be sure
to include all holdings considered to be "beneficially owned," including amounts
owned by his or her spouse, minor children, or trusts of which he or she, or
members of his or her immediate family, are trustees.
DEFINITION OF BENEFICIAL OWNERSHIP. The concept of "beneficial ownership" of
securities is broad and includes many diverse situations. An Employee has a
"beneficial ownership" interest in not only securities he or she owns directly,
and not only securities owned by others specifically for his or her benefit, but
also (i) securities held by the Employee's spouse, minor children and relatives
who live full time in the Employee's home, and (ii) securities held by another
person if by reason of any contract, understanding, relationship, agreement or
other arrangement the Employee obtains benefits substantially equivalent to
ownership. EXAMPLES OF SOME OF THE MOST COMMON OF THOSE ARRANGEMENTS ARE SET
FORTH IN APPENDIX 1.(7)
This broad definition of "beneficial ownership" is for purposes of this Code
only; it does not necessarily apply for purposes of other securities laws or for
purposes of estate or income tax reporting or liability. To accommodate
potential differences in concepts of ownership for other purposes, an Employee
may include in his/her Monthly Report a statement declaring that the reporting
or recording of any securities transaction shall not be construed as an
admission that the reporting person has any direct or indirect beneficial
ownership in the security. For example, if a parent or custodian sold securities
owned by a minor child under a Uniform Gifts to Minors Act, the other parent
would report such transaction, but could disclaim beneficial ownership by
checking the appropriate box on the Monthly Report. Whether or not an Employee's
Monthly Report carries such a disclaimer is a personal decision on which
GlobeFlex will make no recommendation. Accordingly, an Employee may wish to
consult his/her own attorney on this issue.
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(7) An Employee need not report transactions in any account over which he
or she does not have "any direct or indirect influence or control".
The most common example of such a situation is where securities are
held in a trust of which an Employee is a beneficiary but is not the
trustee and has no control or influence over the trustee. This
exception is very limited and will be construed narrowly. Questions
about "influence or control" or otherwise about beneficial ownership
or reporting responsibilities should be directed to the Compliance
Officer.
<PAGE>
CONFIDENTIALITY. All statements of holdings, duplicate trade confirmations,
duplicate account statements, and monthly reports will generally be held in
confidence by the Compliance Officer. However, the Compliance Officer may
provide access to any of those materials to other members of GlobeFlex's
management in order to resolve questions regarding compliance with this Code and
regarding potential purchases or sales for client accounts, and GlobeFlex may
provide regulatory authorities with access to those materials where required to
do so under applicable laws, regulations, or orders of such authorities.
VI.
PROCEDURES; SANCTIONS
TRANSACTION MONITORING. To determine whether Employees have complied with the
rules described above (and to detect possible insider trading), the Compliance
Officer will review duplicate trade confirmations provided pursuant to those
rules within 10 days after their receipt. The Compliance Officer will also
compare Monthly Reports with trade confirmations and records of preclearance
activities to determine whether Employees are complying with the reporting
requirements. The Compliance Officer will compare transactions in Covered
Accounts with transactions in client accounts for transactions or trading
patterns that suggest potential frontrunning, scalping, or other practices that
constitute or could appear to involve abuses of Employees' positions.
CERTIFICATION OF COMPLIANCE. By January 30 of each year, each Employee must
certify that he or she has read and understands this Code, that he or she
recognizes that this Code applies to him or her, and that he or she has complied
with all of the rules and requirements of this Code, including reporting all
securities transactions required to be reported.
RETENTION OR REPORTS AND OTHER RECORDS. The Compliance Officer will maintain at
GlobeFlex's principal office for at least five years a confidential (subject to
inspection by regulatory authorities) record of each reported violation of this
Code and of any action taken as a result of such violation. The Compliance
Officer will also cause to be maintained in appropriate places all other records
relating to this Code that are required to be maintained by Rule 17j-1 under the
Investment Company Act of 1940 and Rule 204-2 under the Investment Advisers Act
of 1940, as well as under applicable state laws.
ANNUAL REPORT. The Compliance Officer will prepare an annual report to the
General Partner of GlobeFlex:
1. summarizing provisions of the Code concerning personal investing by
Employees and any changes in the procedures made during the past year;
2. identifying any violations of the Code concerning personal investing
by Employees that required significant remedial action during the past
year; and
3. identifying any recommended changes in the Code based upon GlobeFlex's
experience thereunder, evolving industry practice, or developments in
applicable laws or regulations.
REPORTS OF VIOLATIONS. Any Employee who learns of any violation, apparent
violation, or potential violation of this Code is required to advise the
Compliance Officer as soon as practicable. The Compliance Officer will then take
such action as may be appropriate under the circumstances.
SANCTIONS. Upon discovering that any Employee has failed to comply with the
requirements of this Code,
<PAGE>
GlobeFlex may impose on that Employee whatever sanctions management considers
appropriate under the circumstances, including censure, suspension, limitations
on permitted activities, or termination of employment.
VII.
ACKNOWLEDGMENT OF RECEIPT AND CERTIFICATION
I have read, understand, acknowledge that I am subject to and agree to
abide by the guidelines set forth in this Code of Ethics and Conduct. I further
certify that I have complied with the Code (including the Insider Trading Policy
attached thereto) since the last date of my certification, and that I have
disclosed or reported all personal securities transactions required to be
disclosed or reported pursuant to the requirements of the Code. I understand
that any violation of the Code may lead to sanctions, including my dismissal for
cause.
- ---------------------------------- ----------------------------------
NAME DATE
<PAGE>
APPENDIX 1
EXAMPLES OF BENEFICIAL OWNERSHIP
1. By an Employee for his/her own benefit, whether bearer, registered in
his/her own name, or otherwise;
2. By others for the Employee's benefit (regardless of whether or how
registered), such as securities held for the Employee by custodians,
brokers, relatives, executors or administrators;
3. For an Employee's account by a pledge;
4. By a trust in which an Employee has an income or remainder interest unless
the Employee's only interest is to receive principal if (a) some other
remainderman dies before distribution or (b) if some other person can
direct by will a distribution of trust property or income to the Employee;
5. By an Employee as trustee or co-trustee, where either the Employee or any
member of his/her immediate family (i.e., spouse, children and their
descendants, stepchildren, parents and their ancestors, and stepparents, in
each case treating a legal adoption as blood relationship) has an income or
remainder interest in the trust.
6. By a trust of which the Employee is the settlor, if the Employee has the
power to revoke the trust without obtaining the consent of all the
beneficiaries;
7. By any non-public partnership in which the Employee is a partner;
8. By a personal holding company controlled by the Employee alone or jointly
with others;
9. In the name of the Employee's spouse unless legally separated;
10. In the name of minor children of the Employee or in the name of any
relative of the Employee or of his/her spouse (including an adult child)
who is presently sharing the Employee's home. This applies even if the
securities were not received from the Employee and the dividends are not
actually used for the maintenance of the Employee's home;
11. In the name of any person other than the Employee and those listed in (9)
and (10) above, if by reason of any contract, understanding, relationship,
agreement, or other arrangement the Employee obtains benefits substantially
equivalent to those of ownership;
12. In the name of any person other than the Employee, even though the Employee
does not obtain benefits substantially equivalent to those of ownership (as
described in (11) above), if the Employee can vest or revest title in
himself/herself.
<PAGE>
APPENDIX 2
PERSONAL SECURITIES TRANSACTION REPORT
[form of monthly report attached]
<PAGE>
APPENDIX 3
GLOBEFLEX CAPITAL, L.P.
INSIDER TRADING POLICY
SECTION I. POLICY STATEMENT
It is the policy of GlobeFlex Capital, L.P. ("the Firm") that no officer,
director or employee may (i) trade, either personally or on behalf of others
(including investment companies, collective investment funds, common trust funds
and trust accounts managed or advised by the Firm), on the basis of material
nonpublic information or (ii) communicate material nonpublic information to
others in violation of the law -- conduct that is commonly called "insider
trading." This policy applies to every employee and every officer, director and
employee of the Firm's general partner, and extends to activities both within
and outside of their duties at the Firm. Each such employee, officer or director
must read this policy statement and acknowledge his or her understanding of it.
Terms used in this Policy but not defined will have the meanings given them in
the Firm's Code of Ethics and Conduct.
The term "insider trading" is not defined in the federal securities laws, but
generally is used to refer to the use of material nonpublic information to trade
in securities (whether or not one is an "insider") and to the communication of
material nonpublic information to others. The law concerning insider trading is
generally understood to prohibit:
(-) trading by an "insider" while he or she is in possession of material
nonpublic information;
(-) trading by a non-insider while he or she is in possession of material
nonpublic information, if the information either was disclosed to the
non-insider in violation of an insider's duty to keep it confidential
or was misappropriated; and
(-) communicating material nonpublic information to others in violation of
one's duty to keep such information confidential.
The elements of insider trading and the penalties for it are discussed below.
If, after reviewing this policy statement, you have any questions you should
consult the Compliance Officer.
A. WHO IS AN INSIDER?
The concept of an "insider" is broad. It includes officers, directors and
employees of a company. In addition, a person can be a "temporary insider" if he
or she enters into a special confidential relationship in the conduct of a
company's affairs and as a result is given access to information solely for the
company's purposes. A temporary insider can include certain "outsiders" such as,
among others, a company's attorneys, accountants, consultants, bank lending
officers, and the employees of such organizations. According to the United
States Supreme Court, before such an "outsider" may be considered a "temporary
insider", the company's relationship with the outsider must be such that the
company reasonably expects him or her to keep the disclosed nonpublic
information confidential.
<PAGE>
B. WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is "material." Information generally is material if there is a
substantial likelihood that a reasonable investor would consider it important in
making his or her investment decisions, or if public dissemination of it is
reasonably certain to have a substantial effect on the price of a company's
securities. Information that should be presumed to be material includes, but is
not limited to: dividend changes; earnings estimates; changes in previously
released earnings estimates; significant merger or acquisition proposals or
agreements; commencement of or developments in major litigation; liquidation
problems; and extraordinary management developments.
Material information does NOT have to relate to a company's business. For
example, in one case, the Supreme Court considered as material certain
information about the contents of a forthcoming newspaper column that was
expected to affect the market price of a security.(8) In that case, a WALL
STREET JOURNAL reporter was found criminally liable for disclosing to others
the dates that reports on various companies would appear in the JOURNAL and
whether those reports would be favorable or not.
Perhaps more importantly, knowledge of a decision, or an impending decision, by
the Firm to buy or sell a security for its clients or to recommend a security
can constitute "material" information.
C. WHAT IS NONPUBLIC INFORMATION?
Information is nonpublic until it has been effectively communicated to the
market place. One must be able to point to some fact to show that the
information is generally public. For example, information found in a report
filed with the Securities and Exchange Commission, or appearing in Dow Jones,
REUTERS ECONOMIC SERVICES, THE WALL STREET JOURNAL or other publications of
general circulation would be considered public.
D. BASES FOR LIABILITY.
1. FIDUCIARY DUTY THEORY.
In 1980, the Supreme Court found that there is no GENERAL duty to disclose
before trading on material nonpublic information, but that such a duty arises
only where there is a fiduciary relationship. That is, there must be a
relationship between the parties to the transaction such that one party has a
right to expect that the other party will disclose any material nonpublic
information or refrain from trading.(9)
In DIRKS V. SEC,(10) the Supreme Court stated alternate theories under which
non-insiders can acquire the fiduciary duties of insiders: they can enter into a
confidential relationship with the company through which they gain information
(e.g., attorneys, accountants); or they can acquire a fiduciary duty to the
company's shareholders as "tippees" if they are aware or should have been aware
that they have been given confidential information by an insider who has
violated his fiduciary duty to the company's shareholders.
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(8) CARPENTER V. U.S., 108 U.S. 316 (1987).
(9) CHIARELLA V. U.S., 445 U.S. 22 (1980).
(10) 463 U.S. 646 (1983).
<PAGE>
In the "tippee" situation, a breach of duty occurs only if the insider
personally benefits, directly or indirectly, from the disclosure. However, the
benefit does not have to be monetary: it can be a gift, a reputational benefit
that will translate into future earnings, or even evidence of a relationship
that more obscurely suggests a "quid pro quo."
2. MISAPPROPRIATION THEORY.
Another basis for insider trading liability is the "misappropriation" theory,
where trading occurs on material nonpublic information that was stolen or
misappropriated from any other person. In CARPENTER U. U.S.,(11) the Court
found that a columnist defrauded THE WALL STREET JOURNAL when he stole
information from the JOURNAL and used it for trading in the securities
markets.
The misappropriation theory can be used to reach a variety of individuals not
previously thought to be encompassed under the fiduciary duty theory.
3. TAKEOVER-RELATED INFORMATION.
One of the most abused types of material nonpublic information is information
regarding impending corporate takeovers. To address historical abuses, the SEC
adopted Rule 14e-3 under the Securities Exchange Act of 1934. That Rule imposes
liability, in addition to any liability that may arise under the other theories
described above, for trading while in possession of material information
relating to a tender offer if the person trading knows OR HAS REASON TO KNOW
that the information is nonpublic and has been obtained directly OR INDIRECTLY
from (i) the offeror, (ii) the target company, or (iii) any officer, director,
partner or employee, or any other person acting on behalf of, either the offeror
or the target company.
E. PENALTIES FOR INSIDER TRADING.
Penalties for trading on or communicating material nonpublic information are
severe, both for individuals involved in the trading (or tipping) and their
employers. A person can be subject to some or all of the penalties below even if
he or she does not personally benefit from the violation. Penalties include:
- civil injunctions
- damages in a civil suit as much as three times the amount of actual
damages suffered by other buyers or sellers
- disgorgement of profits
- jail sentences
- fines for the person who committed the violation of up to three times
the profit gained or loss avoided, whether or not the person actually
benefitted, and
- -------------------------
(11) 108 U.S. 316 (1987).
<PAGE>
- fines for the employer or other controlling person of up to the
greater of $1,000,000 or three times the amount of the profit gained
or loss avoided, and
- prohibition from employment in the securities industry.
In addition, any violation of this policy statement can be expected to result in
serious disciplinary measures the Firm, including dismissal of the persons
involved.
<PAGE>
SECTION II. PROCEDURES TO IMPLEMENT THE FIRM'S POLICY AGAINST INSIDER
TRADING.
The following procedures have been established to aid the officers, directors
and employees of the Firm in avoiding insider trading, and to aid the Firm in
preventing, detecting and punishing insider trading. Every officer, director and
employee of the Firm must follow these procedures or risk serious sanctions,
including dismissal, substantial personal liability and criminal penalties. If
you have any questions about these procedures you should consult the Compliance
Officer.
A. IDENTIFYING INSIDE INFORMATION.
Any time you think you may have inside information about a company, before you
can place ANY trade in that company's securities, either for yourself or for
others (including the Firm's clients), and before you advise anyone (including
the Firm's clients) to trade, in that company's securities, ask yourself the
following questions:
(-) IS THE INFORMATION MATERIAL? Is this information that an investor
would consider important in making his or her investment decisions? Is
it information that would substantially affect the market price of the
securities if generally disclosed?
(-) IS THE INFORMATION NONPUBLIC? To whom has this information been
provided? Has it been effectively communicated to the marketplace by
appearing on the Dow Jones wire or by being published in REUTERS, THE
WALL STREET JOURNAL or other publications of general circulation?
If, after asking these questions, you believe the information is material and
nonpublic, or if you have questions as to whether the information is material
and nonpublic, you should take the following steps.
(-) Report the matter immediately to the Compliance Officer.
(-) Do NOT purchase or sell the securities on behalf of yourself or
others, including investment companies, collective investment funds,
common trust funds or other accounts managed or advised by the Firm.
(-) Do NOT communicate the information inside or outside the Firm, other
than to the Compliance Officer.
(-) After the Compliance Officer has reviewed the issue, you will be
instructed to continue the prohibitions against trading and
communication, or you will be allowed to trade and communicate the
information.
<PAGE>
B. PERSONAL SECURITIES TRADING.
The Firm's Code of Ethics and Conduct requires all Employees to submit to the
Compliance Officer (i) an annual report of every security in which they, their
families (including the spouse, minor children and adults living in the same
household as the officer, director or employee), and trusts of which they are
trustees or in which they have a beneficial interest, and (ii) monthly reports
of all securities transactions in which they and the foregoing entities and
persons have participated. This reporting is in addition to any preclearance
procedures that may apply to Employees' accounts. Failure to provide all the
reports required under the Code of Ethics and Conduct constitutes a violation of
these Procedures as well.
C. RESTRICTING ACCESS TO MATERIAL NONPUBLIC INFORMATION
Information in your possession that you identify as material and nonpublic may
not be communicated to anyone, including persons within the Firm, except as
provided in paragraph A above. In addition, you should take steps to keep such
information secure. For example, files containing material nonpublic information
should be sealed and access to computer files containing material nonpublic
information should be restricted.
D. RESOLVING ISSUES CONCERNING INSIDER TRADING
If, after you have considered the factors described in paragraph A, you are
still not sure whether information you have about a company is material or
nonpublic, or if you are unsure about whether or how these procedures apply to
your situation, or about the propriety of any action, you must discuss the
situation with the Compliance Officer before trading or communicating the
information to anyone.
E. ACKNOWLEDGMENT
I have read and understand the foregoing policy and procedures and will comply
with them in all respects.
- ------------------------------------- ---------------------------------
NAME DATE
<PAGE>
SECTION III. SUPERVISORY PROCEDURES
Supervisory Procedures can be divided into two classifications - (A) prevention
of insider trading and (B) detection of insider trading.
A. PREVENTION OF INSIDER TRADING
To prevent insider trading, the Firm will:
(-) provide educational materials to familiarize officers, directors and
employees with the Firm's policy and procedures;
(-) designate a knowledgeable employee (the "Compliance Officer") to
answer questions regarding the Firm's policy and procedures;
(-) resolve issues of whether information received by an officer, director
or employee of the Firm is material and nonpublic;
(-) review on a regular basis and update as necessary the Firm's policy
and procedures; and
(-) when it has been determined that an officer, director or employee of
the Firm has material nonpublic information,
(-) implement measures to prevent dissemination of such information,
and
(-) if necessary, restrict officers, directors and employees from
trading the securities.
B. DETECTION OF INSIDER TRADING
To detect insider trading, the Firm's Compliance Officer will, on an annual
basis:
(-) review all trading activity reports filed by each officer, director
and employee within ten days of their submission;
(-) review the trading activity in the Firm's own account and in accounts
managed or advised by the Firm; and
(-) coordinate the review of such reports with such other Firm officials
as may be appropriate.
C. SPECIAL REPORTS TO MANAGEMENT
Promptly, upon learning of a potential violation of the Firm's Policy and
Procedures to Detect and Prevent Insider Trading, the Compliance Officer should
prepare a written report to such other member's of the Firm's management as may
be appropriate, providing full details and recommendations for further action.
<PAGE>
D. ANNUAL REPORTS TO MANAGEMENT
On an annual basis, the Compliance Officer and other Firm officials will:
(-) review and evaluate the full details of any investigation, either
internal or by a regulatory agency, of any suspected insider trading
and the results of such investigation;
(-) evaluate of the current procedures and any recommendations for
improvement; and
(-) review and evaluate the Firm's continuing educational program
regarding insider trading.
E. RECORDKEEPING
The Firm will designate an individual with responsibility for maintaining, in an
accessible place, the following materials:
(-) a copy of this Policy and Procedures to Detect and Prevent Insider
Trading;
(-) a record of any violation of these procedures for the most recent five
years, and a detailed synopsis of the actions taken in response;
(-) a copy of each transaction report required to be filed under Section
II.B. for the most recent five years; and
(-) a list of all persons who are or have been required to file
transaction reports.
<PAGE>
JACOBS LEVY EQUITY MANAGEMENT, INC.
CODE OF ETHICS AND STATEMENT OF
POLICY AND PROCEDURES REGARDING
PERSONAL SECURITIES TRANSACTIONS
1. PURPOSES
(a) As a registered investment adviser and a fiduciary, Jacobs
Levy Equity Management, Inc. ("Jacobs Levy") owes an undivided
duty of loyalty to the investment companies and other clients
for which Jacobs Levy serves as investment manager, adviser or
sub-adviser. Jacobs Levy must avoid even the appearance of a
conflict that may compromise the trust clients have placed in
Jacobs Levy and must insist on strict adherence to fiduciary
standards and compliance with all applicable federal and state
securities laws. Adherence to this Code of Ethics and
Statement of Policy and Procedures Regarding Personal
Securities Transactions (the "Code and Statement") is a
fundamental condition of service with Jacobs Levy.
(b) The Code and Statement is intended to comply with Rule 17j-1
under the Investment Company Act of 1940, as amended (the
"Company Act"), which requires Jacobs Levy to adopt a code of
ethics containing provisions reasonably necessary to prevent
specified individuals from engaging in certain conduct. Under
Rule 17j-1(a), certain conduct by "access persons" (as defined
in the Rule) of investment companies managed by Jacobs Levy,
of Jacobs Levy itself as adviser or as a sub-adviser of these
companies, with respect to purchases or sales of securities
held or to be acquired by the investment companies is
prohibited. Jacobs Levy understands that each such investment
company has adopted a code of ethics with respect to access
persons of the investment companies themselves. As set forth
in Section 3 below, this Code and Statement is also intended
to comply with the provisions of Rule 204-2 of the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), which
requires Jacobs Levy to maintain records of securities
transactions in which certain of its personnel have any
Beneficial Ownership.
(c) This Code and Statement is intended to ensure that the
personal securities transactions of persons subject thereto
are conducted in accordance with the following principles:
(i) A duty at all times to place first the interests of
Clients;
(ii) The requirement that all personal securities
transactions be conducted consistent with this Code
and Statement and in such a manner as to avoid any
actual or potential conflict of interest or
<PAGE>
any abuse of an individual's responsibility and
position of trust; and
(iii) The fundamental standard that Jacobs Levy personnel
not take inappropriate advantage of their positions.
(d) In addition to the specific prohibitions on certain personal
Securities transactions as set forth below, all Employees are
prohibited, in connection with the purchase or sale, directly
or indirectly, by such persons of Security held or to be
acquired by a Client, from:
(i) Employing any device, scheme or artifice to defraud
any Client;
(ii) Making to any Client any untrue statement of a
material fact or omitting to state to such Client a
material fact necessary in order to make the
statements made, in light of the circumstances under
which they are made, not misleading;
(iii) Engaging in any act, practice or course of business
which operates or would operate as a fraud or deceit
upon any Client;
(iv) Engaging in any manipulative practice with respect to
any Client; or
(v) Revealing to any other person (except in the normal
course of his or her duties on behalf of a Client)
any information regarding securities transactions by
any Client or the consideration by any Client or
Jacobs Levy of any such securities transactions.
2. DEFINITIONS
The following definitions apply for purpose of the Code and Statement
in addition to the definitions contained elsewhere herein.
(a) "Beneficial Ownership" is interpreted in the same manner as in
determining whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder and includes
ownership by any person who, directly or indirectly, through
any contract, arrangement, understanding, relationship or
otherwise, has or shares a direct or indirect pecuniary
interest in a Security. For purposes of this Code of Ethics,
however, the partners as defined in section 2(g) will not be
deemed to be beneficial owners of any securities held in the
investment portfolios of those Partnerships.
2
<PAGE>
(b) "Client" means any person or entity, including an investment
company, for which Jacobs Levy serves as investment manager,
adviser or sub-adviser.
(c) "Compliance Officer" refers to Jacobs Levy's Compliance
Officer.
(d) "Control" has the same meaning as that set forth in Section
2(a)(9) of the Company Act.
(e) "Employee" refers to a person who is an employee of Jacobs
Levy.
(f) "Jacobs Levy Trading Program" refers to the list of securities
which Jacobs Levy is currently trading or attempting to trade.
(g) The "Partnerships" refers to any partnerships managed by JLEM,
which are traded and allocated pari passu with other separate
accounts.
(h) "Personal Account", except as set forth below in Section
2(h)(iv), refers to a brokerage account in which an individual
subject to the Code and Statement has any Beneficial Ownership
and a brokerage account maintained by or for:
(i) such an individual's spouse (other than a legally
separated or divorced spouse),
(ii) any person who resides with an Employee, and
(iii) any other account (except a Client Account) with
respect to which the individual has investment
discretion.
(iv) For purposes of this Code of Ethics "Personal
Account" shall not include the Partnerships provided,
however, that under no circumstances will any of the
Partnerships receive more favorable treatment than
any Client in any respect.
(i) "Purchase or Sale of a Security" includes, among other things,
the writing or purchase of an option to purchase or sell a
security.
(j) "Security" has the meaning set forth in Section 2(a)(36) of
the Company Act and any derivative thereof, commodities,
options or forward contracts, except that it shall not include
shares of open-end investment companies registered under the
Company Act, securities issued by the Government of the United
States, short-term debt securities that are government
securities within the meaning of Section 2(a)(16) of the
Company Act, bankers' acceptances, bank certificates of
deposit, commercial paper, and such other money market
instruments as are designated by the Compliance
3
<PAGE>
Officer. In addition, for purposes of this Code of Ethics,
"Security" will not include municipal bonds, the income and
capital gains from which are exempt from Federal and State
taxation.
3. PROHIBITED PURCHASES AND SALES
(a) It is the responsibility of each Employee to ensure that a
particular securities transaction being considered for his or
her Personal Account is not subject to a restriction contained
in this Code and Statement or otherwise prohibited by any
applicable laws. Personal securities transactions for
Employees may be effected only in accordance with the
following provisions. No Employee shall:
(i) purchase or sell, directly or indirectly, any
Security in which the Employee has (or after such
transaction would have) any Beneficial Ownership
unless such Employee obtains the prior written
approval of the Compliance Officer to the
transaction. The Compliance Officer (having no
personal interest in the subject transaction) may
approve the transaction if the Compliance Officer
concludes that the transaction is not likely to have
any adverse economic impact on a Client or on its
ability to purchase or sell Securities of the same
class or other Securities of the issuer involved. A
request for preclearance must be made in writing in
advance of the contemplated transaction and must
state:
(A) the name of the Security involved,
(B) the number of shares or principal amount to
be purchased or sold,
(C) the date or dates on which such Securities
are to be acquired or sold, and
(D) a brief description of the reason(s) the
transaction is considered to be appropriate.
Any approval given under this paragraph will remain
in effect for 24 hours.
(ii) execute or cause the execution of a transaction in a
security in which the Employee has (or by reason of
such transaction would have) any Beneficial
Ownership, on a day during which such security is
included in the Jacobs Levy Trading Program;
(iii) acquire any Beneficial Ownership in any securities in
any private placement of securities unless the
Compliance Officer has given
4
<PAGE>
express prior written approval. The Compliance
Officer, in determining whether approval should be
given, will take into account, among other
factors, whether the investment opportunity should
be reserved for a Client and whether the
opportunity is being offered to the individual by
virtue of his or her position with Jacobs Levy.
Employees so authorized to acquire Securities in a
private placement must disclose that investment
when they play a part in any Client's subsequent
consideration of an investment in the issuer, and
in such a case, the decision of Jacobs Levy to
purchase Securities of that issuer for a Client
will be subject to an independent review by a
senior officer of Jacobs Levy with no personal
interest in such issuer;
(iv) serve on any board of directors or trustees or in any
other management capacity of any private or public
company without prior written authorization from the
Compliance Officer based upon a determination that
such service would not be inconsistent with the
interests of any Client; or
(v) receive any gift or other thing of more than de
minimis value from any person or entity that does
business or may do business with Jacobs Levy on
behalf of a Client, provided, however, that receipt
of the following shall not be prohibited:
(A) an occasional breakfast, luncheon, dinner or
reception, ticket to a sporting event or
theater, or comparable entertainment, that
is not so frequent, so costly, nor so
extensive as to raise any question of
impropriety;
(B) a breakfast, luncheon, dinner, reception or
cocktail party in conjunction with a bona
fide business meeting; and
(C) a gift approved in writing by the Compliance
Officer.
4. EXEMPTED TRANSACTIONS
The requirements of Section 3 of this Code and Statement do not apply
to:
(a) Purchases or sales of Securities with respect to which an
Employee has (or by reason of such transaction would have) no
Beneficial Ownership.
(b) Purchases or sales that are non-volitional on the part of
either an Employee or a Client or are pursuant to a dividend
reinvestment plan.
5
<PAGE>
(c) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of the issuer's
Securities, to the extent such rights were acquired from such
issuer, and sales of such rights so acquired.
5. REPORTING
(a) Every Employee of Jacobs Levy shall report to the Compliance
Officer the information described in Section 5(b) below with
respect to transactions in any Security in which such Employee
has, or by reason of such transaction acquires, any Beneficial
Ownership in the Security; provided, however, that such
Employee is not required to make a report with respect to
transactions effected in any account over which the Employee
does not have any direct or indirect influence or control,
including such an account in which an Employee has any
Beneficial Ownership.
(b) Every report of an Employee required by Section 5(a) above
shall be in writing and shall be delivered not later than ten
days after the end of the calendar quarter in which a
transaction to which the report relates was effected, and
shall contain the following information:
(i) the date of the transaction, the title and the number
of shares, and the principal amount of each Security
involved;
(ii) the nature of the transaction (i.e., purchase, sale
or any other type of acquisition or disposition);
(iii) the price at which the transaction was effected; and
(iv) the name of the broker, dealer or bank with or
through whom the transaction was effected.
(c) Any such report may contain a statement that the report is not
to be construed as an admission by the person making the
report that he or she has any direct or indirect Beneficial
Ownership in the Security to which the report relates.
(d) The Compliance Officer shall maintain the reports required by
paragraph (a) above and such other records, if any, as are
required by Rule 17j-1 under the Company Act and Rule 204-2
under the Advisers Act. All reports furnished pursuant to this
Section will be kept confidential, subject to the rights of
inspection by the Compliance Officer, the Securities and
Exchange Commission and by other third parties pursuant to
applicable law.
(e) Each person subject to this Code and Statement must certify
annually that he or she has read and understands this Code and
Statement, recognizes
6
<PAGE>
that he or she is subject thereto and has complied with its
provisions and disclosed or reported all personal Securities
transactions required to be disclosed or reported by this
Code and Statement. Such certificates and reports are to be
given to the Compliance Officer.
6. SANCTIONS
Upon learning of a violation of this Code and Statement, Jacobs Levy,
with the advice of the Compliance Officer, may impose such sanctions as
it deems appropriate, including, among other things, censure,
suspension or termination of service. Individuals subject to this Code
and Statement who fail to comply with this Code and Statement may also
be violating the federal securities laws or other federal and state
laws. Any such person who is suspected of violating this Code and
Statement should be reported immediately to the Compliance Officer.
January 2, 1996
<PAGE>
DRAFT
CODE OF ETHICS
1. PURPOSES
This Code of Ethics (the "Code") has been adopted by the Directors of J.P.
Morgan Investment Management Inc. (the "Adviser"), in accordance with Rule
17j-1(c) promulgated under the Investment Company Act of 1940, as amended (the
"Act"). Rule 17j-1 under the Act generally proscribes fraudulent or manipulative
practices with respect to purchases or sales of securities held or to be
acquired by investment companies, if effected by associated persons of such
companies. The purpose of this Code is to adopt provisions reasonably necessary
to prevent Access Persons from engaging in any unlawful conduct as set forth in
Rule 17j-1(b) as follows:
(b) It is unlawful for any affiliated person of or principal underwriter
for a Fund, or any affiliated person of an investment adviser of or principal
underwriter for a Fund, in connection with the purchase or sale, directly or
indirectly, by the person of a Security Held or to be Acquired by the Fund:
(i) To employ any device, scheme or artifice to defraud the Fund;
(ii) To make any untrue statement of a material fact to the Fund or omit to
state a material fact necessary in order to make the statements made
to the Fund, in light of the circumstances under which they are made,
not misleading;
(iii) To engage in any act, practice, or course of business that operates
or would operate as a fraud or deceit on the Fund; or
(iv) To engage in any manipulative practice with respect to the Fund.
2. DEFINITIONS
(a) "Access Person" means any director, officer, general partner or
Advisory Person of the Adviser.
(b) "Administrator" means Morgan Guaranty Trust Company.
(c) "Advisory Person" means (i) any employee of the Adviser or the
Administrator (or any company in a control relationship to the Adviser) who, in
connection with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of securities for a Fund,
or whose functions relate to the making of any recommendations with respect to
such purchases or sales; and (ii) any natural person in a control relationship
to the Adviser who obtains information concerning recommendations regarding the
<PAGE>
purchase or sale of securities by a Fund.
(d)"Beneficial ownership" shall be interpreted in the same manner as it
would be under Exchange Act Rule 16a-1(a)(2)in determining whether a person is
subject to the provisions of Section 16 of the Securities Exchange Act of 1934
and the rules and regulations thereunder.
(e)"Control" has the same meaning as in Section 2(a)(9) of the Act.
(f)"Covered Security" shall have the meaning set forth in Section 2(a)(36)
of the Act, except that it shall not include shares of open-end funds, direct
obligations of the United States Government, bankers' acceptances, bank
certificates of deposit, commercial paper and high quality short-term debt
instruments, including repurchase agreements.
(g)"Fund" means an Investment Company registered under the Investment
Company Act of 1940.
(h)"Initial Public Offering" means an offering of Securities registered
under the Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of Sections 13 or
15(d) of the Securities Exchange Act.
(i)"Limited Offering" means an offering that is exempt from registration
under the Securities Act pursuant to Section 4(2) or Section 4(6) or pursuant to
Rule 504, Rule 505, or Rule 506 under the Securities Act.
(j)"Purchase or sale of a Covered Security" includes, among other things,
the writing of an option to purchase or sell a Covered Security.
(k)"Security Held or to be Acquired" by a Adviser means: (i) any Covered
Security which, within the most recent 15 days, is or has been held by a Fund or
other client of the Adviser or is being or has been considered by the Adviser
for purchase by a Fund or other client of the Adviser; and (ii) any option to
purchase or sell, and any security convertible into or exchangeable for, a
Covered Security.
3. STATEMENT OF PRINCIPLES
It is understood that the following general fiduciary
principles govern the personal investment activities of Access Persons:
(a)the duty to at all times place the interests of shareholders and
other clients of the Adviser first;
(b)the requirement that all personal securities transactions be
conducted consistent with this Code of Ethics and in such a manner as to avoid
any actual or potential conflict of interest or any abuse of an
individual's position of trust and responsibility;
(c)the fundamental standard that Investment Personnel may not take
inappropriate advantage of their position; and
(d)all personal transactions must be oriented toward investment, not
short-term or speculative trading.
It is further understood that the procedures, reporting and recordkeeping
requirements set forth below are hereby adopted and certified by the Adviser as
reasonably necessary to prevent Access Persons from violating the provisions of
this Code of Ethics.
<PAGE>
4. PROCEDURES TO BE FOLLOWED REGARDING PERSONAL INVESTMENTS BY ACCESS
PERSONS
(a)Pre-clearance requirement. Each Access Person must obtain prior
written approval from his or her group head (or designee) and from the Adviser's
trading desk before transacting in any Covered Security. For details regarding
transactions in mutual funds, see Section 4(e).
(b)Brokerage transaction reporting requirement. Each Access Person
working in the United States must maintain all of his or her accounts and the
accounts of any person of which he or she is deemed to be a beneficial owner
with a broker designated by the Adviser and must direct such broker to provide
broker trade confirmations to the Adviser's legal/compliance department, unless
an exception has been granted by the Adviser's legal/compliance department. Each
Access Person to whom an exception to the designated broker requirement has been
granted must instruct his or her broker to forward all trade confirms and
monthly statements to the Adviser's legal/compliance department. Access Persons
located outside the United States are required to provide details of each
brokerage transaction of which he or she is deemed to be the beneficial owner,
to the Adviser's legal/compliance group, within the customary period for the
confirmation of such trades in that market.
(c)Initial public offerings (new issues). Access Persons are prohibited
from participating in Initial Public Offerings, whether or not J.P. Morgan or
any of its affiliates is an underwriter of the new issue, while the issue is in
syndication.
(d)Minimum investment holding period. Each Access Person is subject to
a 60-day minimum holding period for personal transactions in Covered Securities.
An exception to this minimum holding period requirement may be granted in the
case of hardship as determined by the legal/compliance department.
(e)Mutual funds. Each Access Person must pre-clear transactions in
shares of closed-end Funds with the Adviser's trading desk, as they would with
any other Covered Security. See Section 4(a). Each Access Person must obtain
pre-clearance from his or her group head(or designee) before buying or selling
shares in an open-end Fund or a sub-advised Fund managed by the Adviser if such
Access Person or the Access Person's department has had recent dealings or
responsibilities regarding such mutual fund.
(f)Limited offerings. An Access Person may participate in a limited
offering only with written approval of such Access Person's group head (or
designee) and with advance notification to the Adviser's compliance group.
(g)Blackout periods. Access Persons are subject to blackout periods 7
calendar days before and after the trade date of a Covered Security where such
Access Person initiated a trade order for the Covered Security for any of their
client Accounts.
(h)Prohibitions. Short sales are generally prohibited. Transactions in
options, rights, warrants, or other short-term securities and in futures
contracts (unless for bona fide hedging) are prohibited, except for purchases of
options on widely traded indices specified by the Adviser's compliance group if
made for investment purposes.
(i)Securities of J.P. Morgan. No Access Person may buy or sell any
security issued by J.P. Morgan from the 27th of each March, June, September, and
December until the first full business day after earnings are released in the
following month. All transactions in securities issued by J.P. Morgan must be
<PAGE>
pre-cleared with the Adviser's compliance group and executed through an approved
trading area. Transactions in options and short sales of J.P. Morgan stock are
prohibited.
(j)Certification requirements. In addition to the reporting
requirements detailed in Sections 6 below, each Access Person, no later than 30
days after becoming an Access Person, must certify to the Adviser's compliance
group that he or she has complied with the broker requirements in Section 4(b).
5. OTHER POTENTIAL CONFLICTS OF INTEREST
(a)Gifts. No employee of the Adviser or the Administrator may (i)accept
gifts, entertainment, or favors from a client, potential client, supplier, or
potential supplier of goods or services to the Adviser or the Administrator
unless what is given is of nominal value and refusal to accept it would be
discourteous or otherwise harmful to the Adviser or Administrator; (ii)provide
excessive gifts or entertainment to clients or potential clients; and (iii)
offer bribes, kickbacks, or similar inducements.
(b)Outside Business Activities. The prior consent of the Chairman of
the Board of J.P. Morgan, or his or her designee, is required for an officer of
the Adviser or Administrator to engage in any business-related activity outside
of the Adviser or Administrator, whether the activity is intermittent or
continuing, and whether or not compensation is received. For example, such
approval is required such an officer to become:
-An officer, director, or trustee of any corporation (other
than a nonprofit corporation or cooperative corporation owning the
building in which the officer resides);
-A member of a partnership (other than a limited partner in a
partnership established solely for investment purposes);
-An executor, trustee, guardian, or similar fiduciary advisor
(other than for a family member).
6. REPORTING REQUIREMENTS
(a) Every Access Person must report to the Adviser:
(i)Initial Holding Reports. No later than 10 days after the
person becomes an Access Person, the following information:
(A) the title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct or
indirect beneficial ownership when the person became an Access
Person; (B) the name of any broker, dealer or bank with whom
the Access Person maintained an account in which any Covered
Securities were held for the direct or indirect benefit of the
Access Person as of the date the person became an Access
Person; and (C) the date that the report is submitted by the
Access Person.
(ii)Quarterly Transaction Reports. No later than 10 days after
the end of a calendar quarter, with respect to any transaction
during the quarter in a Covered Security in which the Access
Person had any direct or indirect beneficial ownership: (A)
the date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and
principal amount of each Covered Security involved; (B) the
nature of the transaction; (C) the price of the Covered
Security at which the transaction was effected; (D) the name
of the broker, dealer or bank with or through which the
transaction was effected; and (E) the date that the report is
submitted by the Access Person.
<PAGE>
(iii)New Account Report. No later than 10 days after the
calendar quarter, with respect to any account established by
the Access Person in which any Covered Securities were held
during the quarter for the direct or indirect benefit of the
Access Person: (A) the name of the broker, dealer or bank with
whom the Access Person established the account; (B) the date
the account was established; and (C) the date that the report
is submitted by the Access Person.
(iv)Annual Holding Report. Annually, the following information
(which information must be current as of a date no more than
30 days before the report is submitted): (A) the title, number
of shares and principal amount of each Covered Security in
which the Access Person had any direct or indirect beneficial
ownership; (B) the name of any broker, dealer or bank with
whom the Access Person maintains an account in which any
Covered Securities are held for the direct or indirect benefit
of the Access Person: and (C) the date that the report is
submitted by the Access Person.
(b) Exceptions from the Reporting Requirements.
(i) Notwithstanding the provisions of Section 6(a), no Access
Person shall be required to make:
A. a report with respect to transactions effected for any
account over which such person does not have any direct or
indirect influence or control;
B. a Quarterly Transaction Report under Section 6(a)(ii) if
the report would duplicate information contained in broker
trade confirmations or account statements received by the
Adviser with respect to the Access Person no later than 10
days after the calendar quarter end, if all of the
information required by Section 6(a)(ii) is contained in the
broker trade confirmations or account statements, or in the
records of the Adviser.
(c) Each Access Person shall promptly report any transaction which
is, or might appear to be, in violation of this Code. Such
report shall contain the information required in quarterly
reports filed pursuant to Section 6(a)(ii).
(d) All reports prepared pursuant to this Section 6 shall be filed
with the appropriate compliance personnel designated by the
Adviser and reviewed in accordance with procedures adopted by
such personnel.
(e) The Adviser will identify all Access Persons who are required
to file reports pursuant to this Section 6 and will inform
them of their reporting obligation.
(f) The Adviser no less frequently than annually shall furnish to
a Fund's board of directors for their consideration a written
report that:
(a) describes any issues under this Code of Ethics or
related procedures since the last report to the
board of directors, including, but limited to,
information about material violations of the Code or
procedures and sanctions imposed in response to the
material violations; and
<PAGE>
(b) certifies that the Adviser has adopted
procedures reasonably necessary to prevent
Access Persons from violating this Code of
Ethics.
7. RECORDKEEPING REQUIREMENTS
The Adviser must at its principal place of business maintain records in
the manner and extent set out in this Section of this Code and must
make available to the Securities and Exchange Commission (SEC) at any
time and from time to time for reasonable, periodic, special or other
examination:
(a) A copy of its code of ethics that is in effect, or at any
time within the past five years was in effect, must be
maintained in an easily accessible place;
(b) A record of any violation of the code of ethics, and of any
action taken as a result of the violation, must be
maintained in an easily accessible place for at least five
years after the end of the fiscal year in which the
violation occurs;
(c) A copy of each report made by an Access Person as required
by Section 6(a) including any information provided in lieu
of a quarterly transaction report, must be maintained for
at least five years after the end of the fiscal year in
which the report is made or the information is provided,
the first two years in an easily accessible place.
(d) A record of all persons, currently or within the past five
years, who are or were required to make reports as Access
Persons or who are or were responsible for reviewing these
reports, must be maintained in an easily accessible place.
(e) A copy of each report required by 6(f) above must be
maintained for at least five years after the end of the
fiscal year in which it is made, the first two years in an
easily accessible place.
(f) A record of any decision and the reasons supporting the
decision to approve the acquisition by Access Persons of
securities under Section 4(f) above, for at least five
years after the end of the fiscal year in which the
approval is granted.
8. SANCTIONS
Upon discovering a violation of this Code, the Directors of the Adviser
may impose such sanctions as they deem appropriate, including, INTER ALIA,
financial penalty, a letter of censure or suspension or termination of the
employment of the violator.
<PAGE>
Page 1
REVISED 09/27/99
LAZARD ASSET MANAGEMENT
A DIVISION OF
LAZARD FRERES & CO. LLC. ("LAM")
CODE OF ETHICS
Set forth below is LAM's policy on personal securities transactions. As a
general rule, LAM personnel are reminded that the interests of LAM clients take
priority over the investment desires of LAM personnel. All LAM personnel must
conduct themselves in a manner consistent with LAM's requirements as set forth
in this Code of Ethics and the respective Codes of Ethics of The Lazard Funds,
Inc. and Lazard Retirement Series, Inc. as well as the Compliance Manual of
Lazard Freres & Co. LLC ("LF&Co" or the "Firm") then in effect. Please review
this Code of Ethics carefully and contact the Compliance Department if there are
any questions.
PERSONAL SECURITIES ACCOUNTS COVERED
The restrictions set forth below apply to trading for all "Personal Securities
Accounts." These include:
- - Accounts in the Managing Director's or employee's name or accounts in which
the Managing Director or employee or any Related Person has a direct or
indirect beneficial interest other than an account which is managed by
another manager, or by other LAM portfolio managers, for a fee;
- - Accounts in the name of the Managing Director's or employee's spouse;
- - Accounts in the name of children under the age of 21, whether or not living
with the Managing Director or employee, and relatives or other individuals
living with the Managing Director or employee or for whose support the
Managing Director or employee is wholly or partially responsible (together
with the Managing Director's or employee's spouse, "Related Persons");
- - Accounts in which the Managing Director or employee or any Related Person
directly or indirectly controls, participates in, or has the right to
control or participate in, investment decisions, except for trades where the
Managing Director or employee or Related Person does not provide input.
RESTRICTIONS
The following restrictions apply to trading for Personal Securities Accounts of
LAM personnel, all of which are subject to certain DE MINIMUS provisions and may
be waived upon consent of LAM's or; to the extent applicable, LF&Co's,
compliance personnel:
<PAGE>
Page 2
1. No transactions for a Personal Securities Account may be made in a s ecurity
that is on the Restricted List;
2. No security may be purchased or sold for a Personal Securities Account:
(a) if the security is currently being considered for purchase or sale for
an LAM client; or
(b) if the security is being purchased or sold for an LAM client on that
day or has been purchased or sold for an LAM client within the immediately
preceding 7 calendar day period;
3. No purchase and sale, or sale and purchase, of a security for a Personal
Securities Account may occur within any 60-day period without prior
approval of Norman Eig, Herb Gullquist or Bill Butterly;
4. No transaction for a Personal Securities Account may be made in securities
offered pursuant to a public offering. Securities offered pursuant to a
private placement may not be purchased for Personal Securities Accounts
without the approval of Norman Eig, Herb Gullquist or Bill Butterly;
5. No transaction for a Personal Securities Account may be made in "deal" or
"rumor" securities, which are defined as securities of companies that are
the subject of reports or rumors of actual or anticipated extraordinary
corporate transactions or other corporate events;
6. Absent approval from the appropriate compliance personnel, Managing Directors
and employees are prohibited from engaging in the trading of options or
futures and from engaging in speculative trading as opposed to investment
activity. When such approval is given and Managing Directors and employees
effect opening transactions in options, the resulting closing transaction
will be considered effected on the day that the opening transaction was
effected for compliance purposes. The Managing Director or employee must
wait 60 days from the date of the opening transaction before effecting the
closing transaction. Managing Directors and employees are prohibited from
engaging in short sales of any security.
7. No transaction may be made in violation of the Material Non-Public
Information Policies and Procedures as outlined in Chapter X of LF&Co's
Compliance Manual; and
8. All transactions for Personal Securities Accounts must be approved by a
Managing Director of LAM, preferably the Managing Director to whom the
employee reports, and pre-cleared by Don Klein and Bill Butterly, or their
respective representatives. These approvals should be written on the trade
ticket. In addition, each Managing Director or employee should complete and
deliver to Bill Butterly, prior to the transaction, the attached personal
securities transaction form. The procedure for pre-clearing a personnel
trade is explained in greater detail below.
EXEMPTIONS
The restrictions and prohibitions contained in this Code shall not
apply to:
<PAGE>
Page 3
(a) Purchases or sales of securities which receive the prior approval
of either Norman Eig or Herbert W. Gullquist and Bill
Butterly (the approving officer having no personal interest
in such purchases or sales) because such purchases or sales
are not likely to have any economic impact on any client
account managed or advised by LAM
(b) Any securities transaction, or series of related transactions
during any 30-day period, involving 500 shares or less in
the aggregate of any security, if the issuer has a market
capitalization (outstanding shares multiplied by the current
price per share) greater than US $1 billion ("DE MINIMUS
exemption"). This provision does not provide an exemption
from the 60-day holding period.
OTHER ITEMS
1. LAM personnel may not serve on the board of directors of any corporation
(other than a not-for-profit corporation or a related Lazard entity)
without the prior approval of Norman Eig or Herb Gullquist;
2. All LAM personnel must complete quarterly Personal Security Account
transaction reports. BY LAW, THESE REPORTS MUST BE RETURNED TO COMPLIANCE
BY THE TENTH DAY FOLLOWING THE END OF THE QUARTER. To ensure strict
compliance with these requirements, the forms should be returned by the
seventh day following the end of the quarter; and
3. Each LAM Managing Director and employee must annually certify compliance with
the LAM Code of Ethics with respect to all Personal Securities Accounts.
SECURITIES COVERED
LAM's policies and procedures regarding personal securities trading set forth
herein apply to transactions involving all equity and debt securities, including
common and preferred stock, investment and non-investment grade debt securities,
investments convertible into or exchangeable for stock or debt securities, or
any derivative instrument relating to any such security or securities index,
including options, warrants and futures, or any interest in a partnership or
other entity that invests in any of the foregoing. INVESTMENTS IN MUTUAL FUNDS,
CERTIFICATES OF DEPOSIT AND FEDERAL GOVERNMENT OBLIGATIONS ARE NOT COVERED BY
THESE POLICIES AND PROCEDURES. Any other exception to personal securities
trading policies and procedures must be approved.
TRANSACTION APPROVAL PROCEDURES
INTERNAL ACCOUNTS
To pre-clear a transaction being made in a Personal Securities Account held at
the Firm (an "Internal Account"), LAM personnel must:
1. Electronically complete and "sign" a "New Equity Order" or "New Bond Order"
trade ticket located in the Firm's Lotus-Notes e-mail application under the
heading "Employee Trades." The ticket should be directed to the employee's
supervising Managing Director,
<PAGE>
Page 4
or, in the absence of the supervising Managing Director, to another LAM
Managing Director or one of the LAM Directors designated in the database.
2. Upon review of the ticket by the designated supervisor, the employee should
receive an automatic e-mail notification informing her/him that the trade
has been approved or rejected.
3. Following the supervisor's approval, the ticket is transmitted to the
Compliance Department where it is processed and, if approved, is routed to
the trading desk for execution, provided the employee had selected the
"Direct Execution" button when completing the ticket.
The cut-off time for receipt of supervisor-approved tickets in the Compliance
Department is 9.30 a.m. each trading day. Any ticket received after this time
will be processed for execution the next trading day. It is the responsibility
of each employee to ensure that tickets sent to a supervisor for approval
receive the supervisor's timely attention.
NOTE
In completing a new ticket, if the employee de-selects the "Direct Execution"
button, the ticket will be returned to her/him after Compliance approval for
submission to the trading desk. In such case, the trade must be submitted within
2 days or it will expire and be null and void.
To assist each employee with monitoring the status of a trade ticket submitted
for approval, the system is designed to generate an e-mail notification to the
employee every time the ticket is reviewed or acted upon by the supervisor,
compliance department or the trading desk. Additionally, every supervisor's
assistant is set up to receive a summary of the each approval request sent to
the supervisor so that in the absence of the supervisor, the assistant would
advise the employee to re-rout the trade to another supervisor. For more details
on the set-up and use of the Employee Trades database, please contact David
Osunkwo at ext. 6065.
OUTSIDE ACCOUNTS
LAM personnel may not maintain a securities or commodities account (including a
foreign securities account) at any other broker or dealer or bank (an "Outside
Account") without the prior written consent of the Firm. Where such consent is
given, employees must provide the Firm with the name of the broker-dealer firm
with whom they carry their personal accounts and must request that the
broker-dealer send to Lazard, to the attention of BOTH Donald Klein AND Bill
Butterly, copies of monthly account statements and all trade confirmations.
These same principles apply to establishing an account at another brokerage
house where the employee has control over the trading in that account (such as a
discretionary account, a nominee account, an account for a general or limited
partnership, a trust account), or an account of a corporation where trading is
controlled or influenced by the LAM employee. If you already have an Outside
Account, please notify Bill Butterly as soon as possible to facilitate the
distribution and review of your monthly account statements and trade
confirmations.
Managing Directors and employees are required to report promptly to Donald Klein
and Bill Butterly any change in status or location of any account in which they
have a beneficial interest
<PAGE>
Page 5
as defined above. With respect to a trust account of which a Managing Director
or employee or member of his immediate family is a beneficiary, the Firm policy
requires that the Firm receive duplicate confirmations and monthly account
statements for each such account. Similarly, Managing Directors and employees
are required to report private securities and commodities transactions effected
by or for (i) themselves, (ii) spouses and unemancipated family members, (iii)
accounts over which the employee has control as described above, or (iv)
accounts of which the employee or a member of his family is a beneficiary, or
(v) accounts of family members including accounts of in-laws where introduced or
carried by an employee or Managing Director's member organization. Deviations
from the foregoing policies will be permitted only with the prior written
approval of an appropriate individual with compliance responsibilities.
To pre-clear a transaction being made in an outside account, LAM personnel must
follow the "Transaction Approval Procedures" relating to Internal Accounts.
NOTE:
Once a Managing Director or employee receives approval, the LAM personnel must
transmit appropriate trade instructions to their outside broker within two days,
or the approval will become null and void.
<PAGE>
November 1999
LINCOLN CAPITAL MANAGEMENT COMPANY
CODE OF ETHICS
Every Lincoln Capital employee must review the attached Code of Ethics on an
annual basis.
The purpose of this review is to underscore the importance of the standard of
professional conduct required by Lincoln Capital. Please read the Code of Ethics
carefully and do not hesitate to seek any clarification you may need from the
Compliance Director, Dave Fowler.
After you have reviewed the Code of Ethics in its entirety and understand and
accept the responsibility outlined in the Code, please sign and return this
acknowledgement form to Margo.
- --------------------------------------------------------------------------------
I have read the complete Code of Ethics, have abided by it during the past year
and will continue to abide by it.
Employee's Signature Date
------------------------- --------------
Print Name
-------------------------
<PAGE>
November 1999
LINCOLN CAPITAL MANAGEMENT COMPANY
CODE OF ETHICS
Employees of Lincoln Capital should conduct themselves with integrity and
dignity and act in an ethical manner in dealings with clients, business
partners, fellow employees and the public.
PROHIBITION AGAINST ASSISTING LEGAL AND ETHICAL VIOLATIONS
An employee shall not knowingly participate in any act that violates any
applicable law, rule, or regulation of any Government, Government agency, or
regulatory organization governing professional, financial, or business activity,
nor any act which would violate any provision of this Code of Ethics.
PROHIBITION AGAINST USE OF MATERIAL NON-PUBLIC INFORMATION
It is a violation of United States Federal securities law and a serious breach
of Lincoln Capital's Code of Ethics for an employee to trade in, or recommend
trading in, the securities of a company, either for personal gain or on behalf
of the firm's clients, while in the possession of material, nonpublic
information ("inside information") obtained either in the course of performing
duties, or through personal contacts. Such violations could subject an employee
and Lincoln Capital to significant civil as well as criminal liability,
including the imposition of monetary penalties. It could also result in
irreparable harm to the reputation of Lincoln Capital. Tippees (i.e., persons
who receive material, nonpublic information) also may be held liable if they
pass along such information to others.
Inside information is generally understood as material information about an
issuer of publicly-traded securities that has not been made known to either the
professional investment community or to the public at large. Inside information
is material if it would be likely to have a substantial effect on the price of
the issuer's securities or if a reasonable investor would be likely to consider
it important in making his/her investment decision. Such information usually
originates from the issuer itself and could include, among other things,
knowledge of a company's earnings or dividends, a significant change in the
value of assets, changes in key personnel or plans for a merger or acquisition.
For example, a Lincoln Capital portfolio manager, analyst or trader may receive
information about an issuer's earnings or a new product in a private
communication with the issuer. Such information is usually considered inside
information because it has not been effectively disseminated to the public at
large. As a general rule, any information received from an issuer that has not
been made public in a press release, a public filing or forum should be
considered inside information.
In addition, Rule 14e-3 under the Securities Exchange Act of 1934 (the "Exchange
Act") makes it unlawful to buy or sell securities while in possession of
material information relating to a tender offer, if the person buying or selling
the securities knows or has reason to know that the information is nonpublic and
has been acquired, directly or indirectly, from the person making or planning to
make the tender offer, from the target company, or from any officer, director,
partner or employee or other person acting on behalf of either the bidder or the
target company. This rule prohibits not only trading, but also the communication
of material, nonpublic information relating to a tender offer to another person
in circumstances under which it is reasonably foreseeable that the communication
could result in a trade by someone in possession of the material, nonpublic
information.
<PAGE>
Insider trading violations do not result when a perceptive investor reaches a
conclusion about a corporate action or event through an analysis of public
information and nonmaterial, nonpublic information (such as major cost cutting
initiatives, new products, etc.). This is known as the mosaic theory. The data
used in creating the mosaic may be gathered from all of the sources at the
investor's disposal, including the company itself and sources outside of the
company, such as suppliers, customers, and competitors. The investor may use
conclusions reached under the mosaic theory as the basis for investment
recommendations without the need for the company to release the information
through broad, public means. Additionally, mere possession of material nonpublic
information is not a violation.
ACTIVITIES WITH RESPECT TO MATERIAL INSIDE INFORMATION
Engaging in communication of material inside information could result in
violation of the Federal securities laws. Individuals who commit such acts could
be subject to severe penalties under the securities laws and termination from
Lincoln Capital.
1) Whenever an employee believes that he/she may have come into
possession of material, nonpublic information about a public company,
he/she personally must notify the Compliance Director as well as one
other Managing Director and may not communicate such information to
anyone else. Additionally, Lincoln Capital is obliged to contact the
company and urge that the information be made public.
2) Whenever an employee has material, nonpublic information relating to
any security, an employee may not buy or sell that security, or any
derivative of that security, personally or for family members, any
client account under Lincoln Capital management or any other person.
In addition, an employee may not recommend to others that they should
buy or sell that security or any derivative thereof.
RESPONSIBILITIES OF SUPERVISORS
A person with supervisory responsibility shall exercise reasonable oversight of
their employees to prevent violation of applicable statutes, regulations and
provisions of this Code of Ethics. This Code has been adopted by Lincoln Capital
to comply with regulatory requirements. Any questions about the Code or the
applicability of the Code to a personal securities transaction should be
directed to the Compliance Director. If the Compliance Director is not
available, questions should be directed to another Managing Director. In so
doing the employee is entitled to rely upon reasonable procedures established by
Lincoln Capital.
PROHIBITION AGAINST MISREPRESENTATION OF SERVICES
An employee shall not make any statements, orally or in writing, which
misrepresent:
1) the services that the individual or Lincoln Capital performs for
clients;
2) the qualifications of such person or Lincoln Capital;
3) the investment performance that the person or Lincoln Capital has
achieved or can reasonably be expected to achieve for the client; and
or
4) the expected performance of any investment.
<PAGE>
An employee shall not make, orally or in writing, explicitly or implicitly, any
assurances about or guarantees of any investment or its return except
communication of accurate information as to the terms of the investment
instrument and the issuer's obligations under the instrument.
FAIR DEALING WITH CLIENTS
An employee shall act in a manner consistent with the obligation to deal fairly
with all clients when:
1) disseminating investment recommendations;
2) disseminating material changes from prior investment advice; and
3) taking investment action.
PRIORITY OF TRANSACTIONS
An employee shall give client transactions priority over personal transactions,
and ensure that any personal transactions do not adversely affect client
interests. If an employee decides to purchase or sell a security or other
investment, the employee must obtain prior approval from the Compliance Director
prior to executing the transaction.
DISCLOSURE OF CONFLICTS
An employee, when making an initial investment recommendation, shall disclose to
the Compliance Director and the Equity or Fixed Income Group, whichever is
appropriate, any potential conflict of interest relating to any beneficial
ownership of the securities or other investments involved that might reasonably
be expected to impair the employee's ability to render unbiased and objective
advice.
An employee shall disclose all matters that could reasonably be expected to
interfere with the employee's duty to Lincoln Capital and/or Lincoln Capital
clients, or with the ability to render unbiased and objective advice.
An employee shall also comply with all requirements as to disclosure of
conflicts of interest imposed by law and by rules and regulations of
organizations governing the employee's activities, and shall comply with any
prohibitions on the employee's activities if a conflict of interest exists.
If an employee is a director of a public company, Lincoln Capital will not trade
in any security of that company.
PERSONAL TRADING
Below are rules governing personal purchases and sales of Common Stocks, Taxable
Fixed Income Securities, Options and Futures Contracts. These rules apply to
transactions in which an employee is deemed to have a beneficial interest in or
accounts over which the employee exercises discretion or control. Some examples
are:
1) securities an employee owns or has pledged to another;
2) securities an employee holds in a joint account with a spouse or
immediate family member;
<PAGE>
3) securities held by any partnership other than Lincoln Partners in
which an employee is a general partner or by a trust of which an
employee is a beneficiary (except for a remainder interest that does
not participate in investment decisions regarding trust assets);
4) securities held by an employee as trustee of a trust of which the
employee is the settlor or an immediate family member has a beneficial
interest; and
5) securities held by a spouse, unless legally separated, or minor
children or a person living in the employee's household.
An employee will not be deemed to have a beneficial interest in securities if
they are held by a limited partnership in which the employee does not have or
share investment control over the partnership's portfolio.
These examples are not exclusive. There are other circumstances in which an
employee may or may not be deemed to have a beneficial interest. Any questions
should be directed to the Compliance Director.
PROHIBITION OF TRADING BENCHMARK ISSUES
Lincoln Capital employees may not buy or sell securities which are used or are
designated for possible use for Lincoln Capital client accounts. We call these
securities Benchmark issues. Each employee must submit a list of any Benchmark
issues owned at each year-end to the Compliance Director.
Effective 12/31/94, an employee of Lincoln Capital is prohibited from buying
Benchmark issues. The names of Lincoln Benchmark issues are attached and include
all present holdings of Lincoln Capital and other companies considered to be
candidates for Lincoln Capital accounts.
Any Benchmark issues already owned by Lincoln Capital employees prior to the
above date or acquired prior to employment by Lincoln Capital are
"grandfathered," and do not have to be sold. Nor is sale required for an issue
bought after 12/31/94 which subsequently is designated a Benchmark issue. A list
of benchmark issues at each calendar year-end must be submitted to the
Compliance Director. New employees must submit Benchmark issues to the
Compliance Director upon employment. Lincoln Capital employees may sell such
securities only in accordance with the transaction rules set forth below.
REPORTING
Every Lincoln Capital employee must arrange for duplicate confirms of all
personal trades to be sent by their broker to Lincoln Capital's Compliance
Director. In addition, employees must report all personal trades in writing
quarterly. A copy of the Form is provided on page 9 of this document. Employees
must provide Lincoln Capital's Compliance Director with an annual statement of
all transactions and holdings from their broker. Annual statements are due in
January. Separate confidential files will be maintained for each employee. The
Compliance Director will review reports of all personal securities transactions
for adherence to the Code and compliance with applicable law and regulation.
PRIOR PERMISSION (PRE-CLEARANCE)
Prior to the purchase or sale of any non-Benchmark issue, an employee must
submit a request in writing to the Compliance Director using a trade
authorization form (example provided on page 10 of this document) which is
available from Equity trading. The employee cannot execute the trade until the
form is signed and returned. The Compliance Director will sign the form only
after ensuring (with the
<PAGE>
assistance of Equity trading) that the employee transaction does not conflict
with any current client transaction, pending order or intention to buy or sell
the issue for client accounts.
Once authorized, the employee has THREE days to execute the trade or else must
re-submit another request. The employee is also bound by the blackout period and
60-day rule described below. All trade execution information needs to be
supplied on the trade authorization form and returned to Equity trading.
In the absence of the Compliance Director, trades may be cleared by another
Managing Director. The Compliance Director's trades will be cleared by another
Managing Director. A log of all approvals and denials is kept by the Compliance
Director. The Code of Ethics is not intended to restrict personal investment
activities of employees beyond that necessary to accomplish its purposes.
Therefore, the pre-clearance procedure will not apply to:
1) purchases or sales of mutual funds (including any public or private
fund advised by Lincoln Capital);
2) bank certificates of deposit or commercial paper;
3) U.S. government securities and municipal securities;
4) purchases which are part of an automatic dividend reinvestment plan;
5) purchases or sales over which you have no direct influence or control;
and or
6) purchases or sales of stock index options, financial futures or index
participations (however, options on individual securities must receive
pre-clearance).
BLACKOUT PERIOD
Even after receiving written permission to make a specific trade, an employee is
still prohibited from buying or selling the security within three calendar days
before or after Lincoln Capital and/or Lincoln Partners trades in that security
(counting the trade date). To avoid even the appearance of "front running," if
Lincoln Capital and/or Lincoln Partners decides within the three day blackout
period to trade in that particular stock or sector of the fixed income market
for fundamental reasons, the employee must disgorge to a charitable organization
any profits realized on the trade. If Lincoln Capital trading within the 3 day
period is done only for cash flow reasons, that is, to adjust broadly client
holdings because of unforeseen capital contributions or withdrawals, the
employee does not have to forego any profit on the trade.
60 DAY RULE
Employees are prohibited from profiting in the purchase and sale, or sale and
purchase, of the same security within 60 calendar days.
PURCHASE OF PRIVATE SECURITY
Employees must receive approval from the Compliance Director prior to the
purchase of a private issue ("private placement"). In the case of a private
placement originated by a broker-dealer with whom Lincoln Capital may execute
trades for its clients, approval must be received from a second Lincoln Capital
Managing Director in addition to the Compliance Director. (If the Compliance
Director is the purchaser, approval is necessary from two other Managing
Directors.) These persons will consider
<PAGE>
potential conflicts of interest with client accounts or opportunities in
deciding whether to approve a purchase of a private issue. If an issue which has
been purchased by an employee in a private placement (or another security of the
same issuer) is ultimately considered by Lincoln Capital as a viable prospect
for purchase by clients, the Lincoln Capital employee holding such an issue
shall consult with the Compliance Director who shall decide whether it is
appropriate or desirable for the employee to disqualify himself from any
considerations with respect to the purchase or sale of such issue or such issuer
for client accounts.
INITIAL PUBLIC OFFERING
Because of the nature of the business relationship between Lincoln Capital and
its securities brokers, employees of Lincoln Capital are prohibited from
purchasing shares in an initial public offering.
DIRECTORSHIPS
Membership on the Board of Directors of a Benchmark issue will require prior
approval by Lincoln Capital Managing Directors. A person serving as a director
of any such company shall not participate in the decision to recommend or to
purchase or sell a security of such company for client accounts.
RESTRICTIONS ON RECEIVING GIFTS
Employee's shall not receive any gift in merchandise or service of more than
nominal value from any person or entity that does business with or on behalf of
Lincoln Capital.
COMPENSATION
1) Disclosure of Additional Compensation Arrangements
An employee shall inform Lincoln Capital of compensation or other
benefit arrangements in connection with any additional services.
2) Disclosure of Referral Fees
An employee shall make appropriate disclosure to Lincoln Capital of
any consideration paid or other benefit delivered to others for
recommending Lincoln's services to a prospective client. Where
applicable, any referral fee arrangements will be conducted in
accordance with Rule 206(4)-3 under the Investment Advisers Act.
3) Duty to Employer
An employee shall not undertake independent practice for compensation
or other benefit in competition with Lincoln Capital, unless written
consent is obtained from Lincoln Capital.
RELATIONSHIPS WITH OTHERS
1) Preservation of Confidentiality
An employee shall preserve the confidentiality of information
communicated by the client concerning matters within the scope of the
confidential relationship, unless the employee receives information
concerning illegal activities on the part of the client.
<PAGE>
2) Fiduciary Duties
An employee, in relationships with clients, shall use particular care
in determining applicable fiduciary duty, and shall comply with such
duty as to those persons and interests to whom it is owed.
CONSEQUENCES FOR FAILURE TO COMPLY WITH THE CODE OF ETHICS
Compliance with this Code of Ethics is a condition of employment at Lincoln
Capital. Taking into consideration all relevant circumstances, the Compliance
Director, in consultation with other Managing Directors, will determine what
action is appropriate for any breach of the provisions of the Code.
PROFESSIONAL MISCONDUCT
An employee shall not:
1) commit a criminal act that upon conviction materially reflects
adversely on the employee's fitness as an employee of Lincoln Capital;
2) engage in conduct involving dishonesty, fraud, deceit or
misrepresentation;
3) use, sell, dispense, or possess any illegal drugs or narcotics; nor
4) report to work under the influence of alcohol.
At the time of employment and subsequently at the beginning of each calendar
year, every Lincoln Capital employee must review and sign a copy of the Code of
Ethics and certify that the employee has reported all personal securities
transactions in accordance with this Code.
<PAGE>
QUARTERLY EMPLOYEE TRADE REPORTING FORM
LINCOLN CAPITAL MANAGEMENT COMPANY
Name:
-------------------------------------
For Quarter Ending:
-----------------------
<TABLE>
<CAPTION>
Name of Buy or Date of Total
Security Sell No. of Shares Transaction Broker Price Cost
-------- ---- ------------- ----------- ------ ----- ----
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
TRADING REQUEST FORM
Date:
---------------------
I would like to purchase/sell the following securities:
Have you purchased or sold any of the above securities within the past 60 days?
Signed:
--------------------------------------
Compliance Director:
-------------------------
Trader:
--------------------------------------
After approval, record the completed transaction below and return to Compliance
Director:
<TABLE>
<CAPTION>
Name of Buy or Date of Total
Security Sell No. of Shares Transaction Broker Price Cost
-------- ---- ------------- ----------- ------ ----- ----
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
MARSICO CAPITAL MANAGEMENT, LLC
PERSONAL TRADING CODE OF ETHICS
I. INTRODUCTION AND OVERVIEW
In our efforts to ensure that Marsico Capital Management, LLC ("MCM")
develops and maintains a reputation for integrity and high ethical standards,
it is essential not only that MCM and its employees comply with relevant
federal and state securities laws, but also that we maintain high standards
of personal and professional conduct. MCM's Personal Trading Code of Ethics
(the "Code") is designed to help ensure that we conduct our business
consistent with these high standards.
As a registered investment adviser, MCM and its employees owe a
fiduciary duty to our clients that requires each of us to place the interests
of our clients ahead of our own interests. A critical component of our
fiduciary duty is to avoid potential conflicts of interest. Accordingly, you
must avoid activities, interests, and relationships that might interfere or
appear to interfere with making decisions in the best interests of Fund
shareholders and other Advisory clients of MCM. Please bear in mind that a
conflict of interest can arise even if there is no financial loss to our
clients and regardless of the employee's motivation. Many potential conflicts
of interest can arise in connection with employee personal trading and
related activities.
The Code is designed to address and avoid potential conflicts of
interest relating to personal trading and related activities and is based on
three underlying principles:
(1) WE MUST AT ALL TIMES PLACE THE INTERESTS OF OUR SHAREHOLDERS (INCLUDING
BOTH THE FUNDS AND PRIVATE ACCOUNTS) FIRST. In other words, as a fiduciary
you must scrupulously avoid serving your own personal interests ahead of the
interests of MCM clients.
(2) WE MUST MAKE SURE THAT ALL PERSONAL SECURITIES TRANSACTIONS ARE CONDUCTED
CONSISTENT WITH THE CODE AND IN SUCH A MANNER AS TO AVOID ANY ACTUAL
OR POTENTIAL CONFLICTS OF INTEREST OR ANY ABUSE OF AN INDIVIDUAL'S
POSITION OF TRUST AND RESPONSIBILITY.
(3) INVESTMENT COMPANY PERSONNEL SHOULD NOT TAKE INAPPROPRIATE ADVANTAGE
OF THEIR POSITIONS. The receipt of investment opportunities,
perquisites, or gifts from persons seeking business with the Funds or
MCM could call into question the exercise of your independent judgment.
The Code contains a number of "rules" and procedures relating to
personal trading by MCM officers, directors, employees and their families.
It is your responsibility to
<PAGE>
become familiar with the Code and to abide by the Code. COMPLIANCE WITH THE
CODE IS A CONDITION TO YOUR EMPLOYMENT WITH MCM. Violations of the Code will
be taken seriously and could result in sanctions against the violator, which
sanctions can include termination of employment.
As with all policies and procedures, the Code was designed to cover a
myriad of circumstances and conduct; however, no policy can anticipate every
potential conflict of interest that can arise in connection with personal
trading. Consequently, you are expected to abide not only by the letter of
the Code, but also by the spirit of the Code. Whether or not a specific
provision of the Code addresses in a particular situation, you must conduct
your personal trading activities in accordance with the general principles
contained in the Code and in a manner that is designed to avoid any actual or
potential conflicts of interest. MCM reserves the right, when it deems
necessary in light of particular circumstances, either to impose more
stringent requirements on employees or to grant exceptions to the Code.
Exemptions from the Code must be fully documented by the Compliance
Department. Exemptions generally will be granted only where the Compliance
Officer has determined that there would be no harm to MCM's client accounts
as a result.
Because governmental regulations and industry standards relating to
personal trading and potential conflicts of interest can change over time,
MCM reserves the right to modify any or all of the policies and procedures
set forth in the Code. Should MCM revise the Code, you will receive written
notification from the Compliance Officer. It is your responsibility to
familiarize yourself with any modifications to the Code. IF YOU HAVE ANY
QUESTIONS ABOUT ANY ASPECT OF THE CODE, OR IF YOU HAVE QUESTIONS REGARDING
APPLICATION OF THE CODE TO A PARTICULAR SITUATION, CONTACT THE COMPLIANCE
OFFICER OR THE GENERAL COUNSEL.
II. PERSONS COVERED BY THE CODE
The policies and procedures set forth in the Code apply to all officers,
principals and employees (collectively, "MCM Employees") of MCM. The Code
also applies to all temporary employees who work for MCM (together with MCM
Employees, "Employees").
The policies and procedures set forth in the Code also apply to all
members of an Employee's immediate family, which for purposes of the Code
refers to: (1) ANY PERSON LIVING IN THE EMPLOYEE'S HOUSEHOLD (whether or not
related to you) and/or (2) ANY PERSON TO WHOSE FINANCIAL SUPPORT THE EMPLOYEE
MAKES A SIGNIFICANT CONTRIBUTION (together with Employees, "Covered
Persons"). The definition of "an Employee's immediate family" set forth in
Clause (1) above shall not apply to any platonic roommates of an Employee.
<PAGE>
OUTSIDE DIRECTORS
Special rules apply to non-interested directors of each of the Funds
(the "Outside Directors"). An Outside Director is not subject to the personal
trading ban, nor is he or she required to pre-clear personal trading
transactions unless that Outside Director knew, or in the ordinary course of
the fulfillment of his or her official duties as a director of one of the
Funds, should have known that during the 15-day period immediately
preceding or after the date of a transaction in a security by the Outside
Director that such security was purchased or sold by a Fund or by MCM or that
the purchase or sale of that security was considered by the Funds or by MCM.
Outside Directors are not required to report to MCM their personal securities
transactions on a quarterly basis, nor are they required to report to MCM
their holdings on an annual basis.
III. PROHIBITION ON PERSONAL TRADING
Personal investing by investment personnel and investment management
firm employees can create potential conflicts of interest and the appearance
of impropriety. Further, MCM believes that the personal investing activities
of its employees can distract from our service to our clients by diverting
resources and/or opportunities from the management of our clients' accounts.
Consequently, MCM has determined generally to PROHIBIT personal trading by
Covered Persons. This means that unless a Covered Person's proposed
transaction is an Exempted Transaction, Covered Persons are prohibited from
acquiring securities for their own accounts. Securities exempted from the
policies and procedures of the Code are described in Section IV of the Code.
Section V of the Code sets forth the procedures to follow when selling
securities that were acquired by the Covered Person prior to his or her
association with MCM.
IV. EXEMPTED TRANSACTIONS
The policies and procedures set forth in the Code regarding personal
investing apply to ALL personal securities transactions by Covered Persons,
unless such transaction is an Exempted Transaction, as defined below. IF YOU
HAVE ANY DOUBT AS TO THE APPLICABILITY OF THE CODE TO A PARTICULAR
TRANSACTION, CONTACT THE COMPLIANCE OFFICER OR THE GENERAL COUNSEL.
The Code (including the general prohibition on personal trading, the
Preclearance procedures and the reporting requirements) does not apply to the
following types of transactions, which are referred to as "Exempted
Transactions." As a result, Covered persons may engage in Exempted
Transactions without following the procedures set forth in the Code. Exempted
Transactions are personal securities transactions by Covered Persons in the
following:
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1. Shares of registered open-end mutual funds and money market funds
(please note that shares of closed-end investment companies are not included
in the definition of Exempted Transactions);
2. Treasury bonds, Treasury notes, Treasury bills, U.S. Savings Bonds,
and other instruments issued by the U.S. government;
3. Debt instruments issued by a banking institution, such as bankers'
acceptances and bank certificates of deposit;
4. Commercial paper;
5. Foreign currency;
6. Municipal bonds and notes;
7. Interests in MCM unregistered investment companies (e.g., Marsico
Aggressive Global Opportunities, L.P. and Marsico Aggressive Global
Opportunities II, L.P.);
8. Transactions in derivatives based on any of the above-listed
securities;
9. Non-volitional transactions in which the Covered Person does not
exercise investment discretion at the time of the transaction (e.g.,
calling of a security by the issuer, automatic exercise or liquidation of an
in-the-money derivative instrument upon expiration pursuant to exchange rules,
non-volutional receipt of gifts out of the control of the Covered Person);
10. Acquisitions of securities through dividend reinvestment plans (note
that additional shares offered at no commission charges are not permitted to
be purchased by Covered Persons) and acquisitions of securities through the
exercise of rights that are offered pro rata to all shareholders;
11. Exercise of options received pursuant to an employment arrangement,
provided that the sale of the securities received upon exercise of the
options are subject to the Code;
12. Receipt of securities or options pursuant to an employment
arrangement;
13. Acquisition of securities by a Covered Person of the securities of
the Covered Person's employer or an affiliate thereof; and
14. Initial start-up investments in operating companies for which a
Covered Person is a founding member or an executive officer, provided that
the Covered Person is not an employee of MCM.
Additionally, transactions in accounts ("Special Accounts") over which
the Covered Person exercises no direct or indirect influence or control may
be excluded from
<PAGE>
the Code (and treated as Exempted Transactions) PROVIDED THAT PRIOR APPROVAL
FOR EXCLUSION FROM THE CODE IS OBTAINED BY MCM BY NOTIFYING, AND DISCUSSING
THESE ACCOUNTS WITH THE COMPLIANCE OFFICER. An account will be deemed a
Special Account provided ALL of the following conditions are met:
- The Covered Person disclosed to the Compliance Officer the existence
of the Special Account and allows the General Counsel to review, upon his or
her discretion, the governing documents of such Special Account;
- The Covered Person establishes to the satisfaction of the General
Counsel that he or she has no direct or indirect influence or control over
the Special Account or over investment decisions made for the Special Account;
- The Covered Person completes the attached Special Account
Certification on an annual basis, or such other certification that the General
Counsel may deem acceptable;
- The Covered Person establishes to the satisfaction of the General
Counsel that he or she provides no investment advice to the person(s) who
directly or indirectly influence or control the investment decisions for the
Special Account ("Control Persons");
- The Covered Person does not disclose to the Control Persons any
action that MCM may take, or has or has not taken, or any MCM consideration of
any action with respect to that security; and
- The Covered Persons do not disclose to the Covered Person any action
such Control Persons may or may not take or any action under consideration
with respect to any transaction for the Special Account until after such
decisions have been made and fully executed.
If you have a Special Account and you feel that an exception from
compliance with the Code is warranted, please see the Compliance Officer.
Determinations as to whether exception from the Code will be granted, will be
made on a case-by-case basis. Depending on all of the facts and
circumstances, MCM reserves the right to require additional procedures to be
followed, as MCM deems necessary or appropriate. Further, MCM reserves the
right at any time, in the discretion of the General Counsel, to require
compliance with all or parts of the Code or to revoke the exception at any
time.
IF YOU HAVE ANY QUESTIONS ABOUT WHETHER A PARTICULAR TRANSACTION
QUALIFIES AS AN EXEMPTED TRANSACTION, CONTACT THE COMPLIANCE OFFICER OR THE
GENERAL COUNSEL.
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V. PROCEDURES FOR SELLING SECURITIES
Although Covered Persons may sell securities that they acquired prior to
their association with MCM, they must do so following certain procedures
designed to avoid the potential conflicts of interest that can arise when
selling their own holdings. These procedures include preclearing the
transaction, holding the security for a certain length of time, and following
a black-out period around client trades. Please note that these procedures DO
NOT APPLY TO EXEMPTED TRANSACTIONS (as defined above in Section IV).
PRECLEARANCE: Before a Covered Person sells securities that he or she
acquired prior to his or her association with MCM, the Covered Person must
complete a Preclearance Form, a sample of which is attached to the Code. A
written Preclearance Form must be completed for all disposition transactions,
unless it qualifies as an Exempted Transaction. MCM will treat the
preclearance process as confidential and will not disclose the information
divulged during the preclearance process except as required by law or for
appropriate business purposes.
In reviewing preclearance requests for the acquisition of a private
placement, the Compliance Officer or General Counsel must take into account
such factors as whether the investment opportunity should be reserved for
client accounts, including the investment companies for which MCM serves as
investment adviser.
The Covered Person cannot sell the security in question until he or she
receives written authorization from MCM to do so. Preclearance requests will
be reviewed by the Compliance Officer or General Counsel as quickly as
possible. Please remember that preclearance is not automatically granted for
every trade. For example, if MCM is considering the purchase of the security
in question for client accounts, preclearance may be denied until the client
order is completed.
Once preclearance is granted, it is valid only until the close of the
next business day and for the particular security and the particular amount
indicated on the Preclearance Form. For example, the Covered Employee may not
increase the size of the transaction without completing a new Preclearance
Form and without receiving written authorization (the Covered Employee may,
however, decrease the size of the transaction without obtaining new
authorization).
FAILURE TO OBTAIN PRECLEARANCE FOR A DISPOSITION OF PERSONAL SECURITIES
IS A SERIOUS BREACH OF MCM'S RULES AND WILL BE TREATED AS SUCH. Violations of
the preclearance requirement may subject the Employee to disciplinary action,
up to and including termination of employment. Failure to obtain preclearance
may also result in the trade being canceled with the Covered person bearing
any losses that occur. Any profits that result in an unauthorized trade will
be donated to a charity predesignated by MCM.
<PAGE>
The persons who are authorized to sign the Preclearance Form are set
forth below. This list is subject to change.
Compliance Officer
General Counsel
Vice President of Client Services
HOLDING PERIOD: As a general principle, personal securities transactions
should be for investment purposes and not for the purposes of generating
short-term profits. As a result, Covered Persons generally will be prohibited
from selling a security that he or she acquired within the previous 60 days.
This policy generally is relevant within the first 60 days of a Covered
Person's association with MCM and means, for example, that if a Covered
Person acquired a security within 60 days prior to association with MCM, he
or she will not be permitted to sell the security until it has been held for
at least 60 days.
BLACKOUT PERIOD: Covered Persons will not be able to sell personal
securities holdings for either three days before or three days after a client
trade in the same or equivalent security. MCM recognizes that the application
of the blackout period during the period before a client trade can lead to
certain procedural difficulties and may result in inadvertent violations of
the Code. Nonetheless, MCM has determined that the blackout period is an
effective way to avoid even the appearance of impropriety. Consequently,
employees carefully should consider the potential consequences of the
blackout period before determining to sell personal holdings in securities
that MCM holds, or might consider holding, in client accounts.
If a previously entered Covered Person's sale transaction falls within
the applicable blackout period, the Covered Person must try to cancel the
transaction. If the transaction can be canceled prior to settlement, the
Covered Person should do so, at the Covered Person's expense. If the
transaction cannot be canceled prior to settlement, then the Covered Person
must disgorge any resulting profits to MCM, who will in turn donate them to a
pre-designated charity.
The blackout period does not apply to transactions which qualify as
Exempted Transactions (as defined above). If you have any question as to the
application of the blackout period, contact the Compliance Officer or the
General Counsel.
VI. REPORTS AND CERTIFICATIONS REGARDING PERSONAL SECURITIES TRANSACTIONS
PERSONAL HOLDINGS REPORTS: In order to address potential conflicts of
interest that can arise when a Covered Person disposes of a security acquired
prior to his or her association with MCM and to help ensure compliance with
the Code, all Covered Persons must provide MCM with a list of all securities
holdings (the "Personal Holdings List") in which they have a beneficial
interest (other than interests in Exempted Transactions).
<PAGE>
This Personal Holdings List must be provided upon commencement of employment
and updated annually thereafter.
MCM is sensitive to Covered Persons' privacy concerns and will endeavor
not to disclose the contents of a Covered Person's Personal Holdings List to
anyone unnecessarily. To further protect the privacy of Covered Persons, the
Personal Holdings List provides for Covered Persons to indicate a range of
dollar values for each holding, rather than the exact dollar value of the
holding.
QUARTERLY TRANSACTION REPORTS: Pursuant to the federal securities laws
for registered investment advisers and registered investment companies,
Covered Persons must file a Quarterly Securities Transaction Report with MCM
within 30 days after the end of each quarter. If no securities transactions
occurred during the relevant quarter, a Report indicating that fact still
must be filed with MCM.
DUPLICATE BROKERAGE CONFIRMATIONS: To assist MCM in monitoring
compliance with the Code, each Covered Person must instruct each
broker-dealer with whom he or she maintains an account to send directly to
the Compliance Officer a duplicate copy of all transaction confirmations
generated by that broker-dealer for that account. A form of brokerage letter
is attached to the Code. In order to help ensure that duplicate brokerage
confirmations are received for all Covered Persons, each Covered Person is
required to complete a Brokerage Account Form annually.
CERTIFICATION OF COMPLIANCE: Each Employee will be required to certify
that he or she has read, understands and has complied with (or in the case
of a newly hired employee, will comply with) the Code. This Certification of
Compliance is required upon commencement of employment and annually
thereafter.
VII. MISCELLANEOUS
Certain activities, while not directly involving personal trading
issues, nonetheless raise similar potential conflict of interest issues and
are appropriate for inclusion in the Code.
SERVICE ON BOARDS: MCM Employees are prohibited form serving on the
board of directors of any for-profit company or organization without the
prior, written approval of the General Counsel. Such approval will only be
granted when MCM believes that such board service will be consistent with the
interests of MCM's clients. If board service is authorized, appropriate
procedures will be developed to ensure that confidential information is not
obtained or used by the MCM Employee or by MCM.
GIFTS: On occasion you may be offered, or may receive, gifts from
clients, brokers, vendors to other persons not affiliated with MCM. The
receipt of extraordinary or extravagant gifts from such persons is not
permitted. Gifts of a nominal value (i.e., gifts the reasonable value of
which is no more than $100 annually from one person), and customary business
meals and entertainment (e.g., sporting events) at which both you and
<PAGE>
the giver are present and promotional items (e.g., pens, mugs) may be
received. You may not, however, solicit any gifts.
You may not give any gift with a fair market value in excess of $100 per
year to persons associated with securities or financial organizations
including exchanges, other member organizations, commodity firms, news media,
or clients of the firm. You may provide reasonable entertainment to such
persons, provided that both you and the recipient are present.
You must never give or receive gifts or entertainment that would be
embarrassing to either you or MCM if made public.
ANNUAL BOARD REVIEW: The management of MCM annually will prepare a
report to the Funds' boards that summarizes existing procedures concerning
personal trading (including any changes in the Code), highlights violations
of the Code requiring significant remedial action and identifies any
recommended changes to the Code.
SPECIAL CONSIDERATION REGARDING PRIVATE PLACEMENT INVESTMENTS: Where a
MCM employee has acquired securities of an issuer through a private
placement, either before his or her association with MCM or pursuant to the
procedures described above, special consideration must be given if MCM
subsequently seeks to purchase securities of the same issuer for one or more
of its client accounts. Specifically, if the MCM employee who acquired the
private placement plays a part in MCM's subsequent consideration of an
investment in securities of the issuer of the private placement, then the MCM
Employee's private placement investment must be disclosed to all clients for
whom MCM is considering making the investment in securities of that issuer.
In such circumstances, MCM's decision to purchase securities of the issuer
should be subject to an independent review by investment personnel with no
personal interest in the issuer.
VII. FORMS
Attached to the Code are the following forms or documents:
- MCM Preclearance Form;
- Personal Holdings List;
- Quarterly Transaction Report;
- Form of Brokerage Letter;
- Brokerage Account Form;
- Certification of Compliance;
- Special Account Certification; and
- Annual Insider Trading Representation
<PAGE>
IX. VIOLATIONS OF THE CODE
MCM views violations of the Code to be a serious breach of the firm's
rules. Consequently, any Employee who violates any policy or procedure
contained in the Code is subject to sanctions, including termination of
employment. Further, violations of the Code may constitute violations of
federal and/or state laws and may be referred to the proper authorities upon
discovery. IF YOU HAVE ANY QUESTIONS ABOUT ANY ASPECT OF THE CODE, CONTACT
THE COMPLIANCE OFFICER OR THE GENERAL COUNSEL.
X. EFFECTIVE DATE
The Code is effective as of April 19, 1999.
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MASTHOLM
ASSET MANAGEMENT, L.L.C.
CODE OF ETHICS AND PROFESSIONAL STANDARDS
AND GUIDELINES FOR AVOIDING PROHIBITED ACTS
All employees of Mastholm Asset Management Inc. ("MAM"), in
conducting their personal securities transactions, owe a
fiduciary duty to all MAM's clients, including the investment
companies for which MAM serves as investment adviser. The term
"Fund" is used herein to mean each registered investment
company for which MAM serves as investment adviser or
sub-investment adviser. The fundamental standard to be
followed in personal securities transactions is that Employees
may not take inappropriate advantage of their positions. All
personal securities transactions by Employees must be
conducted in such interest and the interests of each client,
or any abuse of an Employee's position of trust and
responsibility. Potential conflicts arising from personal
investment activities could include buying or selling
securities based on knowledge of a client's trading position
or plans (sometimes referred to as front-running), and
acceptance of personal favors that could influence trading
judgements on behalf of a client. In addition to the
foregoing, this Code of Ethics is intended to prevent
Employees from engaging in any act, practice or course of
business prohibited by Rule 17j-1 under the Investment Company
Act of 1940 (the "Act"). Rule 17j-1 prohibits directors,
officers and advisory personnel of an investment adviser, in
connection with the purchase or sale by any such person of a
security held or to be acquired by an investment company, from
engaging in manipulative practices or employing any scheme to
defraud the investment company, from making any untrue
statements to the investment company and from failing to
disclose to the investment company material information.
While this Code of Ethics is designed to address identified
conflicts and potential conflicts, it cannot possibly be
written broadly enough to cover all potential situations. In
this regard, Employees are expected to adhere not only to the
letter, but also the spirit, of the policies contained herein.
For example, the restrictions contained herein on the purchase
or sale of a security would include the purchase or sale of an
equivalent security, such as the writing of an option to
purchase or sell a security.
Absent the approval of MAM's Compliance Officer and except for
certain limited exceptions for managed accounts where the
Employee has no discretion, self-directed IRA accounts and
certain estate or trust accounts, all Employees must provide
any brokerage account records to the Compliance Officer upon
request.
The restrictions contained in this Code of Ethics apply to all
securities in which an Employee has any direct or indirect
"beneficial ownership" - and may encompass transactions in
securities that are not effected in Employee Brokerage
Accounts such as interests in limited partnerships or
transactions effected for the account of another individual or
entity if the Employee may share in the profit from the
transaction. Accordingly, all securities transactions in which
an Employee has or would acquire any
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ASSET MANAGEMENT, L.L.C.
direct or indirect beneficial ownership, whether effected
through an Employee Account or not, must be approved in
advance as provided below in paragraph C of this section.
In furtherance of the above principles, this Code of Ethics
contains certain restrictions on personal securities
transactions by Employees of MAM, certain restrictions on
other activities of Employees when an actual or potential
conflict of interest between an Employee and a client may
exist, and certain reporting requirements to enable MAM to
ensure compliance with this Code of Ethics. Any questions
regarding the application or scope of the restrictions and
reporting requirements contained herein should be directed to
MAM's Compliance Officer.
All of the restrictions and reporting requirements contained
herein apply to each of MAM's Employees. Certain additional
restrictions apply to "Portfolio Managers". For purposes of
this Code of Ethics, Employees also includes all directors and
officers of MAM, unless otherwise determined by the Compliance
Officer. "Portfolio Manager" includes only directors, officers
or employees of MAM having direct responsibility and authority
to make investment decisions on behalf of a client. The
Compliance Officer will notify each Employee deemed to be a
Portfolio Manager for purposes of this Code of Ethics.
II. Prohibitions; Exemptions
1. PROHIBITED PURCHASES AND SALES
EMPLOYEES
A. No Employee may purchase or sell, directly or
indirectly, any security in which that Employee has, or by
reason of the transaction would acquire, any direct or
indirect beneficial ownership and which to the actual
knowledge of that Employee at the time of such purchase or
sale:
(i) is being actively considered for purchase or sale
for any client account; or
(ii) is in the process of being purchased or sold by
any client account.
B. No MAM employee may buy or sell for themselves any
equity securities in any company domiciled outside the United
States without permission of the Compliance Officer or the
Chief Investment Officer.
C. With the approval of the Compliance Officer or the
Chief Investment Officer, individuals may buy individual
equity securities subject to a minimum holding period of 90
days.
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MASTHOLM
ASSET MANAGEMENT, L.L.C.
D. Employees may not purchase, directly or
indirectly, any security in an initial public offering.
2. EXEMPTIONS FROM CERTAIN PROHIBITIONS
A. The prohibited purchase and sale transactions
described in paragraph II.1. above do not apply to the
following personal securities transactions:
(1) purchases or sales effected in any account over which the
Employee has no direct or indirect influence or control;
(2) purchases or sales which are non-violitional on the part of
either the Employee or the relevant client account;
(3) purchases which are part of an automatic dividend reinvestment
plan (other than pursuant to a cash purchase plan option);
(4) purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of its securities,
to the extent the rights were acquired from that issuer, and
sales of the rights so acquired;
(5) purchases or sales of (i) "long-term" debt securities
(securities with a remaining maturity of more than 397 days)
issued by the U.S. government or "short-term" debt securities
(securities with a remaining maturity of 397 days or less)
issued or guaranteed as to principal or interest by the U.S.
government or by a person controlled or supervised by and
acting as an instrumentality of the U.S. government, (ii)
bankers' acceptances and bank certificates of deposit, (iii)
commercial paper and (iv) shares of registered open-end
investment companies (each of the foregoing being referred to
herein as "Exempt Securities"); and
(6) any other purchase or sale which the Compliance Officer
approves on the grounds that the chance of conflict of
interest is remote.
B. Any personal securities transaction approved
pursuant to paragraphs II.2.A(6) and II.2.C. shall be reported
to the Compliance Officer within 15 days after the end of the
month during which such approval occurred.
3. PROHIBITED RECOMMENDATIONS
All Employees are subject to the following
restrictions on making recommendations to each client account:
A. Subject to certain exceptions indicated below for
Exempt Securities (as defined in paragraph II.2.A.(5) above)
no Employee may recommend the purchase or sale
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ASSET MANAGEMENT, L.L.C.
of any security to or for any client account without first
having disclosed his or her interest, if any, in such security
or the issuer thereof, to the Compliance Officer, including
without limitation:
(1) any direct or indirect beneficial ownership of any security
(other than an Exempt Security) of such issuer, including any
security received in a private securities transaction;
(2) any contemplated purchase or sale by such person of such
security (other than an Exempt Security);
(3) any position with such issuer or its affiliates; or
(4) any present or proposed business relationship between such
issuer or its affiliates and such person or any party in which
such person has a significant interest.
B. In circumstances in which Employees are required
to disclose an interest in a security or an issuer acquired in
a private securities transaction to the Compliance Officer, as
described above, MAM's decision to purchase or sell a security
(or to recommend the purchase or sale of a security) of the
same issuer for any client account shall be subject to an
independent review by a Portfolio Manager or Portfolio
Managers with no personal interest in the issuer.
C. PRE-CLEARANCE OF PERSONAL SECURITIES TRANSACTIONS
1. All Employees must obtain approval from the
Compliance Officer prior to entering into personal securities
transaction involving the purchase or sale of any security,
including any security to be acquired in a private
transaction, except for transactions included in paragraphs
II.2.A.(1), A(2), A(3) or A(4).
2. In addition, all transactions in equity securities
must be approved by the person or persons designated from time
to time by the Compliance Officer.
3. In connection with obtaining approval for any
personal securities transaction, Employees must describe to
the Compliance Officer in detail any factors which might be
relevant to a conflict of interest analysis, including the
existence, to the Employee's knowledge, of any economic
relationship between the transaction and securities held or to
be acquired by any MAM client.
D. PROHIBITIONS ON GIFTS AND SERVICES
1. Employees may not accept gifts or other things for
more than $100 in value from any person or entity that is
known by such Employee to be doing business with or on behalf
of any client account or MAM without the approval of the
Compliance Officer.
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ASSET MANAGEMENT, L.L.C.
2. Employees shall not serve on the boards of
directors of publicly held companies (other than Funds),
absent prior approval from the Board of Directors of each
relevant Fund, as determined by the Compliance Officer, and
approval of MAM's Compliance Officer. Such approval should be
based on a determination that board service would be
consistent with the best interests of the shareholders of each
such Fund.
E. REPORTING
1. INITIAL REPORTING
All Employees must report all personal
securities holdings upon commencement of employment with MAM.
2. QUARTERLY REPORTING
A. Subject to the provisions of paragraph B,
below, every Employee shall either report to MAM the
information described in paragraph C, below, with respect to
transactions in any security in which the Employee has, or by
reason of the transaction acquires, any direct or indirect
beneficial ownership in the security or, in the alternative,
make the representation in paragraph D, below.
B. An Employee is not required to make a
report with respect to any transaction effected for any
account over which the Employee does not have any direct or
indirect influence, provided, however, that if the Employee is
relying upon the provisions of this paragraph B to avoid
making such a report, the Employee shall, not later than 10
days after the end of each calendar quarter, identify any such
account in writing and certify in writing that he or she had
no direct or indirect influence over any such account.
C. Every quarterly report pursuant to this
paragraph 2 shall be submitted to the Compliance Officer not
later than 10 days after the end of the calendar quarter in
which the transaction to which the report relates was effected
and shall contain the following instructions:
(i) the date of the transaction, the title and the number of
shares and the principal amount of each security involved;
(ii) the nature of the transaction (i.e., purchase, sale or
any other type of acquisition or disposition);
(iii) the price at which the transaction was effected;
(iv) the name of the broker, dealer or bank with or through
whom the transaction was effected; and
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MASTHOLM
ASSET MANAGEMENT, L.L.C.
(v) a description of any factors potentially relevant to a
conflict of interest analysis, including the existence, to the
Employee's knowledge, of any economic relationship between the
transaction and securities held or to be acquired by any
client account.
D. If no transactions were conducted by an
Employee during a calendar quarter that are subject to the
reporting requirements described above, such Employee shall,
not later than 10 days after the end of that calendar quarter,
provide a written representation to that effect to the
Compliance Officer.
E. An Employee need not separately report to
MAM information regarding transactions conducted through
securities accounts, provided that copies of the relevant
confirmations and statements are furnished to MAM as required
by paragraph V.4. below. This option may be revoked by the
Compliance Officer for Employees who fail to make timely
filings required under this Code of Ethics or who fail to
provide required disclosures, confirmations or statements.
3. ANNUAL REPORTING AND CERTIFICATION
A. All
Employees must report all personal securities holdings to the
Compliance Officer within 30 days after the end of each
calendar year, together with a list of all accounts maintained
at brokerage firms which are subject to the provisions of this
Code of Ethics, including the names of the firms and the
account numbers.
B. All Employees are required to certify
annually that they have read and understand this Code of
Ethics and recognize that they are subject to the provisions
hereof and will comply with the policy and procedures stated
herein. Further, all Employees are required to certify
annually that they have complied with the requirements of this
Code of Ethics and that they have reported all personal
securities transactions required to be disclosed or reported
pursuant to the requirements of such policies. A copy of the
certification form to be used in complying with this paragraph
B is attached to this Code of Ethics as Appendix 2.
4. BROKERAGE CONFIRMATIONS AND STATEMENTS
All Employees must direct their brokers to
supply to the Compliance Officer, on a timely basis, duplicate
copies of confirmations of any purchase or sale of a security.
5. MISCELLANEOUS
Any report under this Code of Ethics may
contain a statement that the report shall not be construed as
an admission by the person making the report that the
<PAGE>
[LOGO]
MASTHOLM
ASSET MANAGEMENT, L.L.C.
person has any direct or indirect beneficial ownership in the
securities to which the report relates.
F. CONFIDENTIALITY
No Employee shall reveal to any other person (except
in the normal course of his or her duties on behalf o the MAM)
any information regarding securities transactions by any
client or consideration by any client or MAM of any such
securities transaction.
All information obtained from any Employee pursuant
to this Code of Ethics shall be kept in strict confidence,
except that reports of securities transactions hereunder will
be made available to the Securities and Exchange Commission or
any other regulatory or self-regulatory organization to the
extent required by law or regulation.
G. SANCTIONS
Any trades made in violation of the provisions set
forth under paragraphs II.1.C. and E. must be unwound, or, if
that is impractical, any profits realized on trades made in
violation of these prohibitions must be disgorged to the
appropriate client or clients (or, alternatively, to a
charitable organization) under the direction of the Compliance
Officer.
Upon discovering a violation of this Code of Ethics,
the Senior Managers of MAM may impose any sanctions it deems
appropriate, including a letter of censure or the suspension
or termination of the employment of the violator.
<PAGE>
MASSACHUSETTS FINANCIAL SERVICES COMPANY
STATEMENT OF POLICY ON
PERSONAL SECURITIES TRANSACTIONS
(CODE OF ETHICS)
AS ADOPTED BY THE AUDIT COMMITTEE
EFFECTIVE AS OF MARCH 1, 2000
As an investment advisory organization with substantial
responsibilities to clients, Massachusetts Financial Services Company ("MFS")
has an obligation to implement and maintain a meaningful policy governing the
securities transactions of its Directors, officers and employees ("MFS
representatives").(1) This policy is intended to minimize conflicts of interest,
and even the appearance of conflicts of interest, between members of the MFS
organization and its clients in the securities markets as well as to effect
compliance with the Investment Company Act, the Investment Advisers Act and the
Securities Exchange Act. This policy inevitably will restrict MFS
representatives in their securities transactions, but this is the necessary
consequence of undertaking to furnish investment advice to clients. In addition
to complying with the specific rules, we all must be sensitive to the need to
recognize any conflict, or the appearance of conflict, of interest whether or
not covered by the rules. When such situations occur, the interests of our
clients must supersede the interest of MFS representatives.
1. GENERAL FIDUCIARY PRINCIPLES. All personal investment activities
conducted by MFS representatives are subject to compliance with the following
principles: (i) the duty at all times to place the interests of MFS' clients
first; (ii) the requirement that all personal securities transactions be
conducted consistent with this Code of Ethics and in such a manner as to avoid
any actual or potential conflict of interest or any abuse of an individual's
position of trust and responsibility; and (iii) the fundamental standard that
MFS representatives should not take inappropriate advantage of their positions.
2. APPLICABILITY OF RESTRICTIONS AND PROCEDURES. In recognition of the
different circumstances surrounding each MFS representative's employment,
various categories of MFS employees are subject to different restrictions under
this Code of Ethics. For purposes of applying this Code of Ethics, MFS employees
are divided into the general categories of Portfolio Managers, Investment
Personnel, Access Persons and Non-Access Persons, as each such term is defined
in Appendix A to this Code of Ethics, as amended from time to time by the Audit
Committee.
As used in this Code of Ethics, the term "securities" includes not only
publicly traded equity securities, but also privately issued equity securities,
shares of closed-end funds, fixed income securities (including municipal bonds
and many types of U.S. Government securities), futures, options, warrants,
rights, swaps, commodities and other similar instruments. Moreover, the
restrictions of this Code of Ethics apply to transactions by Access Persons
involving securities and other instruments related to, but not necessarily the
same as, securities held or to be acquired on behalf of an MFS client.
- ----------
(1) Employees of MFS Institutional Advisors, Inc., MFS Fund
Distributors, Inc., MFS Retirement Services, Inc., MFS International Ltd., MFS
International (U.K.) Ltd., MFS Service Center, Inc., Vertex Investment
Management Inc. and MFS Heritage Trust Company also are covered by this Code of
Ethics.
<PAGE>
3. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS. No Access Person
shall trade in any security which is subject to a pending "buy" or "sell" order,
or is being considered for purchase or sale,(2) for a client of MFS until such
order is executed or withdrawn or such a transaction is no longer being
considered. In addition, no Investment Personnel shall trade in any security
after an MFS client trades in such security or such security has been considered
for purchase or sale on behalf of an MFS client until: (i) the next business day
following such trade or consideration (in the case of a proposed trade by an
Investment Personnel in the same direction as the MFS client); or (ii) the
eighth calendar day thereafter (in the case of a proposed trade by an Investment
Personnel in the opposite direction from the MFS client's trade). No Portfolio
Manager shall trade in any security within at least seven calendar days before
or after an MFS client whose account he or she manages trades in such security
or such security has been considered for purchase or sale on behalf of such an
MFS client. Any profits realized on trades within these proscribed periods must
be disgorged to the affected MFS client or, in the event that the amount to be
disgorged is relatively minor or difficult to allocate, to charity. In addition,
no MFS representative shall provide any information about such transaction or
recommendation to any person other than in connection with the proper execution
of such purchase or sale for an MFS client's account.
Portfolio Managers should consider the problems inherent in purchasing
for their own account securities that are or may be suitable for a client's
portfolio. For example, a fortuitous early sale by the Manager for his or her
personal account may be criticized in hindsight if the same security later is
sold from the client's account at a lower price.
GIFTS AND TRANSFERS. A gift or transfer shall be excluded from the
preclearance requirements provided that the recipient represents in
writing that he, she, they or it has no present intention of selling
the donated security.
SHORT SALES. No Access Person shall effect a short sale in any security
held in a portfolio managed by MFS. Access Persons may engage in
transactions in options and futures, subject to special preclearance
rules applicable to certain of those transactions as described in
Section 5 below.
INITIAL PUBLIC OFFERINGS. The purchase by Access Persons of securities
(other than securities of registered open-end investment companies)
offered at fixed public offering price by underwriters or a selling
group is prohibited.(3) Rights (including rights purchased to acquire
an additional full share) issued in respect of securities any Access
Persons owns may be exercised, subject to preclearance; the decision
whether or not to grant preclearance shall take into account, among
other factors, whether the investment opportunity should be reserved
for an MFS client and whether the investment opportunity is being or
was offered to the individual by virtue of his or her position with
MFS.
- ----------
(2) A security is deemed to have been "considered for purchase or sale"
when a recommendation to purchase or sell such security has been made and
communicated to a portfolio manager and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
(3) The reason for this rule is that it precludes any possibility that
Access Persons might use MFS' clients' market stature as a means of obtaining
for themselves "hot" issues which otherwise might not be offered to them. In
addition, this rule eliminates the possibility that underwriters and selling
group members might seek by this means to gain favor with individuals in order
to obtain preferences from MFS.
<PAGE>
PRIVATE PLACEMENTS. Any acquisition by Access Persons of securities
issued in a private placement is subject to preclearance. The decision
whether or not to grant preclearance shall take into account, among
other factors, whether the investment opportunity should be reserved
for an MFS client and whether the investment opportunity is being
offered to the individual by virtue of his or her position with MFS.
Investment Personnel who have been precleared to acquire securities in
a private placement are required to disclose that investment when they
play a part in any subsequent consideration of an investment in the
issuer for an MFS client. In such circumstances, the decision to
purchase securities of the issuer for the MFS client shall be subject
to an independent review by Investment Personnel with no personal
interest in the issuer.
NOTE: Acquisitions of securities in private placements by country
clubs, yacht clubs and other similar entities need not be precleared,
but are subject to the reporting, disclosure and independent review
requirements.
PROHIBITION ON SHORT-TERM TRADING PROFITS. All Investment Personnel are
prohibited from profiting in the purchase and sale, or sale and
purchase, of the same (or equivalent) securities within 60 calendar
days. Any profits realized on such short-term trades must be disgorged
to the affected MFS client (if any) or, in the event that the amount to
be disgorged is relatively minor or difficult to allocate, to charity.
This restriction on short-term trading profits shall not apply to
transactions exempt from preclearance requirements, as described in
Section 8 below.
It is expected that all MFS representatives will follow these
restrictions in good faith and conduct their personal trading in keeping with
the intended purpose of this Code of Ethics. NOTE: ANY NON-ACCESS PERSON WHO
RECEIVES ANY INFORMATION ABOUT ANY PARTICULAR INVESTMENT RECOMMENDATION OR
EXECUTED OR PROPOSED TRANSACTION FOR ANY MFS CLIENT IS REQUIRED TO COMPLY WITH
ALL PRECLEARANCE AND OTHER REQUIREMENTS OF THIS CODE OF ETHICS APPLICABLE TO
ACCESS PERSONS. Any individual should feel free to take up with the Audit
Committee any case in which he or she feels inequitably burdened by these
policies. The Audit Committee may, in its sole discretion, grant appropriate
exceptions from the requirements of this Code of Ethics where warranted by
applicable facts and circumstances.
4. BENEFICIAL OWNERSHIP. The requirements of this Code of Ethics apply
to any account in which an MFS representative has (i) "direct or indirect
beneficial ownership" or (ii) any "direct or indirect influence or control."
Under applicable SEC interpretations, such "beneficial ownership" INCLUDES
ACCOUNTS OF A SPOUSE, MINOR CHILDREN AND DEPENDENT RELATIVES RESIDENT IN THE MFS
REPRESENTATIVE'S HOUSE, as well as any other contract, relationship,
understanding or other arrangement which results in an opportunity for the MFS
representative to profit or share profits from a transaction in securities.
NOTE: The exception for accounts with respect to which an MFS
representative lacks "direct or indirect influence or control" is extremely
narrow, and should only be relied upon in cases which have been pre-approved in
writing by Stephen E. Cavan or Robert T. Burns of the Legal Department. Certain
"blind trust" arrangements approved by the Legal Department may be excluded from
the preclearance (but not the quarterly reporting) requirements of this Code of
Ethics.
5. PRECLEARANCE REQUIREMENTS. In order to facilitate compliance with
this Code of Ethics, preclearance requests must be made and approved before any
transaction may be made by an Access Person or for any other account
beneficially owned by an Access Person. A
<PAGE>
preclearance request in the form set forth in MFS' automated Code of Ethics
system, as amended from time to time, should be completed and submitted
electronically for any order for an Access Person's own account or one described
in Section 4 above, or, in the case of an Access Person who wishes to preclear
while outside of the Boston area, should either: (i) be completed in the form
attached hereto, as amended from time to time, signed and submitted by facsimile
machine, to the Compliance Department; or (ii) be submitted by telephone call to
the Compliance Department. Any preclearance request received before 3:00 p.m. on
a business day will be responded to as soon as available on the following
business day. Preclearance requests will be reviewed by Equity and Fixed Income
Department personnel who will be kept apprised of recommendations and orders to
purchase and sell securities on behalf of MFS clients, the completion or
cancellation of such orders and the securities currently held in portfolios
managed by MFS. Their advice will be forwarded to the Compliance Department.
The preclearance process imposes significant burdens on the investment
and administrative departments within MFS. Accordingly, if the MFS Audit
Committee determines that an Access Person is making an excessive number of
preclearance requests, it reserves the right to limit such Access Person to a
certain number of preclearance requests per day or per period.
An Access Person who obtains electronic or written notice from the
Compliance Department indicating consent to an order which the Access Person
proposes to enter for his or her own account or one described in Section 4 above
may execute that order ONLY ON THE DAY WHEN SUCH NOTICE IS RECEIVED unless
otherwise stated on the notice. Such notices will always be electronic or in
writing; however, in the case of an Access Person who wishes to preclear a
transaction while outside the Boston area, the Compliance Department will also
provide oral confirmation of the content of the written notice.
Preclearance requests may be denied for any number of appropriate
reasons, most of which are confidential. For example, a preclearance request for
a security that is being considered for purchase or sale on behalf of an MFS
client may be denied for an extended period (E.G. 10 business days).
Accordingly, an Access Person is NOT entitled to receive any explanation or
reason if his or her preclearance request is denied, and repetitive requests for
an explanation by an Access Person will be deemed a violation of this Code of
Ethics.
SIGNIFICANT OWNERSHIP BY MFS CLIENTS. In cases where MFS clients own,
in the aggregate, 8% or more of the outstanding equity securities of an
issuer, requests by Access Persons to purchase the securities of such
issuer will be denied. Requests to preclear sales of such securities
may be granted, subject to the standard requirements set forth in
Section 3 above.
SECURITIES SUBJECT TO AUTOMATIC PURCHASES AND SALES FOR MFS CLIENTS.
Certain MFS funds and institutional accounts are managed such that the
securities held in such portfolios are regularly purchased or sold on
an equal proportionate basis so as to preserve specified percentage
weightings of such securities across such portfolios. Requests to
preclear purchases of securities held in such portfolios will be
denied. Requests to sell such securities may be granted, subject to the
standard preclearance requirements set forth in Section 3 above.
OPTIONS AND FUTURES TRANSACTIONS. Access Persons may purchase (to open)
and sell (to close) call and put options and futures contracts on
securities, subject to the preclearance and other requirements of this
Code of Ethics; however, an Access Person
<PAGE>
may neither buy a put option on any security held in a portfolio
managed by MFS nor write (sell to open) options and futures contracts.
In the case of purchased put and call options, the preclearance of the
exercise of such options as well as their purchase and sale, is
required. Preclearance of the exercise of purchased put and call
options shall be requested on the day before the proposed exercise or,
if notice to the writer of such options is required before the proposed
exercise date, the date before notice is proposed to be given, setting
forth the proposed exercise date as well as the proposed notice
date.(4) Purchases and sales of options or futures contracts to "close
out" existing options or futures contracts must be precleared.(5)
MFS CLOSED-END FUNDS. All transactions effected by ANY MFS
representative in shares of any closed-end fund for which MFS or one of
its affiliates acts as investment adviser shall be subject to
preclearance and reporting in accordance with this Code of Ethics.
Non-Access Persons are exempt from the preclearance and reporting
requirements set forth in this Code of Ethics with respect to
transactions in any other type of securities, so long as they have not
received any information about any particular investment recommendation
or executed or proposed transaction for any MFS client with respect to
such security.
6. DUPLICATE CONFIRMATION STATEMENT REQUIREMENT. In order to implement
and enforce the above policies, every Access Person shall arrange for his or her
broker to send MFS duplicate copies of all confirmation statements issued with
respect to the Access Person's transactions and all periodic statements for such
Access Person's securities accounts (or other accounts beneficially owned by
such Access Person). The Compliance Department will coordinate with brokerage
firms in order to assist Access Persons in complying with this requirement.
7. REPORTING REQUIREMENT. Each Access Person shall report on or before
the tenth day of each calendar quarter any securities transactions during the
prior quarter in accounts covered by Section 4 above. EMPLOYEES WHO FAIL TO
COMPLETE AND FILE SUCH QUARTERLY REPORTS ON A TIMELY BASIS WILL BE REPORTED TO
THE AUDIT COMMITTEE AND WILL BE SUBJECT TO SANCTIONS. Reports shall be reviewed
by the Compliance Department.
In filing the reports for accounts within these rules, please note:
(i) You must file a report for every calendar quarter even if you
had no reportable transactions in that quarter; all such reports
shall be completed and submitted in the form set forth in MFS'
automated Code of Ethics system.
(ii) Reports must show any sales, purchases or other acquisitions or
dispositions, including gifts, exercises of conversion rights
and exercises or sales of subscription rights. See Section 8
below for certain exceptions to this requirement.
- ----------
(4) Access Persons should note that this requirement may result in
their not being allowed to exercise an option purchased by them on the exercise
date they desire, and in the case of a "European" option on the only date on
which exercise is permitted by the terms of the option.
(5) Access Persons should note that as a result of this requirement,
they may not be able to obtain preclearance consent to close out an option or
futures contract before the settlement date. If such an option or futures
contract is automatically closed out, the gain, if any, on such transaction will
be disgorged in the manner described in Section 3 above.
<PAGE>
(iii) Reports will be treated confidentially unless a review of
particular reports with the representative is required by the
Audit Committee.
(v) Reports are made available for review by the Boards of Trustees
of MFS investment company clients upon their request.
NOTE: Any Access Person who maintains all of his or her personal
securities accounts with one or more broker-dealer firms that send
confirmation and periodic account statements in an electronic format
approved by the Compliance Department, and who arranges for such firms
to send such statements (no less frequently than quarterly) required by
Section 6 above, shall not be required to prepare and file the
quarterly reports required by this Section 7. However, each such Access
Person shall be required to verify the accuracy and completeness of all
such statements on at least an annual basis.
8. CERTAIN EXCEPTIONS.
MUTUAL FUNDS. Transactions in shares of any open-end investment
companies, including funds for which the MFS organization is investment adviser,
need not be precleared or reported.
CLOSED-END FUNDS. Automatic reinvestments of distributions of
closed-end funds advised by MFS pursuant to dividend reinvestment plans of such
funds need only be reported. All other closed-end fund transactions must be
precleared and reported.
MFS COMMON STOCK. Transactions in shares of stock of MFS need not be
precleared or reported.
LARGE CAPITALIZATION STOCKS. Transactions in securities issued by
companies with market capitalizations of at least $5 billion generally will be
eligible for automatic preclearance (subject to certain exceptions), but must be
reported and are subject to post-trade monitoring. The Compliance Department
will maintain a list of issuers that meet this market capitalization
requirement. A preclearance request for a large capitalization company will be
denied whenever deemed appropriate.
U.S. GOVERNMENT SECURITIES. Transactions in U.S. Treasury securities
(including options and futures contracts and other derivatives with respect to
such securities) need not be precleared or reported. Option and futures
contracts on U.S. Government obligations (other than U.S. Treasury securities)
and securities indices need not be precleared but must be reported. Transactions
in U.S. Government securities offered on the basis of "non-competitive tender"
need not be precleared or reported. However, U.S. Government obligations (other
than U.S. Treasury securities) offered by "subscription" must be precleared and
reported.
OTHER EXCEPTIONS. Transactions in money market instruments and in
options on broad-based indices need not be precleared, although such
transactions must be reported. In addition, the following types of transactions
need not be precleared or reported: (i) stock dividends and stock splits; (ii)
foreign currency transactions; and (iii) transactions in real estate limited
partnership interests.
9. DISCLOSURE OF PERSONAL SECURITIES HOLDINGS. All Access Persons are
required to disclose all personal securities holdings within 10 days after
becoming an Access Person (I.E. upon commencement of employment with MFS or
transfer within MFS to an Access Person
<PAGE>
position) and thereafter on an annual basis. Reports shall be
reviewed by the Compliance Department.
10. GIFTS, ENTERTAINMENT AND FAVORS. MFS representatives must not make
business decisions that are influenced or appear to be influenced by giving or
accepting gifts, entertainment or favors. Investment Personnel are prohibited
from receiving any gift or other thing of more than DE MINIMIS value from any
person or entity that does business with or on behalf of MFS or its clients.
Invitations to an occasional meal, sporting event or other similar activity will
not be deemed to violate this restriction unless the occurrence of such events
is so frequent or lavish as to suggest an impropriety.
11. SERVICE AS A DIRECTOR. All MFS representatives are prohibited from
serving on the boards of directors of commercial business enterprises, absent
prior authorization by the Management Committee based upon a determination that
the board service would be consistent with the interests of MFS' clients. In the
relatively small number of instances in which board service is authorized, MFS
representatives serving as directors may be isolated from other MFS
representatives through "Chinese Wall" or other appropriate procedures.
12. CERTIFICATION OF COMPLIANCE WITH CODE OF ETHICS. All MFS
representatives (including Non-Access Persons) shall be required to certify
annually that (i) they have read and understand this Code of Ethics and
recognize that they are subject to its requirements applicable to them and (ii)
they have complied with all requirements of this Code of Ethics applicable to
them, and (in the case of Access Persons) have reported all personal securities
transactions (whether pursuant to quarterly reports from the Access Person or
duplicate confirmation statements and periodic reports from the Access Person's
broker-dealer) required to be reported pursuant to this Code of Ethics. This
certification shall apply to all accounts beneficially owned by an MFS
representative.
13. BOARDS OF TRUSTEES OF MFS FUNDS. Any material amendment to this
Code of Ethics shall be subject to the approval by each of the Boards of
Trustees (including a majority of the disinterested Trustees on each such Board)
of each of the registered investment companies with respect to which MFS, or any
subsidiary of MFS, acts as investment adviser. In addition, on at least an
annual basis, MFS shall provide each such Board with a written report that: (i)
describes issues that arose during the preceding year under this Code of Ethics,
including without limitation information about any material violations of this
Code of Ethics and any sanctions imposed with respect to such violations; and
(ii) certifies to each such Board that MFS has adopted procedures reasonably
necessary to prevent Access Persons from violating this Code of Ethics.
14. SANCTIONS. Any trading for an MFS representative's account which
does not evidence a good faith effort to comply with these rules will be subject
to Audit Committee review. If the Audit Committee determines that a violation of
this Code of Ethics or its intent has occurred, it may impose such sanctions as
it deems appropriate including forfeiture of any profit from a transaction
and/or termination of employment. Any violations resulting in sanctions will be
reported to the Boards of Trustees of MFS investment company clients and will be
reflected in the employee's personnel file.
<PAGE>
APPENDIX A
CERTAIN DEFINED TERMS
As used in this Code of Ethics, the following shall terms shall have
the meanings set forth below, subject to revision from time to time by the Audit
Committee:
PORTFOLIO MANAGERS -- employees who are authorized to make investment
decisions for a mutual fund or client portfolio. NOTE: research
analysts are deemed to be Portfolio Managers with respect to the entire
portfolio of any fund managed collectively by a committee of research
analysts (E.G. MFS Research Fund).
INVESTMENT PERSONNEL -- all Portfolio Managers as well as research
analysts, traders and other members of the Equity Trading, Fixed Income
and Equity Research Departments.
ACCESS PERSONS -- all Portfolio Managers, Investment Personnel and
other members of the following departments or groups: Institutional
Advisors; Compliance; Fund Accounting; Investment Communications; and
Technology Services & Solutions ("TS&S") (excluding, however, TS&S
employees who are employed at Lafayette Corporate Center and certain
TS&S employees who may be specifically excluded by the Compliance or
Legal Departments); also included are members of the MFS Management
Committee, the MFS Administrative Committee and the MFS Operations
Committee. In certain instances, non-employee consultants and other
independent contractors may be deemed Access Persons and therefore be
subject to some or all of the requirements set forth in this Code of
Ethics.
NON-ACCESS PERSONS -- all employees of the following departments or
groups: Corporate Communications; Corporate Finance; Facilities
Management; Human Resources; Internal Audit (unless undergoing an audit
of an access area); Legal; MFS Service Center, Inc. (other than TS&S
employees who are employed at 500 Boylston Street); Retired Partners;
Travel and Conference Services; the International Division; MFS
International Ltd.; MFS Fund Distributors, Inc.; and MFS Retirement
Services, Inc. NOTE: ANY NON-ACCESS PERSON WHO RECEIVES ANY INFORMATION
ABOUT ANY PARTICULAR INVESTMENT RECOMMENDATION OR EXECUTED OR PROPOSED
TRANSACTION FOR ANY MFS CLIENT IS REQUIRED TO COMPLY WITH ALL
PRECLEARANCE AND OTHER REQUIREMENTS OF THIS CODE OF ETHICS APPLICABLE
TO ACCESS PERSONS. ANY NON-ACCESS PERSON WHO REGULARLY RECEIVES SUCH
INFORMATION WILL BE RECLASSIFIED AS AN ACCESS PERSON. IN ADDITION,
TRANSACTIONS IN SHARES OF THE MFS CLOSED-END FUNDS BY ALL MFS
REPRESENTATIVES ARE SUBJECT TO ALL SUCH PRECLEARANCE AND REPORTING
REQUIREMENTS (SEE SECTION 5 OF THIS CODE OF ETHICS).
<PAGE>
PERSONAL SECURITIES TRANSACTION
PRECLEARANCE REQUEST
[ONLY FOR USE BY MFS EMPLOYEES
NOT LOCATED IN BOSTON]
DATE:_________________________, _____
All transactions must be precleared, regardless of their size, except those in
certain specific categories of securities that are exempted under the MFS Code
of Ethics. If necessary, continue on the reverse side. Please note that special
rules apply to the preclearance of option and futures transactions. If the
transaction is to be other than a straightforward sale or purchase of
securities, mark it with an asterisk and explain the nature of the transaction
on the reverse side. Describe the nature of each account in which the
transaction is to take place, I.E., personal, spouse, children, charitable
trust, etc.
SALES
-----
CUSIP/TICKER AMOUNT OR BROKER NATURE* OF
SECURITY NO. OF SHARES ------ ACCOUNT
-------- ------------- -------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PURCHASES
---------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I represent that I am not in possession of material non-public information
concerning the securities listed above or their issuer. If I am an MFS access
person charged with making recommendations to MFS with respect to any of the
securities listed above, I represent that I have not determined or been
requested to make a recommendation in that security except as permitted by the
MFS Code of Ethics.
---------------------------------------
Signature and Date
---------------------------------------
Name of MFS Access Person
(please print)
EXPLANATORY NOTES: This form must be filed by 3:00 p.m. on the business day
prior to the business day on which you wish to trade and covers all accounts in
which you have an interest, direct or indirect. This includes any account in
which you have "beneficial ownership" (unless you have no influence or control
over it) and non-client accounts over which you act in an advisory or
supervisory capacity. No trade can be effected until approval from the
Compliance Department has been obtained.
- -----------------------
* Check if you wish to claim that the reporting of the account or the securities
transaction shall not be construed as an admission that you have any direct or
indirect beneficial ownership in such account or securities.
<PAGE>
MAS FUNDS
(THE "FUND")
AND
MILLER ANDERSON & SHERRERD, LLP
("MAS")
AND
MAS FUND DISTRIBUTION, INC.
("MASDI")
CODE OF ETHICS
1. PURPOSES
This Code of Ethics has been adopted by the Fund, MAS and MASDI, the
principal underwriter of the Funds, in accordance with Rule 17j-1 under the
Investment Company Act of 1940, as amended (the "Act"). Rule 17j-1 under the
Act generally proscribes fraudulent or manipulative practices with respect to
purchases or sales of securities held or to be acquired by investment
companies, if effected by affiliated persons (as defined under the Act) of
such companies. Specifically, Rule 17j-1 provides that it is unlawful for
any affiliated person of or principal underwriter for a registered investment
company, or any affiliated person of an investment adviser of or principal
underwriter for a registered investment company, in connection with the
purchase or sale, directly or indirectly, by such person of a security held
or to be acquired by such registered investment company:
(a) To employ any device, scheme or artifice to defraud such registered
investment company;
(b) To make to such registered investment company any untrue statement of
a material fact or omit to state to such registered investment company
a material fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not misleading;
(c) To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any such registered
investment company; or
(d) To engage in any manipulative practice with respect to such registered
investment company.
While Rule 17j-1 is designed to protect only the interests of the Fund and
its stockholders, MAS applies the policies and procedures described in this Code
of Ethics to all employees of MAS to protect the interests of its non-Fund
clients as well (hereinafter, where appropriate, non-Fund clients of MAS are
referred to as "Advisory Clients" and any reference to an Advisory Client(s)
relates only to the activities of employees of MAS).
The purpose of this Code of Ethics is to (i) ensure that Access Persons
conduct their personal securities transactions in a manner which does not (a)
create an actual or potential conflict of interest with the Fund's or an
1
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Advisory Client's portfolio transactions, (b) place their personal interests
before the interests of the Fund and its stockholders or an Advisory Client or
(c) take unfair advantage of their relationship to the Fund or an Advisory
Client and (ii) provide policies and procedures consistent with the Act and Rule
17j-1 designed to give effect to the general prohibitions set forth in Rule
17j-1.
Among other things, the procedures set forth in this Code of Ethics require
that all (i) Access Persons review this Code of Ethics at least annually, (ii)
Access Persons, unless excepted by Sections 8(d) or (e) of this Code of Ethics,
report transactions in Covered Securities, (iii) Access Persons refrain from
engaging in certain transactions, and (iv) employees of MAS pre-clear with the
appropriate trading desk any transactions in Covered Securities.
2. DEFINITIONS
(a) "Access Person" means any director, officer or Advisory Person of the
Fund or of MAS, and any director or officer of MASDI, who, in the
ordinary course of business, makes, participates in or obtains
information regarding the purchase or sale of Covered Securities by
the Fund.
(b) "Advisory Person" means any employee of the Fund, or of MAS (or of any
company in a control relationship to the Fund or MAS), who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale
of Covered Securities by the Fund or an Advisory Client, or whose
functions relate to the making of any recommendations with respect to
such purchases or sales.
(c) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, except that the determination of
direct or indirect beneficial ownership shall apply to all securities
which an Access Person has or acquires.
(d) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Act.
(e) "Compliance Department" means the MAS Compliance Department.
(f) "Covered Security" means a security as defined in Section 2(a)(36) of
the Act, except that it does not include: (i) shares of registered
open-end investment companies, (ii) direct obligations of the
Government of the United States, and (iii) bankers' acceptances, bank
certificates of deposit, commercial paper, and high quality short-term
debt instruments, including repurchase agreements.
(g) "Disinterested Director" means a director of the Fund who is not an
"interested person" of the Fund within the meaning of Section
2(a)(19) of the Act.
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(h) "Purchase or sale (or sell)" with respect to a Covered Security means
any acquisition or disposition of a direct or indirect beneficial
interest in a Covered Security, including, INTER ALIA, the writing or
buying of an option to purchase or sell a Covered Security.
(i) "Security held or to be acquired" means (i) any Covered Security
which, within the most recent 15 days, is or has been held by the
Fund or an Advisory Client, or is being or has been considered by the
Fund or an Advisory Client or MAS for purchase by the Fund or an
Advisory Client; and (ii) any option to purchase or sell, and any
security convertible into or exchangeable for, a Covered Security
described in this paragraph.
3. PROHIBITED TRANSACTIONS
(a) No Access Person or employee of MAS shall purchase or sell any Covered
Security which to his or her actual knowledge at the time of such
purchase or sale:
(i) is being considered for purchase or sale by the Fund or an
Advisory Client; or
(ii) is being purchased or sold by the Fund or an Advisory Client.
(b) No employee of MAS shall purchase or sell a Covered Security while
there is a pending "buy" or "sell" order in the same or a related
security for a Fund or an Advisory Client until that order is executed
or withdrawn.
(c) No Advisory Person shall purchase or sell a Covered Security within
seven calendar days before or after any portfolio(s) of the Fund over
which such Advisory Person exercises investment discretion or an
Advisory Client over which the Advisory Person exercises investment
discretion purchases or sells the same or a related Covered
Security. Any profits realized or unrealized by the Advisory Person
on a prohibited purchase or sale within the proscribed period shall
be disgorged to a charity.
(d) No employee of MAS shall profit from the purchase and sale or sale and
purchase of the same (or equivalent) Covered Security within 60
calendar days. Any profits realized on such purchase or sale shall be
disgorged to a charity.
(e) No Access Person or employee of MAS shall purchase any securities in
an initial public offering.
(f) No employee of MAS shall purchase privately-placed securities unless
such purchase is pre-approved by the Compliance Department. Any such
person who has previously purchased privately-placed securities must
disclose such purchases to the Compliance Department before such
person participates in a Fund's or an Advisory Client's subsequent
consideration of an investment in the securities of the same or a
related issuer. Upon such disclosure, the Compliance Department
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shall appoint another person with no personal interest in the issuer,
to conduct an independent review of such Fund's or such Advisory
Client's decision to purchase securities of the same or related
issuer.
(g) No Access Person or employee of MAS shall recommend the purchase or
sale of any Covered Securities to a Fund or to an Advisory Client
without having disclosed to the Compliance Department his or her
interest, if any, in such Covered Securities or the issuer thereof,
including without limitation (i) his or her direct or indirect
beneficial ownership of any securities of such issuer, (ii) any
contemplated purchase or sale by such person of such securities, (iii)
any position with such issuer or its affiliates, and (iv) any present
or proposed business relationship between such issuer or its
affiliates, on the one hand, and such person or any party in which
such person has a significant interest, on the other; provided,
however, that in the event the interest of such person in such
securities or the issuer thereof is not material to his or her
personal net worth and any contemplated purchase or sale by such
person in such securities cannot reasonably be expected to have a
material adverse effect on any such purchase or sale by a Fund or an
Advisory Client or on the market for the securities generally, such
person shall not be required to disclose his or her interest in the
securities or the issuer thereof in connection with any such
recommendation.
(h) No Access Person or employee of MAS shall reveal to any other person
(except in the normal course of his or her duties on behalf or a Fund
or an Advisory Client) any information regarding the purchase or sale
of any Covered Security by a Fund or an Advisory Client or
consideration of the purchase or sale by a Fund or an Advisory Client
of any such Covered Security.
4. PRE-CLEARANCE OF COVERED SECURITIES TRANSACTIONS AND PERMITTED BROKERAGE
ACCOUNTS
No employee of MAS shall purchase or sell Covered Securities without prior
written authorization from the appropriate trading desk. Pre-clearance of a
purchase or sale shall be valid and in effect only for the business day in
which such pre-clearance is given; provided, however, that the approval of an
unexecuted purchase or sale is deemed to be revoked when the employee becomes
aware of facts or circumstances that would have resulted in the denial of
approval of the approved purchase or sale were such facts or circumstances
made known to the MAS trading desk at the time the proposed purchase or sale
was originally presented for approval. MAS requires all of its employees to
maintain their personal brokerage accounts at a broker/dealer affiliated with
Morgan Stanley Dean Witter (hereinafter, a "Morgan Stanley Account").
Outside personal brokerage accounts are permitted only under very limited
circumstances and only with express written approval by the Compliance
Department. The Compliance Department has implemented procedures reasonably
designed to monitor purchases and sales effected pursuant to the
aforementioned pre-clearance procedures.
5. EXEMPTED TRANSACTIONS
(a) The prohibitions of Section 3 and Section 4 of this Code of Ethics
shall not apply to:
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(i) Purchases or sales effected in any account over which an Access
Person or an employee of MAS has no direct or indirect influence
or control;
(ii) Purchases or sales which are non-volitional;
(iii) Purchases which are part of an automatic dividend reinvestment
plan; or
(iv) Purchase effected upon the exercise of rights issued by an issuer
PRO RATA to all holders of a class of its securities and sales of
such rights so acquired, but only to the extent such rights were
acquired from such issuer.
(b) Notwithstanding the prohibitions of Sections 3(a), (b) and (c) of this
Code of Ethics, the Compliance Department or MAS trading desk, as
appropriate, may approve a purchase or sale of a Covered Security by
employees of MAS which would appear to be in contravention of the
prohibitions in Sections 3(a), (b) and (c) if it is determined that
(i) the facts and circumstances applicable at the time of such
purchase or sale do not conflict with the interests of the Fund or an
Advisory Client, or (ii) such purchase or sale is only remotely
potentially harmful to the Fund or an Advisory Client because it would
be very unlikely to affect a highly institutional market, or because
it is clearly not related economically to the securities to be
purchased, sold or held by the Fund or Advisory Client, and (iii) the
spirit and intent of this Code of Ethics is met.
6. RESTRICTIONS ON RECEIVING GIFTS
No employee of MAS shall receive any gift or other consideration in
merchandise, service or otherwise of more than DE MINIMIS value from any person,
firm, corporation, association or other entity that does business with or on
behalf of the Fund or an Advisory Client.
7. SERVICE AS A DIRECTOR
No employee of MAS shall serve on the board of directors of a
publicly-traded company without prior written authorization from the Compliance
Department. Approval will be based upon a determination that the board service
would not conflict with the interests of the Fund and its stockholders or an
Advisory Client.
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8 REPORTING
(a) Unless excepted by Section 8(d) or (e) of this code of Ethics, each
Access Person must disclose all personal holdings in Covered
Securities to the Compliance Department for its review no later than
10 days after becoming an Access Person and annually thereafter. The
initial and annual holdings reports must contain the following
information:
(i) The title, number of shares and principal amount of each Covered
Security in which the Access Person has any direct or indirect
beneficial ownership:
(ii) The name of any broker, dealer or bank with or through whom the
Access Person maintained an account in which any securities were
held for the direct or indirect benefit of the Access Person; and
(iii) The date the report was submitted to the Compliance Department
by the Access Person.
(b) Unless excepted by Section 8(d) or (e) of this Code of Ethics, each
Access Person and each employee of MAS must report to the Compliance
Department for its review within 10 days of the end of a calendar
quarter the information described below with respect to transactions
in Covered Securities in which such person has, or by reason of such
transactions acquires any direct or indirect beneficial interest:
(i) The date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and the
principal amount of each Covered Security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(iii) The price of the Covered Security at which the purchase or sale
was effected;
(iv) The name of the broker, dealer or bank with or through which the
purchase or sale was effected; and
(v) The date the report was submitted to the Compliance Department by
such person.
(c) Unless excepted by Section 8(d) or (e) of this Code of Ethics, each Access
Person and each employee of MAS must report to the Compliance Department
for its review within 10 days of the end of a calendar quarter the
information described below with respect to any account established by such
person in which any securities were held during the quarter for the direct
or indirect benefit of such person:
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(i) The name of the broker, dealer or bank with whom the account was
established:
(ii) The date the account was established; and
(iii) The date the report was submitted to the Compliance Department
by such person.
(d) And Access Person will not be required to make any reports described
in Sections 8(a), (b) or (c) above for any account over which the
Access Person has no direct or indirect influence or control. An
Access Person or an employee of MAS will not be required to make the
annual holdings report under Section 8(a) and the quarterly
transactions report under Section 8(b) with respect to purchases or
sales effected for, and Covered Securities held in: (i) a Morgan
Stanley Account, (ii) an account in which the Covered Securities were
purchased pursuant to a dividend reinvestment plan (up to an amount
equal to the cash value of a regularly declared dividend, but not in
excess of this amount), or (iii) an account for which the Compliance
Department receives duplicate trade confirmations and quarterly
statements.
(e) A Disinterested Director of the Fund, who would be required to make a
report solely by reason of being a fund director, is not required to
make initial and annual holdings reports. Additionally, such
Disinterested Director need only make a quarterly transactions
report for a purchase or sale of Covered Securities if he or she, at
the time of that transaction, knew or, in the ordinary course of
fulfilling his or her official duties as a Disinterested Director of
the Fund, should have known that, during the 15-day period immediately
preceding or following the date of the Covered Securities transaction
by him or her, such Covered Security is or was purchased or sold by
the fund or was being considered for purchase or sale by the fund.
(f) The reports described in Sections 8(a), (b) and (c) above may contain
a statement that the reports shall not be construed as an admission by
the person making such reports that he or she has any direct or
indirect beneficial ownership in the Covered Securities to which the
reports relate.
9. ANNUAL CERTIFICATIONS
All Access Persons and employees of MAS must certify annually that they
have read, understood and complied with the requirements of this Code of Ethics
and recognize that they are subject to this Code of Ethics by signing the
certification attached hereto as Exhibit A.
10 BOARD REVIEW
The management of the Fund and representatives or officers of MAS and, with
respect to the Fund, MASDI, shall each provide the Fund's Board of Directors, at
least annually, with the following:
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(a) a summary of existing procedures concerning personal investing and any
changes in the procedures made during the past year:
(b) a description of any issues arising under the Code of Ethics or
procedures since the last such report, including, but not limited to,
information about material violations of this Code of Ethics or
procedures and sanctions imposed in response to material violations;
(c) any recommended changes in the existing restrictions or procedures
based upon the Fund's or MAS's experience under this Code of Ethics,
evolving industry practices or developments in applicable laws and
regulations; and
(d) a certification (attached hereto as Exhibits B and C, as appropriate)
that each has adopted procedures reasonably necessary to prevent its
Access Persons from violating this Code of Ethics.
11. SANCTIONS
Upon discovering a violation of this Code of Ethics, the Board of Directors
of the Fund or the Executive Committee of MAS, as the case may be, may impose
such sanctions as it deems appropriate.
12. RECORDKEEPING REQUIREMENTS
The management of the Fund and representatives or officers of MAS and, with
respect to the Funds, MASDI, each shall maintain, as appropriate, the following
records for a period of five years, the first two years in an easily accessible
place, and shall make these records available to the Securities and Exchange
Commission or any representative of such during an examination of the Fund or
of MAS:
(a) a copy of this Code of Ethics or any other Code of Ethics which was in
effect at any time within the previous five years;
(b) a record of any violation of this Code of Ethics during the previous
five years, and of any action taken as a result of the violation;
(c) a copy of each report required by Section 8 of this Code of Ethics,
including any information provided in lieu of each such report;
(d) a record of all persons, currently or within the past five years, who
are or were subject to this Code of Ethics and who are or were
required to make reports under Section 8 of this Code of Ethics;
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(e) a record of all persons, currently or within the past five years, who are
or were responsible for reviewing the reports required under Section 8 of
this Code of Ethics; and
(f) a record of any decision, and the reasons supporting the decision, to
approve the acquisition of securities described in Sections 3(e) and (f) of
this Code of Ethics,
The effective date of this Code of Ethics is FEBRUARY 24, 2000.
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EXHIBIT A
MAS FUNDS
(THE "FUND")
AND
MILLER ANDERSON & SHERRERD, LLP
("MAS")
AND
MAS FUND DISTRIBUTION, INC.
("MASDI")
CODE OF ETHICS
--------------
ANNUAL CERTIFICATION
--------------------
I hereby certify that I have read and understand the Code of Ethics (the
"Code") which has been adopted by the Fund, MAS and MASDI and recognize that it
applies to me and agree to comply in all respects with the policies and
procedures described therein. Furthermore, I hereby certify that I have
complied with the requirements of the Code in effect, as amended, for the
year ended December 31, ___, and that all of my reportable transactions in
Covered Securities were executed and reflected accurately in a Morgan Stanley
Account (as defined in the Code) or that I have attached a report that
satisfies the annual holdings disclosure requirement as described in Section
8(a) of the Code.
Date: Name:
------------------------- -------------------------
Signature:
--------------------
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EXHIBIT B
MILLER ANDERSON & SHERRERD, LLP ("MAS")
ANNUAL CERTIFICATION UNDER RULE 17j-1
OF THE INVESTMENT COMPANY ACT OF 1940
--------------------------------------
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") and pursuant to the Code of Ethics for MAS, MAS Funds and MAS
Fund Distribution, Inc., MAS hereby certifies to the Board of Trustees of MAS
Funds that MAS has adopted procedures reasonably necessary to prevent Access
Persons (as defined in the Code of Ethics) from violating the Code of Ethics.
Date: By:
------------------ ----------------------------
Name: Paul A. Frick
Title: Compliance Officer
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EXHIBIT C
MAS FUND DISTRIBUTION, INC.
("MASDI")
ANNUAL CERTIFICATION UNDER RULE 17j-1
OF THE INVESTMENT COMPANY ACT OF 1940
-------------------------------------
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") and pursuant to the Code of Ethics for MASDI, MAS Funds and
Miller Anderson & Sherrerd, LLP, MASDI hereby certifies to the Board of Trustees
of MAS Funds that MASDI has adopted procedures reasonably necessary to prevent
Access Persons (as defined in the Code of Ethics) from violating the Code of
Ethics.
Date: By:
------------------ ----------------------------
Name: Paul A. Frick
Title: Compliance Officer
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STATEMENT OF POLICY ON PERSONAL SECURITIES TRANSACTIONS AND GUIDELINES
FOR PERSONAL TRADING
(CODE OF ETHICS)
MONTGOMERY ASSET MANAGEMENT, LLC
MAM COLORADO, LLC
THE MONTGOMERY FUNDS
THE MONTGOMERY FUNDS II
THE MONTGOMERY FUNDS III
Revised October 1999
INTRODUCTION
As a registered investment company with substantial
responsibility to shareholders, each of The Montgomery Funds, The Montgomery
Funds II and The Montgomery Funds III (together, the "Trusts") has an obligation
to implement and maintain a meaningful policy governing the personal securities
transactions of its trustees, officers, and advisory persons (collectively,
"access persons"). The purpose of the Code of Ethics is to minimize conflicts of
interest (including the appearance of such conflicts), as well as to comply with
the provisions of Section 17(j) of the Investment Company Act of 1940 (the "1940
Act") and Rule 17j-1 thereunder. In addition, this Code of Ethics is designed to
protect fiduciary relationships owed to Montgomery Asset Management, LLC and MAM
Colorado, LLC (collectively, "MAM") clients and each series of the Trusts and to
provide a program for detecting and preventing insider trading by the officers,
trustees and employees of MAM and the Trusts.
Section 17(j) of the 1940 Act makes it unlawful for an
affiliated person of a registered investment company to engage in transactions
in securities which are also held or are to be acquired by a registered
investment company if such transactions are in contravention of rules adopted by
the Securities and Exchange Commission to prevent fraudulent, deceptive, or
manipulative practices. Section 17(j) broadly prohibits any such affiliate from
engaging in any type of manipulative, deceptive, or fraudulent practice with
respect to the investment company and, furtherance of that prohibition, requires
each registered investment company to adopt a written code of ethics containing
provisions reasonably necessary to prevent "access persons" from engaging in
conduct prohibited by the Rule. The Rule also requires that reasonable diligence
be used and procedures instituted to prevent violations of such code of ethics.
This Code of Ethics is intended to comply with the
requirements of Section 17(j) and Rule 17j-1 and a copy of this Code of Ethics
shall be circulated to each access person by an officer of the relevant Trust
together with an acknowledgment of receipt which shall be signed and returned to
a designated compliance officer by each access person. The designated compliance
officer is charged with responsibility for ensuring that the requirements of
this Code of Ethics are adhered to by all access persons.
The Code recognizes that a fiduciary relationship exists with
respect to MAM's clients and each series of the Trusts (each, a "Fund"). This
Code of Ethics is intended to provide legal protection to the Trusts and their
shareholders and MAM accounts and account holders for which a fiduciary
relationship exists, and at the same time maintain an atmosphere within which
conscientious professionals can make responsible personal investment decisions.
As a matter of policy, this Code of Ethics should not and is not intended to
inhibit responsible personal investment within the boundaries reasonably
necessary to protect MAM's clients and the Trusts. To that end, this Code is
designed to encourage investment in a manner that is consistent with the
fiduciary relationships that exist between MAM and its clients and MAM and the
Trusts.
This Code of Ethics is not intended to cover all possible
areas of potential liability under the 1940 Act or under the federal securities
law in general. For example, other provisions of Section 17 of the 1940 Act
prohibit various transactions between a registered investment company on a
principal basis, and joint transactions (E.G., combining to achieve a
substantial position in a security or commingling of funds) between an
investment company and an affiliated person. Persons covered by this Code,
therefore, are advised to seek advice before engaging in any transactions
involving securities
<PAGE>
held or under consideration for purchase or sale by a Fund or if a transaction
directly or indirectly involves themselves and any Trust, other than the
purchase and redemption of shares of a Fund in the performance of their normal
business duties.
In addition, the Securities Exchange Act of 1934 may impose
fiduciary obligations and trading restrictions on access persons in certain
situations. It is expected that access persons will be sensitive to these areas
of potential conflict, even though this Code of Ethics does not address
specifically these other areas of fiduciary responsibility.
DEFINITIONS
1. "Access person" means any officer, trustee or advisory
person of a Fund or a Trust, including certain employees located in the San
Francisco office of the distributor of the Funds, Funds Distributor, Inc., who
perform sales activities for the Funds, and certain members of the Steering
Committee for MAM who have regular access to information about portfolio
transactions of the Funds or other clients of MAM. For purposes of this Code of
Ethics, access persons also include members of such person's immediate family
(I.E., husband, wife, children and who are directly or indirectly dependents of
an access person), accounts in which an access person or members of his or her
family has a beneficial interest or over which an access person has investment
control or exercises investment discretion (E.G., a trust account).
2. "Advisory person" means (i) any employee of the Trusts or
its investment adviser or any company in a control relationship to the Trusts,
who in connection with his, her or its regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale of a
security by a Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (ii) any natural
person in a control relationship to the Trusts or their investment adviser who
obtains information concerning the recommendations made to the Fund with regard
to the purchase or sale of a security.
Advisory persons include officers, members and control persons
of MAM, and the Trusts, as well as all persons involved in the advisory process,
including portfolio managers, traders, employees whose duties or functions
involve them in the investment process, and any employee (including employees of
MAM's affiliates) who obtains information concerning the investment decisions
that are being made for MAM clients and the Funds.
3. A security is "being considered for purchase or sale" when
a recommendation to purchase or sell a security has been communicated and, with
respect to the person making the recommendation, when such person seriously
considers making such a recommendation.
4. "Beneficial ownership" shall be interpreted in the same
manner as it would be in determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934 and the rules
and regulations thereunder, except that the determination of direct or indirect
beneficial ownership shall apply to all securities which an access person has or
acquires.
5. "Cash compensation" means any discount, concession, fee,
service fee, commission, asset-based sales charge, loan, override or cash
employee benefit received in connection with the sale and distribution of the
Funds or the offering of MAM's services.
6. "Control" means the power to exercise a controlling
influence over the management or policies of any Trust, unless such power is
solely the result of an official position with such Trust as further defined in
Section 2(a)(9) of the 1940 Act.
7. "Hot-issue" is defined as securities of a public offering
which trade at a premium in the secondary market whenever such secondary market
begins.
8. "Non-cash compensation" means any form of compensation
received in connection with the sale and distribution of the Funds or the
offering of MAM's services that is not cash compensation, including but not
limited to merchandise, gifts and prizes, travel expenses, meals and lodging.
<PAGE>
9. "Securities" or "Security" shall have the meaning set forth
in Section 2(a)(36) of the 1940 Act except that it shall not include shares of
registered open end investment companies, securities issued by the Government of
the United States (including Government agencies), short-term debt securities
which are "government securities" within the meaning of Section 2(a)(16) of the
1940 Act ("Government Securities"), bankers acceptances, bank certificates of
deposit and commercial paper. Securities also shall include futures, options and
other derivatives.
PERSONS COVERED BY THIS CODE.
This Code applies to all officers, members and control persons
of MAM, and the Trusts. This Code also applies to all persons involved in the
advisory process, including portfolio managers, traders, employees whose duties
or functions involve them in the investment process, and any employee who
obtains information concerning the investment decisions that are being made for
MAM clients and the Funds, including such employees of MAM's affiliates. All
such persons shall be designated access persons for purposes of this Code. This
Code also applies to investments by members of an access person's immediate
family (as described above), accounts in which an access person or members of
his or her family has a beneficial interest or over which an access person has
investment control or exercises investment discretion. Access persons also
remain fully subject to the obligations imposed by MAM's trading policies as
contained in its Compliance Manual.
The disinterested trustees of the Trusts shall not be
considered access persons solely by reason of their trusteeship.
PERSONS COVERED BY OTHER CODES OF ETHICS
Each Access Person or Advisory Person who would otherwise be
covered by this Code of Ethics shall be excluded from the pre-approval,
reporting and other requirements of this Code of Ethics if that Access Person or
Advisory Person is subject to another organization's code of ethics satisfactory
to MAM and the Trustees of the Trusts.
PRE-APPROVAL
All purchases and sales (including short sales) of individual
Securities (defined above to exclude Government Securities and other items) must
be pre-approved before an order is placed. Transactions involving options,
futures and other derivatives also require pre-approval. Approval must be given
by one of the persons on EXHIBIT A of this Code. Approval should be obtained in
writing using the form attached as EXHIBIT B (or, in unusual circumstances,
promptly confirmed in writing), initialed by one of the persons identified on
EXHIBIT A, and, once approved, orders must be executed WITHIN TWO BUSINESS DAYS
of the approval date. No exceptions will be given for the two business day
approval period for unfilled limit orders.
As necessary, before giving approval, the person providing
approval will consult (on a "no name" basis) with the appropriate portfolio
managers to determine whether the proposed sale or accusation in any way
conflicts with an investment decision being contemplated or carried out on
behalf of a MAM client or Fund. Access persons seeking approval to acquire or
dispose of individual securities should allow sufficient time for this review
and approval process.
PROHIBITED PURCHASES AND SALES
No approval will be given for proposed transactions that
violate the following rules, subject to the limited exception given below. No
access person shall purchase or sell (including short sales and options),
directly or indirectly, any security in which he or she has, or by such
transaction acquires, any direct or indirect beneficial ownership, which
security at the time of such purchase or sale:
(1) is being considered for purchase or sale by a Fund or
a MAM client account;
(2) is being purchased or sold by a Fund or a MAM client
account; or
<PAGE>
(3) was purchased or sold by a Fund or a MAM client
account within the most recent 15 days.
Additionally, no access person shall engage in a transaction,
directly or indirectly, that involves an opportunity that a Fund could utilize,
unless one of the persons indicated in EXHIBIT A has confirmed, on behalf of the
Funds, that the Funds do not wish to take advantage of the opportunity AND
approves such transaction.
These restrictions shall continue to apply until the
recommendation has been rejected or any authorization to buy or sell has been
completed or canceled. Knowledge of any such consideration, intention,
recommendation or purchase or sale is always a matter of strictest confidence.
These restrictions shall not apply to purchases or sales of
securities which receive the prior approval of a person indicated in EXHIBIT A
where that person, in his or her discretion, has determined that such purchases
or sales are only remotely potentially harmful to any Trust or its Funds or a
MAM client account, where they would be very unlikely to affect a highly
institutional market or where they are clearly not related economically to the
securities to be purchased, sold or held by a Fund or a MAM client account.
ADDITIONAL INVESTMENT POLICIES
1. NO INSIDER TRADING. Access persons are prohibited from
trading in or recommending that others trade in securities on the basis of
material non-public information about the issuers of such securities. Access
persons who obtain confidential information about a security should contact
MAM's General Counsel or Chief Compliance Officer immediately. MAM will not
provide any assistance to any individual who has acted improperly with regard to
confidential information about securities. If you have any doubt as to whether
you may trade particular securities or recommend particular securities for
purchase or sale, ask before you trade or make such a recommendation.
2. INVESTMENT THROUGH THE FUNDS ENCOURAGED. All access persons
are encouraged to make personal investments exclusively through the Funds or
other mutual funds, and to limit their investments in individual securities to
mutual funds or to Government Securities. No prior approval is needed to make
such investments.
3. NO TRADING. All individual security positions are expected
to be taken for INVESTMENT purposes. Securities trading as distinct from
investment is discouraged. If an access person desires to sell a position he or
she has held for less than six months (or desires to re-acquire a recently
liquidated position), the approval request must include an explanation of the
reason for the transaction (mutual funds and Government Securities excepted).
4. OWNERSHIP REPORTS AND NEW EMPLOYEES. Access persons who are
new employees of MAM shall submit the form attached as Exhibit F disclosing a
report of current security holdings WITHIN 10 DAYS of their employment
commencement and shall subsequently follow this Code of Ethics in receiving
approvals to liquidate or add to their security positions.
5. PRIVATE PLACEMENTS. Investments in private placements and
other individual securities that are not generally available to the public may
present conflicts of interest even though such securities may not be currently
eligible for acquisition by some or all of MAM's clients or Funds. Prior
approval must be obtained before buying or selling such investments, as with any
other individual security transaction. In addition, with respect to private
placements, the approval request must indicate that the investment is being
purchased (or liquidated) on terms that are substantially the same to the terms
available to other similarly situated private investors, and that the access
person does not have any specific knowledge of an imminent public offering or
any material nonpublic information about the issuer. It is expected that any
investment in a private placement or similar security will be held for at least
six months. If the security subsequently becomes eligible for investment by a
MAM client and/or a Fund and is, in fact, purchased by such client or Fund, any
access person who owns the security will be expected to continue to hold such
security for at least six months following its public offering.
6. PRIVATE INVESTMENT PARTNERSHIPS. Just as investments
through mutual funds are encouraged and investments in individual securities are
discouraged in order to minimize potential conflicts of interest and/or the
appearance of any conflict of interest, MAM likewise encourages access persons
to effect their venture investments through venture limited partnerships rather
than individual private placements. Although venture limited partnerships are
preferred over
<PAGE>
individual private placements, venture limited partnerships nevertheless can
present potential conflicts. Accordingly, while pre-approval is not required to
participate in a venture limited partnership, an access person will be expected
to report any transaction involving a venture limited partnership within 10 days
of the investment to one of the persons on EXHIBIT A.
7. TRADE THROUGH CHARLES SCHWAB & CO., INC. All access persons
are strongly encouraged to execute all of their securities transactions through
Charles Schwab & Co., Inc. ("Schwab") (unless Schwab cannot execute the trade
and/or custody the securities). Accounts with other brokerage firms should not
be maintained unless specific written approval regarding the maintenance of such
accounts has been given by one of the persons on EXHIBIT A. All brokers other
than Schwab maintaining accounts for MAM access persons shall be instructed to
provide duplicate confirmations of all transactions to MAM and it shall be the
responsibility of the access person to ensure that MAM receives such duplicate
confirmations.
8. NO DIRECTORSHIPS. No access person may serve on the board
of directors for any private or public operating company without prior written
approval from one of the persons on EXHIBIT A. Such directorships are generally
discouraged because of their potential for creating conflicts of interest.
Access persons should also restrict their activities on committees (E.G.,
advisory committees or shareholder/creditor committees). This restriction is
necessary because of the potential conflict of interest involved and the
potential impediment created for MAM's clients and the Funds. Access persons
serving on boards or committees of operating companies may obtain material
non-public information in connection with their directorship or position on a
committee that would effectively preclude the investment freedom that would
otherwise be available to MAM's clients and the Funds.
9. NO SPECIAL FAVORS. It goes without saying that no access
person may purchase or sell securities on the basis of material non-public
information or in reciprocity for allocating brokerage, buying securities in
MAM's client and Fund accounts, or any other business dealings with a third
party. Information on or access to PERSONAL investments as a favor for doing
business on behalf of MAM's clients or Funds -- regardless of what form the
favor takes - - is strictly prohibited. The APPEARANCE of a "special favor"
is also sufficient to make a personal transaction prohibited under this Code.
10. NON-CASH COMPENSATION. Every six months, access persons
shall complete and sign a Non-Cash Compensation Acknowledgement and
Certification form attached as Exhibit E. No access person shall directly or
indirectly accept or make payments or offers of payments of any non-cash
compensation except as provided below:
(a) gifts that do not exceed an annual amount
per access person or other person of $100
and are not preconditioned on achievement of
a sales target or volume of trades;
(b) an occasional meal, a ticket to a sporting
event or theater or comparable entertainment
which is neither so frequent nor so
extensive as to raise any question of
propriety and is not preconditioned on
achievement of a sales target or volume of
trades;
(c) payment or reimbursement in connection with
meetings held for the purpose of training or
education of access persons or other persons
provided that:
(i) (in the case of access persons only)
access persons obtain MAM's written
approval using the form attached as
EXHIBIT C to attend the meeting and
(in the case of access persons and
other persons) attendance by access
persons or other persons is not
preconditioned on the achievement of
a sales target or any other
incentives pursuant to a non-cash
compensation arrangement;
(ii) the location is appropriate for the
purpose of the meeting;
(iii) the payment or reimbursement is not
applied to the expenses of guests of
the access person or other person;
and
(iv) the payment or reimbursement is not
preconditioned on the achievement of
a sales target or volume of trades.
<PAGE>
11. NO HOT-ISSUES. No access person may purchase or receive a
hot issue in any of his or her accounts, including any accounts in which the
access person has a beneficial interest.
<PAGE>
REPORTING
1. Subject to the exceptions set forth below, every access
person shall report to the Trusts the information described in subsection 2
below with respect to transactions in any security in which such access person
has, or by reason of such transaction acquires, any direct or indirect
beneficial ownership in the securities.
2. Every report shall be made not later than 10 days after the
end of the calendar quarter in which the transaction to which the report relates
was effected and shall be on the Form attached hereto as EXHIBIT D or on a form
that contains substantially the same information (I.E., a brokerage confirmation
statement) and shall contain the following information:
(a) the date of the transaction, the title and
the number of shares, and the principal
amount of each security involved;
(b) the nature of the transaction (I.E.,
purchase, sale or any other type of
acquisition or disposition);
(c) the price at which the transaction was
effected; and
(d) the name of the broker, dealer or bank with
or through which the transaction was
effected.
3. Any such report may contain a statement that making such
report should not be construed as an admission that an access person has any
direct or indirect beneficial ownership in the security to which the report
relates.
4. Copies of bank statements or broker's advice containing the
information specified in subsection 2 above may be attached to the report
instead of listing the transactions.
EXCEPTIONS TO REPORTING REQUIREMENTS AND PROHIBITED SALES AND PURCHASES
Notwithstanding any other provision of this Code, an access
person need not make a report:
(a) with respect to transactions effected for
any account over which such person does not
have any direct or indirect influence;
(b) where the purchase or sale of securities
involves a trustee of any Trust who is not
an "interested person" (as defined in
Section 2(a)(19) of the 1940 Act) of the
Trust, provided such trustee neither knew
nor, in the ordinary course of fulfilling
his or her duties as a trustee, should have
known that during the 15-day period
immediately preceding or after the date of
the transaction such security was under
consideration for purchase or sale (or was
purchased or sold) by any Fund of the Trust;
and
The reporting provisions and prohibitions on sales and
purchases contained in this Code also shall not apply to:
(a) purchases or sales of securities which are
non-volitional on the part of either the
access person or the relevant Trust (E.G.,
receipt of gifts);
(b) purchases of securities which are part of an
automatic dividend reinvestment plan; and
(c) purchases of securities effected upon the
exercise of rights issued by an issuer pro
rata to all holders of a class of its
securities, to the extent such rights were
acquired from such issuer, and the sales of
such rights so acquired.
<PAGE>
COMPLIANCE REVIEW
A designated compliance associate shall compare all reports of
personal securities transactions with completed and contemplated portfolio
transactions of each Fund to determine whether a violation of the Code of Ethics
may have occurred. No person shall review his or her own report. Before making
any determination that a violation has been committed by any person, the
designated compliance associate shall give such person an opportunity to supply
additional explanatory material.
If the designated compliance associate determines that a
violation of the Code of Ethics has or may have occurred, he or she shall,
following consultation with counsel to the Trusts, submit his or her written
determination, together with the transaction report, if any, and any additional
explanatory material provided by the individual, to the Compliance Director or
to the President who shall make an independent determination of whether a
violation has occurred.
If it is determined that a material violation has occurred, a
report of the violation shall be made to the Board of Trustees, and the trustees
shall determine the appropriate course of action. If a securities transaction of
the designated compliance associate is under consideration, the Chairman shall
act in all respects in the manner prescribed herein for the designated
compliance associate.
CONFIDENTIALITY
All reports of securities transactions and any other
information filed pursuant to this Code of Ethics shall be treated as
confidential, but are subject to review as provided herein and by personnel of
the Securities and Exchange Commission.
INTERPRETATION OF PROVISIONS
An annual written report will be provided to the Board of
Trustees by MAM, describing any material issues that arose during the previous
year under the Code. In addition, the Board of Trustees will certify that the
Trusts have adopted procedures reasonably necessary to prevent access persons
from violating the Code.
Any material changes to the Code must be approved by the Board
of Trustees within six months of such changes.
EXCEPTIONS
Exceptions to the requirements contained in this Code will be
permitted only in highly unusual circumstances. Any exception must be documented
and approved by one of the persons listed in EXHIBIT A.
ANNUAL CERTIFICATION AND OWNERSHIP STATEMENT
Each access person shall re-certify his or her familiarity
with this Code of Ethics and report all security holdings annually by using the
form attached as Exhibit F.
<PAGE>
EXHIBIT A
Persons Designated to Give Approval of Transactions:
Mark B. Geist
Dana E. Schmidt
<PAGE>
EXHIBIT B
MONTGOMERY ASSET MANAGEMENT
EMPLOYEE TRADING AUTHORIZATION
Please complete the information below to obtain authorization to purchase or
sell securities in your personal brokerage accounts. AUTHORIZATION, IF GRANTED,
WILL ONLY BE VALID FOR A PERIOD OF TWO BUSINESS DAYS FROM THE DATE BELOW.
<TABLE>
<S><C>
EMPLOYEE TO COMPLETE THIS SECTION.
---------------------------------------------------------------------------------------------------------------------------
Name ------------------------------------------------------------------ Ext. ---------------------------
---------------------------------------------------------------------------------------------------------------------------
Security ------------------------------------------------------
(IF AN OPTION, IS IT COVERED?)
---------------------------------------------------------------------------------------------------------------------------
Symbol & Exchange
------------------------------------------------------
(NYSE, NASDAQ, ASE, Pink Sheets, Private or other?)
Account # Schwab ----------------- DST ---------------------------------------------
(IF NEW DST ACCOUNT, ATTACH FUND APPLICATION)
Buy/Sell ---------------------------- If sell, date of purchase ----------------------
# of Shares or $ Amount of Fund ---------------------------------------------
Reason for trade: ------------------------------------------------------------------------------------------------
(IF "BUY" YOU ARE EXPECTED TO HOLD THE POSITION FOR AT LEAST 6 MONTHS, IN COMPLIANCE WITH MAM'S
CODE OF ETHICS.)
I have read and understood sections of the Code of Ethics related to insider
trading. This trade is not based on insider information as defined in the
policy.
Employee Signature -----------------------------------------
Date ----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
COMPLIANCE TO COMPLETE THIS SECTION.
- ----------------------------------------------------------------------------------------------------------------------------
Is this security currently owned or under consideration for purchase or sale in
MAM advisory accounts?
Yes ------- No ------ Date of Last Trade -------------------------
If yes, attach trading details.
Portfolio Manager(s) contacted: -------------------------------------------------------
Approval Granted? Yes ------ Date -------------------------
If no, provide details.
Compliance Signature* ----------------------------------------------------------
Name
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*This Form may only be signed by Dana Schmidt or Mark Geist.
TRADES MUST BE EXECUTED WITHIN TWO BUSINESS DAYS OF THE
APPROVAL DATE! (No exceptions will be given for
unfilled limit orders.)
<PAGE>
EXHIBIT C
Name
---------------------------------------------------
Name of meeting or event
-------------------------------
Location
-----------------------------------------------
Sponsor
------------------------------------------------
I certify that attendance at this meeting or event is in compliance with the
following rules:
1. Attendance is not preconditioned on achievement of sales
targets or a certain volume of trades, or any other incentives
pursuant to a non-cash compensation arrangement.
2. The location of this event is appropriate (E.G., a resort or
other location suitable for corporate events) for the purpose
of the meeting.
3. No payment or reimbursement will be applied to the expenses of
spouses or guests of the access person.
4. No payment or reimbursement is preconditioned on the
achievement of sales targets or a certain volume of trades.
5. Approximate value of payment or reimbursement to access
person: $
-----------
Employee Signature: Date:
---------------------------------------------- ---------
Approved: Yes No
------------------ ---------------
Compliance Officer:
---------------------------------------------
<PAGE>
EXHIBIT D
PERSONAL SECURITY TRANSACTION REPORT
(A brokerage statement containing the same information may be submitted in lieu
of this Report.)
Person for whom
Report is being made: ____________________ Quarter Ending _______, 19__
There were NO securities transactions reportable by me during the above quarter,
except those listed below. NOTE: All transactions are reportable (regardless of
size) except purchases and sales of shares of registered open-end investment
companies, securities issued by the Government of the United States, short term
debt securities which are "government securities" within the meaning of Section
2(a)(16) of the Act, bankers acceptances, bank certificates of deposit and
commercial paper. Bank or brokers statements may be attached if desired instead
of listing the transactions. If necessary, continue on the reverse side. If the
transaction is not a sale or purchase, mark it with a cross and explain the
nature of each account in which the transaction took place, I.E., personal,
wife, children, charitable trust, etc.
PURCHASES
<TABLE>
<CAPTION>
Reviewing
Amount/No. Nature of Officers
Date Security of Shares Price Broker Account Initials
- ----------------- -------------- --------------- ------------- -------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
SALES
Date:
Signature:
EXPLANATORY NOTES
This report must be filled quarterly by the 10th day of the month following the
end of the quarter and cover all accounts in which you have an interest, direct
or indirect. This includes any account in which you have "beneficial ownership"
(unless you have no interest or control over it) and non-client accounts over
which you act in an advisory or supervisory capacity.
( ) Tick if you wish to claim that the reporting of the account of the
securities transaction shall not be construed as an admission that you have any
direct or indirect beneficial ownership in such account or securities.
<PAGE>
EXHIBIT E
MONTGOMERY ASSET MANAGEMENT
SEMI-ANNUAL NON-CASH COMPENSATION
ACKNOWLEDGEMENT AND CERTIFICATION
I hereby acknowledge and certify that I understand the rules and procedures
under the Montgomery Asset Management Code of Ethics regarding Non-Cash
Compensation.
I further certify that during the last six months I have not directly or
indirectly accepted or made payments or offers of payments of any non-cash
compensation, except for:
(a) gifts that do not exceed an annual amount per access person or other
person of $100 and are not preconditioned on achievement of a sales
target or volume of trades;
(b) an occasional meal, a ticket to a sporting event or theater or
comparable entertainment which is neither so frequent nor so extensive
as to raise any question of propriety and is not preconditioned on
achievement of a sales target or volume of trades;
(c) payment or reimbursement in connection with meetings held for the
purpose of training or education of access persons or other persons
provided that:
(i) the access person has obtained MAM's written approval to
attend the meeting and (in the case of access persons and
other persons) attendance by access persons or other persons
is not preconditioned on the achievement of a sales target or
any other incentives pursuant to a non-cash compensation
arrangement;
(ii) the location is appropriate for the purpose of the meeting;
(iii) the payment or reimbursement is not applied to the expenses of
guests of the access person or other person; and
(iv) the payment or reimbursement is not preconditioned on the
achievement of a sales target or volume of trades.
- -------------------------------- Date ----------------------------
Print Name
- ----------------------------
Signature
<PAGE>
EXHIBIT F
MONTGOMERY ASSET MANAGEMENT, LLC
- -------------------------------------------------------------------------------
ANNUAL EMPLOYEE CERTIFICATION & OWNERSHIP STATEMENT
INSTRUCTIONS: COMPLETE ALL SECTIONS OF FORM, IF NOT APPLICABLE, PLEASE INDICATE
N/A OR NONE. SIGN YOUR NAME & DATE.
NEW MAM EMPLOYEES: ATTACH A COPY OF YOUR MOST RECENT ACCOUNT STATEMENT FOR EACH
OF THE ACCOUNTS LISTED BELOW*
<TABLE>
<CAPTION>
<S><C>
- -------------------------------------------------------------------------------------------------------------------
CHARLES SCHWAB ACCOUNTS
1. Account Name
----------------------------------------------------------------------------------------------------------
Account Number
----------------------------------------------------------------------------------------------------------
2. Account Name
----------------------------------------------------------------------------------------------------------
Account Number
----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
OUTSIDE ACCOUNTS (All other brokerage accounts holding securities or mutual funds)
1. Account Name
----------------------------------------------------------------------------------------------------------
Account Number
----------------------------------------------------------------------------------------------------------
Firm Name
----------------------------------------------------------------------------------------------------------
Are statements with confirms being sent to Compliance?
----------------------------------------------------------------------------------------------------------
2. Account Name
----------------------------------------------------------------------------------------------------------
Account Number
----------------------------------------------------------------------------------------------------------
Firm Name
----------------------------------------------------------------------------------------------------------
Are statements with confirms being sent to Compliance?
----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
ACCOUNTS MANAGED BY INVESTMENT ADVISORS
Name of Advisor
----------------------------------------------------------------------------------------------------------
Account Name/Number
----------------------------------------------------------------------------------------------------------
Are statements with confirms being sent to Compliance?
----------------------------------------------------------------------------------------------------------
PARTNERSHIPS (Limited and General)
Account Name
----------------------------------------------------------------------------------------------------------
Are you a limited or general partner?
----------------------------------------------------------------------------------------------------------
Can you make or influence securities investments by the partnership?
----------------------------------------------------------------------------------------------------------
Are statements with confirms being sent to Compliance?
----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
PRIVATE PLACEMENTS OR STOCK CERTIFICATES HELD AT HOME
Name of Security
----------------------------------------------------------------------------------------------------------
Private Placement or Stock Certificate?
----------------------------------------------------------------------------------------------------------
Acquisition Date
----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Employee Name: ------------------------------- Signature: --------------------- Date: ----------------------------
</TABLE>
<PAGE>
*NEW MAM EMPLOYEES MUST SUBMIT A LIST OF ALL SECURITY HOLDINGS WITHIN 10 DAYS OF
THEIR EMPLOYMENT COMMENCEMENT.
<PAGE>
NICHOLAS-APPLEGATE
================================================================================
- --------------------------------------------------------------------------------
CODE OF ETHICS AND CONDUCT
- --------------------------------------------------------------------------------
<PAGE>
NICHOLAS-APPLEGATE
CAPITAL MANAGEMENT
================================================================================
NICHOLAS-APPLEGATE SECURITIES
================================================================================
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
<PAGE>
MESSAGE FROM THE MANAGING PARTNER
Nicholas-Applegate, quite simply, does not exist without our clients. While it's
true we are an investment management firm, known for providing excellent
investment returns and client service, a large part of our success is built on
our reputation for integrity and professionalism. Our clients place not only
their money, but also their trust with us when they hire us. It is up to us as a
firm, and each one of us individually, to ensure that trust is upheld. Without
it, we would not have a single client, regardless of our investment returns.
With this in mind, the firm has long had a formal Code of Ethics in place. Every
employee commits to follow this Code when he/she joins the firm, and we, as a
firm, are committed to the principles embodied by the Code. The driving
principle is actually pretty easy to express: "Our clients come first."
Everything, really, flows from that simple statement. When you review and sign
the attached Code of Ethics, I'd like you to keep these principles in mind and
know that they are supported at our firm from the top down. I'd also like you to
recognize that ultimately the Code of Ethics is really just an expression about
the way we, as a firm, want to do business, and that it is our responsibility
individually, and as a firm, to ensure the Code is followed in spirit, as well
as word. The Code can't cover every individual situation that may come up, so we
must all use our best efforts to apply the principles of the Code in our
everyday business. We, and our clients, should expect nothing less.
Art Nicholas
i
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
A. DEFINITIONS........................................................A-1
I. INTRODUCTION & OVERVIEW..............................................1
II. PERSONS COVERED BY THIS CODE
a. EMPLOYEES & COVERED PERSONS.....................................3
b. OUTSIDE FUND DIRECTORS/TRUSTEES.................................3
c. THE ADMINISTRATOR ..............................................4
III. PERSONAL SECURITIES TRANSACTIONS
a. COVERED SECURITIES & TRANSACTIONS...............................5
b. EXEMPT SECURITIES & TRANSACTIONS................................5
IV. PROCEDURES FOR TRADING SECURITIES
a. PRE-CLEARANCE...................................................7
b. VIOLATIONS......................................................8
c. HOLDING PERIOD RESTRICTION.....................................10
d. BLACKOUT PERIOD................................................10
e. DE MINIMIS TRANSACTIONS........................................10
f. INITIAL PUBLIC OFFERINGS ("IPOS") & PRIVATE PLACEMENTS.........11
g. FRONT-RUNNING..................................................11
h. INSIDE INFORMATION.............................................11
V. REPORTS & CERTIFICATIONS REGARDING PERSONAL SECURITIES TRANSACTIONS
a. PERSONAL HOLDINGS REPORTS......................................13
b. MONTHLY TRANSACTION & GIFT REPORTS.............................13
c. DUPLICATE BROKERAGE STATEMENTS & CONFIRMATIONS.................14
d. CERTIFICATION OF COMPLIANCE....................................14
VI. POTENTIAL CONFLICT OF INTEREST ISSUES
a. SERVICE ON BOARDS OF OTHER COMPANIES...........................15
b. GIFTS .........................................................15
c. GIFT PRE-CLEARANCE.............................................15
d. GIFT VIOLATIONS ...............................................16
ii
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS (CONT'D)
- --------------------------------------------------------------------------------
VII. VIOLATIONS OF THE CODE ............................................17
VIII. ANNUAL BOARD REVIEW ...............................................18
IX. ADMINISTRATION & CONSTRUCTION .....................................19
X. AMENDMENTS & MODIFICATIONS.........................................20
- --------------------------------------------------------------------------------
POLICIES & PROCEDURES - INSIDER TRADING POLICY ................. APPENDIX I
EXAMPLES OF BENEFICIAL OWNERSHIP .............................. APPENDIX II
PERSONAL TRADING RESTRICTION SUMMARY ......................... APPENDIX III
EXCEPTIONS TO BAN ON SHORT-TERM TRADING ....................... APPENDIX IV
CODE OF ETHICS SIGNATURE PAGES.................................. APPENDIX V
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
THE FOLLOWING DEFINITIONS APPLY TO THIS CODE OF ETHICS:
<S> <C>
NACM Nicholas-Applegate Capital Management,
Inc., a CA LP
NAS Nicholas-Applegate Securities
NAIF OR FUNDS Nicholas-Applegate Institutional Funds
NA Nicholas-Applegate (I.E., NACM, NAS and NAIF)
CODE NA Code of Ethics
EMPLOYEES All officers, partners and employees of
NACM and NAS, well as part-time employees,
consultants, temps and interns after one
month
COVERED PERSONS Any Employee and any relative by
blood or marriage living in the Employee's
household or any person who holds an
account that names Employee as a
beneficiary or otherwise
INVESTMENT PERSONNEL Trading Desk personnel, portfolio managers
and financial analysts
ADMINISTRATOR Brown Brothers Harriman - Administrator of
the Funds
ADVISORY CLIENTS Shareholders of funds,
institutional clients and any other person
or entity whom NA provides investment
advisory services
EXEMPT TRANSACTIONS Any transaction that does not
require pre-clearance by NA's Compliance
Department prior to execution (E.G.,
open-end mutual funds, U.S, government
securities and named indices as listed in
the Code at APPENDIX IV)
TRUSTEES Trustees of the Funds
BENEFICIAL OWNERSHIP For purposes of this Code, "beneficial
ownership" means any interest in a security
for which a Covered Person can directly or
indirectly receive a monetary benefit,
including the right to buy or sell a
security, to direct the purchase or sale of
a security, or to vote or direct the voting
of a security. Please refer to APPENDIX II
for additional examples of beneficial
ownership
A-1
<PAGE>
NON-EMPLOYEE TRUSTEES Trustees of the Funds who are not Employees
of NACM or NAS (including employees of the
Administrator)
PERSONAL SECURITIES Any trade in debt or equity securities
TRANSACTION executed on a stock market, or other
securities not defined as "exempt securities"
under the NA Code of Ethics, by a Covered
Person. This includes all futures, options,
warrants, short-sells, margin calls, or other
instrument of investment relating to an
equity security
EXEMPT SECURITIES Securities, which, under the Code, do not
require pre-clearance authorization by the
Compliance Department
(see page 11 and APPENDIX IV)
BLUEFORM Monthly Personal Securities Transaction and
Gift Report
Persons who are officers, directors,
INSIDER employees and spouse and anyone else who is
privy to inside information
INSIDER TRADING Buying or selling of a security
while in possession of material, non-public
information or anyone who has communicated
such information in connection with a
transaction that results in a public trade
or information service or medium
NON-PUBLIC INFORMATION Any information that is not made known via
a public magazine, newspaper or other
public document
ACCESS PERSON Any Employee of NA, including temporary
employees (if here more than one month),
interns and consultants (working on NA
premises)
OPEN-END INVESTMENT Funds that continuously offer new shares
COMPANIES (OPEN-END and redeem outstanding shares at NAV on any
MUTUAL FUNDS) business day. Shares are purchased directly
from the distributor of the funds
CLOSED-END INVESTMENT Funds whose shares traded on the
COMPANIES secondary market with most being
listed on stock exchanges. New shares
are not continuously offered, nor are
outstanding shares redeemable.
</TABLE>
A-2
<PAGE>
CODE OF ETHICS AND CONDUCT
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
NICHOLAS-APPLEGATE SECURITIES
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
REVISED AS OF MARCH 20, 2000
- --------------------------------------------------------------------------------
I. INTRODUCTION & OVERVIEW
- --------------------------------------------------------------------------------
Nicholas-Applegate Capital Management ("NACM"), Nicholas-Applegate
Securities ("NAS") and Nicholas-Applegate Institutional Funds ("NAIF")
(collectively, "NA") have developed and maintain a reputation for integrity
and high ethical standards. Therefore, it is essential not only that NA and
its employees comply with relevant federal and state securities laws, but
that we also maintain high standards of personal and professional conduct.
NA's Code of Ethics and Conduct (the "Code") is designed to help ensure
that we conduct our business in a manner consistent with these high
standards.
As a registered investment adviser, NA and its employees owe a fiduciary
duty to our clients that requires each of us to place the interests of our
clients ahead of our own. A critical component of meeting our fiduciary
duty is to avoid potential conflicts of interest. Accordingly, you must
avoid all activities, interests and relationships that interfere or appear
to interfere with making decisions in the best interests of the
shareholders of NAIF (or "Funds") and any other person or entity to which
NA provides investment advisory services (together, "Advisory Clients").
Please bear in mind a conflict of interest can arise even if there is no
financial loss to Advisory Clients and regardless of the employee's
motivation. Many potential conflicts of interest can arise in connection
with employee personal trading and related activities. The Code is designed
to address and prevent potential conflicts of interest pertaining to
personal trading and related activities and is based on the following
principles:
1) WE MUST AT ALL TIMES PLACE THE INTERESTS OF OUR ADVISORY CLIENTS
FIRST. In other words, as a fiduciary, you must scrupulously
avoid serving your own personal interests ahead of the interests
of NA Advisory Clients.
2) We must make sure that all PERSONAL SECURITIES TRANSACTIONS ARE
CONDUCTED CONSISTENT WITH THE CODE and in such a manner as to
avoid any actual or potential conflicts of interest or any abuse
of an individual's position of trust and responsibility.
3) WE MUST NOT TAKE INAPPROPRIATE ADVANTAGE OF OUR POSITIONS. The
receipt of investment opportunities, perquisites, or gifts from
persons seeking business with NA could call into question the
exercise of your independent judgment.
1
<PAGE>
The Code contains policies and procedures relating to personal trading by
Covered Persons, as well as Trustees of the Funds.
---------------------------------------------------------------------------
YOU MUST BECOME FAMILIAR
WITH AND ABIDE BY THE CODE
---------------------------------------------------------------------------
Compliance with the Code is a condition of your employment with NA.
Violations of the Code will be taken seriously and will result in sanctions
against the violator, up to and including termination of employment.
As with all policies and procedures, the Code was designed to apply to a
myriad of circumstances and conduct. However, this Code is not intended to
be all-inclusive as no policy can anticipate every potential conflict of
interest that can arise in connection with personal trading.
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YOU ARE EXPECTED TO ABIDE NOT ONLY BY THE LETTER OF THE CODE,
BUT ALSO BY THE SPIRIT OF THE CODE
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Whether or not a specific provision of the Code addresses a particular
situation, you must conduct your activities in accordance with the general
principles contained in the Code and in a manner that is designed to avoid
any ACTUAL OR POTENTIAL conflicts of interest. NA reserves the right, when
it deems necessary in light of particular circumstances, to impose more
stringent requirements on those persons subject to the Code, or to grant
exceptions to the Code.
Because governmental regulations and industry standards relating to
personal trading and potential conflicts of interest can evolve over time,
NA reserves the right to modify any or all of the policies and procedures
set forth in the Code. If NA revises the Code, the Director of Compliance
will provide you with written notification of the changes. You must
familiarize yourself with any modifications to the Code.
IF YOU HAVE ANY QUESTIONS ABOUT ANY ASPECT OF THE CODE, OR IF YOU HAVE
QUESTIONS REGARDING APPLICATION OF THE CODE IN A PARTICULAR SITUATION,
CONTACT THE COMPLIANCE DEPARTMENT.
2
<PAGE>
- --------------------------------------------------------------------------------
II. PERSONS COVERED BY THIS CODE
- --------------------------------------------------------------------------------
A. EMPLOYEES & COVERED PERSONS
The policies and procedures set forth in the Code apply to all officers,
principals and employees of NACM and NAS (collectively, "Employees"). The
Code also applies to all temporary employees, consultants and interns (if
here more than one month) who work for NA on premises.
The policies and procedures set forth in the Code also apply to all members
of an Employee's immediate family which, for purposes of the Code, refers
to ANY RELATIVE BY BLOOD OR MARRIAGE LIVING IN THE EMPLOYEE'S HOUSEHOLD
(together with Employees, "Covered Persons").
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THE CODE ALSO APPLIES TO ACCOUNTS IN WHICH THE
EMPLOYEE IS NAMED AS A BENEFICIARY, TRUSTEE OR
IS OTHERWISE ABLE TO EXERCISE INVESTMENT CONTROL
---------------------------------------------------------------------------
B. OUTSIDE FUND DIRECTORS/TRUSTEES
Special rules apply to Fund Trustees who are not employees of NACM or NAS
("Non-Employee Trustees"). Specifically, Non-Employee Trustees are NOT
subject to the:
- 3-day blackout period;
- prohibition on initial public offerings;
- restrictions on private placements;
- ban on short-term trading profits;
- gift restrictions; or
- restriction on service as a director.
Further, a Non-Employee Trustee is not required to pre-clear personal
securities transactions PROVIDED he or she did not have knowledge of any
current or pending transactions in the Security that have been completed
within the last fifteen (15) calendar days immediately preceding the date
of the transaction.
A Non-Employee Trustee is not required to submit quarterly personal
securities transaction reports, unless he or she knew, or should have
known, in the ordinary course of the fulfillment of his or her official
duties as a trustee of one of the Funds, that during the 15-day period
immediately preceding or following the date of a transaction in a security
by the Non-Employee Trustee that such security was purchased or sold, or
was considered for a purchase or sale, by a Fund or by NA for an Advisory
Client. Non-Employee Trustees also are not required to submit annual
portfolio holdings reports to NA.
3
<PAGE>
C. THE ADMINISTRATOR
Officers of the Fund who are officers or employees of the Fund's
Administrator are exempt from all provisions of this Code to the extent
that the Administrator has adopted reasonable written policies and
procedures regarding personal securities transactions by its employees.
4
<PAGE>
- --------------------------------------------------------------------------------
III. PERSONAL SECURITIES TRANSACTIONS
- --------------------------------------------------------------------------------
The firm's policies and procedures set forth in the Code regarding personal
investing apply to ALL personal securities transactions by Covered Persons,
UNLESS a transaction is in an Exempt Security or the transaction is an
Exempt Transaction as defined below.
A. COVERED SECURITIES & TRANSACTIONS
Personal securities transactions subject to the Code include, but are not
limited to:
- equity securities including common and preferred stock, except as
otherwise exempted below;
- investment and non-investment grade debt securities;
- investments convertible into, or exchangeable for, stock or debt
securities;
- any derivative instrument relating to any of the above securities,
including options, warrants and futures;
- any interest in a partnership investment in any of the foregoing; and
- shares of closed-end investment companies.
B. EXEMPT SECURITIES & TRANSACTIONS
The Code pre-clearance procedures and reporting requirements do not apply
to the following types of securities and transactions, UNLESS SPECIFIED
OTHERWISE, which are referred to as "Exempt Securities" and "Exempt
Transactions":
EXEMPT SECURITIES
1. Shares of registered open-end mutual funds and money market funds;
2. Treasury bonds, treasury notes, treasury bills, U.S. Savings Bonds,
and other instruments issued by the U.S. government or its agencies or
instrumentalities;
3. Debt instruments issued by a banking institution, such as bankers'
acceptances and bank certificates of deposit; (this does not exempt
corporate bonds or high yield bonds)
4. Commercial paper;
5. Municipal bonds; or
6. Stock indices; (SEE APPENDIX IV)
EXEMPT TRANSACTIONS
1. Transactions in an account over which a Covered Person has no direct
or indirect influence or control; or in any account held by a Covered
Person which is managed on a discretionary basis by a person other
than the Covered Person and, with respect to which the Covered Person
does not influence or control the transactions;
5
<PAGE>
2. Transactions that are non-voluntary on the part of the Covered Person
(THESE TRANSACTIONS MUST BE REPORTED ON THE MONTHLY REPORT OR "BLUE
FORM") (E.G., bond calls, stock splits, spin-offs, etc.);
3. Purchases that are part of an automatic dividend reinvestment plan.
However, your initial purchase into a DRIP program must be pre-cleared
with Compliance and reported on your first monthly report after
starting the program. If you ever contribute more than the automatic
deduction to this plan, you must pre-clear this transaction as if it
were a non-exempt transaction;
4. Purchases as a result of the exercise by a Covered Person of rights
issued pro rata to all holders of a class of securities, to the extent
that such rights were acquired from the issuer, and the sale of such
rights;
5. Other similar circumstances as determined by the Director of
Compliance or General Counsel; or
6. Transactions in options or futures contracts on commodities,
currencies or interest rates.
Additionally, transactions in accounts over which the Covered Person has no
beneficial ownership, nor exercises direct or indirect influence or
control, may be excluded from the Code (and treated as Exempt
Transactions).
IF YOU HAVE ANY QUESTIONS ABOUT WHETHER A PARTICULAR TRANSACTION QUALIFIES
AS AN EXEMPT TRANSACTION, CONTACT THE COMPLIANCE DEPARTMENT OR THE GENERAL
COUNSEL.
6
<PAGE>
- --------------------------------------------------------------------------------
IV. PROCEDURES FOR TRADING SECURITIES
- --------------------------------------------------------------------------------
Covered Persons wishing to purchase or sell securities for their own
accounts must follow certain procedures designed to avoid actual or
potential conflicts of interest. These procedures include pre-clearing the
transaction, holding the security for at least the required minimum length
of time, and adhering to a blackout period around Advisory Client trades.
Please note that these procedures DO NOT APPLY TO EXEMPT SECURITIES AND
EXEMPT TRANSACTIONS, as described above.
A. PRE-CLEARANCE
As a Covered Person, you must submit an Employee Personal Request (an
electronic pre-clearance form), which can be found on the NA intranet site
at home.nacm.com UNDER TRADING/MONTHLY REPORTS AND FORMS - CTI iTRADE,
prior to the purchase or sale of securities for your own account or any
accounts over which you have control or have a beneficial interest. In
addition, Investment Personnel must have all transactions approved by the
Chief Investment Officer ("CIO") (or investment partner in the CIO's
absence). Requests received without the required signature will not be
cleared.
You must submit pre-clearance for ALL PERSONAL SECURITIES transactions,
unless the transaction qualifies as an Exempt or De Minimis Transaction
(described below). All other purchase or sale transactions, including
transactions in equity securities of up to 1,000 shares or $10,000 that are
NOT listed on a domestic exchange or have market capitalization of LESS
THAN $2 BILLION, must be pre-cleared prior to execution.
---------------------------------------------------------------------------
TRANSACTIONS IN EQUITY SECURITIES UNDER 1000 SHARES
OR $10,000, WITH A MARKET CAPITALIZATION OF
OVER $2 BILLION DO NOT NEED PRE-CLEARANCE
---------------------------------------------------------------------------
However, if you are buying 500 shares or less, the security is on NYSE or
the issuer's market capitalization is over $500 million the trade will be
approved even if NA is active in the security.
NA will treat the pre-clearance process as confidential and will not
disclose the information given during the pre-clearance process, except as
required by law or for applicable business purposes.
As a Covered Person, you cannot execute the requested transaction until you
receive authorization from the Compliance Department to do so.
Pre-clearance requests will be processed by the Compliance Department as
quickly as possible. PLEASE REMEMBER THAT PRE-CLEARANCE APPROVAL IS NOT
AUTOMATICALLY GRANTED FOR EVERY TRADE.
7
<PAGE>
PRIORITY PRE-CLEARANCE WINDOW
Compliance Department personnel will give priority attention to any
pre-clearance request submitted prior to 9:00 a.m. In these cases, you will
normally receive notification of your pre-clearance approval or denial
within 10-15 minutes. Pre-clearance requests submitted after 9:00 a.m. will
be processed in as timely a manner as possible, but other Compliance
Department duties may delay the response for two (2) hours or more
(depending on department priorities) after submission.
PRE-CLEARANCE PERIOD
Pre-clearance must be obtained on the date of the proposed transaction.
Pre-clearance approval for domestic Personal Securities Transactions
effected through a broker-dealer is the day it is pre-cleared up until the
"market open" the next business day (6:30 a.m. PT, except holidays) after
the day that pre-clearance was obtained.
---------------------------------------------------------------------------
IF YOU DECIDE NOT TO EXECUTE THE TRANSACTION ON THE DAY YOUR
PRE-CLEARANCE APPROVAL IS GIVEN, OR YOUR ENTIRE TRADE IS NOT EXECUTED,
YOU MUST REQUEST PRE-CLEARANCE AGAIN AT SUCH TIME AS YOU DECIDE TO
EXECUTE THE TRADE
---------------------------------------------------------------------------
Pre-clearance approval is valid only for the particular security and
quantity indicated on the Form. For example, if you wish to increase the
size of the transaction, you must submit a new pre-clearance request and
receive a new pre-clearance approval. However, you may decrease the size of
the transaction without obtaining new authorization, but should inform
Compliance if this is done.
Failure to obtain pre-clearance for a personal securities transaction is a
serious breach of NA's Code. If you fail to obtain pre-clearance approval
for your personal securities transaction, you will be subject to
disciplinary action, up to and including termination of employment. You may
also be required to cancel the trade and bear any losses that occur. You
may also be required to disgorge any profits realized on the unauthorized
trade and donate them to a charity designated by NA (see below).
B. VIOLATIONS
1. MONTHLY REPORTING VIOLATIONS
You must complete your Personal Security Transaction and Gift Report
("Blueform") via the intranet site by the end of the 10th day of each
month, regardless of whether you had any trading or gift activity for that
month.
8
<PAGE>
---------------------------------------------------------------------------
YOU MUST SUBMIT YOUR BLUEFORM
BY THE 10TH OF EVERY MONTH
---------------------------------------------------------------------------
The Executive Committee member with oversight of your department may grant
exceptions to this requirement for legitimate business or personal reasons.
However, you should make every reasonable effort to submit your report in a
timely manner.
---------------------------------------------------------------------------
IF YOU FAIL TO REMIT YOUR BLUEFORM ON TIME,
YOU WILL BE FINED $50 FOR THE FIRST DAY
LATE & $10 FOR EACH ADDITIONAL DAY THE
REPORT IS LATE.
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2. TRADING VIOLATIONS
Any trading-related violation of this Code, including failure to properly
pre-clear a non-exempt personal trade, etc., will incur the following
sanctions, IN ADDITION TO disgorging any profits on personal trades that
conflict with NA client transactions:
---------------------------------------------------------------------------
FIRST VIOLATION
---------------------------------------------------------------------------
- A fine of 0.5% of base salary up to $500;
- Meet with Department Head and the Director of Compliance to
discuss and re-sign the Code of Ethics.
---------------------------------------------------------------------------
SECOND VIOLATION (WITHIN 12 MONTHS)
---------------------------------------------------------------------------
- A fine of 1% of base salary up to $1,000;
- Meet with Department Head and the Director of Compliance to
discuss and re-sign the Code of Ethics;
- Written warning to personnel file;
---------------------------------------------------------------------------
THIRD VIOLATION (WITHIN 12 MONTHS)
---------------------------------------------------------------------------
- A fine of 2% of base salary up to $2,000;
- Meet with Department Head and the Director of Compliance to
discuss and re-sign the Code of Ethics;
- Written warning to personnel file;
- Prohibition from trading personally for a specific period of time
(E.G., 6 months to 1 year) except to close out current positions;
- May result in termination of employment with NA.
All fines will be paid to a charity of NA's choice: currently the United
Way. Checks will be submitted to Compliance and forwarded to the selected
charity.
9
<PAGE>
C. HOLDING PERIOD RESTRICTION
As a general principle, personal securities transactions must be for
investment purposes and not for the purposes of generating short-term
profits. Any profits realized on a sale of a security held less than 60
days will be disgorged, with a check written to a charity of NA's choice,
currently the United Way. Checks will be submitted to Compliance and
forwarded to the selected charity. You may, however, sell a security held
less than 60 days if the security is being sold for no profit.
This holding period restriction does not apply to Exempt Securities or
Exempt Transactions. NA's Director of Compliance or General Counsel may
also grant exceptions to this prohibition in limited circumstances (E.G.,
bankruptcy, eviction, personal health emergency, etc.) upon prior written
request.
---------------------------------------------------------------------------
YOU MAY NOT SELL A SECURITY ACQUIRED WITHIN THE
PREVIOUS 60 DAYS, UNLESS SELLING AT A LOSS
---------------------------------------------------------------------------
D. BLACKOUT PERIOD
As a Covered Person, you may not buy or sell equity securities for your
personal accounts if:
- NA has engaged in a transaction in the same or an equivalent
security for an Advisory Client account within the last three (3)
days, OR
- the security is on the NA trading blotter or proposed blotter.
In the event you effect a prohibited personal securities transaction within
3 business days before or after an Advisory Client account transaction in
the same or equivalent security, you will be required to close out your
position in the security and disgorge any profit realized from the
transaction to a charity designated by NA. However, if you properly
obtained pre-clearance for a transaction and an Advisory Client account
subsequently transacted in the same security within 3 days of your
transaction, this will not normally result in required disgorgement, unless
otherwise determined by NA's Director of Compliance or General Counsel.
The blackout period does not apply to transactions that qualify as Exempt
Securities or Exempt Transactions.
E. DE MINIMIS TRANSACTIONS
You are NOT required to pre-clear certain de minimis transactions that meet
the following criteria. However, you must report these transactions on your
monthly Blue Form:
10
<PAGE>
EQUITY SECURITIES
Any purchase or sale transaction of up to 1,000 shares or $10,000
DAILY in a NYSE-listed security or any security listed on another
domestic exchange (including NASDAQ) with a market capitalization of
at least $2 billion.
DEBT SECURITIES
Any purchase or sale transaction of up to 100 units ($100,000
principal amount) in an issuer with a market capitalization of at
least $2 billion.
---------------------------------------------------------------------------
ALL DE MINIMIS TRANSACTIONS ARE SUBJECT TO
THE HOLDING PERIOD RESTRICTION
---------------------------------------------------------------------------
F. INITIAL PUBLIC OFFERINGS ("IPOS") & PRIVATE PLACEMENTS
As a Covered Person, you may not engage in a personal securities
transaction in any security in a private placement or IPO without prior
written approval of NA's Director of Compliance or its General Counsel. In
considering such approval, the Director of Compliance or General Counsel
will take into account, among other factors, whether the investment
opportunity is available to and/or should be reserved for an Advisory
Client account, and whether the opportunity is being offered to the Covered
Person by virtue of his or her position.
If you are approved to engage in a personal securities transaction in a
private placement or IPO, you must disclose that investment if you play a
part directly or indirectly in subsequent investment considerations of the
security for an Advisory Client account. In such circumstances, NA's
decision to purchase or sell securities of the issuer shall be subject to
an independent review by an NA Employee with no personal interest in the
issuer. In addition, you may also be required to refrain from trading the
security.
G. FRONT-RUNNING
As a Covered Person, you may not front-run an order or recommendation, even
if you are not handling the order or the recommendation (and even if the
order or recommendation is for someone other than the Covered Person).
Front-running consists of executing a transaction based on the knowledge of
the forthcoming transaction or recommendation in the same or an underlying
security, or other related securities, within three (3) business days
preceding a transaction on behalf of an Advisory Client.
H. INSIDE INFORMATION
As a Covered Person, you may not use material, non-public information about
any issuer of securities, whether or not such securities are held in the
portfolios of Advisory Clients or suitable for inclusion in such
portfolios, for personal gain or on behalf of an Advisory Client. If you
believe you are in possession of such information, you must contact NA's
Director of
11
<PAGE>
Compliance immediately to discuss the information and the circumstances
surrounding its receipt. This prohibition does not prevent a Covered Person
from contacting officers and employees of issuers or other investment
professionals in seeking information about issuers that is publicly
available. (REFER TO NA'S INSIDER TRADING POLICY ATTACHED APPENDIX I FOR
MORE INFORMATION.)
---------------------------------------------------------------------------
AS A COVERED PERSON, YOU MAY NOT USE MATERIAL,
NON-PUBLIC INFORMATION ABOUT ANY ISSUER OF SECURITIES
---------------------------------------------------------------------------
IF YOU HAVE ANY REGARDING PERSONAL TRADING, CONTACT THE COMPLIANCE
DEPARTMENT OR THE GENERAL COUNSEL.
12
<PAGE>
- --------------------------------------------------------------------------------
V. REPORTS & CERTIFICATIONS REGARDING PERSONAL SECURITIES TRANSACTIONS
- --------------------------------------------------------------------------------
A. PERSONAL HOLDINGS REPORTS
In order to address potential conflicts of interest that can arise when a
Covered Person acquires or disposes of a security, and to help ensure
compliance with the Code, as a Covered Person, you must submit a Personal
Holdings Report at the time of commencement of employment with NACM or NAS
and annually thereafter with a list of all securities holdings in which you
have a beneficial interest (other than interests in Exempt Securities).
---------------------------------------------------------------------------
YOU MUST SUBMIT A COMPLETE PERSONAL HOLDINGS
REPORT UPON COMMENCEMENT OF
EMPLOYMENT & ANNUALLY THEREAFTER
---------------------------------------------------------------------------
B. MONTHLY TRANSACTION & GIFT REPORTS
As a Covered Person, you must file a Monthly Securities Transaction and
Gift Report ("Blueform") with Compliance by the 10th day of each month for
the previous month (E.G., a September Blue Form would be due by the 10th of
October). If you did not execute any securities transactions during the
applicable month, you must still submit a Blue Form indicating that fact.
You file these Reports electronically on the NA Intranet site at
http://home.nacm.com/Compliance. The Compliance Department receives all
Report confirmations via email and stores them in a master database that is
archived annually to CD ROM.
Your Report must contain the following information with respect to each
reportable personal securities transaction. All fields must be completed in
order for your report to be successfully filed:
- Date of transaction;
- Nature of the transaction (purchase, sale or any other type of
acquisition or disposition);
- Security name;
- Security symbol or CUSIP;
- Number of shares/par;
- Principal amount of each security and/or the price at which the
transaction was effected; and
- Name of the broker, dealer or bank with or through whom the
transaction was effected.
13
<PAGE>
Monthly Reports may contain a statement that the report is not to be
construed as an admission that the person filing the report has or had any
direct or indirect beneficial interest in any security described in the
report.
C. DUPLICATE BROKERAGE STATEMENTS & CONFIRMATIONS
To assist NA in monitoring compliance with the Code, as a Covered Person,
you must instruct each broker-dealer with whom you maintain an account to
send duplicate copies of all transaction confirmations and statements
directly to NA's Compliance Department. This requirement does not apply to
accounts that are exclusively hold Exempt Securities or are held at a
mutual fund company.
D. CERTIFICATION OF COMPLIANCE
As a newly hired Employee, you must certify that you have read, understand
and will comply with the Code.
As a continuing Employee, you must annually certify that you have read,
understand, have complied, and will continue to comply, with the Code.
14
<PAGE>
- --------------------------------------------------------------------------------
VI. POTENTIAL CONFLICT OF INTEREST ISSUES
- --------------------------------------------------------------------------------
Certain activities, while not directly involving personal trading issues,
nonetheless raise similar potential conflict of interest issues and are
appropriate for inclusion in the Code. These monitored activities are as
follows:
A. SERVICE ON BOARDS OF OTHER COMPANIES
As a Covered Person, you are prohibited from serving on the board of
directors of any PUBLICLY TRADED company or organization. In addition, if
you wish to serve on the board of directors of a PRIVATELY HELD "for
profit" company, you must first obtain prior written approval from NA's
Director of Compliance or General Counsel. It is not necessary to obtain
approval to serve on the board of directors of entities such as schools,
churches, industry organizations or associations, or similar non-profit
boards.
B. GIFTS
As a Covered Person, you may not seek any gift, favor, gratuity, or
preferential treatment from any person or entity that:
- does business with or on behalf of NA;
- is or may appear to be connected with any present or future
business dealings between NA and that person or organization; or
- may create or appear to create a conflict of interest.
You may only accept gifts offered as a courtesy. You must report on your
monthly Blueform all gifts, favors or gratuities valued at $25 MORE (EXCEPT
MEALS VALUED AT LESS THAN $50). Non-Employee Trustees only need to report
gifts if values in excess of $100 AND the gift is given in connection with
the Trustee's affiliation with the NA.
C. GIFT PRE-CLEARANCE
You must submit a gift pre-clearance form and obtain prior written approval
for all gifts with a fair market value in excess of $100. Fair market value
applies to the value of the total gift (E.G., if you receive 4 tickets
valued at $55 a piece, this is considered a gift in valued over $100 and
must be pre-cleared). You must make every reasonable effort to obtain
approval from your direct supervisor and the Compliance Department PRIOR to
accepting anything of value over $100. In the event that pre-approval is
not possible, you must make disclosure as soon as possible after the
gift/event, in any event, no later than on your next Blue Form.
A gift may be denied or required to be returned or reimbursed if you
receive an excessive number of gifts, especially if received from a single
source or if the total dollar value of gifts received during a single year
is deemed excessive.
15
<PAGE>
D. GIFT VIOLATIONS
In the event you fail to properly disclose and/or pre-clear these items,
the Management Committee will require the employee personally to either
donate the fair market value of the item (or the item itself) to charity or
directly reimburse the person or entity responsible for giving the item.
As a Covered Person, you may not offer any gifts, favors or gratuities that
could be viewed as influencing decision-making or otherwise could be
considered as creating a conflict of interest on the part of the recipient.
You must never give or receive gifts or entertainment that would be
controversial to either you or NA, if the information was made public. You
should be aware that certain NA clients might also place restrictions on
gifts YOU may give to their employees.
16
<PAGE>
- --------------------------------------------------------------------------------
VII. VIOLATIONS OF THE CODE
- --------------------------------------------------------------------------------
A violation of this Code is subject to the imposition of such sanctions as
may be deemed appropriate under the circumstances to achieve the purposes
of this Code. NA's Director of Compliance and the Executive Committee will
determine sanctions for violations of the Code. Such sanctions may include
those previously described, as well as others deemed appropriate.
Sanctions for a material violation (I.E., one that involves an actual
conflict or appearance of impropriety) of this Code by a Trustee of the
Funds will be determined by a majority vote of that Fund's Disinterested
Trustees.
IF YOU HAVE ANY QUESTIONS ABOUT ANY ASPECT OF THE CODE, CONTACT THE
DIRECTOR OF COMPLIANCE.
17
<PAGE>
- --------------------------------------------------------------------------------
VIII. ANNUAL BOARD REVIEW
- --------------------------------------------------------------------------------
The NA management annually prepares a report to the Funds' boards
summarizing existing procedures concerning personal trading (including any
changes in the Code), highlights material violations of the Code requiring
significant corrective action and identifies any recommended changes to the
Code.
18
<PAGE>
- --------------------------------------------------------------------------------
IX. ADMINISTRATION & CONSTRUCTION
- --------------------------------------------------------------------------------
NA's Director of Compliance serves as the "Administrator" of this Code. The
Administrator's duties include:
- Maintenance of a current list of Covered Persons;
- Providing all Employees with a copy of the Code and periodically
informing them of their duties and obligations under the Code;
- Supervising the implementation and enforcement of the terms of the
Code;
- Maintaining or supervising the maintenance of all records and reports
required by the Code;
- Preparing a list of all transactions effected by any Covered Person
during the three (3) day blackout period;
- Determining whether any particular securities transactions should be
exempted pursuant to the provisions of Section III of the Code;
- Issuing, either personally or with the assistance of counsel, any
interpretation of the Code which would be consistent with the
objectives of the Code;
- Conducting inspections or investigations reasonably required to detect
and report material violations of the Code and provide recommendations
relative to these violations to NA's Management Committee, or the
Board of Trustees of a Fund or any Committee appointed by them to deal
with such information;
- Submitting a quarterly report to the Trustees of each Fund containing
a description of any material violation and action taken and any other
significant information concerning administration of the Code; and
- Regular reporting on Code compliance to the Executive Committee and
General Counsel.
19
<PAGE>
- --------------------------------------------------------------------------------
X. AMENDMENTS & MODIFICATIONS
- --------------------------------------------------------------------------------
This Code may be amended or modified as deemed necessary by the officers of
the Funds, with the advice of Fund counsel, provided such amendments or
modifications shall be submitted to the Board of Trustees of the Funds for
ratification and approval at the next available meeting. This version of
the Code has been amended taking into account the recent amendments to Rule
17j-1 under the Investment Company Act of 1940. This Code is effective as
of March 20, 2000 to be ratified by the Board of Trustees of the Funds at
its next regularly scheduled meeting.
20
<PAGE>
================================================================================
APPENDIX I
================================================================================
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
NICHOLAS-APPLEGATE SECURITIES
POLICIES AND PROCEDURES CONCERNING THE MISUSE
OF MATERIAL NON-PUBLIC INFORMATION
("INSIDER TRADING")
Every employee of Nicholas-Applegate Capital Management, a California Limited
Partnership ("NA") must read and retain a copy of these Policies and Procedures.
Any questions regarding the Policies and Procedures described herein should be
referred to NA's Compliance Department ("Compliance").
- --------------------------------------------------------------------------------
SECTION I. POLICY STATEMENT ON INSIDER TRADING ("POLICY STATEMENT")
- --------------------------------------------------------------------------------
NA's Policy Statement applies to every Employee and extends to activities
both within and outside the scope of their duties at NA. NA forbids any
Employee from engaging in any activities that would be considered "insider
trading."
The term "insider trading" is not defined in the federal securities laws,
but generally is understood to prohibit the following activities:
- Trading by an insider, while in possession of material non-public
information;
- Trading by a non-insider, while in possession of material
non-public information, where the information either was
disclosed to the non-insider in violation of an insider's duty to
keep it confidential or was misappropriated;
- Recommending the purchase or sale of securities while in
possession of material non-public information; or
- Communicating material non-public information to others (I.E.,
"tipping").
The elements of insider trading and the penalties for such unlawful conduct
are discussed below. If you have any questions regarding this Policy
Statement you should consult the Compliance Department.
WHO IS AN INSIDER?
The concept of "insider" is broad and it includes officers, partners and
employees of a company. In addition, a person can be a "temporary insider"
if he or she enters into a special confidential relationship in the conduct
of a company's affairs and, as a result, is given access to information
solely for the company's purposes. A temporary insider can include, among
others, company attorneys, accountants, consultants, bank lending officers,
and the employees of these organizations. In addition, NA and its Employees
may become temporary insiders of a company that NA advises or for which NA
performs other services. According to the U.S. Supreme Court, before an
outsider will be considered a temporary insider for these purposes, the
company
I-1
<PAGE>
must expect the outsider to keep the disclosed non-public information
confidential and the relationship must, at least, imply such a duty.
WHAT IS MATERIAL INFORMATION?
Trading, tipping, or recommending securities transactions while in
possession of inside information is not an actionable activity UNLESS the
information is "material." Generally, information is considered material
if: (i) there is a substantial likelihood that a reasonable investor would
consider it important in making his or her investment decisions or (ii) it
is reasonably certain to have a substantial effect on the price of a
company's securities. Information that should be considered material
includes, but is not limited to:
- dividend changes;
- earnings estimates;
- changes in previously released earnings estimates;
- a joint venture;
- the borrowing of significant funds;
- a major labor dispute, merger or acquisition proposals or
agreements;
- major litigation;
- liquidation problems; and
- extraordinary management developments.
For information to be considered material, it need not be so important that
it would have changed an investor's decision to purchase or sell particular
securities; rather it is enough that it is the type of information on which
reasonable investors rely in making purchase or sale decisions. The
materiality of information relating to the possible occurrence of any
future event would depend on the likelihood that the event will occur and
its significance if it did occur.
Material information does not have to relate to a company's business. For
example, in U.S. V. Carpenter, 791 F.2d 1024 (2d Cir. 1986), AFF'D, 484
U.S. 19 (1987) (affirmed without opinion by an evenly divided court with
respect to the charge of insider trading, based on the "misappropriation"
theory), the court considered as material certain information about the
contents of a forthcoming newspaper column that was expected to affect the
market price of a security. In that case, a WALL STREET JOURNAL reporter
was found criminally liable for disclosing to others the dates that reports
on various companies would appear in the JOURNAL and whether those reports
would be favorable or not.
WHAT IS NON-PUBLIC INFORMATION?
All information is considered non-public until it has been effectively
communicated to the marketplace. One must be able to point to some fact to
show that the information is generally public. For example, information
found in a report filed with the SEC, or appearing in DOW JONES, REUTERS
ECONOMIC SERVICES, THE WALL STREET JOURNAL or other publications of general
circulation would be considered public. Information in bulletins and
research reports disseminated by brokerage firms are also generally
considered to be public information.
I-2
<PAGE>
BASIS FOR LIABILITY
In order to be found liable for insider trading, one must either (i) have a
fiduciary relationship with the other party to the transaction and have
breached the fiduciary duty owed to that other party, or (ii) have
misappropriated material non-public information from another person.
FIDUCIARY DUTY THEORY
Insider trading liability may be imposed on the theory that the
insider breached a fiduciary duty to a company. In 1980, the U.S.
Supreme Court held that there is no general duty to disclose before
trading on material non-public information, and that such a duty
arises only where there is a fiduciary relationship. That is, there
must be an existing relationship between the parties to the
transaction such that one party has a right to expect that the other
party would either (a) disclose any material non-public information,
if appropriate or permitted to do so, or (b) refrain from trading on
such material non-public information. CHIARELLA V. U.S., 445 U.S. 222
(1980).
In DIRKS V. SEC, 463 U.S. 646 (1983), the U.S. Supreme Court stated
alternative theories under which non-insiders can acquire the
fiduciary duties of insiders: (a) they can enter into a confidential
relationship with the company through which they gain the information
(E.G., attorneys, accountants, etc.), or (b) they can acquire a
fiduciary duty to the company's shareholders as "tippees" if they were
aware, or should have been aware, that they had been given
confidential information by an insider that violated his or her
fiduciary duty to the company's shareholders by providing such
information to an outsider.
However, in the "tippee" situation, a breach of duty occurs ONLY where
the insider personally benefits, directly or indirectly, from the
disclosure. Such benefit does not have to be pecuniary, and can be a
gift, a reputational benefit that will translate into future earnings,
or even evidence of a relationship that suggests a QUID PRO QUO.
MISAPPROPRIATION THEORY
Another basis for insider trading liability is the "misappropriation"
theory. Under the misappropriation theory, liability is established
when trading occurs as a result of, or based upon, material non-public
information that was stolen or misappropriated from any other person.
In U.S. V. CARPENTER, SUPRA, the court held that a columnist for THE
WALL STREET JOURNAL had defrauded the JOURNAL when he obtained
information that was to appear in the JOURNAL and used such
information for trading in the securities markets. The court held that
the columnist's misappropriation of information from his employer was
sufficient to give rise to a duty to disclose such information or
abstain from trading thereon, even though the columnist owed no direct
fiduciary duty to the issuers of the securities described in the
column or to purchasers or sellers of such securities in the
marketplace. Similarly, if information is given to an analyst on a
confidential basis and the analyst uses that information for trading
purposes, liability could arise under the misappropriation theory.
I-3
<PAGE>
PENALTIES FOR INSIDER TRADING
Penalties for trading on, or communicating material non-public information
are severe, both for individuals involved in such unlawful conduct and
their employers. A person can be subject to some or all of the penalties
below even if he or she did not personally benefit from the violation.
Penalties include:
- Civil injunctions;
- Criminal penalties for individuals of up to $1 million and for
"non-natural persons" of up to $2.5 million plus, for
individuals, a maximum jail term from five to ten years;
- Private rights of actions for disgorgement of profits;
- Civil penalties for the person who committed the violation of up
to three times the profit gained or loss avoided, whether or not
the person actually benefited;
- Civil penalties for the employer or other controlling person of
up to the greater of $1 million per violation or three times the
amount of the profit gained or loss avoided, as a result of each
violation; and
- A permanent bar, pursuant to the SEC's administrative
jurisdiction, from association with any broker, dealer,
investment company, investment adviser, or municipal securities
dealer.
In addition, any violation of this Policy Statement can be expected to
result in serious sanctions by NA, including dismissal of the persons
involved.
- --------------------------------------------------------------------------------
SECTION II. PROCEDURES TO IMPLEMENT NA'S POLICY STATEMENT
- --------------------------------------------------------------------------------
The following procedures have been established to aid NA's Employees in
avoiding insider trading, and to aid NA in preventing, detecting and
imposing sanctions against insider trading. Every Employee of NA must
follow these procedures or risk serious sanctions, as described above. If
you have any questions about these procedures you should consult with the
Director of Compliance.
IDENTIFYING INSIDER INFORMATION
Before trading for yourself or others, including for any client accounts
managed by NA, in the securities of a company about which you may have
potential insider information, or revealing such information to others or
making a recommendation based on such information, you should ask yourself
the following questions.
- Is the information material?
- Is this information that an investor would consider important in
making an investment decision?
- Is this information that would substantially affect the market
price of the securities if generally disclosed?
- Is the information non-public?
I-4
<PAGE>
- To whom has this information been provided?
- Has the information been effectively communicated to the
marketplace by being published in THE WALL STREET JOURNAL or
other publications of general circulation, or has it otherwise
been made available to the public?
If, after consideration of the above, you believe that the information
is material and non-public, or if you have questions as to whether the
information may be material and non-public, you should take the
following steps.
- Report the matter immediately to Compliance and disclose all
information that you believe may bear on the issue of
whether the information you have is material and non-public;
- Refrain from purchasing or selling securities with respect
to such information on behalf of yourself or others,
including for client accounts managed by NA; and
- Refrain from communicating the information inside or outside
NA, other than to Compliance.
After Compliance has reviewed the issue, you will be instructed to continue
the prohibitions against trading, tipping, or communication, or you will be
allowed to trade and communicate the information. In appropriate
circumstances, our Director of Compliance will consult with our General
Counsel as to the appropriate course of action.
PERSONAL SECURITIES TRADING
All Employees of NA must adhere to NA's Code of Ethics and Conduct ("Code")
with respect to:
- securities transactions effected for their own account,
- accounts over which they have a direct or indirect beneficial
interest, and
- accounts over which they exercise any direct or indirect
influence.
Please refer to NA's Code as necessary. In accordance with the Code,
Employees are required to obtain prior written approval from Compliance for
all personal securities transactions (unless otherwise exempt under the
Code) and to submit to Compliance a Monthly Securities Transaction and Gift
Report ("Blueform") concerning all equity securities transactions as
required by NA's Code.
RESTRICTING ACCESS TO MATERIAL NON-PUBLIC INFORMATION
Information in your possession that you identify, or that has been
identified to you as material and non-public, must not be communicated to
anyone, except as provided above. In addition, you should make certain that
such information is secure. For example, files containing material
non-public information should be sealed and inaccessible and access to
computer files containing material non-public information should be
restricted by means of a password or other similar restriction.
I-6
<PAGE>
RESOLVING ISSUES CONCERNING INSIDER TRADING
If, after consideration of the items set forth above, doubt remains as to
whether information is material or non-public, or if there is any
unresolved question as to the applicability or interpretation of the
foregoing procedures, or as to the propriety of any action, please discuss
such matters with our Director of Compliance before trading or
communicating the information in question to anyone.
SUPERVISORY PROCEDURES
NA's Compliance Department is critical to the implementation and
maintenance of these Policies and Procedures against insider trading. The
supervisory procedures set forth below are designed to detect and prevent
insider trading.
PREVENTION OF INSIDER TRADING
In addition to the pre-approval and monthly reporting procedures
specified in the Code concerning personal securities transactions, the
following measures have been implemented to prevent insider trading by
NA's Employees.
1. All Employees of NA will be provided with a copy of these
Policies and Procedures regarding insider trading.
2. Compliance will, as deemed necessary, conduct educational
seminars to familiarize Employees with NA's Policies and
Procedures. Such educational seminars will target, in particular,
persons in sensitive areas of NA who may receive inside
information more often than others;
3. Compliance will answer questions regarding NA's Policies and
Procedures;
4. Compliance will resolve issues of whether information received by
an Employee of NA is material and non-public;
5. Compliance will review these Policies and Procedures on a regular
basis and update as necessary;
6. Whenever it has been determined that an Employee of NA has
possession of material non-public information, Compliance will
(i) implement measures to prevent dissemination of such
information, and (ii) restrict Employees from trading in the
securities by placing such securities on NA's Restricted List;
and
7. Upon the request of any Employee, Compliance will review and any
requests for clearance to trade in specified securities and
either approve or disapprove.
DETECTION OF INSIDER TRADING
To detect insider trading, Compliance will:
1. Review the personal securities transaction reports filed by each
Employee, including subsequent monthly review of all personal
securities transactions;
2. Review the trading activity of client accounts managed by NA;
3. Review the trading activity of NA's own accounts, if any; and
I-6
<PAGE>
4. Coordinate the review of such reports with other appropriate
Employees of NA when Compliance has reason to believe inside
information has been provided to certain Employees.
REPORTS TO MANAGEMENT
Promptly upon learning of a potential violation of NA's Policies and
Procedures, Compliance will prepare a confidential written report to
management, providing full details and recommendations for further
action. In addition, Compliance will prepare reports to management,
when appropriate, setting forth:
1. A summary of existing procedures to prevent and detect insider
trading;
2. Full details of any investigation, either internal or by a
regulatory agency, of any suspected insider trading and the
results of such investigation;
3. An evaluation of the current procedures and any recommendations
for improvement; and
4. A description of NA's continuing education program regarding
insider trading, including the dates of any seminars since the
last report to management.
In response to such report, management will determine whether any
changes to the Policies and Procedures might be appropriate.
I-7
<PAGE>
- -------------------------------------------------------------------------------
APPENDIX II
- --------------------------------------------------------------------------------
EXAMPLES OF BENEFICIAL OWNERSHIP
- - Securities held by an Access Person for their own benefit, regardless of
the form in which held;
- - Securities held by others for an Access Person's benefit, such as
securities held by custodians, brokers, relatives, executors or
administrators;
- - Securities held by a pledgee for an Access Person's account;
- - Securities held by a trust in which an Access Person has an income or
remainder interest, unless the Access Person's only interest is to receive
principal (a) if some other remainderman dies before distribution or (b) if
some other person can direct by will a distribution of trust property or
income to the Access Person;
- - Securities held by an Access Person as trustee or co-trustee, where the
Access Person or any member of their immediate family (I.E., spouse,
children or their descendants, stepchildren, parents and their ancestors,
and stepparents, in each case treating a legal adoption as a blood
relationship) has an income or remainder interest in the trust;
- - Securities held by a trust of which the Access Person is the settlor, if
the Access Person has the power to revoke the trust without obtaining the
consent of all the beneficiaries;
- - Securities held by a general or limited partnership in which an Access
Person is either the general partner of such partnership or a controlling
partner of such entity (E.G., Access Person owns more than 25% of the
partnership's general or limited partnership interests);
- - Securities held by a personal holding company controlled by an Access
Person alone or jointly with others;
- - Securities held in the name of an Access Person's spouse - unless legally
separated or divorced;
- - Securities held in the name of minor children of an Access Person or in the
name of any relative of an Access Person or of their spouse (including an
adult child) who is presently sharing the Access Person's home;
- - Securities held in the name of any person other than an Access Person and
those listed in above, if by reason of any contract, understanding,
relationship, agreement, or other arrangement the Access Person obtains
benefits equivalent to those of ownership; and
- - Securities held in the name of any person other than an Access Person,
even though the Access Person does not obtain benefits equivalent to those
of ownership (as described above), if the Access Person can vest or re-vest
title in himself.
II-1
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
APPENDIX III
- ------------------------------------------------------------------------------------------------
QUICK REFERENCE GUIDE
- ------------------------------------------------------------------------------------------------
DESCRIPTION PRE- CLEAR REPORT BLACK-OUT PERIOD
- -----------
("Blue Form")
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EXEMPT SECURITIES:
Open-end mutual funds, US Gov't securities,
BAs, CDs, CP, Muni bonds and stock indices NO NO NO
- ------------------------------------------------------------------------------------------------
EXEMPT TRANSACTIONS:
No control or influence, non-voluntary,
automatic dividend reinvestment plan,
exercise of pro-rata rights issue, options NO NO NO
or futures on commodities, currencies or
interest rates
- ------------------------------------------------------------------------------------------------
DE MINIMIS TRANSACTIONS:
1,000 shares or $10,000 and NYSE or other
listed domestic exchange, including NASDAQ, NO YES NO
and market cap = $2 billion (daily limit)
- ------------------------------------------------------------------------------------------------
= 500 shares, NYSE, or market cap = $500 YES YES NO
million
- ------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
DESCRIPTION HOLDING PERIOD TRADING FINE APPLIES DISGORGEMENT REQUIRED
- -----------
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EXEMPT SECURITIES:
Open-end mutual funds, US Gov't securities,
BAs, CDs, CP, Muni bonds and stock indices NO N/A N/A
- ----------------------------------------------------------------------------------------------------------------
EXEMPT TRANSACTIONS:
No control or influence, non-voluntary,
automatic dividend reinvestment plan,
exercise of pro-rata rights issue, options NO N/A N/A
or futures on commodities, currencies or
interest rates
- ----------------------------------------------------------------------------------------------------------------
DE MINIMIS TRANSACTIONS:
1,000 shares or $10,000 and NYSE or other
listed domestic exchange, including NASDAQ, YES YES YES
and market cap = $2 billion (daily limit)
- ----------------------------------------------------------------------------------------------------------------
= 500 shares, NYSE, or market cap = $500 YES YES YES
million
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: THIS INFORMATION IS PROVIDED AS A SUMMARY ONLY. YOU ARE RESPONSIBLE TO
ENSURE YOUR PERSONAL SECURITIES TRADING COMPLIES WITH THE CODE. PLEASE REFER TO
THE CODE FOR FURTHER DETAILS. IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT
COMPLIANCE.
III-1
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX IV
- --------------------------------------------------------------------------------
EXEMPT INDICES
- --------------------------------------------------------------------------------
The following are exempt from the 60-DAY MINIMUM hold rule and are exempt from
pre-clearance:
- S&P 500 Index
- S&P 100 Index
- S&P Mid Cap Index (400 Issues)
- S&P Small Cap Index (600 Issues)
- NASDAQ 100 Index
- Russell 2000 Index
- Wilshire Small Cap Index (250 Issues)
- EUROTOP 100 Index
- Financial Times Stock Exchange (FT-SE) 100 Index
- Japan Index (210 Issues)
- NYSE Composite Index (2400 Issues)
- PHLX National OTC Index (100 Issues)
- Standard & Poor's Depository Receipts (SPDRs)
- Standard & Poor's Mid Cap 400 Depository Receipts (Mid Cap SPDRs)
- Gold/Silver Index Options
- World Equity Benchmark Shares (WEBS)
- JP Morgan Commodity Indexed Preferred Securities, Series A (Symbol JPO)
- Dow Jones Industrials Diamonds (DIA)
- NASDAQ 100 Shares (QQQ)
The Director of Compliance may approve any other Index on a case-by-case basis.
If you have any questions regarding the above, please contact the Compliance
Department.
IV-I
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX V
- --------------------------------------------------------------------------------
================================================================================
NEW HIRES:
PLEASE COMPLETE, SIGN & RETURN THE FOLLOWING 4 PAGES TO THE COMPLIANCE
DEPARTMENT WITHIN 5 DAYS OF YOUR DATE OF HIRE
YOU ARE NOT PERMITTED TO EXECUTE ANY PERSONAL
TRADES UNTIL THESE CERTIFICATES ARE FILED.
ANNUAL RECERTIFICATION (PRESENT EMPLOYEES):
YOU ARE REQUIRED TO COMPLETE, SIGN & RETURN THE FOLLOWING 4 PAGES TO THE
COMPLIANCE DEPARTMENT BY THE ANNUAL DUE DATE (STATED IN RENEWAL PACKET). IF IT
IS RECEIVED AFTER THAT DATE YOU WILL INCUR A FINE AS FOLLOWS - $50 FOR THE FIRST
DAY LATE & $10 EVERY DAY AFTER THAT.
ALL FINES ARE WRITTEN & SENT TO THE UNITED WAY.
YOU WILL ALSO BE RESTRICTED FROM TRADING UNTIL THESE
CERTIFICATES ARE RECEIVED IN COMPLIANCE (ONLY IF LATE).
THANK YOU
================================================================================
V-1
<PAGE>
- --------------------------------------------------------------------------------
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
NICHOLAS-APPLEGATE SECURITIES
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
CERTIFICATE OF COMPLIANCE
- -----------------------------------
NAME (PLEASE PRINT)
This is to certify that the Code of Ethics and Conduct ("Code"), updated as of
March 2000, is available for my review on the intranet site (home.nacm.com) for
the year 2000. I have read and understand the Code. I certify that I will comply
with these policies and procedures during the course of my employment by NACM or
NAS. Moreover, I agree to promptly report to the Director of Compliance any
violation, or possible violation of this Code, of which I become aware.
I understand that a violation of this Code will be grounds for disciplinary
action or dismissal and may also be a violation of federal and/or state
securities laws.
- ------------------------------------
SIGNATURE
- ------------------------------------
DATE
- --------------------------------------------------------------------------------
V-2
<PAGE>
- --------------------------------------------------------------------------------
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
NICHOLAS-APPLEGATE SECURITIES
INSIDER TRADING POLICY
{APPENDIX I}
CERTIFICATE OF COMPLIANCE
- ------------------------------------
NAME (PLEASE PRINT)
This is to certify that I have read and understand the policies and procedures
of NA's Insider Trading Policy (the "Policy"), updated as of March 2000, and
available for my review on the intranet site (home.nacm.com) for the year 2000.
I certify that I will comply with these policies and procedures during the
course of my employment with NA. Moreover, I agree to promptly report to the
Director of Compliance any violation, or possible violation, of the Policy of
which I became aware.
I understand that violation of the Policy will be grounds for disciplinary
action or dismissal and may also be a violation of federal and/or state
securities laws.
- ------------------------------------
SIGNATURE
- ------------------------------------
DATE
- --------------------------------------------------------------------------------
V-3
<PAGE>
PERSONAL HOLDINGS REPORT
AS REQUIRED IN Section V of the NA's Code of Ethics ("Code"), please provide a
list of all Securities (except Exempt Securities) in which you have a beneficial
interest, including those in accounts of your immediate family and all
Securities in non-client accounts for which you make investment decisions.
1. List all Securities that are:
a) personally owned; or
b) in which a beneficial interest is held by you, your spouse, minor
child, or any other member of your immediate household;
c) any trust or estate of which you or your spouse is a trustee,
other fiduciary or beneficiary, or of which your minor child is a
beneficiary; or
d) any person for whom you direct or effect transactions under a
power of attorney or otherwise.
TABLE A
<TABLE>
<CAPTION>
=================================================================================================================
NAME OF SECURITY TYPE SECURITY(1) HOLDINGS HOLDINGS RELATIONSHIP(3) DISCLAIMER OF
# OF SHARES PRINCIPAL BENEFICIAL INTEREST(4)
AMOUNT ($)(2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
=================================================================================================================
</TABLE>
* IF NONE, WRITE NONE.
*NOTE: CONTINUE LISTING AS NECESSARY ON ADDITIONAL SHEETS. (YOU MAY ATTACH A
COPY OF A BROKER STATEMENT LISTING THE INFORMATION - IF SO, INDICATE BY WRITING
"SEE ATTACHED.")
IF YOU ARE A PRESENT EMPLOYEE (NEW EMPLOYEES CONTINUE TO TABLE B)
2. Have you, during the past 12 months, requested prior clearance of and filed
monthly reports for all applicable securities transactions as required by
the Code?
Yes No
----- -----
If "No", has the transaction been discussed with the Compliance Department?
Yes No
--------------------------
- ------------------------
(1) Insert the following symbol as pertinent to indicate the type of security
held: C-common stock, P-preferred stock, O-option, W-warrant and D-debt
security.
(2) To be completed only for debt securities.
(3) Insert a, b, c, or d as explained above, to describe your interest in these
securities.
(4) Mark x to indicate that the reporting or recording of this securities
holding shall not be construed as an admission that you have any direct or
indirect beneficial interest in these securities. Please see Appendix II for a
list of examples of beneficial interest.
V-4
<PAGE>
If not, please advise the Compliance Department in writing separately of
any securities transactions not pre-cleared or reported.
3. Have you filed monthly reports for all reportable securities transactions
as required by the Code?
Yes No
--------------------------
In addition, Nicholas-Applegate requires all employees to disclose ALL
BROKERAGE ACCOUNTS in their name, any spouse's account, any children's
account or any other account over which the employee has control or is a
beneficiary.
TABLE B
<TABLE>
<CAPTION>
=================================================================================================================
NAME OF BROKER ACCOUNT NUMBER NAME(S) ON ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
=================================================================================================================
</TABLE>
* IF NONE, WRITE NONE.
I certify that the statements made by me on this form are true, complete and
correct to the best of my knowledge and belief and are made in good faith.
- -------------------------- ---------------------------------------------
DATE SIGNATURE
V-5
<PAGE>
Page 1
ATTACHMENT 2
2/23/99
OECHSLE INTERNATIONAL ADVISORS, LLC
CODE OF ETHICS
The reputation of Oechsle International Advisors, LLC ("Oechsle") for integrity
and ethics is one of our most important assets. In order to safeguard this
reputation, we believe that it is essential not only to comply with relevant
federal and state laws and regulations, but also to maintain high standards of
personal and professional conduct. Oechsle's Code of Ethics (the "Code") is
designed to ensure that our conduct is at all times consistent with the highest
of ethical standards, with our fiduciary obligations to our clients, and with
industry and regulatory standards for investment managers.
The Code is based on the principle that the officers, directors, members, and
employees of Oechsle owe a fiduciary duty to our clients to:
Always place the interests of our clients first.
Conduct our personal securities transactions in a manner which
does not interfere with client transactions, create an actual
or potential conflict of interest with clients, or otherwise
take unfair advantage of our relationship with our clients.
Avoid even the appearance of impropriety in our personal actions.
Persons covered by this Code must adhere to this general principle as well as
comply with the Code's specific provisions. It bears emphasis that although the
Code provides guidance with respect to many common situations, it cannot address
every possible circumstance that could give rise to a conflict of interest,
potential conflict, or an appearance of impropriety. Regardless of whether a
specific provision of the Code applies, each of us at Oechsle must conduct his
or her activities in accordance with the general principles embodied in the Code
and in such a way as to avoid any actual or potential conflict of interest or
any abuse of an individual's position of trust and responsibility. Please
remember that even if our clients are not harmed, we cannot take inappropriate
advantage of information we learn through our position as fiduciaries. TECHNICAL
COMPLIANCE WITH THE PROCEDURES INCORPORATED IN THE CODE WILL NOT INSULATE FROM
SCRUTINY TRADES WHICH CONTRAVENE AN INDIVIDUAL'S DUTIES TO OECHSLE AND ITS
CLIENTS. Therefore, to protect yourself and Oechsle, please be alert for any
potential for conflicts of interest, and please consult the General Counsel
whenever questions arise concerning the application of the Code to a particular
situation.
<PAGE>
Page 2
PERSONS COVERED BY THE CODE
The provisions and requirements of the Code apply to all officers, directors,
members, and employees of Oechsle and its subsidiaries ("Oechsle employees"). IN
ADDITION, THE PROVISIONS AND REQUIREMENTS OF THE CODE, INCLUDING THE RULES
PERTAINING TO PRE-CLEARANCE OF PERSONAL SECURITIES TRANSACTIONS, APPLY TO ALL
MEMBERS OF ANY EMPLOYEE'S "IMMEDIATE FAMILY." ANY FAMILY MEMBER WHO IS PRESENTLY
LIVING IN YOUR HOUSEHOLD, OR TO WHOSE FINANCIAL SUPPORT YOU MAKE A SIGNIFICANT
CONTRIBUTION, IS CONSIDERED TO BE A MEMBER OF YOUR IMMEDIATE FAMILY. Please bear
in mind that the Code applies to all securities accounts:
(i) in which any Oechsle employee or his or her immediate family have any
direct or indirect beneficial interest (e.g., family trust); or
(ii) over which any Oechsle employee or his or her immediate family
exercise any investment authority; or
(iii)which receive any investment advice from any Oechsle employee or his
or her immediate family.
Please remember that the term "beneficial interest" includes more than ordinary
ownership. In general, you may be deemed to have beneficial ownership under any
of the following circumstances:
1. You have the power to sell or transfer the security, or you have the
power to direct the sale or transfer; or
2. You have the power to vote the security or the power to direct the
vote; or
3. You have an economic interest in the security; or
4. You have the right to acquire, within 60 days, the power to sell, the
power to vote, or an economic interest in the security.
You should consider yourself as having beneficial ownership of a security in the
following situations (which also apply to your immediate family):
1. The security is held by you, whether in bearer form, registered in
your name, or otherwise;
2. The security is held by others for your benefit, such as a security
held for you by a bank, custodian, broker, relative, executor,
administrator, agent, or any other person;
3. The security is held by a trust of which you are the trustee, or in
which you have an economic interest, or where you participate in the
investment decisions or otherwise
<PAGE>
Page 3
have direct or indirect influence or control;
4. The security is held by a trust of which you are the settlor if you
have the power to revoke the trust without obtaining the consent of
all the beneficiaries;
5. The security is held by any partnership in which you are a general
partner, or with respect to which you have direct or indirect
influence or control;
6. The security is held in the name of another person if, by reason of
any contract, understanding, relationship, agreement, or other
arrangement, you obtain therefrom benefits substantially equivalent to
those of ownership;
7. The security is held in the name of another person, even though you do
not obtain therefrom benefits substantially equivalent to those of
ownership, if you can vest or revest title in yourself at any time.
Although persons who are not members of your "immediate family" are not required
to comply with the pre-clearance procedures contained in the Code, they also may
not take improper advantage of information that they may receive from you
regarding the activity or holdings of Oechsle clients. In addition, it would be
a violation of the Code, and, specifically of Oechsle's Insider Trading Policy,
for an Oechsle employee to arrange for a friend or relative to trade in a
security in which that Oechsle employee would be precluded from trading for his
or her own account, or for an Oechsle employee to give information about the
activity or holdings of Oechsle clients to any person for the purpose of
facilitating securities trading by that person.
GENERAL TERMS AND PROVISIONS
These provisions apply to all employees of Oechsle and its subsidiaries.
These provisions apply only to transactions in reportable securities.
A. REPORTABLE SECURITIES are ALL securities except:
(a) shares of registered, open-end investment companies (mutual funds) for
which Oechsle is not an advisor or sub-advisor;
(b) direct U.S. government obligations, such as Treasury bonds, notes, and
bills, and U.S. Savings Bonds;
(c) CDs, bankers' acceptances, and other money-market instruments;
(d) transactions in commodities and options and futures on commodities;
(e) investments in or by hedge funds and commingled funds managed by
Oechsle, in which Oechsle employees may have beneficial interests.
You do not need to report transfers of securities, stock splits, or other such
activity.
Thus, REPORTABLE SECURITIES include, but are not limited to:
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(a) any type of equity or debt security (including, without limitation,
common and preferred stock and corporate and municipal bonds and debt
obligations issued by foreign governments);
(b) any rights relating to such a security, such as put and call options,
warrants, and convertible securities;
(c) ADRs;
(d) options and futures on security indexes.
B. COMPLIANCE OFFICER - the Oechsle officer assigned the responsibility of
administering this Code is the Compliance Officer, James Record, or in his
absence the General Counsel, Paula N. Drake.
C. PRE-CLEARANCE - of ALL personal securities transactions IN REPORTABLE
SECURITIES is required for all Oechsle employees.
D. BROKERAGE CONFIRMATIONS - copies of brokerage confirmations for each
pre-cleared transaction are required.
E. BLACKOUT PERIODS - for certain designated periods surrounding client trades
or while a transaction is being actively considered for a client.
F. EXCESSIVE SHORT-TERM TRADING - is discouraged and profits from such trading
may have to be disgorged.
G. QUARTERLY REPORTING - of personal securities transactions.
H. ANNUAL CERTIFICATION - that the employee has read and understood the Code.
PRE-CLEARANCE
1. GENERAL RULE:
Oechsle requires written pre-clearance of personal trades in reportable
securities.
2. PROCEDURES:
The pre-clearance requirement is satisfied by completing the Personal Securities
Transaction Pre-Trading Authorization Form (SEE EXHIBIT A). PRE-CLEARANCE IS
ONLY EFFECTIVE FOR THE SPECIFIC TRADE DATE (or for the next available market
session if same-date is not practicable due to foreign market constraints) AND
FOR A SPECIFIC NUMBER OF SHARES. TRADING INSTRUCTIONS GIVEN TO BROKERS MUST BE
FOR SAME DAY EXECUTION. You may not change the trade date, and you may not
increase the size of your order, without obtaining a new pre-clearance. You may,
however, decrease the size of your trade without obtaining a new pre-clearance.
Moreover, you need not place an order for which you have obtained pre-clearance.
If you choose not to place that order, you
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must obtain a new pre-clearance if you change your mind and wish to enter the
order on a later date. In addition, you must inform the Compliance Officer in
writing if you decide not to execute a pre-cleared trade.
Generally, the date on which you initiate your trade instructions should be the
date on which the trade is actually executed. However, there are some
exceptions. For purposes of this Code, the trade date for a limit order or a
stop-loss order is the date on which you give the order to your broker, not the
date on which the order is finally executed in accordance with your
instructions. Therefore, if your limit or stop-loss order is entered with the
broker in accordance with the pre-clearance requirements and consistent with the
blackout period, the subsequent execution of that trade will satisfy the Code,
even if Oechsle subsequently enters trades for client accounts that are executed
on the same day as your order is executed.
Three signatures are required on the pre-clearance form:
1. The Compliance Officer or the General Counsel in the Boston office (in
the absence of the Compliance Officer), or the Compliance Officer of
the London office, in the case of that office.
2. The Trading Desk.
3. A Managing Principal.
As a general rule, no person may sign a pre-clearance form for himself or
herself. In order to ensure that all personal securities transactions are
conducted in accordance with the Code, the Compliance Officer of the Boston
office will retain copies of all pre-clearance forms in each employee's personal
securities transactions file.
The Compliance Officer and the Trading Desk will monitor trading in pre-cleared
securities among Oechsle clients to ensure that all applicable blackout periods
have been complied with and that there is otherwise no activity in such
securities that would raise questions regarding any conflicts or potential
conflicts.
EXEMPTIONS:
A. THIRD PARTY ACCOUNTS. If an Oechsle employee nominally has beneficial
ownership over a particular account, but does not exercise direct or
indirect influence or control over that account and provides no investment
advice with respect to the investment decisions made for the account, he or
she may apply to the General Counsel for a waiver from the pre-clearance
provisions of the Code. Waivers are not automatic, are made on a
case-by-case basis, and are conditioned, at a minimum, upon the following:
1. The Oechsle employee discloses to the General Counsel the existence of
the Third Party Account and allows the General Counsel to review, in
her discretion, the governing documents of such accounts.
2. The Oechsle employee establishes to the satisfaction of the General
Counsel that he or
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she has no direct or indirect influence or control over the Third Party
Account or over investment decisions made for that account.
3. The Oechsle employee completes the Brokerage Account Certification (SEE
EXHIBIT B) on an annual basis.
4. The Oechsle employee does not disclose to any person with influence or
control over the Third Party Account any action that Oechsle may or may
not take, or has or has not taken, with respect to any security.
B. STOCK INDEX FUTURES AND OPTIONS. The pre-clearance requirements of the Code
do not apply to purchases and sales of stock index options and stock index
futures. However, such transactions must be reported on the employee's quarterly
personal securities transactions report.
PROHIBITED TRANSACTIONS
The following categories of transactions may NOT be engaged in by Oechsle
employees:
1. TRANSACTIONS IN CONJUNCTION WITH OECHSLE CLIENTS:
A. No Oechsle employee shall cause an Oechsle client to either take or not
take any action for such employee's personal benefit (or the personal
benefit of anyone else) rather than for the benefit of the client. For
example, an employee would violate this Code by causing a portfolio to
purchase a security he or she owned for the purpose of supporting or
increasing the price of that security. Causing a portfolio to refrain from
selling a security in an attempt to protect a personal investment, such as
an option on that security, also would violate this Code.
B. No Oechsle Employee shall use knowledge of Oechsle client transactions to
profit by the market effect of those transactions.
C. No Oechsle employee may use futures or options to take positions in
securities which the Code would prohibit if the positions were taken
directly.
D. No Oechsle employee may purchase a security with knowledge that it is being
contemplated for purchase, or will be purchased, for an Oechsle client. No
Oechsle portfolio manager, analyst or trader may buy or sell a security
within seven calendar days on either side of a date on which the security
is bought or sold for the account of any Oechsle client. As an example, if
such an account purchases a particular security on Day 8, all portfolio
managers, analysts and traders would be precluded from purchasing or
selling that security for his or her own account(s) from Day 1 through Day
15.
For all other Oechsle employees the blackout period is one day before and one
day after any trade by any Oechsle client.
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If a previously-entered employee trade falls within the blackout period, the
employee must reverse the trade. Thus, for example, if an employee pre-clears a
trade and purchases the security on Day 1, and an Oechsle client purchases the
security on Day 2, the Oechsle employee must reverse the trade. If the trade can
be reversed prior to settlement, the employee should do so, with the cost of
reversal being borne by the employee. If the trade cannot be reversed prior to
settlement, the employee must engage in an offsetting transaction immediately.
If a loss results, the employee must bear the loss; if a profit results, the
employee must donate the profit to a charity of the employee's choice with
suitable evidence of such donation provided to the General Counsel, or forfeit
the profit to Oechsle.
EXEMPTIONS:
A. LARGE CAPITALIZATION STOCKS.
An Oechsle employee may purchase or sell shares of a security which is being
actively considered for purchase or sale, or which is being purchased or sold,
for Oechsle clients if, given the number of shares the employee is purchasing or
selling and the market capitalization (outstanding shares x current price per
share) of the issuer, the employee's trading could have no material impact on
the price of the security and if Oechsle were to trade in the security, such
trading could have no material impact on the price of the security. This
exemption is subject to prior written approval by the General Counsel, the
Trading Desk, and the Chief Operating Officer. YOU MUST SPECIFICALLY REQUEST
THIS PRIOR APPROVAL.
B OPTION EXERCISE BY OTHERS.
An Oechsle employee who has sold ("written") a put or call option in compliance
with the Code will not violate this or any other provision of the Code if the
put or call is exercised and the Oechsle employee must honor the contractual
commitment to purchase or sell the security, as the case may be.
C. MARGIN CALLS.
An Oechsle employee who maintains securities in a margin account with a
broker-dealer will not violate this provision of the Code if the securities are
sold by the broker-dealer pursuant to a bona fide margin call, provided,
however, that withdrawal of collateral by the employee was not a contributing
factor to the margin call.
D. DIVIDEND REINVESTMENT.
An Oechsle employee will not violate this provision of the Code by participating
in an automatic dividend reinvestment program offered by the issuer of a
publicly traded security.
E. CLIENT SMALL INVESTMENTS.
An Oechsle employee may engage in a transaction which would otherwise violate
this provision
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of the Code if (a) the client buying the security, or for whom the security is
being considered, is engaged in an ongoing investment program to augment AN
existing position with relatively small regular increments of cash flow, (b) the
General Counsel, after consultation with investment personnel, determines that
neither the client's nor the employee's purchases will materially affect the
market price of the security, and (c) the General Counsel gives prior consent to
the transaction.
F. GIFTS.
Gifts of securities made to others, such as relatives or charities, are treated
as dispositions of beneficial ownership, and must be pre-cleared prior to
transfer of the securities. However, gifts of securities received, if
non-volitional on the Oechsle employees' part, need not be pre-cleared.
G. ACQUISITION AND EXERCISE OF CERTAIN RIGHTS.
The acquisition and exercise of rights that are offered PRO RATA to all
shareholders is not covered by the Code. Exercise of oversubscription rights,
however, does require pre-clearance.
H. STOCK INDEX FUTURES AND STOCK INDEX OPTIONS.
The purchase and sale of stock index futures and stock index options are not
subject to the blackout periods. However, such purchases and sales must be
reported in quarterly reports.
2. PUBLIC OFFERINGS:
No Oechsle employee may purchase equity and equity-related securities in initial
public offerings, whether or not Oechsle client accounts participate in the
offering, except as described below. Oechsle employees may purchase securities
that were the subject of a recent public offering after the offering is
completed, and then only at the prevailing market prices and subject to the
usual pre-clearance procedures. Oechsle employees may not receive special
allocations of "hot issues" from brokers which receive Oechsle business.
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EXEMPTIONS:
A. Oechsle employees are permitted to purchase equity and equity-related
securities in secondary offerings if Oechsle client accounts do not hold
the security and if no Oechsle portfolio manager wishes to participate in
the offering for client accounts.
B. Oechsle employees are permitted to purchase equity and equity-related
securities in rights offerings if the opportunity to purchase is extended
equally to all holders of the company's common stock and the offer is
extended to the employee as a holder of the company's common stock.
C. Oechsle employees are permitted to purchase equity and equity-related
securities in an offering if they are entitled to such purchase by virtue
of being a citizen or resident of a country who qualifies for privatization
issues made available to the public in general.
Any purchase of any security in a public offering, even if permitted under these
rules, must be pre-cleared in writing by the General Counsel.
3. PRIVATE OFFERINGS:
No Oechsle employee may purchase a security in a private offering without first
obtaining a pre-clearance from the General Counsel. The employee should complete
and submit to the General Counsel a checklist in the form attached as EXHIBIT C
hereto.
Consideration of the prior approval request will take into account, among other
factors, whether the investment opportunity should be reserved for an Oechsle
client(s), and whether the opportunity is being offered to an individual as a
favor designed to influence that employee's judgment in the performance of his
or her job duties at Oechsle or as compensation for services of an investment
advisory nature rendered to the issuer. If approval is granted and the employee
has any material role in subsequent consideration by an Oechsle client of an
investment in the same, or a directly affiliated issuer, the employee must
disclose his or her interest in the private placement to the person making the
investment decision.
4. SHORT-TERM TRADING:
Excessive short-term trading increases the risk of conflict of interest, may
over time adversely affect an Oechsle employee's investment judgment on behalf
of Oechsle clients, and may unduly occupy an Oechsle employee's time and
thoughts during working hours. Oechsle employees are hired and compensated on
the assumption that their personal investing will generally be on a long-term
basis.
Therefore, while this Code does not impose an absolute prohibition on short-term
trading, excessive short-term trading is prohibited. Whether the extent of
short-term trading by an employee is "excessive" will be determined on a
case-by-case basis, taking into account all
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relevant factors, including conditions prevailing in the securities markets and
the types of securities traded. Persons determined to be engaged in excessive
short-term trading will be subject to imposition of any or all of the sanctions
described at the end of this Code, including disgorgement of profits realized
from the short-term trade.
A short-term trade is any purchase and sale, or sale and purchase, of the same
(or equivalent) securities within 60 calendar days.
EXEMPTIONS:
A. OPTION EXERCISE BY OTHERS.
An Oechsle employee who has sold ("written") a put or call option in compliance
with this Code will not have effected a short-term trade if the put or call is
exercised and the Oechsle employee must honor the contractual commitment to
purchase or sell the security, as the case may be, within 90 days of selling the
option.
B. MARGIN CALLS. An Oechsle employee who maintains securities in a margin
account with a broker-dealer will not have effected a short-term trade if the
securities are sold by the broker-dealer pursuant to a bona fide margin call,
provided, however, that withdrawal of collateral by the employee was not a
contributing factor to the margin call.
5. TRANSACTIONS WITH OR INVOLVING OECHSLE CLIENTS:
No Oechsle employee may knowingly initiate a purchase from or sell to an Oechsle
client any securities or other property, nor engage in any transaction to which
an Oechsle client is a party or with which any Oechsle client has a significant
relationship.
6. GENERAL FIDUCIARY OBLIGATION TO CLIENTS; DISCLOSURE OF PERSONAL INTEREST:
As noted above, Oechsle and its employees have a fiduciary responsibility to
Oechsle's clients. Therefore we must avoid any conduct that would be detrimental
to their interests. In order to fulfill our duty, Oechsle employees must offer
all investment opportunities to Oechsle's clients BEFORE taking advantage of
such opportunities. Therefore, before trading in any security that is not
covered by an Oechsle analyst, you should ensure that the appropriate research
analyst or portfolio manager is aware that you have identified a security that
you believe would be a good investment, and explain the basis for your interest
in the security. If, after receiving that information, the analyst or portfolio
manager does not wish to recommend the security for investment by Oechsle
clients, you are free to trade, after securing the necessary pre-approvals. If
the analyst or portfolio manger expresses an interest in that security, however,
you must refrain from trading in that security until a decision has been made as
to whether to purchase that security for Oechsle clients and until any
applicable blackout period has expired.
In addition, if one of your personal securities holdings could create a conflict
of interest, or even a potential conflict of interest, with the interest of an
Oechsle client, you must disclose that
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conflict or potential conflict to the appropriate analysts or portfolio managers
before participating in any decision that could affect the security you hold.
For example, if you are an analyst, and if you are recommending that Oechsle
should purchase for client accounts securities of any company whose securities
you hold personally, you must disclose the fact that you own the securities to
the portfolio manager(s) who will make that purchase decision before making your
recommendation. Similarly, if you are a portfolio manager and you want to
purchase for client accounts securities of any company whose securities you hold
personally, you must disclose the fact that you own the securities to someone
else involved in investment decisions BEFORE initiating the purchase. Please
bear in mind, that although not prohibited, as a general matter, Oechsle does
not expect that portfolio managers will hold the same securities as the Accounts
that they manage.
WAIVERS
A written request for a waiver from the prohibited transaction rules may
be granted by the General Counsel after consultation with the applicable
personnel, upon a determination that the waiver is warranted to avoid undue
hardship to the employee and that none of the abuses or potential abuses that
the Code is designed to prevent would occur. Seeking waivers is not encouraged
and waivers will not be granted routinely.
REPORTING
Each Oechsle employee is responsible for complying with the following
reporting requirements:
1. COPIES OF CONFIRMATIONS:
Each Oechsle employee must instruct each broker-dealer with whom he or she
maintains an account, and with respect to all other accounts as to which the
employee is deemed to have beneficial ownership, to send promptly to the
Compliance Officer a copy of all transaction confirmations generated for the
account. For your convenience, a form letter for requesting such confirmations
to be sent to Oechsle is attached as part of Exhibit A.
Confirmations must include the account description, trade date, security
description, number of shares or principal amount of each security, the nature
of the transaction (e.g., purchase, sale, etc.), the total price, and the name
of the institution (e.g., broker, bank, etc.) effecting the transaction.
Each brokerage confirmation received by Oechsle is cross-checked against
pre-clearance forms and quarterly securities transaction reports submitted by
each employee. Copies of all confirmations and associated pre-clearance forms
are retained by the Compliance Officer in the employee's personal securities
transaction file.
In order to ensure that brokerage confirmations are received for all employee
brokerage accounts, all employees are required to complete a Brokerage Account
Form (SEE EXHIBIT B) and
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to submit an updated form (within 5 business days) whenever an account is added
or deleted. You and members of your immediate family must disclose promptly
every brokerage account that you maintain and every new brokerage account that
you open to the Compliance Officer. In addition, each employee is asked to
certify annually that the list of brokerage accounts that have been reported
previously remains complete and accurate.
2. TRANSACTION REPORTS:
Each Oechsle employee must file a Quarterly Securities Transaction Report (SEE
EXHIBIT D) with the Compliance Officer within 10 days after the end of each
quarter, whether or not the employee entered into any personal securities
transactions during that quarter. Quarterly reports are required by the SEC for
all investment company managers and enable Oechsle to double-check that all
personal securities transactions have been appropriately pre-cleared and
reported to Oechsle.
3. ANNUAL ACKNOWLEDGMENT:
By February 28 of each year, every Oechsle employee must sign an acknowledgment
stating that he or she has reviewed, understood, and complied with the
provisions of this Code (SEE EXHIBIT E).
OTHER CONFLICTS OF INTEREST
1. GIFTS OR OTHER PREFERENTIAL TREATMENT:
No Oechsle employee may seek or accept gifts, favors, preferential treatment, or
any special arrangement of material value from certain persons because of the
employee's association with Oechsle. This prohibition applies to anyone who does
business or is soliciting business with any Oechsle entity or Oechsle client, as
well as to any organization (such as any broker, dealer, or investment adviser)
engaged in the securities business.
This rule is intended to permit only the most proper type of customary business
amenities. Listed below are examples of items which would be permitted under
proper circumstances and which are prohibited under the intent of this rule.
These examples are illustrative and not all-inclusive. Notwithstanding these
examples, an Oechsle employee may not, under any circumstances, accept anything
which could lead to or create the appearance of any kind of conflict of
interest. For example, acceptance of any consideration is prohibited if it would
create the appearance of a "reward" or inducement for business conducted with
the person providing the consideration or his employer.
Among items not considered of "material value" which, under proper
circumstances, would be considered permissible are:
(a) Occasional lunches or dinners conducted for business purposes;
(b) Occasional cocktail parties or similar social gatherings conducted
for business
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purposes;
(c) Occasional attendance at theater, sporting or other entertainment
events; and
(d) Small gifts, usually in the nature of reminder advertising, such as
pens, calendars, etc.
Among items of consideration of "material value" which are NOT permitted under
any circumstances are the following:
(a) Any gift over $250 in value, or any accumulation of gifts which in
aggregate exceeds $250 in value from one source in one calendar year;
(b) Entertainment of a recurring nature such as sporting events, theater,
golf games, etc.;
(c) The cost of transportation to a locality outside the Boston
metropolitan area, and lodging or meals while in another locality,
unless such attendance and reimbursement arrangements have been
approved in advance by the General Counsel;
(d) Personal loans to the Oechsle employee on terms more favorable than
those generally available for comparable credit standing and
collateral; and
(e) Preferential brokerage commissions or spreads or allocation of stock
in "hot issue" initial public offerings for the Oechsle employee's
personal trading account.
2. DIRECTORSHIPS AND TRUSTEESHIPS IN OUTSIDE ORGANIZATIONS:
No Oechsle employee may accept a directorship in an unaffiliated company without
the prior notification and written approval of the General Counsel. Persons such
as portfolio managers and analysts whose primary responsibilities include
recommending and selecting securities for the accounts of Oechsle clients will
not be granted approval to accept directorships in companies which might qualify
for investment by any Oechsle clients. Approval will be based upon the
determination that the board service would not be inconsistent with the
interests of Oechsle's clients. If board service is authorized, appropriate
procedures will be implemented to ensure that confidential information is not
obtained or used by either the employee or Oechsle.
No Oechsle employee may accept a position as trustee, executor, custodian, or as
any other fiduciary, or as a private investment adviser or counselor for any
outside account, without the prior notification and written approval of the
General Counsel.
3. PROVIDING INVESTMENT ADVICE TO OTHERS:
No Oechsle employee may provide investment advice to anyone or manage any
person's portfolio on a discretionary basis, other than for Oechsle clients or
members of the employee's immediate family. Thus, employees should not give
advice to anyone, other than immediate family members, concerning the purchase
or sale of any security. In particular, Oechsle employees may not provide
investment advice for compensation to anyone other than an Oechsle client,
unless the arrangement is disclosed and approved by Oechsle.
4. IMPROPER USE OF FUNDS:
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No Oechsle employee may pay, or offer or commit to pay, any amount of
consideration which might be or appear to be a bribe, kickback, or other similar
improper use of funds.
5. GENERAL ANTI-FRAUD PROVISION:
No Oechsle employee may violate the anti-fraud provisions of the federal
securities laws and the rules and regulations promulgated thereunder. This
provision covers a broad range of conduct, including, without limitation, the
following:
A. AFFIRMATIVE DUTY TO DISCLOSE. Oechsle employees who own a security, or who
have decided to effect a personal transaction in a security, have an
affirmative duty to disclose this information in the course of any
communication about that security when the purpose or reasonable
consequence of such communication is to influence an Oechsle client to buy,
hold, or sell that security. The disclosure of ownership should be part of
the initial communication but need not be repeated in the case of
continuing communications directed to a specific person.
B. DISCLOSURE OF OECHSLE INFORMATION. No information regarding any Oechsle
client account or actual or proposed securities trading activities of any
Oechsle client may be disclosed outside the Oechsle organization unless the
information has been publicly announced or reported. Oechsle research
information must not be disclosed unnecessarily and never for personal
gain. Information generally about Oechsle and Oechsle clients is
confidential, and should not be disclosed without a valid business purpose.
C. USE OF INFORMATION. No Oechsle employee may use information from any source
in a manner contrary to the interest of, or in competition with, any
Oechsle client. In particular, an Oechsle employee may not invest in a
company which could reasonably be considered as a potential investment for
Oechsle clients and which has not been considered by Oechsle analysts until
determining with appropriate investment personnel that no portfolio
managers have a current interest in the company on behalf of an Oechsle
client. This rule is not intended to prohibit any Oechsle employees from
uncovering and capitalizing on new "investment ideas," but requires that
Oechsle have the first right to such ideas for its clients.
D. "INSIDE" INFORMATION AND INSIDER TRADING.
Neither Oechsle nor any Oechsle employee may utilize "inside" information
about any issuer of securities for personal benefit or the benefit of
clients. Inside information is material information not generally available
to the public. Information is considered "material" if there is a
substantial likelihood that a reasonable investor would consider it
important in making his or her investment decisions, or if it could
reasonably be expected to affect the price of a company's securities. It
need not be so important that it would have changed the investor's decision
to buy or sell. Information that has been disseminated in a way that makes
it available to investors generally (e.g., national business and financial
news
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wire services, such as Dow Jones and Reuters; national news services, such
as New York Times; SEC reports; brokerage firm reports) is considered to
be public information. But, for example, information given by a company
director to an acquaintance of an impending takeover prior to a public
announcement would be "nonpublic."
No Oechsle employee may trade, either personally or on behalf of others, on
material, nonpublic information (insider trading), or communicate such
information to others who trade in violation of the law (tipping). Although the
pre-clearance, reporting, and trade restriction requirements of this Code apply
only to Oechsle employees and their immediate family members, the insider
trading and tipping restrictions reach beyond to prohibit Oechsle employees from
illegally profiting or from funneling illegal profits to any other person. They
also prohibit Oechsle from insider trading or tipping in client accounts.
No Oechsle employee may solicit inside information from any company, whether or
not Oechsle clients own stock of the company or Oechsle analysts follow the
company. In addition, please note that the SEC has adopted a rule specifically
prohibiting trading while in possession of material information about a
prospective tender offer before it is publicly announced or trading during a
tender officer if in possession of information which one has reason to know is
not yet public.
PROCEDURES TO BE FOLLOWED WHEN RECEIVING INSIDE INFORMATION:
Whenever an Oechsle employee receives information that he or she believes to be
material, nonpublic information, he or she should not trade on his or her own
behalf or on behalf of Oechsle clients in the securities to which the
information relates, tip the information to others, or recommend for purchase or
sale such securities, so long as the information remains nonpublic. In addition,
the employee should contact the General Counsel immediately and should refrain
from disclosing the information to anyone else, including persons within the
Oechsle organization, unless specifically advised to do so by the General
Counsel.
SANCTIONS
Failure to comply with this Code may adversely affect an Oechsle employee's
performance evaluation, may require the employee to give up any benefit derived
from the violation, may require the employee to refrain from personal trading
for a period, and may lead to termination of employment in appropriate cases.
Penalties under the federal securities laws are also possible in certain
circumstances.
SANCTIONS may include:
1. CAUTION: Administered by the General Counsel;
2. WARNING: Administered by the General Counsel;
3. FINE: Assessed by the General Counsel, the Chief Operating Officer,
and the Chief
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Investment Officer;
4. DISMISSAL: Determined by the Executive Committee;
5. CIVIL REFERRAL TO THE SEC OR OTHER CIVIL REGULATORY AUTHORITIES:
Determined by the Executive Committee;
6. CRIMINAL REFERRAL: Determined by the Executive Committee.
PROCEDURES:
When potential violations of the Code come to the attention of the General
Counsel, she will investigate the matter. This investigation may include a
meeting with the employee. Upon completion of the investigation, if necessary,
the General Counsel may meet with senior management (the Chief Operating Officer
and/or the Chief Investment Officer) or other appropriate parties, and a
determination will be made as to whether any sanction should be imposed. The
employee will be informed of any sanction deemed to be appropriate. If the
employee believes that such sanction is unwarranted, the employee must provide
the General Counsel with a written explanation of such belief within 30 days of
being informed after such determination. The General Counsel will then arrange
for a review by senior management or other appropriate party and will advise the
employee as to whether the sanction will be imposed, modified, or withdrawn. The
employee will be given an opportunity to submit a written statement to senior
management and may be represented by counsel of his or her own choosing, at his
or her own expense, at his or her election.
The General Counsel will maintain a written record of all exceptions granted
from prohibited transactions under this Code.
<PAGE>
Page 17
EXHIBIT A
PERSONAL SECURITIES TRANSACTION PRE-CLEARANCE FORM
NAME OF EMPLOYEE: ____________________________
ACCOUNT NAME AND NUMBER: ____________________________
DATE OF TRANSACTION: ____________________________
SECURITY NAME: ____________________________
SECURITY ID NUMBER (CUSIP/SEDOL): ___________________________
COUNTRY: _______________ TYPE OF SECURITY: ______________
NUMBER OF SHARES: ___________ PRICE: ___________________
BUY: ____________ SELL: _________________
IS THIS A LIMIT ORDER OR STOP-LOSS ORDER TRADE: YES / NO
NAME/ADDRESS OF BROKER: _________________________
_________________________
_____________________________________________________________
I hereby certify that I am familiar with Oechsle's Code of Ethics, and
that this transaction complies in all material respects with Oechsle's policies.
I am not aware of any material, non-public information concerning this issuer or
the market for its securities, or any pending plans or consideration to purchase
these securities for Oechsle clients.
SIGNATURE: _________________________________ DATE: _______________
AUTHORIZATION
TRADING DESK: _________________________ DATE: ____________
MANAGING PRINCIPAL ___________________ DATE: ____________
COMPLIANCE OFFICER: __________________ DATE: ____________
*IF THIS PRE-CLEARED TRADE IS NOT EXECUTED, PLEASE WRITE CANCELED ACROSS IT AND
SUBMIT A COPY OF THIS CANCELED FORM TO THE COMPLIANCE OFFICER.
<PAGE>
Page 18
EXHIBIT A
PERSONAL SECURITIES TRANSACTION PRE-CLEARANCE FORM - (LONDON)
NAME OF EMPLOYEE: ____________________________
ACCOUNT NAME AND NUMBER: ____________________________
DATE OF TRANSACTION: ____________________________
SECURITY NAME: ____________________________
SECURITY ID NUMBER (CUSIP/SEDOL): ___________________________
COUNTRY: _______________ TYPE OF SECURITY: ______________
NUMBER OF SHARES: ___________ PRICE: ___________________
BUY: ____________ SELL: _________________
IS THIS A LIMIT ORDER OR STOP-LOSS ORDER TRADE: YES / NO
NAME/ADDRESS OF BROKER: _________________________
_________________________
_____________________________________________________________
I hereby certify that I am familiar with Oechsle's Code of Ethics, and
that this transaction complies in all material respects with Oechsle's policies.
I am not aware of any material, non-public information concerning this issuer or
the market for its securities, or any pending plans or consideration to purchase
these securities for Oechsle clients.
SIGNATURE: _________________________________ DATE: _______________
AUTHORIZATION
TRADING DESK: ___________________________ DATE: ____________
MANAGING PRINCIPAL: ____________________ DATE: ____________
COMPLIANCE OFFICER: ____________________ DATE: ____________
*IF THIS PRE-CLEARED TRADE IS NOT EXECUTED, PLEASE WRITE CANCELED ACROSS IT AND
SUBMIT A COPY OF THIS CANCELED FORM TO THE COMPLIANCE OFFICER.
<PAGE>
Page 19
EXHIBIT A
SAMPLE LETTER TO SEND TO YOUR BROKER
TO REQUEST DUPLICATE ACCOUNT INFORMATION
[Broker-Dealer Name]
[Broker-Dealer Address]
RE: Account Number(s)
Dear [Broker]:
Please send a duplicate copy of all trade confirmations (NOT the monthly
statements) relating to the account(s) listed above to:
James Record
Compliance Officer
Oechsle International Advisors, LLC
One International Place, 23rd Floor
Boston, MA 02110
Very truly yours,
[Employee Name]
<PAGE>
Page 20
ATTACHMENT 2
2/23/99
EXHIBIT B
LIST OF BROKERAGE ACCOUNTS IN WHICH YOU HAVE DIRECT OR
INDIRECT BENEFICIAL OWNERSHIP*
ANNUAL CERTIFICATION
<TABLE>
<CAPTION>
- ------------------------ -------------------------------------- ----------------------- ---------------------- ---------------------
NAME OF
BROKER NAME BROKER ADDRESS ACCOUNT NUMBER ACCOUNT HOLDER RELATIONSHIP
- ------------------------ -------------------------------------- ----------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
- ------------------------ -------------------------------------- ----------------------- ---------------------- ---------------------
- ------------------------ -------------------------------------- ----------------------- ---------------------- ---------------------
- ------------------------ -------------------------------------- ----------------------- ---------------------- ---------------------
- ------------------------ -------------------------------------- ----------------------- ---------------------- ---------------------
- ------------------------ -------------------------------------- ----------------------- ---------------------- ---------------------
- ------------------------ -------------------------------------- ----------------------- ---------------------- ---------------------
- ------------------------ -------------------------------------- ----------------------- ---------------------- ---------------------
</TABLE>
Name of Employee
---------------------------------------------------------
(Print)
I certify that I have disclosed to Oechsle all brokerage accounts in which I
have a direct or indirect beneficial interest.
Signature
----------------------------------------------------------------
*Beneficial ownership is explained in the Code of Ethics.
<PAGE>
Page 21
ATTACHMENT 2
2/23/99
EXHIBIT C
PRIVATE PLACEMENT APPROVAL REQUEST
EMPLOYEE NAME: ___________________________ DATE: ______________
1. COMPANY NAME: ______________________________________
2. Business Operations Summary:
3. Who contacted you regarding this investment? _______________________
4. Which firm/company employs this individual? _______________________
5. Does this individual or firm have a relationship with Oechsle or Oechsle
clients? If so, please explain.
___________________________________________________________________
6. What is the individual's role within the company? ________________________
7. What is your relationship to the individual? _____________________________
8. What is the total amount of the private placement? _______________________
9. What is the value of your proposed investment? ___________________________
10. Does this company have publicly traded securities? ______________________
11. Is this investment suitable for Oechsle clients? Yes ______ No _______
If not, please explain.
___________________________________________________________________
___________________________________________________________________
_____________________________________
Employee Signature
Approved _______ Disapproved ______
Managing Principal _______________________ Date: ______________
General Counsel Signature _______________ Date: ______________
<PAGE>
Page 22
ATTACHMENT 2
2/23/99
EXHIBIT D
QUARTERLY TRANSACTION REPORT
October 1 - December 31, XXXX
The following is a record of every transaction in which I had, or by reason of
which I acquired, any direct or indirect beneficial ownership in securities from
October 1 - December 31, XXXX excluding transactions which do not have to be
reported under Oechsle's Code of Ethics.
I had no securities transactions for the quarter: __
I had the following transactions:
<TABLE>
<CAPTION>
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
Account Name / Trade Buy / Sell # of Price Name and Description (ID # ) Broker/Dealer
(Number) Date shares of Security
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
</TABLE>
- ------------------------------ ------------------------------
Signature Date
- ----------------------------
Print Name
<PAGE>
Page 23
EXHIBIT E
OECHSLE INTERNATIONAL ADVISORS, LLC
CODE OF ETHICS
ANNUAL CERTIFICATION
I have received a copy of Oechsle International Advisors, LLC's Code of Ethics,
dated February 23, 1999, I have read it and understand it.
I understand that, as a condition of my employment, I am required to comply with
the Code of Ethics. I agree to comply with all provisions of the Code of Ethics,
including, but not limited to, those governing personal securities transactions.
I certify that to the best of my knowledge I have complied with the terms of the
Code of Ethics during the most recent calendar year.
I authorize Oechsle to furnish the information contained in any report of
securities transactions filed by me with the General Counsel or the Compliance
Officer to such federal, state, and self-regulatory authorities as may be
required by law or by applicable rules and regulations.
I certify that I have disclosed to Oechsle all brokerage accounts in which I
have a beneficial interest, and that I have authorized each such brokerage firm
to send directly to Oechsle duplicate copies of all transaction confirmations
for such accounts.
- --------------------------------
Date
- ---------------------------------
Name (Print)
- ----------------------------------
Signature of Employee
<PAGE>
PIMCO CODE OF ETHICS
Effective as of March 31, 2000
INTRODUCTION
GENERAL PRINCIPLES
This Code of Ethics is based on the principle that you, as a director,
officer or other Advisory Employee of Pacific Investment Management Company
("PIMCO"), owe a fiduciary duty to, among others, the shareholders of the Funds
and other clients (together with the Funds, the "Advisory Clients") for which
PIMCO serves as an advisor or subadvisor. Accordingly, you must avoid
activities, interests and relationships that might interfere or appear to
interfere with making decisions in the best interests of our Advisory Clients.
At all times, you must observe the following GENERAL RULES:
1. YOU MUST PLACE THE INTERESTS OF OUR ADVISORY CLIENTS FIRST. In
other words, as a fiduciary you must scrupulously avoid
serving your own personal interests ahead of the interests of
our Advisory Clients. You must adhere to this general
fiduciary principle as well as comply with the Code's specific
provisions. Technical compliance with the Code's procedures
will not automatically insulate from scrutiny any trades that
indicate an abuse of your fiduciary duties or that create an
appearance of such abuse.
Your fiduciary obligation applies not only to your personal
trading activities but also to actions taken on behalf of
Advisory Clients. In particular, you may not cause an Advisory
Client to take action, or not to take action, for your
personal benefit rather than the benefit of the Advisory
Client. For example, you would violate this Code if you caused
an Advisory Client to purchase a Security or Futures Contract
you owned for the purpose of increasing the value of that
Security or Futures Contract. If you are a portfolio manager
or an employee who provides information or advice to a
portfolio manager or helps execute a portfolio manager's
decisions, you would also violate this Code if you made a
personal investment in a Security or Futures Contract that
might be an appropriate investment for an Advisory Client
without first considering the Security or Futures Contract as
an investment for the Advisory Client.
2. YOU MUST CONDUCT ALL OF YOUR PERSONAL INVESTMENT TRANSACTIONS
IN FULL COMPLIANCE WITH THIS CODE, THE PIMCO ADVISORS L.P.
INSIDER TRADING POLICY AND PROCEDURES (THE "INSIDER TRADING
POLICY"), AND THE PIMCO ADVISORS L.P. POLICY REGARDING SPECIAL
TRADING PROCEDURES FOR SECURITIES OF PIMCO
<PAGE>
ADVISORS L.P. (THE "SPECIAL TRADING PROCEDURES")(1) AND IN
SUCH A MANNER AS TO AVOID ANY ACTUAL OR POTENTIAL CONFLICT
OF INTEREST OR ANY ABUSE OF YOUR POSITION OF TRUST AND
RESPONSIBILITY. PIMCO encourages you and your family to
develop personal investment programs. However, those
investment programs must remain within boundaries reasonably
necessary to ensure that appropriate safeguards exist to
protect the interests of our Advisory Clients and to avoid
even the APPEARANCE of unfairness or impropriety. Accordingly,
YOU MUST COMPLY WITH THE POLICIES AND PROCEDURES SET FORTH IN
THIS CODE UNDER THE HEADING PERSONAL INVESTMENT TRANSACTIONS.
In addition, you must comply with the policies and procedures
set forth in the INSIDER TRADING POLICY AND SPECIAL TRADING
PROCEDURES, which are attached to this Code as Appendix II and
III, respectively. Doubtful situations should be resolved in
favor of our Advisory Clients and against your personal
trading.
3. YOU MUST NOT TAKE INAPPROPRIATE ADVANTAGE OF YOUR POSITION.
The receipt of investment opportunities, perquisites, gifts or
gratuities from persons seeking business with PIMCO directly
or on behalf of an Advisory Client could call into question
the independence of your business judgment. Accordingly, you
must comply with the policies and procedures set forth in this
Code under the heading GIFTS AND SERVICE AS A DIRECTOR.
Doubtful situations should be resolved against your personal
interest.
THE GENERAL SCOPE OF THE CODE'S
APPLICATIONS TO PERSONAL INVESTMENT ACTIVITIES
The Code reflects the fact that PIMCO specializes in the management of
fixed income portfolios. The vast majority of assets PIMCO purchases and sells
on behalf of its Advisory Clients consist of corporate debt Securities, U.S. and
foreign government obligations, asset-backed Securities, money market
instruments, foreign currencies, and futures contracts and options with respect
to those instruments. For its StocksPLUS Funds, PIMCO also purchases futures and
options on the S & P 500 index and, on rare occasions, may purchase or sell
baskets of the stocks represented in the S & P 500. For its Convertible Bond
Fund and other Advisory Clients, PIMCO purchases convertible securities that may
be converted or exchanged into underlying shares of common stock. Other PIMCO
Funds may also invest in convertible securities. The Convertible Bond Fund and
other Advisory Clients may also invest a portion of their assets in common
stocks.
Rule 17j-1 under the Investment Company Act of 1940 requires REPORTING
of all personal transactions in Securities (other than certain Exempt
Securities) by certain persons, whether or not they are Securities that might be
purchased or sold by PIMCO on behalf of its Advisory Clients. The Code
implements that reporting requirement.
- ---------------------------
(1) PIMCO expects Allianz of America ("AZOA") to acquire a majority interest in
PIMCO Advisors L.P. ("PALP") in the second quarter of 2000. When that
acquisition is consummated, the Special Trading Procedures for PALP securities
will no longer apply since PALP securities will not be publicly owned or traded.
2
<PAGE>
However, since the purpose of the Code is to avoid conflicts of
interest arising from personal trading activities in Securities and other
instruments that are held or might be acquired on behalf of our Advisory
Clients, this Code only places RESTRICTIONS on personal trading activities in
such investments. As a result, this Code does not place restrictions (beyond
reporting) on personal trading in most individual equity Securities. Except for
the small number of Portfolio Employees who are responsible for PIMCO's
Municipal Bond Fund, this Code also does not place restrictions (beyond
reporting) on personal trading in Tax-Exempt Municipal Bonds. Although equities
and Tax-Exempt Municipal Bonds are Securities, they are not purchased or sold by
PIMCO on behalf of the vast majority of PIMCO's Advisory Clients and PIMCO has
established special procedures to avoid conflicts of interest that might
otherwise arise from personal trading in those Securities. On the other hand,
this Code does require reporting and restrict trading in certain Futures
Contracts which, although they are not Securities, are instruments in which
PIMCO frequently trades for many of its Advisory Clients.
This Code applies to PIMCO's officers and directors as well as to all
of its Advisory Employees. The Code recognizes that portfolio managers and the
investment personnel who provide them with advice and who execute their
decisions occupy more sensitive positions than other Advisory Employees and that
it is appropriate to subject their personal investment activities to greater
restrictions.
THE ORGANIZATION OF THE CODE
The remainder of this Code is divided into three sections. The first
section concerns PERSONAL INVESTMENT TRANSACTIONS. The second section describes
the restrictions on GIFTS AND SERVICE AS A DIRECTOR. The third section
summarizes the methods for ensuring COMPLIANCE under the Code. In addition, the
following APPENDICES are also a part of this Code:
I. Definitions of Capitalized Terms.
II. The PIMCO Advisors L.P. Insider Trading Policy and Procedures.
III. The PIMCO Advisors L.P. Policy Regarding Special Trading Procedures for
Securities of PIMCO Advisors L.P.
IV. Form for Acknowledgment of Receipt of this Code.
V. Form for Annual Certification of Compliance with this Code.
VI. Form for Initial Report of Accounts.
VII. Form for Quarterly Report of Investment Transactions.
VIII. Form for Annual Holdings Report.
IX. Preclearance Request Form
X. List of PIMCO Compliance Officers.
QUESTIONS
Questions regarding this Code should be addressed to a Compliance
Officer listed on Appendix X. Those Compliance Officers compose the PIMCO
Compliance Committee.
3
<PAGE>
PERSONAL INVESTMENT TRANSACTIONS
IN GENERAL
Subject to the limited exceptions described below, you are required to
report all Investment Transactions in SECURITIES AND FUTURES CONTRACTS made by
you, a member of your Immediate Family or a trust in which you have an interest,
or on behalf of any account in which you have an interest or which you direct.
In addition, you must PRECLEAR certain Investment Transactions in SECURITIES AND
FUTURES CONTRACTS THAT PIMCO HOLDS OR MAY ACQUIRE ON BEHALF OF AN ADVISORY
CLIENT, INCLUDING CERTAIN INVESTMENT TRANSACTIONS IN RELATED SECURITIES.
The details of these reporting and preclearance requirements are
described below. This Code uses a number of capitalized terms, E.G. Advisory
Employee, Beneficial Ownership, Designated Equity Security, Exempt Security,
Fixed Income Security, Fund, Futures Contract, Immediate Family, Initial Public
Offering, Investment Transaction, Municipal Bond Portfolio Employee, Personal
Account, Portfolio Employee, Private Placement, Qualified Foreign Government,
Related Account, Related Security, and Security. The definitions of these
capitalized terms are set forth in Appendix I. TO UNDERSTAND YOUR
RESPONSIBILITIES UNDER THE CODE, IT IS IMPORTANT THAT YOU REVIEW AND UNDERSTAND
THE DEFINITIONS IN APPENDIX I.
REPORTING OBLIGATIONS
NOTIFICATION OF REPORTING OBLIGATIONS
As an Advisory Employee, you are required to report accounts and
Investment Transactions in accordance with the requirements of this Code.
USE OF BROKER-DEALERS AND FUTURES COMMISSION MERCHANTS
Unless you are an independent director, YOU MUST USE A REGISTERED
BROKER-DEALER OR REGISTERED FUTURES COMMISSION MERCHANT to engage in any
purchase or sale of a publicly-traded Security or Publicly-Traded Futures
Contract. This requirement also applies to any purchase or sale of a
publicly-traded Security or of a Publicly-Traded Futures Contract in which you
have, or by reason of the Investment Transaction will acquire, a Beneficial
Ownership interest. Thus, as a general matter, any Investment Transaction in
publicly-traded Securities or Publicly-Traded Futures Contracts by members of
your Immediate Family will need to be made through a registered broker-dealer or
futures commission merchant.
INITIAL REPORT
Within 10 days after commencing employment or within 10 days of any
event that causes you to become subject to this Code (E.G. promotion to a
position that makes you an Advisory Employee), you shall supply to a Compliance
Officer copies of the most recent statements for each and every Personal Account
and Related Account that holds or is likely to hold a Security or a Futures
Contract in which you have a Beneficial Ownership interest, as well as copies of
confirmations for any and all Investment Transactions subsequent to the
effective date of those
4
<PAGE>
statements. These documents shall be supplied to the Compliance Officer by
attaching them to the form appended hereto as Appendix VI.
On that same form you shall supply the name of any broker, dealer, bank
or futures commission merchant and the number for any Personal Account and
Related Account that holds or is likely to hold a Security or a Futures Contract
in which you have a Beneficial Ownership interest for which you cannot supply
the most recent account statement. You shall also certify, where indicated on
the form, that the contents of the form and the documents attached thereto
disclose all such Personal Accounts and Related Accounts.
In addition, you shall also supply, where indicated on the form, the
following information for each Security or Futures Contract in which you have a
Beneficial Ownership interest, to the extent that this information is not
available from the statements attached to the form:
1. A description of the Security or Futures Contract, including
its name or title;
2. The quantity (E.G. in terms of numbers of shares, units or
contracts) and principal amount (in dollars) of the Security
or Futures Contract; and
3. The name of any broker, dealer, bank or futures commission
merchant with which you maintained an account in which the
Security or Futures Contract was held.
NEW ACCOUNTS
Immediately upon the opening of a NEW Personal Account or a Related
Account that holds or is likely to hold a Security or a Futures Contract, you
shall supply a Compliance Officer with the name of the broker, dealer, bank or
futures commission merchant for that account, the identifying number for that
Personal Account or Related Account, and the date the account was established.
TIMELY REPORTING OF INVESTMENT TRANSACTIONS
You must cause each broker, dealer, bank or futures commission merchant
that maintains a Personal Account or a Related Account that holds a Security or
a Futures Contract in which you have a Beneficial Ownership interest to provide
to a Compliance Officer, on a timely basis, duplicate copies of trade
confirmations of all Investment Transactions in that account and of periodic
statements for that account ("duplicate broker reports").
In addition, you must report to a Compliance Officer, on a timely
basis, any Investment Transaction in a Security or a Futures Contract in which
you have or acquired a Beneficial Ownership interest that was established
without the use of a broker, dealer, bank or futures commission merchant.
QUARTERLY CERTIFICATIONS AND REPORTING
At the end of the first, second and third calendar quarters, a
Compliance Officer will provide you with a list of all accounts that you have
previously identified to PIMCO as a Personal Account or a Related Account that
holds or is likely to hold a Security or Futures
5
<PAGE>
Contract. Within 10 days after the end of that calendar quarter, you shall make
any necessary additions, corrections or deletions to that list and return it to
a Compliance Officer with a certification that: (a) the list, as modified (if
necessary), represents a complete list of the Personal Accounts and Related
Accounts that hold Securities or Futures Contracts in which you have or had a
Beneficial Ownership interest and for which PIMCO should have received or will
receive timely duplicate broker reports for the calendar quarter just ended, and
(b) the broker, dealer, bank or futures commission merchant for each account on
the list has been instructed to send a Compliance Officer timely duplicate
broker reports for that account.
You shall provide, on a copy of the form attached hereto as Appendix
VII, the following information for each Investment Transaction during the
calendar quarter just ended, to the extent that the duplicate broker reports for
that calendar quarter did not supply this information to PIMCO:
1. The date of the Investment Transaction, the title, the
interest rate and maturity date (if applicable), the number of
shares or contracts, and the principal amount of each Security
or Futures Contract involved;
2. The nature of the Investment Transaction (I.E. purchase, sale
or any other type of acquisition or disposition);
3. The price of the Security or Futures Contract at which the
transaction was effected; and
4. The name of the broker, dealer, bank, or futures commission
merchant with or through which the transaction was effected.
You shall provide similar information for the fourth calendar quarter on a copy
of the form attached hereto as Appendix VIII, which form shall also be used for
the Annual Holdings Report described below.
ANNUAL HOLDINGS REPORTS
Beginning with calendar year 2000, a Compliance Officer will provide to
you, promptly after the end of the calendar year, a list of all accounts that
you have previously identified to PIMCO as a Personal Account or a Related
Account that held or was likely to hold a Security or Futures Contract during
that calendar year. Within 10 days after the end of that calendar year, you
shall make any necessary additions, corrections or deletions to that list and
return it to a Compliance Officer with a certification that: (a) the list, as
modified (if necessary), represents a complete list of the Personal Accounts and
Related Accounts that held Securities or Futures Contracts in which you had a
Beneficial Ownership interest as of the end of that calendar year and for which
PIMCO should have received or will receive an account statement of holdings as
of the end of that calendar year, and (b) the broker, dealer, bank or futures
commission merchant for each account on the list has been instructed to send a
Compliance Officer such an account statement.
6
<PAGE>
You shall provide, on a copy of the form attached hereto as Appendix
VIII, the following information for each Security or Futures Contract in which
you had a Beneficial Ownership interest, as of the end of the previous calendar
year, to the extent that the previously referenced account statements have not
supplied or will not supply this information to PIMCO:
1. The title, quantity (E.G. in terms of numbers of shares, units
or contracts) and principal amount of each Security or Futures
Contract in which you had any Beneficial Ownership interest;
and
2. The name of any broker, dealer, bank or futures commission
merchant with which you maintain an account in which any such
Securities or Futures Contracts have been held or are held for
your benefit.
In addition, you shall also provide, on that same form, Investment Transaction
information for the fourth quarter of the calendar year just ended. This
information shall be of the type and in the form required for the quarterly
reports described above.
RELATED ACCOUNTS
The reporting and certification obligations described above also apply
to any Related Account (as defined in Appendix I) and to any Investment
Transaction in a Related Account.
It is important for you to recognize that the definitions of "Related
Account" and "Beneficial Ownership" in Appendix I may require you to provide, or
to arrange for the broker, dealer, bank or futures commission merchant to
furnish, copies of reports for any account used by or for a member of your
Immediate Family or a trust in which you or a member of your Immediate Family
has any vested interest, as well as for any other accounts in which you may have
the opportunity, directly or indirectly, to profit or share in the profit
derived from any Investment Transaction in that account.
EXEMPTIONS FROM REPORTING
You need not report Investment Transactions in any account over which
neither you nor an Immediate Family Member has or had any direct or indirect
influence or control.
You also need not report Investment Transactions in Exempt Securities
(as defined in Appendix I) nor need you furnish, or require a broker, dealer,
bank or futures commission merchant to furnish, copies of confirmations or
periodic statements for accounts that hold only Exempt Securities. This includes
accounts that only hold U.S. Government Securities, money market interests, or
shares in open-end mutual funds. This exemption from reporting shall end
immediately, however, at such time as there is an Investment Transaction in that
account in a Futures Contract or in a Security that is not an Exempt Security.
7
<PAGE>
PROHIBITED INVESTMENT TRANSACTIONS
INITIAL PUBLIC OFFERINGS OF EQUITY SECURITIES
If you are a Portfolio Employee (as defined in Appendix I), you may not
acquire Beneficial Ownership of any equity Security in an Initial Public
Offering.
PRIVATE PLACEMENTS AND INITIAL PUBLIC OFFERING OF DEBT SECURITIES
If you are a Portfolio Employee, you may not acquire a Beneficial
Ownership interest in any Security through a Private Placement (or subsequently
sell it), or acquire a Beneficial Ownership interest in any debt Security in an
Initial Public Offering unless you have received the prior written approval of
the Chief Executive Officer of PIMCO or of a Compliance Officer listed on
Appendix X. Approval will not be given unless a determination is made that the
investment opportunity should not be reserved for one or more Advisory Clients,
and that the opportunity to invest has not been offered to you by virtue of your
position with PIMCO.
If, after receiving the necessary approval, you have acquired a
Beneficial Ownership interest in Securities through a Private Placement, you
must DISCLOSE that investment when you play a part in any consideration of any
investment by an Advisory Client in the issuer of the Securities, and any
decision to make such an investment must be INDEPENDENTLY REVIEWED by a
portfolio manager who does not have a Beneficial Ownership interest in any
Securities of the issuer.
PIMCO ADVISORS L.P.
You may not engage in any Investment Transaction in interests in PIMCO
Advisors L.P. ("PALP"), except in compliance with the Special Trading Procedures
applicable to such transactions.(2)
PRECLEARANCE
All Investment Transactions in Securities and Futures Contracts in a
Personal Account or Related Account, or in which you otherwise have or will
acquire a Beneficial Ownership interest, must be precleared by a Compliance
Officer unless an Investment Transaction, Security or Futures Contract falls
into one of the following categories that are identified as "exempt from
preclearance."
PRECLEARANCE PROCEDURE
Preclearance shall be requested by completing and submitting a copy of
the preclearance request form attached hereto as Appendix IX to a Compliance
Officer. No Investment Transaction subject to preclearance may be effected prior
to receipt of written authorization of the transaction by a Compliance Officer.
The authorization and the date of authorization will be
- -------------------------
(2) As indicated in note 1, above, those procedures will expire and no longer
be effective after AZOA completes its acquisition of a majority interest in
PALP.
8
<PAGE>
reflected on the preclearance request form. Unless otherwise specified, that
authorization shall be effective, unless revoked, until the earlier of: (a) the
close of business on the day the authorization is given, or (b) until you
discover that the information on the preclearance request form is no longer
accurate.
The Compliance Officer from whom authorization is sought may undertake
such investigation as he or she considers necessary to determine that the
Investment Transaction for which preclearance has been sought complies with the
terms of this Code and is consistent with the general principles described at
the beginning of the Code.
Before deciding whether to authorize an Investment Transaction in a
particular Security or Futures Contract, the Compliance Officer shall determine
and consider, based upon the information reported or known to that Compliance
Officer, whether within the most recent 15 days: (a) the Security, the Futures
Contract or any Related Security is or has been held by an Advisory Client, or
(b) is being or has been considered for purchase by an Advisory Client. The
Compliance Officer shall also determine whether there is a pending BUY or SELL
order in the same Security or Futures Contract, or in a Related Security, on
behalf of an Advisory Client. If such an order exists, authorization of the
personal Investment Transaction shall not be given until the Advisory Client's
order is executed or withdrawn. This prohibition may be waived by a Compliance
Officer if he or she is convinced that: (a) your personal Investment Transaction
is necessary, (b) your personal Investment Transaction will not adversely affect
the pending order of the Advisory Client, and (c) provision can be made for the
Advisory Client trade to take precedence (in terms of price) over your personal
Investment Transaction.
EXEMPTIONS FROM PRECLEARANCE
Preclearance shall NOT be required for the following Investment
Transactions, Securities and Futures Contracts. They are exempt only from the
Code's preclearance requirement, and, unless otherwise indicated, remain subject
to the Code's other requirements, including its reporting requirements.
INVESTMENT TRANSACTIONS EXEMPT FROM PRECLEARANCE
Preclearance shall NOT be required for any of the following Investment
Transactions:
1. Any transaction in a Security or Futures Contract in an
account that is managed or held by a broker, dealer, bank,
futures commission merchant, investment adviser, commodity
trading advisor or trustee and over which you do not exercise
investment discretion, have notice of transactions prior to
execution, or otherwise have any direct or indirect influence
or control. There is a presumption that you can influence or
control accounts held by members of your Immediate Family
sharing the same household. This presumption may be rebutted
only by convincing evidence.
2. Purchases of Securities under dividend reinvestment plans.
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3. Purchases of Securities by exercise of rights issued to the
holders of a class of Securities PRO RATA, to the extent they
are issued with respect to Securities in which you have a
Beneficial Ownership interest.
4. Acquisitions or dispositions of Securities as the result of a
stock dividend, stock split, reverse stock split, merger,
consolidation, spin-off or other similar corporate
distribution or reorganization applicable to all holders of a
class of Securities in which you have a Beneficial Ownership
interest.
SECURITIES EXEMPT FROM PRECLEARANCE
REGARDLESS OF TRANSACTION SIZE
Preclearance shall NOT be required for an Investment Transaction in the
following Securities or Related Securities, regardless of the size of that
transaction:
1. All "Exempt Securities" defined in Appendix I, I.E. U.S.
Government Securities, shares in open-end mutual funds, and
high quality short-term debt instruments.
2. All closed-end mutual funds (other than PIMCO Commercial
Mortgage Securities Trust, Inc.), and rights distributed to
shareholders in closed-end mutual funds.
3. All options on any index of equity Securities.
4. All Fixed Income Securities issued by agencies or
instrumentalities of, or unconditionally guaranteed by, the
Government of the United States.
5. All options on foreign currencies or baskets of foreign
currencies (whether or not traded on an exchange or board of
trade).
6. EXCEPT FOR DESIGNATED EQUITY SECURITIES (as defined in
Appendix I and discussed below), all equity Securities or
options, warrants or other rights to equity Securities.
7. EXCEPT FOR MUNICIPAL BOND PORTFOLIO EMPLOYEES (as defined in
Appendix I), all Tax-Exempt Municipal Bonds.
SECURITIES EXEMPT FROM PRECLEARANCE
DEPENDING ON TRANSACTION SIZE
Preclearance shall NOT be required for an Investment Transaction in the
following Securities or Related Securities if they do not exceed the specified
transaction size thresholds:
1. Purchases or sales of up to $1,000,000 (in market value or
face amount whichever is greater) per calendar month per
issuer of Fixed Income Securities issued by a Qualified
Foreign Government.
2. Purchases or sales of up to $100,000 (in market value or face
amount, whichever is greater) per calendar month per issuer of
corporate debt Securities, mortgage-
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backed and other asset-backed Securities, structured notes and
loan participations, and foreign government debt Securities
issued by non-qualified foreign governments.
PRECLEARANCE OF DESIGNATED EQUITY SECURITIES
If a Compliance Officer receives notification from a Portfolio Employee
that an equity Security or an option, warrant or other right to an equity
Security is being considered for purchase or sale by PIMCO on behalf of one of
its Advisory Clients, the Compliance Officer will send you an e-mail message or
similar transmission notifying you that this equity Security or option, warrant
or other right to an equity Security is now a "Designated Equity Security." A
current list of Designated Equity Securities (if any) will also be available on
the PIMCO intranet site. You must preclear any Investment Transaction in a
Designated Equity Security or a Related Security during the period when that
designation is in effect.
FUTURES CONTRACTS EXEMPT FROM PRECLEARANCE
REGARDLESS OF TRANSACTION SIZE
Preclearance shall NOT be required for an Investment Transaction in the
following Futures Contracts, regardless of the size of that transaction (as
indicated in Appendix I, for these purposes a "Futures Contract" includes a
futures option):
1. Currency Futures Contracts.
2. U.S. Treasury Futures Contracts.
3. Eurodollar Futures Contracts.
4. Futures Contracts an any index of equity Securities.
5. Futures Contracts on physical commodities or indices thereof
(E.G. contracts for future delivery of grain, livestock, fiber
or metals whether for physical delivery or cash).
6. Privately-Traded Contracts.
FUTURES CONTRACTS EXEMPT FROM PRECLEARANCE
DEPENDING ON TRANSACTION SIZE
Preclearance shall NOT be required for an Investment Transaction in the
following Futures Contracts if the total number of contracts purchased or sold
during a calendar month does not exceed the specified limitations:
1. Purchases or sales of up to 50 PUBLICLY-TRADED FUTURES
CONTRACTS to acquire Fixed Income Securities issued by a
particular Qualified Foreign Government.
2. Purchases or sales of up to 10 OF EACH OTHER INDIVIDUAL
PUBLICLY-TRADED FUTURES CONTRACT if the open market interest
for such Futures Contract as
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reported in THE WALL STREET JOURNAL on the date of your
Investment Transaction (for the previous trading day) is at
least 1,000 contracts. Examples of Futures Contracts for which
this exemption would be available include a Futures Contract
on a foreign government debt Security issued by a
non-qualified foreign government as well as a 30-day federal
funds Futures Contract.
For purposes of these limitations, a Futures Contract is defined by its
expiration month. For example, you need not obtain preclearance to purchase 50
December Futures Contracts on German Government Bonds and 50 March Futures
Contracts on German Government Bonds. Similarly, you may roll over 10 September
Fed Funds Futures Contracts by selling those 10 contracts and purchasing 10
October Fed Funds Futures Contracts since the contracts being sold and those
being purchased have different expiration months. On the other hand, you could
not purchase 10 January Fed Funds Future Contracts if the open interest for
those contracts was less than 1,000 contracts, even if the total open interest
for all Fed Funds Futures Contracts was greater than 1,000 contracts.
ADDITIONAL EXEMPTIONS FROM PRECLEARANCE
The Compliance Committee may exempt other classes of Investment
Transactions, Securities or Futures Contracts from the Code's preclearance
requirement upon a determination that they do not involve a realistic
possibility of violating the general principles described at the beginning of
the Code.
PRECLEARANCE REQUIRED
Given the exemptions described above, preclearance shall be required
for Investment Transactions in:
1. Designated Equity Securities.
2. Tax-Exempt Municipal Bonds by Municipal Bond Portfolio
Employees.
3. More than $100,000 per calendar month per issuer of corporate
debt Securities, mortgage-backed and other asset-backed
Securities, taxable municipal debt Securities, structured
notes and loan participations, and foreign government debt
Securities issued by non-qualified foreign governments.
4. More than $1,000,000 per calendar month in debt Securities of
a Qualified Foreign Government.
5. Related Securities that are exchangeable for or convertible
into one of the Securities requiring preclearance under (1),
(2), (3) or (4) above.
6. More than 50 Publicly-Traded Futures Contracts per calendar
month to acquire Fixed Income Securities issued by a
particular Qualified Foreign Government.
7. More than 10 of any other individual Publicly-Traded Futures
Contract or any Publicly-Traded Futures Contract for which the
open market interest as reported
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in THE WALL STREET JOURNAL on the date of your Investment
Transaction (for the previous trading day) is less than 1,000
contracts, unless the Futures Contract is exempt from
preclearance regardless of transaction size.
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8. Any other Security or Publicly-Traded Futures Contract that is
not within the "exempt" categories listed above.
9. PIMCO Commercial Mortgage Securities Trust, Inc.
SHORT-TERM TRADING PROFITS
You may not profit from the purchase and sale, or the sale and
purchase, within 60 calendar days, of FIXED INCOME SECURITIES OR RELATED
SECURITIES. Portfolio Employees may not profit from the purchase and sale, or
the sale and purchase, within 60 calendar days, of DESIGNATED EQUITY SECURITIES
and Municipal Bond Portfolio Employees may not profit from the purchase and
sale, or the sale and purchase, within 60 calendar days, of TAX-EXEMPT MUNICIPAL
BONDS. Any such short-term trade must be unwound, or if that is not practical,
the profits must be contributed to a charitable organization.
This ban does NOT apply to Investment Transactions in U.S. Government
Securities, most equity Securities, mutual fund shares, index options or Futures
Contracts. This ban also does not apply to a purchase or sale in connection with
one of the four categories of Investment Transactions Exempt From Preclearance
described on pages 9-10, above.
You are considered to profit from a short-term trade if Securities in
which you have a Beneficial Ownership interest are sold for more than their
purchase price, even though the Securities purchased and the Securities sold are
held of record or beneficially by different persons or entities.
BLACKOUT PERIODS
You MAY NOT purchase or sell a Security, a Related Security or a
Futures Contract at a time when you intend or know of another's intention to
purchase or sell that Security or Futures Contract on behalf of any Advisory
Client.
As noted previously in the description of the Preclearance Process, a
Compliance Officer may not preclear an Investment Transaction in a Security or a
Futures Contract at a time when there is a pending BUY OR SELL order in the same
Security or Futures Contract, or a Related Security, until that order is
executed or withdrawn.
These prohibitions do not apply to Investment Transactions in any
Futures Contracts that are exempt from preclearance regardless of transaction
size.
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GIFTS AND SERVICE AS A DIRECTOR
GIFTS
You MAY NOT accept any investment opportunity, gift, gratuity or other
thing of more than nominal value from any person or entity that does business,
or desires to do business, with PIMCO directly or on behalf of an Advisory
Client (a "Giver"). You MAY, however, accept gifts from a single Giver so long
as their aggregate annual value does not exceed $500, and you MAY attend
business meals, sporting events and other entertainment events at the expense of
a Giver (without regard to their aggregate annual value), so long as the expense
is reasonable and both you and the Giver are present.
SERVICE AS A DIRECTOR
If you are an Advisory Employee, you may not serve on the board of
directors or other governing board of a publicly traded entity, other than of a
Fund for which PIMCO is an advisor or subadvisor, unless you have received the
prior written approval of the Chief Executive Officer and the Chief Legal
Officer of PIMCO. Approval will not be given unless a determination is made that
your service on the board would be consistent with the interests of our Advisory
Clients. If you are permitted to serve on the board of a publicly traded entity,
you will be ISOLATED from those Advisory Employees who make investment decisions
with respect to the Securities of that entity, through a "Chinese Wall" or other
procedures.
COMPLIANCE
CERTIFICATIONS
UPON RECEIPT OF THIS CODE
Upon commencement of your employment or the effective date of this
Code, whichever occurs later, you shall be required to acknowledge receipt of
your copy of this Code by completing and returning a copy of the form attached
hereto as Appendix IV. By that acknowledgment, you will also agree:
1. To read the Code, to make a reasonable effort to understand
its provisions, and to ask questions about those provisions
you find confusing or difficult to understand.
2. To comply with the Code, including its general principles, its
reporting requirements, its preclearance requirements, and its
provisions regarding gifts and service as a director.
3. To advise the members of your Immediate Family about the
existence of the Code, its applicability to their personal
trading activity, and your responsibility to assure that their
personal trading activity complies with the Code.
4. To cooperate fully with any investigation or inquiry by or on
behalf of a Compliance Officer to determine your compliance
with the provisions of the Code.
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In addition, your acknowledgment will recognize that any failure to comply with
the Code and to honor the commitments made by your acknowledgment may result in
disciplinary action, including dismissal.
ANNUAL CERTIFICATE OF COMPLIANCE
You are required to certify on an annual basis, on a copy of the form
attached hereto as Appendix V, that you have complied with each provision of
your initial acknowledgment (see above). In particular, your annual
certification will require that you certify that you have read and that you
understand the Code, that you recognize you are subject to its provisions, that
you complied with the requirements of the Code during the year just ended and
that you have disclosed, reported, or caused to be reported all Investment
Transactions required to be disclosed or reported pursuant to the requirements
of the Code.
POST-TRADE MONITORING
The Compliance Officers will review the duplicate broker reports and
other information supplied to them concerning your personal Investment
Transactions so that they can detect and prevent potential violations of the
Code. The Compliance Officers will perform such investigation and make such
inquiries as they consider necessary to perform this function. You agree to
cooperate with any such investigation and to respond to any such inquiry. You
should expect that, as a matter of course, the Compliance Officers will make
inquiries regarding any personal Investment Transaction in a Security or Futures
Contract that occurs on the same day as a transaction in the same Security or
Futures Contract on behalf of an Advisory Client.
REMEDIAL ACTIONS
If you violate this Code, you are subject to remedial actions, which
may include, but are not limited to, disgorgement of profits, imposition of a
fine, censure, demotion, suspension or dismissal. As part of any sanction, you
may be required to reverse an Investment Transaction and to forfeit any profit
or to absorb any loss from the transaction.
The Compliance Committee shall have the ultimate authority to determine
whether you have violated the Code and, if so, the remedial actions it considers
appropriate. In making its determination, the Compliance Committee shall
consider, among other factors, the gravity of your violation, the frequency of
your violations, whether any violation caused harm or the potential of harm to
any Advisory Client, your efforts to cooperate with their investigation, and
your efforts to correct any conduct that led to a violation.
REPORTS TO DIRECTORS AND TRUSTEES
REPORTS OF SIGNIFICANT REMEDIAL ACTIONS
The General Counsel of PIMCO Advisors L.P. and the directors or
trustees of any affected Fund that is an Advisory Client will be informed on a
timely basis of each SIGNIFICANT REMEDIAL ACTION taken in response to a
violation of this Code. For this purpose, a significant remedial action will
include any action that has a significant financial effect on the violator.
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REPORTS OF MATERIAL CHANGES TO THE CODE
PIMCO will promptly advise the directors or trustees of any Fund that
is an Advisory Client if PIMCO makes any material change to this Code.
ANNUAL REPORTS
PIMCO's management will furnish a written report annually to the
General Counsel of PIMCO Advisors L.P. and to the directors or trustees of each
Fund that is an Advisory Client. Each report, at a minimum, will:
1. Describe any significant issues arising under the Code, or
under procedures implemented by PIMCO to prevent violations of
the Code, since management's last report, including, but not
limited to, information about material violations of the Code
or those procedures and sanctions imposed in response to
material violations; and
2. Certify that PIMCO has adopted procedures reasonably necessary
to prevent Advisory Employees from violating the Code.
RECORDKEEPING
Beginning on the effective date of this Code, PIMCO will maintain, at
its principal place of business, the following records, which shall be available
to the Securities and Exchange Commission or any representative of the
Commission at any time and from time to time for reasonable periodic, special or
other examination:
1. PIMCO's Chief Compliance Officer shall maintain, in any easily
accessible place:
(a) a copy of PIMCO's current Code and of each
predecessor of that Code that was in effect at any
time within the previous five (5) years;
(b) a record of any violation of the Code, and of any
action taken as a result of the violation, for at
least five (5) years after the end of the fiscal year
in which the violation occurred;
(c) a copy of each report made by an Advisory Employee
pursuant to this Code, including any duplicate broker
report submitted on behalf of that Advisory Employee,
for at least two (2) years after the end of the
fiscal year in which that report was made or that
information was provided;
(d) a record of all persons, currently or within the past
five (5) years, who are or were required to make
reports pursuant to this Code or who are or were
responsible for reviewing such reports; and
(e) a copy of each report to the General Counsel of PIMCO
Advisors L.P. or to the directors or trustees of each
Fund that is an Advisory Client for at
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least two (2) years after the end of the fiscal year
in which that report was made.
2. PIMCO shall also maintain the following additional records:
(a) a copy of each report made by an Advisory Employee
pursuant to this Code, including any duplicate broker
report submitted on behalf of that Advisory Employee,
for at least five (5) years after the end of the
fiscal year in which that report was made or that
information was provided;
(b) a copy of each report to the General Counsel of PIMCO
Advisors L.P. or to the directors or trustees of each
Fund that is an Advisory Client for at least five (5)
years after the end of the fiscal year in which that
report was made; and
(c) a record of any decision, and the reasons supporting
the decision, to approve the acquisition by a
Portfolio Employee of a Beneficial Ownership interest
in any Security in an Initial Public Offering or in a
Private Placement for at least five (5) years after
the end of the fiscal year in which such approval was
granted.
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APPENDIX I
DEFINITIONS OF CAPITALIZED TERMS
The following definitions apply to the capitalized terms used in the
Code:
ADVISORY EMPLOYEE
The term "Advisory Employee" means: (1) a director, officer, general
partner or employee of PIMCO who, in connection with his or her regular
functions or duties, makes, participates in, or obtains information regarding
the purchase or sale of a Security or Futures Contract by PIMCO on behalf of an
Advisory Client, or whose functions relate to the making of any recommendations
with respect to such purchases or sales, or (2) or a natural person in a control
relationship to PIMCO, or an employee of any company in a control relationship
to PIMCO, who: (a) makes, participates in, or obtains information regarding the
purchase or sale of a Security by a Fund that is an Advisory Client, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales, or (b) obtains information concerning recommendations to a
Fund with regard to the purchase or sale of a Security by the Fund.
BENEFICIAL OWNERSHIP
As a GENERAL MATTER, you are considered to have a "Beneficial
Ownership" interest in a Security or a Futures Contract if you have the
opportunity, directly or indirectly, to profit or share in any profit derived
from an Investment Transaction in that Security or Futures Contract. YOU ARE
PRESUMED TO HAVE A BENEFICIAL OWNERSHIP INTEREST IN ANY SECURITY OR FUTURES
CONTRACT HELD, INDIVIDUALLY OR JOINTLY, BY YOU OR A MEMBER OF YOUR IMMEDIATE
FAMILY (AS DEFINED BELOW). In addition, unless specifically excepted by a
Compliance Officer based on a showing that your interest in a Security or
Futures Contract is sufficiently attenuated to avoid the possibility of
conflict, you will be considered to have a Beneficial Ownership interest in a
Security or Futures Contract held by: (1) a JOINT ACCOUNT to which you are a
party, (2) a PARTNERSHIP in which you are a general partner, (3) a LIMITED
LIABILITY COMPANY in which you are a manager-member, or (4) a TRUST in which you
or a member of your Immediate Family has a vested interest.
As a TECHNICAL MATTER, the term "Beneficial Ownership" for purposes
of this Code shall be interpreted in the same manner as it would be under SEC
Rule 16a-1(a)(2) (17 C.F.R. Section 240.16a-1(a)(2)) in determining whether a
person has a beneficial ownership interest in a Security for purposes of
Section 16 of the Securities Exchange Act of 1934 and the rules and
regulations thereunder.
DESIGNATED EQUITY SECURITY
The term "Designated Equity Security" shall mean any equity Security,
option, warrant or other right to an equity Security designated as such by a
Compliance Officer, after receiving notification from a Portfolio Employee that
said Security is being considered for purchase or sale by PIMCO on behalf of one
of its Advisory Clients.
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EXEMPT SECURITY
The term "Exempt Security" shall mean any Security not included within
the definition of Covered Security in SEC Rule 17j-l(a)(4) (17 C.F.R. Section
17j-1(a)(4)), including:
1. Direct obligations of the Government of the United States;
2. Shares issued by open-end Funds; and
3. Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements. For these purposes, a "high quality
short-term debt instrument" means any instrument having a
maturity at issuance of less than 366 days and that is rated
in one of the two highest rating categories by a Nationally
Recognized Statistical Rating Organization.
FIXED INCOME SECURITY
For purposes of this Code, the term "Fixed Income Security" shall mean
a fixed income Security issued by an agency or instrumentality of, or
unconditionally guaranteed by, the Government of the United States, a corporate
debt Security, a mortgage-backed or other asset-backed Security, a taxable fixed
income Security issued by a state or local government or a political subdivision
thereof, a structured note or loan participation, a foreign government debt
Security, or a debt Security of an international agency or a supranational
agency. For purposes of this Code, the term "Fixed Income Security" shall not be
interpreted to include a U.S. Government Security or any other Exempt Security
(as defined above) nor shall it be interpreted to include a Tax-Exempt Municipal
Bond (as defined below).
FUND
The term "Fund" means an investment company registered under the
Investment Company Act.
FUTURES CONTRACT
The term "Futures Contract" includes (a) a futures contract and an
option on a futures contract traded on a United States or foreign board of
trade, such as the Chicago Board of Trade, the Chicago Mercantile Exchange, the
London International Financial Futures Exchange or the New York Mercantile
Exchange (a "Publicly-Traded Futures Contract"), as well as (b) a forward
contract, a swap, a cap, a collar, a floor and an over-the-counter option (other
than an option on a foreign currency, an option on a basket of currencies, an
option on a Security or an option on an index of Securities) (a
"Privately-Traded Contract"). Consult with a Compliance Officer prior to
entering into a transaction in case of any doubt. For purposes of this
definition, a Publicly-Traded Futures Contract is defined by its expiration
month, I.E. a Publicly-Traded Futures Contract on a U.S. Treasury Bond that
expires in June is treated as a separate Publicly-Traded
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Futures Contract, when compared to a Publicly-Traded Futures Contract on a U.S.
Treasury Bond that expires in July.
IMMEDIATE FAMILY
The term "Immediate Family" means any of the following persons who
RESIDE IN YOUR HOUSEHOLD OR DEPEND ON YOU FOR BASIC LIVING SUPPORT: your spouse,
any child, stepchild, grandchild, parent, stepparent, grandparent, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including any adoptive relationships.
INITIAL PUBLIC OFFERING
The term "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933 (15 U.S.C. Section 77a), the
issuer of which, immediately before the registration, was not subject to the
reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act
of 1934 (15 U.S.C. Section 78m or Section 78o(d)).
INVESTMENT TRANSACTION
For purposes of this Code, the term "Investment Transaction" means any
transaction in a Security or Futures Contract in which you have, or by reason of
the transaction will acquire, a Beneficial Ownership interest, and includes,
among other things, the writing of an option to purchase or sell a Security.
MUNICIPAL BOND PORTFOLIO EMPLOYEE
The term "Municipal Bond Portfolio Employee" shall mean any Portfolio
Employee (as defined below) who makes investment decisions for the PIMCO
Municipal Bond Fund or any other Advisory Client that purchases or sells
Tax-Exempt Municipal Bonds. Municipal Bond Portfolio Employees shall be subject
to "Chinese Wall' arrangements that will preclude them from sharing information
with other Advisory Employees concerning their investment decisions relating to
Tax-Exempt Municipal Bonds or their analyses or opinions regarding individual
Tax-Exempt Municipal Bonds.
PERSONAL ACCOUNT
The term "Personal Account" means the following accounts that hold or
are likely to hold a Security (as defined below) or a Futures Contract (as
defined above) in which you have a Beneficial Ownership interest: any account in
your individual name; any joint or tenant-in-common account in which you have an
interest or are a participant; any account for which you act as trustee,
executor, or custodian; any account over which you have investment discretion or
otherwise can exercise control (other than non-related clients' accounts over
which you have investment discretion), including the accounts of entities
controlled directly or indirectly by you; and any other account in which you
have a Beneficial Ownership interest (other than such accounts over which you
have no investment discretion and cannot otherwise exercise control).
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PORTFOLIO EMPLOYEE
The term "Portfolio Employee" means: (1) a portfolio manager or any
employee of PIMCO (or of any company in a control relationship with PIMCO) who,
in connection with his or her regular functions or duties, makes or participates
in making recommendations regarding the purchase or sale of securities by a
Fund, or (2) any natural person who controls PIMCO and who obtains information
concerning recommendations made to a Fund that is an Advisory Client regarding
the purchase or sale of Securities by the Fund. For these purposes, "control"
has the same meaning as in Section 2(a)(9) of the Investment Advisers Act (15
U.S.C. Section 80a-2(a)(9)).
PRIVATE PLACEMENT
The term "Private Placement" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) or
Section 4(6) (15 U.S.C. Section 77d(2) or Section 77d(6)) or pursuant to SEC
Rules 504, 505 or 506 (17 C.F.R. Sections 230.504, 230.505, or 230.506) under
the Securities Act of 1933.
QUALIFIED FOREIGN GOVERNMENT
The term "Qualified Foreign Government" means a national government of
a developed foreign country with outstanding Fixed Income Securities in excess
of fifty billion dollars. A list of Qualified Foreign Governments will be
prepared as of the last business day of each calendar quarter, will be available
from the Chief Compliance Officer, and will be effective for the following
calendar quarter.
RELATED ACCOUNT
The term "Related Account" means any account, other than a Personal
Account, that holds a Security or Futures Contract in which you have a
Beneficial Ownership interest.
RELATED SECURITY
The term "Related Security" shall mean any option to purchase or sell,
and any Security convertible into or exchangeable for, a Security that is or has
been held by PIMCO on behalf of one of its Advisory Clients or any Security that
is being or has been considered for purchase by PIMCO on behalf of one of its
Advisory Clients.
SECURITY
As a GENERAL MATTER, the term "Security" shall mean any stock, note,
bond, debenture or other evidence of indebtedness (including any loan
participation or assignment), limited partnership interest or investment
contract OTHER THAN AN EXEMPT SECURITY (as defined above). The term "Security"
includes an option on a Security, on an index of Securities, on a currency or on
a basket of currencies, including such an option traded on the Chicago Board of
Options Exchange or on the New York, American, Pacific or Philadelphia Stock
Exchanges, as well as
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such an option traded in the over-the-counter market. The term "Security" shall
not include a Futures Contract or a physical commodity (such as foreign exchange
or a precious metal).
As a TECHNICAL MATTER, the term "Security" shall have the meaning set
forth in Section 2(a)(36) of the Investment Company Act of 1940 (15 U.S.C.
SECTION 80a-2(a)(36)), which defines a Security to mean:
Any note, stock, treasury stock, bond debenture, evidence of
indebtedness, certificate of interest or participation in any profit-sharing
agreement, collateral-trust certificate, preorganization certificate of
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security (including a certificate of deposit) or on any group or index of
securities (including any interest therein or based on the value thereof), or
any put, call, straddle, option, or privilege entered into on a national
securities exchange relating to foreign currency, or, in general, any interest
or instrument commonly known as a "security", or any certificate of interest or
instrument commonly known as a "security", or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, guarantee
of, warrant or right to subscribe to or purchase, any of the foregoing, except
that the term "Security" shall not include any Security that is an Exempt
Security (as defined above), a Futures Contract or a physical commodity (such as
foreign exchange or precious metal).
TAX-EXEMPT MUNICIPAL BOND
The term "Tax-Exempt Municipal Bond" shall mean any Fixed Income
Security exempt from federal income tax that is issued by a state or local
government or a political subdivision thereof.
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APPENDIX II
INSIDER TRADING POLICY AND PROCEDURES
PIMCO ADVISORS L.P.
EFFECTIVE AS OF MAY 1, 1996
SECTION I. POLICY STATEMENT ON INSIDER TRADING.
A. POLICY STATEMENT ON INSIDER TRADING.
PIMCO ADVISORS L.P. ("PALP"), ITS AFFILIATED SUBPARTNERSHIPS,
PIMCO PARTNERS, G.P. ("PIMCO GP") AND PIMCO FUNDS DISTRIBUTORS LLC ("PFD")
(collectively the "Company" or "PIMCO Advisors") FORBID ANY OF THEIR OFFICERS,
DIRECTORS OR EMPLOYEES FROM TRADING, EITHER PERSONALLY OR ON BEHALF OF OTHERS
(such as, mutual funds and private accounts managed by PALP or its affiliated
Subpartnerships), ON THE BASIS OF MATERIAL, NON-PUBLIC INFORMATION OR
COMMUNICATING MATERIAL, NON-PUBLIC INFORMATION TO OTHERS IN VIOLATION OF THE
LAW. THIS CONDUCT IS FREQUENTLY REFERRED TO AS "INSIDER TRADING."
The term "insider trading" is not defined in the federal
securities laws, but generally is used to refer to the use of material,
non-public information to trade in securities or to communications of material,
non-public information to others in breach of a fiduciary duty.
While the law concerning insider trading is not static, it is
generally understood that the law prohibits:
(1) trading by an insider, while in possession of material, non-public
information; or
(2) trading by a non-insider, while in possession of material,
non-public information, where the information was disclosed to the
non-insider in violation of an insider's duty to keep it
confidential; or
(3) communicating material, non-public information to others in breach
of a fiduciary duty.
This communication applies to every such officer, director and employee
and extends to activities within and outside their duties at PIMCO Advisors.
Every officer, director and employee must read and retain this policy statement.
Any questions regarding this policy statement and the related procedures set
forth herein should be referred to a Compliance Officer of PALP or the
applicable subpartnership.
The remainder of this memorandum discusses in detail the elements of
insider trading, the penalties for such unlawful conduct and the procedures
adopted by the Company to implement its policy against insider trading.
II-1
<PAGE>
1. TO WHOM DOES THIS POLICY APPLY?
This Policy applies to all employees, officers and directors (direct or
indirect) of the Company ("Covered Persons"), as well as to any transactions in
any securities participated by family members, trusts or corporations controlled
by such persons. In particular, this Policy applies to securities transactions
by:
- the Covered Person's spouse;
- the Covered Person's minor children;
- any other relative living in the Covered Person's household;
- a trust in which the Covered Person has a beneficial interest,
unless such person has no direct or indirect control over the trust;
- a trust as to which the Covered Person is a trustee;
- a revocable trust as to which the Covered Person is a settlor;
- a corporation of which the Covered Person is an officer, director or
10% or greater stockholder; or
- a partnership of which the Covered Person is a partner (including
most investment clubs), unless the Covered Person has no direct or
indirect control over the partnership.
2. WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of a company's securities.
Although there is no precise, generally accepted definition of
materiality, information is likely to be "material" if it relates to significant
changes affecting such matters as:
dividend or earnings expectations;
write-downs or write-offs of assets;
additions to reserves for bad debts or contingent liabilities;
expansion or curtailment of company or major division operations;
proposals or agreements involving a joint venture, merger,
acquisition, divestiture, or leveraged buy-out;
new products or services;
exploratory, discovery or research developments;
criminal indictments, civil litigation or government investigations;
disputes with major suppliers or customers or significant changes in
the relationships with such parties;
labor disputes including strikes or lockouts;
substantial changes in accounting methods;
II-2
<PAGE>
major litigation developments;
major personnel changes;
debt service or liquidity problems;
bankruptcy or insolvency;
extraordinary management developments;
public offerings or private sales of debt or equity securities;
calls, redemptions or purchases of a company's own stock;
issuer tender offers; or
recapitalizations.
Information provided by a company could be material because of its
expected effect on a particular class of the company's securities, all of the
company's securities, the securities of another company, or the securities of
several companies. Moreover, the resulting prohibition against the misuses of
"material" information reaches all types of securities (whether stock or other
equity interests, corporate debt, government or municipal obligations, or
commercial paper) as well as any option related to that security (such as a put,
call or index security).
Material information does not have to relate to a company's
business. For example, in CARPENTER v. U.S., 108 U.S. 316 (1987), the Supreme
Court considered as material certain information about the contents of a
forthcoming newspaper column that was expected to affect the market price of a
security. In that case, a reporter for THE WALL STREET JOURNAL was found
criminally liable for disclosing to others the dates that reports on various
companies would appear in the JOURNAL and whether those reports would be
favorable or not.
3. WHAT IS NON-PUBLIC INFORMATION?
In order for issues concerning insider trading to arise,
information must not only be "material," it must be "NON-PUBLIC." "Non-public"
information is information which has not been made available to investors
generally. Information received in circumstances indicating that it is not yet
in general circulation or where the recipient knows or should know that the
information could only have been provided by an "insider" is also deemed
"non-public" information.
At such time as material, non-public information has been
effectively distributed to the investing public, it is no longer subject to
insider trading restrictions. However, for "non-public" information to become
public information, it must be disseminated through recognized channels of
distribution designed to reach the securities marketplace.
To show that "material" information is public, you should be able
to point to some fact verifying that the information has become generally
available, for example, disclosure in a national business and financial wire
service (Dow Jones or Reuters), a national news service (AP or UPI), a national
newspaper (THE WALL STREET JOURNAL or THE NEW YORK TIMES), or a publicly
disseminated disclosure document (a proxy statement or prospectus). The
circulation of rumors or "talk on the street," even if accurate, widespread and
reported in the media, does not constitute the requisite public disclosure. The
II-3
<PAGE>
information must not only be publicly disclosed, there must also be adequate
time for the market as a whole to digest the information. Although timing may
vary depending upon the circumstances, a good rule of thumb is that information
is considered non-public until the third business day after public disclosure.
Material, non-public information is not made public by selective
dissemination. Material information improperly disclosed only to institutional
investors or to a fund analyst or a favored group of analysts retains its status
as "non-public" information which must not be disclosed or otherwise misused.
Similarly, partial disclosure does not constitute public dissemination. So long
as any material component of the "inside" information possessed by the Company
has yet to be publicly disclosed, the information is deemed "non-public" and may
not be misused.
INFORMATION PROVIDED IN CONFIDENCE. Occasionally, one or more
directors, officers, or employees of companies in PIMCO Advisors may become
temporary "insiders" because of a fiduciary or commercial relationship. For
example, personnel at PALP or a subpartnership may become insiders when an
external source, such as a company whose securities are held by one or more of
the accounts managed by PALP or a subpartnership, entrusts material, non-public
information to the Company portfolio managers or analysts with the expectation
that the information will remain confidential.
As an "insider," the Company has a fiduciary responsibility not to
breach the trust of the party that has communicated the "material, non-public"
information by misusing that information. This fiduciary duty arises because the
Company has entered or has been invited to enter into a commercial relationship
with the client or prospective client and has been given access to confidential
information solely for the corporate purposes of that client or prospective
client. This obligation remains whether or not the Company ultimately
participates in the transaction.
INFORMATION DISCLOSED IN BREACH OF A DUTY. Analysts and portfolio
managers at PIMCO Advisors must be especially wary of "material, non-public"
information disclosed in breach of a corporate insider's fiduciary duty. Even
where there is no expectation of confidentiality, a person may become an
"insider" upon receiving material, non-public information in circumstances where
a person knows, or should know, that a corporate insider is disclosing
information in breach of the fiduciary duty he or she owes the corporation and
its shareholders. Whether the disclosure is an improper "tip" that renders the
recipient a "tippee" depends on whether the corporate insider expects to benefit
personally, either directly or indirectly, from the disclosure. In the context
of an improper disclosure by a corporate insider, the requisite "personal
benefit" may not be limited to a present or future monetary gain. Rather, a
prohibited personal benefit could include a reputational benefit, an expectation
of a QUID PRO QUO from the recipient or the recipient's employer by a gift of
the "inside" information.
A person may, depending on the circumstances, also become an "insider"
or "tippee" when he or she obtains apparently material, non-public information
by happenstance, including information derived from social situations, business
gatherings, overheard conversations, misplaced documents, and "tips" from
insiders or other third parties.
II-4
<PAGE>
4. IDENTIFYING MATERIAL INFORMATION?
Before trading for yourself or others, including investment companies
or private accounts managed by PALP or its affiliated Subpartnerships, in the
securities of a company about which you may have potential material, non-public
information, ask yourself the following questions:
i. Is this information that an investor could consider important in making
his or her investment decisions? Is this information that could
substantially affect the market price of the securities if generally
disclosed?
ii. To whom has this information been provided? Has the information been
effectively communicated to the marketplace by being published in
REUTERS, THE WALL STREET JOURNAL or other publications of general
circulation.
Given the potentially severe regulatory, civil and criminal sanctions
to which you and PIMCO Advisors and its personnel could be subject, any
director, officer and employee uncertain as to whether the information he or she
possesses is "material, non-public" information should immediately take the
following steps:
i. Report the matter immediately to a Compliance Officer or the Chief
Executive Officer of PALP;
ii. Do not purchase or sell the securities on behalf of yourself or others,
including investment companies or private accounts managed by PALP or
the applicable affiliated subpartnership; and
iii.Do not communicate the information inside or outside the Company, other
than to a Compliance Officer or the Chief Executive Officer of PALP.
After a Compliance Officer or the Chief Executive Officer has reviewed
the issue, you will be instructed to continue the prohibitions against trading
and communication or will be allowed to trade and communicate the information.
5. PENALTIES FOR INSIDER TRADING.
Penalties for trading on or communicating material, non-public
information are severe, both for individuals involved in such unlawful conduct
and their employers. A person can be subject to some or all of the penalties
below even if he or she does not personally benefit from the violation.
Penalties include:
civil injunctions
treble damages
disgorgement of profits
jail sentences
fines for the person who committed the violation of up to three times
the profit gained or loss avoided, whether or not the person actually
benefited, and
fines for the employer or other controlling person of up to the greater
of $1,000,000 or three times the amount of the profit gained or loss
avoided.
II-5
<PAGE>
In addition, any violation of this policy statement can be expected to
result in serious sanctions by PIMCO Advisors, including dismissal of the
persons involved.
SECTION II. PROCEDURES TO IMPLEMENT PIMCO ADVISORS' POLICY.
A. PROCEDURES TO IMPLEMENT THE POLICY AGAINST INSIDER TRADING.
The following procedures have been established to aid the officers,
directors and employees of PIMCO Advisors in avoiding insider trading, and to
aid the Company in preventing, detecting and imposing sanctions against insider
trading. Every officer, director and employee of PIMCO Advisors must follow
these procedures or risk serious sanctions, including dismissal, substantial
personal liability and criminal penalties.
TRADING RESTRICTIONS AND REPORTING REQUIREMENTS
1. No employee, officer or director of the Company who possesses material,
non-public information relating to the Company or any of its affiliates
or subsidiaries, may buy or sell any securities of the Company or
engage in any other action to take advantage of, or pass on to others,
such material, non-public information.
2. No employee, officer or director of the Company who obtains material,
non-public information which relates to any other company or entity in
circumstances in which such person is deemed to be an insider or is
otherwise subject to restrictions under the federal securities laws may
buy or sell securities of that company or otherwise take advantage of,
or pass on to others, such material, non-public information.
3. No employee, officer or director of the Company shall engage in a
securities transaction with respect to the securities of PIMCO
Advisors, EXCEPT in accordance with the specific procedures published
from time to time by the company.
4. Each employee, officer or director of the Company shall submit reports
of every securities transaction involving securities of PIMCO Advisors
to a Compliance Officer in accordance with the terms of the Company's
Code of Ethics as they relate to any other securities transaction.
5. No Employee (as such term is defined in the applicable Code of Ethics)
shall engage in a securities transaction with respect to any securities
of any other company, EXCEPT in accordance with the specific procedures
set forth in the Company's Code of Ethics.
6. Employees shall submit reports concerning each securities transaction
in accordance with the terms of the Code of Ethics and verify their
personal ownership of securities in accordance with the procedures set
forth in the Code of Ethics.
II-6
<PAGE>
7. Because even inadvertent disclosure of material, non-public information
to others can lead to significant legal difficulties, officers,
directors and employees of the Company should not discuss any
potentially material, non-public information concerning the Company or
other companies, including other officers, employees and directors,
except as specifically required in the performance of their duties.
B. CHINESE WALL PROCEDURES.
The Insider Trading and Securities Fraud Enforcement Act requires
the establishment and strict enforcement of procedures reasonably designed to
prevent the misuse of "inside" information.(1) Accordingly, you should not
discuss material, non-public information about the Company or other companies
with anyone, including other employees, except as required in the performance
of your regular duties. In addition, care should be taken so that such
information is secure. For example, files containing material, non-public
information should be sealed; access to computer files containing material,
non-public information should be restricted.
C. RESOLVING ISSUES CONCERNING INSIDER TRADING.
The federal securities laws, including the laws governing insider
trading, are complex. If you have any doubts or questions as to the materiality
or non-public nature of information in your possession or as to any of the
applicability or interpretation of any of the foregoing procedures or as to the
propriety of any action, you should contact a Compliance Officer. Until advised
to the contrary by a Compliance Officer, you should presume that the information
is material and non-public and you should NOT trade in the securities or
disclose this information to anyone.
(1) The antifraud provisions of United States securities laws reach insider
trading or tipping activity worldwide which defrauds domestic securities
markets. In addition, the Insider Trading and Securities Fraud Enforcement Act
specifically authorizes the SEC to conduct investigations at the request of
foreign governments, without regard to whether the conduct violates United
States law.
II-7
<PAGE>
APPENDIX III
PIMCO ADVISORS L.P.
POLICY REGARDING SPECIAL TRADING PROCEDURES
FOR SECURITIES OF PIMCO ADVISORS L.P.
EFFECTIVE AS OF MAY 1, 1996
INTRODUCTION
- ------------
PIMCO Advisors L.P. (as defined below) has adopted an Insider Trading
Policy and Procedures applicable to all personnel which prohibits insider
trading in any securities, and prohibits all employees from improperly using or
disclosing material, non-public information, a copy of which has been supplied
to you.
For the purposes of this memorandum, the term the "Company" shall
include PIMCO Advisors L.P. ("PALP"), PIMCO Partners, G.P. ("PIMCO GP"), PIMCO
Funds Distributors LLC ("PFD") and any entity in relation to which PALP acts as
a general partner or owns 50% or more of one the issued and outstanding stock.
PERSONS TO WHOM THIS SPECIAL TRADING POLICY APPLIES
- ---------------------------------------------------
This Policy applies to all employees of the Company and, in the case of
PALP, the inside members of the Operating Board and the Equity Board ("Covered
Persons"), as well as to any transactions in securities participated in by
family members, trusts or corporations controlled by a Covered Person. In
particular, this Policy applies to securities transactions by:
a. the Covered Person's spouse;
b. the Covered Person's minor children;
c. any other relatives living in the Covered Person's household;
d. a trust in which the Covered Person has a beneficial interest, unless
such Covered Person has no direct or indirect control over the trust;
e. a trust as to which the Covered Person is a trustee;
f. a revocable trust as to which the Covered Person is a settlor;
g. a corporation of which the Covered Person is an officer, director or
10% or greater stockholder; or
h. a partnership of which the Covered Person is a partner (including most
investment clubs), unless the Covered Person has no direct or indirect
control over the partnership.
The family members, trust and corporations listed above are hereinafter
referred to as "Related persons."
III-1
<PAGE>
SECURITIES TO WHICH THIS SPECIAL TRADING POLICY APPLIES
- -------------------------------------------------------
Unless stated otherwise, the following Special Trading Procedures apply
to all transactions by Covered Persons and their Related Persons involving any
class or series of units of limited partner interest of PALP or other securities
of PALP, including options and other derivative securities (such as a put, call
or index security) in relation to such securities (the "PALP Securities").
SPECIAL TRADING PROCEDURES RELATING TO SECURITIES OF PIMCO ADVISORS L.P.
- ------------------------------------------------------------------------
1. TRADING WINDOWS
There are times when the Company may be engaged in a material
non-public development or transaction. Even if you are not aware of this
development or transaction, if you trade PALP's Securities before such
development or transaction is disclosed to the public, you might expose yourself
and the Company to a charge of insider trading that could be costly and
difficult to refute. In addition, such a trade by you could result in adverse
publicity to you or the company.
THEREFORE, THE FOLLOWING RULE SHALL APPLY: EACH COVERED PERSON AND ALL
OF SUCH PERSON'S RELATED PERSONS MAY ONLY PURCHASE OR SELL PALP SECURITIES
DURING FOUR "TRADING WINDOWS" THAT OCCUR EACH YEAR. THE FOUR TRADING WINDOWS
CONSIST OF THE MONTHS OF FEBRUARY, MAY, AUGUST AND NOVEMBER. TRADING ON THE
BASIS OF MATERIAL NON-PUBLIC INFORMATION OR COMMUNICATING MATERIAL NON-PUBLIC
INFORMATION TO OTHERS AT ANY TIME, INCLUDING IN A TRADING WINDOW, IS A VIOLATION
OF THE LAW AND A VIOLATION OF THIS POLICY.
In accordance with the procedure for waivers described below, in
special circumstances a waiver may be given to allow a trade to occur outside of
a trading window.
Employees of PALP should be aware that there are potential tax
consequences for such employees resulting from the ownership of PALP Securities.
Each such employee contemplating purchasing PALP Securities should discuss the
matter with such employee's tax advisor.
The exercise of options to purchase PALP Securities for cash are not
Covered to the procedures outlined above, but the securities so acquired may not
be sold except during a trading window and after all other requirements of this
policy have been satisfied.
2. POST-TRADE REPORTING
All Covered Persons shall submit to a Compliance Officer a report of
EVERY SECURITIES TRANSACTION IN PALP SECURITIES in which they and any of their
Related Persons have participated as soon as practicable following the
transaction and in any event not later than the fifth day after the end of the
month in which the transaction occurred. The report shall include: (1) the date
of the transaction and the title and number of shares or principal amount of
each security involved; (2) the nature of the transaction
III-2
<PAGE>
(i.e., purchase, sale or any other type of acquisition or disposition); (3) the
price at which the transaction was effected; and (4) the name of the
broker/dealer with or through whom the transaction was effected. In addition, on
an annual basis, each Covered Person must confirm the amount of PALP Securities
which such person and his her Related Persons beneficially own.
Each Covered Person (and not the Company) is personally responsible for
insuring that his or her transactions comply fully with any and all applicable
securities laws, including, but not limited to, the restrictions imposed under
Section 16(b) of the Securities and Exchange Act of 1934 and Rule 144 under the
Securities Act of 1933.
3. RESOLVING ISSUES CONCERNING INSIDER TRADING
If you have any doubts or questions as to whether information is
material or non-public, or as to the applicability or interpretation of any of
the foregoing procedures, or as to the propriety of any action, you should
contact a Compliance Officer before trading or communicating the information to
anyone. Until these doubts or questions are satisfactorily resolved, you should
presume that the information is material and non-public and you should NOT trade
in the securities or communicate this information to anyone.
4. MODIFICATIONS AND WAIVERS
The Company reserves the right to amend or modify this policy statement
at any time. Waiver of any provision of this policy statement in a specific
instance may be authorized in writing by a Compliance Officer and either the
Chief Executive Officer of PALP or any member of the Operating Committee of
PALP, and any such waiver shall be reported to the Equity and Operating Boards
of PALP at the next regularly scheduled meeting of each.
III-3
<PAGE>
APPENDIX IV
ACKNOWLEDGMENT OF RECEIPT
OF THE
CODE OF ETHICS
AND THE
INSIDER TRADING POLICY AND PROCEDURES OF
PACIFIC INVESTMENT MANAGEMENT COMPANY
I hereby certify that I have received the attached Code of Ethics and
Insider Trading Policy and Procedures. I hereby agree to read the Code, to make
a reasonable effort to understand its provisions and to ask questions about
those provisions I find confusing or difficult to understand. I also agree to
comply with the Code, including its general principles, its reporting
requirements, its preclearance requirements, and its provisions regarding gifts
and service as a director. I also agree to advise members of my Immediate Family
about the existence of the Code of Ethics, its applicability to their personal
trading activity, and my responsibility to assure that their personal trading
activity complies with the Code of Ethics. Finally, I agree to cooperate fully
with any investigation or inquiry by or on behalf of a Compliance Officer to
determine my compliance with the provisions of the Code. I recognize that any
failure to comply in all aspects with the Code and to honor the commitments made
by this acknowledgment may result in disciplinary action, including dismissal.
Date:
------------------------------ ----------------------------------
Signature
----------------------------------
Print Name
<PAGE>
APPENDIX V
ANNUAL CERTIFICATION OF COMPLIANCE
WITH THE
CODE OF ETHICS OF
PACIFIC INVESTMENT MANAGEMENT COMPANY
I hereby certify that I have complied with the requirements of the Code
of Ethics and Insider Trading Policy and Procedures that have applied to me
during the year ended December 31, 200_. In addition, I hereby certify that I
have read the Code and understand its provisions. I also certify that I
recognize that I am subject to the provisions of the Code and that I have
disclosed, reported, or caused to be reported all transactions required to be
disclosed or reported pursuant to the requirements of the Code. I recognize that
any failure to comply in all aspects with the Code and that any false statement
in this certification may result in disciplinary action, including dismissal.
Date:
------------------------------ ----------------------------------
Signature
----------------------------------
Print Name
<PAGE>
APPENDIX VI
INITIAL REPORT OF ACCOUNTS
PURSUANT TO THE
CODE OF ETHICS OF
PACIFIC INVESTMENT MANAGEMENT COMPANY
In accordance with the Code of Ethics, I have attached to this form
copies of the most recent statements for each and every Personal Account and
Related Account that holds or is likely to hold a Security or Futures Contract
in which I have a Beneficial Ownership interest, as well as copies of
confirmations for any and all Investment Transactions subsequent to the
effective dates of those statements.(1)
In addition, I hereby supply the following information for each and
every Personal Account and Related Account in which I have a Beneficial
Ownership interest for which I cannot supply the most recent account statement:
(1) Name of employee:
---------------------------
(2) If different than #1, name of the person
in whose name the account is held:
---------------------------
(3) Relationship of (2) to (1):
---------------------------
(4) Firm(s) at which Account is maintained:
---------------------------
---------------------------
---------------------------
---------------------------
(5) Account Number(s):
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
(6) Phone number(s) of Broker or Representative:
---------------------------
---------------------------
---------------------------
---------------------------
- -------------------------
(1) The Code of Ethics uses various capitalized terms that are defined
in Appendix I to the Code. The capitalized terms used in this Report have the
same definitions.
<PAGE>
(7) Account holdings:
<TABLE>
<CAPTION>
<S><C>
Name of Security Quantity Principal Amount Custodian
1. ___________________ ______________ _______________ ___________________
2. ___________________ ______________ _______________ ___________________
3. ___________________ ______________ _______________ ___________________
4. ___________________ ______________ _______________ ___________________
5. ___________________ ______________ _______________ ___________________
</TABLE>
(Attach additional sheets if necessary)
I also supply the following information for each and every Security or
Futures Contract in which I have a Beneficial Ownership interest, to the extent
this information is not available elsewhere on this form or from the statements
and confirmations attached to this form. This includes Securities or Futures
Contracts held at home, in safe deposit boxes, or by an issuer.
<TABLE>
<CAPTION>
<S><C>
Person Who Description
Owns the Security of the Security
Or Futures Contract Or Futures Contract Quantity Principal Amount Custodian
------------------- ------------------- -------- ---------------- ---------
1. ___________________ _________________ _________________ _________________ _________________
2. ___________________ _________________ _________________ _________________ _________________
3. ___________________ _________________ _________________ _________________ _________________
4. ___________________ _________________ _________________ _________________ _________________
5 ___________________ _________________ _________________ _________________ _________________
</TABLE>
(Attach additional sheets if necessary.)
I hereby certify that this form and the attachments (if any) identify
all of the Personal Accounts, Related Accounts, Securities and Futures Contracts
in which I have a Beneficial Ownership interest as of this date.
----------------------------------
Signature
----------------------------------
Print Name
Date:
------------------
Attachments
<PAGE>
APPENDIX VII
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO FUNDS DISTRIBUTORS LLC
QUARTERLY REPORT OF INVESTMENT TRANSACTIONS
FOR THE QUARTER ENDED _______, 2000
================================================================================
Please mark one of the following:
/ / No reportable Investment Transactions have occurred.
/ / Except as indicated below, all reportable Investment Transactions
were made through Personal Accounts and Related Accounts identified on the
attached list, which, except as indicated, represents a complete list of the
Personal Accounts and Related Accounts that hold Securities or Futures Contracts
in which I have or had a Beneficial Ownership interest and for which PIMCO
should have received or will receive timely duplicate broker reports for the
calendar quarter just ended.(1) I hereby certify that the broker, dealer, bank
or futures commission merchant for each such account has been instructed to send
a Compliance Officer timely duplicate broker reports for that account.
The following information for Investment Transactions during the calendar
quarter just ended does not appear on the duplicate broker reports referenced
above.
<TABLE>
<S><C>
Transaction Title, Interest Rate and Maturity Number of Shares or Contracts Nature of Transaction
Date Date of Security or Futures Contract And Principal Amount (i.e., Buy or Sell)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Transaction Broker, Dealer,
Price Bank or FCM
- ---------------------------------------------------
- ---------------------------------------------------
- ---------------------------------------------------
- ---------------------------------------------------
</TABLE>
SPECIAL NOTE TO PIMCO FUNDS DISTRIBUTORS LLC REGISTERED REPS AND ACCESS PERSONS:
You will not have to fill out an extra form for each quarter for PIMCO Funds
Distributors LLC.
SIGNED:
----------------------------------
PRINT NAME:
----------------------------------
DATE:
----------------------------------
- -----------------------
(1) The Code of Ethics uses various capitalized terms that are defined
in Appendix I to the Code. The capitalized terms used in this Report have the
same definitions.
<PAGE>
1. Please see the CODE OF ETHICS for a full description of the Investment
Transactions that must be reported.
2. TRANSACTION DATE. In the case of a market transaction, state the trade
date (not the settlement date).
3. TITLE OF SECURITY OR FUTURES CONTRACT. State the name of the issuer and
the class of the Security (E.G., common stock, preferred stock or
designated issue of debt securities). For Fixed Income Securities,
please provide the Security's interest rate and maturity date. For a
Futures Contract, state the title of any Security subject to the
Futures Contract and the expiration date of the Futures Contract.
4. NUMBER OF SHARES OR CONTRACTS AND PRINCIPAL AMOUNT. State the number of
shares of Securities, the face amount of Fixed Income Securities or the
units of other securities. For options, state the amount of securities
subject to the option. Provide the principal amount of each Security or
Futures Contract. If your ownership interest was through a spouse,
relative or other natural person or through a partnership, trust, other
entity, state the entire quantity of Securities or Futures Contracts
involved in the transaction. You may indicate, if you wish, the extent
of your interest in the transaction.
5. NATURE OF TRANSACTION. Identify the nature of the transaction (E.G.,
purchase, sale or other type of acquisition or disposition).
6. TRANSACTION PRICE. State the purchase or sale price per share or other
unit, exclusive of brokerage commissions or other costs of execution.
In the case of an option, state the price at which it is currently
exercisable. No price need be reported for transactions not involving
cash.
7. BROKER, DEALER, BANK OR FCM EFFECTING TRANSACTION. State the name of
the broker, dealer, bank or FCM with or through which the transaction
was effected.
8. SIGNATURE. Sign and date the report in the spaces provided.
9. FILING OF REPORT. A report should be filed NOT LATER THAN 10 CALENDAR
DAYS after the end of each calendar quarter with:
PIMCO
ATTN: Compliance Officer
840 Newport Center Drive
Suite 300
Newport Beach, CA 92660
10. DUPLICATE BROKER REPORTS. Please remember that duplicates of all trade
confirmations, purchase and sale reports, and periodic statements must
be sent to the firm by your broker. You should use the address above.
<PAGE>
APPENDIX VIII
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO FUNDS DISTRIBUTORS LLC
ANNUAL HOLDINGS REPORT AND
FOURTH QUARTER REPORT OF INVESTMENT TRANSACTIONS
================================================================================
FOR THE YEAR AND QUARTER ENDED DECEMBER 31, 2000
================================================================================
I hereby certify that, except as indicated below, all Securities or
Futures Contracts in which I had a Beneficial Ownership interest at the end of
the 2000 calendar year were held in Personal Accounts or Related Accounts
identified on the attached list, for which PIMCO should have received or will
receive an account statement of holdings as of the end of that calendar year.(1)
I hereby certify that the broker, dealer, bank or futures commission merchant
for each such account has been instructed to send a Compliance Officer timely
duplicate broker reports, including a statement of holdings in that account as
of the end of the calendar year.
The following information describes other Securities or Futures Contracts in
which I had a Beneficial Ownership interest as of the end of the 2000 calendar
year:
<TABLE>
<S><C>
Title, Interest Rate and Maturity Number of Shares or Contracts Broker, Dealer,
Date of Security or Futures Contract And Principal Amount Bank or FCM
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Code of Ethics uses various capitalized terms that are defined
in Appendix I to the Code. The capitalized terms used in this Report have the
same definitions.
<PAGE>
Except as indicated below, all reportable Investment Transactions during
the quarter ended DECEMBER 31, 2000, were made through Personal Accounts and
Related Accounts identified on the attached list, which, except as indicated,
represents a complete list of the Personal Accounts and Related Accounts that
hold Securities or Futures Contracts in which I have or had a Beneficial
Ownership interest and for which PIMCO should have received or will receive
timely duplicate broker reports for the calendar quarter just ended.
The following information for Investment Transactions during the calendar
quarter just ended does not appear on the duplicate broker reports referenced
above.
<TABLE>
<S><C>
Transaction Title, Interest Rate and Maturity Number of Shares or Contracts Nature of Transaction
Date Date of Security or Futures Contract And Principal Amount (i.e., Buy or Sell)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Transaction Broker, Dealer,
Price Bank or FCM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL NOTE TO PIMCO FUNDS DISTRIBUTORS LLC REGISTERED REPS AND ACCESS PERSONS:
You will not have to fill out an extra form for each year for PIMCO Funds
Distributors LLC.
SIGNED:
------------------------------
PRINT NAME:
------------------------------
DATE:
------------------------------
<PAGE>
1. Please see the CODE OF ETHICS for a full description of the Investment
Transactions that must be reported.
2. TRANSACTION DATE. In the case of a market transaction, state the trade
date (not the settlement date).
3. TITLE OF SECURITY OR FUTURES CONTRACT. State the name of the issuer and
the class of the Security (e.g., common stock, preferred stock or
designated issue of debt securities). For Fixed Income Securities,
please provide the Security's interest rate and maturity date. For a
Futures Contract, state the title of any Security subject to the
Futures Contract and the expiration date of the Futures Contract.
4. NUMBER OF SHARES OR CONTRACTS AND PRINCIPAL AMOUNT. State the number of
shares of Securities, the face amount of Fixed Income Securities or the
units of other securities. For options, state the amount of securities
subject to the option. Provide the principal amount of each Security or
Futures Contract. If your ownership interest was through a spouse,
relative or other natural person or through a partnership, trust, other
entity, state the entire quantity of Securities or Futures Contracts
involved in the transaction. You may indicate, if you wish, the extent
of your interest in the transaction.
5. NATURE OF TRANSACTION. Identify the nature of the transaction (E.G.,
purchase, sale or other type of acquisition or disposition).
6. TRANSACTION PRICE. State the purchase or sale price per share or other
unit, exclusive of brokerage commissions or other costs of execution.
In the case of an option, state the price at which it is currently
exercisable. No price need be reported for transactions not involving
cash.
7. BROKER, DEALER, BANK OR FCM EFFECTING TRANSACTION. State the name of
the broker, dealer, bank or FCM with or through which the transaction
was effected.
8. SIGNATURE. Sign and date the report in the spaces provided.
9. FILING OF REPORT. A report should be filed NOT LATER THAN 10 CALENDAR
DAYS after the end of each calendar quarter with:
PIMCO
ATTN: Compliance Officer
840 Newport Center Drive
Suite 300
Newport Beach, CA 92660
10. DUPLICATE BROKER REPORTS. Please remember that duplicates of all trade
confirmations, purchase and sale reports, and periodic statements must
be sent to the firm by your broker. You should use the address above.
<PAGE>
Appendix IX
PRECLEARANCE REQUEST FORM
-------------------------
This form must be submitted to a Compliance Officer before executing
any Investment Transaction for which preclearance is required under the PIMCO
Code of Ethics. Before completing this form, you should review the PIMCO Code,
including the terms defined in that Code. The capitalized terms used in this
form are governed by those definitions. In addition, the Code provides
information regarding your preclearance obligations under the Code, and
information regarding the Transactions, Securities and Futures Contracts that
are exempt from the Code's preclearance requirement.(1)
No Investment Transaction subject to preclearance may be effected prior
to receipt of written authorization of that Investment Transaction by a
Compliance Officer. Unless otherwise specified, that authorization shall be
effective, unless revoked, until the earlier of (a) the close of business on the
date authorization is given, or (b) until you discover that information on this
preclearance request form is no longer accurate.
<TABLE>
<S><C>
(1) Your Name: _____________________________________
(2) If the Investment Transaction will be in someone else's name or
in the name of a trust, the name of that person or trust: _____________________________________
The relationship of that person or trust to you: _____________________________________
(3) Name of the firm (E.G., broker, dealer, bank, futures commission
merchant) through which the Investment Transaction will be
executed: ____________________________________
The relevant account number at that firm: ____________________________________
(4) Issuer of the Security or identity of the Futures Contract for
which preclearance is requested: ____________________________________
The relevant CUSIP number or call symbol: ____________________________________
(5) The maximum number of shares, units or contracts for which
preclearance is requested, or the market value or face amount of
the Fixed Income Securities for which preclearance is requested: ____________________________________
(6) The type of Investment Transaction for which preclearance is
requested (check all that apply): ____ Purchase ___ Sale ____ Market
Order
____ Limit Order (Price Of Limit Order:_______)
PLEASE ANSWER THE FOLLOWING QUESTIONS TO THE BEST OF YOUR KNOWLEDGE AND BELIEF:
(a) Do you possess material nonpublic information regarding the Security or
Futures Contract identified above or regarding the issuer of that
Security? ____ Yes ____ No
(b) Is the Security or Futures Contract identified above held by any PIMCO
Advisory Client or is it a Related Security (as defined in the PIMCO
Code)? ____ Yes ____ No
</TABLE>
- --------------------------
(1) Preclearance is required for any Investment Transaction in Securities,
Related Securities or Futures Contracts in a Personal Account or a Related
Account in which you have or will acquire a Beneficial Ownership interest.
<PAGE>
<TABLE>
<S><C>
(c) Is there a pending buy or sell order on behalf of a PIMCO Advisory Client
for the Security or Futures Contract identified above or for a
Security for which the Security identified above is a Related Security? ____ Yes ____ No
(d) Do you intend or do you know of another's intention to purchase or sell the
Security or Futures Contract identified above, or a Security for which the
Security identified above is a Related Security, on behalf of a PIMCO
Advisory Client? ____ Yes ____ No
(e) Has the Security or Futures Contract identified above or a Related Security
been considered for purchase by a PIMCO Advisory Client within the most
recent 15 days? (Note: rejection of any opportunity to purchase the
Security or Futures Contract for an Advisory Client would require an
affirmative response to this question.) ____ Yes ____ No
(f) If you are a Portfolio Employee, is the Security being acquired in an
Initial Public Offering?(2) ____ Yes ____ No
(g) If you are a Portfolio Employee, are you acquiring or did you acquire
Beneficial Ownership of the Security in a Private Placement?(3) ____ Yes ____ No
(h) If you are seeking preclearance of a purchase or sale of Securities, have
you purchased or sold the same or similar Securities, or have you acquired
or disposed of a Beneficial Ownership interest in the same or similar
Securities, within the past 60 calendar days?(4) ____ Yes ____ No
BY EXECUTING THIS FORM, YOU HEREBY CERTIFY THAT YOU HAVE REVIEWED THE PIMCO CODE
OF ETHICS AND BELIEVE THAT THE INVESTMENT TRANSACTION FOR WHICH YOU ARE
REQUESTING PRECLEARANCE COMPLIES WITH THE GENERAL PRINCIPLES AND THE SPECIFIC
REQUIREMENTS OF THE PIMCO CODE.
---------------------------------------------------
Employee Signature
---------------------------------------------------
Print or Type name
---------------------------------------------------
Date Submitted
</TABLE>
(2) Under the PIMCO Code, Portfolio Employees generally are not permitted to
acquire Securities in an Initial Public Offering.
(3) The PIMCO Code applies special rules to the acquisition of Securities
through a Private Placement and to the disposition of Securities acquired
through a Private Placement.
(4) Under the PIMCO Code, you may not profit from short-term trades in Fixed
Income Securities. A Portfolio Employee may not profit from short-term trades in
Designated Equities Securities and a Municipal Bond Portfolio Employee may not
profit from short-term trades in Tax-Exempt Municipal Bonds. This rule does not
apply to transactions in U.S. Government Securities, mutual fund shares, index
options or Futures Contracts.
<PAGE>
You are authorized to execute the Investment Transaction described above. Unless
indicated otherwise below, this authorization remains effective, unless revoked,
until: (a) the close of business today, or (b) until you discover that the
information on this request form is no longer accurate.
-------------------------------------------------
Compliance Officer
-------------------------------------------------
Date of Authorization
<PAGE>
APPENDIX X
COMPLIANCE OFFICERS
PACIFIC INVESTMENT MANAGEMENT COMPANY
March 31, 2000
PIMCO's Compliance Officers, as of March 31, 2000, are:
Denise C. Seliga
(Chief Compliance Officer)
Mohan V. Phansalkar
Ernest L. Schmider
Richard M. Weil
<PAGE>
SMITH BARNEY ASSET MANAGEMENT
CODE OF ETHICS AND
PERSONAL TRADING POLICIES
I. STATEMENT OF PRINCIPLES
Employees of Smith Barney Asset Management ("SBAM") owe a duty to SBAM's
mutual funds and managed account clients. Employees must place the interests
of those funds and clients first and avoid activities, interests and
relationships that might interfere with the duty to make decisions in the
best interest of fund shareholders and managed account clients. In their
personal securities transactions, employees must not take inappropriate
advantage of their positions. All securities transactions shall adhere to the
requirements of this Code and shall be conducted in such a manner as to avoid
any actual or potential conflict of interest, the appearance of such a
conflict, or the abuse of an individual's position of trust and
responsibility.
II. APPLICABILITY
This Code applies to all employees of Smith Barney Inc. ("SB") and its advisory
affiliates(1) assigned or reporting to SBAM. Each employee subject to this code
is considered an "advisory employee" and must comply with all of the Code's
terms unless otherwise indicated. Certain advisory employees also are considered
"mutual fund covered persons" and are subject to certain additional restrictions
outlined in the codes of ethics of the mutual funds for which they are
considered "covered persons.(2)" Certain advisory employees who are unlikely to
have knowledge of trades in client accounts also may be identified as
"administrative employees," and, as such, will be eligible to rely upon certain
exceptions outlined in this Code. SBAM's Compliance Department will notify
employees as to whether they are advisory employees, administrative employees,
or mutual fund covered persons.
The personal trading policies, procedures and restrictions outlined below
also apply to an employee's spouse and minor children. The policies also
apply to any other account over which the employee is deemed to have
BENEFICIAL OWNERSHIP. This includes accounts of any immediate family members
sharing the same household as the employee and any account over which the
employee may be deemed to have control. For a more detailed description of
beneficial ownership, see Exhibit A.
These policies place certain restrictions on the ability of an employee to
purchase or sell securities that are being or have been purchased or sold by an
SBAM advised account or fund. The restrictions also apply to securities that are
"related" to a security being purchased or sold by an SBAM advised account or
fund. A "related security" is one the value of which is based upon the value of
another security (E.G., a warrant, option, unit, convertible).
Employees are reminded that they also are subject to other Salomon Smith Barney
("SSB") policies, including policies on insider trading and the purchase and
sale of securities listed on the SSB restricted list. EMPLOYEES MUST NEVER TRADE
IN A SECURITY OR COMMODITY WHILE IN POSSESSION OF MATERIAL, NON-PUBLIC
INFORMATION ABOUT THE ISSUER OR THE MARKET FOR THOSE SECURITIES OR COMMODITIES,
EVEN IF THE EMPLOYEE HAVE SATISFIED ALL OTHER REQUIREMENTS OF THIS CODE.
- ----------------------------
(1) Advisory affiliates include, but are not limited to, Smith Barney Global
Capital Management, Travelers Investment Management Company, Mutual
Management Corp., Smith Barney Strategy Advisors, and Travelers Investment
Adviser.
(2) Each covered person is required to read and be familiar with the mutual
fund codes of ethics adopted by the funds for which the employee is deemed
a covered person. To the extent that the mutual funds' codes of ethics and
personal trading policies are stricter than this Code, the mutual funds'
codes of ethics shall also apply. For ease of reference, the standard Smith
Barney Mutual Fund Code of Ethics restrictions have been incorporated into
this Code.
<PAGE>
III. ENFORCEMENT
In the first instance, it is the responsibility of each employee to act in
accordance with a high standard of conduct and to comply with the policies and
procedures set forth in this Code of Ethics. The firm takes seriously its
obligation to monitor the personal trading activities of asset management
employees. Any violation of this Code of Ethics will be considered serious, and
may result in disciplinary action, which may include disgorgement of profits,
monetary fine, or censure, suspension or termination of employment.
IV. PERSONAL TRADING POLICIES, PROCEDURES AND RESTRICTIONS
A. BROKERAGE ACCOUNTS AT SSB. All employee brokerage accounts (including
spouse accounts, accounts for which the employee is deemed to have
beneficial ownership, and other accounts over which the employee and/or
spouse exercise control) must be maintained at SSB. For spouses or other
persons who by reason of their employment are required to conduct their
securities, commodities or other financial transactions in a manner
inconsistent with this policy, or in other exceptional circumstances,
employees may submit a written request for an exemption to the SBAM
Compliance Department. If approval is granted, copies of trade
confirmations and monthly statements must be sent to the employee's
designated supervisor or compliance officer ("Compliance Coordinator").
(3) REMINDER: PRE-APPROVAL OF SECURITIES TRANSACTIONS IN THE
SPOUSE'S ACCOUNT AND OTHER ACCOUNTS FOR WHICH THE EMPLOYEE IS DEEMED TO
HAVE BENEFICIAL OWNERSHIP ARE REQUIRED UNDER SECTION IV.C. BELOW.
The following types of accounts need not be maintained at SSB, nor are they
subject to the pre-approval, trading and other restrictions of this Code:
1. Accounts at outside mutual funds that hold only fund shares purchased
directly from that fund company.
2. Estate or trust accounts in which an employee or related person has a
beneficial interest, but no power to affect investment decisions. THE
EMPLOYEE MUST DIRECT THE TRUSTEE/BANK TO FURNISH COPIES OF
CONFIRMATIONS AND STATEMENTS TO THE EMPLOYEE'S COMPLIANCE COORDINATOR.
3. Fully discretionary accounts managed by an external registered
investment adviser are permitted to be custodied away from SSB if (i)
the employee receives permission from SBAM's Director of Compliance
and SBAM's CAO, and (ii) there is no communication between the manager
and the employee with regard to investment decisions prior to
execution. The employee must designate that copies of trade
confirmations and monthly statements be sent to the employee's
Compliance Coordinator.(4)
4. Employees may participate in direct investment programs which allow
the purchase of securities directly from the issuer without the
intermediation of a broker/dealer provided that the timing and size
of the purchases are established by a pre-arranged, regularized
schedule (E.G., dividend reinvestment plans). Employees must provide
documentation of these arrangements and direct periodic (monthly or
quarterly) statements to their Compliance Coordinator.
B. SECURITY HOLDING PERIOD. Securities purchased must be for investment
purposes rather than for the generation of short-term trading profits.
Consequently, securities purchased must be held for at least 60 days,
calculated on a First In, First Out ("FIFO") basis. If an employee sells a
security in violation of this 60-day holding period, the trade may be
canceled. On a canceled trade, the employee will be required to absorb any
loss and disgorge any profit. In addition, the employee may be subject to
disciplinary action.
- ----------------------------
(3) SBAM's Compliance Department will notify each employee of his or her
applicable Compliance Coordinator.
(4) The provisions of this Code also will not apply to fully discretionary
employee managed accounts custodied at SSB if (i) the employee receives
permission from SBAM's Director of Compliance, and (ii) there is no
communication between the employee and the manager with regard to
investment decisions prior to execution.
2
<PAGE>
- Exceptions to the 60-day holding period may be granted upon the
approval of both SBAM's CAO and Director of Compliance upon proof of
(i) unusual and/or unforeseen circumstances relating to the employee
(E.G., medical bills, personal hardship), or (ii) extenuating
circumstances relating to the security (E.G., a sharp decline in the
price of the security or a change in SSB's research rating from a buy
to a sell).
C. PRE-APPROVAL/CERTIFICATION
1. Every employee of SBAM is required to file with his or her Compliance
Coordinator either a pre-approval or pre-certification form prior to
effecting any personal securities transactions. The type of form to be
filed depends upon the employee's position within SBAM:
- PRE-APPROVAL FORM FOR ADVISORY EMPLOYEES: Attached as Exhibit B, this
form is to be used for personal securities transactions for all
advisory employees, other than mutual fund covered persons and
administrative employees. Employees filing this form may not trade
in a security until this form has been approved by the Compliance
Coordinator. Persons required to use this form will be identified
by SBAM's Compliance Department.
- PRE-APPROVAL FORM FOR MUTUAL FUND COVERED PERSONS: Attached as Exhibit
C, this form is to be used for all mutual fund covered persons. The
employee may not trade in a security until this form has been approved
by the Compliance Coordinator. Persons required to use this form will
be identified by SBAM's Compliance Department.
- ADMINISTRATIVE EMPLOYEE TRADE CERTIFICATION: Attached as Exhibit D,
this form may be used by administrative employees. This form must be
submitted to the Compliance Coordinator prior to engaging in a
transaction. Persons eligible to use this form will be identified by
SBAM's Compliance Department.
2. The pre-approval/pre-certification is valid for the day of approval
only. New forms must be filed for transactions on each subsequent day.
3. Any trade that violates the pre-approval/pre-certification process may
be broken at the employee's expense, and the employee will be required to
absorb any resulting loss and to disgorge any resulting profit.
D. CONFLICTS/BLACKOUT PERIODS
1. For trades by all advisory employees other than administrative
employees, the Compliance Coordinator will determine whether any relevant
conflicts exist as described below, depending upon the employee's role and
location.(5) For mutual fund covered persons and all portfolio managers,
the Compliance Coordinator will determine whether any blackout periods
apply. For all advisory employees to which no blackout periods apply (other
than administrative employees), the Compliance Coordinator will ensure that
the employee does not pay/receive a better price for the security on that
day than the average price paid/received by accounts identified by the SBAM
Compliance Department as within the employee's range of potential conflict
(E.G., accounts managed in the program to which the employee is assigned or
in the same geographical vicinity as the employee's work station or
office). Notwithstanding pre-approval, if subsequent to the employee's
purchase or sale it is determined that the employee paid/received a price
better than the average price paid/received by such accounts on the same
day as the employee's transaction, the employee will be required to pay the
difference.
- EXCEPTION: An employee will not be required to pay the difference
between his or her price and the average price paid by clients if
the difference is DE MINIMIS. For purposes of this paragraph, DE
MINIMIS means the GREATER of (i) $50 or (ii) 1% of the excess of
the average price over the
- ----------------------
(5) The Compliance Coordinator shall take whatever steps he or she deems
necessary to determine whether any conflicts exist, including contracting
the appropriate trading desks.
3
<PAGE>
price paid by the employee.
2. A Mutual Fund Covered Person may not effect transactions involving
securities in which the applicable Fund (the Fund for which he or she is
considered a "Covered Person") is effecting transactions, for a period of
one business day before or after the Fund's transaction. Any violation of
this provision will require the employee's trade to be unwound, with the
employee disgorging any resulting profit.
3. In addition, a portfolio manager may not effect transactions involving a
security in which any account that he or she manages (MUTUAL FUND or
MANAGED ACCOUNT) is effecting transactions for a period of seven calendar
days before or after the date of the account's transaction. Any violation
of this provision will require the portfolio manager's trade to be unwound,
with the portfolio manager absorbing any resulting loss and disgorging any
resulting profit.
4. No advisory employee shall recommend or effect any securities
transaction for any client account (including mutual funds) without having
disclosed to the appropriate legal group (E.G., mutual funds legal,
investment advisory legal), which will take further action as necessary,
his or her interest, if any, in such securities or the issuer thereof,
including without limitation:
(1) his or her direct or indirect beneficial ownership of any
securities of such issuer;
(2) any contemplated transaction by such person in such securities;
(3) any position with such issuer or its affiliates;
(4) any present or proposed business relationship between such issuer
or its affiliates and such person or any party in which such
person has significant interests; and
(5) any factors about the transaction that are potentially relevant
to a conflict of interest analysis.
E. EXCEPTIONS
1. EXCEPTED SECURITIES: Sections IV.C and IV.D of this Code (pre-approval,
pre-certification, blackouts and conflicts) do not apply to transactions in
the following types of securities: open-end mutual funds, unit investment
trusts, U.S. government securities, bankers' acceptances, bank certificates
of deposit, commercial paper and other money market instruments.
PRE-APPROVAL/CERTIFICATION ALWAYS IS REQUIRED FOR CLOSED-END FUNDS.
2. LARGE CAP/DE MINIMIS: Section IV.D of this Code (blackouts and
conflicts) shall not apply to any purchase or sale, or series of related
transactions involving the same or related securities, involving 500 or
fewer shares in the aggregate, if the issuer has a market capitalization
(outstanding shares multiplied by the current price per share) greater than
$3 billion and is listed on a U.S. stock exchange or NASDAQ.
PRE-APPROVAL/CERTIFICATION IS STILL REQUIRED.
- Under certain circumstances, the Compliance Department may
determine that an employee may not rely upon the Large Cap/De
Minimus exemption. In such a case, the employee will be notified
prior to or at the time the pre-clearance request is made.
3. OTHER EXCEPTIONS: Exceptions to Section IV other than those described
above will be granted only in rare circumstances, and then only with the
written approval of the SBAM Director of Compliance and the SBAM Chief
Investment Officer or designee (and, in the case of mutual funds, the
Chairman of the Board of Directors of the applicable fund). Exceptions may
be granted only when the SBAM Director of Compliance and the SBAM Chief
Investment Officer or designee (and, as applicable, the Chairman of the
applicable fund) believe that the potential for conflict is remote. The
SBAM Compliance Department will maintain copies of all written approvals,
which should describe the circumstances surrounding and the justification
for granting the exception. Fund boards should be notified at least
annually regarding any exceptions that have been granted for mutual fund
covered persons.
4
<PAGE>
F. PROHIBITED TRANSACTIONS: TRANSACTIONS IN OPTIONS AND FUTURES (6)
1. The following are PROHIBITED transaction:
a. Day trading.
b. The purchase of private placements (any exception requires approval by
SBAM's Chief Administrative Officer or designee and the SBAM General
Counsel).
c. The purchase of new issues of corporate securities (including IPOs
and hot issue syndicate offerings) on the offering are prohibited.
(New issues of municipal debt securities may be purchased subject to
the other requirements of this code (E.G. preclearance)). This
provision is not intended to prevent an employee from purchasing
shares issued by a bank or insurance company as a result of
demutualization, if the employee is entitled to purchase shares by
virtue of being a depositer or policyholder.
2. Employees may buy or sell derivative instruments such as individual
stock options, options and futures on indexes and options and futures
on fixed-income securities, and may buy or sell physical commodities
and forwards on such commodities. Transactions in these products must
be effected through accounts maintained at SSB. These transactions
must comply with all of the policies and restrictions described in
this Code, including blackout periods, and the 60-day holding period.
The 60-day holding period does not apply to individual stock options
that are a part of a hedged position where the underlying stock has
been held for more than 60-days.
G. DIRECTORSHIPS. Directorships (other than related to civic, religious or
charitable activities) are prohibited. Permission to sit on a board of
directors (other than a civic, religious or charitable board) must be
obtained from the SSB Corporate Compliance Department. Directorships on
condominium/residential co-op boards are permitted without prior approval.
Mutual fund "covered persons" may hold directorships in "covered companies"
as defined in the applicable mutual fund code of ethics.(7)
H. GIFTS. No person subject to this Code shall accept or allow a close family
member to accept a gift of more than $100 per donor year, or a favor or
preferential treatment, from any person or entity that does business with
SBAM or does business with or on behalf of any mutual fund advised by SBAM
or its affiliates.
V. TRAVELERS GROUP INC. SECURITIES
A. Employees may purchase securities of Travelers Group at any time so long as
the employee does not have any material non-public information about
Travelers Group at the time of the trade. Employees may purchase for
investment purposes only. Accordingly, all purchases are subject to the
60-day holding period.
B. The following are PERMITTED TRANSACTIONS with respect to Travelers Group
securities:
1. Short sales against the box.
2. The use of puts and calls as part of a strategy to hedge a long
position.
3. Purchases of calls and sales of puts.
C. The following are PROHIBITED TRANSACTIONS with respect to Travelers Group
securities:
1. Short sales (other than against the box).
2. Sales of naked call options.
- ------------------------------
(6) See Section V of these Policies for permitted and prohibited transactions
with respect to Travelers Group securities.
(7) Covered companies generally are the Smith Barney mutual funds. Smith Barney
Inc., Mutual Management Corp., and any of Smith Barney's subsidiaries or
affiliates that acts as advisor for Smith Barney mutual funds.
5
<PAGE>
3. Purchases of puts for speculative purposes.
4. Any transactions related to the hedging of unvested CAP shares.
VI. UNIT TRUST CODE (APPLICABLE TO ALL UNIT TRUST EMPLOYEES)
In addition to the personal trading policies indicated in Sections IV and V
above, all employees assigned to the Unit Trust Department are prohibited from
transacting in any security when a SSB-sponsored Unit Trust portfolio is buying
the same (or related) security, until seven business days after the later of the
completion of the accumulation period or the public announcement of the trust
portfolio. Similarly, all UIT employees are prohibited from transacting in any
security held in a UIT (or a related security) seven business days prior to the
liquidation period of the trust.
- LARGE CAP/DE MINIMIS EXCEPTION: The blackout provisions of this
section VI shall not apply to any purchase or sale, or series of
related transactions involving the same or related securities,
involving 500 fewer shares in the aggregate, if the issuer has a
market capitalization (outstanding shares multiplied by the current
price or share) greater than $3 billion and is listed on a U.S. stock
exchange or NASDAQ. PRE-APPROVAL IS STILL REQUIRED.
- Under certain circumstances, the Compliance Department may
department that an employee may not rely upon the Large Cap/De
Minimis exemption. In such a case, the employee will be notified
prior to or at the time the pre-clearance request is made.
VII. HANDLING OF DISGORGED PROFITS
Any amounts that are paid by an employee under this policy shall be paid by SBAM
over to one or more charities. Amounts paid may be aggregated by SBAM and paid
to such charity or charities at the end of each year.
VIII. ACKNOWLEDGMENT
All new SBAM employees shall certify that they have received a copy of this
Code, and have read and understood its provisions. All SBAM employees will be
asked annually to certify that they have read and understood this Code, compiled
with its principles, and disclosed or reported all personal securities
transactions which are required by this Code to be disclosed or reported.
IX. CONFIDENTIALITY
All information obtained from any person covered by this Code of Ethics shall be
kept in strict confidence, except that such information will be made available
to the Securities or Exchange Commission or any other regulatory or
self-regulatory organization to the extent required by law or regulation.
X. OTHER LAWS, RULES AND STATEMENTS OF POLICY
Nothing contained in this Code shall be interpreted as relieving any person
subject hereto from acting in accordance with the provision of any applicable
law, rule or regulation or any other statement of policy or procedure governing
the conduct of such person adopted by SSB, its affiliates and subsidiaries.
XI. RETENTION OF RECORDS
All pre-approval forms and other records relating to personal securities
transactions should be maintianed for a total of six years, the first two
on-site.
XII. QUESTIONS
Any questions about this Code of Ethics should be directed either to the
applicable Compliance Coordinator or SBAM's Director of Compliance.
(5/98)
6
<PAGE>
EXHIBIT A
EXPLANATION OF BENEFICIAL OWNERSHIP
You are considered to have "Beneficial Ownership" of Securities if you have
or share a direct or indirect "PECUNIARY INTEREST" in the Securities.
You have a "Pecuniary Interest" in Securities if you have the opportunity,
directly or indirectly to profit or share in any profit derived from a
transaction in the Securities.
The following are examples of an indirect Pecuniary Interest in Securities:
1. Securities held by members of your IMMEDIATE FAMILY sharing the same
household; however, this presumption may be rebutted by convincing
evidence that profits derived from transactions in these Securities
will not provide you with any economic benefit.
"Immediate family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and includes any adoptive relationship.
2. Your interest as a general partner in Securities held by a general or
limited partnership.
3. Your interest as a manager-member in the Securities held by a limited
liability company.
You do NOT have an indirect Pecuniary Interest in Securities held by a
corporation, partnership, limited liability company or other entity in which you
hold an equity interest, UNLESS you are a controlling equityholder or you have
or share investment control over the Securities held by the entity.
The following circumstances constitute Beneficial Ownership by you of
Securities held by a trust:
1. Your ownership of Securities as a trustee where either you or members
of your immediate family have a vested interest in the principal or
income of the trust.
2. Your ownership of a vested interest in a trust.
3. Your status as a settlor of a trust, unless the consent of all of the
beneficiaries is required in order for you to revoke the trust.
The foregoing is a summary of the meaning of "beneficial ownership." For
purposes of the attached Code, "beneficial ownership" shall be interpreted in
the same manner as it would be in determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934 and the rules
and regulations thereunder.
<PAGE>
EXHIBIT B
SMITH BARNEY ASSET MANAGEMENT ("SBAM")
EMPLOYEE TRADE
PRE-APPROVAL FORM FOR ADVISORY EMPLOYEES(1)
(PAGE 1)
INSTRUCTIONS:
- - ALL ADVISORY EMPLOYEES SHOULD SUBMIT THIS FORM TO THEIR COMPLIANCE
COORDINATOR PRIOR TO PLACING A TRADE. THE COMPLIANCE COODINATOR WILL NOTIFY
THE EMPLOYEE AS TO WHETHER OR NOT PRE-CLEARANCE IS GRANTED. PRE-CLEARANCE
IS EFFECTIVE ONLY ON THE DATE GRANTED.
- - PORTFOLIO MANAGERS MUST COMPLETE BOTH SIDES OF THIS FORM. ALL OTHER
EMPLOYEES NEED ONLY COMPLETE THIS SIDE.
1. EMPLOYEE INFORMATION
- --------------------------------------------------------------------------------
EMPLOYEE NAME
- --------------------------------------------------------------------------------
EMPLOYEE PHONE NUMBER
- --------------------------------------------------------------------------------
ACCOUNT TITLE
- --------------------------------------------------------------------------------
ACCOUNT NUMBER:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
II. SECURITY INFORMATION
<S><C>
- -------------------------------------------------------------------------------------------------------
SECURITY TYPE (E.G., IF SALE, DATE NO. LARGE CAP
SECURITY NAME COMMON STOCK TICKER BUY/SELL BOUGHT(2) SHARES/UNITS STOCK?(3)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
III. Are you a Portfolio Manager?
/ / Yes (Complete Reverse Side) / / No (Complete Certification Below)
IV. CERTIFICATION
I certify that I will not effect the transaction(s) described above until and
unless pre-clearance approval is obtained from the Compliance Coordinator. I
further certify that, except as described on an attached page, to the best of
my of my knowledge, the proposed transaction(s) will not result in a conflict
of interest with any account managed by SBAM. The proposed transaction(s)
are consistent with all firm policies regarding employee personal securities
transactions.
- -------------------------------------------------------------
SIGNATURE DATE
- --------------------------------------------------------------------------------
FOR USE BY THE COMPLIANCE DEPARTMENT
- --------------------------------------------------------------------------------
PRE-CLEARANCE GRANTED? / / YES / / NO TIME: DATE:
- --------------------------------------------------------------------------------
SIGNATURE:
- --------------------------------------------------------------------------------
- ---------------------------
(1) Other than Mutual Fund Covered Persons and Administrative Employees.
(2) All securities sold must have been held for at least 60 days.
(3) For purposes of SBAM's personal trading policies, a large cap stock is one
that is listed on a U.S. stock exchange or NASDAQ and whose issuer has a market
capitalization (outstanding shares multiplied by current price) of more than $3
billion.
<PAGE>
EXHIBIT B
SMITH BARNEY ASSET MANAGEMENT ("SBAM")
PAGE 2 - PORTFOLIO MANAGER CERTIFICATION
ALL PORTFOLIO MANAGERS MUST ANSWER THE FOLLOWING QUESTIONS IN ORDER TO OBTAIN
PRECLEARANCE. ALL QUESTIONS MUST BE ANSWERED OR THE FORM WILL BE RETURNED. IF A
QUESTION IS NOT APPLICABLE, PLEASE INDICATE "N/A."
1. Do you intend to purchase or sell the securities listed (or related
securities) for any client accounts in the next seven calendar days?
Yes / / No / /
2. Have your client accounts purchased or sold the securities (or related
securities) in the past seven calendar days?
Yes / / No / /
3. Do any of your client accounts currently own the securities (or related
securities)? Yes / / No / /
3a. If yes, and you are selling the securities for your personal account,
please explain why the sale of the securities was rejected for client
accounts but is appropriate for your personal account:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
4. Have you, in the past 7 calendar days, CONSIDERED purchasing the securities
(or related securities) for your client accounts?
Yes / / No / /
4a. If yes, and you are purchasing securities for you personal account,
please explain why the purchase of the securities is appropriate for your
account but has been rejected for your client accounts:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
4b. If no, and you are purchasing securities for your personal account,
please explain why the purchase of the securities has not been considered
for your client accounts:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
CERTIFICATION
I certify that I will not effect the transaction(s) described above until and
unless pre-clearance approval is obtained from the Compliance Coordinator. I
further certify that, except as described on an attached page, to the best of
my knowledge, the proposed transaction(s) will not result in a conflict of
interest with any account managed by SBAM. The proposed transaction(s) are
consistent with all firm policies regarding employee personal securities
transactions.
- --------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
FOR USE BY THE COMPLIANCE DEPARTMENT
- --------------------------------------------------------------------------------
PRE-CLEARANCE GRANTED? YES / / NO / / TIME: DATE:
- --------------------------------------------------------------------------------
SIGNATURE:
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
SMITH BARNEY ASSET MANAGEMENT ("SBAM")
EMPLOYEE TRADE
PRE-APPROVAL FORM FOR
MUTUAL FUND COVERED PERSONS
(PAGE 1)
INSTRUCTIONS:
- - ALL MUTUAL FUND COVERED PERSONS SHOULD SUBMIT THIS FORM TO THEIR
COMPLIANCE COORDINATOR PRIOR TO PLACING A TRADE. THE COMPLIANCE COORDINATOR
WILL NOTIFY THE EMPLOYEE AS TO WHETHER OR NOT PRE-CLEARANCE IS GRANTED.
PRE-CLEARANCE IS EFFECTIVE ONLY ON THE DATE GRANTED.
- - PORTFOLIO MANAGERS MUST COMPLETE BOTH SIDES OF THIS FORM. ALL OTHER
EMPLOYEES NEED ONLY COMPLETE THIS SIDE.
<TABLE>
<CAPTION>
I. EMPLOYEE INFORMATION
<S><C>
- -------------------------------------------------------------------------------------------------------
EMPLOYEE NAME: PHONE NUMBER:
- -------------------------------------------------------------------------------------------------------
ACCOUNT TITLE:
- -------------------------------------------------------------------------------------------------------
ACCOUNT NUMBER:
- -------------------------------------------------------------------------------------------------------
FUND(S) FOR WHICH EMPLOYEE IS A COVERED PERSON:
II. SECURITY INFORMATION
- -------------------------------------------------------------------------------------------------------
SECURITY TYPE (E.G., IF SALE, DATE NO. LARGE CAP
SECURITY NAME COMMON STOCK, ETC.) TICKER BUY SELL BOUGHT(1) SHARES/UNITS STOCK?(2)
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
III. Are you a Portfolio Manager?
/ / Yes (Complete Reverse Side) / / No (Complete Certification Below)
IV. CERTIFICATION
I certify that I will not effect the transaction(s) described above until and
unless pre-clearance approval is obtained from the Compliance Coordinator. I
further certify that, except as described on an attached page, to the best of my
knowledge, the proposed transaction(s) will not result in a conflict of interest
with any account managed by SBAM (including mutual funds managed by SBAM or any
of its affiliates ("SB Mutual Funds")). I further certify that, to the best my
knowledge, there are no pending orders for any security listed above or any
related securities for any SB Mutual Fund for which I am considered a Covered
Person. The proposed transaction(s) are consistent with all firm policies
regarding personal securities transactions (including the SB Mutual Funds Code
of Ethics).
- --------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
FOR USE BY THE COMPLIANCE DEPARTMENT
- --------------------------------------------------------------------------------
PRE-CLEARANCE GRANTED? YES / / NO / / TIME: DATE:
- --------------------------------------------------------------------------------
SIGNATURE:
- --------------------------------------------------------------------------------
- ----------------------------
(1) All securities must have been held for at least 60 days.
(2) For purposes of SBAM's personal trading policies, a large cap stock is one
that is listed on a U.S. stock exchange or NASDAQ and whose issuer has a
market capitalization (outstanding shares multiplied by current price) of
more than $3 billion.
<PAGE>
EXHIBIT C
SMITH BARNEY ASSET MANAGEMENT ("SBAM")
PAGE 2 - PORTFOLIO MANAGER CERTIFICATION
ALL PORTFOLIO MANAGERS MUST ANSWER THE FOLLOWING QUESTIONS IN ORDER TO OBTAIN
PRECLEARANCE. ALL QUESTIONS MUST BE ANSWERED OR THE FORM WILL BE RETURNED. IF A
QUESTION IS NOT APPLICABLE, PLEASE INDICATE "N/A."
1. Do you intend to purchase or sell the securities listed (or related
securities) for any client accounts in the next seven calendar days?
Yes / / No / /
2. Have your client accounts purchased or sold the securities (or related
securities) in the past seven calendar days?
Yes / / No / /
3. Do any of your client accounts currently own the securities (or related
securities)? Yes / / No / /
3a. If yes, and you are selling the securities for your personal account,
please explain why the sale of the securities was rejected for client
accounts but is appropriate for your personal account:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
4. Have you, in the past 7 calendar days, CONSIDERED purchasing the securities
(or related securities) for your client accounts?
Yes / / No / /
4a. If yes, and you are purchasing securities for you personal account,
please explain why the purchase of the securities is appropriate for your
account but has been rejected for your client accounts:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
4b. If no, and you are purchasing securities for your personal account,
please explain why the purchase of the securities has not been considered
for your client accounts:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
CERTIFICATION
I certify that I will not effect the transaction(s) described above until and
unless pre-clearance approval is obtained from the Compliance Coordinator. I
further certify that, except as described on an attached page, to the best of my
knowledge, the proposed transaction(s) will not result in a conflict of interest
with any account managed by SBAM (including mutual funds managed by SBAM or any
of its affiliates ("SB Mutual Funds")). I further certify that, to the best my
knowledge, there are no pending orders for any security listed above or any
related securities for any SB Mutual Fund for which I am considered a Covered
Person. The proposed transaction(s) are consistent with all firm policies
regarding personal securities transactions (including the SB Mutual Funds Code
of Ethics).
- --------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
FOR USE BY THE COMPLIANCE DEPARTMENT
- --------------------------------------------------------------------------------
PRE-CLEARANCE GRANTED? YES / / NO / / TIME: DATE:
- --------------------------------------------------------------------------------
SIGNATURE:
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT D
SMITH BARNEY ASSET MANAGEMENT ("SBAM")
ADMINISTRATIVE EMPLOYEE TRADE CERTIFICATION
INSTRUCTIONS: THIS FORM MAY BE USED ONLY BY CERTAIN ADMINISTRATIVE EMPLOYEES OF
SBAM AS DETERMINED BY THE SBAM COMPLIANCE DEPARTMENT. THIS FORM MUST BE
SUBMITTED TO THE COMPLIANCE COORDINATOR PRIOR TO EXECUTING A TRADE.
<TABLE>
<CAPTION>
I. EMPLOYEE INFORMATION
<S><C>
- ------------------------------------------------------------------------------------------------------
EMPLOYEE NAME
- ------------------------------------------------------------------------------------------------------
EMPLOYEE PHONE NUMBER
- ------------------------------------------------------------------------------------------------------
ACCOUNT TITLE
- ------------------------------------------------------------------------------------------------------
ACCOUNT NUMBER
- ------------------------------------------------------------------------------------------------------
II. SECURITY INFORMATION
- ------------------------------------------------------------------------------------------------------
SECURITY TYPE (E.G., IF SALE, DATE MAX. NO.
SECURITY NAME COMMON STOCK, ETC.) TICKER BUY/SELL BOUGHT SHARES/UNITS
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
III. EMPLOYEE QUESTIONNAIRE AND CERTIFICATION
- ------------------------------------------------------------------------------------------------------
1. To your knowledge, are there any outstanding purchase or sell orders for these
securities or related securities(1) by any advisory client (including mutual Yes No
funds) of SBAM? / / / /
- ------------------------------------------------------------------------------------------------------
2. To your knowledge, are the securities or related securities being considered for Yes No
purchase or sale by any advisory client (including mutual funds) of SBAM? / / / /
- ------------------------------------------------------------------------------------------------------
3. Are the securities being acquired in an offering of new corporate securities Yes No
(e.g., an IPO)? (Note: Purchases of IPOs generally are prohibited.) / / / /
- ------------------------------------------------------------------------------------------------------
4. Are the securities being acquired in a private placement? Yes No
/ / / /
- ------------------------------------------------------------------------------------------------------
5. If this transaction involves a sale of securities, have the securities been held Yes No
for less than 60 days?(2) / / / /
- ------------------------------------------------------------------------------------------------------
IF YOU HAVE ANSWERED "YES" TO ANY QUESTION ABOVE, YOU CANNOT USE THIS FORM. PLEASE SEE YOUR COMPLIANCE
COORDINATOR.
</TABLE>
CERTIFICATION
I certify that I have truthfully answered all the questions above and that the
contemplated transactions are consistent with all SBAM policies regarding
employee personal trading.
- --------------------------------------------------------------------------------
SIGNATURE DATE
- ------------------------------------------------------------------
COMPLIANCE COORDINATOR INITIALS: DATE:
- ------------------------------------------------------------------
- -------------------------------------
(1) Securities issued by the same entity as the issuer of the security, and all
derivative instruments such as options and warrants.
(2) All securities sold must have been held for at least 60 days.
<PAGE>
CODE OF ETHICS
OF
SANFORD C. BERNSTEIN & CO., INC.
EFFECTIVE APRIL, 2000
<PAGE>
TABLE OF CONTENTS
GENERAL PRINCIPLES.............................................................1
PERSONAL TRADING RULES.........................................................2
You May Trade Only at Bernstein..............................................2
General Statement of Policy..............................................2
Outside Accounts Must Be Transferred To Bernstein........................3
Initial Disclosure Upon Commencing Employment............................3
Outside Trades Permitted Only in Very Limited Circumstances..............4
Heightened Disclosure Requirements For Outside Accounts..................5
Pre-Approval Required For All Trades By All Staff Members....................6
General Statement of Policy..............................................6
Steps in the Pre-Approval Process........................................6
Step One: Order Ticket / Memo Request................................7
Step Two: Approval by Your Supervisor or Other Authorized Person.....7
Step Three: Approval of Trading Desk.................................8
Exception: Trades in Authorized Outside Accounts................8
Our Trading Desk Will Not Permit You to Trade Ahead of Clients...........9
General Statement of Policy...........................................9
Limited Exception.....................................................9
Other Reasons For Trading Desk Disapproval..............................10
Prohibition Against Insider Trading.........................................11
Restrictions On Participating In:
IPOs....................................................................12
Private Securities Transactions and Other
Investment Opportunities of Limited Availability........................12
No Short-Term Trading.......................................................13
Special Restrictions For:
Decisionmakers..........................................................14
Others with Access to Decisions.........................................14
i
<PAGE>
Contrary Trading Restrictions For Members of:
Investment Policy Groups................................................15
Global Equity Portfolio Management Department...........................15
(Including All Domestic and International Equity Portfolio
Management Groups and Investment Management Trading).................15
Investment Management Research Department...............................15
(Including All Domestic and International Equity
Research Departments)................................................15
Fixed Income Department.................................................15
Other Special Restrictions For:
Investment Management Research Analysts.................................16
Investment Management Research Associates...............................16
Fixed Income Staff Performing Research..................................16
Special Restrictions For:
Institutional Research Analysts.........................................17
Institutional Research Associates.......................................17
Other Special Restrictions Imposed By Your Department.......................18
OTHER CONDUCT RULES...........................................................19
Gifts.......................................................................19
Gifts Received By Staff Members.........................................19
Entertaining Clients....................................................19
Gifts Given By Staff Members............................................20
Compensation to Certain Employees of Others.............................20
Financial Interest..........................................................21
Awarding Contracts..........................................................21
Outside Directorships & Officerships and Other Outside Activities...........22
No Recommendation or Sale of Products Other Than Bernstein Products.........22
ii
<PAGE>
Proprietary Information.....................................................23
Identity of Companies on Our Restricted Lists...........................23
Clients'Proprietary Information.........................................23
Our Research............................................................23
Other...................................................................23
Rumors......................................................................24
Communication With Clients & the Public.....................................24
Reportable Events Involving Staff Members...................................25
ADMINISTRATION................................................................26
Annual Report and Certification.............................................26
Ongoing Supervisory Oversight...............................................26
Education & Training........................................................26
Reporting of Violations.....................................................26
SANCTIONS.....................................................................27
OVERSIGHT BY BOARD OF DIRECTORS...............................................28
Establishment and Oversight of This Code....................................28
Our Annual Report and Certification to the Board............................28
RECORD-KEEPING................................................................29
The Legal Department is Responsible For:....................................29
The Brokerage Operations Department is Responsible For:.....................30
iii
<PAGE>
GENERAL PRINCIPLES
This Code of Ethics is based on the following general principles that will
govern your conduct while a member of the Bernstein staff:
- YOU MUST PLACE THE INTERESTS OF OUR CLIENTS FIRST;
- YOU MUST CONDUCT YOUR PERSONAL SECURITIES AND COMMODITIES TRANSACTIONS
AND PERFORM YOUR JOB DUTIES IN KEEPING WITH THIS CODE OF ETHICS AND IN
A MANNER SO AS TO AVOID ANY ACTUAL OR POTENTIAL CONFLICTS OF INTEREST
OR ANY ABUSE OF YOUR POSITION OF TRUST AND RESPONSIBILITY;
- YOU MUST NOT TAKE INAPPROPRIATE ADVANTAGE OF YOUR POSITION WITH OUR
FIRM;
- YOU MUST COMPLY WITH ALL APPLICABLE LAWS, RULES AND REGULATIONS, AND
MAKE A GOOD FAITH EFFORT TO COMPLY WITH THE SPIRIT AND INTENT OF ALL
SUCH LAWS, RULES AND REGULATIONS; AND
- YOU MUST COMPLY WITH ALL OTHER POLICIES AND PROCEDURES OF OUR FIRM,
SUCH AS THOSE IN OUR COMPLIANCE MANUAL AND IN BERNSTEIN & YOU, OUR
EMPLOYEE HANDBOOK.
For purposes of this Code, we use the term "client" to include all
institutional brokerage, investment advisory and investment management clients
of Bernstein, including each portfolio of the Sanford C. Bernstein Fund, Inc.
and any other investment company for which we provide investment management
services.
When we refer to "you" in this Code and "your" obligations to abide by this
Code's personal trading restrictions, we also mean any other person, including
your spouse or other family member, whose investment decisions you control or
influence.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
1
<PAGE>
PERSONAL TRADING RULES
YOU MAY TRADE ONLY AT BERNSTEIN
GENERAL STATEMENT OF POLICY
In order to monitor adherence to the trading rules described in this Code
of Ethics, we require you to maintain at Bernstein all of your securities
accounts and the accounts that you control, and we restrict you from controlling
or influencing any securities or commodities trades outside Bernstein without
our special permission. This means, for example:
- Your securities (including options) accounts must be here;
- The securities accounts of your spouse and other immediate family
members sharing your household must be here if you control the
selection of investments for those accounts;
- You must obtain approval from the firm to maintain a commodities
account with a futures commission merchant;
- You may not control or influence any securities or commodities trade
outside Bernstein without our permission;
- Your IRA or 401(k) account must be here if you can control the
selection of particular stocks for the account;
- You may not trade securities "online;"
- You may not participate directly or indirectly in any investment club
in which members pool their funds and invest;
- If you have a financial interest in a trust, and you control the
selection of securities for the trust, the trust account must be here;
and
- The accounts of charities must be here if you control the selection of
investments for those accounts.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
2
<PAGE>
PERSONAL TRADING RULES - YOU MAY TRADE ONLY AT BERNSTEIN (CONTINUED)
OUTSIDE ACCOUNTS MUST BE TRANSFERRED TO BERNSTEIN
Beginning on your first day as our staff member, you may not control or
influence the trading of securities or commodities in any outside account. You
must transfer to us all outside accounts as soon as possible unless we give you
permission to maintain the accounts outside Bernstein (as explained on the next
page). You can obtain from the Legal Department the forms for transferring
accounts and for opening accounts at Bernstein.
INITIAL DISCLOSURE UPON COMMENCING EMPLOYMENT
In order for us to monitor and facilitate your transfer of accounts to us
and to otherwise help us to implement this Code, you must report to us within 10
days of joining our firm the information described below. The Personnel
Department will provide you with the forms for making this report.
- Information about all securities and commodities accounts you control
or influence (including accounts with brokers, dealers, banks or
mutual fund companies). You will need to attach the most recent
account statements.
- Information about stock certificates you hold.
- Information about all private placements, limited partnership
interests and other private investments that you control or influence.
- Information about all positions you hold as an employee, officer or
director of any business organization outside Bernstein.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
3
<PAGE>
PERSONAL TRADING RULES - YOU MAY TRADE ONLY AT BERNSTEIN (CONTINUED)
OUTSIDE TRADES PERMITTED ONLY IN VERY LIMITED CIRCUMSTANCES
We may, in our sole discretion, approve the following requests to execute
trades outside Bernstein:
- You want to trade commodities (such as futures). Since we do not
provide those services, we might allow you to maintain an outside
account for this type of trading, but you will need to obtain our
permission before each trade in accordance with procedures established
by the Legal Department.
- You want to maintain elsewhere a managed account (also known as a
discretionary account) in which an investment manager or other
fiduciary has the authority to make trading decisions on your behalf.
In reviewing your request to maintain an outside managed account, we
might ask for written confirmation that you have no power to choose or
recommend securities to trade for the account. Requests of this type
from principals or shareholders of Bernstein are generally denied.
- You want to hold or trade mutual funds outside Bernstein. If you hold
the mutual fund account directly with a mutual fund company and
without utilizing the services of a broker, you will simply need to
report the account to our Legal Department on a form that we will
supply to you. If you hold the mutual funds in a brokerage account, we
may approve your request if you agree not to trade anything other than
mutual funds in the account.
- You have stock options granted to you by a former employer under an
employee stock option plan. The employer may have a program in place
to facilitate your exercise of options through a broker other than
Bernstein, and you want to participate in that program.
- You have a dividend reinvestment plan that you opened directly with an
issuer and not through a brokerage account. You want to maintain that
plan. You may simply need to report the plan to our Legal Department
on a form that we will supply to you. However, you will need to seek
our permission before selling the securities.
- You have a 401(k) plan through your former employer. You have the
ability to choose certain funds for investment, for example a
"balanced fund," or a "growth fund." You do not have the ability to
choose a "self-directed" option or otherwise to choose particular
securities in which to invest.
- You want to purchase Treasury Notes, Treasury Bonds or Treasury Bills
directly from (or sell directly to) the Federal Reserve Bank, or you
want to hold certificates of deposit ("CDs") at a bank. These do not
fall within the definition of "securities" for purposes of this Code.
- You want to participate in a private placement. You will need to seek
our approval in accordance with the policy described on page 12 of
this Code. If and when the issuer later becomes a public company, you
will need to transfer your investment to a brokerage account at
Bernstein if you wish to sell it.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
4
<PAGE>
PERSONAL TRADING RULES - YOU MAY TRADE ONLY AT BERNSTEIN (CONTINUED)
HEIGHTENED DISCLOSURE REQUIREMENTS FOR OUTSIDE ACCOUNTS
For any securities or commodities accounts we give you permission to
maintain, control or influence outside of Bernstein, you must arrange for a copy
of the confirmation of each transaction and a copy of each monthly statement to
be provided promptly to our Legal Department. (The only exception is for mutual
funds held directly with a mutual fund company and not purchased utilizing the
services of a broker). Whenever possible, you must arrange for these copies to
be sent directly by the other firm where the account is held.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
5
<PAGE>
PERSONAL TRADING RULES (CONTINUED)
PRE-APPROVAL REQUIRED FOR ALL TRADES BY ALL STAFF MEMBERS
GENERAL STATEMENT OF POLICY
Each time you want to place a securities or commodities trade in an account
you control or influence (whether at Bernstein or outside of Bernstein as
permitted by the Legal Department), you will first need to obtain our permission
in accordance with the three-step set of procedures described below. These
procedures do NOT apply to:
- trades in open-end mutual fund shares;
- non-volitional trading (for example: stocks splits or dividend
reinvestment plans); or
- trades in managed accounts in which Bernstein or another investment
manager is selecting securities or commodities to trade.
We will disapprove your trade in our sole discretion if we believe that it
would violate this Code, that the frequency or nature of your trading activity
may distract you from your job responsibilities, or that the trade may otherwise
be inappropriate or may raise the appearance of a possible conflict of interest.
STEPS IN THE PRE-APPROVAL PROCESS
You will need to take three steps in order to place a typical trade. The
three steps are summarized in the chart below, and each step is explained on the
following pages. Other pre-approval requirements will apply if you are seeking
to trade options or if you are seeking to participate in an investment
opportunity of limited availability.
------------------ -------------------- --------------------
STEP ONE: STEP TWO: STEP THREE:
--------- -- > --------- -- > -----------
COMPLETE OBTAIN APPROVAL BY OBTAIN APPROVAL OF
ORDER TICKET/ SUPERVISOR OR OTHER TRADING DESK
MEMO REQUEST AUTHORIZED PERSON
------------------ -------------------- --------------------
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
6
<PAGE>
PERSONAL TRADING RULES - PRE-APPROVAL REQUIRED FOR ALL TRADES BY ALL STAFF
MEMBERS (CONTINUED)
STEP ONE: ORDER TICKET / MEMO REQUEST
Before placing a securities trade AT BERNSTEIN, you will need to fill out a
trade order ticket. You can obtain these tickets from the Legal Department or
the trading desk. From time to time, we will distribute instructions for filling
out the trade order ticket.
Before placing a securities or commodities trade OUTSIDE BERNSTEIN (in the
limited circumstances where outside trading is permitted), you will need to
describe the proposed trade in a written memo. You can obtain a form of
memoranda from the Legal Department.
STEP TWO: APPROVAL BY YOUR SUPERVISOR OR OTHER AUTHORIZED PERSON
You must take your trade order ticket (or your memo, in the case of trades
in authorized outside accounts) to your supervisor or other person authorized to
approve trades. The Legal Department will maintain and distribute periodically a
current list of supervisors and other persons who have authority to approve
personal trades. That person must place his or her initials and the date on the
order ticket (or memo) to document the appropriate approval.
Approval to conduct a personal trade will remain effective only for the day
in which it is granted. If you fail or decline to complete the trade that day
for any reason (including that the trading desk holds your order pending a
client transaction), you must obtain a new approval to place the trade on
another day.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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PERSONAL TRADING RULES - PRE-APPROVAL REQUIRED FOR ALL TRADES BY ALL STAFF
MEMBERS (CONTINUED)
STEP THREE: APPROVAL OF TRADING DESK
After you have obtained approval from your supervisor or other authorized
person to place a trade, you will still need to obtain the approval of our
trading desk. From time to time, we will distribute procedures for obtaining
trading desk approval. The trading desk, if it approves your proposed
transaction, will place the trade for you, and we will send you a confirmation
in the mail.
EXCEPTION: TRADES IN AUTHORIZED OUTSIDE ACCOUNTS
The only exception is for trades in authorized outside accounts such
as commodities accounts. For these outside trades, you will need to bring your
memo (reflecting the approval of your supervisor or other authorized person) to
the Legal Department before you place the trade outside. The Legal Department
will obtain any additional approvals required and will retain a copy of your
memorandum.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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PERSONAL TRADING RULES - PRE-APPROVAL REQUIRED FOR ALL TRADES BY ALL STAFF
MEMBERS (CONTINUED)
OUR TRADING DESK WILL NOT PERMIT YOU TO TRADE AHEAD OF CLIENTS
GENERAL STATEMENT OF POLICY
In order to minimize the potential for conflicts of interest between
you and our clients, our trading desks will not permit you to trade under the
following circumstances:
- Related client orders are pending; or
- A large volume of client orders is forthcoming (e.g., the
security is listed as a "priority purchase," "priority sale,"
"trim" or "established tax trade").
Under certain circumstances, your trade might be delayed for several days or
even weeks until the pending or anticipated client orders are completed.
LIMITED EXCEPTION
Our trading desk may grant you an exception under the circumstances
set forth below. This exception will not be available to you if you are a member
of the Fixed Income Department (with respect to fixed income trades), or if you
are a member of an equity IPG or any Equity Portfolio Management Department,
including Investment Management Trading (with respect to equity trades).
- Your trade involves a relatively insignificant number of
shares, typically less than 500 shares or securities
convertible into less than 500 shares, or less than 25 bonds
or securities convertible into less than 25 bonds;
AND
- The security you are seeking to buy is not part of a large
buy program for client accounts, or the security you are
seeking to sell is not part of a large sell program for
client accounts;
AND
- Clients are waiting for a better price before trading. For
equities, pending client orders typically must be awaiting
prices that differ from the market price by at least a 1/2
point. For fixed income securities, pending client orders
typically must be awaiting prices that differ from the
market price by at least 10 basis points in yield.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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PERSONAL TRADING RULES - PRE-APPROVAL REQUIRED FOR ALL TRADES BY ALL STAFF
MEMBERS (CONTINUED)
OTHER REASONS FOR TRADING DESK DISAPPROVAL
In addition, our trading desks will not permit you to trade if, for
example:
- Our firm has agreed to participate in the underwriting for new
securities of an issuer and your order is for securities of that
issuer.
- Our Institutional Research Department is initiating research
coverage of a company or has reached a research recommendation
about the company that has not yet been disseminated, and you
want to trade securities related to that company.
- Our Institutional Research Department has just disseminated a
research report initiating coverage of a company or changing a
recommendation regarding a company, and you want to trade
securities related to that company. Our trading desks will not
execute for you any personal trades relating to that company
until 48 hours following the dissemination of our research.
- You want to buy a security that our firm has purchased for
clients. It is a security that our firm still would want to
purchase for clients but cannot do so because of regulatory or
policy restrictions limiting the ownership interest in an issuer
that we can acquire for ourselves or our clients.
Moreover, our trading desks may from time to time establish rules for
employee personal trading designed to ensure that we do not divert to our
employees the resources needed to serve our clients. For example, our trading
desk may prohibit personal trading by staff members during certain times of the
day during which the desk tends to be particularly busy with client trades.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
10
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PERSONAL TRADING RULES (CONTINUED)
PROHIBITION AGAINST INSIDER TRADING
The securities laws and our policies prohibit persons or entities from
acting on inside information, in other words information that is "material" and
"nonpublic." Information may be material and nonpublic if there is a substantial
likelihood that a reasonable investor would consider the information important
in making his or her investment decision and the information is not generally
available to ordinary investors in the marketplace. The information may come
from the company itself, or may come from other sources such as investment
bankers.
- You may not trade while in possession of inside information. This
is true regardless of how you learned about the information.
- If you believe that you have received inside information, you
must immediately cease contact with the source and consult an
attorney in the Legal Department. You must not communicate the
inside information to your supervisor, to anyone in the Portfolio
Management Department, or to anyone other than attorneys in the
Legal Department. The Legal Department will determine whether and
to what extent we should impose trading restrictions on you
and/or us. Also, you should speak with the Legal Department if
you believe that other staff members have communicated or traded
upon inside information. The Legal Department, to the extent
practicable, will keep your identity confidential in any
resulting investigation.
- While in possession of inside information, you may not recommend
the purchase or sale of a security to our firm or to any other
individual or entity. You also may not make any comment that
could be construed as a recommendation to purchase or sell the
security, or take any other action with respect to that security.
- In the course of our syndicate activities, meaning where the Firm
has agreed to participate in an underwriting, we may come into
possession of inside information regarding a company issuing or
planning to issue securities. On those occasions, the Syndicate
Department must establish a "Chinese Wall," which is the name
given to procedures designed to prevent the disclosure of such
information to other departments of our Firm. Our Compliance
Manual sets forth our Chinese Wall procedures. If you are a
member of the Syndicate Department or are otherwise instructed by
the Legal Department to create a Chinese Wall, you must
familiarize yourself with these procedures.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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PERSONAL TRADING RULES (CONTINUED)
RESTRICTIONS ON PARTICIPATING IN:
|X| IPOS
|X| PRIVATE SECURITIES TRANSACTIONS AND OTHER INVESTMENT
OPPORTUNITIES OF LIMITED AVAILABILITY
You must obtain the approval of your supervisor and the Legal
Department before you directly or indirectly participate in either of the
following activities:
- INITIAL PUBLIC OFFERINGS. In order to ensure our firm's
compliance with NASD rules, we prohibit our staff members from
directly or indirectly acquiring an interest in an IPO except
under very limited circumstances. For example, if you hold a
passbook savings account at a savings & loan, our Legal
Department might permit you (subject to certain conditions) to
participate as an account holder in a conversion of the savings &
loan to a public company, so long as our firm is not
participating in the conversion.
- LIMITED OFFERINGS. This includes any private securities
transaction or other investment opportunity of limited
availability, including new offerings or other investments not
registered with the SEC (for example private real estate limited
partnerships, investments in family-owned businesses and hedge
fund investments). In responding to these requests, we will
consider, among other things, whether your investment is passive,
whether the investment opportunity should be reserved for our
clients, and whether the opportunity is being offered to you by
virtue of your position here.
You can obtain from the Legal Department forms for requesting approval. The
Legal Department and your supervisor will approve or disapprove your request in
their discretion.
BERNSTEIN PRINCIPALS AND SHAREHOLDERS SHOULD CONSULT THEIR PRINCIPALS'
AGREEMENT AND SHAREHOLDERS' AGREEMENT RESPECTIVELY FOR ADDITIONAL RESTRICTIONS.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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PERSONAL TRADING RULES (CONTINUED)
NO SHORT-TERM TRADING
- You may not buy a security if you have sold the same or equivalent
security within the prior thirty (30) calendar days.
- You may not sell a security if you have bought the same or equivalent
security within the prior thirty (30) calendar days.
- This rule does not apply to Treasuries or derivatives on Treasuries,
although even for this limited category of securities you may not
trade on an intra-day basis.
- Exemptions from this rule will be granted only in rare instances, such
as in cases of financial hardship. To obtain an exemption, you must
make a written request for approval from your supervisor and the Legal
Department.
- If you profit from a short-term trade in violation of this section,
you will be required to disgorge your profits to charity.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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PERSONAL TRADING RULES (CONTINUED)
SPECIAL RESTRICTIONS FOR:
|X| DECISIONMAKERS
|X| OTHERS WITH ACCESS TO DECISIONS
- INVESTMENT MANAGEMENT. You may not trade in a security if you
participate in, or have reason to know about, our firm's consideration
of the security for the accounts of our investment management clients.
This restriction will continue throughout the implementation of any
resulting major buy or sell program. The following examples illustrate
this policy:
>> You are seriously considering recommending a security to our
applicable investment policy group ("IPG") for purchase or
sale for clients' accounts, or you are a member of an IPG
where discussions of such a recommendation are taking place.
You may not trade in the security. You may trade, if
otherwise consistent with this Code, only after the IPG has
considered and rejected your recommendation, or after the
IPG has accepted your recommendation and client orders have
been completed.
>> You know (for example, because you overheard a conversation)
that our firm intends in the reasonably foreseeable future
to place orders to purchase a security for our clients'
accounts. You may not purchase the security. You may trade,
if otherwise consistent with this Code, only after we have
decided not to purchase the security for clients, or after
all client orders have been filled.
Moreover, you must disclose to the chairperson of the applicable IPG
any of your direct or indirect holdings in a security when you are
participating in our firm's determination of whether to buy or sell
the security for our clients.
- INSTITUTIONAL SERVICES. You may not trade in a security if you have
reason to know that our firm is intending to recommend the security to
clients of our institutional services business, or that any of those
clients are intending in the reasonably foreseeable future to place
orders in the security. The following examples illustrate this policy:
>> You become aware of a forthcoming research recommendation of
an institutional research analyst prior to its dissemination
(whether with respect to initiating coverage or to changing
a previously-issued recommendation). You may not trade in
that security until 48 hours after the research report has
been disseminated.
>> You learn that a client of our institutional services
business intends to place an order to purchase a security.
You may not trade in the security until the client's orders
have been filled.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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PERSONAL TRADING RULES (CONTINUED)
CONTRARY TRADING RESTRICTIONS FOR MEMBERS OF:
|X| INVESTMENT POLICY GROUPS
|X| GLOBAL EQUITY PORTFOLIO MANAGEMENT DEPARTMENT
(INCLUDING ALL DOMESTIC AND INTERNATIONAL EQUITY PORTFOLIO MANAGEMENT
GROUPS AND INVESTMENT MANAGEMENT TRADING)
|X| INVESTMENT MANAGEMENT RESEARCH DEPARTMENT
(INCLUDING ALL DOMESTIC AND INTERNATIONAL EQUITY RESEARCH DEPARTMENTS)
|X| FIXED INCOME DEPARTMENT
- GENERAL STATEMENT OF POLICY. If you work in one of these areas, you
may not make any trades that are contrary to the action our firm is
taking, or is contemplating taking in the reasonably foreseeable
future, for our managed accounts in that area. There is only one
exception - if we are holding a stock for clients solely for purposes
of diversification to control the portfolio's tracking error versus
its benchmark index, then the contrary trading policy would not
restrict you from selling the stock.
- ILLUSTRATIONS OF POLICY. For example, if our firm is buying or holding
a fixed income security for clients' accounts, then you may not sell
the security if you are a member of the fixed income department or you
serve as a member of an investment policy group that encompasses fixed
income securities. Similarly, if our firm has just completed a sell
program for an equity security, you may not buy the security if you
are a member of the Global Equity Portfolio Management Department or
Investment Management Research Department, or if you serve as a member
of an investment policy group that encompasses equity securities.
Generally, staff member purchases more than seven (7) days after we
have completed our sell program for clients will not be considered
contrary trading under this policy.
- EXEMPTIONS. To obtain an exemption from this policy, you will need the
written approval of your supervisor and the Legal Department, which
may consider such factors as the length of your holding period, the
size of your holding in absolute terms and relative to your other
holdings, and the reasons for the proposed trade.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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<PAGE>
PERSONAL TRADING RULES (CONTINUED)
OTHER SPECIAL RESTRICTIONS FOR:
|X| INVESTMENT MANAGEMENT RESEARCH ANALYSTS
|X| INVESTMENT MANAGEMENT RESEARCH ASSOCIATES
|X| FIXED INCOME STAFF PERFORMING RESEARCH
- - If you are a staff member in one of these positions, you must sell all
holdings in a security upon your initiation of research coverage of that
security or before otherwise recommending the security for purchase for
managed accounts. The Director of Investment Management Research, or the
Chief Investment Officer or Director of Global Fixed Income Investments (as
applicable), may grant discretionary exceptions to this policy (in
consultation with the Legal Department) based on factors including:
>> the length of time since your last purchase of the security,
>> your intent regarding future holding of the security,
>> reasons for your original purchase,
>> the liquidity, capitalization and volatility of the security, and
>> the size of your holding (in both absolute terms and relative to
your overall portfolio).
We might condition an exception on your agreement to hold the security
until our clients have sold it.
- - You may not trade options of any kind in securities you cover.
- - You may not "short" securities you cover.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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PERSONAL TRADING RULES (CONTINUED)
SPECIAL RESTRICTIONS FOR:
|X| INSTITUTIONAL RESEARCH ANALYSTS
|X| INSTITUTIONAL RESEARCH ASSOCIATES
- You must sell all holdings in a security upon your initiation of
research coverage of that security. In other words, you may not
recommend purchase of a security that you hold. The applicable
Director of Institutional Research may grant discretionary exceptions
to this policy (in consultation with the Legal Department) based on
factors including:
>> the length of time since your last purchase of the security,
>> your intent regarding future holding of the security,
>> reasons for your original purchase,
>> the liquidity, capitalization and volatility of the
security, and
>> the size of your holding (in both absolute terms and
relative to your overall portfolio).
The Director might condition an exception on your agreement to hold
the security until we have disseminated to our institutional clients a
recommendation that the security is rated "underperform." The Director
also might grant limited exceptions for new employees with respect to
securities purchased before joining us.
- With respect to securities you cover, you may purchase only securities
that you rate "outperform," and you may sell only securities that you
rate "underperform." You may neither buy nor sell securities that you
rate "marketperform." To obtain an exemption from this policy, you
will need the written approval of your supervisor and the Legal
Department, which might consider such factors as the length of your
holding period, the size of your holding in absolute terms and
relative to your other holdings, and the reasons for the proposed
trade.
- You may not trade options of any kind in securities you cover.
- You may not "short" securities you cover.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
17
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PERSONAL TRADING RULES (CONTINUED)
OTHER SPECIAL RESTRICTIONS IMPOSED BY YOUR DEPARTMENT
From time to time, any department in our firm may establish rules for
personal trading that cover staff members in that department and that take into
consideration the particular functions and duties of those staff members. Any
personal trading rules issued by your department managers will be in addition to
the rules in this Code.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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OTHER CONDUCT RULES
GIFTS
The following policies do not apply to personal gifts between staff
members, or to personal gifts between a staff member and a family member or
personal friend that are given or received outside of a business related
setting.
GIFTS RECEIVED BY STAFF MEMBERS
You may not accept any gift (including gifts of tickets to sporting events
or theatre where the person providing the entertainment is not present) other
than gifts of nominal value (under $100) from any one person in any one year.
Under no circumstances may you accept a gift of cash.
ENTERTAINING CLIENTS
You may engage in normal and customary business entertainment (such as
business meals, sporting events and shows) provided that you are present for the
event.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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OTHER CONDUCT RULES--GIFTS (CONTINUED)
GIFTS GIVEN BY STAFF MEMBERS
You may not give or permit to be given anything of value, including
gratuities, in excess of $100 per individual per year to any person where such
payment or gratuity is in relation to the business of the recipient's employer.
This limit applies, for example, to a gift of tickets to an event if you will
not be accompanying the recipient to the event. The maximum is $50 if the
recipient is a principal, officer or employee of the NYSE or its subsidiaries.
You may give gifts of securities to charity, and we permit you to choose
the securities you wish to give from any type of securities account. Please note
the following regarding the charity's subsequent sale of those securities. If
the charity's account is a managed account held at Bernstein, and the charity
wishes to sell the gifted security, then the charity's account will compete
equally (for allocation purposes) with the managed accounts of our other
clients. If the charity's account is one for which you have the power to control
the choice of securities to trade (and thus the charity's account is a brokerage
account held at Bernstein), then the charity will be required to wait for client
orders to be completed before selling the securities that it received from you.
COMPENSATION TO CERTAIN EMPLOYEES OF OTHERS
Bernstein is permitted by applicable regulations to pay for services of up
to $200 per person per year to certain specified operations persons with the
prior written consent of a Senior Vice President or Vice President of
Operations. Such permitted recipients include a telephone clerk on the New York
Stock Exchange floor who provides courtesy telephone relief to the Firm's floor
clerk or handles orders for the Firm. Please refer to the Firm's Compliance
Manual for detailed procedures regarding compensation of this type.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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OTHER CONDUCT RULES (CONTINUED)
FINANCIAL INTEREST
You may not act on the firm's behalf in any transaction involving persons
or entities with whom you or your family has any significant connection or
financial interest without prior written approval from our Board of Directors.
You should direct to the office of the General Counsel any requests for approval
from the Board of Directors. For purposes of this policy, your family includes
parents, parents-in-law, spouse, siblings, siblings-in-law, children,
children-in-law, or a person to whom you provide material support.
AWARDING CONTRACTS
We must award orders, contracts and commitments to suppliers strictly based
on merit and without favoritism. The Legal Department must review and approve
all contracts for goods or services before execution, and an authorized Firm
officer must sign each contract. The officer signing the contract must provide a
copy of the final, signed version to the Legal Department for retention.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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OTHER CONDUCT RULES (CONTINUED)
OUTSIDE DIRECTORSHIPS & OFFICERSHIPS AND OTHER OUTSIDE ACTIVITIES
Whether or not in connection with your duties and responsibilities at
Bernstein, you may not accept the following without prior written approval from
the Board of Directors:
- A directorship or officership of any company or organization (other
than a charitable organization), regardless of whether you receive
compensation, or
- Outside employment or remuneration from any source for any services
performed (for example, consulting fees or finder's fees).
You must submit any requests for such approval in writing to the General
Counsel. In a rare instance in which we grant your request to serve as a board
member of a public company, we may require that you be isolated from making any
decisions for our clients with respect to investing in that company.
You may not use the firm's name in connection with any outside activity
without prior written approval from our Board of Directors. You must submit any
request for approval in writing to the General Counsel.
NO RECOMMENDATION OR SALE OF PRODUCTS OTHER THAN BERNSTEIN PRODUCTS
You may not recommend to clients that they participate in any securities
transaction (including any private transaction) other than a Bernstein product.
And, you may not receive "selling" or other compensation in connection with any
securities transaction (including any private transaction) other than a
Bernstein product.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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OTHER CONDUCT RULES (CONTINUED)
PROPRIETARY INFORMATION
IDENTITY OF COMPANIES ON OUR RESTRICTED LISTS
Our firm maintains lists of securities relating to companies for which we
have agreed to participate in an underwriting, or about which we intend to
publish a research recommendation. You may not disclose outside our Firm the
identity of securities on these lists, since the fact that we have listed a
security may signal the market that we know of a significant development which
may affect the price of the security.
CLIENTS' PROPRIETARY INFORMATION
You must never disclose confidential business or personal information,
including names of clients, client account balances, financial information
obtained from a client, or anticipated changes in the management or financial
condition of a client, outside the normal and necessary course of the firm's
business. This policy does not preclude you from sharing information about a
client with his or her lawyers, accountants or other advisors upon the client's
request.
OUR RESEARCH
Our firm gathers and develops information that we use to service our
clients. For example, our Institutional Research Analysts publish "Black Book"
reports. You may not disclose this information outside the firm except as
required to perform your job duties. Also, any material marked "Not for External
Distribution," including research prepared by investment management research
analysts, should not be distributed outside the firm.
OTHER
During the course of your employment, you may have access to information
relating to our business, including information that provides our firm with a
competitive advantage. This confidential information may include, for example,
information relating to our investment strategies, our investment management
processes or systems, our existing or anticipated corporate activity, our
financial condition or performance, or compensation paid to our staff. You may
not disclose confidential information to anyone outside Bernstein except in the
course of the proper exercise of your job duties.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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OTHER CONDUCT RULES (CONTINUED)
RUMORS
New York Stock Exchange rules, as well as our policy, prohibit the
circulation of rumors concerning the affairs of any company, as well as the
affairs of other NYSE member organizations, since rumors can influence
securities prices. If a rumor comes to your attention, you must contact the
Legal Department immediately and refrain from spreading the rumor.
COMMUNICATION WITH CLIENTS & THE PUBLIC
Our Compliance Manual sets forth our policies and procedures regarding our
communications with clients or other members of the public, with which you must
comply. Also, you must comply with sections of our Compliance Manual governing
our review of incoming and outgoing correspondence of certain staff members. In
addition, when communicating with clients or the public, truthfulness and good
taste are always required.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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OTHER CONDUCT RULES (CONTINUED)
REPORTABLE EVENTS INVOLVING STAFF MEMBERS
We are required to notify regulatory authorities in the event that a staff
member is involved in or is the subject of a "reportable event," for the most
part when a staff member faces actual or potential disciplinary action or finds
him or herself in some other kind of legal or regulatory trouble. While we are
likely to become aware of certain types of reportable events in the course of
our supervision of staff members, we may not necessarily be aware of all
reportable events without your disclosure. In order to facilitate our firm's
compliance with these requirements, you are required to notify the Legal
Department immediately in the event you, or a person under your supervision,
comes under scrutiny by our firm or any outside person or entity or engages in
conduct warranting a higher level of supervisory oversight by our firm. For
example, you must notify the our Legal Department if you, or a person under your
supervision:
- violates a law or regulation, or any agreement with or rule or
standard of any government agency, self-regulatory organization or
business or professional organization;
- is the subject of any customer complaint;
- is named as a defendant or respondent in any proceeding;
- is denied registration or membership or is disciplined by any
regulatory or self-regulatory organization;
- makes any false or misleading statement, or omits a fact required to
be disclosed, in connection with any matter involving a regulatory
agency, whether in connection with an application, report, proceeding
or otherwise;
- is arrested, or is charged with, convicted of, pleads guilty to, or
pleads no contest to, any criminal offense (other than minor traffic
violations);
- has any association with an entity or person which was disciplined,
suspended, expelled or had its registration denied or revoked by any
agency, jurisdiction or organization, or which was convicted of, or
pleaded no contest to, any criminal offense;
- makes a compromise with creditors, files a bankruptcy petition or is
the subject of an involuntary bankruptcy petition;
- is or may become the subject of any internal disciplinary action;
- violates rules of our firm including this Code.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
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ADMINISTRATION
ANNUAL REPORT AND CERTIFICATION
Annually, we will require you to certify on a form provided by the Legal
Department that you have read and understand this Code and have complied with
all applicable requirements. On the same form, we will require you to certify
the accuracy of our records regarding any accounts or investments you control or
influence outside of Bernstein and any outside business activities.
ONGOING SUPERVISORY OVERSIGHT
The Legal Department and your department manager will receive information
about your personal trading and will investigate any aberrational trading
activity, trades that appear to violate this Code, or trades that otherwise
raise the appearance of impropriety. In addition to our procedures for
monitoring securities and commodities transactions and holdings, we also will,
in connection with our supervisory responsibilities, endeavor to monitor your
conduct to ensure compliance with other conduct rules in this Code.
EDUCATION & TRAINING
We will periodically hold education and training programs in order to,
among other things, highlight the requirements of this Code. You are required to
attend the programs that we hold for you. In addition, if you are a "registered"
staff member, you are responsible for your compliance with continuing education
requirements of the regulatory authorities.
REPORTING OF VIOLATIONS
All departments must promptly report to the Legal Department any violations
of this Code. All departments should consult with the Legal Department before
imposing any sanctions for violations.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
26
<PAGE>
SANCTIONS
To ensure compliance with the letter and spirit of this Code and with all
applicable laws, we reserve the right in our sole and absolute discretion to:
- Cancel any trade with or without notice to you at your expense;
- Require you to forfeit any profit you have made;
- In the case of an approved outside account, instruct you to cancel the
trade at your expense; and/or
- Suspend or revoke your trading privileges at any time for violations
of the letter or spirit of this Code or any applicable law, in
addition to any other disciplinary action or sanction.
If we discover a violation of this Code, we will respond appropriately,
which may include sanctions such as a letter of censure and/or a fine, or
suspension or termination of employment. Certain violations of this Code may
also expose a staff member (as well as the Firm) to regulatory disclosure
requirements, criminal prosecution and claims for damages.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
27
<PAGE>
OVERSIGHT BY BOARD OF DIRECTORS
ESTABLISHMENT AND OVERSIGHT OF THIS CODE
The Board of Directors has approved this Code of Ethics and is responsible
for overseeing its operation, including but not limited to approving any
amendments to this Code as may be necessary or appropriate in light of any
violations of this Code and changing circumstances. In approving this Code of
Ethics, our Board of Directors has determined that:
- Personal investing by our staff members does not conflict with the
interests of our clients provided that our staff members comply with
the policies, procedures and restrictions set forth in this Code; and
- In light of the nature of our business, this Code contains provisions
reasonably necessary to prevent conflicts of interest between our
staff members and our clients.
OUR ANNUAL REPORT AND CERTIFICATION TO THE BOARD
At least once a year, we will provide the Boards of Directors of the
Sanford C. Bernstein Fund, Inc. and any other registered investment companies
for which we provide investment management services with a written report
describing any issues arising under this Code of Ethics or related procedures
since the last report, including, but not limited to:
- Information about material violations of the Code or procedures, or
violations that are material in the aggregate;
- Sanctions imposed in response to those violations;
- Information about any other significant conflicts of interest that
arose involving our personal investment policies;
- Procedures initiated or changes made to this Code since the last
report; and
- Amendments and modifications to the Code that we propose to make.
In connection with the annual report, we will also certify to each investment
company's Board of Directors that we have adopted and implemented such
procedures as we believe are reasonably necessary to prevent violations of this
Code of Ethics.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
28
<PAGE>
RECORD-KEEPING
THE LEGAL DEPARTMENT IS RESPONSIBLE FOR:
- Maintaining (or causing another department to maintain) copies of the
initial holdings reports and annual certifications for at least five
years after the end of the calendar year in which the report is made,
the first two years in an easily accessible place.
- Maintaining the original of each staff member memorandum requesting
permission to conduct a trade in an outside account, each of which
reflects the initials of the supervisor or other authorized person who
approved the trade and the date of that approval, for at least five
years after the end of the calendar year in which the memorandum was
approved, the first two in an easily accessible place.
- Maintaining copies of each broker trade confirmation for each
transaction in approved outside accounts, if any, and a copy of each
monthly or quarterly statement for those accounts, for at least five
years after the end of the calendar year in which the information is
provided, the first two years in an easily accessible place.
- Maintaining (or causing another department to maintain) records of all
persons, currently or within the past five years, required to make
reports of holdings and/or account activity, and of the persons
responsible for reviewing those reports, in an easily accessible
place.
- Maintaining records of all approvals of, and the rationale supporting,
participations in IPOs, private placements and other investment
opportunities of limited availability, for at least five years after
the end of the calendar year in which the approval is granted.
- Maintaining in an easily accessible place a current copy of this Code
of Ethics and a copy of each Code of Ethics effective for the
preceding five-year period.
- Maintaining records of any violations of this Code and sanctions for
such violations in an easily accessible place for at least five years
after the end of the calendar year in which the violations occurred.
- Maintaining copies of our reports to Boards of Directors regarding
this Code for at least five years after the end of the calendar year
in which they are made, the first two years in an easily accessible
place.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
29
<PAGE>
RECORD-KEEPING (CONTINUED)
THE BROKERAGE OPERATIONS DEPARTMENT IS RESPONSIBLE FOR:
- Maintaining records of all trade order tickets for the trades at
Bernstein in accounts controlled by staff members, each of which
reflects the initials of the supervisor or other authorized officer
who approved the trade and the date of that approval, for at least
five years after the end of the calendar year in which the trade was
effected, the first two years in an easily accessible place.
- Maintaining copies of all brokerage statements for accounts at
Bernstein controlled by staff members for at least five years after
the end of the calendar month to which they pertain, the first two
years in an easily accessible place.
IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THIS CODE. PLEASE DIRECT ANY
QUESTIONS ABOUT THIS CODE TO YOUR SUPERVISOR OR TO THE LEGAL DEPARTMENT.
30
<PAGE>
CODE OF ETHICS
SCOPE AND PURPOSE
This Code of Ethics (the "Code") applies to:
<TABLE>
<S><C>
- - all directors, officers and employees of: }
-Schroder Investment Management North America Inc., } Collectively }
-Schroder Investment Management North America Limited } "SIM NA"
-Schroder Fund Advisors Inc., ("SFA") }
- - Schroder Investment Management International Limited }
("SIMIL") }Collectively
- - New York based employees of Schroder US Holdings Inc. }The "US
("SI") who are located on the 34th floor of }Schroder
787 Seventh Avenue, New York, NY 10019. }Group"
- - all persons employed by any subsidiary of Schroders }
plc ("Schroders") who are Access Persons (as defined }
below) of any registered investment company managed }
by SIM NA.
</TABLE>
Set forth below is the Code of Ethics (the "Code") for the US Schroder Group,
as required by Rule 17j-1 under the Investment Company Act of 1940 (the
"Investment Company Act"), Section 204A of the Investment Advisers Act of
1940 (the "Advisers Act"), Rule 204-2(a)(12) under the Advisers Act and
Section 20A of the Securities Exchange Act of 1934 ( the "Exchange Act"). The
Code applies to every employee (full- and part-time) of the US Schroder Group.
The objective of the Code is to ensure that all business dealings and
securities transactions undertaken by employees, whether for clients or for
personal purposes, are subject to the highest ethical standards. Incorporated
within the Code are an Insider Trading Policy and a Personal Securities
Transactions Policy, which contain procedures that must be followed by all
personnel.
Every employee, by means of an Annual Certification of Compliance with the
Code of Ethics (see Exhibit B), must retain, read and acknowledge receipt and
understanding of this Code, which will be updated as necessary. Any questions
regarding the Code should be referred to the appropriate Ethics Supervisor.
The Code contains additional restrictions and requirements for certain Access
Persons (as defined in Appendix A), including all US Schroder Group fund
managers, investment analysts, traders, and those employees who, in
connection with their duties, are aware of securities under consideration for
purchase or sale on behalf of clients. Such persons will be notified in
writing of their status. These restrictions are designed to prevent any
conflict or
<PAGE>
the appearance of any conflict of interest between trading for their personal
accounts and securities transactions initiated or recommended for clients.
STATEMENT OF POLICIES
(a) CONFIDENTIALITY
Personnel are expected to honor the confidential nature of company and
client affairs. Information designated as confidential shall not be
communicated outside of the US Schroder Group or other affiliated
companies of Schroders other than to advisers consulted on a
confidential basis, and shall only be communicated within Schroders on
a "need to know" basis or as otherwise authorized by management in
conformity with the Code.
Personnel must also avoid making unnecessary disclosure of ANY internal
information concerning Schroders and its business relationships and
must use such information in a prudent and proper manner in the best
interests of Schroders and its clients.
(b) LEVEL OF CARE
Personnel are expected to represent the interests of Schroders and its
clients in an ethical manner and to exercise due skill, care, prudence
and diligence in all business dealings, including but not limited to
compliance with all applicable regulations and laws, and to avoid
illegal activities and other conduct specifically prohibited to its
personnel by the respective policies of any of the US Schroder Group
companies in relation to which a person is a director, officer or
employee.
(c) FIDUCIARY DUTIES
All personnel have fiduciary duties:
(i) at all times to place the interests of their clients
before their own and not to take inappropriate advantage
of their position, and
(ii) to conduct themselves in a manner which will avoid any actual
or potential conflict of interest or any abuse of a position
of trust and responsibility.
<PAGE>
(d) REQUIREMENTS
(i) Personnel are required to comply with the Insider Trading
Policy and Personal Securities Transactions Policy
incorporated herein.
(ii) Personnel are prohibited from receiving any gift or other
thing of more than DE MINIMIS value from any person or entity
that does business with or on behalf of any client.
Personnel are prohibited from serving on the board of directors of any
publicly listed or traded company or of any company whose securities are held
in any client portfolio, except with the prior authorization of the Chairman
or Chief Executive of SIM NA, the Chairman of SIMIL or, in their absence, a
majority of the Ethics Committee, based upon a determination that the board
service would be consistent with the interests of Schroders' clients. If
permission to serve as a director is given, the company will be placed
permanently on Section Two of the US Schroder Group Restricted List.
Transactions in that company's securities for client and personal securities
accounts will only be authorized when certification has been obtained from
that company's Secretary or similar officer that its directors are not in
possession of material price sensitive information with respect to its
securities.
COMPLIANCE
THE ETHICS COMMITTEE (see Appendix A) is responsible for ensuring that a copy
of the Code is delivered to all persons at the time of the commencement of
their employment with any US Schroder Group company, as well as on an annual
basis. As a condition of continuing employment, each employee is required to
acknowledge in writing receipt of a copy of the Code and that he or she has
understood the obligations and responsibilities hereunder and on an annual
basis to certify compliance with it on the form provided.
THE ETHICS SUPERVISORS (see Appendix A) are each responsible for maintaining
with respect to their company the records and filings required under the Code
and must report immediately to the Ethics Committee any evidence of a breach
of the Code by any personnel. Following such report, there will be a prompt
review of the situation by the Ethics Committee and, if necessary,
appropriate disciplinary and/or dismissal proceedings will be instituted,
including, but not limited to, referral to the appropriate regulatory agency.
Each Ethics Supervisor will conduct a regular annual review, in addition to
any other special reviews which may be deemed appropriate by the Ethics
Supervisor, to supervise the operation of the Code (including the Insider
Trading and Personal Securities Transactions Policies) and will report such
reviews by January 31st of each year to the Ethics Committee or other senior
officer of the US Schroder Group appointed to receive this information.
<PAGE>
QUESTIONS
All questions about an individual's responsibilities and obligations under
the Code of Ethics should be referred to any member of the Ethics Committee,
to the Chief Compliance Officer in New York or London, to the General Counsel
of Schroder U.S. Holdings Inc., or to the relevant Ethics Supervisor.
<PAGE>
INSIDER TRADING POLICY
THE SCOPE AND PURPOSE OF THE POLICY
It is a violation of United States federal law and a serious breach of
Schroders' policies for any employee to trade in, or recommend trading in,
the securities of a company, either for his/her personal gain or on behalf of
the firm or its clients, while in the possession of material, nonpublic
information ("inside information") which may come into his/her possession
either in the course of performing his/her duties, or through personal
contacts. Such violations could subject you, Schroders, and our parent
organizations, to significant civil as well as criminal liability, including
the imposition of monetary penalties, and could also result in irreparable
harm to the reputation of Schroders. Tippees (I.E., persons who receive
material, nonpublic information) also may be held liable if they trade or
pass along such information to others.
The US Insider Trading and Securities Fraud Enforcement Act of 1988
("ITSFEA") requires all broker-dealers and investment advisers to establish
and enforce written policies and procedures reasonably designed to prevent
misuse of MATERIAL, NON-PUBLIC information. Although ITSFEA itself does not
define "insider trading", the US Supreme Court has previously characterized
it as the purchase or sale of securities (which include debt instruments and
put and call options) while in possession of information which is both
MATERIAL and NON-PUBLIC, I.E., information not available to the general
public about the securities or related securities, the issuer and in some
cases the markets for the securities. The provisions of ITSFEA apply both to
trading while in possession of such information and to communicating such
information to others who might trade on it improperly. This policy
supplements the policies and procedures set forth in SIM NA, SFA's and SI's
Chinese Wall Procedures, which are incorporated herein by reference.
MATERIALITY
Inside information is generally understood as material information about an
issuer of publicly-traded securities that has not been made known to either
the professional investment community or to the public at large. Inside
information is material if it would be likely to have an effect on the price
of the issuer's securities or if a reasonable investor would be likely to
consider it important in making his/her investment decision. Such information
usually originates from the issuer itself and could include, among other
things, knowledge of a company's earnings or dividends, a significant change
in the value of assets, changes in key personnel or plans for a merger or
acquisition.
For example, a portfolio manager, analyst or trader may receive information
about an issuer's earnings or a new product in a private communication with
the issuer. Such information is usually considered material and is generally
inside information because it has not been effectively disseminated to the
public at large. As a general rule, any information
<PAGE>
received from an issuer that has not been made public in a press release or a
public filing will be considered inside information. Upon learning the
information, the employee may not purchase or sell securities of the issuer
for him/herself or for any account under management until the information is
effectively disseminated to the public.
If an employee has received information regarding an issuer and he/she
believes that the information given has not been given in breach of fiduciary
duties, then that person may retain and act upon the information.
Market information which emanates from outside the corporation but affects
the market price of an issuer's securities can also be inside information.
For example, inside information can also originate within Schroders itself.
This would include knowledge of activities or plans of an affiliate, or
knowledge of securities transactions that are being considered or executed on
behalf of clients. Inside information can also be obtained from knowledge
about a client that an employee has discovered in his/her dealings with that
client. Inside information pertaining to a particular issuer could also
involve another company that has a material relationship to the issuer, such
as a major supplier's decision to increase its prices.
In addition, Rule 14e-3 under the Exchange Act makes it unlawful to buy or
sell securities while in possession of material information relating to a
tender offer, if the person buying or selling the securities knows or has
reason to know that the information is nonpublic and has been acquired,
directly or indirectly from the person making or planning to make the tender
offer, from the target company, or from any officer, director, partner or
employee or other person acting on behalf of either the bidder or the target
company. This rule prohibits not only trading, but also the communication of
material, nonpublic information relating to a tender offer to another person
in circumstances under which it is reasonably foreseeable that the
communication will result in a trade by someone in possession of the
material, nonpublic information.
PROCEDURES AND RESPONSIBILITIES OF EMPLOYEES
1. Personnel who acquire NON-PUBLIC information (that may possibly be
material) about a company are immediately prohibited:
(a) from trading in the securities of that company or related
securities and financial instruments (as defined below)
whether for client accounts, for Schroder company accounts, or
for any Personal Account (see definition in Appendix A), and
(b) from communicating the information either inside or outside
Schroders except as provided below.
2. Such personnel, other than Senior Executives as defined in the Chinese
Wall Procedures, are required immediately to notify the most
senior-ranking available member of the Ethics Committee (see Appendix
A) who will evaluate whether the
<PAGE>
information is both MATERIAL and NON-PUBLIC.
IF YOU ARE IN ANY DOUBT, SPEAK TO THE SENIOR-RANKING AVAILABLE MEMBER
OF THE ETHICS COMMITTEE.
3. If the information is determined by this member of the Ethics Committee
to be MATERIAL and NON-PUBLIC, all securities of the relevant company
(or companies) and related securities or financial instruments will be
placed on Section One of the US Schroder Group Restricted List (see
discussion below) with immediate effect.
4. Only the member of the Ethics Committee who determined the information
to be MATERIAL and NON-PUBLIC may decide whether it is necessary to
communicate the Inside Information to another party, either inside or
outside Schroders. If so, the communication must state clearly and
expressly that such information is MATERIAL, NON-PUBLIC and
confidential and that its possession precludes trading for any account
in any security of the specified company or any related security or
financial instrument.
5. This same member of the Ethics Committee is responsible for notifying
the Ethics Supervisor when such information ceases to be MATERIAL and
NON-PUBLIC and for ensuring that the securities of the relevant company
or companies and related securities or financial instrument are removed
from the US Schroder Group Restricted List. The person who initially
reported possession of the information is required to notify the member
of the Ethics Committee of any change in status of the information of
which he or she becomes aware.
6. All employees are also responsible for preventing disclosure of any
NON-PUBLIC information in Schroders' possession, whether or not that
information is MATERIAL, except in accordance with the procedures set
out in this Policy.
7. Any files likely to contain NON-PUBLIC information must be kept locked
and access to computerized files must be restricted at all times,
except when required by authorized personnel for the performance of
their duties at Schroders.
8. NON-PUBLIC information which has not been deemed to be material under
2. above may be communicated only to such personnel as require such
information for the performance of their duties at Schroders.
<PAGE>
PENALTIES
Penalties for trading on or communicating material, nonpublic information are
severe, both for the individuals involved in such unlawful conduct and their
employers. Under the law, a person can be subject to some or all of the
penalties below, even if s/he does not personally benefit from the violation.
Penalties include:
1) civil injunctions;
2) disgorgement of profits;
3) treble damages - fines for the access person who committed the
violation, of up to 3 times the profit gained or loss avoided,
whether or not the person actually benefited;
4) fines for the employer or other controlling person of up to the
greater of $1,000,000, or 3 times the profit gained or loss
avoided; and
5) jail sentences.
SPECIAL PROVISIONS FOR TRADING IN THE SECURITIES OF SCHRODERS PLC
Special restrictions apply to dealing in the securities of Schroders plc
because staff, by virtue of their employment, may be deemed to have Inside
Information:
1. Securities of Schroders plc will not be purchased for any client
account without the permission of that client, and then only if
permitted by applicable law and with the prior approval of a member of
the Ethics Committee or Ethics Supervisor.
2. Personal securities transactions in the securities of Schroders plc are
subject to blackout periods and other restrictions which are outlined
in the Schroder London Group Staff Handbook. Copies of the restrictions
are available from the Ethics Supervisors. Staff wishing to deal in the
securities of Schroders plc must first contact the senior-ranking
dealer in Schroders' London equity dealing room who will explain the
applicable blackout periods, restrictions and authorizations required.
US SCHRODER GROUP RESTRICTED LIST
The US Schroder Group Restricted List is circulated only to those employees
responsible for placing securities trades, to members of the Ethics Committee
and to the Ethics Supervisors.
SECTION ONE: No personnel may place trades in any securities, which term
includes options, warrants, debentures, futures, etc., on such securities
(hereinafter referred to as a related
<PAGE>
security or financial instruments, of any company on Section One of the US
Schroder Group Restricted List for any account whatsoever, including client
accounts, Schroder company accounts or Personal Accounts at any time.
SECTION TWO: Trades in the securities or related securities or financial
instruments of any company on Section Two of the US Schroder Group Restricted
List (which contains those companies that have an officer of a US Schroder
Group Company on their board of directors, or where a US Schroder Group
Company manages a part of their balance sheet assets, I.E., corporate cash
rather than pension fund assets) may only be undertaken with the written
permission of the appropriate Ethics Supervisor.
No approval to trade will be given by the Ethics Supervisor:
(i) for any securities of a company currently on Section One of the US Schroder
Group Restricted List;
(ii) for any security of a company on Section Two of the US Schroder Group
Restricted List because an officer of a US Schroder Group Company serves as
a director of that company unless the Ethics Supervisor (or alternate) can
obtain confirmation from that company's Secretary or similar officer that
its directors are not in possession of material price sensitive information
with respect to its securities. Permission to trade in the securities of
any company on Section Two of the US Schroder Group Restricted List because
a US Schroder Group Company manages balance sheet assets for that company
(as opposed to pension fund assets) will only be given if the Ethics
Supervisor (or alternate) can obtain confirmation from the portfolio
manager responsible for that client that no US Schroder Group Company holds
any price sensitive information with respect to that company. Permission
will not, in any event, be given to any personnel personally involved in
the management of that client's account.
<PAGE>
PERSONAL SECURITIES TRANSACTIONS
POLICY
SCOPE AND PURPOSE OF THE POLICY
This Personal Securities Transactions Policy sets out the policies and
procedures required to be followed by all personnel in connection with trades
for Covered Accounts in Covered Securities (see Appendix A) in order to
comply, INTER ALIA, with the US Schroder Group's Code of Ethics. It sets out
additional restrictions and requirements for Level One Access Persons (as
defined in Appendix A). Further, it sets out the policies and procedures
required to be followed by outside directors (as defined in Appendix A) of
Schroder Capital Funds, Schroder Capital Funds (Delaware) and Schroder Series
Trust (collectively, the "Schroder Funds").
SIM NA LONDON, NEW YORK, SIMIL, AND SI-NEW YORK PERSONNEL
The procedures applicable to personnel employed by SIM NA in London and the
US, SIMIL, and to SI - New York personnel vary in detail but not in principle.
ESTABLISHING AN ACCOUNT
Before undertaking any transactions in Covered Securities, employees must
establish an account in accordance with the requirements of their employer
company.
New York
All US-based personnel of SIM NA and SI, unless exempted in writing by the
Ethics Committee, are required to maintain their Covered Accounts at Salomon
Smith Barney ("SSB") or Charles Schwab & Co. ("Schwab"). SSB and Schwab
provide an electronic download of employees' trades on T+1 which are accessed
daily by the Compliance Department. Additionally, both firms provide
contemporaneous copies of monthly account statements and trade confirmations
to the Compliance Department.
Personnel on secondment from London to New York may apply for a waiver of the
requirement to maintain brokerage accounts at SSB or Schwab for NON-US
securities. At a minimum, such personnel must follow the procedures set forth
in the "Schroder Investment Management London Group Personal Investment
Dealing Rules" as described below and report their transactions in Covered
Securities quarterly to the New York Ethics Supervisor.
LONDON
All London-based personnel are required to comply with the requirements of
the "Schroder Investment Management London Group Personal Investment Dealing
Rules," which are incorporated herein by reference, including placing all
transactions in Covered Securities through the Schroder London dealing room.
London-based personnel must establish an
<PAGE>
account to deal through Schroders' London dealing room according to the
procedures set out in the London Staff Handbook. Such procedures are
incorporated herein by reference within this Personal Securities Transactions
Policy. Upon establishing an account, London-based personnel covered by this
Policy are required to make arrangements for copies of all contracts and
confirmations to be sent to their Ethics Supervisor.
TORONTO AND MEXICO CITY
All Toronto and Mexico City based SIM NA personnel may maintain Covered
Accounts at the brokerage firm of their choosing, provided that Compliance
(New York) is notified. These employees are required to provide Compliance
with copies of monthly/periodic account statements and trade confirmations.
TRANSACTIONS
ALL TRANSACTIONS FALL INTO ONE OF FOUR CATEGORIES:
- - TRANSACTIONS PROHIBITED BY THE POLICY
- - TRANSACTIONS EXEMPT FROM ALL PROVISIONS OF THE POLICY
- - TRANSACTIONS EXEMPT FROM THE PRE-CLEARANCE REQUIREMENTS BUT SUBJECT TO THE
REPORTING PROVISIONS OF THE POLICY
- - TRANSACTIONS SUBJECT TO PRE-CLEARANCE AND THE REPORTING PROVISIONS
PROHIBITED TRANSACTIONS
All personnel are prohibited from trading for any Covered Account where the
execution of any such transaction would violate the principles and procedures
of the Code or Insider Trading Policy and no personnel shall request
permission to trade for any Covered Account if he or she knows that such
trade:
(i) would result in the buying or selling of securities in competition with
buy or sell orders of, or on behalf of, clients, or operate to the
detriment of such clients including, without limitation, executing a
securities transaction on a day during which any client, including any
investment company for which a US Schroder Group company serves as
investment adviser, sub-adviser or manager (a "Schroder Managed Fund"),
has a pending "buy" or "sell" order in that same security until that
order is executed or withdrawn;
(ii) would be for the purpose of, or result in, the buying or selling of
securities to take advantage of recent or imminent trades of clients;
(iii) would involve a security being considered for recommendation for
purchase or sale on behalf of a client;
<PAGE>
(iv) would take place before a sufficient period of time has elapsed after
an open-market purchase or sale of any such security, by or on behalf
of any client, for the effects of such purchase or sale on the market
price to dissipate;
(v) would involve any security of any company currently on the US Schroder
Group Restricted List or any company with respect to which such person
has non-public information which has not been evaluated by a member of
the Ethics Committee in accordance with the provisions of the Insider
Trading Policy;
(vi) would involve trading in options on any of the stocks held by or
contemplated for client accounts;
(vii) would involve a "short sale" or otherwise would expose the employee to
unlimited risk of loss.
DE MINIMIS EXCEPTION: Transactions involving shares in certain companies
traded on US stock exchanges or the NASDAQ, will be approved regardless of
whether there are outstanding client orders unless there is a large
outstanding order for the purchase or sale of such securities by clients. A
large order will generally occur if the US equity large cap model has been
revised. Other than an adjustment in the model, outstanding orders for wrap
fee or managed accounts or to re-balance institutional or private accounts,
will not preclude clearance for a DE MINIMIS transaction.
The exception applies to transactions involving no more than 500 shares per
issuer per week in the aggregate for an employee's Covered Accounts, in
securities of companies with market capitalizations of $5 billion or more. In
the case of options, an employee may purchase or sell up to 5 option
contracts per week to control up to 500 shares in the underlying security of
such large cap company.
SHORT TERM TRADING
All personnel are strongly advised against short-term trading. All
personnel are bound by the Schroder Group policy that no one may
purchase and sell the same (or equivalent) security within seven
calendar days. (Please note that all London-based personnel are bound
by the 60 day holding period outlined below for Level One Access
Persons.) Such personnel are, in addition, subject to tighter
restrictions outlined below. The trading records of all personnel will
be reviewed quarterly by their Ethics Supervisor. Any personnel that
appear to have established a pattern of short term trading may be
subject to additional restrictions or penalties including, but not
limited to, a limit or ban on future personal trading activity and a
requirement to disgorge profits on short-term trades.
THE SHORT TERM TRADING PROHIBITION SHALL NOT PERTAIN TO THE EXERCISE
OF A CALL SOLD BY
<PAGE>
AN EMPLOYEE TO COVER A LONG POSITION. HOWEVER, ALTHOUGH AN EMPLOYEE
MAY PURCHASE A PUT TO COVER A LONG POSITION, THE EXERCISE OF SUCH PUT
WILL ONLY BE APPROVED IF THE UNDERLYING SECURITY WAS HELD FOR THE
MINIMUM REQUIRED PERIOD (7 DAYS OR 60 DAYS, AS APPROPRIATE). THE
EXERCISE OF A COVERED PUT IS SUBJECT TO THE SAME PRECLEARANCE AND
REPORTING REQUIREMENTS AS THE UNDERLYING SECURITY.
COVERED SECURITIES
Securities, such as stocks, bonds and options, are covered by this Policy. The
same limitations pertain to transactions in a security related to a Covered
Security, such as an option to purchase or sell a Covered Security and any
security convertible into or exchangeable for a Covered Security.
NOT COVERED BY THIS POLICY ARE:
- - securities which are direct obligations of the U.S. Government (I.E.,
Treasuries)
- - any debt security directly guaranteed by any OECD member Government
- - bankers' acceptances, bank certificates of deposit, commercial paper,
repurchase agreements and other high quality short-term debt instruments
- - shares or units in any open-end US registered investment company (mutual
fund)
- - shares of any UK authorized unit trust
If a security is not covered by this Policy, you may purchase or sell it
without obtaining pre-clearance and you do not have to report the transaction.
EXEMPT FROM PRECLEARANCE
The preclearance requirements do not apply to the following transactions.
However, such transactions MUST BE REPORTED as set forth in the section
on Reporting Requirements.
1) NON-DISCRETIONARY ACCOUNTS
Transactions effected in any Covered Account over which the
employee has no direct or indirect influence or control is deemed
a non-discretionary account. An employee shall be deemed to have
no direct or indirect influence or control over an account only if
the following conditions are met:
- -----------------------
High quality short-term debt instruments means any instrument having a
maturity at issuance of less than 366 days and which is rated in one of the
highest two rating categories by a Nationally Recognized Statistical Rating
Organization, or which is unrated but is of comparable quality.
Please note that Schroder Unit Trusts Limited does not currently accept
investments by US Persons into Schroders UK authorized unit trusts.
<PAGE>
a) Investment discretion for such account has been delegated in
writing to an independent fiduciary and such investment
discretion is not shared with the employee or decisions for
the account are made by a family member and not by the
employee;
b) The employee (and where applicable, the family member)
certifies in writing that he/she has not and will not discuss
any potential investment decisions with such independent
fiduciary or family member; and
c) The Ethics Committee approves such arrangements.
2) NON-VOLITIONAL TRADES
Transactions which are non-volitional on the part of the employee
(I.E., the receipt of securities pursuant to a stock dividend or
merger). However the volitional sale of securities acquired in a
non-volitional manner is treated as any other securities trade and
subject to the preclearance requirements.
3) AUTOMATIC TRANSACTIONS AND DIVIDEND REINVESTMENT PLANS
Purchases of the stock of a company pursuant to an automatic
dividend reinvestment plan, AUTOMATIC direct stock purchase plan,
dividend reinvestment plan or an employee stock purchase plan
sponsored by such company. Such deductions that take place on an
automatic, regular (I.E., weekly, monthly, quarterly) basis from
either a paycheck or account (I.E., bank account, money market
account) need not be pre-cleared.
However the volitional sale of such securities is treated as any
other securities trade and subject to the preclearance
requirements. In addition, if an employee mails in a payment to
purchase securities directly from the issuer, that purchase must
be pre-cleared on the day the payment is mailed in to the issuer
(see the following section).
4) RIGHTS OFFERINGS
Receipt or exercise of rights issued by a company on a pro rata
basis to all holders of a class of security and the sale of such
rights. Employees must, however, pre-clear transactions for the
acquisition of such rights from a third-party or the disposition
of such rights.
TRADING PRECLEARANCE
Before each transaction in a Covered Secuirty, all personnel must complete a
"Personal Securities Transaction - Request to Trade" form (see Appendix C).
<PAGE>
U.S. Securities
Personnel wishing to trade in US securities must have the form signed by the
senior fund manager present (in New York or London and corresponding to the
director's, officer's or employee's location) responsible for supervising
client investments in large capitalization US equities, small capitalization
US equities, investment grade fixed income securities or high yield
securities, as appropriate, to the effect that no client trades are presently
contemplated in that security. Boston-based personnel wishing to trade in
small capitalization US equities should obtain certification from the senior
fund manager in Boston; all other personnel wishing to trade in small
capitalization US equities should obtain certification from the senior New
York or London-based (as applicable) small company fund manager.
IF YOU WISH TO PURCHASE AN INITIAL PUBLIC OFFERING3 OR SECURITIES IN A
PRIVATE PLACEMENT YOU MUST OBTAIN PERMISSION FROM THE CHIEF COMPLIANCE
OFFICER.
Any employee who has been authorized to acquire securities in a Private
Place is required to disclose that investment in any subsequent
consideration of a client's investment in securities of the issuer. In
such circumstances, the decision to purchase securities of the issuer
for a client shall be subject to an independent review by personnel
with no personal interest in the matter.
Non U.S. Securities
Personnel wishing to trade in non-US equity securities must obtain
certification, by fax if necessary, from the senior London-based SIM NA or
SIMIL fund manager responsible for supervising client investments in the
country where such securities are primarily traded. Country funds and ADRs
are treated as non-US securities and certification must therefore be obtained
from the senior London based SIM NA or SIMIL fund manager responsible for the
relevant country.
- --------------------------
An IPO is an offering of securities registered under the Securities Act, the
issuer of which, immediately before the registration, was not subject to
reporting requirements under the federal securities laws.
A private placement is an offering of securities that are not registered
under the Securities Act because the offering qualified for an exemption from
the registration provisions.
<PAGE>
APPROVAL OF TRADING
Final responsibility for approving all trades, other than those placed
through Schroders' London dealing room, rests with the Ethics Supervisor, or
in his/her absence with any member of the Ethics Committee. London-based
personnel must send the signed Request to Trade form to their Ethics
Supervisor at the same time that the required dealing ticket is submitted to
the senior-ranking dealer in Schroders' London dealing room. Members of the
Ethics Committee, including the Ethics Supervisor, shall have their own
personal trades, other than those placed through Schroders' London dealing
room, approved by another member of the Ethics Committee.
If an employee receives permission to trade a security or instrument, the
trade must be executed AFTER such permission is granted and, for US-based
personnel BEFORE the end of the next business day after permission has been
received. Trades for London-based personnel must be executed within 24 hours
after permission is granted. If the trade is not executed within the
appropriate time frame and the person still wishes to effect the transaction,
pre-clearance must again be obtained - this would be the case for limit
orders and orders such as good-till-canceled as well.
(For Personal Equity Plans and similar vehicles which are subject to a
mandatory cooling-off period, trade date shall be deemed to be the date on
which the application is submitted rather than the date on which the
cooling-off period expires and not the date the trade is executed.)
If an employee fails to preclear a transaction in a Covered Security, he/she
may be monetarily penalized, by a fine and/or disgorgement of profits or
avoidance of loss. These types of violations will result in reprimands and
could also negatively affect the person's employment at Schroders. All
preclearance violations will be forwarded to the Ethics Committee to
determine sanctions.
In cases where approval is not granted for any Covered Account transactions
in a security, Schroders will provide no compensation for any consequential
losses in a Covered Account.
ADDITIONAL RESTRICTIONS AND REQUIREMENTS FOR LEVEL ONE ACCESS PERSONS
The following additional restrictions and requirements apply to LEVEL ONE
ACCESS PERSONS, namely all US Schroder Group fund managers, investment
analysts, traders and those persons who, in connection with their regular
functions or duties, obtain: (i) information regarding the purchase or sale
of a security on behalf of a client or (ii) information as to specific
securities under consideration for purchase or sale on behalf of clients.
These additional restrictions are designed to prevent any conflict or the
appearance of any conflict of interest between trading for their Covered
Accounts and securities transactions initiated or recommended by them for
clients:
<PAGE>
i) Level One Access Persons are prohibited from buying or selling a
security within seven calendar days before and after any client trades in
that security. Any profits realized on transactions within the proscribed
periods (based on the difference in the price per share between that paid
or received, as appropriate, by the client and that paid or received by
such Access Person) will be required to be disgorged to the appropriate
client or, if that is not possible, to a charitable organization designated
by the Ethics Committee.
ii) Level One Access Persons are prohibited from profiting in the purchase
and sale of the same (or equivalent) securities within 60 calendar days.
This 60 day restriction is in lieu of the general seven day restriction on
short-term trading described above. Any profits realized on any such
short-term trades will be required to be disgorged to a charitable
organization designated by the Ethics Committee.
iii) Level One Access Persons are required to disclose, on commencement of
employment and subsequently in an annual filing to their Ethics Supervisor,
all their personal securities holdings.
REPORTING REQUIREMENTS
All personnel are required to report his/her transactions in Covered Securities
holdings in Covered Accounts, as follows.
REPORTS OF EACH TRANSACTION IN A COVERED SECURITY
- - Personnel are required to report to Compliance, no later than at the
opening of business on the business day following the day of execution of a
trade for a Personal Account, including:
name of security
nature of transaction (purchase, sale, etc.)
number of shares/units or principal amount
price of transaction
date of trade
name of broker
SSB and Schwab provide the New York Compliance Department with a daily report
of the above information with respect to any personal securities transactions
executed by New York-based personnel.
Any personnel seconded from London to New York who are granted a waiver from
the requirement to maintain personal accounts at SSB or Schwab shall, within
ten days after the end of each calendar quarter, provide the New York Ethics
Supervisor with copies of all pre-clearance forms and contract notes for
transactions executed through the London dealing
<PAGE>
desk.
The reporting obligation of London-based personnel shall be discharged by
arranging in advance for copies of contract notes/confirmations for all their
transactions to be sent automatically to Compliance upon completion of a
trade.
INITIAL EMPLOYMENT
- - No later than 10 days after initial employment with a US Schroder Group
Company, each employee must provide Compliance (New York or London, as
appropriate) with a list of each Covered Security s/he owns (as defined
above). The information provided must include the title of the security,
number of shares owned, and principal amount, as well as a of list of all
Covered Accounts where Covered Securities are held. The employee will sign
and date the report.
QUARTERLY REPORTS
- - No later than 10 days after the end of each calendar quarter, each employee
will provide Compliance (New York or London, as appropriate) with a report
of all transactions in Covered Securities in the quarter, including the
name of the Covered Security, the number of shares and principal amount,
whether it was a buy or sell, the price and the name of the broker through
whom effected. The employee will also report any new Covered Accounts
established during the quarter, including the name of the broker/dealer and
the date the Covered Account was established. The report will be signed and
dated by the employee.
ANNUAL REPORTS
- - Within 30 days after the end of the calendar, each employee must report all
his/her holdings in Covered Securities as at December 31, including the
title, number of shares and principal amount of each Covered Security the
employee owns (as defined above) and the names of all Covered Accounts. The
employee will sign and date the report.
EXCEPTIONS:
- - AN EMPLOYEE NEED NOT REPORT ANY TRANSACTIONS IN COVERED SECURITIES OR ANY
COVERED ACCOUNTS IN WHICH S/HE HAS NO DIRECT OR INDIRECT INFLUENCE OR
CONTROL.
- - A DIRECTOR OF A SCHRODER FUND WHO IS NOT AN "INTERESTED PERSON"5 IS NOT
REQUIRED TO MAKE INITIAL, QUARTERLY OR ANNUAL REPORTS PROVIDED THAT S/HE
DID NOT KNOW, NOR IN THE ORDINARY COURSE OF FULFILLING HIS/HER DUTIES AS A
DIRECTOR, S/HE SHOULD NOT HAVE KNOWN, THAT DURING THE 15 DAY PERIOD
IMMEDIATELY BEFORE OR AFTER HIS/HER TRANSACTION IN A COVERED SECURITY, THE
FUND PURCHASED OR SOLD THE COVERED SECURITY OR THAT THE COVERED SECURITY
WAS CONSIDERED FOR PURCHASE OR SALE BY THE FUND.
- ----------------------------
As defined in Section 2(a)(19) of the Investment Company Act.
<PAGE>
THE INFORMATION ON PERSONAL SECURITIES TRANSACTIONS RECEIVED AND RECORDED BY
SIM NA AND SIMIL (ON BEHALF OF THEIR EMPLOYEES) WILL BE DEEMED TO SATISFY THE
REPORTING OBLIGATIONS CONTAINED IN RULE 204-2(a)(12) UNDER THE ADVISERS ACT
AND RULE 17j-1 UNDER THE INVESTMENT COMPANY ACT. SUCH REPORTS MAY, WHERE
APPROPRIATE, CONTAIN A STATEMENT TO THE EFFECT THAT THE REPORTING OF THE
TRANSACTION IS NOT TO BE CONSTRUED AS AN ADMISSION THAT THE PERSON HAS ANY
DIRECT OR INDIRECT BENEFICIAL INTEREST OR OWNERSHIP IN THE SECURITY.
Reports by the Ethics Supervisors
On a quarterly basis, the appropriate Ethics Supervisors, in order to assist
them in fulfilling their regulatory obligations, will report to the Boards of
Trustees of the Schroder Funds or the Schroder-managed Funds, as appropriate,
and the Supervisory Principal of SFA, any violations of this Code and the
actions, if any, taken by the Ethics Committee.
Adopted: October 1, 1995
Amended: May 15, 1996
May 1, 1997
June 12, 1998
June 2, 1999
March 14, 2000
<PAGE>
APPENDIX A
DEFINITIONS
"ETHICS SUPERVISOR" means the persons designated from time to time by the
Ethics Committee to administer the Code, who currently are:
<TABLE>
<S> <C>
- ---------------------------------------- ----------------------------------------------------------------------------------------
Barbara Brooke
Manning for: Schroders U.S. Holdings Inc.
(alts: ) Evett Lawrence Schroder Investment Management North America Inc. (New York and Mexico City)
Brian Murphy Schroder Investment Management North America Ltd. (Toronto only)
- ---------------------------------------- ----------------------------------------------------------------------------------------
Barbara Brooke
Manning for: Schroder Fund Advisors Inc.
(alt: Sandra Poe) Schroder Capital Funds
Schroder. Investment Management North America Inc. (New York)
Schroder Capital Funds (Delaware)
Schroder Series Trust
- ---------------------------------------- ----------------------------------------------------------------------------------------
Paul Martin for: Schroder Investment Management North America Inc. (London)
Schroder Investment Management North America Limited (London)
Schroder Investment Management International Limited
- ---------------------------------------- ----------------------------------------------------------------------------------------
</TABLE>
"ETHICS COMMITTEE" means the committee designated by the US Schroder Group
Companies from time to time, which currently comprises:
Jeremy Willoughby(Chairman)
Richard Foulkes
Barbara Brooke Manning
Richard Mountford
Andrew Smethurst
Mark Smith
"ACCESS PERSON" will be divided into two categories: Level One Access Person
means any director, officer or employee who is an Advisory Person (as defined
herein) of SIM NA, SFA, SI and the Schroder Funds. All other directors and
officers are Level Two Access Persons.
"ADVISORY PERSON" is any employee who, in connection with his/her regular
functions or duties, makes, participates in, or obtains information regarding
the purchase or sale of a security on behalf of any advisory client or
information regarding securities under consideration for purchase or sale on
behalf of clients or whose functions relate to the making of any
recommendations with respect to such purchases or sales.
<PAGE>
A SECURITY IS "BEING CONSIDERED FOR PURCHASE OR SALE" when a recommendation
to purchase or sell a security has been made or communicated and, with
respect to the person making the recommendation, when such person seriously
considers making such a recommendation.
"COVERED ACCOUNT" is an account in which securities are owned by you. This
includes IRA accounts. Under the Policy, accounts held by your spouse
(including his/her IRA accounts), minor children and other members of your
immediate family (children, stepchildren, grandchildren, parents, step
parents, grandparents, siblings, in-laws and adoptive relationships) who
share your household are also considered your accounts. In addition, accounts
maintained by your domestic partner (an unrelated adult with whom you share
your home and contribute to each other's support) are considered your
accounts under this Policy.
If you are in any doubt as to whether an account falls within this definition
of Covered Account, please see Compliance. Further, if you believe that there
is a reason that you are unable to comply with the Policy, for example, your
spouse works for another regulated firm, you make seek a waiver from
Compliance.
"COVERED SECURITIES" generally means stocks, bonds and options. The same
limitations pertain to transactions in a security related to a Covered
Security, such as an option to purchase or sell a Covered Security and any
security convertible into or exchangeable for a Covered Security.
NOT COVERED BY THIS POLICY ARE:
- - securities which are direct obligations of the U.S. Government
(I.E., Treasuries)
- - any debt security directly guaranteed by any OECD member Government
- - bankers' acceptances, bank certificates of deposit, commercial paper,
repurchase agreements and other high quality short-term debt instruments
- - shares or units in any open-end US registered investment company
(mutual fund)
- - shares of any UK authorized unit trust
"DISINTERESTED DIRECTOR/TRUSTEE" means a Director or Trustee of the any of
the Schroder Funds who is not an "interested person" of the Funds within the
meaning of Section 2(a)(19) of the Investment Company Act or the rules
thereunder.
- ----------------------------
High quality short-term debt instruments means any instrument having a
maturity at issuance of less than 366 days and which is rated in one of the
highest two rating categories by a Nationally Recognized Statistical Rating
Organization, or which is unrated but is of comparable quality.
Please note that Schroder Unit Trusts Limited does not currently accept
investments by US Persons into Schroders UK authorized unit trusts.
<PAGE>
"US SCHRODER GROUP RESTRICTED LIST" means a list of securities determined
from time to time by the Ethics Committee, in accordance with provisions of
the Insider Trading Policy, to be inappropriate for trading by personnel
covered by this Code and, in certain circumstances, by any client portfolio
of any US Schroder Group Company.
<PAGE>
[GRAPHIC OMITTED]
CODE OF ETHICS
--------------
SECURITY CAPITAL GLOBAL CAPITAL MANAGEMENT GROUP INCORPORATED
SECURITY CAPITAL REAL ESTATE MUTUAL FUNDS INCORPORATED
SECURITY CAPITAL PREFERRED GROWTH INCORPORATED
This Code of Ethics supplements the Compliance Procedures section of
the Security Capital Group Incorporated Company Policy Online Manual and the
Security Capital Markets Group Incorporated and Security Capital Global Capital
Management Group Incorporated Supervisory Procedures Manual, each available
electronically and in print.
The Code of Ethics sets forth both general principles and specific
prohibitions that you will be required to comply with.
Please review the Code of Ethics carefully and return a signed copy of
the Access Person Certification Form to the Chief Compliance Officer. Questions
regarding the Code of Ethics should be directed to the Chief Compliance Officer.
SEPTEMBER 1999
<PAGE>
[GRAPHIC OMITTED]
CODE OF ETHICS
--------------
FOR ACCESS PERSONS OF
SECURITY CAPITAL GLOBAL CAPITAL MANAGEMENT GROUP INCORPORATED
SECURITY CAPITAL REAL ESTATE MUTUAL FUNDS INCORPORATED
SECURITY CAPITAL PREFERRED GROWTH INCORPORATED
I. OVERVIEW.
A. GOVERNANCE.
This Code of Ethics (the "Code") has been adopted by
the Boards of Directors of Security Capital Global Capital
Management Group Incorporated ("GCMG"), Security Capital Real
Estate Mutual Funds Incorporated ("SC-REMFs"), and Security
Capital Preferred Growth Incorporated ("SC-PG") (together, the
"Companies"). The Code establishes rules of conduct for all
"Access Persons", as defined below.
B. SUPPLEMENTAL TO POLICY MANUAL AND SUPERVISORY PROCEDURES
MANUAL.
The Code supplements, and does not supersede, the
Security Capital Group Incorporated ("Security Capital")
Company Policy Online Manual and the Security Capital Markets
Group Incorporated and GCMG Supervisory Procedures Manual
("Supervisory Procedures Manual") (together, where applicable,
the "Manuals"). Notwithstanding the foregoing, the time during
which Access Persons can buy or sell securities of any
publicly traded real estate company managed or controlled,
directly or indirectly, by Security Capital or its affiliates
is governed by the Code and not the Manuals. The Manuals
hereby are incorporated by reference.
C. APPLICABILITY.
INDEPENDENT DIRECTORS OF SC-REMFS AND SC-PG (TOGETHER, THE
"FUNDS") MUST COMPLY WITH SECTION III. OF THE CODE (PROHIBITED
TRANSACTIONS AND PRACTICES), BUT ARE NOT SUBJECT TO SECTION
IV. (CONDITIONAL TRANSACTIONS), SECTION VI. (PRECLEARANCE OF
CERTAIN CONDITIONAL TRANSACTIONS), OR SECTION VIII. (SHARE
OWNERSHIP REPORT) OF THE CODE. Furthermore, the Code does not
apply to the directors, officers and general partners of
entities for which GCMG serves as a subadviser.
1
<PAGE>
II. STATEMENT OF GENERAL PRINCIPLES.
A. DEFINITION OF "ACCESS PERSON".
In general, an Access Person is (i) an employee of
any of the Companies (or a company in a control relationship
with any of the Companies) who generally makes or participates
in decisions or obtains information regarding securities
transactions on behalf of any of the Companies or their
investors, (ii) an officer or director of any of the
Companies, (iii) a natural person in a control relationship
with any of the Companies or their investors who obtains
information concerning recommendations regarding securities
transactions, or (iv) any other person designated by the Chief
Compliance Officer. Persons who solely assist in the
preparation of public reports or receive public reports, while
not having information regarding CURRENT recommendations or
trading, or who inadvertently and infrequently obtain
knowledge of current recommendations or trading, do not
constitute Access Persons. A list of Access Persons is
attached as an exhibit to the Supervisory Procedures Manual.
B. GENERAL PRINCIPLES.
The general fiduciary principles that govern the
personal trading activities of Access Persons are as follows:
o - All purchases or sale of securities, whether by an Access
Person or his/her "Immediate Family"(1) ("Securities
Transactions"), must be conducted in a manner which does
not interfere with portfolio transactions on behalf of any
clients of GCMG or GCMG (Europe) ("Advisory Clients") or
investors in the Funds so as to avoid any actual or
potential conflict of interest or any abuse of an
individual's position of trust and responsibility.
- At all times the interests of Advisory Clients and
investors in the Funds must be placed first.
- The fundamental standard that Access Persons should not
take inappropriate or unfair advantage of their
relationship with Advisory Clients or investors in the
Funds is paramount.
Access Persons must adhere to these general
principles as well as comply with the Code's specific
provisions.
III. PROHIBITED TRANSACTIONS AND ACTIVITIES.
- -------------------
(1) "Immediate Family" includes any of the following persons residing in the
same household as the Access Person: child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law.
2
<PAGE>
A. ACCESS PERSONS WHO ARE NOT INDEPENDENT DIRECTORS.
An Access Person who is not an independent director MAY NOT:
1. Purchase or sell, directly or indirectly, any security in
which he/she has, or by reason of such transaction acquires,
any direct "Beneficial Interest", as defined below, and which
he/she knows at the time of such transaction is being
purchased or sold or considered for purchase or sale on behalf
of an Advisory Client or by a Fund. A security is "being
considered for purchase or sale" when a recommendation to
purchase or sell a security has been made and communicated
and, with respect to the person making the recommendation,
when such person receives information that would lead such
person in his/her normal course of business to consider making
such a recommendation.
A person generally is deemed to have a Beneficial
Interest in securities if: (i) the person, directly or
indirectly, through any contract, arrangement, understanding,
relationship, or otherwise, has or shares (a) voting power,
which includes the power to vote, or to direct the voting of,
the securities, AND/OR (b) investment power, which includes
the power to dispose of, or to direct the disposition of, the
securities; AND (ii) the person, directly or indirectly,
through any contract, arrangement, understanding, relationship
or otherwise, has or shares a direct or indirect pecuniary
interest in the securities. A person is deemed to have voting
and/or investment power with respect to securities if the
person has the right to acquire a Beneficial Interest in the
security within 60 days, including any right to acquire the
security through the exercise of any option, warrant or right;
the conversion of a security; pursuant to the power to revoke
a trust, discretionary account or similar arrangement; or
pursuant to the automatic termination of a trust,
discretionary account or similar arrangement.
2. Recommend any Securities Transaction to an Advisory Client
or with respect to a Fund without having disclosed his/her
interest, if any, in such securities or the issuer of the
securities, including without limitation:
(i). such person's direct or indirect Beneficial
Interest in any securities of such issuer;
(ii). any contemplated transaction by such person in such
securities;
(iii). any position with such issuer or its affiliates; OR
(iv). any present or proposed business relationship
between such issuer or its affiliates and such
person or any party in which such person has a
significant interest.
3
<PAGE>
3. Directly or indirectly in connection with the purchase or
sale of any securities held or to be acquired by an Advisory
Client or with respect to a Fund:
(i). employ any device, scheme or artifice to defraud an
Advisory Client or the Fund;
(ii). make any untrue statement of a material fact, or
omit to state a material fact necessary in order to
make the statements made, in light of the
circumstances under which they are made, not
misleading; OR
(iii). engage in any act, practice or course of business
that operates or would operate as a fraud or deceit
upon an Advisory Client or a Fund.
4. Purchase securities offered in an initial public offering
or a private placement without the prior approval of Security
Capital's Legal Department.
5. Purchase or sell securities of any public real estate
company (whether traded on an exchange within or outside the
United States), except as set forth in Section IV.A.1 below
and the Manuals.
B. INDEPENDENT DIRECTORS.
Independent directors of the Funds may not purchase
securities issued by Security Capital or its affiliates.
IV. CONDITIONAL TRANSACTIONS.
A. TRADING BY ACCESS PERSONS.
Access Persons may engage in the following trading activities:
1. Purchase securities of any public real estate company
managed or controlled, directly or indirectly, by Security
Capital, upon the condition that:
(i). preclearance is obtained from the Chief Compliance
Officer;
(ii). such purchase occurs only during a period of time
stipulated by such affiliated company (window
periods) (in addition, Access Persons with titles of
Senior Vice President and above and their respective
assistants also must obtain prior clearance from
Security Capital's Legal Department); AND
4
<PAGE>
(iii). within five (5) business days following the date of
such purchase, a copy of the trade confirmation or
comparable documentation is provided to the Chief
Compliance Officer.
2. Sell securities of any public real estate company managed
or controlled, directly or indirectly, by Security Capital
upon the condition that:
(i). preclearance is obtained from the Chief Compliance
Officer;
(ii). such sale occurs only during a period of time
stipulated by such affiliated company (window
periods) (in addition, Access Persons with titles of
Senior Vice President and above and their respective
assistants also must obtain prior clearance from
Security Capital's Legal Department); AND
(iii). within five (5) business days following the date of
such sale a copy of the trade confirmation or
comparable documentation is provided to the Chief
Compliance Officer.
V. EXEMPT TRANSACTIONS.
The prohibitions and conditions described in Sections III. and IV.
above shall not apply to:
A. Purchases or sales of SC-REMFs shares.
B. Purchases or sales effected in any account over which the
Access Person (i) has no direct or indirect influence or control,
OR (ii) has given discretionary investment authority to an independent
third party.
C. Purchases or sales that are non-volitional on the part of the
Access Person.
D. Purchases that are part of an automatic dividend reinvestment
plan.
E. Purchases effected upon the exercise of rights issued by an issuer
PRO RATA to all holders of a class of its securities, to the extent
such rights were acquired from the issuer, and sales of such rights so
acquired.
5
<PAGE>
VI. PRECLEARANCE OF CERTAIN CONDITIONAL TRANSACTIONS.
A. REQUEST FOR PRECLEARANCE.
In order to attempt to obtain preclearance from the Chief
Compliance Officer, an Access Person must submit in writing a completed
and executed Access Person Preclearance Request Form (Appendix 1),
which shall set forth the details of the proposed transaction.
Preclearance of the transaction as described on such Form shall be
evidenced by the signature of the Chief Compliance Officer thereon. The
Chief Compliance Officer shall retain a copy with all required
signatures and a copy placed in the Access Person's file.
B. CONDITIONS TO BE SATISFIED.
Upon written request from an Access Person as provided in
Section VI.A. above, the Chief Compliance Officer shall have the sole
discretion to preclear a personal Securities Transaction, without being
required to specify any reason for such determination. The Chief
Compliance Officer shall make such determination in accordance with the
following:
1. Purchases or sales effected in any account over which the
Access Person (i) has no direct or indirect influence or
control, OR (ii) has given discretionary investment authority
to an independent third party.
2. Purchases or sales that are non-volitional on the part of
the Access Person.
3. Purchases that are part of an automatic dividend
reinvestment plan.
4. Purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of its securities,
to the extent such rights were acquired from the issuer, and
sales of such rights so acquired.
Purchases and sales of SC-REMFs shares are expressly permitted
and need not be precleared with the Chief Compliance Officer.
C. ADDITIONAL FACTORS TO BE CONSIDERED.
In addition to the factors set forth in Section VI.B. above,
the Chief Compliance Officer may take into account, among other
factors, each of the following:
1. Whether the amount or nature of the transaction is likely
to affect the price or market for the security.
2. Whether the Access Person making the proposed purchase or
sale is likely to benefit from purchases or sales being made
or being considered by an Advisory Client or a Fund.
6
<PAGE>
3. Whether the investment opportunity is being offered to the
Access Person by virtue of the Access Person's position with
one of the Companies.
D. COMPLIANCE WITH SECTION 17(j).
Preclearance shall be granted by the Compliance Officer only
if a purchase or sale of securities is consistent with the purposes of
this Code and Section 17(j) of the Investment Company Act of 1940, as
amended (the "Act"). To illustrate, a purchase or sale may be
considered consistent with those purposes if such purchase or sale is
only remotely potentially harmful to a Fund because such purchase or
sale would be unlikely to affect a highly institutional market, or
because such purchase or sale is clearly not related economically to
the securities held, purchased or sold by a Fund.
E. DISCLOSURE BY ACCESS PERSON.
If preclearance is granted to an Access Person in accordance
with this Code to engage in a Securities Transaction, the Access Person
is under an affirmative obligation to disclose that position if such
Access Person plays a material role in a subsequent investment decision
regarding the same issuer. In such circumstances, investment personnel
with no personal interest in the issuer shall review the investment
decision to purchase such securities.
Preclearance granted to an Access Person in accordance with
this Code is only effective for five (5) business days from (and
including) the date of such preclearance. If the trade is not made
within five (5) business days, a new clearance must be obtained.
VII. TRANSACTION REPORTING.
Every Access Person must submit to the Chief Compliance Officer within
five (5) business days a copy of the trade confirmation or comparable
documentation relating to any trade that, pursuant to this Code (i) is required
to be reported to the Chief Compliance Officer, OR (ii) for which preclearance
was required.
In addition, Access Persons (other than independent directors) shall be
required to notify the Chief Compliance Officer, or his or her designee, in
writing, prior to opening a securities account or placing an initial order for
the purchase or sale of securities with any foreign or domestic brokerage firm.
Copies of account statements and confirmations with respect to any outside
account must be forwarded to the Chief Compliance Officer, or his or her
designee, by such brokerage firm. Please refer to the Supervisory Procedures
Manual or contact the Chief Compliance Officer with any questions.
An independent director of a Fund must file a personal securities
quarterly transaction report if he/she knows, or in the ordinary course of
fulfilling his/her duties should know, that during the 15-day period before or
after the director purchases or sells a security, a Fund
7
<PAGE>
purchased or sold the same security or such purchase or sale was considered by a
Fund or GCMG.
Finally, beginning with the fourth quarter of 1999, Access Persons
(other than independent directors) that do not engage in trading activities
during a calendar quarter must provide the Chief Compliance Officer with report
confirming such fact.
VIII. SHARE OWNERSHIP REPORTING.
Access Persons must provide the Chief Compliance Officer with the
following reports, at such times as set forth below.
A. INITIAL HOLDINGS REPORT.
Access Persons who became affiliated with any of the Companies
on or after October 1, 1999 must provide the Chief Compliance Officer
with an executed Initial Holdings Report (Appendix 2) no later that 10
days after becoming an Access Person. The Initial Holdings Report must
disclose the title, number of shares and principal amount of each
security (excluding mutual and money market funds, bank certificates of
deposit and direct obligations of the U.S. Government) beneficially
owned by such person, as well as the name of the broker or bank which
maintains the Access Person's account.
B. ANNUAL HOLDINGS REPORT.
All Access Persons must provide the Chief Compliance Officer
with an executed Annual Holdings Report (Appendix 3) on or before
December 31st of each year. The information contained in the Report
must be current as of a date no more than 30 days before the Report is
submitted. The Annual Holdings Report must disclose the title, number
of shares and principal amount of each security (excluding mutual and
money market funds, bank certificates of deposit and direct obligations
of the U.S. Government) beneficially owned by such person, as well as
the name of the broker or bank which maintains the Access Person's
account.
IX. ADMINISTRATION AND PROCEDURAL MATTERS.
A. REVIEW BY THE CHIEF COMPLIANCE OFFICER.
The Chief Compliance Officer shall:
1. Furnish a copy of this Code to each Access Person and
notify each Access Person of his/her obligation to file
reports as provided by this Code.
2. Supervise the implementation and enforcement of this Code.
8
<PAGE>
3. Determine whether any particular Securities Transaction
should be exempted pursuant to the provisions of this Code.
4. Issue either personally or with the assistance of counsel
as may be appropriate, any interpretation of this Code that
may appear consistent with the objectives of Rule 17j-1 of the
Act and this Code.
5. Conduct such inspections or investigations as shall
reasonably be required to detect and report any apparent
violations of this Code.
6. Cause to be maintained in an easily accessible place, the
following records:
(i). a copy of any Code adopted to Rule 17j-1 of the
Act which has been in effect during the past five
(5) years;
(ii). a copy of any preclearance, trade confirmation, or
report required to be made by any Access Person
(during the past five (5) years);
(iii). a copy of each report made by the Chief
Compliance Officer during the past five (5) years
with respect to the Code;
(iv). a copy of each Initial Holdings Report and Annual
Holdings Report prepared during the past five (5)
years;
(v). a record of any violation of the Code and of any
action taken as a result of such violation (during
the past five (5) years); and
(vi). a record of all exceptions granted from the Code
during the past five (5) years.
B. REVIEW OF THE CODE.
The Code will be reviewed at least once a year, in light of
legal and business developments and experience in implementing the
Code, and the Chief Compliance Officer will prepare an annual report to
the Boards of Directors of the Companies that:
1. Summarizes existing procedures concerning personal
investing and any changes in the procedures made during the
past year.
2. Identifies any violation of the Code, or the procedures
instituted to prevent violations of the Code, requiring
significant remedial action during the past year and the
remedial action imposed.
3. Identifies any exceptions to the Code granted during the
past year.
9
<PAGE>
4. Identifies any recommended changes in existing restrictions
or procedures based on its experience under the Code, evolving
industry practices, or developments in applicable laws or
regulations.
5. Certifies that the Company has adopted procedures
reasonably necessary to prevent Access Persons from violating
the Code.
X. SANCTIONS.
A. IMPOSITION OF SANCTIONS.
If a determination is made that an Access Person has committed
a violation of the Code, sanctions may be imposed, or other actions
taken, including a letter of caution or warning, suspension of personal
trading rights, suspension of employment (with or without
compensation), fine, civil referral to the Securities and Exchange
Commission ("SEC"), criminal referral, and termination of the
employment of the violator for cause. An Access Person also may be
required to reverse the trade(s) in question and forfeit any profit or
absorb any loss derived therefrom. The amount of profit shall be
calculated and shall be forwarded to a charitable organization.
B. AUTHORITY.
The Chief Compliance Officer has sole authority to determine
the remedy for any violation of the Code, including appropriate
disposition of any moneys forfeited pursuant to this provision. Failure
to promptly abide by a directive to reverse a trade or forfeit profits
may result in the imposition of additional sanctions.
C. BOARD OF DIRECTORS REPORT.
Whenever it is determined that an Access Person has committed
a violation of this Code that merits significant remedial action, a
report will be presented at the next regularly scheduled meeting of the
relevant Board of Directors, providing information relating to the
investigation of the violation, including any sanctions as they deem
appropriate. Such Board shall have access to all information considered
in relation to the case. The Chief Compliance Officer may determine
whether to delay the imposition of any sanctions pending review by the
applicable Board of Directors.
XI. CONFIDENTIALITY.
All information obtained from any Access Person hereunder shall be kept
in strict confidence, except that reports of Securities Transactions hereunder
will be made available to the SEC or any other regulatory or self-regulatory to
the extent required by law or regulation.
10
<PAGE>
XII. OTHER LAWS, RULES AND STATEMENTS OF POLICY.
Nothing contained in this Code shall be interpreted as relieving any
Access Person from acting in accordance with the provision of any applicable
law, rule or regulation or any other statement of policy or procedure governing
the conduct of such person.
XIII. FURTHER INFORMATION.
If any person has any question with regard to the applicability of the
provisions of this Code generally or with regard to any Securities Transaction,
he/she should consult the Chief Compliance Officer.
XIV. EXCEPTIONS.
Although exceptions to the Code will rarely, if ever, be granted, the
Chief Compliance Officer may grant exceptions to the requirements of the Code on
a case by case basis on a finding that the proposed conduct involves negligible
opportunity for abuse.
XV. CERTIFICATION BY ACCESS PERSONS.
All Access Persons must submit an Access Person Certification Form
(Appendix 4) documenting that they have read and understand this Code and
recognize that as an Access Person they are subject to the terms of this Code.
All Access Persons shall agree to certify on an annual basis that they have
complied with the requirements of this Code and that they have disclosed or
reported all personal Securities Transactions required to be disclosed or
reported pursuant to the requirements of this Code.
Dated: September 1999
11
<PAGE>
APPENDIX 1
[GRAPHIC OMITTED]
ACCESS PERSON PRECLEARANCE REQUEST FORM
Chief Compliance Officer:
On each of the dates proposed below, I hereby request permission to
effect a transaction in the securities indicated below on behalf of myself, my
Immediate Family (as defined in the Code of Ethics dated September 1999 (the
"Code") adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940,
as amended, trusts of which I am trustee or another account in which I have a
beneficial interest or legal title, and which are required to be pre-approved
pursuant to the Code.
(Use approximate dates and amounts of proposed transactions.)
<TABLE>
<CAPTION>
NATURE OF
PROPOSED TRANSACTION
NAME OF DATE OF NO. OF SHARES OR DOLLAR AMOUNT (PURCHASE, SALE, BROKER/DEALER OR
SECURITY TRANSACTION PRINCIPAL AMOUNT OF TRANSACTION OTHER) BANK PRICE
- -------------- --------------- --------------------- ----------------- ------------------- -------------------- --------
<S> <C> <C> <C> <C> <C> <C>
- -------------- --------------- --------------------- ----------------- ------------------- -------------------- --------
- -------------- --------------- --------------------- ----------------- ------------------- -------------------- --------
- -------------- --------------- --------------------- ----------------- ------------------- -------------------- --------
- -------------- --------------- --------------------- ----------------- ------------------- -------------------- --------
- -------------- --------------- --------------------- ----------------- ------------------- -------------------- --------
- -------------- --------------- --------------------- ----------------- ------------------- -------------------- --------
- -------------- --------------- --------------------- ----------------- ------------------- -------------------- --------
</TABLE>
Name:______________________________
Title:_____________________________
Entity:____________________________
Date:__________________________ Signature:_________________________
Permission Granted / / Permission Denied / /
Date:__________________________ Signature:_________________________
Chief Compliance Officer
<PAGE>
APPENDIX 2
[GRAPHIC OMITTED]
ACCESS PERSON INITIAL HOLDINGS REPORT
Chief Compliance Officer:
As a condition of my being an Access Person of Security Capital Global
Capital Management Group Incorporated, and as required by the Securities and
Exchange Commission, the following is a list of all securities (excluding mutual
and money market funds, bank certificates of deposit and direct obligations of
the U.S. Government) in which I have a direct or indirect beneficial interest.
<TABLE>
<CAPTION>
STOCK SYMBOL
NAME OF (IF APPLICABLE NUMBER OF PRINCIPAL NAME OF ENTITY
SECURITY AND KNOWN) SHARES AMOUNT HOLDING THE SECURITY ACCOUNT NUMBER
- -------------------------- ----------------- ------------ -------------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C>
- -------------------------- ----------------- ------------ -------------- ---------------------- ---------------
- -------------------------- ----------------- ------------ -------------- ---------------------- ---------------
- -------------------------- ----------------- ------------ -------------- ---------------------- ---------------
- -------------------------- ----------------- ------------ -------------- ---------------------- ---------------
- -------------------------- ----------------- ------------ -------------- ---------------------- ---------------
- -------------------------- ----------------- ------------ -------------- ---------------------- ---------------
- -------------------------- ----------------- ------------ -------------- ---------------------- ---------------
</TABLE>
Please use additional pages if necessary. THIS REPORT MUST BE DATED NO LATER
THAN 10 DAYS AFTER BECOMING EMPLOYED.
Name:____________________________
Title:___________________________
Signature: ______________________
Date:____________________________
- -------------------------------------------------------------------------------
ACKNOWLEDGED AND APPROVED THIS ______ DAY OF ________, ________.
- ------------------------------
<PAGE>
APPENDIX 3
[GRAPHIC OMITTED]
ACCESS PERSON ANNUAL HOLDINGS REPORT
Chief Compliance Officer:
As a condition of my being an Access Person of Security Capital Global
Capital Management Group Incorporated, and as required by the Securities and
Exchange Commission, the following is a list of all securities (excluding mutual
and money market funds, bank certificates of deposit and direct obligations of
the U.S. Government) in which I have a direct or indirect interest. ALL
INFORMATION MUST BE CURRENT AS OF A DATE NO MORE THAN 30 DAYS BEFORE THE REPORT
IS SUBMITTED.
" I HOLD NO SECURITIES REQUIRING DISCLOSURE (PLEASE MARK BOX AND SIGN BELOW).
<TABLE>
<CAPTION>
STOCK SYMBOL NAME OF ENTITY HOLDING
NAME OF (IF APPLICABLE NUMBER OF PRINCIPAL THE SECURITY ACCOUNT NUMBER
SECURITY AND KNOWN) SHARES AMOUNT
- --------------------------- ---------------- -------------- ------------- ------------------------- ----------------
<S> <C> <C> <C> <C> <C>
- --------------------------- ---------------- -------------- ------------- ------------------------- ----------------
- --------------------------- ---------------- -------------- ------------- ------------------------- ----------------
- --------------------------- ---------------- -------------- ------------- ------------------------- ----------------
- --------------------------- ---------------- -------------- ------------- ------------------------- ----------------
- --------------------------- ---------------- -------------- ------------- ------------------------- ----------------
</TABLE>
Please use additional pages if necessary.
Name:____________________________
Title:___________________________
Signature: ______________________
Date:____________________________
- -------------------------------------------------------------------------------
ACKNOWLEDGED AND APPROVED THIS ______ DAY OF ________, ________.
- ------------------------------
<PAGE>
APPENDIX 4
[GRAPHIC OMITTED]
ACCESS PERSON CERTIFICATION FORM
Security Capital Group Incorporated
11 South LaSalle Street, Second Floor
Chicago, Illinois 60603
Attention: Chief Compliance Officer:
[Access Person] hereby certifies that:
I have read and understand the Code of Ethics dated September 1999 (the
"Code"). I hereby agree to certify on an annual basis that I have complied with
the requirements of the Code and that I have disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant to the
requirements of the Code.
___________________________
Access Person Signature
___________________________
Print Name
Dated:_______________________
<PAGE>
SIRACH CAPITAL MANAGEMENT, INC.
CODE OF ETHICS
PREAMBLE
This Code of Ethics is being adopted in compliance with the
requirements of Rule 17j-1 (the "Rule") adopted by the United States Securities
and Exchange Commission under the Investment Company Act of 1940 (the "Act") to
effectuate the purposes and objectives of that Rule. The Rule makes it unlawful
for certain persons, including any officer or Board member of UAM Funds, Inc.,
UAM Funds Trust or UAM Funds Trust II (together, the "Fund") in connection with
the purchase or sale by such person of a security held or to be acquired by the
Fund(1):
(1) To employ a device, scheme or artifice to defraud the Fund;
(2) To make to the Fund any untrue statement of a material fact or
omit to state to the Fund a material fact necessary in order to
make the statements made, in light of the circumstances in which
they are made, not misleading;
(3) To engage in any act, practice or course of business which
operates or would operate as a fraud or deceit upon the Fund; or
(4) To engage in a manipulative practice with respect to the Fund.
The Rule also requires that the Fund and each adviser to the Fund adopt a
written code of ethics containing provisions reasonably necessary to prevent
persons from engaging in acts in violation of the above standard and use
reasonable diligence and institute procedures reasonably necessary, to prevent
violations of the Code.
This Code of Ethics is adopted by the Board of Directors of the
Fund(2) in compliance with the Rule. This Code of Ethics is based upon the
principle that the Directors and officers of the Fund, and certain affiliated
persons of the Fund and its investment advisers, owe a fiduciary duty to,
among others, the shareholders of the Fund to conduct their affairs,
including their personal securities transactions, in such manner to avoid (i)
serving their own personal interests ahead of shareholders; (ii) taking
inappropriate advantage of their position with the Fund; and (iii) any actual
or potential conflicts of interest or any abuse of their position of trust
and responsibility. This fiduciary duty includes the duty of the investment
advisers to the portfolios of the Fund to report violations of this Code of
Ethics to the Fund's Compliance Officer. This Code may not be the only source
of potential restrictions when conducting personal securities transactions
and transactions on behalf of the Fund. If there are any questions with
respect to other potentially applicable restrictions, contract the Funds'
Compliance Officer.
- -----------------------
(1) A security is deemed to be "held or to be acquired" if within the most
recent fifteen (15) days it (i) is or has been held by the Fund, or (ii) is
being or has been considered by the Fund or its investment adviser for purchase
by the Fund.
(2) Reference to a "Board of Directors" or a "Director" herein shall also
refer to a "Board of Trustees" or a "Trustee", as appropriate.
<PAGE>
A. DEFINITIONS
(1) "ACCESS PERSON" means any director/trustee, officer, general
partner or advisory person of the Fund.
(2) "ADVISORY PERSON" means (a) any employee of the Fund who, in
connection with his regular functions or duties, normally makes, participates
in, or obtains current information regarding the purchase or sale of a security
by the Fund, or whose functions relate to the making of any recommendations with
respect to such purchases or sales; and (b) any natural person in a control
relationship to the Fund who obtains information concerning recommendations made
to the Fund with regard to the purchase or sale of a security by the Fund.
(3) "AFFILIATED COMPANY" means a company which is an affiliated
person.
(4) "AFFILIATED PERSON" of another person means (a) any person directly or
indirectly owning, controlling, or holding with power to vote, 5 per centrum or
more of the outstanding voting securities or such other person; (b) any person 5
per centrum or more of whose outstanding voting securities are directly or
indirectly owned, controlled, or held with power to vote, by such other person;
(c) any person directly or indirectly controlling, controlled by, or under
common control with, such other person; (d) any officer, director/trustee,
partner, copartner, or employee of such other person; (e) if such other person
is an investment company, any investment adviser thereof or any member of an
advisory board thereof; and (f) if such other person is an unincorporated
investment company not having a Board of Directors, the depositor thereof.
(5) A security is "BEING CONSIDERED FOR PURCHASE OR SALE" or is
"BEING PURCHASED OR SOLD" when a recommendation to purchase or sell the security
has been made and communicated, which includes when the Fund has a pending "buy"
or "sell" order with respect to a security, and, with respect to the person
making the recommendation, when such person seriously considers making such a
recommendation. "PURCHASE OR SALE OF A SECURITY" includes the writing of an
option to purchase or sell a security.
(6) "BENEFICIAL OWNERSHIP" shall be as defined in, and interpreted
in the same manner as it would be in determining whether a person is subject to
the provisions of, Section 16 of the Securities Exchange Act of 1934 and the
rules and regulations thereunder which, generally speaking, encompasses those
situations where the beneficial owner has the right to enjoy some economic
benefit from the ownership of the security. A person is normally regarded as the
beneficial owner of securities held in the name of his or her spouse or minor
children living in his or her household.
(7) "CONTROL" means the power to exercise a controlling influence
over the management or policies of a company, unless such power is solely the
result of an official position with such company. Any person who owns
beneficially, either directly or through one or more controlled companies, more
than 25 per centrum of the voting securities of a company shall be presumed to
control such company. Any person who does not so own more than 25 per centrum of
the voting securities of any company shall be presumed not to control such
company. A natural person shall be presumed not to be a controlled person.
(8) "DISINTERESTED DIRECTOR/TRUSTEE" means a DIRECTOR/TRUSTEE who
is not: an affiliated person (as defined above) of the Fund; a member of the
immediate family of any natural person who is an affiliated person of the Fund;
an interested person (as defined below) of the Fund, any investment adviser of
the Fund or any principal underwriter for the Fund.
<PAGE>
(9) "INTERESTED PERSON" of another person means--
(a) when used with respect to an investment company--
(i) any affiliated person of such company,
(ii) any member of the immediate family of any natural
person who is an affiliated person of such
company,
(iii) any interested person of any investment adviser of
or principal underwriter for such company,
(iv) any person or partner or employee of any person
who at any time since the beginning of the last
two completed fiscal years of such company has
acted as legal counsel for such company,
(v) any broker or dealer registered under the
Securities Exchange Act of 1934 or any affiliated
person of such a broker or dealer, and
(vi) any natural person whom the Commission by order
shall have determined to be an interested person
by reason of having had, at any time since the
beginning of the last two completed fiscal years
of such company, a material business or
professional relationship with such company or
with the principal executive officer of such
company or with any other investment company
having the same investment adviser or principal
underwriter or with the principal executive
officer of such other investment company:
PROVIDED, That no person shall be deemed to be an interested person of
an investment company solely by reason of (aa) his being a member of its Board
of Directors or advisory board or an owner of its securities, or (bb) his
membership in the immediate family of any person specified in clause (aa) of
this proviso.
(10) "INVESTMENT PERSONNEL" means (a) any portfolio manager of the
Fund as defined in (12) below; and (b) securities analysts, traders and other
personnel who provide information and advice to the portfolio manager or who
help execute the portfolio manager's decisions.
(11) "PERSON" means a natural person or a company.
(12) "PORTFOLIO MANAGER" means an employee of the investment
adviser or sub-investment adviser of the Fund entrusted with the direct
responsibility and authority to make investment decisions affecting an
investment company.
(13) "SECURITY" means any note, stock, treasury stock, bond,
debenture, evidence of indebtedness, certificate of interest or participation in
any profit-sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, any put, call,
straddle, option,
<PAGE>
or privilege on any security (including a certificate of deposit) or on any
group or index of securities (including any interest therein or based on the
value thereof), or any put, call, straddle, option, or privilege entered into
on a national securities exchange relating to foreign currency, or, in general,
any interest or instrument commonly known as a "security," or any certificate
of interest or participation in, temporary or interim certificate for, receipt
for, guarantee of, or warrant or right to subscribe to or purchase, any of the
foregoing.
(14) "SECURITY" shall not include securities issued by the
government of the United States or by federal agencies and which are direct
obligations of the United States, bankers' acceptances, bank certificates of
deposit, commercial paper and shares of unaffiliated registered open-end
investment companies (mutual funds).
B. PROHIBITED TRANSACTIONS
(1) ACCESS PERSONS
(a) NO ACCESS PERSON shall engage in any act, practice or course
of conduct, which would violate the provisions of Rule 17j-1 set forth above.
The Fund's portfolios are managed by subsidiaries of or organizations
otherwise affiliated with United Asset Management Corporation (the "Management
Companies"). Under the organizational structure of the Management Companies, the
entities maintain separate offices, independent operations and autonomy when
making investment decisions. In view of these circumstances, advisory personnel
of the Management Companies who are defined as "access persons" under the Act,
under normal circumstances would have no knowledge of proposed securities
transactions, pending "buy" or "sell" orders in a security, or the execution or
withdrawal of an order for any other portfolio in the UAM Family of Funds for
which a different Management Company serves as investment adviser. To restrict
the flow of investment information related to the portfolios of the Fund, the
Fund prohibits access persons at a Management Company from disclosing pending
"buy" or "sell" orders for a portfolio of the Fund to any employees of any other
Management Company until the order is executed or withdrawn. The Management
Companies shall implement procedures designed to achieve employee awareness of
this prohibition.
(b) NO ACCESS PERSON SHALL:
(i) purchase or sell, directly or indirectly, any security
in which he has or by reason of such transaction
acquires, any direct or indirect beneficial ownership
and which to his or her ACTUAL KNOWLEDGE at the time of
such purchase or sale:
(A) is being considered for purchase or sale by the Fund,
or
(B) is being purchased or sold by any portfolio of the
Fund; or
(ii) disclose to other persons the securities activities
engaged in or contemplated for the various portfolios
of the Fund.
(2) INVESTMENT PERSONNEL
<PAGE>
NO INVESTMENT PERSONNEL SHALL:
(a) accept any gift or other thing of more than DE MINIMIS value
from any person or entity that does business with or on
behalf of the Fund; for the purpose of this Code DE MINIMIS
shall be considered to be the annual receipt of gifts from
the same source valued at $250 or less per individual
recipient, when the gifts are in relation to the conduct of
the Fund's business;
(b) acquire securities, other than fixed income securities, in
an initial public offering, in order to preclude any
possibility of such person profiting from their positions
with the Fund;
(c) purchase any securities in a private placement, without
prior approval of the Compliance Officer of the Management
Company or other officer designated by the Board of
Directors. Any person authorized to purchase securities in a
private placement shall disclose that investment when they
play a part in any Fund's subsequent consideration of an
investment in the issuer. In such circumstances, the Fund's
decision to purchase securities of the issuer shall be
subject to independent review by investment personnel with
no personal interest in the issuer;
(d) profit in the purchase and sale, or sale and purchase, of
the same (or equivalent) securities within sixty (60)
calendar days. Trades made in violation of this prohibition
should be unwound, if possible. Otherwise, any profits
realized on such short-term trades shall be subject to
disgorgement to the appropriate portfolio of the investment
company.
EXCEPTIONS: The Compliance Officer of the Management Company may allow
exceptions to this policy on a case-by-case basis when the
abusive practices that the policy is designed to prevent,
such as frontrunning or conflicts of interest, are not
present AND the equity of the situation strongly supports
an exemption. An example is the involuntary sale of
securities due to unforeseen corporate activity such as a
merger. [See Section C below]. The ban on short-term
trading profits is specifically designed to deter potential
conflicts of interest and frontrunning transactions, which
typically involve a quick trading pattern to capitalize on a
short-lived market impact of a trade by one of the Fund's
portfolios. The Management Company shall consider the policy
reasons for the ban on short-term trades, as stated herein,
in determining when an exception to the prohibition is
permissible. The granting of an exception to this
prohibition shall be permissible if the securities involved
in the transaction are not (i) being considered for purchase
or sale by the portfolio of the Fund that serves as the
basis of the individual's "investment personnel" status or
(ii) being purchased or sold by the portfolio of the Fund
that serves as the basis of the
<PAGE>
individual's "investment personnel" status and, are not
economically related to such securities; exceptions granted
under this provision are conditioned upon receipt by a duly
authorized officer of the Management Company of a report
(Exhibit D) of the transaction and certification by the
respective investment personnel that the transaction is in
compliance with this Code of Ethics (see Exhibit D).
(e) serve on the Board of Directors of any publicly traded
company without prior authorization of the President or
other duly authorized officer of the Fund. Any such
authorization shall be based upon a determination that the
board service would be consistent with the interests of the
Fund and its shareholders. Authorization of board service
shall be subject to the implementation by the Management
Company of "Chinese Wall" or other procedures to isolate
such investment personnel from the investment personnel
making decisions about trading in that company's securities.
(3) PORTFOLIO MANAGERS
(a) NO PORTFOLIO MANAGER SHALL:
(i) buy or sell a security within seven (7) calendar days
before and within two (2) calendar days after any
portfolio of the Fund that he or she manages trades in
that security. Any trades made within the proscribed
period shall be unwound, if possible. Otherwise, any
profits realized on trades within the proscribed period
shall be disgorged to the appropriate portfolio of the
Fund.
C. EXEMPTED TRANSACTIONS
The prohibitions of Sections B(1)(b), B(2)(d) and B(3)(a) shall not
apply to:
(1) purchases or sales effected in any account over which the access
person has no direct or indirect influence or control;
(2) purchases or sales which are non-volitional on the part of either
the access person or the Fund;
(3) purchases which are part of an automatic dividend reinvestment
plan;
(4) purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of its securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired;
(5) purchases or sales of securities which are not eligible for
purchase by the Fund and which are not related economically to
securities purchased, sold or held by the Fund;
<PAGE>
(6) transactions which appear upon reasonable inquiry and
investigation to present no reasonable likelihood of harm to the
Fund and which are otherwise in accordance with Rule 17j-1; For
example, such transactions would normally include purchases or
sales of:
(a) securities of companies with a market capitalization in
excess of $1 billion;
(b) up to $25,000 principal amount of a fixed income security or
100 shares of an equity security within any
three-consecutive month period (all trades within a
three-consecutive month period shall be integrated to
determine the availability of this exemption);
(c) up to 1,000 shares of a security which is being considered
for purchase or sale by a Fund (but not then being purchased
or sold) if the issuer has a market capitalization of over
$1 billion and if the proposed acquisition or disposition by
the Fund is less than one percent of the class outstanding
as shown by the most recent report or statement published by
the issuer, or less than one percent of the average weekly
reported volume of trading in such securities on all
national securities exchanges and/or reported through the
automated quotation system of a registered securities
association, during the four calendar weeks prior to the
individual's personal securities transaction; or
(d) any amount of securities if the proposed acquisition or
disposition by the Fund is in the amount of 1,000 or less
shares and the security is listed on a national securities
exchange or the National Association of Securities Dealers
Automated Quotation System.
D. COMPLIANCE PROCEDURES
(1) PRE-CLEARANCE
All access persons shall receive prior written approval (Exhibit E)
from the Compliance Officer of the Management Company for the respective
portfolios of the Fund, or other officer designated by the Board of Directors
before purchasing or selling securities.
Procedures implemented herein to pre-clear the securities transactions
of access persons shall not apply to a director/trustee of the Fund who is not
an "interested person" of the Fund as defined in this Code, except where such
director/trustee knew or, in the ordinary course of fulfilling his official
duties as a director/trustee of the Fund, should have known that during the
15-day period immediately preceding or after the date of the transaction in a
security by the director/trustee, such security is or was purchased or sold by
the Fund or such purchase or sale by the Fund is or was considered by the Fund.
Purchases or sales by access persons who are employees of United Asset
Management Corporation are not subject to the pre-clearance procedures set forth
herein, provided that such persons are required to pre-clear proposed
transactions in securities pursuant to a Code of Ethics.
<PAGE>
Purchases or sales by access persons who are employees of the
administrator for the Fund, Chase Global Fund Services Company, are not subject
to the pre-clearance procedures set forth herein, provided that such persons are
required to pre-clear proposed transactions in securities pursuant to a Code of
Ethics.
Purchases or sales of securities which are not eligible for purchase
or sale by the Fund or any portfolio of the Fund that serves as the basis of the
individual's "access person" status shall be entitled to clearance automatically
from the Compliance Officer of the Fund. This provision shall not relieve any
access person from compliance with pre-clearance procedures.
(2) DISCLOSURE OF PERSONAL HOLDINGS
All investment personnel shall disclose to the Compliance Officer of
the Management Company all personal securities holdings upon the later of
commencement of employment or adoption of this Code of Ethics and thereafter on
an annual basis as of December 31. This initial report shall be made on the form
attached as Exhibit A and shall be delivered to the Compliance Officer of the
Management Company and, upon request, to the Compliance Officer of the Fund.
(3) CERTIFICATION OF COMPLIANCE WITH CODE OF ETHICS
(a) Every access person shall certify annually that:
(i) they have read and understand the Code of Ethics and
recognize that they are subject thereto;
(ii) they have complied with the requirements of the Code
of Ethics; and
(iii) they have reported all personal securities
transactions required to be reported pursuant to the
requirements of the Code of Ethics.
The annual report shall be made on the form attached as Exhibit B and
delivered to the Compliance Officers of the Fund and the Management Company.
(4) REPORTING REQUIREMENTS
(a) Every access person shall report to the Compliance Officer
of the Fund and the Management Company the information
described in, Sub-paragraph (4)(b) of this Section with
respect to transactions in any security in which such person
has, or by reason of such transaction acquires, any direct
or indirect beneficial ownership in the security; provided,
however, that an access person shall not be required to make
a report with respect to transactions effected for any
account over which such person does not have any direct or
indirect influence.
(b) Reports required to be made under this Paragraph (4) shall
be made not later than 10 days after the end of the calendar
quarter in which the transaction to which the report relates
was effected. Every access person shall be required to
<PAGE>
submit a report for all periods, including those periods in
which no securities transactions were effected. A report
shall be made on the form attached hereto as Exhibit C or on
any other form containing the following information:
(i) the date of the transaction, the title and the
number of shares, and the principal amount of each
security involved;
(ii) the nature of the transaction (i.e., purchase,
sale or any other type of acquisition or
disposition);
(iii) the price at which the transaction was effected;
and
(iv) the name of the broker, dealer or bank with or
through whom the transaction was effected.
Duplicate copies of the broker confirmation of all personal
transactions and copies of periodic statements for all
securities accounts may be appended to Exhibit C to fulfill
the reporting requirement.
(c) Any such report may contain a statement that the report
shall not be construed as an admission by the person making
such report that he or she has any direct or indirect
beneficial ownership in the security to which the report
relates.
(d) The Compliance Officer of the Fund shall notify each access
person that he or she is subject to these reporting
requirements, and shall deliver a copy of this Code of
Ethics to each such person upon request.
(e) Reports submitted to the Fund pursuant to this Code of
Ethics shall be confidential and shall be provided only to
the officers and Directors of the Fund, Fund counsel or
regulatory authorities upon appropriate request.
(f) Each director/trustee who is not an "interested person" of
the Fund as defined in the Act need only report a
transaction in a security if such director/trustee, at the
time of that transaction knew, or, in the ordinary course of
fulfilling his official duties as a director/trustee, should
have known that, during the 15-day period immediately
preceding or after the date of the transaction by the
director/trustee, such security was purchased or sold by the
Fund or was being considered for purchase by the Fund or by
its investment adviser or sub-investment adviser. Such
reports will include the information described in
Sub-paragraph (4)(b) of this Section.
<PAGE>
(5) CONFLICT OF INTEREST
Every access person, except officers and Directors of the Fund, shall
notify the Compliance Officer of the Management Company of any personal conflict
of interest relationship which may involve the Fund, such as the existence of
any economic relationship between their transactions and securities held or to
be acquired by any portfolio of the Fund. Officer and Directors of the Fund
shall notify the Compliance Officer of the Fund of any personal conflict of
interest relationship which may involve the Fund. Such notification shall occur
in the pre-clearance process.
E. REPORTING OF VIOLATIONS TO THE BOARD OF DIRECTORS
(1) The Compliance Officer of the Fund shall promptly report to
the Board of Directors all apparent violations of this Code of Ethics and the
reporting requirements thereunder.
(2) When the Compliance Officer of the Fund finds that a
transaction otherwise reportable to the Board of Directors under Paragraph (1)
of this Section could not reasonably be found to have resulted in a fraud,
deceit or manipulative practice in violation of Rule 17j-1(a), he may, in his
discretion, lodge a written memorandum of such finding and the reasons therefor
with the reports made pursuant to this Code of Ethics, in lieu of reporting the
transaction to the Board of Directors.
(3) The Board of Directors, or a Committee of Directors created
by the Board of Directors for that purpose, shall consider reports made to the
Board of Directors hereunder and shall determine whether or not this Code of
Ethics has been violated and what sanctions, if any, should be imposed.
F. ANNUAL REPORTING TO THE BOARD OF DIRECTORS
(1) The Compliance Officer of the Fund shall prepare an annual
report relating to this Code of Ethics to the Board of Directors. Such annual
report shall:
(a) summarize existing procedures concerning personal
investing and any changes in the procedures made during
the past year;
(b) identify any violations requiring significant remedial
action during the past year; and
(c) identify any recommended changes in the existing
restrictions or procedures based upon the Fund's
experience under its Code of Ethics, evolving industry
practices or developments in applicable laws or
regulations.
G. SANCTIONS
Upon discovering a violation of this Code, the Board of Directors
may impose such sanctions as they deem appropriate, including, among other
things, a letter of censure or suspension or termination of the employment of
the violator.
H. RETENTION OF RECORDS
<PAGE>
The Fund shall maintain the following records as required under
Rule 17j-l; reports received by a Management Company on behalf of the Fund shall
be maintained as required under Rule 17j-l:
(a) a copy of any Code of Ethics in effect within the most
recent five years;
(b) a list of all persons required to make reports
hereunder within the most recent five years, as shall
be updated by the Compliance Officer of the Fund;
(c) a copy of each report made by an access person
hereunder for a period of five years from the end of
the fiscal year in which it was made;
(d) each memorandum made by the Compliance Officer of the
Fund hereunder, for a period of five years from the end
of the fiscal year in which it was made; and
(e) a record of any violation hereof and any action taken
as a result of such violation, for a period of five
years following the end of the fiscal year in which the
violation occurred.
Dated: December 14, 1995.
Revised: January 23, 1997
September 23, 1998
<PAGE>
STANDISH AYER & WOOD, INC.
STANDISH INTERNATIONAL MANAGEMENT CO., LLC
CODE OF ETHICS
A. STATEMENT OF POLICY.
This Code of Ethics is based upon the principle that the officers,
directors and employees of Standish, Ayer & Wood, Inc. and Standish
International Management Co., LLC (each, the "Adviser") owe a fiduciary
duty to the investment companies registered under the Investment Company
Act of 1940 (each a "Fund") and other clients for which the Adviser acts as
investment adviser or subadviser. Accordingly, each officer, director and
employee of the Adviser should conduct personal trading activities in a
manner that does not interfere with a client's portfolio transactions or
take advantage of a relationship with any client. Persons covered by
this Code of Ethics must adhere to these general principles as well as the
Code's specific requirements.
The fundamental position of the Adviser is that in effecting personal
securities transactions personnel of the Adviser must place at all times
the interests of clients ahead of their own pecuniary interests. All
personal securities transactions by these persons must be conducted in
accordance with this Code of Ethics and in a manner to avoid any actual or
potential conflict of interest or any abuse of any person's position of
trust and responsibility. Further, these persons should not take
inappropriate advantage of their positions with or on behalf of a client.
Without limiting the foregoing, it is the intention of the Adviser that
this Code of Ethics not prohibit personal securities transactions by the
Adviser's personnel made in accordance with the letter and the spirit of
the Code.
B. DEFINITIONS.
For purposes of this Code of Ethics, the following definitions will apply:
1. ACCESS PERSON. The term "ACCESS PERSON" means any director, officer or
advisory person (as defined below) of the Adviser.
2. ACQUISITION. The term "acquisition" or "acquire" includes the receipt of
any gift of COVERED SECURITIES.
3. ADVISORY PERSON. The term "ADVISORY PERSON" means
(a) Every employee or on-site independent contractor of the Adviser
(or of any company in a control relationship to the Adviser) who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding, the purchase or
sale of COVERED SECURITIES (as defined below) by a Fund or other
client, or whose functions relate to the making of any
Adviser Code Draft: February 18, 2000
<PAGE>
recommendations concerning the purchase or sale of COVERED SECURITIES
by a Fund or other client; and
(b) Every natural person in a control relationship to the Adviser who
obtains information concerning recommendations made to a Fund
concerning the purchase or sale of a COVERED SECURITY and every other
employee or on-site independent contractor of the Adviser designated
as an ACCESS PERSON by the CODE OF ETHICS SUPERVISOR.
4. BENEFICIAL OWNERSHIP. The term "BENEFICIAL OWNERSHIP" means a direct or
indirect "pecuniary interest" (as defined in subparagraph (a)(2) of Rule
16a-1 under the Securities Exchange Act of 1934 (the "1934 Act")) that is
held or shared by a person directly or indirectly (through any contract,
arrangement, understanding, relationship or otherwise) in a security. While
the definition of "pecuniary interest" in subparagraph (a)(2) of Rule 16a-1
is complex, this term generally means the opportunity directly or
indirectly to profit or share in any profit derived from a transaction in a
security. An indirect pecuniary interest in securities by a person would be
deemed to exist as a result of:
(a) ownership of securities by any of that person's immediate family
members sharing the same household (including a child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-or father-in-law, sister-or brother-in-law, and son-or
daughter-in-law);
(b) the person's partnership interest in the portfolio securities held
by a general or limited partnership which such person controls;
(c) the person's right to receive dividends from a security if this
right is separate or separable from the underlying securities;
(d) the person's interest in securities held by a trust under certain
circumstances; and
(e) the person's right to acquire securities through the exercise or
conversion of a "derivative security" (which term excludes (i) a
broad-based index option or future, (ii) a right with an
exercise or conversion privilege at a price that is not fixed, and
(iii) a security giving rise to the right to receive another
security only PRO RATA and by virtue of a merger, consolidation or
exchange offer involving the issuer of the first security).
5. CODE OF ETHICS SUPERVISOR. The term "CODE OF ETHICS SUPERVISOR" means
the officer of the Adviser designated from time to time by the Adviser's
compliance officer to (a) authorize or deny permission to purchase or sell
COVERED SECURITIES, (b) receive and review reports of purchases and sales
by ACCESS PERSONS and (c) receive and review other reports that may be
required from time to time. The term "ALTERNATIVE CODE OF ETHICS
SUPERVISOR" means the officer of the Adviser designated from time to time
by the Adviser to perform the duties of the Code of Ethics Supervisor in
connection with personal transactions by the CODE OF ETHICS SUPERVISOR or
in the absence of the CODE OF ETHICS SUPERVISOR.
Adviser Code Draft: February 18, 2000 Page 2 of 11
<PAGE>
6. CONFLICTS COMMITTEE. The term "CONFLICTS COMMITTEE" means any committee
designated as such by the management of the Adviser or any successor
committee or person that performs substantially the same functions as the
CONFLICTS COMMITTEE.
7. CONTROL. The term "CONTROL" has the same meaning as that set forth in
Section 2(a)(9) of the 1940 Act. Section 2(a)(9) provides that CONTROL
means the power to exercise a controlling influence over the management or
policies of the Adviser, unless such power is solely the result of an
official position with the Adviser.
8. COVERED SECURITY. The term "COVERED SECURITY" means a security as
defined in Section 2(a)(36) of the 1940 Act, except that it does not
include:
(a) Direct obligations of the government of the United States.
(b) Bankers' acceptances, bank certificates of deposit, commerical
paper and high quality short-term debt instruments, including
repurchase agreements.
(c) Shares issued by open-end management investment companies
registered under the 1940 Act.
(d) Any other security determined by the Securities and Exchange
Commission ("SEC") or its staff to be excluded from the definition of
"COVERED SECURITY" contained in Rule 17j-1 under the 1940 Act.
9. DISPOSITION. The term "disposition" or "dispose" includes the making of
any personal or charitable gift of COVERED SECURITIES.
10. FAMILY ACCOUNT. The term "FAMILY ACCOUNT" means any brokerage or other
account containing securities (including but not limited to COVERED
SECURITIES)(1) in which an immediate family member of the ACCESS PERSON not
sharing the same household has BENEFICIAL OWNERSHIP and (2) over which the
ACCESS PERSON exercises direct or indirect, sole or shared, investment
control.
11. FUND. The term "FUND" has the meaning designated in the preamble
hereto.
12. INITIAL PUBLIC OFFERING. The term "INITIAL PUBLIC OFFERING" means an
offering of securities registered under the Securities Act of 1933, as
amended (the "1933 Act"), by an issuer, which immediately before
registration, was not subject to reporting requirements of Section 13 or
15(d) of the 1934 Act.
13. INVESTMENT DECISION MAKER. The term "INVESTMENT DECISION MAKER" means
any portfolio manager of the Adviser and any other ADVISORY PERSON who
assists a portfolio manager in making investment decisions for a Fund or
other client, including, but not limited to, all analysts of the Adviser or
of any company in a control relationship to the Adviser.
Adviser Code Draft: February 18, 2000 Page 3 of 11
<PAGE>
14. LIMITED OR PRIVATE OFFERING. The term "LIMITED OR PRIVATE OFFERING"
means an offering that is exempt from registration under Section 4(2) or
4(6) of the 1933 Act or Rule 504, 505 or 506 thereunder.
15. 1940 ACT. The term "1940 ACT" means the Investment Company Act of 1940
and the rules and regulations thereunder, both as amended from time to
time, and any order or orders thereunder which may from time to time be
applicable to any Fund.
16. PURCHASE. The term "PURCHASE" includes the writing of an option to
purchase.
17. SALE. The term "SALE" includes a short sale, the writing of an option
to sell and the making of a gift.
18. SECURITY BEING CONSIDERED FOR PURCHASE OR SALE. A security is "BEING
CONSIDERED FOR PURCHASE OR SALE" when a recommendation to purchase or sell
a security has been made and communicated and, with respect to the person
making the recommendation, when such person seriously considers making such
a recommendation.
19. SECURITY TO BE HELD OR ACQUIRED. The phrase "SECURITY HELD OR TO BE
ACQUIRED" means any COVERED SECURITY which, within the most recent 15 days,
is or has been held by a Fund or is being or has been considered by the
Adviser for purchase by a Fund or any option to purchase or sell and any
security convertible into, or exchangeable for, such COVERED SECURITY.
C. PROHIBITED AND RESTRICTED ACTIVITIES.
While the scope of actions which may violate the Statement of Policy set
forth above cannot be exactly defined, these actions would always include
at least the following prohibited activities.
1. COMPETING WITH CLIENT TRADES. No ACCESS PERSON may, directly or
indirectly, purchase or sell securities if the ACCESS PERSON knows, or
reasonably should know, that these securities transactions compete in the
market with actual or considered securities transactions for a client, or
otherwise personally act to injure a client's securities transactions.
2. PERSONAL USE OF CLIENT TRADING KNOWLEDGE. No ACCESS PERSON may use the
knowledge about securities purchased or sold by a client or securities
being considered for purchase or sale by a client to profit personally,
directly or indirectly, by the market effect of such transactions.
3. DISCLOSURE OF CLIENT TRADING KNOWLEDGE. No ACCESS PERSON may, directly
or indirectly, communicate to any person who is not an ACCESS PERSON any
non-public information relating to a client including, without limitation,
the purchase or sale or considered purchase or sale of a security on behalf
of a client, except to the extent necessary to effectuate securities
transactions on behalf of a client.
Adviser Code Draft: February 18, 2000 Page 4 of 11
<PAGE>
4. INITIAL PUBLIC OFFERINGS. No ACCESS PERSON may, directly or indirectly,
purchase any security sold in an INITIAL PUBLIC OFFERING, unless the
CONFLICTS COMMITTEE exempts the purchase because of special conditions
associated with the purchase.
5. LIMITED OR PRIVATE OFFERINGS. No ACCESS PERSON may, directly or
indirectly purchase any security issued pursuant to a LIMITED OR PRIVATE
OFFERING without obtaining prior written approval from the CONFLICTS
COMMITTEE. ACCESS PERSONS who have received authorization to purchase
securities in a LIMITED OR PRIVATE OFFERING must disclose their BENEFICIAL
OWNERSHIP of these securities when these ACCESS PERSONS are involved in
considering the purchase on behalf of a Fund or other client of securities
of the issuer of the privately placed securities. A decision to purchase
securities of this issuer must be independently reviewed by an investment
person with no personal interest in that issuer.
6. ACCEPTANCE OF GIFTS. No ACCESS PERSON may accept any gift or other thing
of more than DE MINIMIS value from any person or entity that does business
with or on behalf of the Adviser. The Compliance Committee will from time
to time specify the value which will be considered DE MINIMIS for purposes
of this restriction.
7. BOARD SERVICE; OUTSIDE EMPLOYMENT. No ACCESS PERSON may serve on the
board of directors or trustees of any organization, whether publicly traded
or otherwise, absent prior written authorization and determination by the
CONFLICT COMMITTEE that the board service would be consistent with the
interests of the Funds and other clients of the Adviser. If board service
is authorized, ACCESS PERSONS serving as directors or trustees of issuers
may not take part in an investment decision on behalf of the Funds or other
clients concerning securities of these issuers. Likewise, no access person
may accept any outside employment absent the prior written authorization of
the CONFLICTS COMMITTEE.
8. TRANSACTIONS DURING BLACKOUT PERIOD. NO INVESTMENT DECISION MAKER may,
directly or indirectly, (a) purchase or sell any COVERED SECURITY in which
he or she has any BENEFICIAL OWNERSHIP or (b) purchase any COVERED SECURITY
if that purchase would cause the INVESTMENT DECISION MAKER to aquire any
BENEFICIAL OWNERSHIP, in each case within a period of seven (7) calendar
days before and after any Fund or other client as to which he or she is an
INVESTMENT DECISION MAKER has purchased or sold such COVERED SECURITY.
9. SHORT-TERM TRADING. No ACCESS PERSON may puchase and sell, or sell and
purchase, the same (or equivalent) COVERED SECURITIES within a 60 calendar
day period. The CONFLICTS COMMITTEE may, upon request, exempt an ACCESS
PERSON from this prohibition if the CONFLICTS COMMITTEE determines that
extenuating circumstances warrant the exemption.
10. DISCLOSURE OF PERSONAL INTEREST. No INVESTMENT DECISION MAKER may
recommend any securities transaction by a client without having previously
disclosed any BENEFICIAL OWNERSHIP in these securities or the issuer
thereof to the Adviser, including without limitation:
Adviser Code Draft: February 18, 2000 Page 5 of 11
<PAGE>
(a) That INVESTMENT DECISION MAKER'S BENEFICAL OWNERSHIP of any
securities of the issurer;
(b) Any contemplated transaction by that INVESTMENT DECISION MAKER in
these securities;
(c) Any position with the issuer or its affiliates; and
(d) Any present or proposed business relationship between the issuer
or its affiliates and that INVESTMENT DECISION MAKER or any party
in which the INVESTMENT DECISION MAKER has a significant
interest.
An interested INVESTMENT DECISION MAKER may not participate in a decision
to purchase and sell securities of the issuer on behalf of a Fund or any
other client.
11. "GOOD UNTIL CANCELLED" OR "LIMIT ORDERS." NO ACCESS PERSON may place
any "good until cancelled" or "limit" order that does not expire on the day
preclearance is granted.
D. EXEMPT TRANSACTIONS.
The following transactions are exempt from the preclearance requirements
and substantive prohibitions and restrictions of the Code, BUT ARE NOT
EXEMPT FROM THE REPORTING REQUIREMENTS IMPOSED BY SECTION 11 OF THIS CODE.
1. Purchases or sales for an account over which the ACCESS PERSON has no
direct or indirect influence or control;
2. Purchases or sales which are non-volitional on the part of the ACCESS
PERSON;
3. Purchases which are part of an automatic dividend reinvestment plan, but
only to the extent the access person makes no voluntary adjustment in the
rate or type of investment or divestment;
4. Purchases or sales for which the ACCESS PERSON has received prior
written approval from the CODE OF ETHICS SUPERVISOR. Prior approval will be
granted only if a purchase or sale of COVERED SECURITIES is consistent with
the purposes of this Code of Ethics, Section 17(j) of the 1940 Act and the
rules thereunder; and
5. Purchases in an INITIAL PUBLIC OFFERING if (a) the offering is part of
the "demutualization" or similar transaction of a mutual bank, insurance
company or similar issuer and the ACCESS PERSON'S ability to participate is
the direct result of the ACCESS PERSON'S ownership of insurance policies or
deposits issued or maintained by the issuer and (b) the allocation of
shares available for acquisition by the ACCESS PERSON is based on the
ACCESS PERSON'S ownership of these policies or deposits.
6. Transactions involving the disposition solely of fractional shares of
equity COVERED SECURITIES.
Adviser Code Draft: February 18, 2000 Page 6 of 11
<PAGE>
7. The RECEIPT of any gift of COVERED SECURITIES.
Subject to applicable law, the CONFLICTS COMMITTEE may, upon consideration
of all of the relevant facts and circumstances, grant a written exemption
from provisions of this Code of Ethics with respect to any transaction
based on a determination that the transaction does not conflict with the
interests of any Fund or client.
E. JOINT PARTICIPATION.
A specific provision of the 1940 Act prohibits ACCESS PERSONS, in the
absence of an order of the SEC, from effecting a transaction in which a
Fund is a "joint or a joint and several participant" with that ACCESS
PERSON. Any transaction which suggests the possibility of a question in
this area should be presented to the CODE OF ETHICS SUPERVISOR and the
legal counsel for review.
F. DUPLICATE BROKERAGE CONFIRMATIONS AND STATEMENTS.
Each ACCESS PERSON must direct the ACCESS PERSON'S brokers to supply to the
CODE OF ETHICS SUPERVISOR, on a timely basis and not less frequently than
every calendar quarter, duplicate copies of confirmations of and account
statements reflecting all COVERED SECURITIES transactions and holdings (1)
in which the ACCESS PERSON has or acquires a direct or indirect BENEFICIAL
OWNERSHIP interest and (2) that are included in a FAMILY ACCOUNT, in each
case whether or not one of the exemptions listed in Section D above
applies.
G. PRECLEARANCE PROCEDURES FOR TRANSACTIONS IN SECURITIES.
1. Every ACCESS PERSON must request and obtain preclearance from the CODE
OF ETHICS SUPERVISOR before effecting any personal securities
transactions in COVERED SECURITIES in or as to which the ACCESS PERSON
both: (a) has or acquires a BENEFICIAL OWNERSHIP AND (b) has direct or
indirect, sole or shared, investment control, except for exempt
transactions described in Section D above. The ACCESS PERSON must
submit to the CODE OF ETHICS SUPERVISOR a preclearance request on a
form designated by the CODE OF ETHICS SUPERVISOR from time to time for
each purchase or sale of a COVERED SECURITY on behalf of such ACCESS
PERSON prior to the execution of such transaction.
2. The CODE OF ETHICS SUPERVISOR will compare the proposed transaction to
the daily Restricted List maintained by the Adviser. Preclearance will
be denied if: (a) the Covered Security is being considered for
purchase or sale by a Fund or other client or (b) there is an order
pending for a Fund or other client with respect to such COVERED
SECURITY. The transaction may not be effected unless the CODE OF
ETHICS SUPERVISOR pre-clears the transaction in writing or orally (and
subsequently confirming the oral preclearance in writing).
Preclearance is valid only for the trading day on which it is issued.
Adviser Code Draft: February 18, 2000 Page 7 of 11
<PAGE>
H. REPORTING REQUIREMENTS.
Every ACCESS PERSON subject to this Section II must submit to the CODE OF
ETHICS SUPERVISOR, on forms designated by the CODE OF ETHICS SUPERVISOR,
the following reports as to (1) all COVERED SECURITIES and brokerage
accounts in which the ACCESS PERSON has, or by reason of a transaction,
acquires BENEFICIAL OWNERSHIP, whether or not the ACCESS PERSON had any
direct or indirect control over the COVERED SECURITIES or accounts and (2)
all FAMILY ACCOUNTS, IN EACH CASE, INCLUDING REPORTS COVERING SECURITIES
EXEMPTED BY SECTION D.
1. INITIAL HOLDINGS REPORTS. Not later than 10 days after an ACCESS
PERSON becomes an ACCESS PERSON, the following information:
(a) The title, number of shares and principal amount of each
COVERED SECURITY (x) in which the ACCESS PERSON had any direct or
indirect BENEFICIAL OWNERSHIP and (y) that was included in a
FAMILY ACCOUNT when the ACCESS PERSON became an ACCESS PERSON;
(b) The name of any broker, dealer or bank with whom the ACCESS
PERSON maintained (x) an account containing securities (including
but not limited to COVERED SECURITIES) in which the ACCESS PERSON
had any direct or indirect BENEFICIAL OWNERSHIP or (y) a FAMILY
ACCOUNT, each as of the date the ACCESS PERSON became an ACCESS
PERSON.
(c) The date the report is being submitted by the ACCESS PERSON.
2. QUARTERLY TRANSACTION REPORTS. Not later than 10 days after the end
of each calendar quarter, the following information:
(a) COVERED SECURITIES TRANSACTIONS. With respect to any
acquisition or disposition during the calendar quarter of a
COVERED SECURITY (x) in which the ACCESS PERSON had any direct or
indirect BENEFICIAL OWNERSHIP and (y) that was included in a
FAMILY ACCOUNT:
(i) The date of the acquisition or disposition, the title,
the interest rate and maturity date (if applicable),
the number of shares and the principal amount of each
COVERED SECURITY;
(ii) The nature of the acquisition or disposition (i.e.,
purchase, sale, gift or any other type of acquisition
or disposition)
(iii) The price of the Covered Security at which the
acquisition or disposition was effected;
(iv) The name of the broker, dealer or bank with or through
which the acquisition or disposition was effected; and
(v) The date the report is being submitted by the ACCESS
PERSON.
Adviser Code Draft: February 18, 2000 Page 8 of 11
<PAGE>
However, if no reportable transactions in any COVERED SECURITIES were
effected during a calendar quarter the affected ACCESS PERSON must
submit to the CODE OF ETHICS SUPERVISOR, within ten calendar days
after the end of the quarter, a report stating that no reportable
COVERED SECURITIES transactions were effected.
(b) BROKERAGE ACCOUNTS. With respect to (x) any account established by
the ACCESS PERSON containing securities (including but not limited to
COVERED SECURITIES) in which the person had a direct or indirect
BENEFICIAL OWNERSHIP and (y) a FAMILY ACCOUNT during the quarter:
(i) The name of the broker, dealer or bank with whom the ACCESS
PERSON established the account;
(ii) The date the account was established; and
(iii) The date the report is being submitted by the ACCESS
PERSON.
3. ANNUAL HOLDINGS REPORTS. By a date specified by the CODE OF ETHICS
SUPERVISOR and as of a date within 30 days before this reporting deadline,
the following information:
(a) The title, number of shares and principal amount of each COVERED
SECURITY (x) in which the ACCESS PERSON had any direct or indirect
BENEFICIAL OWNERSHIP and (y) that was included in a FAMILY ACCOUNT:;
(b) The name of any broker, dealer or bank with whom the ACCESS PERSON
maintained (x) an account containing securities in which the Access
Person had any direct or indirect BENEFICIAL OWNERSHIP and (y) a
FAMILY ACCOUNT.
(c) The date the report is being submitted by the ACCESS PERSON.
4. Every report concerning a COVERED SECURITIES transaction that would be
prohibited by Section C if an exemption were not available under Section D
must identify the exemption relied upon and describe the circumstances of
the transaction.
5. Notwithstanding subparagraph 2 of this Section H, an ACCESS PERSON need
not make quarterly transaction reports pursuant to this Code of Ethics if
the reported information would duplicate information reported pursuant to
Rule 204-2(a)(12) under the Investment Advisers Act of 1940 (the "Advisers
Act").
6. Any report submitted by an ACCESS PERSON in accordance with this Code
may contain a statement that the report will not be construed as an
admission by that person that he or she has any direct or indirect
BENEFICIAL OWNERSHIP in any COVERED SECURITY to which the report relates.
The existence of any report will not by itself be construed as an admission
that any event reported thereon constitutes a violation of this Code.
7. To the extent consistent with Rule 17j-1 under the 1940 Act, and Rule
204-2(a)(12) under the Advisers Act, the CODE OF ETHICS SUPERVISOR may
approve other alternative reporting procedures from time to time.
Adviser Code Draft: February 18, 2000 Page 9 of 11
<PAGE>
I. INITIAL AND ANNUAL CERTIFICATION OF COMPLIANCE.
1. Each ACCESS PERSON, within ten (10) days after becoming an ACCESS
PERSON, must certify, on a form designated by the CODE OF ETHICS
SUPERVISOR, that the Access Person:
(a) Has received, read and understands this Code of Ethics and
recognizes that the Access Person is subject hereto;
(b) Will comply with all the requirements of this Code of Ethics; and
(c) Has disclosed to the CODE OF ETHICS SUPERVISOR all holdings of
COVERED SECURITIES and all accounts required to be disclosed pursuant
to the requirements of this Code of Ethics.
2. Each ACCESS PERSON must also certify annually (by a date specified by
and on the form designated by the CODE OF ETHICS SUPERVISOR) that the
Access Person
(a) Has received, read and understand this Code of Ethics and
recognizes that the Access Person is subject hereto;
(b) Has complied with all the requirements of this Code of Ethics; and
(c) Has disclosed or reported all personal securities transactions,
holdings and accounts required to be disclosed or reported in
compliance with the requirements of this Code of Ethics.
J. CONFIDENTIALITY.
All information obtained from any ACCESS PERSON hereunder normally will be
kept in strict confidence by the Adviser, except that reports of
transactions and other information obtained hereunder may be made available
to the Securities and Exchange Commission or any other regulatory or
self-regulatory organization or other civil or criminal authority to the
extent required by law or regulation or to the extent considered
appropriate by senior management of the Adviser in light of all the
circumstances. In addition, in the event of violations or apparent
violations of the Code, this information may be disclosed to affected
clients.
K. IDENTIFICATION OF AND NOTICE TO ACCESS PERSONS.
The CODE OF ETHICS SUPERVISOR will identify all persons who are considered
to be "ACCESS PERSONS" and INVESTMENT DECISION MAKERS and inform these
persons of their respective duties and provide these persons with copies of
this Code of Ethics.
I. REVIEW OF REPORTS.
The CODE OF ETHICS SUPERVISOR will review the information to be compiled
under this Code of Ethics in accordance with such review procedures as the
CODE OF ETHICS
Adviser Code Draft: February 18, 2000 Page 10 of 11
<PAGE>
SUPERVISOR and senior management of the Adviser may from time to time
determine to be appropriate in light of the purposes of this Code of
Ethics.
M. SANCTIONS.
Any violation of this Code of Ethics will result in the imposition of such
sanctions as the Adviser may deem appropriate under the circumstances,
which may include, but are not limited to, a warning, disgorgement of
profits obtained in connection with a violation, the imposition of fines,
suspension, demotion, termination of employment or referral to civil or
criminal authorities.
N. RECORDKEEPING REQUIREMENTS.
The Adviser will maintain and preserve:
1. In an easily accessible place, a copy of this Code of Ethics (and any
prior code of ethics that was in effect at any time during the past five
years) for a period of five years;
2. In an easily accessible place, a record of any violation of this Code of
Ethics (and any prior code of ethics that was in effect at any time during
the past five years) and of any action taken as a result of such violation
for a period of five years following the end of the fiscal year in which
the violation occurs;
3. A copy of each report (or computer printout) submitted under this Code
of Ethics for a period of five years, provided that for the first two years
such reports must be maintained and preserved in an easily accessible
place;
4. In an easily accessible place, a list of all persons who are, or within
the past five years were, required to make or required to review, reports
pursuant to this Code of Ethics.
5. A copy of each report provided to any Fund as required by paragraph
(c)(2)(ii) of Rule 17j-1 under the 1940 Act or any successor provision for
a period of five years following the end of the fiscal year in which the
report is made, provided that for the first two years such record will be
preserved in an easily accessible place; and
6. A written record of any decision, and the reasons supporting any
decision, to approve the purchase by an ACCESS PERSON of any security in an
INITIAL PUBLIC OFFERING or in a LIMITED OR PRIVATE OFFERING for a period
of five years following the end of the fiscal year in which the approval is
granted.
Approved: , 2000
----------------
Adviser Code Draft: February 18, 2000 Page 11 of 11
<PAGE>
CODE OF ETHICS
The responsibility of investment counsel is to render professional, unbiased and
continuous advice to clients regarding their investments. STW shall devote
itself primarily to the performance of this function and services incidental
thereto.
Neither the firm nor any affiliate, principal or employee shall directly or
indirectly engage in any activity which jeopardizes the firm's ability to render
unbiased investment advice.
Our job is to provide professional guidance and advice in the management of
investment capital for individuals, corporations, institutions and trusts.
Standards of the profession require that we devote ourselves primarily to that
function and that every effort be made to eliminate bias and potential conflicts
of interest from our advice.
Investment counsel is oriented to the investment goals of each client as well as
the relative merits of various investments. Thus, investment counsel provides
advice which is continuous rather than incidental or occasional and which is
predicated upon a broad understanding of the objectives, tax status and general
circumstances of each client.
Investment counsel is based upon a continuing person-to-person relationship
similar to that of other professions. All officers and partners of STW who have
administrative or managerial responsibility, and all other individuals who have
responsibility for the firm's investment policies, decisions or advice, shall be
actively engaged in its investment counsel business.
No employee of STW shall participate in commissions derived from securities
transactions carried out for a client.
No employee of STW shall participate in profits derived from securities
transactions carried out for a client or engage in any significant financial
transactions with companies in which it invests.
Principals and employees of STW shall avoid security transactions and activities
for their own or for other non-client accounts which might conflict with or be
detrimental to the interest of clients, or which are designed to profit by
market effect of the firm's advice to its clients.
<PAGE>
CODE OF ETHICS
FOR ACCESS PERSONS OF
THE STRONG FAMILY OF MUTUAL FUNDS,
STRONG CAPITAL MANAGEMENT, INC.,
STRONG INVESTMENTS, INC.,
AND FLINT PRAIRIE, L. L. C.
[LOGO]
STRONG CAPITAL MANAGEMENT, INC.
October 22, 1999
<PAGE>
CODE OF ETHICS
For Access Persons of
The Strong Family of Mutual Funds,
Strong Capital Management, Inc.,
Strong Investments, Inc.,
and Flint Prairie, L. L. C.
Dated October 22, 1999
TABLE OF CONTENTS
I. INTRODUCTION...............................................................1
A. Fiduciary Duty....................................................1
1. Place the interests of Advisory Clients first............1
2. Avoid taking inappropriate advantage of their position...1
3. Conduct all Personal Securities Transactions in full
compliance with this Code including both the
preclearance and reporting requirements..................1
B. Appendices to the Code............................................1
1. Definitions..............................................2
2. Contact Persons..........................................2
3. Disclosure of Personal Holdings in Securities............2
4. Acknowledgment of Receipt of Code of Ethics and Limited
Power of Attorney........................................2
5. Preclearance Request for Access Persons..................2
6. Annual Code of Ethics Questionnaire......................2
7. List of Broad-Based Indices..............................2
8. Gift Policy..............................................2
9. Insider Trading Policy...................................2
10. Electronic Trading Authorization Form....................2
11. Social Security Number/Tax Identification Form...........2
C. Application of the Code to Independent Fund Directors.............2
D. Application of the Code to Funds Subadvised by SCM...............2
II. PERSONAL SECURITIES TRANSACTIONS..........................................2
A. Annual Disclosure of Personal Holdings by Access Persons..........2
B. Preclearance Requirements for Access Persons......................3
1. General Requirement......................................3
2. Transactions Exempt from Preclearance Requirements.......3
a. Mutual Funds....................................3
b. No Knowledge....................................3
c. Certain Corporate Actions.......................3
d. Rights..........................................3
e. Application to Commodities, Futures, Options on
Futures and Options on Broad-Based Indices......3
f. Miscellaneous...................................4
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TABLE OF CONTENTS (CONTINUED)
C. Preclearance Requests.............................................4
1. Trade Authorization Request Forms........................4
2. Review of Form...........................................4
3. Access Person Designees..................................4
D. Prohibited Transactions...........................................5
1. Prohibited Securities Transactions.......................5
a. Initial Public Offerings........................5
b. Pending Buy or Sell Orders......................5
c. Seven Day Blackout..............................5
d. Intention to Buy or Sell for Advisory Client....6
e. 60-Day Blackout.................................6
2. Always Prohibited Securities Transactions................6
a. Inside Information..............................6
b. Market Manipulation.............................6
c. Large Positions in Registered Investment
Companies.......................................6
d. Others..........................................6
3. Private Placements.......................................6
4. No Explanation Required for Refusals.....................7
E. Execution of Personal Securities Transactions.....................7
F. Length of Trade Authorization Approval............................7
G. Trade Reporting Requirements......................................7
1. Reporting Requirement....................................7
2. Disclaimers..............................................8
3. Quarterly Review.........................................8
4. Availability of Reports..................................8
III. FIDUCIARY DUTIES.........................................................9
A. Confidentiality...................................................9
B. Gifts.............................................................9
1. Accepting Gifts..........................................9
2. Solicitation of Gifts....................................9
3. Giving Gifts.............................................9
C. Payments to Advisory Clients......................................9
D. Corporate Opportunities...........................................9
E. Undue Influence..................................................10
F. Service as a Director............................................10
G. Involvement in Criminal Matters or Investment-Related Civil
Proceedings.....................................................10
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<PAGE>
TABLE OF CONTENTS (CONTINUED)
IV. COMPLIANCE WITH THIS CODE OF ETHICS......................................10
A. Code of Ethics Review Committee..................................10
1. Membership, Voting, and Quorum..........................10
2. Investigating Violations of the Code....................10
3. Annual Reports..........................................11
B. Remedies.........................................................11
1. Sanctions...............................................11
2. Sole Authority..........................................11
3. Review..................................................11
C. Exceptions to the Code...........................................12
D. Compliance Certification........................................12
E. Record Retention................................................12
1. Code of Ethics..........................................12
2. Violations..............................................12
3. Required Reports........................................12
4. Access Person List......................................12
F. Inquiries Regarding the Code.....................................12
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<PAGE>
CODE OF ETHICS
For Access Persons of
The Strong Family of Mutual Funds,
Strong Capital Management, Inc.,
Strong Investments, Inc.,
and Flint Prairie, L. L. C.
Dated October 22, 1999
TABLE OF APPENDICES
Appendix 1 (Definitions).....................................................13
Appendix 2 (Contact Persons).................................................16
Appendix 3 (Disclosure of Personal Holdings in Securities)...................17
Appendix 4 (Acknowledgment of Receipt of Code of Ethics and
Limited Power of Attorney)........................................18
Appendix 5 (Preclearance Request for Access Persons).........................19
Appendix 6 (Annual Code of Ethics Questionnaire).............................20
Appendix 7 (List of Broad-Based Indices).....................................23
Appendix 8 (Gift Policy).....................................................24
Appendix 9 (Insider Trading Policy)..........................................26
Appendix 10 (Electronic Trading Authorization Form) ..........................30
Appendix 11 (Social Security Number/Tax Identification Form) .................31
iv
<PAGE>
CODE OF ETHICS
For Access Persons of
The Strong Family of Mutual Funds,
Strong Capital Management, Inc.,
Strong Investments, Inc.,
and Flint Prairie, L. L. C.
Dated October 22, 1999
I. INTRODUCTION(1)
A. FIDUCIARY DUTY. This Code of Ethics is based upon the principle that
directors, officers and associates of Strong Capital Management, Inc. ("SCM"),
Strong Investments, Inc. ("the Distributor"), the Strong Family of Mutual Funds
("the Strong Funds") and Flint Prairie, L. L. C. ("Flint Prairie") have a
fiduciary duty to place the interests of clients ahead of their own. The Code
applies to all Access Persons and focuses principally on preclearance and
reporting of personal transactions in securities. Access Persons must avoid
activities, interests and relationships that might interfere with making
decisions in the best interests of the Advisory Clients of SCM.
As fiduciaries, Access Persons must at all times:
1. PLACE THE INTERESTS OF ADVISORY CLIENTS FIRST. Access Persons must
scrupulously avoid serving their own personal interests ahead of the
interests of the Advisory Clients of SCM. AN ACCESS PERSON MAY NOT INDUCE
OR CAUSE AN ADVISORY CLIENT TO TAKE ACTION, OR NOT TO TAKE ACTION, FOR
PERSONAL BENEFIT RATHER THAN FOR THE BENEFIT OF THE ADVISORY CLIENT. For
example, an Access Person would violate this Code by causing an Advisory
Client to purchase a Security he or she owned for the purpose of increasing
the price of that Security.
2. AVOID TAKING INAPPROPRIATE ADVANTAGE OF THEIR POSITION. The receipt
of investment opportunities, perquisites or gifts from persons seeking
business with the Strong Funds, SCM, the Distributor, Flint Prairie or
their clients could call into question the exercise of an Access Person's
independent judgment. Access persons may not, for example, use their
knowledge of portfolio transactions to profit by the market effect of such
transactions.
3. CONDUCT ALL PERSONAL SECURITIES TRANSACTIONS IN FULL COMPLIANCE
WITH THIS CODE INCLUDING BOTH THE PRECLEARANCE AND REPORTING REQUIREMENTS.
Doubtful situations should be resolved in favor of Advisory Clients.
Technical compliance with the Code's procedures will not automatically
insulate from scrutiny any trades that may indicate an abuse of fiduciary
duties.
- ----------
(1) Capitalized words are defined in Appendix 1.
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<PAGE>
B. APPENDICES TO THE CODE. The appendices to this Code are attached hereto,
are a part of the Code and include the following:
1. DEFINITIONS--capitalized words as defined in the Code
(Appendix 1),
2. CONTACT PERSONS, including the Preclearance Officer designees and
the Code of Ethics Review Committee (Appendix 2),
3. DISCLOSURE OF PERSONAL HOLDINGS IN SECURITIES (Appendix 3),
4. ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS AND LIMITED POWER OF
ATTORNEY (Appendix 4),
5. PRECLEARANCE REQUEST FOR ACCESS PERSONS (Appendix 5),
6. ANNUAL CODE OF ETHICS QUESTIONNAIRE (Appendix 6),
7. LIST OF BROAD-BASED INDICES (Appendix 7),
8. GIFT POLICY (Appendix 8),
9. INSIDER TRADING POLICY (Appendix 9)
10. Electronic Trading Authorization Form (Appendix 10), and
11. Social Security Number/Tax Identification Form (Appendix 11).
C. APPLICATION OF THE CODE TO INDEPENDENT FUND DIRECTORS. This Code
applies to Independent Fund Directors and requires Independent Fund Directors
and their Immediate Families to report Securities Transactions to the Compliance
Department in accordance with the trade reporting requirements (Section II.G.).
However, provisions of the Code relating to the disclosure of personal holdings
(Section II.A.), preclearance of trades (Section II.B.), prohibited transactions
(II.D.1.), large positions in registered investment companies (Section
II.D.2.c.), private placements (Section II.D.3.), restrictions on serving as a
director of a publicly-traded company (Section III.F.) and receipt of gifts
(Section III.B.) do not apply to Independent Fund Directors.
D. APPLICATION OF THE CODE TO FUNDS SUBADVISED BY SCM. This Code does not
apply to the directors, officers and general partners of Funds for which SCM
serves as a subadviser.
2
<PAGE>
II. PERSONAL SECURITIES TRANSACTIONS
A. ANNUAL DISCLOSURE OF PERSONAL HOLDINGS BY ACCESS PERSONS. Upon
designation as an Access Person, and thereafter on an annual basis, all Access
Persons must report on the Disclosure of Personal Holdings In Securities Form
(Appendix 3) (or a substantially similar form) all Securities, including
securities held in certificate form, in which they have a Beneficial Interest
and all Securities in non-client accounts for which they make investment
decisions (previously reported holdings, as well as those specifically excluded
from the definition of Security, need not be reported). This provision does not
apply to Independent Fund Directors.
B. PRECLEARANCE REQUIREMENTS FOR ACCESS PERSONS.
1. GENERAL REQUIREMENT. Except for the transactions set forth in
Section II.B.2., ALL SECURITIES TRANSACTIONS in which an Access Person or a
member of his or her Immediate Family has a Beneficial Interest MUST BE
PRECLEARED with the Preclearance Officer or his designee. This provision
does not apply to transactions of Independent Fund Directors and their
Immediate Families.
2. TRANSACTIONS EXEMPT FROM PRECLEARANCE REQUIREMENTS. The following
Securities Transactions are exempt from the preclearance requirements set
forth in Section II.B.1. of this Code:
a. MUTUAL FUNDS. Securities issued by any registered open-end
investment companies (including but not limited to the Strong Funds);
b. NO KNOWLEDGE. Securities Transactions where neither SCM, the
Access Person nor an Immediate Family member knows of the transaction
before it is completed (for example, Securities Transactions effected
for an Access Person by a trustee of a blind trust or discretionary
trades involving an investment partnership or investment club in which
the Access Person is neither consulted nor advised of the trade before
it is executed);
c. CERTAIN CORPORATE ACTIONS. Any acquisition or disposition of
Securities through stock dividends, dividend reinvestments, stock
splits, reverse stock splits, mergers, consolidations, spin-offs or
other similar corporate reorganizations or distributions generally
applicable to all holders of the same class of Securities. Odd-lot
tender offers are also exempt from the preclearance requirements;
however, all other tender offers must be precleared;
d. RIGHTS. Any acquisition or disposition of Securities through
the exercise of rights, options, convertible bonds or other
instruments acquired in compliance with this Code;
e. APPLICATION TO COMMODITIES, FUTURES, OPTIONS ON FUTURES AND
OPTIONS ON BROAD-BASED INDICES. Commodities, futures (including
currency futures and futures on securities comprising part of a
broad-based, publicly traded
3
<PAGE>
market based index of stocks), options on futures, options on
currencies and options on certain indices designated by the Compliance
Department as broad-based are not subject to preclearance or the seven
day black out, 60-day profit disgorgement and other prohibited
transaction provisions of Section II.D.1. of the Code but are subject
to transaction reporting requirements (Section II.G.). The options on
indices designated by the Compliance Department as broad-based may be
changed from time to time and are listed in Appendix 7.
THE OPTIONS ON INDICES THAT ARE NOT DESIGNATED AS BROAD-BASED ARE
SUBJECT TO THE PRECLEARANCE, SEVEN-DAY BLACKOUT, 60-DAY PROFIT
DISGORGEMENT, PROHIBITED TRANSACTION AND REPORTING PROVISIONS OF THE
CODE.
f. MISCELLANEOUS. Any transaction in the following: (1) bankers
acceptances; (2) bank certificates of deposit ("CDs"); (3) commercial
paper; (4) repurchase agreements (when backed by exempt securities);
(5) U.S. Government Securities; (6) the acquisition of equity
securities in dividend reinvestment plans ("DRIPs"), when the
acquisition is directly through the issuer or its non-broker agent;
(7) Securities of the employer of a member of the Access Person's
Immediate Family if such securities are beneficially owned through
participation by the Immediate Family member in a Profit Sharing plan,
401(k) plan, ESOP or other similar plan; and (8) other Securities as
may from time to time be designated in writing by the Code of Ethics
Review Committee on the grounds that the risk of abuse is minimal or
non-existent.
C. PRECLEARANCE REQUESTS.
1. TRADE AUTHORIZATION REQUEST FORMS. Prior to entering an order for
a Securities Transaction that requires preclearance, the Access Person must
complete, IN WRITING, a Preclearance Request For Access Persons Form
(Appendix 5) and submit the completed form to the Preclearance Officer (or
his or her designee). The Preclearance Request For Access Persons Form
requires Access Persons to provide certain information and to make certain
representations. Proposed Securities Transactions of the Preclearance
Officer that require preclearance must be submitted to his designee.
2. REVIEW OF FORM. After receiving the completed Preclearance
Request For Access Persons Form, the Preclearance Officer (or his or her
designee) will (a) review the information set forth in the form, (b)
independently confirm whether the Securities are held by any Funds or other
accounts managed by SCM and whether there are any unexecuted orders to
purchase or sell the Securities by any Fund or accounts managed by SCM and
(c) as soon as reasonably practicable, determine whether to clear the
proposed Securities Transaction. The authorization, date, and time of the
authorization must be reflected on the Preclearance Request For Access
Persons Form. The Preclearance Officer (or his or her designee) will keep
one copy of the completed form for the Compliance Department, send one copy
to the Access Person seeking authorization and send the third copy to the
Trading Department, which will cause the transaction to be
4
<PAGE>
executed. If the brokerage account is an Electronic Trading Account and the
Access Person has completed the Electronic Trading Authorization Form
(Appendix 10), the Access Person will execute the transaction on his or her
own behalf and will provide Compliance with a copy of the electronic
confirmation by the end of the next business day.
No order for a securities transaction for which preclearance authorization
is sought may be placed prior to the receipt of WRITTEN authorization of
the transaction by the preclearance officer (or his or her designee).
Verbal approvals are not permitted.
3. ACCESS PERSON DESIGNEES. If an Access Person is unable to
personally effect a personal Securities Transaction, such Access Person may
designate an individual at SCM to complete and submit for preclearance on
his or her behalf a Preclearance Request For Access Persons Form provided
the following requirements are satisfied:
a. The Access Person communicates the details of the trade and
affirms the accuracy of the representations and warranties contained
on the Form directly to such designated person; and
b. The designated person completes the Preclearance Request For
Access Persons Form on behalf of the Access Person in accordance with
the requirements of the Code and then executes the Access Person
Designee Certification contained in the Form. The Access Person does
not need to sign the Form so long as the foregoing certification is
provided.
D. PROHIBITED TRANSACTIONS.
1. PROHIBITED SECURITIES TRANSACTIONS. The following Securities
Transactions for accounts in which an Access Person or a member of his or
her Immediate Family have a Beneficial Interest, to the extent they require
preclearance under Section II.B. above, are prohibited and will not be
authorized by the Preclearance Officer (or his or her designee) absent
exceptional circumstances:
a. INITIAL PUBLIC OFFERINGS. Any purchase of Securities in an
initial public offering (other than a new offering of a registered
open-end investment company);
b. PENDING BUY OR SELL ORDERS. Any purchase or sale of
Securities on any day during which any Advisory Client has a pending
"buy" or "sell" order in the same Security (or Equivalent Security)
until that order is executed or withdrawn, unless the purchase or sale
is a Program Trade;
c. SEVEN DAY BLACKOUT. Purchases or sales of Securities by a
Portfolio Manager within seven calendar days of a purchase or sale of
the same Securities (or Equivalent Securities) by an Advisory Client
managed by that
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<PAGE>
Portfolio Manager, unless the purchase or sale is a Program Trade. For
example, if a Fund trades in a Security on day one, day eight is the
first day the Portfolio Manager may trade that Security for an account
in which he or she has a beneficial interest;
d. INTENTION TO BUY OR SELL FOR ADVISORY CLIENT. Purchases or
sales of Securities at a time when that Access Person intends, or
knows of another's intention, to purchase or sell that Security (or an
Equivalent Security) on behalf of an Advisory Client. This prohibition
applies whether the Securities Transaction is in the same (E.G., two
purchases) or the opposite (a purchase and sale) direction of the
transaction of the Advisory Client, unless the purchase or sale is a
Program Trade; and
e. 60-DAY BLACKOUT. (1) Sales of a Security within 60 days of
the purchase of the Security (or an Equivalent Security) in which the
Access Person has a Beneficial Interest and (2) purchases of a
Security within 60 days of the sale of the Security (or an Equivalent
Security) in which the Access Person had a Beneficial Interest, unless
in each case, the Access Person agrees to give up all profits on the
transaction to a charitable organization as specified by remedies
involving sanctions (Section IV.B.1.).
2. ALWAYS PROHIBITED SECURITIES TRANSACTIONS. The following
Securities Transactions are prohibited and will not be authorized under any
circumstances:
a. INSIDE INFORMATION. Any transaction in a Security while in
possession of material nonpublic information regarding the Security or
the issuer of the Security (see Insider Trading Policy, Appendix 9);
b. MARKET MANIPULATION. Transactions intended to raise, lower,
or maintain the price of any Security or to create a false appearance
of active trading;
c. LARGE POSITIONS IN REGISTERED INVESTMENT COMPANIES.
Transactions in a registered investment company, including Strong
Funds, which result in the Access Person owning five percent or more
of any class of securities in such investment company (this
prohibition does not apply to Independent Fund Directors); and
d. OTHERS. Any other transactions deemed by the Preclearance
Officer (or his designee) to involve a conflict of interest, possible
diversion of corporate opportunity or an appearance of impropriety.
3. PRIVATE PLACEMENTS. Acquisitions of Beneficial Interests in
Securities in a private placement by an Access Person is strongly
discouraged. The Preclearance Officer (or his or her designee) will give
permission only after considering, among other facts, whether the
investment opportunity should be reserved for Advisory Clients and whether
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the opportunity is being offered to an Access Person by virtue of his or
her position as an Access Person. Access Persons who have been authorized
to acquire and have acquired securities in a private placement are required
to disclose that investment to the Compliance Department when they play a
part in any subsequent consideration of an investment in the issuer by an
Advisory Client. In such circumstances, the decision to purchase securities
of the issuer by an Advisory Client must be independently authorized by a
Portfolio Manager with no personal interest in the issuer. This provision
does not apply to Independent Fund Directors.
4. NO EXPLANATION REQUIRED FOR REFUSALS. In some cases, the
Preclearance Officer (or his or her designee) may refuse to authorize a
Securities Transaction for a reason that is confidential. The Preclearance
Officer is not required to give an explanation for refusing to authorize
any Securities Transaction.
E. EXECUTION OF PERSONAL SECURITIES TRANSACTIONS. Unless an exception is
provided in writing by the Compliance Department, all transactions in Securities
subject to the preclearance requirements for which an Access Person or a member
of his or her Immediate Family has a Beneficial Interest shall be executed by
the Trading Department. However, if the Access Person's brokerage account is an
Electronic Trading Account, the transaction may be placed by the Access Person.
IN ALL INSTANCES, THE TRADING DEPARTMENT MUST GIVE PRIORITY TO CLIENT TRADES
OVER ACCESS PERSON TRADES.
F. LENGTH OF TRADE AUTHORIZATION APPROVAL. The authorization provided by
the Preclearance Officer (or his or her designee) is effective until the earlier
of (1) its revocation; (2) the close of business on the second trading day after
the authorization is granted for transactions placed by the Trading Department
(for example, if authorization is provided on a Monday, it is effective until
the close of business on Wednesday); (3) the close of business of the SAME
TRADING DAY that the authorization is granted for transactions placed through an
Electronic Trading Account; or (4) the Access Person learns that the information
in the Trade Authorization Request Form is not accurate. If the order for the
Securities Transaction is not placed within that period, a new advance
authorization must be obtained before the Securities Transaction is placed. For
Securities Transactions placed by the Trading Deparment that have not been
executed within two trading days after the day the authorization is granted (for
example, in the case of a limit order or a Not Held Order), no new authorization
is necessary unless the person placing the original order for the Securities
Transaction amends it in any way.
G. TRADE REPORTING REQUIREMENTS.
1. REPORTING REQUIREMENT. EVERY ACCESS PERSON AND MEMBERS OF HIS OR
HER IMMEDIATE FAMILY (INCLUDING INDEPENDENT FUND DIRECTORS AND THEIR
IMMEDIATE FAMILIES) MUST ARRANGE FOR THE COMPLIANCE DEPARTMENT TO RECEIVE
DIRECTLY FROM ANY BROKER, DEALER OR BANK THAT EFFECTS ANY SECURITIES
TRANSACTION, DUPLICATE COPIES OF EACH CONFIRMATION FOR EACH SUCH
TRANSACTION AND PERIODIC STATEMENTS FOR EACH BROKERAGE ACCOUNT IN WHICH
SUCH ACCESS PERSON HAS A BENEFICIAL INTEREST. Additionally, securities held
in certificate form that are not included in the periodic
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statements, must also be reported. To assist in making these arrangements,
the Compliance Department will send a letter to each brokerage firm based
on the information provided by the Access Person in Appendix 3.
THE FOREGOING DOES NOT APPLY TO TRANSACTIONS AND HOLDINGS IN (1) OPEN-END
INVESTMENT COMPANIES INCLUDING BUT NOT LIMITED TO THE STRONG FUNDS, (2)
BANKERS ACCEPTANCES, (3) BANK CERTIFICATES OF DEPOSIT ("CDs"), (4)
COMMERCIAL PAPER, (5) REPURCHASE AGREEMENTS WHEN BACKED BY EXEMPT
SECURITIES, (6) U. S. GOVERNMENT SECURITIES, (7) THE ACQUISITION OF EQUITY
SECURITIES IN DIVIDEND REINVESTMENT PLANS ("DRIPs"), WHEN THE ACQUISITION
IS DIRECTLY THROUGH THE ISSUER OR ITS NON-BROKER AGENT; OR (8) SECURITIES
OF THE EMPLOYER OF A MEMBER OF THE ACCESS PERSON'S IMMEDIATE FAMILY IF SUCH
SECURITIES ARE BENEFICIALLY OWNED THROUGH PARTICIPATION BY THE IMMEDIATE
FAMILY MEMBER IN A PROFIT SHARING PLAN, 401(k) PLAN, ESOP OR OTHER SIMILAR
PLAN.
2. DISCLAIMERS. Any report of a Securities Transaction for the
benefit of a person other than the individual in whose account the
transaction is placed may contain a statement that the report should not be
construed as an admission by the person making the report that he or she
has any direct or indirect beneficial ownership in the Security to which
the report relates.
3. QUARTERLY REVIEW. At least quarterly, for Securities Transactions
requiring preclearance under this Code, the Preclearance Officer (or his or
her designee) shall compare the confirmations and periodic statements
provided pursuant to the trade reporting requirements (Section II.G.1.) to
the approved Trade Authorization Request Forms. Such review shall include:
a. Whether the Securities Transaction complied with this Code;
b. Whether the Securities Transaction was authorized in advance
of its placement;
c. Whether the Securities Transaction was executed within two
full trading days of when it was authorized;
d. Whether any Fund or accounts managed by SCM owned the
Securities at the time of the Securities Transaction, and;
e. Whether any Fund or separate accounts managed by SCM
purchased or sold the Securities in the Securities Transaction within
at least 10 days of the Securities Transaction.
4. AVAILABILITY OF REPORTS. All information supplied pursuant to
this Code will be available for inspection by the Boards of Directors of
SCM and SFDI; the Board of Directors of each Strong Fund; the Code of
Ethics Review Committee; the Compliance
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Department; the Access Person's department manager (or designee); any party
to which any investigation is referred by any of the foregoing, the SEC,
any self-regulatory organization of which the Strong Funds, SCM, the
Distributor or Flint Prairie is a member, and any state securities
commission; as well as any attorney or agent of the foregoing, the Strong
Funds, SCM, the Distributor or Flint Prairie.
III. FIDUCIARY DUTIES
A. CONFIDENTIALITY. Access Persons are prohibited from revealing
information relating to the investment intentions, activities or portfolios of
Advisory Clients except to persons whose responsibilities require knowledge of
the information.
B. GIFTS. The following provisions on gifts apply only to associates of
SCM, the Distributor and Flint Prairie.
1. ACCEPTING GIFTS. On occasion, because of their position with SCM,
the Distributor, the Strong Funds or Flint Prairie, associates may be
offered, or may receive without notice, gifts from clients, brokers,
vendors or other persons not affiliated with such entities. Acceptance of
extraordinary or extravagant gifts is not permissible. Any such gifts must
be declined or returned in order to protect the reputation and integrity of
SCM, the Distributor, the Strong Funds and Flint Prairie. Gifts of a
nominal value (i.e., gifts whose reasonable value is no more than $100 a
year), customary business meals, entertainment (E.G., sporting events) and
promotional items (E.G., pens, mugs, T-shirts) may be accepted. Please see
the Gift Policy (Appendix 8) for additional information.
If an associate receives any gift that might be prohibited under this
Code, the associate must inform the Compliance Department.
2. SOLICITATION OF GIFTS. Associates of SCM, the Distributor or
Flint Prairie may not solicit gifts or gratuities.
3. GIVING GIFTS. Associates of SCM, the Distributor or Flint Prairie
may not give any gift with a value in excess of $100 per year to persons
associated with securities or financial organizations, including exchanges,
other member organizations, commodity firms, news media or clients of the
firm. Please see the Gift Policy (Appendix 9) for additional information.
C. PAYMENTS TO ADVISORY CLIENTS. Access Persons may not make any payments
to Advisory Clients in order to resolve any type of Advisory Client complaint.
All such matters must be handled by the Legal Department.
D. CORPORATE OPPORTUNITIES. Access Persons may not take personal
advantage of any opportunity properly belonging to any Advisory Client, SCM, the
Distributor or Flint Prairie. This includes, but is not limited to, acquiring
Securities for one's own account that would otherwise be acquired for an
Advisory Client.
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E. UNDUE INFLUENCE. Access Persons may not cause or attempt to cause any
Advisory Client to purchase, sell or hold any Security in a manner calculated to
create any personal benefit to the Access Person. If an Access Person or
Immediate Family Member stands to materially benefit from an investment decision
for an Advisory Client that the Access Person is recommending or participating
in, the Access Person must disclose to those persons with authority to make
investment decisions for the Advisory Client, any Beneficial Interest that the
Access Person (or Immediate Family) has in that Security or an Equivalent
Security, or in the issuer thereof, where the decision could create a material
benefit to the Access Person (or Immediate Family) or the appearance of
impropriety. If the Access Person in question is a person with authority to make
investment decisions for the Advisory Client, disclosure must also be made to
the Compliance Department. The person to whom the Access Person reports the
interest, in consultation with the Compliance Department, must determine whether
the Access Person will be restricted in making investment decisions.
F. SERVICE AS A DIRECTOR. No Access Person, other than an Independent
Fund Director, may serve on the board of directors of a publicly-held company
not affiliated with SCM, the Distributor, the Strong Funds or Flint Prairie
absent prior written authorization by the Code of Ethics Review Committee. This
authorization will rarely, if ever, be granted and, if granted, will normally
require that the affected Access Person be isolated through "Chinese Wall" or
other procedures from those making investment decisions related to the issuer on
whose board the Access Person sits.
G. INVOLVEMENT IN CRIMINAL MATTERS OR INVESTMENT-RELATED CIVIL
PROCEEDINGS. Each Access Person must notify the Compliance Department, as soon
as reasonably practical, if arrested, arraigned, indicted or pleads no contest
to any criminal offense (other than minor traffic violations) or if named as a
defendant in any Investment-Related civil proceedings or any administrative or
disciplinary action.
IV. COMPLIANCE WITH THIS CODE OF ETHICS
A. CODE OF ETHICS REVIEW COMMITTEE.
1. MEMBERSHIP, VOTING, AND QUORUM. The Code of Ethics Review
Committee shall consist of Senior Officers of SCM. The Committee shall vote
by majority vote with two members serving as a quorum. Vacancies may be
filled; and in the case of extended absences or periods of unavailability,
alternates may be selected by the majority vote of the remaining members of
the Committee. However, in the event that the General Counsel or Deputy
General Counsel is unavailable, at least one member of the Committee shall
also be a member of the Compliance Department.
2. INVESTIGATING VIOLATIONS OF THE CODE. The General Counsel, or his
or her designee, is responsible for investigating any suspected violation
of the Code and shall report the results of each investigation to the Code
of Ethics Review Committee. The Code of Ethics Review Committee is
responsible for reviewing the results of any
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investigation of any reported or suspected violation of the Code. Any
material violation of the Code by an associate of SCM, the Distributor or
Flint Prairie for which significant remedial action was taken will be
reported to the Boards of Directors of the Strong Funds at the next
regularly scheduled quarterly Board meeting.
3. ANNUAL REPORTS. The Code of Ethics Review Committee will review
the Code at least once a year, in light of legal and business developments
and experience in implementing the Code and will prepare an annual report
to the Boards of Directors of SCM, the Distributor and each Strong Fund
that:
a. Summarizes existing procedures concerning personal investing
and any changes in the procedures made during the past year;
b. Identifies any violation requiring significant remedial
action during the past year; and
c. Identifies any recommended changes in existing restrictions
or procedures based on its experience under the Code, evolving
industry practices or developments in applicable laws or regulations.
B. REMEDIES.
1. SANCTIONS. If the Code of Ethics Review Committee determines that
an Access Person has committed a violation of the Code, the Committee may
impose sanctions and take other actions as it deems appropriate, including
a letter of caution or warning, suspension of personal trading rights,
suspension of employment (with or without compensation), fine, civil
referral to the SEC, criminal referral and termination of employment for
cause. The Code of Ethics Review Committee may also require the Access
Person to reverse the trade(s) in question and forfeit any profit or absorb
any loss derived therefrom. The amount of profit shall be calculated by the
Code of Ethics Review Committee and shall be forwarded to a charitable
organization. No member of the Code of Ethics Review Committee may review
his or her own transaction.
2. SOLE AUTHORITY. The Code of Ethics Review Committee has sole
authority, subject to the review set forth in Section IV.B.3. below, to
determine the remedy for any violation of the Code, including appropriate
disposition of any moneys forfeited pursuant to this provision. Failure to
promptly abide by a directive to reverse a trade or forfeit profits may
result in the imposition of additional sanctions.
3. REVIEW. Whenever the Code of Ethics Review Committee determines
that an Access Person has committed a violation of this Code that merits
significant remedial action, it will report promptly to the Boards of
Directors of SCM and/or the Distributor (as appropriate), and no less
frequently than the quarterly meeting to the Boards of Directors of the
applicable Strong Funds, information relating to the investigation of the
violation, including any sanctions imposed. The Boards of Directors of SCM,
the
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Distributor and the Strong Funds may modify such sanctions as they deem
appropriate. Such Boards may have access to all information considered by
the Code of Ethics Review Committee in relation to the case. The Code of
Ethics Review Committee may determine whether to delay the imposition of
any sanctions pending review by the applicable Boards of Directors.
C. EXCEPTIONS TO THE CODE. Although exceptions to the Code will rarely,
if ever, be granted, the General Counsel of SCM may grant exceptions to the
requirements of the Code on a case-by-case basis if he finds that the proposed
conduct involves negligible opportunity for abuse. All Material exceptions must
be in writing and must be reported as soon as practicable to the Code of Ethics
Review Committee and to the Boards of Directors of the SCM Funds at their next
regularly scheduled meeting after the exception is granted. Refer to Appendix 1
for the definition of "Material."
D. COMPLIANCE CERTIFICATION. At least annually, all Access Persons will
be required to certify on the Annual Code of Ethics Questionnaire set forth in
Appendix 6, or on a document substantially in the form of Appendix 6, that they
have complied with the Code in all respects.
E. RECORD RETENTION. SCM will, at its principal place of business,
maintain the following records in an easily accessible place, for at least six
years and will make records available to the SEC or any representative thereof
at any time:
1. CODE OF ETHICS. A copy of the Code of Ethics which is, or at any
time has been, in effect.
2. VIOLATIONS. A record of any violation of such Code of Ethics and
any action taken as a result of such violation.
3. REQUIRED REPORTS. A copy of each report made by an Access Person
pursuant to the Code of Ethics shall include records of the procedures
followed in connection with the preclearance and reporting requirements of
this Code and information relied on by the Preclearance Officer in
authorizing the Securities Transaction and in making the post-Securities
Transaction determination.
4. ACCESS PERSON LIST. A list of all persons who are, or have been,
required to make reports pursuant to the Code of Ethics.
F. INQUIRIES REGARDING THE CODE. The Compliance Department will answer
any questions about this Code or any other compliance-related matters.
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Appendix 1
DEFINITIONS
"ACCESS PERSON" means (1) every director, officer, and general partner of
SCM, the Distributor, the Strong Funds and Flint Prairie; (2) every associate of
SCM, the Distributor and Flint Prairie who, in connection with his or her
regular functions, makes, participates in, or obtains information regarding the
purchase or sale of a security by an Advisory Client's account; (3) every
associate of SCM, the Distributor and Flint Prairie who is involved in making
purchase or sale recommendations for an Advisory Client's account; (4) every
associate of SCM, the Distributor and Flint Prairie who obtains information
concerning such recommendations prior to their dissemination; and (5) such
agents of SCM, the Distributor, the Funds or Flint Prairie as the Compliance
Department shall designate who may be deemed an Access Person if they were an
associate of the foregoing. Any uncertainty as to whether an individual is an
Access Person should be brought to the attention of the Compliance Department.
Such questions will be resolved in accordance with, and this definition shall be
subject to, the definition of "Access Person" found in Rule 17j-1(e)(1)
promulgated under the Investment Company Act of 1940.
"ADVISORY CLIENT" means any client (including both investment companies and
managed accounts) for which SCM serves as an investment adviser or subadviser,
renders investment advice, makes investment decisions or places orders through
its Trading Department.
"BENEFICIAL INTEREST" means the opportunity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, to
profit or share in any profit derived from a transaction in the subject
Securities. An Access Person is deemed to have a Beneficial Interest in
Securities owned by members of his or her Immediate Family. Common examples of
Beneficial Interest include joint accounts, spousal accounts, UTMA accounts,
partnerships, trusts and controlling interests in corporations. Any uncertainty
as to whether an Access Person has a Beneficial Interest in a Security should be
brought to the attention of the Compliance Department. Such questions will be
resolved by reference to the principles set forth in the definition of
"beneficial owner" found in Rules 16a-1(a)(2) and (5) promulgated under the
Securities Exchange Act of 1934.
"CODE" means this Code of Ethics.
"COMPLIANCE DEPARTMENT" means the designated persons listed on Appendix 2,
as such Appendix shall be amended from time to time.
"THE DISTRIBUTOR" means Strong Investments, Inc.
"ELECTRONIC TRADING ACCOUNT" means a brokerage account held by an Access
Person where Securities Transactions are placed either electronically via the
Internet or the telephone. All such Securities Transactions must be precleared
by the Compliance Department.
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"EQUIVALENT SECURITY" means any Security issued by the same entity as the
issuer of a subject Security that is convertible into the equity Security of the
issuer. Examples include options but are not limited to rights, stock
appreciation rights, warrants and convertible bonds.
"FUND" means an investment company registered under the Investment Company
Act of 1940 (or a portfolio or series thereof) for which SCM serves as an
adviser or subadviser.
"IMMEDIATE FAMILY" of an Access Person means any of the following persons
who reside in the same household as the Access Person:
child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
stepparent father-in-law
Immediate Family includes adoptive relationships and any other relationship
(whether or not recognized by law) which the General Counsel determines could
lead to the possible conflicts of interest, diversions of corporate opportunity,
or appearances of impropriety which this Code is intended to prevent.
"INDEPENDENT FUND DIRECTOR" means an independent director of an investment
company for which SCM serves as the advisor.
"LEGAL DEPARTMENT" means the SCM Legal/Compliance Department.
"MATERIAL" for purposes of this reporting requirement, shall mean the
following:
1. NUMBER OF SHARES - Any transaction for more than 1,000 shares shall
be deemed material and subject to reporting. Whether a transaction
of 1,000 shares or less is material shall be determined on a
case-by-case basis; in particular, the less liquid a security is,
the lower the threshold that should be used for the materiality
determination.
2. DOLLAR VALUE OF TRANSACTION - Any transaction with a dollar value in
excess of $25,000 shall be deemed material and subject to reporting.
Whether a transaction of $25,000 or less is material shall be
determined on a case-by-case basis.
3. NUMBER OF TRANSACTIONS IN A YEAR - The General Counsel may grant no
more than two exceptions per associate per year that are not subject
to reporting. For example, if the General Counsel has granted two
exceptions to an associate, ANY exception granted thereafter shall
be deemed material and subject to reporting (irrespective of the
number of shares or other circumstances of the transaction).
4. CONSULTATION WITH INDEPENDENT COUNSEL - In any case where the
General Counsel believes there is an issue of whether a proposed
exception is material and subject to reporting, he shall consult
with counsel to the independent directors for the Strong Funds.
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"NOT HELD ORDER" means an order placed with a broker and ultimately
executed at the discretion of the broker.
"PORTFOLIO MANAGER" means a person who has or shares principal day-to-day
responsibility for managing the portfolio of an Advisory Client.
"PRECLEARANCE OFFICER" means the person designated as the Preclearance
Officer in Appendix 2 hereof.
"PROGRAM TRADE" is where a Portfolio Manager directs a trader to do trades
in either an index-type account or portion of account or, at a minimum, 25-30%
of the Securities in a non-index account. Program Trades for non-index type
accounts generally arise in any of three situations: (1) cash or other assets
are being added to an account and the Portfolio Manager instructs the trader
that new securities are to be bought in a manner that maintains the account's
existing allocations; (2) cash is being withdrawn from an account and the
Portfolio Manager instructs the trader that securities are to be sold in a
manner that maintains the account's current securities allocations; and (3) a
new account is established and the Portfolio Manager instructs the trader to buy
specific securities in the same allocation percentages as are held by other
client accounts.
"SEC" means the Securities and Exchange Commission.
"SECURITY" includes stock; notes, bonds, debentures and other evidences of
indebtedness (including loan participations and assignments); limited
partnership interests; investment contracts; all derivative instruments of the
foregoing, such as options and warrants; and other items mentioned in Section
2(a)(36) of the 1940 Act, not specifically exempted by Rule 17j-1. Items
excluded from the definition of "Security" by Rule 17j-1 are U. S. Government
Securities, bankers acceptances, bank certificates of deposit, commercial paper
and shares of open-end investment companies. In addition, security does not
include futures, commodities, currencies or options on the aforementioned, but
the purchase and sale of such instruments are nevertheless subject to the
reporting requirements of the Code.
"SECURITIES TRANSACTION" means a purchase or sale of Securities in which an
Access Person or a members of his or her Immediate Family has or acquires a
Beneficial Interest.
"SCM" means Strong Capital Management, Inc.
"STRONG FUNDS" means the investment companies comprising the Strong Family
of Mutual Funds.
"U. S. GOVERNMENT SECURITY" means any security issued or guaranteed as to
principal or interest by the United States or by a person controlled or
supervised by and acting as an instrumentality of the Government of the United
States pursuant to authority granted by the Congress of the United States or any
certificate of deposit for any of the foregoing.
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Appendix 2
CONTACT PERSONS
PRECLEARANCE OFFICER
1. Stephen J. Shenkenberg, Deputy General Counsel and Chief Compliance
Officer of SCM
DESIGNEES OF PRECLEARANCE OFFICER
1. Thomas A. Hooker
2. Linda E. Meints
3. John S. Weitzer
4. Kelly M. Zeroth
COMPLIANCE DEPARTMENT
1. Stephen J. Shenkenberg
2. Thomas A. Hooker
3. Kathleen A. Flanagan
4. Linda E. Meints
5. Kelly M. Zeroth
CODE OF ETHICS REVIEW COMMITTEE
1. Stephen J. Shenkenberg, Deputy General Counsel and Chief Compliance
Officer of SCM
2. Thomas A. Hooker, Director of Compliance
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Appendix 3
PERSONAL HOLDINGS IN SECURITIES
In accordance with Section II.A. of the Code of Ethics, please provide a
list of all Securities (other than those specifically excluded from the
definition of Security), including physical certificates held, in which each
Access Person has a Beneficial Interest, including those in accounts of the
Immediate Family of the Access Person and all Securities in non-client accounts
for which the Access Person makes investment decisions.
(1) Name of Access Person: ____________________________
(2) If different than (1), name of the person
in whose name the account is held: ____________________________
(3) Relationship of (2) to (1): ____________________________
(4) Broker at which Account is maintained: ____________________________
(5) Account Number: ____________________________
(6) Contact person at Broker and phone number ____________________________
(7) For each account, attach the most recent account statement listing
Securities in that account. If the Access Person owns Beneficial
Interests in Securities that are not listed in an attached account
statement, or holds the physical certificate, list them below:
NAME OF SECURITY QUANTITY VALUE CUSTODIAN
1. ___________________________________________________________________________
2. ___________________________________________________________________________
3. ___________________________________________________________________________
4. ___________________________________________________________________________
5. ___________________________________________________________________________
6. ___________________________________________________________________________
(ATTACH SEPARATE SHEET IF NECESSARY.)
I certify that this form and the attached statements (if any) constitute
all of the Securities in which I have a Beneficial Interest, including those for
which I hold physical certificates, as well as those held in accounts of my
Immediate Family.
---------------------------------------
Access Person Signature
Dated:
------------------------- ----------------------------------------
Print Name
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Appendix 4
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
AND LIMITED POWER OF ATTORNEY
I acknowledge that I have received the Code of Ethics dated October 22,
1999, and represent that:
1. In accordance with Section II.A. of the Code of Ethics, I will
fully disclose the Securities holdings in which I have, or a member of my
Immediate Family has, a Beneficial Interest.*
2. In accordance with Section II.B.1. of the Code of Ethics, I will
obtain prior authorization for all Securities Transactions in which I have,
or a member of my Immediate Family has, a Beneficial Interest except for
transactions exempt from preclearance under Section II.B. 2. of the Code of
Ethics.*
3. In accordance with Section II.G.1. of the Code of Ethics, I will
report all Securities Transactions in which I have, or a member of my
Immediate Family has, a Beneficial Interest, except for transactions exempt
from reporting under Section II.G.1. of the Code of Ethics.
4. I will comply with the Code of Ethics in all other respects.
5. I agree to disgorge and forfeit any profits on prohibited
transactions in accordance with the requirements of the Code.*
I hereby appoint Strong Capital Management, Inc. as my attorney-in-fact for
the purpose of placing orders for and on my behalf to buy, sell, tender,
exchange, convert, and otherwise effectuate transactions in any and all stocks,
bonds, options, and other securities. I agree that Strong Capital Management,
Inc. shall not be liable for the consequences of any errors made by the
executing brokers in connection with such transactions.*
---------------------------------------
Access Person Signature
---------------------------------------
Print Name
Dated:
-------------------------
* Representations (1), (2) and (5) and the Limited Power of Attorney do not
apply to Independent Fund Directors.
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<TABLE>
<S><C>
Appendix 5
Ctrl. No:_________________________ Associate ID #_______________________________
STRONG CAPITAL MANAGEMENT, INC.
PRECLEARANCE REQUEST FOR ACCESS PERSONS
1. Name of Access Person (and trading entity, if different): _________________________________________________________________
2. Name and symbol of Security: _________________________________________________________________
3. Maximum quantity to be purchased or sold: _________________________________________________________________
4. Name, account # & phone # of broker to effect transaction: _______________________________________________________________
5. Check if applicable: Purchase ____ Market Order ____
Sale ____ Limit Order ____ (Limit Order Price: ___________)
Not Held Order ____
6. In connection with the foregoing transaction, I hereby make the following representations and warranties:
(a) I do not possess any material nonpublic information regarding the Security or the issuer of the Security.
(b) To my knowledge:
(1) The Securities or "equivalent" securities (I.E., securities issued by the same issuer) [ ARE / ARE NOT ] (CIRCLE ONE)
held by any investment companies or other accounts managed by SCM;
(2) There are no outstanding purchase or sell orders for this Security (or any equivalent security) by any investment
companies or other accounts managed by SCM; and
(3) None of the Securities (or equivalent securities) are actively being considered for purchase or sale by any investment
companies or other accounts managed by SCM.
(c) The Securities are not being acquired in an initial public offering.
(d) The Securities are not being acquired in a private placement or, if they are, I have reviewed Section II.D.3. of the Code
and have attached hereto a written explanation of such transaction.
(e) If I am a Portfolio Manager, none of the accounts I manage purchased or sold these Securities (or equivalent securities)
within the past seven calendar days and I do not expect any such client accounts to purchase or sell these Securities (or
equivalent securities) within seven calendar days of my purchase or sale.
(f) If I am purchasing these Securities, I have not directly or indirectly (through any member of my Immediate Family, any
account in which I have a Beneficial Interest or otherwise) sold these Securities (or equivalent securities) in the prior
60 days.
(g) If I am selling these Securities, I have not directly or indirectly (through any member of my Immediate Family, any account
in which I have a Beneficial Interest or otherwise) purchased these Securities (or equivalent securities) in the prior 60
days.
(h) I have read the SCM Code of Ethics within the prior 12 months and believe that the proposed trade fully complies with the
requirements of the Code.
- -------------------------------------------------------------- -------------------------------------------------------------
Access Person Print Name
CERTIFICATION OF ACCESS PERSON DESIGNEE
The undersigned hereby certifies that the above Access Person (a) directly instructed me to complete this form on his or her
behalf, (b) to the best of my knowledge, was out of the office at the time of such instruction and has not returned, and
(c) confirmed to me that the representations and warranties contained in this form are accurate.
- -------------------------------------------------------------- -------------------------------------------------------------
Access Person Designee Print Name
AUTHORIZATION
Authorized By:________________________________________________ Date:___________________ Time:_____________________________
PLACEMENT
Trader:_________________________ Date:________________ Time:__________________ Qty:_________________
EXECUTION
Trader:_________________________ Date:________________ Time:__________________ Qty:_________________ Price:_______________
(Original copy to Compliance Department, Yellow copy to Trading Department, Pink copy to Access Person)
revised 7/98
</TABLE>
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CONFIDENTIAL Appendix 6
ANNUAL CODE OF ETHICS QUESTIONNAIRE(1)
For ACCESS PERSONS of
The Strong Family of Mutual Funds,
Strong Capital Management, Inc.,
Strong Investments, Inc.
and Flint Prairie, L. L. C.
September 14, 1999
Associate: ____________________________(please print name)
I. Introduction
Access Persons(2) are required to answer the following questions FOR THE
YEAR SEPTEMBER 1, 1998, THROUGH AUGUST 31, 1999. ANSWERS OF "NO" TO ANY OF
THE QUESTIONS IN SECTIONS II AND III MUST BE EXPLAINED ON THE "ATTACHMENT"
ON PAGE 3. Upon completion, please sign and return the questionnaire by
Monday, September 20th, to Kelly Zeroth in the Compliance Department. All
information provided is kept confidential to the maximum extent possible.
If you have any questions, please contact Kelly at extension 3549.
II. Annual certification of compliance with the Code of Ethics
A. Have you OBTAINED PRECLEARANCE for all Securities(3) Transactions in
which you have, or a member of your Immediate Family has, a Beneficial
Interest, except for transactions exempt from preclearance under the
Code of Ethics? (Circle "Yes" if there have been no Securities
Transactions.)
YES NO (CIRCLE ONE)
B. Have you REPORTED all Securities Transactions in which you have, or a
member of your Immediate Family has, a Beneficial Interest, except for
transactions exempt from reporting under the Code of Ethics? (Reporting
requirements include arranging for the Compliance Department to
receive, directly from your broker, duplicate transaction confirmations
and duplicate periodic statements for each brokerage account in which
you have, or a member of your Immediate Family has, a Beneficial
Interest, as well as reporting securities held in certificate form(4).
Circle "Yes" if there are no reportable transactions.)
YES NO (CIRCLE ONE)
C. Do you understand that you are PROHIBITED from owning five percent or
more of any class of security of a registered investment company, and
have you so complied?
YES NO (CIRCLE ONE)
- ----------
(1) All definitions used in this questionnaire have the same meaning as those in
the Code of Ethics.
(2) Non-Access Persons and Independent Fund Directors of the Strong Funds must
complete a separate questionnaire.
(3) Security, as defined, does NOT include open-end investment companies,
including the Strong Funds.
(4) Please contact Kelly Zeroth if you are uncertain as to what confirmations
and statements you have arranged for the Compliance Department to receive.
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D. Have you notified the Compliance Department if you have been arrested,
arraigned, indicted, or have plead no contest to any criminal offense,
or been named as a defendant in any Investment-Related civil
proceedings, or administrative or disciplinary action? (Circle "Yes" if
you have not been arrested, arraigned, etc.)
YES NO (CIRCLE ONE)
E. Have you complied with the Code of Ethics in all other respects,
including the gift policy?
YES NO (CIRCLE ONE)
LIST ON THE ATTACHMENT ALL REPORTABLE GIFTS(5) GIVEN OR RECEIVED FOR THE
YEAR SEPTEMBER 1, 1998, THROUGH AUGUST 31, 1999, NOTING THE MONTH,
"COUNTERPARTY," GIFT DESCRIPTION, AND ESTIMATED VALUE.
III. Have you complied in all respects with the Insider Trading Policy dated
January 1, 1999?
YES NO (CIRCLE ONE)
ANSWERS OF "NO" TO ANY OF THE QUESTIONS IN SECTIONS II AND III MUST BE EXPLAINED
ON THE "ATTACHMENT" ON PAGE 3.
IV. Disclosure of directorships statement
A. Are you, or is any member of your Immediate Family, a director of any
for-profit, privately held companies(6)? (If "Yes," please list on the
Attachment each company for which you are, or a member of your
Immediate Family is, a director.)
YES NO (CIRCLE ONE)
B. If the response to IV.A. is "Yes," do you have knowledge that any of
the companies for which you are, or a member of your Immediate Family
is, a director will go public or be acquired within the next 12 months?
(If the answer is "YES," please be prepared to discuss this matter with
a member of the Compliance Department in the near future.)
YES NO (CIRCLE ONE)
I hereby represent that, to the best of my knowledge, the foregoing responses
are true and complete. I understand that any untrue or incomplete response may
be subject to disciplinary action by the firm.
- --------------------------------------
Access Person Signature
- -------------------------------------- ---------------------------------
Print Name Date
- ----------
(5) Associates are NOT required to report the following: (i) usual and customary
promotional items given to or received from vendors, (ii) items donated to
charity (through Legal), or (iii) food items consumed on the premises.
Entertainment - i.e., a meal or activity with the vendor present - does not
have to be reported.
(6) Per Section III.F. of the Code of Ethics, no Access Person, other than an
Independent Fund Director, may serve on the board of directors of a PUBLICLY
HELD company.
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ATTACHMENT TO
ANNUAL CODE OF ETHICS QUESTIONNAIRE
PLEASE EXPLAIN ALL "NO" RESPONSES TO QUESTIONS IN SECTIONS II AND III:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
PLEASE LIST EACH COMPANY FOR WHICH YOU ARE, OR A MEMBER OR YOUR IMMEDIATE FAMILY
IS, A DIRECTOR (SECTION IV):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
GIFTS FOR THE YEAR SEPTEMBER 1, 1998, THROUGH AUGUST 31, 1999:
MONTH GIFT GIVER / RECEIVER GIFT DESCRIPTION ESTIMATED VALUE
1. _____________________________________________________________________________
2. _____________________________________________________________________________
3. _____________________________________________________________________________
4. _____________________________________________________________________________
5. _____________________________________________________________________________
6. _____________________________________________________________________________
7. _____________________________________________________________________________
8. _____________________________________________________________________________
9. _____________________________________________________________________________
10. ____________________________________________________________________________
(CONTINUE ON AN ADDITIONAL SHEET IF NECESSARY.)
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Appendix 7
LIST OF BROAD-BASED INDICES
Listed below are the broad-based indices as designated by the Compliance
Department. See Section II.B.2.e. for additional information.
- ------------------------------------- --------------------- --------------------
DESCRIPTION OF OPTION SYMBOL EXCHANGE
- ------------------------------------- --------------------- --------------------
Computer Technology XCI AMEX
- ------------------------------------- --------------------- --------------------
Eurotop 100 ERT AMEX
- ------------------------------------- --------------------- --------------------
Biotechnology Index BTK AMEX
- ------------------------------------- --------------------- --------------------
Gold / Silver Index * AUX PHLX
- ------------------------------------- --------------------- --------------------
Hong Kong Option Index HKO AMEX
- ------------------------------------- --------------------- --------------------
Inter@ctive Wk. Internet Index INX CBOE
- ------------------------------------- --------------------- --------------------
Japan Index JPN AMEX
- ------------------------------------- --------------------- --------------------
Major Market Index * XMI AMEX
- ------------------------------------- --------------------- --------------------
Morgan Stanley High Tech Index MSH AMEX
- ------------------------------------- --------------------- --------------------
NASDAQ-100 NDX CBOE
- ------------------------------------- --------------------- --------------------
Oil Service Sector Index OSX PHLX
- ------------------------------------- --------------------- --------------------
Pacific High Tech Index XPI PSE
- ------------------------------------- --------------------- --------------------
Russell 2000 * RUT CBOE
- ------------------------------------- --------------------- --------------------
Semiconductor Sector SOX PHLX
- ------------------------------------- --------------------- --------------------
S & P 100 * OEX CBOE
- ------------------------------------- --------------------- --------------------
S & P 400 Midcap Index * MID CBOE
- ------------------------------------- --------------------- --------------------
S & P 500 * SPX CBOE
- ------------------------------------- --------------------- --------------------
Technology Index TXX CBOE
- ------------------------------------- --------------------- --------------------
Value Line Index * VLE PHLX
- ------------------------------------- --------------------- --------------------
Wilshire Small Cap Index WSX PSE
- ------------------------------------- --------------------- --------------------
* Includes LEAPs
- ------------------------------------- --------------------- --------------------
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Appendix 8
GIFT POLICY
The gift policy of Strong Capital Management, Inc., Strong Investments,
Inc. and Flint Prairie, L. L. C. covers both GIVING GIFTS TO and ACCEPTING GIFTS
FROM clients, brokers, persons with whom we do business or others (collectively,
"vendors"). It is based on the applicable requirements of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD") and is
included as part of the firm's Codes of Ethics.
Under our policy, associates may not give gifts to or accept gifts from
vendors with a value in excess of $100 PER PERSON PER YEAR and must report to
the firm annually if they accept certain types of gifts. The NASD defines a
"gift" to include any kind of gratuity. Since giving or receiving any gifts in a
business setting may give rise to an appearance of impropriety or may raise a
potential conflict of interest, we are relying on your professional attitude and
good judgment to ensure that our policy is observed to the fullest extent
possible. The discussion below is designed to assist you in this regard.
Questions regarding the appropriateness of any gift should be directed to
the Legal/Compliance Department.
1. GIFTS GIVEN BY ASSOCIATES
Under applicable NASD rules, an associate may not give any gift with a
value in excess of $100 per year to any person associated with a securities or
financial organization, including exchanges, broker-dealers, commodity firms,
the news media, or clients of the firm. Please note, however, that the firm may
not take a tax deduction for any gift with a value exceeding $25.
This memorandum is not intended to authorize any associate to give a gift
to a vendor -- appropriate supervisory approval must be obtained before giving
any gifts.
2. GIFTS ACCEPTED BY ASSOCIATES
On occasion, because of their position within the firm, associates may be
offered, or may receive without notice, gifts from vendors. Associates may not
accept any gift or form of entertainment from vendors (E.G., tickets to the
theater or a sporting event where the vendor does not accompany the associate)
other than gifts of NOMINAL VALUE, which the NASD defines as under $100 in total
from any vendor in any year (managers may, if they deem it appropriate for their
department, adopt a lower dollar ceiling). Any gift accepted by an associate
must be reported to the firm, subject to certain exceptions (see heading 4
below). In addition, note that our gift policy does not apply to normal and
customary business entertainment or to personal gifts (see heading 3 below).
Associates may not accept a gift of cash or a cash equivalent (E.G., gift
certificates) in ANY amount, and under no circumstances may an associate solicit
a gift from a vendor.
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Associates may wish to have gifts from vendors donated to charity,
particularly where it might be awkward or impolite for an associate to decline a
gift not permitted by our policy. In such case, the gift should be forwarded to
Legal, who will arrange for it to be donated to charity. Similarly, associates
may wish to suggest to vendors that, in lieu of an annual gift, the vendors make
a donation to charity. In either situation discussed in this paragraph, an
associate would not need to report the gift to the firm (see heading 4 below).
3. EXCLUSION FOR BUSINESS ENTERTAINMENT/PERSONAL GIFTS
Our gift policy does not apply to normal and customary business meals and
entertainment with vendors. For example, if an associate has a business meal and
attends a sporting event or show with a vendor, that activity would not be
subject to our gift policy, provided the vendor is present. If, on the other
hand, a vendor gives an associate tickets to a sporting event and the associate
attends the event without the vendor also being present, the tickets would be
subject to the dollar limitation and reporting requirements of our gift policy.
Under no circumstances may associates accept business entertainment that is
extraordinary or extravagant in nature.
In addition, our gift policy does not apply to usual and customary gifts
given to or received from vendors based on a personal relationship (E.G., gifts
between an associate and a vendor where the vendor is a family member or
personal friend).
4. REPORTING
The NASD requires gifts to be reported to the firm. Except as noted below,
associates must report annually all gifts given to or accepted from vendors
(Legal will distribute the appropriate reporting form to associates).
Associates are NOT required to report the following: (i) usual and
customary promotional items given to or received from vendors (E.G., hats, pens,
T-shirts, and similar items marked with a firm's logo), (ii) items donated to
charity through Legal, or (iii) food items consumed on the firm's premises
(E.G., candy, popcorn, etc.).
January 1, 1999
25
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Appendix 9
INSIDER TRADING POLICY AND PROCEDURES
DESIGNED TO DETECT AND PREVENT INSIDER TRADING
A. POLICY STATEMENT.
1. INTRODUCTION. Strong Capital Management, Inc., Strong
Investments, Inc., Heritage Reserve Development Corporation, Flint Prairie, L.
L. C. and such other companies which adopt these Policies and Procedures (all of
the foregoing entities are collectively referred to herein as "Strong") seek to
foster a reputation for integrity and professionalism. That reputation is a
vital business asset. The confidence and trust placed in Strong by clients is
something we should value and endeavor to protect. To further that goal, the
Policy Statement implements procedures to deter the misuse of material,
nonpublic information in securities transactions.
2. PROHIBITIONS. Accordingly, associates are prohibited from
trading, either personally or on behalf of others (including advisory clients),
on material, nonpublic information or communicating material, nonpublic
information to others in violation of the law. This conduct is frequently
referred to as "insider trading." This policy applies to every associate and
extends to activities within and outside their duties at Strong. Any questions
regarding this policy should be referred to the Compliance Department.
3. GENERAL SANCTIONS. Trading securities while in possession of
material, nonpublic information or improperly communicating that information to
others may expose you to stringent penalties. Criminal sanctions may include a
fine of up to $1,000,000 and/or ten years imprisonment. The SEC can recover the
profits gained or losses avoided through the violative trading, a penalty of up
to three times the illicit windfall and an order permanently barring you from
the securities industry. Finally, you may be sued by investors seeking to
recover damages for insider trading violations.
4. INSIDER TRADING DEFINED. The term "insider trading" is not
defined in the federal securities laws, but generally is used to refer to the
use of material, nonpublic information to trade in securities (whether or not
one is an "insider") or to communications of material, nonpublic information to
others. While the law concerning insider trading is not static, it is currently
understood that the law generally prohibits:
a. trading by an insider, while in possession of material,
nonpublic information;
b. trading by a non-insider, while in possession of material,
nonpublic information, where the information either was disclosed to
the non-insider in violation of an insider's duty to keep it
confidential or was misappropriated;
c. recommending the purchase or sale of securities on the basis
of material, nonpublic information;
26
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d. communicating material, nonpublic information to others; or
e. providing substantial assistance to someone who is engaged
in any of the above activities.
The elements of insider trading and the penalties for such unlawful
conduct are described below. Any associate who, after reviewing these Policies
and Procedures has any question regarding insider trading should consult with
the Compliance Department. Often, a single question can forestall disciplinary
action or complex legal problems.
5. TENDER OFFERS. Tender offers represent a particular concern in
the law of insider trading for two reasons. First, tender offer activity often
produces extraordinary gyrations in the price of the target company's
securities. Trading during this time period is more likely to attract regulatory
attention (and produces a disproportionate percentage of insider trading cases).
Second, the SEC has adopted a rule which expressly forbids trading and "tipping"
while in possession of material, nonpublic information regarding a tender offer
received from the tender offeror, the target company or anyone acting on behalf
of either. Associates should exercise particular caution any time they become
aware of nonpublic information relating to a tender offer.
6. CONTACT THE COMPLIANCE DEPARTMENT. To protect yourself, our
clients, and Strong, you should contact the Compliance Department immediately if
you believe that you may have received material, nonpublic information.
B. PROCEDURES DESIGNED TO DETECT AND PREVENT INSIDER TRADING. The
following procedures have been established to aid Strong and all associates in
avoiding insider trading, and to aid Strong in preventing, detecting, and
imposing sanctions against insider trading. Every associate must follow these
procedures or risk serious sanctions, including dismissal, substantial personal
liability and criminal penalties. Any questions about these procedures should be
directed to the Compliance Department.
1. INITIAL QUESTIONS. Before trading in the Securities of a
company about which an associate may have potential inside information, an
associate, whether trading for himself or herself or others, should ask himself
or herself the following questions:
a. IS THE INFORMATION MATERIAL? Is this information that an
investor would consider important in making his or her investment
decisions? Is this information that would substantially affect the
market price of the securities if generally disclosed?
b. IS THE INFORMATION NONPUBLIC? To whom has this information
been provided? Has the information been effectively communicated to
the market place by being published in Reuters, THE WALL STREET
JOURNAL or other publications of general circulation?
2. MATERIAL AND NONPUBLIC INFORMATION. If, after consideration of
the above, any associate believes that the information is material and
nonpublic, or if an associate has questions as to whether the information is
material and nonpublic, he or she should take the following steps:
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a. Report the matter immediately to the Compliance Department.
b. Do not purchase or sell the Securities either on the
associate's own behalf or on the behalf of others.
c. Do not communicate the information to anyone, other than to
the Compliance Department.
d. After the Compliance Department has reviewed the issue, the
associate will be instructed to continue the prohibitions against
trading and communication, or he or she will be allowed to trade and
communicate the information.
3. CONFIDENTIALITY. Information in an associate's possession that
is identified as material and nonpublic may not be communicated to anyone,
include persons within Strong, except as otherwise provided herein. In addition,
care should be taken so that such information is secure. For example, files
containing material, nonpublic information should be sealed, access to computer
files containing material, nonpublic information should be restricted and
conversations containing such information, if appropriate at all, should be
conducted in private (for example, not by cellular telephone to avoid potential
interception).
4. ASSISTANCE OF THE COMPLIANCE DEPARTMENT. If, after
consideration of the items set forth in Section B.2., doubt remains as to
whether information is material or nonpublic, or if there is any unresolved
question as to the applicability or interpretation of the foregoing procedures,
or as to the propriety of any action, it must be discussed with the Compliance
Department before trading or communicating the information to anyone.
5. REPORTING REQUIREMENT. In accordance with Strong's Code of
Ethics, every associate must arrange for the Compliance Department to receive
directly from the broker, dealer, or bank in question, duplicate copies of each
confirmation for each Securities Transaction and periodic statement for each
brokerage account in which such associate has a beneficial interest.
C. INSIDER TRADING EXPLANATIONS.
1. WHO IS AN INSIDER? The concept of "insider" is broad. It
includes officers, directors and associates of a company. In addition, a person
can be a "temporary insider" if he or she enters into a special confidential
relationship in the conduct of a company's affairs and as a result is given
access to information solely for the company's purposes. A temporary insider can
include, among others, a company's attorneys, accountants, consultants, bank
lending officers and the associates of such organizations. In addition, Strong
may become a temporary insider. According to the United States Supreme Court,
the company must expect the outsider to keep the disclosed nonpublic information
confidential, and the relationship must at least imply such a duty before the
outsider will be considered an insider.
2. WHAT IS MATERIAL INFORMATION? Trading on inside information is
not a basis for liability unless the information is material. "Material
information" generally is defined as information for which there is a
substantial likelihood that a reasonable investor would consider it
28
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important in making his or her investment decisions, or information that is
reasonably certain to have a substantial effect on the price of a company's
securities. It need not be important that it would have changed the investor's
decision to buy or sell. No simple "bright line" test exists to determine when
information is material; assessments of materiality involve a highly
fact-specific inquiry. For this reason, you should direct any question about
whether information is material to the Compliance Department.
Material information often relates to a company's results and
operations including, for example, dividend changes, earnings results, changes
in previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems and
extraordinary management developments.
Material information also may relate to the market for a
company's securities. Information about a significant order to purchase or sell
securities may, in some contexts, be deemed material.
Material information does not have to relate to a company's
business. For example, in CARPENTER v. U.S., 108 U.S. 316 (1987), the United
States Supreme Court considered as material certain information about the
contents of a forthcoming newspaper column that was expected to affect the
market price of a security. In that case, a Wall Street Journal reporter was
found criminally liable for disclosing to others the dates that reports on
various companies would appear in THE WALL STREET JOURNAL and whether those
reports would be favorable or unfavorable.
3. WHAT IS NONPUBLIC INFORMATION? Information is nonpublic until
it has been effectively disseminated broadly to investors in the market place.
One must be able to point to some fact to show that the information is generally
public. For example, information found in a report filed with the SEC, or
appearing in Dow Jones, Reuters Economic Services, THE WALL STREET JOURNAL, or
other publications of general circulation would be considered public.
4. WHAT ARE THE PENALTIES FOR INSIDER TRADING? Penalties for
trading on or communicating material, nonpublic information are severe, both for
individuals involved in such unlawful conduct and their employers. A person can
be subject to some or all of the penalties below even if he or she does not
personally benefit from the violation. Penalties include: (a) civil injunctions;
(b) treble damages; (c) disgorgement of profits; (d) jail sentences; (e) fines
for the person who committed the violation of up to three times the profit
gained or loss avoided, whether or not the person actually benefited; and (f)
fines for the employer or other controlling person of up to the greater of
$1,000,000 or three times the amount of the profit gained or loss avoided.
In addition to the foregoing, any violation of this Policy
with Respect to Insider Trading can be expected to result in serious sanctions,
including dismissal of the person or persons involved.
January 1, 1999
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Appendix 10
ELECTRONIC TRADING AUTHORIZATION FORM
Authorization has been granted to __________________________ ("Access Person")
to open an Electronic Trading Account(1) at ________________ ("Brokerage Firm").
As a condition of approval, the Access Person agrees to the following
requirements, relating to all Securities Transactions:
1. All Securities Transactions as defined in the Code of Ethics, except
those specifically exempt, must be precleared by the Compliance
Department;
2. All Securities Transactions will be placed and executed by the close of
the SAME trading day that the authorization is granted, otherwise the
authorization will expire. This includes Limit Orders.
There will be no open "until filled" orders;
3. The Access Person will provide the Compliance Department with
documentation from the Internet Site that shows when the order was
placed and executed.
4. The Access Person will arrange for the Compliance Department to receive
directly from the Electronic Trading Firm, duplicate copies of each
confirmation for each Securities Transaction and periodic statements
for each brokerage account in which the Access Person has a Beneficial
Interest. THE ACCESS PERSON MAY NOT PLACE TRADES ON HIS OR HER OWN
BEHALF UNTIL THESE ARRANGEMENTS HAVE BEEN MADE.
5. The Access Person will comply with the Code of Ethics in all other
respects.
I hereby agree to the terms and conditions stated above. Any abuse of this
privilege may result in disciplinary action by the firm.
- -------------------------------------- --------------------------
Access Person Date
- --------------------------------------------------------------------------------
AUTHORIZATION
- -------------------------------------------- ---------------------------
Director of Compliance (or designee) Date
- --------------------------------------------------------------------------------
- ----------
(1) Electronic Trading Account includes brokerage accounts where Securities
Transactions are placed electronically via the Internet or the telephone.
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Appendix 11
TO: ALL ACCESS PERSONS
FROM: Director of Compliance
Subject: Social Security Number/Tax ID Information
Strong's Code of Ethics requires the Compliance Department to monitor the
personal investing activity of Access Persons, including investments in mutual
funds. To assist in this, we ask that you please provide your Social Security
Number, as well as the SSN of each member of your "IMMEDIATE FAMILY". In
addition, please list all accounts in which you may have a "BENEFICIAL
INTEREST".
(Please refer to your copy of the Code of Ethics for a definition of the
underlined words.)
Please complete this form return it to the Director of Compliance at your
earliest convenience. Thank you for your cooperation.
- ------------------------------------------------------------------------
(Print Name) (SSN/TIN)
- ------------------------------------------------------------------------
(Print Name) (SSN/TIN)
- ------------------------------------------------------------------------
(Print Name) (SSN/TIN)
- ------------------------------------------------------------------------
(Print Name) (SSN/TIN)
- ------------------------------------------------------------------------
(Print Name) (SSN/TIN)
- ------------------------------------------------------------------------
(Print Name) (SSN/TIN)
31
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Suffolk Capital Management, Inc.
An Affiliate of United Asset Management Corporation
CODE OF ETHICS
Federal and state securities laws govern the conduct of investment
advisors - particularly those with investment company clients - and persons
with certain relationships to investment advisors, including certain
employees. These laws impose specific record keeping requirements and
prohibit certain conduct. Advisers to investment companies are required to
adopt a code of ethics pursuant to Sec. Rule 17j-1 under the Investment
Company Act of 1940. Federal and state securities laws also prohibit anyone
from engaging in insider trading and other fraudulent acts and practices.
Federal law requires every investment adviser to adopt and enforce written
procedures designed to prevent insider trading.
Because of the nature of the business of this firm (hereinafter referred
to as the "Firm"), its employees may be exposed to information which constitutes
inside information, the use of which for the financial benefit of the employees,
their "tippees" or clients is proscribed by federal law. In addition to the
responsibilities imposed by these specific securities laws, the Firm has a
fiduciary duty to investment counseling clients which requires each employer
to act solely for the benefit of the clients. Employees also have a duty to
act in the best interests of the Firm. Finally, it is in the best interests
of the Firm as a professional advisory organization to avoid potential
conflicts of interest, or even the appearance of such conflicts, in the
conduct of our officers and employees.
As a result of these aspects of the Firm's business, this Code of Ethics
has been adopted. Our goal is to impose as few restrictions as possible on you
consistent with protecting you, the Firm, and our clients from the damage that
could result from a violation of securities or other laws or from situations
involving real or apparent conflicts of interest. While it is impossible to
define all situations which might post a risk of securities laws violation or
create conflicts, this Code of Ethics is designed to address those circumstances
where such concerns are most likely to arise. By complying with the guidelines
below, the Firm's employees can minimize their and the Firm's potential exposure
from violations of laws governing securities transactions and fiduciary
relationships.
Failure to comply with the provisions of this Code of Ethics is a ground
for disciplinary action, including discharge, by the Firm. Adherence to the
Code of Ethics is considered a basic condition of employment by the Firm. If
you have any doubt as to the propriety of any activity, you should consult with
the person charged with the administration of this Code of Ethics, who is
identified in an attachment to this Code (and is referred to hereinafter as the
"Compliance Officer").
Please acknowledge that you have read the Code of Ethics by signing the
acknowledgement attached to the Code and returning it to the Compliance Officer.
1. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS.
Essentially, this policy prohibits "advisory representatives" (as
defined below) from engaging in personal security transactions involving
securities which the Firm is recommending or contemplates recommending to
clients, and certain other securities.
STATEMENT OF POLICY. No advisory representative may engage in personal
securities transactions involving any securities which are:
- being bought or sold on behalf of clients until one trading day after
such buying or selling is completed or canceled;
<PAGE>
- the subject of a written buy or sell recommendation from the
investment committee or equivalent until a sufficient number of days
have elapsed following the issuance of such recommendation to permit
the adequate dissemination of the recommendation within the Firm and
to permit the orderly execution of trades on behalf of the Firm's
clients;
- actively contemplated for transactions on behalf of clients, even
though no buy or sell orders have been placed. This restriction
applies from the moment that an employee has been informed in any
fashion that any portfolio manager or counselor intends to purchase or
sell a specific security. This is a particularly sensitive area and
one in which each employee must exercise caution to avoid actions
which, to his or her knowledge, are in conflict or in competition with
the interests of clients;
- involved in a registered public offering (both new issues and
secondary offerings), including new issuers of municipals securities;
- equity securities of any broker/dealer;
- securities of any corporation of which 10% or more of the outstanding
shares are held in portfolios managed by our organization.
An "advisory representative" includes any officer or director of the Firm,
and any employee who makes, participates in the determination of, or whose
duties relate to the determination of, any security recommendations or
investment decisions made by the Firm; or any employee who, in connection with
his or her duties, obtains information concerning security recommendations or
investment decisions made by the Firm before such information is effectively
disseminated. Note that under this last clause, even if you have no involvement
in making the Firm's recommendations, you may become an advisory representative
simply by learning of recommendations or decisions being made by the Firm in the
course of your employment duties.
For the purpose of this Code of Ethics, "personal securities
transactions" are defined as securities transactions for your own account or
transactions for an account in which you have indirect beneficial ownership,
unless you have no direct or indirect influence or control over the account
or the transaction. Accounts involving family (including husband, wife, minor
children or other dependent relatives), or accounts in which you have a
beneficial interest (such as a trust of which you are an income or principal
beneficiary) are included within the meaning of "indirect beneficial
interest."(1)
The term "securities" for these purposes has a broad meaning; it includes
all notes, stocks, bonds, evidences of indebtedness, certificates, investment
contracts, puts, calls, options, and in general all interests or instruments
commonly known as "securities."(2) The prohibition in this Section 1 of this
Code
- -------------------------------
(1) If you have a substantial measure of influence or control over an
account, but neither you nor your family have any direct or indirect
beneficial interest (e.g., a trust for which you are trustee but not a
direct or indirect beneficiary), the rules relating to personal
securities transactions are not to be directly applicable. Therefore,
you are not prohibited from engaging in personal securities
transactions with respect to such accounts, and subsequent reporting
of such transactions, discussed below, is not required. In all
transactions involving such an account, you should, however, conform
to the spirit of these rules and avoid any activity which might appear
to conflict with our investment counseling clients or with respect to
your position as an officer or employee of the Firm. In this regard,
your attention is directed to Section 4 hereof, "Other Conflicts of
Interest," which does apply to such situations.
2
<PAGE>
of Ethics, however, does not extend to U.S. Government securities, banker's
acceptances, bank certificates of deposit, commercial paper and shares of
open-end investment companies (mutual funds).
Unless short sales, options, and margin transactions involve securities
which fall within the above prohibitions, employees may engage in such
transactions; however, such transactions are strongly discouraged due to the
danger that an employee will be "frozen" because of the general restrictions
which apply to personal transactions as noted above.
Any employee who feels that the above prohibitions create a particular
hardship for him or her in a particular case should discuss the facts with the
Compliance Officer. In specific cases of extreme hardship, an exception may be
granted if the interests of the Firm's clients permit.
2. REPORTING REQUIREMENTS.
SEC rules require that a record of all personal securities transactions
made by advisory representatives be kept available for inspection, and that
these records be maintained on at least a quarterly basis. Because a report
of trading activity is required within 10 days of a trade by every employee
of the Firm under Section 3 (having to do with prevention of insider trading),
it will not be necessary for advisory representatives to file a separate
quarterly report unless the representative has not engaged in any personal
securities transactions during a quarter. In that case, the advisory
representative should file a quarterly report (in the form attached) with the
Compliance Officer within 5 calendar days after the end of the calendar quarter
in question. The forms are available from the Compliance Officer. The forms,
together with the trading reports required under Section 3 and the Firm's log of
transactions in all client accounts, will be reviewed on a confidential basis.
3. USE OF INSIDE INFORMATION.
A. POLICY STATEMENT ON USE OF INSIDE INFORMATION.
No officer, director or employee of the Firm shall make use of
material nonpublic ("inside") information(3) concerning any publicly-held
company, nor shall any employee of the Firm disclose any such inside information
to other persons, including clients of the Firm or any mutual funds managed by
the Firm, if such use or disclosure would violate the Securities Act of 1934, as
amended, or the rules or regulations promulgated thereunder (together, the "'34
Act"). (As used in this Section 3, the word "employee" includes the Firm's
officers and directors). Every employee of the Firm shall keep confidential any
information communicated to such employee with the understanding that it shall
be kept confidential, including all information related to security
recommendations and investment decisions being made by the Firm. No employee of
the Firm shall in violation of the '34 Act direct trades in securities for
accounts of investment advisory clients as to which the Firm has discretionary
authority while the Firm is in possession of inside information. Such use,
disclosure or trades may subject both the employee and the Firm to substantial
legal penalties under the '34 Act.
No employee of the Firm shall make unlawful use of inside information
concerning the Firm's parent company. United Asset Management Corporation
("UAM"), which is a publicly-held company.
- --------------------------------------------------------------------------------
(2) More specifically, "security" has the same meaning set forth in
Section 2(a)(36) of the Investment Company Act, with the exceptions
noted in the following sentence of the above paragraph.
(3) That is, information which has not been disclosed generally to the
marketplace, the disclosure of which is likely to affect the market
value of the securities in question or is likely to be considered
important by reasonable investors.
3
<PAGE>
B. PROCEDURES FOR AVOIDING INSIDER TRADING.
An employee who comes to possess or believes that he or she may
have come to possess inside information concerning any publicly-held company,
the securities of which the employee or the Firm is considering trading,
shall confer about such information with the Compliance Officer, who shall
determine whether use of such information would violate the '34 Act. While
the Compliance Officer is deliberating, the employee shall not trade the
securities in question on behalf of the employee or anyone else, including
clients of the Firm, nor shall the employee communicate the information to
others. If the Compliance Officer determines that use of the information
would be unlawful, such Officer shall notify all employees of the Firm that
they are prohibited from disclosing to other persons ("tippees") inside
information about the issuer in question and from trading in the securities
in question in "personal securities transactions" or for the accounts of
clients (notwithstanding the inclusion of such securities on any "recommended
to sell" lists compiled by the Firm) until further notice, and shall take
appropriate measures to maintain the confidentiality of the information, for
example, by placing any written materials containing the inside information
in a confidential file under the Compliance Officer's control.
Following receipt of the notice prohibiting certain trades and until
further notice from the Compliance Officer, every employee shall refrain from
disclosing such information to tippees and from trading the securities in
question in "personal securities transactions" or for the accounts of clients.
C. REPORTS OF TRADES.
Every employee shall file with the Compliance Officer a written
report in the form attached hereto of all "personal securities transactions"
as defined in Section 1, above, within 10 calendar days of the occurrence of
any such transaction. This requirement may be satisfied by sending duplicate
confirmations of trades to the Compliance Officer. The Compliance Officer
shall on a weekly basis review such reports as well as the Firm's records of
trades for clients' accounts in order to determine whether the provisions of
this Code of Ethics are being complied with.(4) An employee who files no such
reports will be deemed to be representing that the employee has engaged in no
personal securities transactions.
D. VIOLATIONS.
Whether a violation of this Section 3 has occurred shall be determined
by the Firm in the reasonable exercise of its judgement, whether or not any
civil or criminal procedure has been instituted by any person.
Federal laws do not explicitly define what constitutes unlawful use of
inside information. Many cases have been decided under these laws, however, and
a summary of their rulings is attached to this Code. Employees should review
the attachment whenever they receive what may be inside information, and they
should confer with the Compliance Officer before trading securities while in the
possession of such information.
4. OTHER CONFLICTS OF INTEREST.
Employees should not seek, accept or offer any gifts or favors of material
value (i.e., $25.00 per year) or any preferential treatment in dealings with any
broker/dealer, portfolio company, financial
- ------------------------------------
(4) From time to time, an employee of the Firm may be elected to the Board
of Directors of UAM and may as a UAM director obtain inside information
respecting UAM. Such a person shall maintain that information in strict
confidence and shall not be required to confer with the Compliance Officer about
such information, nor shall the Compliance Officer's notice be required
hereunder due to the existence of such information.
4
<PAGE>
institution or any other organization with whom we transact business.
Occasional participation in lunches, dinners, cocktail parties, sporting
activities or similar gatherings conducted for business purposes are not
prohibited. However, for both the employee's protection and that of the
Firm, it is extremely important that even the appearance of a possible
conflict of interest be avoided. Extreme caution is to be exercised in any
instance in which business related travel and lodging are paid for other than
by the Firm, and whenever possible prior approval should be sought from the
Compliance Officer. Any questions as to the propriety of such situations
should be discussed with the Compliance Officer. A brief explanation of all
extraordinary travel, lodging and related meals and entertainment is to be
reported in writing to the Compliance Officer.
Employees should also be aware that areas in addition to personal
securities transactions or gifts and sensitive payments may involve conflicts
of interest. The following should be regarded as examples of situations
involving real or potential conflicts rather than as a complete list of
situations to avoid.
- Information acquired in connection with employment by our organization
may not be used in any way which might be contrary to or in
competition with the interests of clients.
- Information regarding actual or contemplated investment decisions,
research priorities or client interests should not be disclosed to
persons outside our organization.
- All outside relationships such as directorships, trusteeships, or
memberships in investment organizations (e.g., an investment club)
other than directorships or trusteeships of non-profit organizations
which are not clients of the Firm should be discussed with the
Compliance Officer prior to acceptance of any such position.
No advisory representative shall advise clients to purchase, hold or sell
UAM stock or other securities. No advisory representative having discretionary
authority over clients' funds shall exercise such discretion to invest such
funds in UAM stock or other securities, although an advisory representative may
implement a client's exercise of its own discretion to trade in UAM securities.
5. OTHER TRANSACTIONS.
No employee of the Firm shall participate on behalf of the Firm, or any
client of the Firm, or on such employee's own behalf in any of the following
transactions:
- Use of the Firm's funds for political purposes;
- Payment or receipt of bribes, kickbacks or other amounts with any
understanding that part or all of such amount will be refunded or
delivered to a third party in violation of any applicable law;
- Payment to governmental officials or employees other than in the
ordinary course of business for legal purposes such as payment of
taxes;
- Use of funds or assets of the Firms or any subsidiary of the Firm for
any other unlawful or improper purpose; and
- Use of any device, scheme, artifice, or practice which operates or is
intended to operate as a fraud or deceit upon the Firm or any client
of the Firm, and in particular with respect to any security which has
been held by or considered for purchase by the Firm within the last 15
days.
5
<PAGE>
Whether a violation of any of these rules has occurred shall be determined
by the Firm in the reasonable exercise of its judgment, whether or not any civil
or criminal procedure has been instituted by any person.
6. BACKGROUND INFORMATION.
The SEC registration form for investment advisers requires the reporting,
under oath, of past disciplinary actions taken against all "advisory
affiliates." The Investment Advisers Act requires similar disclosure to clients
of the Firm. The term "advisory affiliate" includes directors and chief
officers of an adviser; individuals who have the power to direct or cause the
direction of the management or policies of a company; and all current employees
except those performing only clerical, administrative, support or similar
functions. Many advisory affiliates must also provide biographical information
which must be reported to the SEC.
All advisory affiliates of the Firm are required, as a condition of their
employment, to provide full information to the Firm as to all relevant past
disciplinary actions taken against them, and, if necessary, to provide full
biographical information. If any of the information previously provided becomes
inaccurate or needs to be updated to make it accurate, it shall be your
obligation to bring this to the attention of the Compliance Officer.
The Firm can provide you with questionaires and forms covering the
disclosures required by you, if necessary, for your review.
7. REVIEW OF REPORTS AND OVERSIGHT OF THE CODE OF ETHICS.
The Compliance Officer shall review on a weekly basis all reports filed by
employees under this Code of Ethics, and shall compare such individual reports
with reports of transactions entered into by the Firm, and with recommendations
made and securities contemplated for purchase by the Firm, on behalf of clients.
The Compliance Officer shall report to the Board of Directors promptly following
the receipt of any report which indicates that an advisory representative
entered into a personal securities transaction which violated the prohibitions
contained in Section 1 of this Code of Ethics or any report which indicates that
any person violated the prohibitions contained in Section 3 concerning inside
information. The Compliance Officer shall also report to the Board of Directors
any apparent violations of the reporting requirement, any transaction not
required to be reported but which the Compliance Officer nevertheless believes
to be a violation of the Code of Ethics, and any other act or practice which the
Compliance Officer believes to be a violation of this Code of Ethics.
The Board shall consider reports made to it hereunder and upon discovering
that a violation of this Code has occurred, the Board may impose such sanctions
as it deems appropriate including, among other things, a letter of sanction or
suspension or termination of the employment of the violator. In addition, the
Board shall review the operation of these policies at least once a year.
- --------------------------------------------------------------------------------
Questions regarding interpretation of this Code of Ethics or questions
about its application to particular situations should be directed to the
Compliance Officer.
6
<PAGE>
Compliance Officer
The Firm has designated /s/ Erik Weissenberger to serve as its Compliance
-----------------------
Officer until further notice.
<PAGE>
TURNER INVESTMENT PARTNERS, INC.
PERSONAL TRADING POLICY/CODE OF ETHICS
February 17, 2000
A. Personal investments: An employee should consider himself the beneficial
owner of those securities held by him, his spouse, his minor children, a
relative who shares his house, or persons by reason of any contract,
arrangement, understanding or relationship that provides him with sole or
shared voting or investment power.
B. Employees are barred from purchasing any securities (to include Common
Stock and related Options, Convertible securities, Options, or Futures on
Indexes) in which the firm has either a long or short position. If an
employee owns a position in any security, he must get written pre-clearance
from the Chairman or President to add to or sell the position. ALL SECURITY
TRANSACTIONS (BUY OR SELL) REQUIRE WRITTEN CLEARANCE IN ADVANCE. Approval
is good for 48 hours; if a trade has not been executed, subsequent
approvals are necessary until the trade is executed. The Exception
Committee (the Chairman, Vice Chairman, President, and Director of
Compliance) must approve any exceptions to this rule.
C. Employees may not purchase initial public offerings. Private
placements/Limited partnerships require written pre-clearance. Mutual Fund
holdings are excluded from pre-clearance and reporting. IRA's, and Rollover
IRA's that are self-directed (i.e. stocks or bonds, not mutual funds), and
ESOP's (Employee stock ownership plans) require pre-clearance.
D. Blackout Restrictions: Employees are subject to the following restrictions
when their purchases and sales of securities coincide with trades of Turner
Clients (including investment companies):
1. Purchases and sales within three days FOLLOWING a client trade.
Employees are prohibited from purchasing or selling any security
within three calendar days after a client transaction in the same (or
a related) security. The Exception Committee must approve exceptions.
If an employee makes a prohibited transaction without an exception the
employee must unwind the transaction and relinquish any gain from the
transaction to charity.
2. Purchases within seven days BEFORE a client purchase. An employee who
purchases a security within seven calendar days before a client
purchases the same (or a related) security is prohibited from selling
the security of a period of six months following the client's trade.
The Exception Committee must approve exceptions. If an employee makes
a prohibited sale without an exception within the six month period,
the employee must relinquish any gain from the transaction to charity.
3. Sales within seven days BEFORE a client sale. An employee who sells a
security within seven days before a client sells the same (or a
related) security must relinquish to charity the difference between
the employee's sale price and the client's sale price (assuming the
employee's sale price is higher).
<PAGE>
TURNER INVESTMENT PARTNERS, INC.
PERSONAL TRADING POLICY/CODE OF ETHICS
February 17, 2000
Page 2
4. These restrictions do not apply to proprietary investment partnerships
for which the firm acts as an adviser in which the officers and
employees of the adviser have an equity interest of less than 50%.
These accounts may purchase the same or similar securities within the
black out period, if the partnership trades with the block or after
other clients. Where it is beneficial to client accounts and it is
possible to do so, they should be blocked with the partnership
account.
E. Short Term Trading Rule - Employees may not take PROFITS in any security in
less than 60 days (includes Options, Convertibles and Futures). If an
individual must trade with in this period, the Exception Committee must
grant approval or the employee must relinquish such profits to charity. The
closing of positions at a loss is not prohibited. Options that are out of
the money may be exercised in less than 60 days. The proprietary
partnerships may take profits in less than 60 days.
F. Reporting: Consistent with the requirements of the Investment Advisers Act
of 1940 Rule 204-2 (a)(2) and (a)(3) and with the provisions of Rule 17j-1
of the Investment Company Act of 1940 all employees must submit duplicate
statements/disclosures within 10 days following the calendar quarter.
Statements are reviewed by one of the firms Series 24 principals.
Brokerage, IRA's, Rollover IRA's (which are self-directed), ESOP's, private
placement and limited partnerships must all be reported as personal
trading. New employees are required to file initial holdings within 10 days
of hire.
G. Violation of the Personal Investments/Code of Ethics policy may result in
disciplinary action, up to and including termination of employment.
<PAGE>
N
Y
WPG TUDOR FUND, WPG GROWTH AND INCOME FUND, WPG GROWTH
FUND, WPG QUANTITATIVE EQUITY FUND,
WPG CORE BOND FUND, WPG INTERMEDIATE
MUNICIPAL BOND FUND, WPG GOVERNMENT MONEY MARKET FUND,
WPG TAX-FREE MONEY MARKET FUND, WEISS, PECK & GREER INTERNATIONAL FUND,
RWB/WPG U.S. LARGE STOCK FUND
TOMORROW LONG-TERM RETIREMENT FUND
TOMORROW MEDIUM-TERM RETIREMENT FUND
TOMORROW SHORT-TERM RETIREMENT FUND
CODE OF ETHICS
INTRODUCTION
This Code of Ethics is divided into three parts. The first part contains
provisions applicable to access persons of the Fund who are also access persons
of Weiss, Peck & Greer, L.L.C. ("WPG") or, with respect to Weiss, Peck & Greer
International Fund, access persons of WPG or Lloyds Investment Management
International Limited (where applicable, each of WPG and Lloyds Investment
Management International Limited are referred to herein as the "Adviser"). The
second part of this Code of Ethics pertains to "disinterested" trustees of the
Fund. The third part contains record keeping and other provisions.
The Board of Trustees of the Fund has determined that the high standards
of ethics in the area of personal trading which have been established by the
Adviser may, without change, be appropriately applied by the Fund to those
access persons of the Fund who are also access persons of the Adviser. Such
persons may have frequent opportunities for knowledge of and, in some cases,
influence over, Fund portfolio transactions. In the experience of the Fund,
trustees who are unaffiliated with the Adviser (E.G., disinterested trustees)
have comparatively less current knowledge and considerably less influence over
specific purchases and sales of securities by the Fund. Therefore, this Code of
Ethics contains separate provisions applicable to such access persons.
DEFINITIONS
For purposes of this Code of Ethics, the following definitions shall
apply:
a. The term "access person" with respect to the Fund shall mean any
trustee, officer or advisory person (as defined below) of the Fund. The term
"access person" with respect to the Adviser shall mean any principal, director,
officer or advisory person (as defined below) of the Adviser.
b. The term "advisory person" shall mean (i) every employee of the Fund
(or of any company in a control relationship to the Fund) who, in connection
with his or her regular functions or duties, makes, participates in, or obtains
information regarding, the purchase or sale of a security (as defined below) by
the Fund, or whose functions relate to the making of any recommendations with
respect to such purchases or sales and (ii) every natural person in a control
relationship to the Fund who obtains information concerning recommendations made
to the Fund with regard to the purchase or sale of a security.
c. The term "beneficial ownership" shall mean a direct or indirect
"pecuniary interest" (as defined in subparagraph (a)(2) of Rule 16a-1 under the
Securities Exchange Act of 1934, as amended) that is held or shared by a person
directly or indirectly (through any contract, arrangement, understanding,
relationship or otherwise) in a security. While the definition of "pecuniary
interest" in subparagraph (a)(2) of Rule 16a-1 is complex, the term generally
means the opportunity directly or indirectly to provide or share in any profit
derived from a transaction in a security. An indirect pecuniary interest in
securities by a person would be deemed to exist as a result of: (i) ownership of
securities by any of such person's immediate family members sharing the same
household (including child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother- or father-in-law, sister- or
brother-in-law, and son- or daughter-in-law); (ii) the person's partnership
interest in the portfolio securities held by a general or limited partnership;
(iii) the existence of a performance-related fee (not simply an asset-based fee)
received by such person as broker, dealer, investment adviser or manager to a
securities account; (iv) the person's right to receive dividends from a security
provided such right is separate or separable
September 1999
<PAGE>
from the underlying securities; (v) the person's interest in securities held by
a trust under certain circumstances; and (vi) the person's right to acquire
securities through the exercise or conversion of a "derivative security" (which
term excludes (a) a broad-based index option or future, (b) a right with an
exercise or conversion privilege at a price that is not fixed, and (c) a
security giving rise to the right to receive such other security only PRO RATA
and by virtue of a merger, consolidation or exchange offer involving the issuer
of the first security).
d. The term "control" shall mean the power to exercise a controlling
influence over the management or policies of the Fund, unless such power is
solely the result of an official position with the Fund, all as determined in
accordance with Section 2(a)(9) of the Investment Company Act of 1940, as
amended (the "1940 Act").
e. The term "disinterested trustee" shall mean a trustee of the Fund who
is not an "interested person" of the Fund within the meaning of Section 2(a)(19)
of the 1940 Act.
f. The term "Fund" shall mean, individually, each of WPG Tudor Fund, WPG
Growth and Income Fund, WPG Growth Fund, WPG Quantitative Equity Fund, WPG
Government Securities Fund, WPG Intermediate Municipal Bond Fund, WPG Government
Money Market Fund, WPG Tax-Free Money Market Fund, Weiss, Peck & Greer
International Fund, RWB/WPG U.S. Large Stock Fund, Tomorrow Long-Term Retirement
Fund, Tomorrow Medium-Term Retirement Fund, Tomorrow Short-Term Retirement Fund,
Tomorrow Post-Retirement Fund, Core Large-Cap Stock Fund and Core Small-Cap
Stock Fund.
g. The term "investment personnel" shall mean all portfolio managers of
the Fund and other advisory persons who assist the portfolio managers in making
investment decisions for the Fund, including, but not limited to, analysts and
traders of the Adviser.
h. The term "material non-public information" with respect to an issuer
shall mean information, not yet released to the public, that would have a
substantial likelihood of affecting a reasonable investor's decision to buy or
sell any securities of such issuer.
i. The term "purchase" shall include the writing of an option to purchase.
j. The term "Review Officer" shall mean the officer of the Fund designated
from time to time by the Board of Trustees of the Fund to receive and review
reports of purchases and sales by access persons. The term "Alternative Review
Officer" shall mean the officer of the Fund designated from time to time by the
Board of Trustees of the Fund to receive and review reports of purchases and
sales by the Review Officer, and who shall act in all respects in the manner
prescribed herein for the Review Officer.
k. The term "sale" shall include the writing of an option to sell.
l. The term "security" shall have the meaning set forth in
Section 2(a)(36) of the 1940 Act, except that it shall not include shares of
registered open-end investment companies, securities issued by the United States
government within the meaning of Section 2(a)(16) of the 1940 Act, bankers'
acceptances, bank certificates of deposit, commercial paper and such other money
market instruments as may be designated from time to time by the Board of
Trustees.
m. The phrase "security held or to be acquired" shall mean any security
which, within the most recent 15 days, is or has been held by the Fund or is
being or has been considered for purchase by the Fund or the Adviser for
purchase by the Fund.
n. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
-2-
September 1999
<PAGE>
I. RULES APPLICABLE TO ACCESS PERSONS OF THE FUND WHO ARE ALSO ACCESS PERSONS
OF THE ADVISER.
A. INCORPORATION OF THE ADVISER'S CODE OF ETHICS.
1. The provisions of WPG's Code of Ethics, which is attached as
APPENDIX A hereto as such and may be amended from time to time, are hereby
incorporated by reference as the Fund's Code of Ethics applicable to access
persons of the Fund who are also access persons of WPG. With respect to Weiss,
Peck & Greer International Fund, the provisions of the Code of Ethics of Lloyds
Investment Management International Limited are hereby incorporated herein by
reference as the Fund's Code of Ethics applicable to access persons of the Fund
who are also access persons of Lloyds Investment Management International
Limited.
2. A violation of the Adviser's Code of Ethics by an access person of the
Fund who is also an access person of the Adviser shall constitute a violation of
this Code of Ethics.
B. REPORTS
1. Access persons of the Fund who are access persons of the Adviser shall
file the reports required under the Adviser's Code of Ethics with the Review
Officer and, if the Review Officer is an access person, the Review Officer shall
submit his/her reports to the Alternate Review Officer.
2. As an alternative to compliance with the reporting requirements of
subparagraph 1 of this Section, an access person of the Fund who is also an
access person of the Adviser shall be considered to have satisfied his or her
reporting requirements provided that: (i) the access person complies with the
alternative reporting provisions of the Adviser's Code of Ethics and (ii) the
Adviser provides to the Review Officer all reports required to be made by its
access persons under its Code of Ethics.
I-1
September 1999
<PAGE>
II. RULES APPLICABLE TO DISINTERESTED TRUSTEES.
A. LEGAL REQUIREMENTS.
Section 17(j) the 1940 Act provides, among other things, that it is
unlawful for any disinterested trustee of the Fund to engage in any act,
practice or course of business in connection with the purchase or sale, directly
or indirectly, by such disinterested trustee of any security held or to be
acquired by the Fund in contravention of such rules and regulations as the
Securities and Exchange Commission (the "Commission") may adopt to define and
prescribe means reasonably necessary to prevent such acts, practices or courses
of business as are fraudulent, deceptive or manipulative. Pursuant to Section
17(j), the Commission has adopted Rule 17j-1 which provides, among other things,
that it is unlawful for any disinterested trustee of the Fund in connection with
the purchase or sale, directly or indirectly, by such person of a security held
or to be acquired by the Fund:
(I) to employ any device, scheme or artifice to defraud the Fund;
(ii) to make to the Fund any untrue statement of a material fact or omit
to state to the Fund a material fact necessary in order to make the
statement made, in light of the circumstances under which they were made,
not misleading;
(iii) to engage in any act, practice or course of business which operates
or would operate as a fraud or deceit upon the Fund; or
(iv) to engage in any manipulative practice with respect to the Fund.
B. STATEMENT OF POLICY.
It is the policy of the Fund that no disinterested trustee shall engage
in any act, practice or course of conduct that would violate the provisions of
Rule 17j-1. The fundamental position of the Fund is, and has been, that each
disinterested trustee shall place at all times the interests of Fund and its
shareholders first. Accordingly, private securities transactions by
disinterested trustees of the Fund must be conducted consistent with this Code
of Ethics and in such a manner as to avoid any actual or potential conflict of
interest or any abuse of a disinterested trustee's position of trust and
responsibility. Further, disinterested trustees should not take inappropriate
advantage of their positions with or on behalf of the Fund.
Without limiting in any manner the fiduciary duty owed by disinterested
trustees to the Fund or the provisions of this Code of Ethics, it should be
noted that the Fund considers it proper that purchases and sales be made by its
disinterested trustees in the marketplace of securities owned by the Fund;
provided, however, that such personal securities transactions comply with the
spirit of, and the specific restrictions and limitations set forth in, this Code
of Ethics. In making personal investment decisions with respect to any security
extreme care must be exercised by disinterested trustees to ensure that the
prohibitions of this Code of Ethics are not violated. It bears emphasis that
technical compliance with the procedures, prohibitions and limitations of this
Code of Ethics will not automatically insulate from scrutiny personal securities
transactions which show a pattern of abuse by a disinterested trustee of his or
her fiduciary duty to the Fund.
C. PROHIBITED ACTIVITIES.
A violation of the Statement of Policy set forth above would always
include at least the following prohibited activities. Should you have any
questions regarding this Code of Ethics or whether an action is prohibited by
this Code, please contact the Review Officer before taking such action.
1. No disinterested trustee shall, directly or indirectly, purchase or
sell securities in such a way that the disinterested trustee knew, or
reasonably should have known, that such securities transactions compete
in the market with actual or considered securities transactions for the
Fund, or otherwise personally act to injure the Fund's securities
transactions.
2. No disinterested trustee shall use any knowledge of securities
purchased or sold by the Fund or securities being considered for purchase
or sale by the Fund to profit personally, directly or indirectly, by the
market effect of such transactions.
II-1
September 1999
<PAGE>
3. No disinterested trustee shall, directly or indirectly, communicate
to any person who is not an access person of the Fund any material
non-public information relating to the Fund or any issuer of any security
owned by the Fund, including, without limitation, the purchase or sale or
considered purchase or sale of a security on behalf of the Fund.
D. EXEMPT TRANSACTIONS AND CONDUCT.
The Statement of Policy and the Prohibited Activities set forth in
Sections B and C above shall not be deemed to be violated by any of the
following transactions:
1. Purchases or sales for an account over which the disinterested trustee
has no direct or indirect influence or control;
2. Purchases or sales which are non-volitional on the part of the
disinterested trustee;
3. Purchases and sales which are part of an automatic dividend
reinvestment, cash purchase or withdrawal plan provided that no
adjustment is made by the access person to the rate at which securities
are purchased or sold, as the case may be, under such a plan during any
period in which the security is being considered for purchase or sale
by the Fund;
4. Purchases made by exercising rights distributed by an issuer PRO RATA
to all holders of a class of its securities, to the extent such rights
were acquired by the disinterested trustee from the issuer, and sales of
such rights so acquired;
5. Tenders of securities pursuant to tender offers which are expressly
conditioned on the tender offer's acquisition of all of the securities
of the same class; and
6. Purchases or sales for which the disinterested trustee has received
prior written approval from the Fund. Prior approval shall be granted
only if a purchase or sale of securities is consistent with the purposes
of this Code of Ethics and Section 17(j) of the 1940 Act and Rule 17j-1
thereunder.
E. JOINT PARTICIPATION.
Disinterested trustees should be aware that a specific provision of the
1940 Act prohibits such persons, in the absence of an order of the
Commission, from effecting a transaction in which the Fund is a "joint or
a joint and several participant" with such person. Any transaction which
suggests the possibility of a question in this area should be presented
to legal counsel for review.
F. REPORTING REQUIREMENTS.
1. Mandatory Reporting. Each disinterested trustee shall submit to the Fund
a report as to all securities transactions effected during each quarterly
period, in which such disinterested trustee has, or by reason of such
transactions acquires or disposes of, any beneficial ownership of a security;
provided, however, that a disinterested trustee shall not be required to file a
report unless such trustee, at the time of that transaction, knew or, have known
that, during the 15-day period immediately preceding the date of the transaction
by the trustee such security was purchased or sold by the Fund or such security
was being considered by the Fund or the Adviser for purchase or sale by the
Fund.
This mandatory reporting requirement shall apply whether or not one of the
exemptions listed in Section D applies, except that a disinterested trustee
shall not be required to make a report with respect to transactions effected for
any account over which such person does not have any direct or indirect
influence or control.
2. Voluntary Reporting. Each disinterested trustee may submit to the Fund a
report as to all securities transactions effected during each quarterly period,
in which such disinterested trustee has, or by reason of such transactions
acquires or disposes of, any beneficial ownership of a security.
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3. Every report required by subparagraph 1 of this Section shall contain a
brief statement of the exemption provided in Section D that was relied upon in
effecting the securities transaction and the circumstances of the transaction.
In addition, every report submitted pursuant to this Section shall be in the
form annexed hereto as Form A, or in similar form (such as a computer printout),
and shall set forth at least the following information:
(i) The date of each transaction, the title, class and number of shares,
and the principal amount of each security involved;
(ii) The nature of each transaction (i.e., purchase, sale or other type
of acquisition or disposition);
(iii) The price at which each transaction was effected; and
(iv) The name of the broker, dealer or bank with or though whom each
transaction was effected;
PROVIDED, HOWEVER, if no transactions in any securities were effected during a
quarterly period by a disinterested trustee, such disinterested trustee shall
submit to the Fund a report on Form A stating that no reportable securities
transactions were effected.
4. As an alternative to the literal compliance with the reporting
requirements of this Section, a disinterested trustee shall be considered to
have satisfied his or her reporting requirement, if:
a. the disinterested trustee agrees to execute, and does execute, with
or through WPG all trades in securities in which such disinterested
trustee has a beneficial ownership interest;
b. a computer printout or similar report is produced by WPG and
delivered to the Fund no less frequently than the frequency set forth
in subparagraph 1 of this Section and containing with respect to the
disinterested trustee at least the information that would otherwise
have been required by subparagraph 3 of this Section; and
c. such disinterested trustee certifies annually in writing to WPG that,
during the prior calendar year, he or she in fact maintained with WPG all
brokerage accounts in which such person had a beneficial ownership
interest and executed all trades required to be reported by
subparagraph 1 of this Section with or through WPG.
G. DISCLOSURE OF CERTAIN PERSONAL HOLDINGS.
Each disinterested trustee shall disclose to the Fund initially upon
becoming a trustee and at least quarterly thereafter all securities in which he
or she has a beneficial ownership interest which beneficial ownership
constitutes 1/2 of 1% or more of the outstanding amount of the issue of such
security.
H. ANNUAL CERTIFICATION OF COMPLIANCE.
All disinterested trustees shall certify annually on the form annexed
hereto as Form B that they (i) have read and understand this Code of Ethics and
recognize that they are subject hereto, (ii) have complied with the requirements
of this Code of Ethics and (iii) have disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant to the
requirements of this Code of Ethics.
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III. MISCELLANEOUS
A. RECORDKEEPING REQUIREMENTS.
The Fund shall maintain and preserve in an easily accessible place:
1. a copy of this Code of Ethics (and any prior code of ethics that was
in effect at any time during the past five years) for a period of not
less than five years;
2. a record of any violation of this Code of Ethics and of any action
taken as a result of such violation for a period of not less than five
years following the end of the fiscal year in which the violation occurs;
3. a copy of each report (or computer printout) submitted under this Code
of Ethics for a period of not less than five years, only those reports
submitted during the previous two years must be maintained and preserved
in an easily accessible place; and
4. a list of all persons who are, or within the past five years were,
required to make reports pursuant to this Code of Ethics.
B. CONFIDENTIALITY.
All information obtained from any access person hereunder shall be kept in
strict confidence by the Fund, except that reports of securities transactions
hereunder will be made available to the Commission or any other regulatory or
self-regulatory organization to the extent required by law or regulation or to
the extent the Fund considers necessary or advisable in cooperating with an
investigation or inquiry by the Commission or any other regulatory or
self-regulatory organization.
C. AMENDMENT TO THE ADVISER'S CODE OF ETHICS.
Any amendment to the Adviser's Code of Ethics shall be deemed an amendment
to this Code of Ethics effective ninety (90) days after written notice of each
amendment shall have been received by the Secretary of the Fund, unless the
Fund's Board of Trustees expressly determines that such amendment shall become
effective at an earlier date or shall not be adopted.
D. REVIEW OF REPORTS.
1. The Review Officer shall compare the reported personal securities
transactions of each access person with completed and contemplated portfolio
transactions of the Fund to determine whether a violation of this Code of Ethics
may have occurred. In the case of reports of personal securities transactions of
the Review Officer, the Alternative Review Officer shall perform such
comparison. Before making any determination that a violation has been committed
by any access person, the Review Officer or Alternative Review Officer, as the
case may be, shall provide such person an opportunity to supply additional
explanatory material.
2. If the Review Officer or Alternative Review Officer, as the case may be,
determines that a violation of this Code of Ethics has or may have occurred, he
shall submit a written determination, together with the related report by the
access person and any additional explanatory material provided by the access
person to the Chairman of the Fund, who shall make an independent determination
of whether a violation has occurred.
3. On a quarterly basis, the Review Officer shall prepare a summary of the
level of compliance by all access persons with this Code of Ethics during the
previous quarter, including without limitation the percentage of reports timely
filed and the number and nature of all material violations. On an annual basis,
the Review Officer shall prepare a report identifying any recommended changes to
existing restrictions or procedures based upon the Fund's experience under this
Code of Ethics, evolving industry practices and developments in applicable laws
or regulations. The Alternative Review Officer shall prepare reports with
respect to compliance by the Review Officer.
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E. SANCTIONS.
Any violation of this Code of Ethics by an access person shall result in the
imposition of such sanctions as the Board of Trustees (without the presence of
and participation by the disinterested trustee at issue, if applicable) of the
Fund may deem appropriate under the circumstances, which may include, but is not
limited to, removal or suspension from office, termination of employment, a
letter of censure and/or restitution to the Fund of an amount equal to the
advantage the offending person shall have gained by reason of such violation.
F. INTERPRETATION.
The Fund's Board of Trustees may from time to time adopt such interpretations of
this Code of Ethics as it deems appropriate.
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APPENDIX A
WEISS, PECK & GREER, L.L.C.
CODE OF ETHICS
1. DEFINITIONS.
For purposes of this Code of Ethics, the following definitions shall apply:
a. The term "access person" shall mean any principal, officer or advisory
person (as defined below) of the Adviser.
b. The term "Adviser" shall mean Weiss, Peck & Greer, L.L.C.
c. The term "advisory person" shall mean (i) every employee of the Adviser
(or of any company in a control relationship to the Adviser) who, in connection
with his or her regular functions or duties, makes, participates in, or obtains
information regarding, the purchase or sale of a security (as defined below) by
an Investment Company, or whose functions relate to the making of any
recommendations with respect to such purchases or sales and (ii) every natural
person in a control relationship to the Adviser who obtains information
concerning recommendations made to an Investment Company with regard to the
purchase or sale of a security.
d. The term "beneficial ownership" shall mean a direct or indirect
"pecuniary interest" (as defined in subparagraph (a)(2) of Rule 16a-1 under the
Securities Exchange Act of 1934, as amended) that is held or shared by a person
directly or indirectly (through any contract, arrangement, understanding,
relationship or otherwise) in a security. While the definition of "pecuniary
interest" in subparagraph (a)(2) of Rule 16a-1 is complex, the term generally
means the opportunity directly or indirectly to provide or share in any profit
derived from a transaction in a security. An indirect pecuniary interest in
securities by a person would be deemed to exist as a result of: (i) ownership of
securities by any of such person's immediate family members sharing the same
household (including child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother- or father-in-law, sister- or
brother-in-law, and son- or daughter-in-law); (ii) the person's partnership
interest in the portfolio securities held by a general or limited partnership;
(iii) the existence of a performance-related fee (not simply an asset-based fee)
received by such person as broker, dealer, investment adviser or manager to a
securities account; (iv) the person's right to receive dividends from a security
provided such right is separate or separable from the underlying securities; (v)
the person's interest in securities held by a trust under certain circumstances;
and (vi) the person's right to acquire securities through the exercise or
conversion of a "derivative security" (which term excludes (a) a broad-based
index option or future, (b) a right with an exercise or conversion privilege at
a price that is not fixed, and (c) a security giving rise to the right to
receive such other security only PRO RATA and by virtue of a merger,
consolidation or exchange offer involving the issuer of the first security).
e. The term "control" shall mean the power to exercise a controlling
influence over the management or policies of the Adviser, unless such power is
solely the result of an official position with the Adviser, all as determined in
accordance with Section 2(a)(9) of the 1940 Act.
f. The term "Investment Company" shall mean a management investment company
registered as such under the 1940 Act and for which the Adviser is the
investment adviser.
g. The term "investment personnel" shall mean all portfolio managers of the
Adviser and other advisory persons who assist the portfolio managers in making
investment decisions for an Investment Company, including, but not limited to,
analysts and traders of the Adviser.
h. The term "material non-public information" with respect to an issuer
shall mean information, not yet released to the public, that would have a
substantial likelihood of affecting a reasonable investor's decision to buy or
sell any securities of such issuer.
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i. The term "portfolio manager" shall mean every person who is responsible
for the day-to-day management of an Investment Company or who shares such
responsibility with another portfolio manager.
j. The term "purchase" shall include the writing of an option to purchase.
k. The term "Review Officer" shall mean the officer of the Adviser
designated from time to time by the Adviser to receive and review reports of
purchases and sales by access persons. The term "Alternative Review Officer"
shall mean the officer of the Adviser designated from time to time by the
Adviser to receive and review reports of purchases and sales by the Review
Officer, and who shall act in all respects in the manner prescribed herein for
the Review Officer.
l. The term "sale" shall include the writing of an option to sell.
m. The term "security" shall have the meaning set forth in Section 2(a)(36)
of the 1940 Act, except that it shall not include shares of registered open-end
investment companies, securities issued by the United States government within
the meaning of Section 2(a)(16) of the 1940 Act, bankers' acceptances, bank
certificates of deposit, commercial paper and such other money market
instruments as may be designated from time to time by the Adviser.
n. The phrase "security held or to be acquired" shall mean any security
which, within the most recent 15 days, is or has been held by an Investment
Company or is being or has been considered for purchase by an Investment Company
or the Adviser for purchase by an Investment Company.
o. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
2. LEGAL REQUIREMENTS.
Section 17(j) of the Investment Company Act of 1940, as amended
(the "1940 Act"), provides, among other things, that is unlawful for any access
person of the Adviser to engage in any act, practice or course of business in
connection with the purchase or sale, directly or indirectly, by such person of
any security held or to be acquired by an Investment Company in contravention of
such rules and regulations as the Securities and Exchange Commission (the
"Commission") may adopt to define and prescribe means reasonably necessary to
prevent such acts, practices or courses of business as are fraudulent, deceptive
or manipulative. Pursuant to Section 17(j), the Commission has adopted Rule
17j-1 which provides, among other things, that it is unlawful for any access
person of the Adviser in connection with the purchase or sale, directly or
indirectly, by such person of a security held or to be acquired by an Investment
Company:
(i) to employ any device, scheme or artifice to defraud an Investment
Company;
(ii) to make to an Investment Company any untrue statement of a material fact
or omit to state to an Investment Company a material fact necessary in order to
make the statement made, in light of the circumstances under which they were
made, not misleading;
(iii) to engage in any act, practice or course of business which operates or
would operate as a fraud or deceit upon an Investment Company; or
(iv) to engage in any manipulative practice with respect to an Investment
Company.
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3. STATEMENT OF POLICY.
It is the policy of the Adviser that no access person shall engage in
any act, practice or course of conduct that would violate the provisions of Rule
17j-1. The fundamental position of the Adviser is, and has been, that each
access person shall place at all times the interests of each Investment Company
and its shareholders first. Accordingly, private securities transactions by
access persons of the Adviser must be conducted consistent with this Code of
Ethics and in such a manner as to avoid any actual or potential conflict of
interest or any abuse of an access person's position of trust and
responsibility. Further, access persons should not take inappropriate advantage
of their positions with or on behalf of any Investment Company.
Without limiting in any manner the fiduciary duty owed by access
persons to the Investment Companies or the provisions of this Code of Ethics, it
should be noted that the Adviser considers it proper that purchases and sales be
made by its access persons in the marketplace of securities owned by the
Investment Companies; provided, however, that such securities transactions
comply with the spirit of, and the specific restrictions and limitations set
forth in, this Code of Ethics. Such personal securities transactions should also
be made in amounts consistent with the normal investment practice of the person
involved and with an investment, rather than a trading, outlook. Not only does
this policy encourage investment freedom and result in investment experience,
but it also fosters a continuing personal interest in such investments by those
responsible for the continuous supervision of the Investment Companies'
portfolios. It is also evidence of confidence in the investments made. In making
personal investment decisions with respect to any security, however, extreme
care must be exercised by access persons to ensure that the prohibitions of this
Code of Ethics are not violated. Further, personal investing by an access person
should be conducted in such a manner so as to eliminate the possibility that the
access person's time and attention is being devoted to his or her personal
investments at the expense of time and attention that should be devoted to
management of an Investment Company's portfolio. It bears emphasis that
technical compliance with the procedures, prohibitions and limitations of this
Code of Ethics will not automatically insulate from scrutiny personal securities
transactions which show a pattern of abuse by an access person of his or her
fiduciary duty to any Investment Company.
4. PROHIBITED ACTIVITIES.
A violation of the Statement of Policy set forth above would always
include at least the following prohibited activities. Should you have any
questions regarding this Code of Ethics or whether an action is prohibited by
this Code, please contact the Review Officer before taking such action.
a. No access person shall, directly or indirectly, purchase or sell
securities in such a way that the access person knew, or reasonably should have
known, that such securities transactions compete in the market with actual or
considered securities transactions for any Investment Company, or otherwise
personally act to injure any Investment Company's securities transactions;
b. No access person shall use the knowledge of securities purchased or sold
by any Investment Company or securities being considered for purchase or sale by
any Investment Company to profit personally, directly or indirectly, by the
market effect of such transactions;
c. No access person shall, directly or indirectly, communicate to any person
who is not an access person any material non-public information relating to any
Investment Company or any issuer of any security owned by any Investment
Company, including, without limitation, the purchase or sale or considered
purchase or sale of a security on behalf of any Investment Company, except to
the extent necessary to effectuate securities transactions on behalf of the
Investment Company;
d. Investment personnel shall not, directly or indirectly, purchase any
security sold in an public offering (initial or otherwise) of an issuer;
e. Investment personnel shall not, directly or indirectly, purchase any
security issued pursuant to a private placement without obtaining prior written
approval from the Review Officer. Investment personnel shall not recommend any
securities transaction by an Investment Company without having previously
disclosed any beneficial ownership interest in securities issued pursuant to a
private placement or the issuer thereof to the Adviser, including without
limitation:
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(i) his or her beneficial ownership of any such securities of such
issuer;
(ii) any contemplated transaction by such person in such securities;
(iii) any position with such issuer or its affiliates; and
(iv) any present or proposed business relationship between such issuer or
its affiliates and such person or any party in which such person has a
significant interest.
Such interested investment personnel may not participate in the decision for an
Investment Company to purchase and sell securities of such issuer.
f. Investment personnel shall not accept any gift or personal benefit valued
in excess of $100 annually from any single person or entity that does business
with or on behalf of an Investment Company. Gifts of a DE MINIMIS value (i.e.,
gifts whose reasonable value is no more than $100 annually from any single
person or entity), and customary business lunches, dinners and entertainment at
which both the advisory person and the giver are present, and promotional items
of DE MINIMIS value may be accepted. Any solicitation of gifts or gratuities is
unprofessional and is strictly prohibited.
g. Investment personnel shall not serve on the board of directors of any
publicly traded company, absent prior written authorization and determination by
the Review Officer that the board service would be consistent with the interests
of an Investment Company and its shareholders;
h. No portfolio manager shall, directly or indirectly, purchase or sell any
security in which he or she has, or by reason of such purchase acquires, any
beneficial ownership interest within a period of seven (7) calendar days before
and after any Investment Company advised by the portfolio manager has purchased
or sold such security. In calculating the 7 calendar day period, the trade date
of the managed account's transaction is not counted. Any securities transaction
by a portfolio manager in violation of this subparagraph h must be unwound, if
possible, and the profits, if any, must be disgorged.
5. EXEMPT TRANSACTIONS AND CONDUCT.
This Code of Ethics shall not be deemed to be violated by any of the
following transactions:
a. Purchases or sales for an account over which the access person has no
direct or indirect influence or control;
b. Purchases or sales which are non-volitional on the part of the access
person;
c. purchases and sales which are part of an automatic dividend reinvestment,
cash purchase or withdrawal plan provided that no adjustment is made by the
access person to the rate at which securities are purchased or sold, as the case
may be, under such a plan during any period in which the security is being
considered for purchase or sale by an Investment Company;
d. Purchases made by exercising rights distributed by an issuer PRO RATA to
all holders of a class of its securities, to the extent such rights were
acquired by the access person from the issuer, and sales of such rights so
acquired;
e. Tenders of securities pursuant to tender offers which are expressly
conditioned on the tender offer's acquisition of all of the securities of the
same class;
f. Purchases or sales for which the access person has received prior written
approval from the Fund. Prior approval shall be granted only if a purchase or
sale of securities is consistent with the purposes of this Code of Ethics and
Section 17(j) of the 1940 Act and rules thereunder; and
g. Purchases or sales made in good faith on behalf of an Investment Company,
it being understood by, and disclosed to, each Investment Company that the
Adviser may make contemporaneous investment decisions and cause to be effected
contemporaneous executions on behalf of one or more of the Investment Companies
and that such executions may increase or decrease the price at which securities
are purchased or sold for the Investment Companies.
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6. RULES ADOPTED BY WEISS, PECK & GREER, L.L.C.
All principals and employees of the Adviser, including access persons,
are subject to the rules adopted by the Adviser, as set forth in the Statement
of Policy on Personal Securities Transactions by Principals, Employees and
Related Accounts dated March 1, 1996 and as amended from time to time (the
"Trading Policy"), in addition to the requirements of this Code of Ethics. The
Trading Policy is attached hereto as Exhibit A. The Trading Policy requires,
among other things, that (i) investments beneficially owned by principals and
employees of the Adviser be held at risk for specified time periods, (ii)
securities transactions by an Investment Company receive the best price in
relation to securities transactions by principals and employees of the Adviser
which are executed on the same day and (iii) principals and employees of the
Adviser obtain approval from the Adviser before selling personally any security
which was previously purchased by an Investment Company based, in whole or in
part, upon his or her recommendation or advice.
The restriction in the Trading Policy that investments beneficially owned by
principals and employees of the Adviser be held at risk for specified time
periods is imposed because (i) it has been suggested that personal investing
activities of a trading nature may give rise to the possibility of an
impropriety, even when the transactions themselves are entirely appropriate and
beyond reproach, (ii) the amount of time and attention required by investment
activities of a trading nature may divert time and attention away from time that
should be devoted to management of Investment Company assets, (iii) it does not
seem wise to foster a trading attitude among those responsible for investments
by an Investment Company.
Any violation of the Trading Policy which adversely affects an
Investment Company shall be deemed to be a violation of this Code of Ethics.
7. JOINT PARTICIPATION.
Access persons should be aware that a specific provision of the 1940 Act
prohibits such persons, in the absence of an order of the Commission, from
effecting a transaction in which an Investment Company is a "joint or a joint
and several participant" with such person. Any transaction which suggests the
possibility of a question in this area should be presented to legal counsel for
review.
8. BROKERAGE ACCOUNTS.
a. Access persons of WPG are required to maintain with the Adviser all
brokerage accounts in which they have a beneficial ownership interest, unless an
exemption from this requirement is sought from, and granted by, the Adviser.
b. Access persons of the Adviser who are exempted from the requirement to
maintain their brokerage accounts with the Adviser are required to direct their
brokers to supply to the Adviser on a timely basis duplicate copies of
confirmations of all securities transactions in which the access person has a
beneficial ownership interest, whether or not one of the exemptions listed in
Section 5 applies.
9. PRECLEARANCE PROCEDURE.
Prior to effecting any securities transaction in which an access
person has a beneficial ownership interest (other than open-end investment
company securities), the access person must receive written approval from the
Trading Department Preclearance Officer and the Review Officer. The Trading
Department Preclearance Officer and the Review Officer shall preclear their
personal securities transactions with the Alternative Trading Department
Preclearance Officer and the Alternative Review Officer respectively. Each
request for preclearance must be submitted to the Trading Department
Preclearance Officer on a Personal Investment Preclearance Form (See Form C
attached to this Code). Verbal approval of personal securities transactions is
not permitted.
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Any approval by the Trading Department Preclearance Officer and the
Review Officer is valid only for the day on which the approval is granted. If an
Access Person is unable to effect the securities transaction on that day, he or
she must resubmit a completed Personal Investment Preclearance Form and reobtain
approval from the Trading Department Preclearance Officer and the Review Officer
prior to effecting the securities transaction.
The Trading Department Preclearance Officer and the Review Officer
will base their decision whether to approve a personal securities transaction
for an Access Person after considering the specific restrictions and limitations
set forth in, and the spirit of, this Code, including without limitation whether
the security at issue is being considered for purchase or sale for an Investment
Company. The Trading Department Preclearance Officer and the Review Officer are
not required to give any explanation for refusing to approve a securities
transaction and their decision shall be final and binding.
10. REPORTING REQUIREMENTS.
a. Each access person shall submit to the Adviser a report in the form
annexed hereto as Form A or in similar form (such as a computer printout) which
report shall set forth at least the information described in subparagraph b of
this Section as to all securities transactions during each quarterly period, in
which such access person has, or by reason of such transactions acquires or
disposes of, any beneficial ownership of a security, whether or not one of the
exemptions listed in Section 5 applies. Access persons shall not be required to
report securities transactions effected for any account over which such person
does not have any direct or indirect influence.
b. Every report on Form A shall be made not later than ten (10) days after
the end of each calendar quarter in which the transaction(s) to which the report
relates was effected and shall contain the following information:
(i)The date of each transaction, the title, class and number of shares,
and the principal amount of each security involved;
(ii)The nature of each transaction (i.e., purchase, sale or other type
of acquisition or disposition);
(iii)The price at which each transaction was effected; and
(iv)The name of the broker, dealer or bank with or though whom each
transaction was effected.
PROVIDED, HOWEVER, if no transactions in any securities required to be reported
were effected during a quarterly period by an access person (including
disinterested trustees), such access person shall submit to the Adviser a report
on Form A within the time-frame specified above stating that no reportable
securities transactions were effected.
c. Every report concerning a securities transaction with respect to which
the reporting person relies upon one of the exceptions provided in Section 5
shall contain a brief statement of the exemption relied upon and the
circumstances of the transactions.
d. Notwithstanding subparagraph a of this Section, an access person need not
report securities transactions pursuant to this Code of Ethics where the
reported information would be duplicative of information reported pursuant to
Rules 204-2(a)(12) or 204-2(a)(13) under the Investment Advisers Act of 1940.
11. ALTERNATIVE REPORTING PROVISIONS.
As an alternative to the literal compliance with the reporting
requirements of Section 10, an access person shall be considered to have
satisfied his or her reporting requirements provided that:
a. With respect to an access person who maintains with the Adviser
all brokerage accounts in which such person has a beneficial ownership interest
and executed all trades required to be reported by Section 10, such access
person certifies annually in writing to the Adviser that, during the prior
calendar year, such person maintained with the Adviser all such brokerage
accounts and executed all such trades.
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With respect to such access persons, the Adviser shall prepare a computer
printout or similar report no less frequently than the frequency set forth in
subparagraph b of Section 10 and containing with respect to the access person at
least the information that would otherwise have been required by subparagraph b
of Section 10.
b. With respect to an access person who maintains with a firm other
than the Adviser a brokerage account in which such person has a beneficial
ownership interest pursuant to the exemption set forth in Section 8, (i) such
person arranges for the Adviser to receive and the Adviser does receive, no less
frequently than the frequency set forth in subparagraph b of Section 10,
brokerage statements concerning such accounts containing at least the
information which would have been required by subparagraph b of Section 10; and
(ii) such access person certifies annually in writing to the Adviser that,
during the prior calendar year, such person has obtained the necessary approval
for the maintenance of such accounts and specifies in the certificate the name
and location of all such accounts.
12. DISCLOSURE OF PERSONAL HOLDINGS.
All investment personnel shall submit to the Adviser initially upon
becoming an investment person and annually thereafter a report disclosing all
securities in which such person has a beneficial ownership interest.
13. ANNUAL CERTIFICATION OF COMPLIANCE.
All access persons shall certify annually on the form annexed hereto as
Form A that they (i) have read and understand this Code of Ethics and recognize
that they are subject hereto, (ii) have complied with the requirements of this
Code of Ethics and (iii) have disclosed or reported all personal securities
transactions required to be disclosed or reported pursuant to the requirements
of this Code of Ethics.
14. CONFIDENTIALITY.
All information obtained from any access person hereunder shall be kept in
strict confidence by the Adviser, except that reports of securities transactions
hereunder will be made available to the Commission or any other regulatory or
self-regulatory organization to the extent required by law or regulation or to
the extent the Adviser considers necessary or advisable in cooperating with an
investigation or inquiry by the Commission or any other regulatory or
self-regulatory organization.
15. NOTICE TO ACCESS PERSONS.
The Adviser shall identify all persons who are considered to be "access
persons," "investment personnel" and "portfolio managers," inform such persons
of their respective duties and provide such persons with copies of this Code of
Ethics. The Adviser shall continue, in the ordinary course through its portfolio
reports, to advise all access persons of the securities held by the Adviser
during each quarterly period.
16. REVIEW OF REPORTS.
a. Within 20 days of each month-end, the Review Officer shall prepare a
summary of all transactions by access persons in securities which were
purchased, sold, held or considered for purchase or sale by each Investment
Company during the prior month.
b. The Review Officer shall compare the reported personal securities
transactions with completed and contemplated portfolio transactions of the
Investment Companies to determine whether a violation of this Code of Ethics may
have occurred. In the case of reports of personal securities transactions of the
Review Officer, the Alternative Review Officer shall perform such comparison.
Before making any determination that a violation has been committed by any
person, the Review Officer or the Alternative Review Officer, as the case may
be, shall give such person an opportunity to supply additional explanatory
material.
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September 1999
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c. If the Review Officer or the Alternative Review Officer, as the case may
be, determines that a violation of this Code of Ethics has or may have occurred,
he shall submit a written determination, together with the related report by the
access person and any additional explanatory material provided by the access
person to the Senior Managing Principal of the Adviser, who shall make an
independent determination of whether a violation has occurred.
d. On a quarterly basis, the Review Officer shall prepare a summary of the
level of compliance with this Code of Ethics during the previous quarter,
including without limitation the percentage of reports timely filed and the
number and nature of all material violations. On an annual basis, the Review
Officer shall prepare a report identifying any recommended changes in existing
restrictions or procedures based upon the Adviser's experience under this Code
of Ethics, evolving industry practices and developments in applicable laws or
regulations. The Alternative Review Officer shall prepare separate reports with
respect to compliance by the Review Officer.
17. SANCTIONS.
Any violation of this Code of Ethics shall result in the imposition of
such sanctions as the Adviser may deem appropriate under the circumstances,
which may include, but is not limited to, removal or suspension from office,
termination of employment, a letter of censure and/or restitution to the
effected Investment Company of an amount equal to the advantage the offending
person shall have gained by reason of such violation.
18. RECORDKEEPING REQUIREMENTS.
The Adviser shall maintain and preserve in an easily accessible place:
a. a copy of this Code of Ethics (and any prior code of ethics that was in
effect at any time during the past five years) for a period of five years;
b. a record of any violation of this Code of Ethics and of any action taken
as a result of such violation for a period of five years following the end of
the fiscal year in which the violation occurs;
c. a copy of each report (or computer printout) submitted under this Code of
Ethics for a period of five years, only those reports submitted during the
previous two years must be maintained and preserved in an easily accessible
place; and
d. a list of all persons who are, or within the past five years were,
required to make reports pursuant to this Code of Ethics.
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WESTPEAK INVESTMENT ADVISORS, L.P.
Code of Ethics
Adopted as of April 1, 1998
It is important to remember at all times that the interests of our clients
and the shareholders of the funds that we advise must come first. In order to
maintain that priority, all personal securities transactions must be conducted
in a manner consistent with this Code of Ethics ("Code"). We must be vigilant in
maintaining the integrity of our business by avoiding any actual or potential
conflicts of interest or any abuse of our position of trust and responsibility.
All provisions of this Code will be interpreted in such a way as to give full
effect to the principles stated in this preamble.
I. DEFINITIONS
(A) "Access person" means any director, officer or advisory person of
Westpeak.
(B) "Advisory person" means (i) any employee of Westpeak (or of any
company in a control relationship to Westpeak) who, in connection with
his or her regular functions or duties, makes, participates in, or
obtains information regarding the purchase or sale of a security by a
Fund, or whose functions relate to the making of any recommendations
with respect to such purchases or sales; and (ii) any natural person
in a control relationship to Westpeak who obtains information
concerning recommendations made to a Fund with regard to the purchase
or sale of a security.
(C) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder from time to time in effect,
except that the determination of direct or indirect beneficial
ownership shall apply to all securities which an access person has or
acquires. In general, a Westpeak employee is deemed to have beneficial
ownership of securities owned by the employee's spouse, by children
residing in the employee's household or by children who are
financially dependent on the employee, or other securities over which
the employee has control. Refer to Appendix A attached to this Code
for a fuller explanation of the meaning of "beneficial ownership."
(D) "Compliance Officer" shall refer to the Westpeak officer holding this
title (currently Philip J. Cooper, Executive Vice President -
Portfolio Management) or, in the Compliance Officer's absence, Gerald
H. Scriver, President and Chief Executive Officer.
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(E) "Control" shall have the same meaning as set forth in Section 2(a)(9)
of the Investment Company Act of 1940 (the "1940 Act"). Section
2(a)(9) provides that "control" means, among other things, the power
to exercise a controlling influence over the management or policies of
a company, unless such power is solely the result of an official
position with such company.
(F) "Fund" means each investment company for which Westpeak Investment
Advisors, L.P. ("Westpeak" or the "Company") serves as investment
adviser or subadviser and each other client for which Westpeak
provides investment advisory services.
(G) "Purchase or sale of a security" includes, INTER ALIA, the writing of
an option to purchase or sell a security.
(H) "Security" shall have the meaning set forth in Section 2(a)(36) of the
1940 Act, except that it shall not include securities issued by the
Government of the United States (including government money market
instruments of the type issued by agencies of the federal government
or guaranteed by the federal government or its agencies), bankers'
acceptances, bank certificates of deposit, commercial paper and shares
of registered open-end investment companies, or such other securities
as may be excepted under the provisions of Rule 17j-1 under the 1940
Act from time to time in effect.
(I) "Security held or to be acquired" by a Fund means any security which,
within the most recent fifteen days, (i) is or has been held by the
Fund, or (ii) is being or has been considered by Westpeak for purchase
by the Fund.
(J) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated or, with respect to the person making the recommendation,
when such person seriously considers making such a recommendation.
(K) A security is "being purchased or sold" by a Fund from the time when a
purchase or sale program has been communicated to the person who
places the buy and sell orders for the Fund until the time when such
program has been fully completed or terminated.
A person who normally only assists in the preparation of public reports, or
receives public reports but receives no information about current
recommendations or trading, is neither an "advisory person" nor an "access
person." A single instance or infrequent, inadvertent instances of obtaining
knowledge does not make one for all times an advisory person. Under the
definition of "advisory person" in the phrase "makes, participates in, or
obtains information regarding the purchase or sale of a security" means someone
who places orders or otherwise arranges transactions.
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II. OUTSIDE AFFILIATIONS
No access person (other than members of the Board of Directors of
Westpeak's general partner who are not Westpeak employees) shall become an
officer, trustee or director of any company whose shares are publicly traded
(except an investment company managed by the Company or an affiliate of the
Company) without the approval of the Compliance Officer. This restriction on
serving as an officer, trustee or director of a public company is designed to
prevent Westpeak from being deemed to possess inside information concerning a
company that an access person may learn in serving in one of those capacities.
Therefore, exceptions will be made by the Compliance Officer only in unusual
situations, with the advice of legal counsel, as appropriate.
No access person (other than members of the Board of Directors of
Westpeak's general partner who are not Westpeak employees) shall accept an
appointment as an executor, administrator, trustee, guardian or conservator
(other than in family situations) without approval by the Compliance Officer.
III. GIFTS TO OR FROM BROKERS OR CLIENTS
No access person shall accept or receive on his or her own behalf or on
behalf of the Company any gift or other accommodations from a business contact
or broker, securities salesman or client (a "business contact") that might
create a conflict of interest or interfere with the impartial discharge of his
or her responsibilities to Westpeak's clients or place the recipient or Westpeak
in a difficult or embarrassing position. This prohibition applies equally to
gifts to an access person's close relatives or to those who share the same
household as an access person.
No access person shall give on his or her own behalf or on behalf of the
Company any gift or other accommodation to a business contact that may be
construed as an improper attempt to influence the recipient.
In no event should gifts to or from any one business contact have a value
that exceeds the limitation on gifts established by the NASD from time to time
(currently $100). This prohibition does not apply to normal business
entertainment.
IV. USE OF INSIDE INFORMATION
Access persons agree to adhere to Westpeak's Statement of Policy on Inside
Information, which should be read in conjunction with this Code.
V. PERSONAL SECURITIES TRANSACTIONS
In furtherance of the principle set out in the preamble to this Code (i.e.,
that the interests of Westpeak's clients and the shareholders of the Funds
Westpeak advises come first), access persons will adhere to the following
restrictions and requirements with
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respect to their personal investing activity; PROVIDED, HOWEVER, that the
restrictions and requirements listed below in this Section V do not apply to any
member of the Board of Directors of Westpeak's general partner who is not a
Westpeak employee and who does not have actual knowledge of purchases or sales
of securities by any Fund, or recommendations with regard to purchases or sales
of securities by any Fund.
1. PRE-TRADE CLEARANCE
No access person will purchase or sell any security in which such person
has, or by reason of such transaction acquires, any direct or indirect
beneficial ownership without the prior written approval of the Compliance
Officer. Any such approval will be valid for five business days from the date
approval is granted or such lesser time period as the Compliance Officer
determines. The Compliance Officer will maintain records documenting all
pre-trade clearance requests and approvals.
2. BROKERAGE CONFIRMATION AND STATEMENTS
Access persons will direct their brokers to routinely supply duplicate
copies of all confirmations and periodic account statements to the Compliance
Officer.
3. INVESTMENT OPPORTUNITIES OF LIMITED AVAILABILITY
If an access person learns of an investment opportunity of limited
availability that would be suitable for a client, the access person must make
the opportunity available to the client first, and may not invest in that
opportunity for his or her own account without the client's consent.
4. INITIAL PUBLIC OFFERINGS
No access person may acquire securities in an initial public offering.
5. PRIVATE PLACEMENTS
No access person may acquire securities in a private placement without the
express prior approval of the Compliance Officer.
Any access person who now or hereafter owns a privately-placed security
and who becomes involved in an investment decision involving the issuer of
the security shall disclose his or her ownership of the private placement to
the Compliance Officer as soon as practicable after becoming involved in the
decision-making process.
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Any access person who owns a private placement of an issuer must refrain
from deliberations regarding client purchases or sales of securities issued
by the same issuer.
6. BLACKOUT PERIODS
Except as set forth below, no access person may purchase or sell
securities on any day during which a buy or sell order in the same security
is pending for a Fund.
Except as set forth below, no access person may purchase or sell a
security purchased or sold by a Fund within seven calendar days before or
after the Fund buys or sells the security; PROVIDED, HOWEVER, that the
prohibition on a purchase or sale by an access person seven days BEFORE the
Fund buys or sells the same security does not apply if the access person does
not have actual knowledge that such security is being considered for purchase
or sale by the Company for a Fund.
Except as set forth below, no access person may buy and sell, or sell and
buy, the same securities (including options on securities) at a profit within
60 calendar days. Any profits realized by such access person on such
short-term trades shall be disgorged to a charitable organization selected by
the Company. The Compliance Officer may allow exceptions to this provision
only in cases where the security must be sold involuntarily (such as in the
case of a merger involving the issuer).
The pre-trade clearance and blackout period provisions of this Section
(Section V.1. and V.6.) do not apply to transactions in the following
securities:
- Securities that are not eligible (nor are convertible into or
exchangeable for securities that are eligible) for purchase by any of
the Funds.
- Securities issued or guaranteed by any government that is a member of
the Organization for Economic Cooperation and Development, or any
agency or authority thereof.
- Common or preferred stocks of a class that is publicly-traded, issued
by a company with a stock market capitalization in excess of five
billion U.S. dollars (or the equivalent in foreign currency).
- Futures and options contracts on indices.
- Commodity futures contracts, including futures contracts on interest
rate instruments or indices, and options on such contracts.
- Open-end investment management companies.
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The pre-trade clearance and blackout period provisions of this Section
(Section V.1. and V.6.) do not apply to the following transactions:
- Transactions that occur by operation of law or under any other
circumstance in which the access person does not exercise any
discretion to buy or sell.
- Purchases of securities pursuant to an automatic dividend reinvestment
plan.
- Purchases pursuant to the exercise of rights issued pro rata to all
holders of the class of securities held by the access person and
received by the access person from the issuer.
VI. ANNUAL CERTIFICATION
All access persons shall certify annually that they have read and
understand this Code and that they have complied with all its provisions. A copy
of the form of annual certification is attached hereto as Appendix B. Access
persons shall further certify that they have complied with the reporting
requirements of Part VII of this Code.
VII. REPORTING
(A) Every access person shall file with the Compliance Officer a report
containing the information described in Section VII(B) of this Code
with respect to transactions in any security in which such access
person has, or by reason of reason of such transaction acquires, any
direct or indirect beneficial ownership; PROVIDED, HOWEVER, that such
access person shall not be required to make a report with respect to
transactions effected for any account over which such person does not
have any direct or indirect influence or control, and PROVIDED,
FURTHER, that the term "security" does not include the savings or
demand deposit accounts of access persons with banks or thrifts.
(B) Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates
was effected, and shall contain the following information:
(1) The date of the transaction and the title and number of shares
and principal amount of each security involved;
(2) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition), including information
sufficient to establish
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any exemption from the restrictions listed in Section V on which
the access person has relied;
(3) The price at which the transaction was effected; and
(4) The name of the broker, dealer or bank with or through whom the
transaction was effected.
(C) The making of such report shall not be construed as an admission by
the person making such report that he or she has any direct or
indirect beneficial ownership in the security to which the report
relates, and the existence of any report shall not be construed as an
admission that any transaction reported constitutes a violation of
Section V hereof.
(D) Any person required to report a transaction under this Section may
satisfy his or her obligation hereunder by providing a duplicate
confirmation/ statement of such transaction to the Compliance Officer,
as required to be routinely furnished in Section V.2.
VIII. REVIEW AND ENFORCEMENT
(A) REVIEW
(1) The Compliance Officer shall cause the reported personal
securities transactions to be compared with completed and
contemplated portfolio transactions of the Funds to determine
whether any transactions subject to the restrictions in Section V
(each a "Reviewable Transaction") may have occurred.
(2) If the Compliance Officer determines that a Reviewable
Transaction may have occurred, he shall then determine whether a
violation of this Code may have occurred, taking into account of
the exemptions provided under Section V. Before making any
determination that a violation has been committed by a person,
the Compliance Officer shall give such person an opportunity to
supply additional information regarding the transaction in
question.
(B) ENFORCEMENT
(1) If the Compliance Officer determines that a violation of this
Code may have occurred, he shall promptly report the possible
violation to the President of Westpeak, who, together with the
Compliance Officer, shall take such actions as they consider
appropriate, including imposition of any sanctions that they
consider appropriate.
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(2) No person shall participate in a determination of whether he has
committed a violation of this Code or in the imposition of any
sanction against himself. If a securities transaction of the
Compliance Officer is under consideration, Westpeak's President
shall act in all respects in the manner prescribed herein for the
Compliance Officer, and, if a securities transaction of the
President is under consideration, the Compliance Officer shall
report the possible violation to the Chairman of the Board of
Directors of Westpeak's general partner.
IX. REPORTING REQUIREMENT TO INVESTMENT COMPANY CLIENTS
The Compliance Officer shall, with respect to each Fund that is an
investment company, annually furnish a written report to the board of trustees
of such Fund (i) describing issues arising under this Code since the last report
to the board, including information about violations of the Code, sanctions
imposed in response to such violations, changes made to the Code, and any
proposed changes to the Code; and (ii) certifying that Westpeak has adopted such
procedures as are reasonably necessary to prevent access persons from violating
the Code.
X. RECORDS
(A) Westpeak shall maintain records in the manner and to the extent set
forth below, which records may be maintained on microfilm under the
conditions described in Rule 31a-2(f)(1) under the 1940 Act and shall
be available for appropriate examination by representatives of the
Securities and Exchange Commission.
(1) A copy of this Code and any other Code which is, or at any time
within the past five years has been, in effect shall be preserved
in an easily accessible place.
(2) A record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs.
(3) A copy of each report made pursuant to this Code by any access
person shall be preserved for a period of not less than five
years from the end of the fiscal year in which it is made, the
first two years in an easily accessible place.
(4) A list of all persons who are, or within the past five years have
been, required to make reports pursuant to this Code shall be
maintained in an easily accessible place.
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(B) CONFIDENTIALITY
All reports of securities transactions and any other information
collected or produced pursuant to this Code shall be treated as
confidential, except as regards appropriate examinations by
representatives of the Securities and Exchange Commission of any other
authorized governmental body or self-regulatory organization.
APPENDIX A
"BENEFICIAL OWNERSHIP"
For purposes of the Code of Ethics, a beneficial owner of a security
includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in such security.
You have a pecuniary interest in a security if you have the opportunity,
directly or indirectly, to profit or share in the profit derived from a
transaction in such security. You are deemed to have a pecuniary interest in any
securities held by members of your immediate family sharing your household.
"Immediate family" means your son or daughter (including your legally adopted
child) or any descendants of either, your stepson or stepdaughter, your father
or mother or any ancestor of either, your stepfather or stepmother and your
spouse. Also, you are deemed to have a pecuniary interest in securities held by
a partnership of which you are a general partner, and beneficial ownership of
the securities held by such partnership will be attributed to you in proportion
to the greater of your capital account or interest in the partnership at the
time of any transaction in such securities. You are also deemed to have a
pecuniary interest in the portfolio securities held by a corporation if you are
a controlling shareholder of such corporation and have or share investment
control over such portfolio securities. Additionally, certain
performance-related fees received by brokers, dealers, banks, insurance
companies, investment companies, investment advisors, trustees and others may
give rise to pecuniary interests in securities over which such persons have
voting or investment control.
Securities owned of record or held in your name generally are considered to
be beneficially owned by you if you have a pecuniary interest in such
securities. Beneficial ownership may include securities held by others for your
benefit regardless of record ownership (e.g., securities held for you or members
of your immediate family by agents, custodians, brokers, trustees, executors or
other administrators; securities owned by you but which have not been
transferred into your name on the books of a company; and securities which you
have pledged) if you have or share a pecuniary interest in such securities.
With respect to ownership of securities held in trust, beneficial ownership
includes the ownership of securities as a trustee in instances either where you
as trustee have, or where a member of your immediate family has, a pecuniary
interest in the securities held by the trust (e.g., by virtue of being a
beneficiary of the trust).
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The final determination of beneficial ownership is a question to be
determined in light of the facts of a particular case. Thus, while you may
include security holdings of other members of your family, you may nonetheless
disclaim beneficial ownership of such securities. Any uncertainty as to whether
you are the beneficial owner of a security should be brought to the attention of
the Compliance Officer.
APPENDIX B
ANNUAL CODE OF ETHICS CERTIFICATION
I acknowledge that I have received a copy and read the Westpeak Investment
Advisors, L.P. Code of Ethics, dated April 1, 1998. I understand my
responsibilities under this Code of Ethics and agree to comply with all of its
terms and conditions. I will retain a copy of this Code of Ethics for future
reference.
I hereby certify that I have complied with the requirements of the Westpeak
Investment Advisors, L.P. Code of Ethics, dated April 1, 1998, and I have
disclosed or reported all personal securities transactions required to be
disclosed or reported pursuant to such Code of Ethics.
--------------------------
Dated
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Printed Name
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Signature
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