QUANTITATIVE GROUP OF FUNDS
Statement of Additional Information
August 1, 1999
U.S. Equity Funds International Funds
Quantitative Small Cap Fund Quantitative International Equity Fund
Quantitative Mid Cap Fund Quantitative Emerging Markets Fund
Quantitative Growth and Income Fund Quantitative Foreign Value Fund
This Statement of Additional Information ("Statement") contains
information which may be of interest to investors but which is not included
in the Prospectus of Quantitative Group of Funds (the "Trust"). This
Statement is not a Prospectus and is only authorized for distribution when
accompanied by the Prospectus of the Trust dated August 1, 1999, and should
be read in conjunction with the Prospectus. This Statement incorporates by
reference information from the Trust's Annual Report dated March 31, 1999.
Investors may obtain a free copy of the Prospectus and/or the Annual
Report by writing Quantitative Group of Funds, 55 Old Bedford Road, Lincoln,
MA 01773 or by calling 1-800-331-1244.
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND RELATED RISKS........................... 2
MANAGEMENT OF THE FUNDS......................................... 2
PORTFOLIO TRANSACTIONS.......................................... 10
HOW TO INVEST................................................... 12
HOW TO MAKE EXCHANGES........................................... 13
HOW TO REDEEM................................................... 14
CALCULATION OF NET ASSET VALUE.................................. 14
DISTRIBUTIONS................................................... 15
TAXATION........................................................ 16
OTHER INVESTMENT PRACTICES...................................... 19
INVESTMENT RESTRICTIONS OF THE FUNDS............................ 24
PERFORMANCE MEASURES............................................ 25
THE QUANTITATIVE GROUP.......................................... 30
EXPERTS......................................................... 30
INVESTMENT OBJECTIVES AND POLICIES
The Funds are series of an open-end, management investment company.
The Funds are nondiversified. The investment objectives and policies of
the Funds are summarized in the text of the Prospectus following the
captions Fund Summary and Investment Policies and Related Risks. There
is no assurance that those objectives will be achieved. This Statement
contains certain additional information about those objectives and policies.
Capitalized terms used in this Statement but not defined herein have the
same meaning as in the Prospectus.
MANAGEMENT OF THE FUNDS
The Trustees are responsible for protecting the interests of
shareholders. The Trustees met periodically throughout the year to oversee
the Funds' activities, review contractual arrangements with companies that
provide services to the Funds and review the Funds' performance. The
majority of the trustees are otherwise not affiliated with the Funds.
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Trustees and Officers
Position with
Distributor, U.S. Position with
Position Boston Capital Quantitative
Name, Address+ and Age with Fund Principal Occupation Corporation Advisors, Inc.
ROBERT M. ARMSTRONG Trustee President,Alumni Career None None
Age: 60 Services, Inc. (consulting
firm); formerly Associate,
Keystone Associates
(career management);
Director of Alumni Career
Services, Harvard
University, Graduate School
of Business Administration
EDWARD A. BOND,JR. Trustee President, Bond Brothers None None
Age: 42 Inc. (general contractors).
JOHN M. BULBROOK Trustee President, John M. Bulbrook None None
Age: 58 Insurance Agency, Inc.
EDWARD E. BURROWS Trustee Independent consulting None None
Age: 66 actuary - employee benefit
plans; formerly Vice
President and Director of
Actuarial Services, Mintz,
Levin, Cohn, Ferris, Glovsky
and Popeo, PC (law firm/
consulting); formerly
President, The Pentad
Corporation (employee
benefit consultants and
actuaries).
FREDERICK S. MARIUS Clerk, President,General Counsel, President President
Age: 35 Executive U.S. Boston Capital General Counsel General Counsel
Vice President Corporation
LEON OKUROWSKI* Trustee, Director,Vice President Director and Director and
Age: 57 Vice President, Treasurer - U.S. Boston Vice President Treasurer
Treasurer Capital Corporation
WILLARD L. UMPHREY* President, Director Director Director
Age: 59 Chairman, U.S. Boston Capital
Trustee Corporation
RON ZWANZIGER* Trustee Director, President,and None None
Age: 44 Chief Executive Officer,
Selfcare, Inc.
</TABLE>
+The mailing address of each of the officers and Trustees is 55
Old Bedford Road, Lincoln, Massachusetts 01773.
*Messrs. Umphrey, Okurowski and Zwanziger are "interested persons"
(as defined in the Investment Company Act of 1940) of the Funds, the Manager
or an Advisor.
**The principal occupations of the officers and Trustees for the last
five years have been with the employers shown above, although in some cases
they have held different positions with such employers, with the exception
of Mr. Marius who was employed by Putnam Investments, Inc. from 1992 to 1999
as in-house counsel and who joined U.S. Boston Capital Corp. and
Quantitative Advisors, Inc. in 1999.
Each Trustee receives an annual fee of $4,000. For services rendered
during the fiscal year ended March 31, 1999, the Funds paid Trustees' fees
aggregating $28,000.
The following Compensation Table provides, in tabular form, the
following data:
Column (1) All Trustees who receive compensation from the Trust.
Column (2) Aggregate compensation received by a Trustee from all series of
the Trust.
Columns (3) and (4) Pension or retirement benefits accrued or proposed to
be paid by the Trust. The Trust does not pay its Trustees such benefits.
Column (5) Total compensation received by a Trustee from the Trust plus
compensation received from all funds managed by the Manager for which a
Trustee serves. As there are no such funds other than the series of the
Trust, this figure is identical to column (2).
Compensation Table
for the fiscal year ended March 31, 1999
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Pension or Total
Retirement Estimated Compensation
Aggregate Benefits Accrued Annual Benefits From the Trust
Name of Person, Compensation As Part of Fund Upon and Fund Complex
Position from the Trust Expenses Retirement Paid to Trustee
Robert M. Armstrong, $4,000 N/A N/A $4,000
Trustee
Edward A. Bond, Jr., $4,000 N/A N/A $4,000
Trustee
John M Bulbrook, $4,000 N/A N/A $4,000
Trustee
Edward E. Burrows, $4,000 N/A N/A $4,000
Trustee
Leon Okurowski, $4,000 N/A N/A $4,000
Trustee
Willard L. Umphrey, $4,000 N/A N/A $4,000
Trustee
Ron Zwanziger, $4,000 N/A N/A $4,000
Trustee
</TABLE>
The Trust's Agreement and Declaration of Trust provides that the Funds
will indemnify their Trustees and officers against liabilities and expenses
incurred in connection with the litigation in which they may be involved
because of their offices with the Funds, except if it is determined in the
manner specified in the Agreement and Declaration of Trust that they have
not acted in good faith in the reasonable belief that their actions were in
the best interests of the Funds or that such indemnification would relieve
any officer or Trustee of any liability to the Funds or their shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Funds, at their expense, will provide
liability insurance for the benefit of their Trustees and officers.
Messrs. Umphrey and Okurowski, as officers of the Manager and the
Distributor, will benefit from the management and distribution fees paid or
allowed by the Funds and from brokerage commissions received by U.S. Boston
Capital Corporation in connection with the purchase and sale of the Funds'
portfolio securities.
At July 21, 1999, the officers and Trustees as a group owned in the
aggregate .90% of the outstanding Ordinary Shares of the Small Cap Fund,
12.17% of the outstanding Institutional Shares of the Small Cap Fund,
0.23% of the outstanding Ordinary Shares of the Mid Cap Fund, 51.17% of the
outstanding Institutional Shares of the Mid Cap Fund, 0.40% of the
outstanding Ordinary Shares of the Growth and Income Fund, 26.87% of the
outstanding Institutional Shares of the Growth and Income Fund, 0.40% of
the outstanding Ordinary Shares of the International Equity Fund, 1.7% of
the outstanding Institutional Shares of the International Equity Fund, 2.6%
of the outstanding Ordinary Shares of the Emerging Markets Fund, 1% of the
outstanding Institutional Shares of the Emerging Markets Fund, 5.10% of the
outstanding Ordinary Shares of the Foreign Value Fund, and 0% of the
outstanding Institutional Shares of the Foreign Value Fund. On the same
date, each of the following persons owned 5% or more of the then outstanding
Institutional Shares of the Small Cap Fund:
Name and Address % of Outstanding Institutional Shares
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104 5.33%
Pershing Division of Donaldson,
Lufkin & Jenrette
P.O. Box 2052
Jersey City, NJ 07303 17.57%
The John Dickson Home
1701 Pennsylvania Avenue, N.W.
Washington, DC 20006 14.35%
National Postal Forum
3998 Fair Ridge Drive
Fairfax, VA 22033 11.59%
U.S. Boston Corporation
55 Old Bedford Road
Lincoln, MA 01773 10.61%
Temple Preservation Foundation
1773- 16th Street
Washington, DC 20009 7.77%
The Henry and Annie Hurt Home for the Blind
1701 Pennsylvania Ave, N.W.
Suite 1000
Washington, DC 20006 6.60%
On the same date, each of the following persons owned 5% or more of the then
outstanding Ordinary Shares of the Mid Cap Fund:
Name and Address % of Outstanding Ordinary Shares
Dover Instrument Corporation
P.O. Box 200
Westboro, MA 01581 11.05%
Mr. George H. Howell
107 Dudley Road
Wayland, MA 01778 6.38%
On the same date, each of the following persons owned 5% or more of the then
outstanding Institutional Shares of the Mid Cap Fund:
Name and Address % of Outstanding Institutional Shares
U.S. Boston Corporation
55 Old Bedford Road
Lincoln, MA 01773 33.62%
Mr. James E. and Ms. Sandra G. Jones
9 Stone Creek Park
Owensboro, KY 42303 13.60%
Ms. Lawrie Okurowski
50 Musterfield Road
Concord, MA 01742 10.44%
State Street Bank and Trust Custodian
for Marsha W. Vaughan IRA
2122 Harpoon Drive
Stafford, VA 22554 9.08%
State Street Bank and Trust Custodian
for Marlys Bernal
2801 Baxley Hollow Ct.
Herndon, VA 20171 7.78%
U.S. Boston Corporation PSRP
A/C Leon Okurowski
55 Old Bedford Road
Lincoln, MA 01773 7.10%
On the same date, each of the following persons owned 5% or more of the then
outstanding Institutional Shares of the Growth and Income Fund:
Name and Address % of Outstanding Institutional Shares
Dover Instrument Corporation
P.O. Box 200
Westboro, MA 01581 54.21%
U.S. Boston Corporation
55 Old Bedford Road
Lincoln, MA 01773 15.89%
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104 7.02%
On the same date, the following person owned 5% or more of the then
outstanding Institutional Shares of the International Equity Fund:
Name and Address % of Outstanding Institutional Shares
Dover Instrument Corporation
P. O. Box 200
Westboro, MA 01581 89.82%
U.S. Boston Corp.Corporation 5.95%
55 Old Bedford Road
Lincoln, MA 01773
On the same date, the following person owned 5% or more of the then
outstanding Institutional Shares of the Emerging Markets Fund:
Name and Address % of Outstanding Institutional Shares
Strafe & Co.
P.O. Box 160
Westerville, OH 43086-0160 97.81%
On the same date, each of the following persons owned 5% or more of the then
outstanding Ordinary Shares of the Foreign Value Fund:
Name and Address % of Outstanding Institutional Shares
Dermatology Associates of
Concord, Inc. Profit Sharing
Retirement Plan
290 Baker Road
Concord, MA 01742 6.13%
Lowell Anesthesiology Service - PSRP
60 East Street, Suite 1300
Metheun, MA 01844 5.25%
On the same date, each of the following persons owned 5% or more of
the then outstanding Institutional Shares of the Foreign Value Fund:
Name and Address % of Outstanding Institutional Shares
David Jaffin
230 Park Avenue
New York, NY 10169 83.58%
National Financial Services Corp.
P.O. Box 3908
New York, NY 10008 16.37%
The Manager and Management Contract
Each Fund emphasizes the use of computer models in the stock selection
process. These computer models generally are developed as a result of
research conducted by a team of individuals. The same investment strategy
used to manage a particular Fund also may be used to manage separate
institutional accounts maintained at the Manager or Advisor.
The Manager is an affiliate of U.S. Boston Capital Corporation, the Funds'
Distributor, which is a wholly owned subsidiary of U.S. Boston Corporation.
Willard L. Umphrey, CFA President and Trustee of the Funds, Leon Okurowski,
Treasurer and Trustee of the Funds, individually and jointly with their
spouses, together own 100% of the Manager's outstanding voting securities.
Messrs. Umphrey and Okurowski also are affiliates of U.S. Boston Capital
Corporation.
Under the terms of the management agreement, the Manager may, subject to
the approval of the Trustees, manage the Funds itself or, subject to the
approval by the Trustees, select subadvisors (the "Advisors") to manage
certain of the Funds. In the latter case, the Manager monitors the Advisors'
investment program and results, reviews brokerage matters, oversees
compliance by the Funds with various federal and state statutes and the
Funds' own investment objectives, policies, and restrictions and carries out
the directives of the Trustees. In each case, the Manager also provides the
Funds with office space, office equipment, and personnel necessary to
operate and administer the Funds' business, and provides general management
and administrative services to the Funds, including overall supervisory
responsibility for the general management and investment of the Funds'
securities portfolios and for the provision of services by third parties
such as the Funds' custodian.
The Management Contract continues in force from year to year, but only
so long as its continuance is approved at least annually by (i) vote, cast
in person at a meeting called for the purpose, of a majority of those
Trustees who are not "interested persons" of the Manager or the Funds, and
by (ii) either the majority vote of all the Trustees or the vote of a
majority of the outstanding voting securities of each Fund. The Management
Contract automatically terminates on assignment, and is terminable on 60
days' written notice by either party.
In addition to the management fee, the Funds pay all expenses not
assumed by the Manager, including, without limitation, fees and expenses of
the Trustees, interest charges, taxes, brokerage commissions, expenses of
issue or redemption of shares, fees and expenses of registering and
qualifying the Trust and shares of the respective Funds for distribution
under federal and state laws and regulations, charges of custodians,
auditing and legal expenses, expenses of determining net asset value of the
Funds' shares, reports to shareholders, expenses of meetings of shareholders,
expenses of printing and mailing prospectuses and proxies to existing
shareholders, and their proportionate share of insurance premiums and
professional association dues or assessments. All general Fund expenses are
allocated among and charged to the assets of the respective Funds on a basis
that the Trustees deem fair and equitable, which may be based on the
relative net assets of each Fund or the nature of the services performed and
relative applicability to each Fund. The Funds are also responsible for such
non-recurring expenses as may arise, including litigation in which the Funds
may be a party, and other expenses as determined by the Trustees. The Funds
may have an obligation to indemnify their officers and Trustees with respect
to such litigation.
The funds have received an exemptive order from the SEC that permits the
Manager, subject to certain conditions, to enter into or amend an Advisory
Contract without obtaining shareholder approval. With Trustee approval, the
Manager may employ a new Advisor for a fund, change the terms of the Advisory
Contracts, or enter into new Advisory Contracts with the Advisors. The
Manager retains ultimate responsibility to oversee the Advisers and to
recommend their hiring, termination, and replacement. Shareholders of a fund
continue to have the right to terminate the Advisory Contract applicable to
that Fund at any time by a vote of the majority of the outstanding voting
securities of the fund. Shareholders will be notified of any Advisor changes
or other material amendments to an Advisory Contract that occurs under these
arrangements.
As compensation for services rendered, the Funds pay the Manager a
monthly fee at the annual rate of: 1.00% of the average daily net asset
value of the Small Cap Fund, Mid Cap Fund, the International Equity Fund,
and the Foreign Value Fund (this fee is higher than that paid by most other
investment companies); 0.80% of the average daily net asset value of the
Emerging Markets Fund; and 0.75% of the average daily net asset value of the
Growth and Income Fund. For services rendered to the Small Cap Fund during
the fiscal years ended March 31, 1999, 1998, and 1997, the Manager received
fees of $595,869, $712,299, and $916,777, respectively. For services
rendered to the Mid Cap Fund during the fiscal years ended March 31, 1999,
1998, and 1997, the Manager received fees of $148,620, $122,800, and $96,688,
respectively, a portion of which were waived by the Manager. For services
rendered to the Growth and Income Fund during the fiscal years ended March
31, 1999, 1998, and 1997, the Manager received fees of $527,997, $425,583,
and $334,461, respectively. For services rendered to the International
Equity Fund during the fiscal years ended March 31, 1999, 1998, and 1997,
the Manager received fees of $276,103, $311,008, and $287,461, respectively.
For services rendered to the Emerging Markets Fund during the fiscal years
ended March 31, 1999, 1998, and 1997, the Manager received fees of $73,465,
$86,261, and $77,271, respectively. For services rendered to the Foreign Value
Fund during the fiscal year ended March 31, 1999, the Manager received fees
of $50,130. Such fees were rebated by the Manager to the extent required to
comply with its contractual undertaking to assume certain expenses of the
Small Cap Fund, the Growth and Income Fund, and the International Equity Fund
(including the Manager's compensation) in excess of 2.00% of such Fund's
average net assets and such fees were also waived by the Manager to the
extent required to comply with its voluntary undertaking to assume certain
expenses of the Emerging Markets Fund in excess of 2.25%, respectively, of
such Funds' average net assets.
Advisory Contracts
Pursuant to an Advisory Contract with the Manager, the Advisor to a Fund
furnishes continuously an investment program for the Fund, makes investment
decisions on behalf of the Fund, places all orders for the purchase and sale
of portfolio investments for the Fund's account with brokers or dealers
selected by such Advisor and may perform certain limited, related
administrative functions in connection therewith.
Each Advisory Contract provides that it will continue in force for two
years from its date, and from year to year thereafter, but only so long as
its continuance is approved at least annually by (i) vote, cast in person at
a meeting called for the purpose, of a majority of those Trustees who are not
"interested persons" of the Advisor, the Manager or the Funds, and by (ii)
either the majority vote of all of the Trustees or the vote of a majority of
the outstanding voting securities of each Fund to which it relates. Each
Advisory Contract may be terminated without penalty with respect to any Fund
by vote of the Trustees or the shareholders of that Fund, or by the Manager
on not less than 30 nor more than 60 days' written notice or by the
particular Advisor on not less than 30 nor more than 60 days', or no less
than 150 days' written notice, depending on the Fund. Each Advisory Contract
may be amended with respect to any Fund without a vote of the shareholders of
that Fund. Each Advisory Contract also terminates without payment of any
penalty in the event of its assignment and in the event that for any reason
the Management Contract between the Funds and the Manager terminates
generally or terminates with respect to that particular Fund.
Each Advisory Contract provides that the Advisor shall not be subject
to any liability to the Funds or to the Manager or to any shareholder of the
Funds for any act or omission in the course of or connected with the
rendering of services thereunder in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties on the part of
the Advisor.
For services rendered, the Manager pays to the Advisor of a fund a fee
based on a percentage of the average daily net asset value of the Fund. The
fee for each fund is determined separately. The fees paid by the Manager to
the Advisors of the Funds are as follows: Small Cap Fund - 0.50% of average
daily total net assets; Mid Cap Fund - 0.40% of average daily total net
assets; Growth and Income Fund - 0.375% of the first $20 million and 0.30% of
amounts in excess of $20 million of average daily total net assets, with an
annual minimum of $25,000; International Equity Fund - 0.50% of average
daily total net assets; Foreign Value Fund - 0.35% of the first $30 million
and 0.50% of amounts in excess of $30 million of average daily total net
assets; and Emerging Markets Fund - 0.40% of average daily total net assets.
For services rendered during the fiscal year ended March 31, 1999,
the Manager paid to the Advisors of the following Funds fees in amounts
equivalent to the following percentages of average daily net asset value:
Small Cap Fund - 0.50%; Mid Cap Fund - 0.40%, Growth and Income Fund -
0.334%; International Equity Fund - 0.50%, Emerging Markets Fund - 0.40%,
and Foreign Value Fund - 0.35%. For services rendered to the Small Cap Fund
during the fiscal years ended March 31, 1999, 1998, and 1997, the applicable
Advisor received fees of $297,934, $357,261, and $477,141, respectively. For
services rendered to the Mid Cap Fund during the fiscal years ended March
31, 1999, 1998, and 1997, the applicable advisor received fees of $59,448,
$49,266, and $48,678, respectively. For services rendered to the Growth and
Income Fund during the fiscal years ended March 31, 1999, 1998, and 1997, the
applicable Advisor received fees of $226,254, $185,739, and $148,785,
respectively. For services rendered to the International Equity Fund
during the fiscal years ended March 31, 1999, 1998, and 1997, the applicable
Advisor received fees of $138,052, $155,972, and $143,731, respectively. For
services rendered to the Emerging Markets Fund during the fiscal years ended
March 31, 1999, 1998, and 1997, the applicable Advisor received fees of
$36,733, $43,257, and $38,636, respectively. For services rendered to the
Foreign Value Fund during the fiscal year ended March 31, 1999, the
applicable Advisor received fees of $17,537.
Quantitative Small Cap Fund
Quantitative Mid Cap Fund
Columbia Partners, L.L.C., Investment Management, 1701 Pennsylvania Ave., NW,
Washington, DC 20006 ("Columbia Partners") serves as Advisor to the Small Cap
Fund and the Mid Cap Fund. The firm presently has over $1 billion in assets
under management for individual, pension plan and endowment accounts. Robert
A. von Pentz, CFA has managed the Small Cap and Mid Cap Funds since July
1996. Mr. von Pentz is a founder of Columbia Partners and previously served
as chairman of the board and chief financial officer of Riggs Investment
Management Corporation, where he worked from 1989 to 1995. Terence Collins,
Robert von Pentz, Galway Capital Management, Landon Butler, Paul Kelley, John
McKernan and Glen Lester Fant III are control persons of Columbia Partners
L.L.C.
Quantitative Growth and Income Fund
State Street Global Advisors, 2 International Place, Boston, MA 02110, a unit
of State Street Bank and Trust Company ("State Street"), serves as Advisor
to the Growth and Income Fund. State Street is a wholly owned subsidiary of
State Street Boston Corporation, a publicly owned bank holding company.
State Street manages over $150 billion in assets for employee benefit plans,
endowment funds and individuals. The Growth and Income Fund has been managed
continuously by the Matrix Equity Group at State Street since the Fund's
inception. The team at State Street presently responsible for the daily
management of the Fund includes Steven M. Esielonis, Douglas T. Holmes, CFA,
and Charles Babin, CFA. Mr. Esielonis has served as a Vice President at State
Street since 1992. Mr. Holmes, Senior Vice President at State Street, has
worked at State Street since 1984. Mr. Babin joined State Street as a Managing
Director in 1996. Prior to that time, he was a Senior Vice President at
Natwest Investment Management from 1995 to 1996 and the President and
Managing Director of BRS Capital Management from 1987-1995. Marshall
Carter, Savid Spina, Tenley Albright, David Gruber, I. MacAllister Booth,
John M. Kucharshi, James I. Cash Jr., Charles R. LaMantia, Truman S. Casner,
David Perini, Nader Darehshori, Dennis J. Picard, Arthur L. Goldstein,
and David Chapman Walsh are Directors of State Street Global Advisors and are
therefore considered control persons.
Quantitative International Equity Fund
Quantitative Emerging Markets Fund
Independence International Associates, Inc., 53 State Street, Boston, MA
02109, formerly Boston International Advisors, Inc. ("Independence
International"), serves as Advisor to the International Equity Fund and the
Emerging Markets Fund. The firm presently has over $2 billion under
management in international portfolios of pension and endowment funds, among
others. Norman H. Meltz and Dennis Fogerty manage both the International
Equity Fund and Emerging Markets Fund. Mr. Meltz has been involved since the
inception of each fund in the development and application of the funds'
investment strategies. Independence International is wholly owned by
Independence Investment Associates, Inc., a Delaware corporation. John
Hancock Mutual Life Insurance and William Cameron Fletcher are control persons
of Independence International Associates, Inc.
Quantitative Foreign Value Fund
Day-to-day responsibility for managing the Foreign Value Fund presently is
provided by Polaris Capital Management, Inc., 125 Summer Street, Boston, MA
02110 ("Polaris")serves as Advisor to the Foreign Value Fund. The firm
presently has over $50 million under management for for institutional clients
and wealthy individuals. The Foreign Value Fund is managed by Bernard R. Horn,
Jr. Prior to founding Polaris in 1995, Mr. Horn worked as a portfolio manager
at Horn & Company, Freedom Capital Management Corporation, and MDT Advisers,
Inc. Bernard R. Horn, Jr and Edward Wendell Jr. are both control persons of
Polaris Capital Management Inc.
Distributor and Distribution Plan
U.S. Boston Capital Corporation, 55 Old Bedford Road, Lincoln, MA
01773 ("Distributor"), a Massachusetts corporation organized April 23, 1970,
is a broker-dealer registered under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc. The
Distributor is an affiliated person of the Funds' Manager by virtue of being
under common ownership with the Manager. The Distributor acts as the
principal distributor of the Funds' shares pursuant to a written agreement
dated April 17, 1985 ("Distribution Agreement"). Under the Distribution
Agreement, the Distributor is not obligated to sell any specific amount of
shares of the Funds and will purchase shares for resale only against orders
for shares. The Distribution Agreement calls for the Distributor to use its
best efforts to secure purchasers for shares of the Funds.
To permit the Funds to pay a monthly fee to the Distributor, the Funds
have adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The fee is not directly tied to the
Distributor's expenses. If expenses exceed the Distributor's fees, the Funds
are not required to reimburse the Distributor for excess expenses; if the
Distributor's fees exceed the expenses of distribution, the Distributor may
realize a profit. The Small Cap, Growth and Income, International Equity,
and Emerging Markets Funds pay the Distributor a monthly fee at the annual
rate of 0.50% of the average net asset value of shares (excluding
Institutional Shares) held in shareholder accounts opened during the period
the Plan is in effect, as determined at the close of each business day during
the month. The Mid Cap and Foreign Value Funds pay the Distributor a monthly
fee at the annual rate of 0.25% of the average net asset value of their
respective Ordinary Shares. Rule 12b-1 provides that any payments made by an
investment company to a distributor must be made pursuant to a written plan
describing all material aspects of the proposed financing of distributions and
that all agreements with any person relating to implementation of the plan
must be in writing. Continuance of the Plan and the Distribution Agreement
is subject to annual approval by a vote of the Trustees, including a majority
of the Trustees who are not "interested persons" of the Fund and have no
direct or indirect financial interest in the operation of the plan or related
agreements ("Qualified Trustees"), cast in person at a meeting called for
the purpose. The Plan may be terminated as to a Fund by the vote of a
majority of the Qualified Trustees, or by the vote of a majority of the
outstanding voting securities of the Fund. All material amendments to the
Plan must be approved by the Qualified Trustees and any amendment to increase
materially the amount to be spent pursuant to the Plan must be approved by
the vote of a majority of the outstanding voting securities of the Fund. The
Trustees of the Funds review quarterly a written report of the amounts so
expended and the purposes for which such expenditures were made.
For the fiscal year ended March 31, 1999, the aggregate fees (net of
fees waived), paid to the Distributor pursuant to the Plan totaled $789,740,
or 0.50% of the average net assets of the Ordinary Shares of the Small Cap,
Growth and Income, International Equity, and Emerging Markets Funds and 0.25%
of the average net assets of the Ordinary Shares ofthe Mid Cap Foreign Value
Fund. The Mid Cap Fund waived all 12b-1 fees for 10.5 months of the year.
The Distributor also receives the deferred sales charges withheld from
redemption proceeds, see How to Redeem, and may benefit from its temporary
holding of investors' funds in connection with certain purchases and
redemptions of shares of the Funds.
Custodian
Investors Fiduciary Trust Company ("Custodian") is the custodian of each
of the Funds' securities and cash. The Custodian's responsibilities include
safekeeping and controlling the Funds' cash and securities, handling the
receipt and delivery of securities, determining income and collecting
interest and dividends on the Funds' investments, maintaining books of
original entry for portfolio and fund accounting and other required books and
accounts, and calculating the daily net asset value of each class of shares
of the Funds. The Custodian does not determine the investment policies of
the Funds or decide which securities the Funds will buy or sell. The Funds
may, however, invest in securities of the Custodian and may deal with the
Custodian as principal in securities transactions. Custodial services are
performed at the Custodian's office at 801 Pennsylvania Ave., Kansas City,
MO 64105.
Transfer Agent
Quantitative Institutional Services ("Transfer Agent"), a division
of the Manager, is the transfer agent and dividend disbursing agent for
each of the Funds. All mutual fund transfer, dividend disbursing and
shareholder services activities are performed at the offices of Quantitative
Institutional Services, 55 Old Bedford Road, Lincoln, Massachusetts 01773.
Account balances and other shareholder inquiries can be directed to the
Transfer Agent at 800-331-1244. Subject to the approval of the Trustees, the
Transfer Agent or the Fund may from time to time appoint a sub- transfer
agent for the receipt of purchase and sale orders and funds from certain
investors. For its services, the Transfer Agent receives base at an annual
rate of 0.13% of the aggregate average daily net asset value of each class of
shares of each Fund and is reimbursed for out of pocket expenses.
PORTFOLIO TRANSACTIONS
Investment Decisions. Investment decisions for a Fund and for other
investment advisory clients of the Manager or that Fund's Advisor or its
affiliates are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus,
a particular security may be bought or sold for certain clients even though
it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when
one or more other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also happens
that two or more clients simultaneously buy or sell the same security, in
which event each day's transactions in such security are, insofar as
possible, allocated between such clients in a manner designed to be
equitable to each, taking into account among other things the amount being
purchased or sold by each. There may be circumstances when purchases or
sales of portfolio securities for one or more clients will have an adverse
effect on other clients.
Brokerage and Research Services. Transactions on stock exchanges and
other agency transactions involve the payment by the Funds of negotiated
brokerage commissions. Such commissions vary among different brokers.
Also, a particular broker may charge different commissions according to
such factors as the difficulty and size of the transaction. There is
generally no stated commission in the case of securities traded in the
over-the-counter markets, but the price paid by the Funds usually includes
an undisclosed dealer commission or mark-up. In underwritten offerings, the
price paid includes a disclosed, fixed commission or discount retained by
the underwriter or dealer.
All orders for the purchase and sale of portfolio securities for each
Fund are placed, and securities for the Fund bought and sold, through a
number of brokers and dealers. In so doing, the Manager or Advisor uses
its best efforts to obtain for the Fund the most favorable price and
execution available, except to the extent that it may be permitted to pay
higher brokerage commissions as described below. In seeking the most
favorable price and execution, the Manager or Advisor, having in mind the
Fund's best interests, considers all factors it deems relevant, including,
by way of illustration, price, the size of the transaction, the nature of
the market for the security, the amount of commission, the timing of the
transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker-dealer involved and the
quality of service rendered by the broker-dealer in other transactions.
It has for many years been common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive research, statistical and quotation services from
broker-dealers which execute portfolio transactions for the clients of such
advisers. Consistent with this practice, the Advisors and the Manager may
receive research, statistical and quotation services from certain
broker-dealers with which the Manager or Advisors place the Funds' portfolio
transactions. These services, which in some instances may also be purchased
for cash, include such matters as general economic and securities market
reviews, industry and company reviews, evaluations of securities and
recommendations as to the purchase and sale of securities. Some of these
services are of value to the Advisors or the Manager in advising various of
their clients (including the Funds), although not all of these services are
necessarily useful and of value in advising the Funds. The fees paid to the
Advisors by the Manager or paid to the Manager by the Funds are not reduced
because the Advisors or the Manager receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
and by the Advisory Contracts, the Manager or Advisors may cause the Funds
to pay a broker-dealer which provides "brokerage and research services"
(as defined in that Act) to the Manager or Advisors an amount of disclosed
commission for effecting a securities transaction for the Fund in excess of
the commission which another broker-dealer would have charged for effecting
that transaction. The Manager's or Advisors' authority to cause the Funds
to pay any such greater commissions is subject to such written policies as
the Trustees may adopt from time to time.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc., subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine,
the Manager or Advisors may consider sales of shares of the Funds as a
factor in the selection of broker-dealers to execute portfolio transactions
for the Funds.
Pursuant to conditions set forth in rules of the Securities and Exchange
Commission, the Funds may purchase securities from an underwriting syndicate
of which U.S. Boston Capital Corporation is a member (but not from U.S.
Boston Capital Corporation itself). The conditions relate to the price and
amount of the securities purchased, the commission or spread paid, and the
quality of the issuer. The rules further require that such purchases take
place in accordance with procedures adopted and reviewed periodically by the
Trustees, particularly those Trustees who are not "interested persons" of the
Fund.
Brokerage commissions paid by the Funds on portfolio transactions for
the fiscal years ended March 31, 1997, March 31, 1998, and March 31, 1999
are as follows:
Fiscal Year Ended March 31,
Fund 1997 1998 1999
Small Cap Fund $ 773,03 $272,199 $221,371
Mid Cap Fund 46,196 44,701 58,392
Growth and Income Fund 85,411 63,665 94,378
International Equity Fund 147,002 74,654 74,831
Emerging Markets Fund 19,551 39,223 35,435
Foreign Value Fund -- -- 34,047
None of such commissions was paid to a broker who was an affiliated person
of the Funds or an affiliated person of such a person or, to the knowledge
of the Funds, to a broker an affiliated person of which was an affiliated
person of the Fund, the Manager or any Advisor.
HOW TO INVEST
The procedures for purchasing shares are summarized in the Prospectus
under the caption How to Invest.
Investments through Brokers. The Distributor may pay a sales fee of
1.00% of the offering price to the dealer transmitting an order for Ordinary
Shares, provided that the Ordinary Shares sold are subject to the 1.00%
deferred sales charge. The Distributor may also pay the dealer a service fee
for accounts serviced by the dealer based upon the service agreement between
the Fund and the Broker.
Exchange of Securities for Shares of the Funds. Applications to
exchange common stocks for Fund shares must be accompanied by stock
certificates (if any) and stock powers with signatures guaranteed by
domestic banks, brokers, dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies or savings
associations. Securities accepted by the Funds will be valued as set forth
under Calculation of Net Asset Value in the Prospectus as of the time of the
next determination of net asset value after such acceptance. Shares of a
Fund are issued at net asset value determined as of the same time. All
dividends, subscription, or other rights which are reflected in the market
price of accepted securities at the time of valuation become the property of
the Funds and must be delivered to the Funds by the investor upon receipt
from the issuer. A gain or loss for Federal income tax purposes would be
realized by the investor upon the exchange depending upon the cost of the
securities tendered.
Open Account System. Under the Funds' Open Account System all shares
purchased are credited directly to your account in the designated Fund at
the time of purchase. All shares remain on deposit with the Transfer Agent.
No certificates are issued.
The following services are currently offered by the Open Account
System:
1. You may make additional investments in a Fund by sending a check
(made payable to "Quantitative Group of Funds") to the Funds or by wire, as
described under How to Invest in the Prospectus.
2. You may select one of the following distribution options which
best fits your needs.
* REINVESTMENT PLAN OPTION: Income dividends and capital gain
distributions paid in additional shares at net asset value.
* INCOME OPTION: Income dividends paid in cash, capital gain
distributions paid in additional shares at net asset value.
* CASH OPTION: Income dividends and capital gain d
distributions paid in cash.
You should indicate the Option you prefer, as well as the other
registration details of your account, on the Account Application. The
Reinvestment Plan Option will automatically be assigned unless you select a
different option. Dividends and distributions paid on a class of shares of
a Fund will be paid in shares of such class taken at the per share net asset
value of such class determined at the close of business on the ex-date of the
dividend or distribution or, at your election, in cash.
3. You will receive a statement setting forth the most recent
transactions in your account after each transaction which affects your share
balance.
The cost of services rendered under the Open Account System to the
holders of a particular class of shares of a Fund are borne by that class
as an expense of all shareholders of that class. However, in order to cover
additional administrative costs, any shareholder requesting a historical
transcript of his account will be charged a fee based upon the number of
years researched. There is a minimum fee of $5. The right is reserved on
60 days' written notice to make charges to individual investors to cover
other administrative costs of the Open Account System.
Tax Deferred Retirement Plans.
Accounts Offered by the Funds. The Funds offer tax-deferred accounts,
for which State Street Bank and Trust Company acts as custodian, including:
Traditional Individual Retirement Accounts (IRAs)
Roth IRAs
Simplified Employee Pension Plans (SEP-IRAs)
403(b) Custodial Accounts
Agreements to establish these kinds of accounts and additional
information about them, including information about fees and charges, are
available from the Distributor. There are many detailed rules, including
provisions of tax law, governing each of theses kinds of accounts. Investors
considering participation in any of these plans should consult with their
attorneys or tax advisers with respect to the establishment and maintenance
of any of these plans. The following is some very general information about
them.
IRAs. Investors may establish either regular IRA accounts, to which
they may make contributions of up to $2000 annually (or 100% of their earned
income for the year, if less), or rollover IRAs, to which they may roll over
or transfer assets from another preexisting IRA of the same kind. They also
may establish conversion Roth IRAs (into which they may move assets from a
traditional IRA), if they satisfy certain requirements; individuals will be
subject to tax on the taxable amount moved from a traditional IRA to a Roth
IRA at the time of the conversion. SEP-IRAs are traditional IRA accounts
established pursuant to an employer-sponsored SEP plan; different contribution
limits apply to SEP-IRAs.
Contributions to a traditional IRA will be deductible if the individual
for whom the account is established is not an active participant in an
employer-sponsored plan; contributions may be deductible in whole or in part
if the individual is such a participant, depending on the individual's income.
Distributions from traditional IRAs are taxable as ordinary income.
Contributions to a Roth IRA are not deductible. However, withdraws may not
be taxable if certain requirements are met. In either case, capital gains
and income earned on Fund shares held in an IRA are not taxable as long as
they are held in the IRA.
403(b)s. This kind of custodial account may be established by
employees of certain educational and charitable organizations. A qualifying
employee may make an election to defer salary, which is then contributed to
the 403(b) account; these contributions held in a 403(b) account are not
taxable as long as they are held in the account. A 403(b) holder generally
will have taxable income only when he or she receives a distribution from
the account; distributions are taxable as ordinary income.
Other Retirement Plans. Fund shares also may be made available as an
investment under other tax-favored retirement plans, such as qualified
pension plans and qualified profit sharing plans, including 401(k) plans.
HOW TO MAKE EXCHANGES
The procedures for exchanging shares of one Fund for those of another
are described in the Prospectus under How to Make Exchanges.
An exchange involves a redemption of all or a portion of shares of one
class of a Fund and the investment of the redemption proceeds in shares of a
like class in another Fund. The redemption will be made at the per share
net asset value of the particular class of shares of a Fund being redeemed
which is next determined after the exchange request is received in proper
order.
The shares of the particular class of shares of the Fund being acquired
will be purchased when the proceeds from the redemption become available,
normally on the day of the exchange request, at the per share net asset value
of such class next determined after acceptance of the purchase order by the
Fund being acquired in accordance with the customary policy of that Fund for
accepting investments.
The exchange of shares of one class of a Fund for shares of a like
class of another Fund will constitute a sale for federal income tax purposes
on which the investor will realize a capital gain or loss.
The exchange privilege may be modified or terminated at any time, and
the Funds may discontinue offering shares of any Fund or any class of any
Fund generally or in any particular State without notice to shareholders.
HOW TO REDEEM
The procedures for redeeming shares of a Fund are described in the
Prospectus under How to Redeem.
Proceeds will normally be forwarded on the second day on which the New
York Stock Exchange is open after a redemption request is processed; however,
the Funds reserve the right to take up to three (3) business days to make
payment. This amount may be more or less than the shareholder's investment
and thus may involve a capital gain or loss for tax purposes. If the shares
to be redeemed represent an investment made by check or through the automatic
investment plan, the Funds reserve the right not to honor the redemption
request until the check or monies have been collected.
Shareholders are entitled to redeem all or any portion of the shares
credited to their accounts by submitting a written request for redemption to
Quantitative Group of Funds. Shareholders who redeem more than $10,000, or
request that the redemption proceeds be paid to someone other than the
shareholders of record or sent to an address other than the address of
record, must have their signature(s) guaranteed by domestic banks, brokers,
dealers, credit unions, national securities exchanges, registered securities
associations, clearing agencies or savings associations. If the shareholder
is a corporation, partnership, agent, fiduciary or surviving joint owner, the
Funds may require additional documentation of a customary nature.
Shareholders who have authorized the Funds to accept telephone instructions
may redeem shares credited to their accounts by telephone. Once made, a
telephone request may not be modified or canceled.
The Funds and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. If the
Funds and the Transfer Agent fail to do so, they may be liable for any losses
due to unauthorized or fraudulent transactions. The Funds provide written
confirmation of all transactions effected by telephone and only mail the
proceeds of telephone redemptions to the redeeming shareholder's address of
record.
The Funds may suspend this right of redemption and may postpone payment
for more than seven days only when the New York Stock Exchange is closed for
other than customary weekends and holidays, or if permitted by the rules of
the Securities and Exchange Commission during periods when trading on the
Exchange is restricted or during any emergency which makes it impracticable
for the Funds to dispose of their securities or to determine fairly the value
of their net assets, or during any other period permitted by order of the
Securities and Exchange Commission. As set forth in the Prospectus, the
Funds may also delay payment of redemption proceeds from shares purchased by
check until the check clears, which may take seven business days or longer.
The Funds reserve the right to redeem shares and mail the proceeds to
the shareholder if at any time the number of shares in the shareholder's
account falls below a specified amount, currently set at 50 shares.
Shareholders will be notified and will have 30 days to bring the account up
to the required amount before any redemption action will be taken by the
Funds. To prevent a shareholder from becoming an affiliate of the Funds,
the Funds reserve the right to redeem shares in a shareholder's account in
excess of an amount set from time to time by the Trustees. No such limit is
presently in effect, but such a limit could be established at any time and
could be applicable to existing as well as future shareholders.
CALCULATION OF NET ASSET VALUE
Net asset value per share of each class of shares of a Fund will be
determined as of the close of market on the New York Stock Exchange ("NYSE"),
on each day on which the NYSE is open for trading. Currently, the NYSE is
closed Saturdays, Sundays, and the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, the Fourth
of July, Labor Day, Thanksgiving and Christmas. The International Equity,
Emerging Markets and Foreign Value Funds may invest in securities listed on
foreign exchanges which trade on days on which those Funds do not compute
net asset value (i.e., Saturdays and Exchange holidays) and the net asset
value of shares of those Funds may be significantly affected on such days.
Securities for which market quotations are readily available shall be
valued at market value, which is determined by using the last reported sale
price on the primary exchange or market for each such security, or, if no
sales are reported - as in the case of some securities traded
over-the-counter - the mean between the last reported bid and asked prices.
For certain foreign securities, where no sales have been reported, the Fund
may value such securities at the last reported bid price. Securities quoted
in foreign currencies shall be translated into U.S. dollars based upon the
prevailing exchange rate of each business day. Short-term notes having
remaining maturities of 60 days or less are stated at amortized cost, which
approximates market, subject to a determination by the Trustees that this
method represents fair value. All other securities and assets, including
any restricted securities, will be valued at their fair value as determined
in good faith by the Trustees or their delegate(s). Liabilities are deducted
from the total, and the resulting amount is divided by the number of shares
outstanding to produce the "net asset value" per share.
The fair value of any restricted securities from time to time held by
a Fund is determined by its Advisor in accordance with procedures approved
by the Trustees. Such valuations and procedures are reviewed periodically
by the Trustees. The fair value of such securities is generally determined
as the amount which the Fund could reasonably expect to realize from an
orderly disposition of such securities over a reasonable period of time.
The valuation procedures applied in any specific instance are likely to vary
from case to case. However, consideration is generally given to the financial
position of the issuer and other fundamental analytical data relating to the
investment and to the nature of the restrictions on disposition of the
securities (including any registration expenses that might be borne by the
Fund in connection with such disposition). In addition, such specific
factors are also generally considered as the cost of the investment, the
market value of any unrestricted securities of the same class (both at the
time of purchase and at the time of valuation), the size of the holding, the
prices of any recent transactions or offers with respect to such securities
and any available analysts' reports regarding the issuer.
Market quotations are not considered to be readily available for
long-term corporate bonds, debentures and notes; such investments are stated
at fair value on the basis of valuations furnished by a pricing service,
approved by the Trustees, which determines valuations for normal,
institutional-size trading units of such securities using methods based on
market transactions for comparable securities and various relationships
between securities which are generally recognized by institutional traders.
For purposes of determining the net asset value per share of each class
of a Fund, all assets and liabilities initially expressed in foreign
currencies will be valued in U.S. dollars at the mean between the bid and
asked prices of such currencies against U.S. dollars.
Generally, trading in foreign securities, as well as corporate bonds,
U.S. government securities and money market instruments is substantially
completed each day at various times prior to 4:15 p.m. Eastern time upon the
close of business on the primary exchange for such securities. The values of
such securities used in determining the net asset value of the Funds' shares
are computed as of such other times. Foreign currency exchange rates are
also generally determined prior to 4:15 p.m. Eastern time. Occasionally,
events affecting the value of such securities may occur between such times
and 4:15 p.m. Eastern time which will not be reflected in the computation of
the Funds' net asset value. If events materially affecting the value of the
Funds' securities occur during such a period, then these securities will be
valued at their fair value as determined in good faith by the Trustees.
Expenses of the Funds directly charged or attributable to any Fund will
be paid from the assets of that Fund except that 12b-1 Plan expenses will not
be borne by holders of Institutional Shares of the Funds and each class of
shares of the Fund will bear its own transfer agency fees. General expenses
of the Funds will be allocated among and charged to the assets of the
respective Funds on a basis that the Trustees deem fair and equitable, which
may be the relative assets of each Fund or the nature of the services
performed and relative applicability to each Fund.
DISTRIBUTIONS
Each Fund will be treated as a separate entity for federal income tax
purposes (see Taxation), with its net realized gains or losses being
determined separately, and capital loss carryovers determined and applied
on a separate Fund basis.
TAXATION
Each Fund intends to qualify annually as a "regulated investment
company" ("RIC") under the Code.
To qualify as a RIC, a Fund must (a) derive at least 90% of its
gross income from dividends, interest, gains from the sale or other
disposition of stock, securities, or foreign currencies certain payments
with respect to securities loans or other income derived with respect to its
business of investing in such stock, securities or currencies; and (b)
diversify its holdings so that, at the close of each quarter of its taxable
year,(i) at least 50% of the value of its total assets consists of cash,
cash items, Government securities, securities of other RICs, and other
securities limited generally with respect to any one issuer to not more than
5% of the total assets of the Fund and not more than 10% of the outstanding
voting securities of such issuer and (ii) not more than 25% of the value of
its assets is invested in the securities of any one issuer (other than
Government securities and securities of RICs); and (c) distribute at least
90% of its investment company taxable income (which includes interest,
dividends, and net short-term capital gains in excess of net long-term
capital losses) each taxable year.
As a RIC, a Fund generally will not be subject to U.S. federal income
tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses),
if any, that it distributes to shareholders. Each Fund intends to
distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax. To prevent
imposition of the excise tax, a Fund must distribute during each calendar
year an amount equal to the sum of (1) at least 98% of its ordinary income
(not taking into account any capital gains or losses) for the calendar year,
(2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses, as prescribed by the Code) for the
one-year period ending on October 31 of the calendar year, and (3)any
ordinary income and capital gains for previous years that was not distributed
during those years. A distribution will be treated as paid on December 31 of
the current calendar year if it is declared by the Fund in October, November
or December with a record date in such a month and paid by a Fund during
January of the following calendar year. Such distributions will be taxable
to shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received. To
prevent application of the excise tax, each Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
Dividends paid out of a Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. If a portion of a Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-
received deduction. Distributions of net capital gains, if any, designated as
capital gain dividends are taxable to shareholders as long-term capital gains,
regardless of how long the shareholder has held the Fund's shares, and are not
eligible for the dividends-received deduction. Shareholders receiving
distributions in the form of additional shares, rather than cash, generally
will have a cost basis in each such share equal to the net asset value of a
share of the Fund on the reinvestment date. Shareholders will be notified
annually as to the U.S. federal tax status of distributions, and shareholders
receiving distributions in the form of additional shares will receive a
report as to the net asset value of those shares.
The taxation of equity options and over-the-counter options on debt
securities is governed by Code section 1234. Pursuant to Code section 1234,
the premium received by a Fund for selling a put or call option is not
included in income at the time of receipt. If the option expires, the
premium is short-term capital gain to the Fund. If a Fund enters into a
closing transaction, the difference between the amount paid to close out its
position and the premium received is short-term capital gain or loss. If a
call option written by a Fund is exercised, thereby requiring the Fund to
sell the underlying security, the premium will increase the amount realized
upon the sale of such security and any resulting gain or loss will be a
capital gain or loss, and will be long-term or short-term depending upon the
holding period of the security. With respect to a put or call option that is
purchased by a Fund, if the option is sold, any resulting gain or loss will
be a capital gain or loss, and will be long-term or short-term, depending
upon the holding period of the option. If the option expires, the resulting
loss is a capital loss and is long-term or short-term, depending upon the
holding period of the option. If the option is exercised, the cost of the
option, in the case of a call option, is added to the basis of the purchased
security and, in the case of a put option, reduces the amount realized on the
underlying security in determining gain or loss.
Certain options and futures contracts in which a Fund may invest are
"section 1256 contracts." Gains or losses on section 1256 contracts
generally are considered 60% long-term and 40% short-term capital gains or
losses; however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as ordinary income
or loss. Also, section 1256 contracts held by a Fund at the end of each
taxable year (and, generally, for purposes of the 4% excise tax, on October
31 of each year) are "marked-to-market" (that is, treated as sold at fair
market value), resulting in unrealized gains or losses being treated as
though they were realized.
Generally, the hedging transactions undertaken by the Fund may result
in "straddles" for U.S. federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by a Fund. In addition,
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules
have been promulgated, the tax consequences to a Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by a Fund which is taxed as
ordinary income when distributed to shareholders.
Each Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary
according to the election(s) made. The rules applicable under certain of the
elections may operate to accelerate the recognition of gains or losses from
the affected straddle positions.
Because the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle positions, the amount which may be distributed to
shareholders, and which will be taxed to them as ordinary income or
long-term capital gain, may be increased or decreased as compared to a fund
that did not engage in such hedging transactions.
Notwithstanding any of the foregoing, a Fund may recognize gain (but not
loss)from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract
or forward contract transaction with respect to the appreciated position or
substantially identical property. Appreciated financial positions subject
to this constructive sale treatment are interests (including options and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment does not apply to certain transactions closed in the 90-day
period ending with the 30th day after the close of the taxable year, if
certain conditions are met.
Unless certain constructive sale rules (discussed more fully above)
apply, a Fund will not realize gain or loss on a short sale of a security
until it closes the transaction by delivering the borrowed security to the
lender. Pursuant to Code Section 1233, all or a portion of any gain arising
from a short sale may be treated as short-term capital gain, regardless of
the period for which the Fund held the security used to close the short sale.
In addition, the Fund's holding period of any security which is substantially
identical to that which is sold short may be reduced or eliminated as a
result of the short sale. Recent legislation, however, alters this treatment
by treating certain short sales against the box and other transactions as a
constructive sale of the underlying security held by the Fund, thereby
requiring current recognition of gain, as described more fully above.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will recognize gain at that time as though
it had closed the short sale. Future Treasury regulations may apply similar
treatment to other transactions with respect to property that becomes
substantially worthless.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues receivables or liabilities
denominated in a foreign currency, and the time the Fund actually collects
such receivables or pays such liabilities, generally are treated as ordinary
income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain options
futures, and forward contracts, gains or losses attributable to fluctuations
in the value of foreign currency between the date of acquisition of the
security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
Upon the sale or other disposition of shares of a Fund, a shareholder
may realize a capital gain or loss which may be long-term or short-term,
generally depending upon the shareholder's holding period for the shares.
Any loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced (including shares acquired pursuant to a
dividend reinvestment plan) within a period of 61 days beginning 30 days
before and ending 30 days after disposition of the shares. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss. Any loss realized by a shareholder on a disposition of Fund shares
held by the shareholder for six months or less will be treated as a long-term
capital loss to the extent of any distributions of net capital gains received
by the shareholder with respect to such shares.
If a Fund invests in stock of certain foreign investment companies, the
Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The
distribution or gain so allocated to any taxable year of the Fund, other than
the taxable year of the excess distribution or disposition, would be taxed to
the Fund at the highest ordinary income tax rate in effect for such year, and
the tax would be further increased by an interest charge to reflect the value
of the tax deferral deemed to have resulted from the ownership of the foreign
company's stock. Any amount of distribution or gain allocated to the taxable
year of the distribution or disposition would be included in the Fund's
investment company taxable income and, accordingly, would not be taxable to
the Fund to the extent distributed by the Fund as a dividend to its
shareholders.
Alternatively, a Fund may elect to mark to market its foreign investment
company stock, resulting in the stock being treated as sold at fair market
value on the last business day of each taxable year. Any resulting gain
would be reported as ordinary income; any resulting loss and any loss from an
actual disposition of the stock would be reported as ordinary loss to the
extent of any net mark-to-market gains previously included in income. A Fund
also may elect, in lieu of being taxable in the manner described above, to
include annually in income its pro rata share of the ordinary earnings and
net capital gain of the foreign investment company.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.
If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders
the amount of foreign income and similar taxes paid by the Fund. Pursuant to
this election, if made, a shareholder will be required to include in gross
income (in addition to taxable dividends actually received) his or her pro
rata share of the foreign income and similar taxes paid by the Fund, and will
be entitled either to deduct his or her pro rata share of foreign income and
similar taxes in computing his taxable income or to use it as a foreign tax
credit against his U.S. Federal income taxes, subject to limitations. No
deduction for foreign taxes may be claimed by a shareholder who does not
itemize deductions. Foreign taxes generally may not be deducted by a
shareholder that is an individual in computing the alternative minimum tax.
Generally, a credit for foreign taxes is subject to the limitation that
it may not exceed the shareholder's U.S. tax attributable to his total
foreign source taxable income. For this purpose, if a Fund makes the
election described in the preceding paragraph, the source of the Fund's
income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately
to foreign source passive income, including foreign source passive income
received from the Fund. The foreign tax credit limitation rules do not apply
to certain electing individual taxpayers who have limited creditable foreign
taxes and no foreign source income other than passive investment-type income.
The foreign tax credit is eliminated with respect to foreign taxes withheld
on dividends if the dividend paying shares or the shares of a Fund are held
by the Fund or the shareholder, as the case may be, for less than 16 days
(46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if a fund fails to
satisfy these holding period requirements, it cannot elect under Section 853
to pass through to shareholders the ability to claim a deduction for the
related foreign taxes. The foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals. If
a fund fails to satisfy their holding period requirement, it cannot elect
under section 853 to pass through to shareholders the ability to claim a
deduction for the related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the
particular circumstances of each shareholder, shareholders are advised to
consult their own tax advisers.
A Fund may be required to withhold U.S. federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to
make required certifications, or who have been notified by the IRS that they
are subject to backup withholding. Corporate shareholders and certain
other shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. federal income tax
liability.
Fund shareholders may be subject to state, local and foreign taxes on
their Fund distributions. In many states, Fund distributions that are derived
from interest on certain U.S. Government obligations are exempt from
taxation. The tax consequences to a foreign shareholder of an investment in
the Fund may be different from those described herein. Foreign shareholders
are advised to consult their own tax advisers with respect to the particular
tax consequences to them of an investment in a Fund. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Fund.
OTHER INVESTMENT PRACTICES
Convertible Securities. Each of the Funds may invest in convertible
securities, such as convertible debentures, bonds and preferred stock, which
allow the holder thereof to convert the instrument into common stock at a
specified share price or ratio. The price of the common stock may fluctuate
above or below the specified price or ratio, which may allow a Fund the
opportunity to purchase the common stock at below market price or, conversely,
render the right of conversion worthless. The Funds will invest in
convertible securities primarily for their equity characteristics.
Investment Companies. The International Equity Fund and Emerging
Market Fund may invest up to 10% of their assets in closed-end country funds
whose shares are traded in the United States. Investments in closed-end
funds may allow the Funds to attain exposure to a broader base of companies
in certain emerging markets and to avoid foreign government restrictions that
may limit direct investment in a country's equity markets. Closed-end funds
are managed pools of securities of companies having their principal place of
business in a particular foreign country. Shares of certain of these closed-
end investment companies may at times only be acquired at market premiums to
their net asset values. Investments in closed-end funds by the Funds are
subject to limitations under the Investment Company Act.
Derivatives. Each Fund may, but is not required to, engage in a variety
of transactions using "derivatives," such as futures, options, warrants and
swaps. Derivatives are financial instruments whose value depends upon, or is
derived from, the value of something else, such as one or more underlying
investments, indexes or currencies. Derivatives may be traded on organized
exchanges, or in individually negotiated transactions with other parties
(these are known as "over the counter"). Each Fund may use derivatives both
for hedging and non-hedging purposes. Although each Fund's advisor has the
flexibility to use these strategies, it may choose not to for a variety of
reasons, even under very volatile market conditions. Derivatives involve
special risks and costs and may result in losses to the Fund. The successful
use of derivatives requires sophisticated management and each Fund will
depend on its Advisor's ability to analyze and manage derivatives
transactions. The prices of derivatives may move in unexpected ways,
especially in abnormal market conditions. Some derivatives are "leveraged"
and therefore may magnify or otherwise increase investment losses to the
Fund. A Fund's use of derivatives may also increase the amount of taxes
payable by shareholders. Other risks arise from the potential inability to
terminate or sell derivatives positions. A liquid secondary market may not
always exist for the Fund's derivatives positions at any time. In fact, many
over-the-counter instruments will not be liquid. Over-the-counter
instruments also involve the risk that the other party will not meet its
obligations to a Fund.
OPALS. The International Equity Fund, Emerging Markets Fund, and
Foreign Value Fund may each invest in OPALS. OPALS represent an interest in
a basket of securities of companies primarily located in a specific country
generally designed to track an index for that country. Investments in OPALS
are subject to the same risks inherent in directly investing in foreign
securities. See Risk Considerations - Foreign Securities in the Prospectus.
In addition, because the OPALS are not registered under the securities laws,
they may only be sold to certain classes of investors, and it may be more
difficult for the Fund to sell OPALS than other types of securities. However,
the OPALS may generally be exchanged with the issuer for the underlying
securities, which may be more readily tradable.
Foreign Currency Transactions. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are principally traded in the inter-bank market
conducted directly between currency traders (usually large commercial banks)
and their customers. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades.
Since investments in foreign companies will usually involve currencies
of foreign countries, and since the International Equity, Foreign Value, and
Emerging Markets Funds may temporarily hold funds in bank deposits in foreign
currencies during the completion of investment programs, the value of the
assets of the Funds as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and the Funds may incur costs in connection with conversions
between various currencies. Each Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies. The Funds will
generally not enter into a forward contract with a term of greater than one
year. The Funds' Custodian will place cash or liquid debt securities into a
segregated account of the series in an amount equal to the value of the Funds'
total assets committed to the consummation of forward foreign currency
exchange contracts. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the
amount of the Funds' commitments with respect to such contracts.
The International Equity, Foreign Value, and Emerging Markets Funds will
generally enter into forward foreign currency exchange contracts under two
circumstances. First, when 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 U.S. dollar price of the security. By entering into a forward contract
for the purchase or sale, for a fixed amount of U.S. dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
will seek to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, when a Fund's Advisor believes that the currency of a
particular foreign country may experience an adverse movement against the
U.S. dollar, it may enter into a forward contract to sell an amount of the
foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. Alternatively,
where appropriate, a Fund may hedge all or part of its foreign currency
exposure through the use of a basket of currencies where certain of such
currencies act as an effective proxy for other currencies. In such a case,
the Fund may enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities denominated in such
currency. The use of this basket hedging technique may be more efficient and
economical than entering into separate forward contracts for each currency
held in the Fund. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible since
the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of short-term currency market movement is extremely difficult, and
the successful execution of a short-term hedging strategy is highly
uncertain. Under certain circumstances, the Fund may commit a substantial
portion, or up to 75% of the value of its assets, to the consummation of these
contracts. The Fund's Advisor will consider the effect a substantial
commitment of its assets to forward contracts would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Other than as set forth above, the Fund will also not enter into
such forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated
into the longer term investment decisions made with regard to overall
diversification strategies. However, the Fund's Advisor believes that it is
important to have the flexibility to enter into such forward contracts when
it determines that the best interests of the Fund will be served.
At the maturity of a forward contract, a Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract obligating it to
purchase, on the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute
precision the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for a Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver and if a decision is made
to sell the security and make delivery of the foreign currency. Conversely,
it may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security if its market value exceeds
the amount of foreign currency the Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below)to the
extent that there has been movement in forward contract prices. If the Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between the Fund's entering into a forward contract for the
sale of a foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase. Should forward prices increase, the
Fund will suffer a loss to the extent the price of the currency it has agreed
to purchase exceeds the price of the currency it has agreed to sell.
The Funds are not required to enter into forward contracts with regard
to their foreign currency-denominated securities and will not do so unless
deemed appropriate by the relevant Fund's Advisor. It also should be
realized that this method of hedging against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange at a future date.
Additionally, although such contracts tend to minimize the risk of loss due
to a decline in the value of the hedged currency, at the same time, they tend
to limit any potential gain which might result from an increase in the value
of that currency.
Although the Funds value their assets daily in terms of U.S. dollars,
they do not intend to convert their holdings of foreign currencies into U.S.
dollars on a daily basis. They will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Funds at one rate, while offering a lesser rate of
exchange should the Funds desire to resell that currency to the dealer.
Short-term Debt Obligations. The Funds may invest in Short-term Debt
Obligations for temporary defensive purposes, and each Fund may invest in
Short-term Debt Obligations for liquidity purposes (e.g., for redemption of
shares, to pay expenses or pending other investments). Short-term Debt
Obligations may include obligations of the U.S. government and (in the case of
the International Equity Fund, Foreign Value Fund, and Emerging Markets Fund)
securities of foreign governments. Short-term Debt Obligations may also
include certificates of deposit and bankers' acceptances issued by U.S. banks
(and,in the case of the International Equity Fund, Foreign Value Fund and
Emerging Markets Fund, foreign banks) having deposits in excess of $2 billion,
commercial paper, short-term corporate bonds, debentures and notes and
repurchase agreements, all with one year or less to maturity. Investments in
commercial paper are limited to obligations (i) rated Prime-1 by Moody's
Investors Service, Inc. or A-1 by Standard & Poor's Corporation, or in the
case of any instrument that is not rated, of comparable quality as determined
by the Manager or Advisor, or (ii) issued by companies having an outstanding
debt issue currently rated Aaa or Aa by Moody's or AAA or AA by Standard &
Poor's. Investments in other corporate obligations are limited to those
having a maturity of one year or less and rated Aaa or Aa by Moody's or AAA
or AA by Standard & Poor's. The value of fixed-income securities may
fluctuate inversely in relation to the direction of interest rate changes.
Bond Ratings. The Moody's Investors Service, Inc. bond ratings cited
above are as follows:
Aaa: Bonds that are rated "Aaa" are judged to be the best quality and to
carry the smallest degree of investment risk. Interest payments are
protected by a large or exceptionally stable margin and principal is secure.
Aa: Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are generally
known as "high-grade" bonds. They are rated lower than the best bonds
because margins of protection may not be as large as with "Aaa" securities or
other elements may make long-term risks appear greater than those of "Aaa"
securities.
The Standard & Poor's Corporation bond ratings cited above are as
follows:
AAA: "AAA" is the highest rating assigned 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.
Repurchase Agreements. A repurchase agreement is a contract under
which a Fund would acquire a security for a relatively short period (usually
not more than one week), subject to the obligation of the seller to
repurchase and the Fund to resell such security at a fixed time and price
(representing the Fund's cost plus interest). The Funds will enter into
repurchase agreements only with (i) commercial banks or (ii) registered
broker-dealers. Although each Fund may enter into repurchase agreements
with respect to any securities which it may acquire consistent with its
investment policies and restrictions, it is the Funds' present intention to
enter into repurchase agreements only with respect to obligations of the U.S.
government or its agencies or instrumentalities. While the repurchase
agreements entered into by a Fund will provide that the underlying security
at all times shall have a value at least equal to the resale price stated in
the agreements (and, for this purpose, the underlying security will be marked
to market daily), if the seller defaults, the Fund could realize a loss on the
sale of the underlying security to the extent that the proceeds of the sale
including accrued interest are less than the resale price provided in the
agreement including interest. In addition, if the seller should be involved
in bankruptcy or insolvency proceedings, the Fund may incur delay and costs
in selling the underlying security or may suffer a loss of principal and
interest if the Fund is treated as an unsecured creditor and required to
return the underlying collateral to the seller's estate.
Securities Loans. Each Fund may make secured loans of its portfolio
securities amounting to not more than 30% of its total assets. See
Investment Restrictions of the Funds. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible delay in
the recovery of the securities or loss of rights in the collateral should the
borrower fail financially. However, such loans will be made only to broker-
dealers that a Fund's Advisor believes to be of high credit standing.
Securities loans are made to broker-dealers pursuant to agreements requiring
that loans be continuously secured by collateral in cash or cash equivalents
(such as U.S. Treasury bills) at least equal at all times to the market value
of the securities lent. The borrower pays to a Fund an amount equal to any
dividends or interest received on the securities lent. A Fund may invest the
cash collateral received in interest-bearing, short-term securities or
receive a fee from the borrower. Although voting rights, or rights to
consent with respect to the loaned securities, pass to the borrower, a Fund
retains the right to call the loans at any time on reasonable notice, and it
will do so in order that the securities may be voted by a Fund if the holders
of such securities are asked to vote upon or consent to matters materially
affecting the investment. A Fund may also call such loans in order to sell
the security involved.
Options. The Small Cap Fund, Mid Cap Fund, Growth and Income
Fund, Foreign Value Fund, and Emerging Markets Fund may, but are not required
to, write covered call options and index options which are traded on national
securities exchanges with respect to stocks in their portfolios (ensuring
that the Funds at all times will have in their portfolios the securities
which they may be obligated to deliver if the options are exercised). The
"writer" of a call option gives to the purchaser of that option the right to
buy the underlying security from the writer at the exercise price prior to the
expiration date of the call. Call options are generally written for periods
of less than six months. These Funds may write covered call options on
securities in their portfolios in an attempt to realize a greater current
return than would be realized on the securities alone or to provide greater
flexibility in disposing of such securities. The Small Cap Fund, Mid Cap
Fund, Growth and Income Fund, Foreign Value Fund, and Emerging Markets Fund
may also, but are not required to, write call options to partially hedge a
possible stock market decline. Because these Funds seek growth of capital,
covered call options would not be written except at a time when it is
believed that the price of the common stock on which the call is being
written will not rise in the near future and the Fund does not desire to sell
the common stock for tax or other reasons. The writer of a covered call
option receives a premium for undertaking the obligation to sell the
underlying security at a fixed price during the option period if the option
is exercised. So long as these Funds remain obligated as writers of covered
calls, they forego the opportunity to profit from increases in the market
prices of the underlying securities above the exercise prices of the options,
except insofar as the premiums represent such profits, and retain the risk of
loss should the value of the underlying securities decline. These Funds may
also, but are not required to, enter into "closing purchase transactions" in
order to terminate their obligations as writers of covered call options prior
to the expiration of the options. Although limiting writing covered call
options to those which are traded on national securities exchanges increases
to the likelihood of being able to make closing purchase transactions, there
is no assurance that these Funds will be able to effect such transactions at
any particular time or at an acceptable price. If the Funds were unable to
enter into a closing purchase transaction, the principal risks to the Funds
would be the loss of any capital appreciation of the underlying security in
excess of the exercise price and the inability to sell the underlying
security in a down market until the call option was terminated. The writing
of covered call options could result in an increase in the portfolio turnover
rates of the Funds, especially during periods when market prices of the
underlying securities appreciate.
Short Sales. The Mid Cap Fund also may engage in short sales of
securities by selling securities it does not own in anticipation of a decline
in the market value of those securities. To effect such transactions, the
Fund must borrow the security to make delivery to a buyer and then later
replace the borrowed security by purchasing it at market price. The Adviser
may sell securities short in anticipation of a decline in the price of the
security between the time it is sold and the time it is purchased for
replacement. However, the actual replacement price of the security may be
more or less than the price at the time of sale. The Fund will realize a
gain if its replacement price is less than the sale price, but will experience
a loss if there is an increase in price. The Fund also will incur
transaction costs, including interest expenses, and will be required to make
margin deposits with brokers until the short position is closed out.
No securities will be sold short if, after giving effect to any short
sales, the value of all securities sold short would exceed 25% of the Fund's
net assets. The Fund will place in a segregated account with its custodian
an amount of cash or U.S. government securities equal to the difference
between(i)the market value of the securities sold short at the time of sale
and(ii)any cash or securities required by the broker to be deposited as
margin for the short sale (excluding the proceeds of the short sale). The
value of U.S. government securities and cash in the segregated account will
be marked to market daily and additional deposits will be added if the value
of the Fund's short position declines. At all times, however, the deposits
in the segregated account together with the amounts held by the broker as
margin will not be less than the initial market value of the securities sold
short.
All of the Funds may sell short securities identical to ones that
they own in their portfolios.
Forward Commitments. Each Fund may make contracts to purchase
securities for a fixed price at a future date beyond customary settlement
time ("forward commitments"), if the Fund holds, and maintains until the
settlement date in a segregated account with the Funds' custodian, cash or
Short-term Debt Obligations in an amount sufficient to meet the purchase
price. These debt obligations will be marked to market on a daily basis and
additional liquid assets will be added to such segregated accounts as
required. Forward commitments may be considered securities in themselves.
They involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the risk
of decline in the value of the Fund's other assets. Although a Fund will
generally enter into forward commitments with the intention of acquiring
securities for its portfolio, a Fund may dispose of a commitment prior to
settlement if the Advisor deems it appropriate to do so. A Fund may realize
short-term profits or losses upon the sale of forward commitments.
Warrants. The Funds may invest in warrants purchased as units or
attached to securities purchased by the series. Warrants are options to
purchase equity securities at specific prices valid for a specific period of
time. Their prices do not necessarily move parallel to the prices of the
underlying securities. Warrants have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
Alternative Strategies. At times each fund's advisor may judge that
market conditions make pursuing the fund's investment strategies inconsistent
with the best interests of its shareholders. Each fund's advisor may then
temporarily use alternative strategies that are mainly designed to limit the
fund's losses. These alternative strategies may include the purchase of
debt, money market investments and other investments not consistent with the
investment strategies of the fund. Although each fund's advisor has the
flexibility to use these strategies, it may choose not to for a variety of
reasons, even in very volatile market conditions. These strategies may cause
the fund to miss out on investment opportunities, and may prevent the fund
from achieving its goal.
Portfolio Turnover. A change in securities held by a Fund is known as
"portfolio turnover" and almost always involves the payment by the Fund of
brokerage commissions or dealer markups and other transaction costs on the
sale of securities as well as on the reinvestment of the proceeds in other
securities. High portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs, which will be borne
directly by the Fund and may affect taxes paid by shareholders to the extent
short-term gains are distributed. Portfolio turnover is not a limiting factor
with respect to investment decisions by any Fund.
The portfolio turnover rates for the Funds for their fiscal years 1998
(April 1, 1997 to March 31, 1998) and 1999 (April 1,1998 to March 31, 1999)
were as follows:
1998 1999
Small Cap Fund 135% 113%
Mid Cap Fund 128% 168%
Growth and Income Fund 72% 97%
International Equity Fund 61% 128%
Emerging Markets Fund 52% 49%
Foreign Value Fund --% 22%
There were no outstanding shares of the Foreign Value Fund during the 1998
fiscal year. The Foreign Value Fund commenced operations on May 18, 1998.
INVESTMENT RESTRICTIONS OF THE FUNDS
As fundamental policies, which may not be changed without "a vote of the
majority of the outstanding voting securities" of a Fund (as defined below),
a Fund will not take any of the following actions:
(1) purchase any security if as a result a Fund would then hold more
than 10% of any class of securities of an issuer (taking all common stock
issues of an issuer as a single class, all preferred stock issues as a single
class, and all debt issues as a single class) or more than 10% of the
outstanding voting securities of an issuer;
(2) purchase any security if as a result any Fund would then have
more than 10% of the value of its net assets (taken at current value)invested
in any of the following types of investment vehicles: in securities of
companies (including predecessors)less than three years old, in securities
which are not readily marketable, in securities which are subject to legal or
contractual restrictions on resale ("restricted securities") and in
repurchase agreements which have a maturity longer than seven (7) days,
provided, however, that no Fund may invest more than 15% of its assets in
illiquid securities;
(3) make short sales of securities or maintain a short position, if,
for the Mid Cap Fund, as a result the value of all securities sold short
would exceed 25% of the Fund's net assets; or, for all other Funds, unless at
all times when a short position is open the particular Fund owns an equal
amount of such securities or securities convertible into, or exchangeable
without payment of any further consideration for, securities of the same
issue as, and equal in amount to, the securities sold short, and unless not
more than 10% of the Fund's net assets (taken at current value) is held as
collateral for such sales at any one time. Such sales of securities subject
to outstanding options would not be made. A Fund may maintain short
positions in a stock index by selling futures contracts on that index.;
(4) issue senior securities, borrow money or pledge its assets except
that a Fund may borrow from a bank for temporary or emergency purposes in
amounts not exceeding 10% (taken at the lower of cost or current value) of
its total assets (not including the amount borrowed) and pledge its assets to
secure such borrowings. A Fund will not purchase any additional portfolio
securities so long as its borrowings amount to more than 5% of its total
assets. (For purposes of this restriction, collateral arrangements with
respect to the writing of covered call options and options on index futures
and collateral arrangements with respect to margin for a stock index future
are not deemed to be a pledge of assets and neither such arrangements nor the
purchase or sale of stock index futures or the purchase of related options
are deemed to be the issuance of a senior security.);
(5) purchase or retain securities of any company if, to the
knowledge of the Funds, officers and Trustees of the Funds or of the Manager
or of the Advisor of the particular Funds who individually own more than 1/2
of 1% of the securities of that company together own beneficially more than
5% of such securities;
(6) buy or sell real estate or interests in real estate, although it
may purchase and sell securities which are secured by real estate and
securities of companies which invest or deal in real estate;
(7) act as underwriter except to the extent that, in connection with
the disposition of Fund securities, it may be deemed to be an underwriter
under certain provisions of the federal securities laws;
(8) make investments for the purpose of exercising control or
management;
(9) participate on a joint or joint and several basis in any trading
account in securities;
(10) write, purchase, or sell puts, calls or combinations thereof,
except that: (i) the Small Cap Fund, Mid Cap Fund, Growth and Income Fund,
Foreign Value Fund, and Emerging Markets Fund may each write covered call
options with respect to all of their portfolio securities; (ii) the Mid Cap
Fund, Foreign Value Fund, and Emerging Markets Fund may purchase put options
and call options on widely recognized securities indices, common stock of
individual companies or baskets of individual companies in a particular
industry or sector; (iii) the Small Cap Fund may purchase put and call
options on stock index futures and on stock indices; (iv) the International
Equity Fund and Foreign Value Fund may purchase and write call options on
stock index futures and on stock indices; and (v) each of the Funds may sell
and purchase such options to terminate existing positions;
(11) invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stocks of
companies which invest in or sponsor such programs;
(12) make loans, except(i) through the purchase of bonds,
debentures, commercial paper, corporate notes and similar evidences of
indebtedness of a type commonly sold privately to financial institutions,
(ii) through repurchase agreements and loans of portfolio securities
(limited to 30% of the value of a Fund's total assets). The purchase of a
portion of an issue of such securities distributed publicly, whether or not
such purchase is made on the original issuance, is not considered the making
of a loan; or
(13) invest more than 25% of the value of its total assets in any
one industry.
Although certain of these policies envision a Fund maintaining a
position in a stock index by selling futures contracts on that index and also
envision that under certain conditions one or more Funds may engage in
transactions in stock index futures and related options, the Funds do not
currently intend to engage in such transactions. The fund has no intention
of purchasing or selling commodities or commodity contracts, except that the
funds may purchase and sell financial futures contracts and options.
No more than 5% of the value of a Fund's total assets will be invested
in repurchase agreements which have a maturity longer than seven(7)days.
(Investments in repurchase agreements which have a longer maturity are not
considered to be readily marketable and their purchase is therefore also
restricted as set forth in restriction number (2 above). In addition, a Fund
will not enter into repurchase agreements with a securities dealer if such
transactions constitute the purchase of an interest in such dealer under the
Investment Company Act of 1940.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess
or deficiency occurs or exists immediately after and as a result of such
investment.
As provided in the Investment Company Act of 1940, a "vote of a
majority of the outstanding voting securities" necessary to amend a
fundamental policy as to any Fund means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of such Fund or (2) 67% or more
of the shares of such Fund present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
PERFORMANCE MEASURES
Average Annual Total Rate of Return(1),(2),(3)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Year Ended 5 Years Ended 10 Years Ended
March 31,1999 March 31,1999 March 31, 1999 Since Inception
Small Cap Fund
Ordinary Shares (18.80)% 10.99% __ 16.73% (8/3/92)
Institutional Shares (17.55)% 11.75% __ 14.05% (1/6/93)
Mid Cap Fund
Ordinary Shares (1.08)% __ __ 22.90% (3/21/95)
Institutional Shares (1.07)% __ __ 22.63% (4/17/95)
Growth and Income Fund
Ordinary Shares 12.53% 22.61% 17.47% 16.84% (5/9/85)
Institutional Shares 14.27% 23.47% __ 17.89% (3/25/91)
International Equity Fund
Ordinary Shares (5.73)% 3.36% 3.09% 3.53% (7/31/87)
Institutional Shares (4.34)% __ __ 2.74% (8/25/94)
Emerging Markets Fund
Ordinary Shares (14.27)% __ __ (8.16)% (10/3/94)
Institutional Shares (12.93)% __ __ (7.24)% (4/2/96)
Foreign Value Fund
Ordinary Shares __ __ __ (16.99)% (5/18/98)
Institutional Shares __ __ __ (0.71)% (12/18/98)
</TABLE>
(1) Total return with all dividends and capital gains reinvested. The
performance data quoted represents past performance. The investment
return and principal value of a current investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less
than their original cost. Returns for the Quantitative Foreign Value
Fund are for a limited period of time and are not annualized.
(2) These results reflect the impact of a contractual 2.00% expense cap
applicable to the Quantitative Small Cap Fund, Quantitative Growth and
Income Fund, and Quantitative International Equity Fund (when
applicable), and a voluntary expense cap of 2.25% applicable to the
Quantitative Emerging Markets Fund, as described in the Prospectus, and
expense waivers and/or reimbursements applicable to the Funds. If the
expenses had not been subsidized, where applicable, the performance
would have been lower.
(3) The return for the Ordinary Shares of the Funds takes into account a one
percent (1%) deferred sales charge imposed at the time of redemption.
The deferred sales charge is not imposed in the case of redemptions of
Institutional Shares, redemptions of Ordinary Shares of the Mid Cap Fund
purchased on or after August 1, 1996, involuntary redemptions,
redemptions of Shares tendered for exchange and redemptions of Shares
held by contributory plans qualified under Section 401(k) of the
Internal Revenue Code or for certain other redemptions. (See How to
Redeem in the Prospectus.)
From time to time, the Funds may advertise their performance in various
ways. These methods include providing information on the returns of the
Funds and comparing the performance of the Funds to relevant benchmarks.
Performance will be stated in terms of total return. "Total return" figures
are based on the historical performance of each Fund, show the performance of
a hypothetical investment and are not intended to indicate future performance.
Under the rules of the Securities and Exchange Commission (the
"Commission"), funds advertising performance must include total return
quotes, "T" below, calculated according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5, or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the "n" year period (or fractional portion thereof) at the
end of such period.
The average annual total return will be calculated under the foregoing
formula and the time periods used in advertising will be based on rolling
calendar quarters, updated to the last day of the most recent quarter prior
to submission of the advertising for publication, and will cover one, five,
and ten year periods plus the time period since the effective date of the
registration statement relating to the particular Fund. When the period
since inception is less than one year, the total return quoted will be the
aggregate return for the period. In calculating redeemable value, the
deferred sales charge is deducted from the ending redeemable value and all
dividends and distributions by the Fund are deemed to have been reinvested
at net asset value as described in the Prospectus on the reinvestment dates
during the period. Total return, or "T" in the formula above, is computed
by finding the average annual compounded rates of return over the 1,5 and 10
year periods (or fractional portions thereof) that would equate the initial
amount invested to the ending redeemable value. Any sales loads that might
in the future be made applicable at the time to reinvestments would be
included as would any recurring account charges that might be imposed on the
Fund. The average annual total returns for the Funds as of December 31,
1998, the last calendar year end preceding the Prospectus and this Statement
of Additional Information, are set forth in the Prospectus under the caption
Performance.
In reports to shareholders or other literature, the Funds may compare
their performance to that of other mutual funds with similar investment
objectives and to stock or other relevant indices. For example, it may
compare its performance to rankings prepared by Lipper Analytical Services
Inc. (Lipper) or Morningstar, Inc., widely recognized independent services
that monitor the performance of mutual funds. In making such comparisons,
the Funds may from time to time include a total aggregate return figure or
an average annual total return figure that is not calculated according to the
formula set forth above in order to make a more accurate comparison to other
measures of investment return. For such purposes, the Funds calculate their
aggregate total return in the same manner as the above formula except that no
deferred sales charges are deducted from the ending amount. When the period
since inception is less than one year, the total return quoted will be the
aggregate return for the period. The Funds, however, will disclose the
maximum deferred sales charge and will also disclose that the performance
data so quoted do not reflect sales charges and that the inclusion of sales
charges would reduce the performance quoted. Such alternative information
will be given no greater prominence in such sales literature than the
information prescribed under Commission rules. Performance information,
rankings, ratings, published editorial comments and listings reported in
national financial publications may also be used in computing performance of
the Funds (if the Funds are listed in any such publication). Performance
comparisons should not be considered as representative of the future
performance of the Funds.
Independent statistical agencies measure the fund's investment performance
and publish comparative information showing how the fund, and other
investment companies, performed in specified time periods. Three agencies
whose reports are commonly used for such comparisons are set forth below.
From time to time, the fund may distribute these comparisons to its
shareholders or to potential investors. THE AGENCIES LISTED BELOW MEASURE
PERFORMANCE BASED ON THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED
PERFORMANCE MEASURES DESCRIBED IN THE PRECEDING SECTION.
LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund rankings
monthly. The rankings are based on total return performance calculated by
Lipper, generally reflecting changes in net asset value adjusted for
reinvestment of capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a variety of
performance periods, including year-to-date, 1-year, 5-year, and 10-year
performance. Lipper classifies mutual funds by investment objective and
asset category.
MORNINGSTAR, INC. distributes mutual fund ratings twice a month. The
ratings are divided into five groups: highest, above average, neutral, below
average and lowest. They represent a fund's historical risk/reward ratio
relative to other funds in its broad investment class as determined by
Morningstar, Inc. Morningstar ratings cover a variety of performance
periods, including 1-year, 3-year, 5-year, 10-year and overall performance.
The performance factor for the overall rating is a weighted-average
assessment of the fund's 1-year, 3-year, 5-year, and 10-year total return
performance (if available) reflecting deduction of expenses and sales
charges. Performance is adjusted using quantitative techniques to reflect
the risk profile of the fund. The ratings are derived from a purely
quantitative system that does not utilize the subjective criteria customarily
employed by rating agencies such as Standard & Poor's and Moody's Investor
Service, Inc.
CDA/WIESENBERGER'S MANAGEMENT RESULTS publishes mutual fund rankings
and is distributed monthly. The rankings are based entirely on total return
calculated by Weisenberger for periods such as year-to-date, 1-year, 3-year,
5-year and 10-year. Mutual funds are ranked in general categories (e.g.,
international bond, international equity, municipal bond, and maximum capital
gain). Weisenberger rankings do not reflect deduction of sales charges or
fees.
Independent publications may also evaluate the fund's performance. The fund
may from time to time refer to results published in various periodicals,
including Barrons, Financial World, Forbes, Fortune, Investor's Business Daily,
Kiplinger's Personal Finance Magazine, Money, U.S. News and World Report and
The Wall Street Journal.
Independent, unmanaged indexes, such as those listed below, may be used to
present a comparative benchmark of fund performance. The performance figures
of an index reflect changes in market prices, reinvestment of all dividend
and interest payments and, where applicable, deduction of foreign withholding
taxes, and do not take into account brokerage commissions or other costs.
Because the fund is a managed portfolio, the securities it owns will not match
those in an index. Securities in an index may change from time to time.
THE CONSUMER PRICE INDEX, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of the rate of inflation. The index
shows the average change in the cost of selected consumer goods and services
and does not represent a return on an investment vehicle.
THE DOW JONES INDUSTRIAL AVERAGE is an index of 30 common stocks frequently
used as a general measure of stock market performance.
THE DOW JONES UTILITIES AVERAGE is an index of 15 utility stocks
frequently used as a general measure of stock market performance.
CS FIRST BOSTON HIGH YIELD INDEX is a market-weighted index including
publicly traded bonds having a rating below BBB by Standard & Poor's and Baa
by Moody's.
THE LEHMAN BROTHERS AGGREGATE BOND INDEX is an index composed of
securities from The Lehman Brothers Government/Corporate Bond Index, The
Lehman Brothers Mortgage-Backed Securities Index and The Lehman Brothers
Asset-Backed Securities Index and is frequently used as a broad market
measure for fixed-income securities.
THE LEHMAN BROTHERS ASSET-BACKED SECURITIES INDEX is an index composed
of credit card, auto, and home equity loans. Included in the index are
pass-through, bullet (noncallable), and controlled amortization structured
debt securities; no subordinated debt is included. All securities have an
average life of at least one year.
THE LEHMAN BROTHERS CORPORATE BOND INDEX is an index of publicly
issued, fixed-rate, non-convertible investment-grade domestic corporate debt
securities frequently used as a general measure of the performance of
fixed-income securities.
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX is an index of
publicly issued U.S. Treasury obligations, debt obligations of U.S.
government agencies (excluding mortgage-backed securities), fixed-rate,
non-convertible, investment-grade corporate debt securities and U.S.
dollar-denominated, SEC-registered non-convertible debt issued by foreign
governmental entities or international agencies used as a general measure of
the performance of fixed-income securities.
THE LEHMAN BROTHERS INTERMEDIATE TREASURY BOND INDEX is an index of
publicly issued U.S. Treasury obligations with maturities of up to ten years
and is used as a general gauge of the market for intermediate-term
fixed-income securities.
THE LEHMAN BROTHERS LONG-TERM TREASURY BOND INDEX is an index of
publicly issued U.S. Treasury obligations (excluding flower bonds and
foreign-targeted issues) that are U.S. dollar-denominated and have maturities
of 10 years or greater.
THE LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX includes 15-and
30-year fixed rate securities backed by mortgage pools of the Government
National Mortgage Association, Federal Home Loan Mortgage Corporation, and
Federal National Mortgage Association.
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX is an index of approximately
20,000 investment-grade, fixed-rate tax-exempt bonds.
THE LEHMAN BROTHERS TREASURY BOND INDEX is an index of publicly issued
U.S. Treasury obligations (excluding flower bonds and foreign-targeted
issues) that are U.S. dollar denominated, have a minimum of one year to
maturity, and are issued in amounts over $100 million.
THE MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX is an index of
approximately 1,482 equity securities listed on the stock exchanges of the
United States, Europe, Canada, Australia, New Zealand and the Far East, with
all values expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS INDEX is an
index of approximately 1,100 securities representing 20 emerging markets,
with all values expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS FREE INDEX is
an index of approximately 1,003 securities available to non-domestic
investors representing 26 emerging markets, with all values expressed in U.S.
dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX is an index of
approximately 1,045 equity securities issued by companies located in 18
countries and listed on the stock exchanges of Europe, Australia, and the
Far East. All values are expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE INDEX is an index of
approximately 627 equity securities issued by companies located in one of 13
European countries, with all values expressed in U.S. dollars.
THE MORGAN STANLEY CAPITAL INTERNATIONAL PACIFIC INDEX is an index of
approximately 418 equity securities issued by companies located in 5
countries and listed on the exchanges of Australia, New Zealand, Japan,
Hong Kong, Singapore/Malaysia. All values are expressed in U.S. dollars.
THE NASDAQ INDUSTRIAL AVERAGE is an index of stocks traded in The
Nasdaq Stock Market, Inc. National Market System.
THE RUSSELL 1000 INDEX is composed of the 1,000 largest companies
in the Russell 3000 Index, representing approximately 89% of the Russell
3000 total market capitalization. The Russell 3000 Index is composed of the
3,000 largest U.S. companies ranked by total market capitalization,
representing approximately 98% of the U.S. investable equity market.
THE RUSSELL 2000 INDEX is composed of the 2,000 smallest companies in
the Russell 3000 Index, representing approximately 11% of the Russell 3000
total market capitalization.
THE RUSSELL 2000 GROWTH INDEX is composed of securities with
greater-than-average growth orientation within the Russell 2000 Index. Each
security's growth orientation is determined by a composite score of the
security's price-to-book ratio and forecasted growth rate. Growth stocks
tend to have higher price-to-book ratios and forecasted growth rates than
value stocks. This index is composed of approximately 1,310 companies from
the Russell 2000 Index, representing approximately 50% of the total market
capitalization of the Russell 2000 Index.
THE RUSSELL MIDCAP INDEX is composed of the 800 smallest companies in
the Russell 1000 Index, representing approximately 35% of the Russell 1000
total market capitalization.
THE RUSSELL MIDCAP GROWTH INDEX is composed of securities with
greater-than-average growth orientation within the Russell Midcap Index.
Each security's growth orientation is determined by a composite score of the
security's price-to-book ratio and forecasted growth rate. Growth stocks
tend to have higher price-to-book ratios and forecasted growth rates than
value stocks. This index is composed of approximately 450 companies from
the Russell 1000 Growth Index, representing 20% of the total market
capitalization of the Russell 1000 Growth Index.
THE SALOMON BROTHERS LONG-TERM HIGH-GRADE CORPORATE BOND INDEX is an
index of publicly traded corporate bonds having a rating of at least AA by
Standard & Poor's or Aa by Moody's and is frequently used as a general
measure of the performance of fixed-income securities.
THE SALOMON BROTHERS LONG-TERM TREASURY INDEX is an index of U.S.
government securities with maturities greater than 10 years.
THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX is an index that
tracks the performance of the government bond markets of Australia, Austria,
Belgium Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Spain,
Sweden, United Kingdom and the United States. Country eligibility is
determined by market capitalization and investability criteria.
THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX (non $U.S.) is an
index of foreign government bonds calculated to provide a measure of
performance in the government bond markets outside of the United States.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX is an index of common
stocks frequently used as a general measure of stock market performance.
STANDARD & POOR'S 40 UTILITIES INDEX is an index of 40 utility stocks.
STANDARD & POOR'S/BARRA VALUE INDEX is an index constructed by ranking
the securities in the Standard & Poor's 500 Composite Stock Price Index by
price-to-book ratio and including the securities with the lowest
price-to-book ratios that represent approximately half of the market
capitalization of the Standard & Poor's 500 Composite Stock Price Index.
THE QUANTITATIVE GROUP
The Trust was established in 1983 as a business trust under
Massachusetts law. A copy of the Amended and Restated Declaration of Trust
(as amended through July 19, 1993) amending and restating the Agreement and
Declaration of Trust dated June 27, 1983, is on file with the Secretary of
the Commonwealth of Massachusetts. The Trust has an unlimited authorized
number of shares of beneficial interest which may, without shareholder
approval, be divided into an unlimited number of series of such shares and
an unlimited number of classes of shares of any such series. Shares are
presently divided into six series of shares, the Funds, each comprised of
two classes of shares. There are no rights of conversion between shares of
different Funds which are granted by the Amended and Restated Declaration of
Trust, but holders of shares of either class of a Fund may exchange all or a
portion of their shares for shares of a like class in another Fund (subject
to their respective minimums). No exchanges are permitted from one class
of shares to another class of shares of the same or a different Fund.
These shares are entitled to one vote per share (with proportional voting
for fractional shares) on such matters as shareholders are entitled to vote,
including the election of Trustees. Shares vote by individual Fund (or class
thereof under certain circumstances)on all matters except that (i) when the
Investment Company Act of 1940 so requires, shares shall be voted in the
aggregate and not by individual Fund and (ii) when the Trustees of the Funds
have determined that a matter affects only the interest of one or more Funds,
then only holders of shares of such Fund shall be entitled to vote thereon.
There will normally be no meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees have been elected by the shareholders, at which time the Trustees
then in office will call a shareholders' meeting for the election of
Trustees. In addition, Trustees may be removed from office by a written
consent signed by the holders of two-thirds of the outstanding shares of each
Fund and filed with the Fund or by a vote of the holders of two-thirds of the
outstanding shares of each Fund at a meeting duly called for that purpose,
which meeting shall be held upon the written request of the holders of not
less than 10% of the outstanding shares. Upon written request by ten or more
shareholders, who have been such for at least six months and who hold, in the
aggregate, shares having a net asset value of at least $25,000, stating that
such shareholders wish to communicate with the other shareholders for the
purpose of obtaining the signatures necessary to demand a meeting to consider
removal of a Trustee, the Funds have undertaken to provide a list of
shareholders or to disseminate appropriate materials (at the expense of the
requesting shareholders). Except as set forth above, the Trustees shall
continue to hold office and may appoint their successors.
Shares are freely transferable, are entitled to dividends as declared by
the Trustees, and in liquidation of the Trust are entitled to receive the
net assets of their Fund, but not of the other Funds. Shareholders have no
preemptive rights. The Funds' fiscal year ends on the last day of March.
Under Massachusetts law, shareholders could, under certain
circumstances, be held liable for the obligations of the Funds. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts
or obligations of the Funds and requires notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Funds or the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of a Fund's property for all loss and expense of any
shareholder of that Fund held liable on account of being or having been a
shareholder. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the
Fund of which he was a shareholder would be unable to meet its obligations.
EXPERTS
The audited financial statements as of March 31, 1999 incorporated by
reference in this Statement of Additional Information have been so included
in reliance upon the report of PricewaterhouseCoopers LLP, 160 Federal
Street, Boston, MA 02110, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
