QUANT FUNDS
Statement of Additional Information
August 1, 1999
U.S. Equity Funds International Funds
Quant Small Cap Fund Quant International Equity Fund
Quant Mid Cap Fund Quant Emerging Markets Fund
Quant Growth and Income Fund Quant 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 Quant 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
Quant 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.
Trustees and Officers
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Position with Position with
Distributor, U.S. Manager,
Position Boston Capital Quantitative
Name, Address+ and Age with Fund Principal Occupation** Corporation Advisors, Inc.
ROBERT M. ARMSTRONG Trustee Associate, Keystone None None
Age: 60 Associates (career
management); formely
President, Alumni Career
Services, Inc.
(consulting firm);
Director of Alumni Career
Services, Harvard University,
Graduate School of
Business Administration
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).
JOSEPH J. CARUSO Trustee Principal, Bantam Group, Inc. None None
Age: 57
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 and Vice President, Director and Director and
Age: 57 Vice President, U.S. Boston Capital Vice President Treasurer
Treasurer Corporation
WILLARD L. UMPHREY* President, Director and Director, Director
Age: 59 Chairman, Treasurer,U.S. Boston and Treasurer and President
Trustee Capital 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 and Okurowski 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, Age from the Trust Expenses Retirement Paid to Trustee
Robert M. Armstrong, $4,000 N/A N/A $4,000
Trustee, 59
Edward A. Bond, Jr. $4,000 N/A N/A $4,000
Trustee, 42
John M Bulbrook, $4,000 N/A N/A $4,000
Trustee, 58
Edward E. Burrows, $4,000 N/A N/A $4,000
Trustee, 66
Leon Okurowski, $4,000 N/A N/A $4,000
Trustee, 57
Willard L. Umphrey, $4,000 N/A N/A $4,000
Trustee, 59
Ron Zwanziger, $4,000 N/A N/A $4,000
Trustee,
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:
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
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%
</TABLE>
On the same date, each of the following persons owned 5% or more of
the then outstanding Ordinary Shares of the Mid Cap Fund:
<TABLE>
<CAPTION>
<S> <C>
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%
</TABLE>
On the same date, each of the following persons owned 5% or more of
the then outstanding Institutional Shares of the Mid Cap Fund:
<TABLE>
<CAPTION>
<S> <C>
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:
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
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%
</TABLE>
On the same date, the following person owned 5% or more of the then
outstanding Institutional Shares of the International Equity Fund:
<TABLE>
<CAPTION>
<S> <C>
Name and Address % of Outstanding Institutional Shares
Dover Instrument Corporation
P. O. Box 200
Westboro, MA 01581 89.82%
U.S. Boston Corporation 5.95%
55 Old Bedford Road
Lincoln, MA 01773
</TABLE>
On the same date, the following person owned 5% or more of the then
outstanding Institutional Shares of the Emerging Markets Fund:
<TABLE>
<CAPTION>
<S> <C>
Name and Address % of Outstanding Institutional Shares
Strafe & Co.
P.O. Box 160
Westerville, OH 43086-0160 97.81%
</TABLE>
On the same date, each of the following persons owned 5% or more of
the then outstanding Ordinary Shares of the Foreign Value Fund:
<TABLE>
<CAPTION>
<S> <C>
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%
</TABLE>
On the same date, each of the following persons owned 5% or more of
the then outstanding Institutional Shares of the Foreign Value Fund:
<TABLE>
<CAPTION>
<S> <C>
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%
</TABLE>
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 - (i) 0.35% of the
aggregate average daily net asset value of the Fund for assets in the Fund
up to $35 million (ii) 0.40% of the aggregate average daily net asset value
of the Fund for assets in the Fund over $35 million and up to $200 million
and 0.50% of the aggregate average daily net asset value of the Fund for assets
over $200 million ; 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
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 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 of Foreign Value Fund. The Mid Cap
Fund waived all 12b-1 fees for 11 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 bokers 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Year Ended March 31,
Fund 1997 1998 1999
Small Cap Fund $ 773,033 $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
</TABLE>
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
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.
The Transfer Agent will assess a $15.00 fee for overnight
delivery or to wire the proceeds of a redemption. Such fee will be
subtracted from the net redemption amount.
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 Markets 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.
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 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:
<TABLE>
<CAPTION>
<S> <C> <C>
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%
</TABLE>
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.
MUTUAL FUNDS MAGAZINE, INC. publishes mutual fund rankings and
is distributed monthly. Mutual Funds Magazine's proprietary All-Star
Ratings reflect historical risk-adjusted performance through a
specific date and are subject to change. Overall ratings are
calculated from the fund's total return, with load-adjustments if
applicable, relative to the volatility of its price fluctuations, over
a minimum of two years and a maximum of ten years. Separate All-Star
Ratings are also calculated for 1-, 3-, 5- and 10-year periods, as
applicable. For all periods, the 20% of funds with the highest risk-
adjusted returns receive Five Stars; the next highest 20% receive Four
Stars, the next highest 20% receive Three Stars, etc.
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.
