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ABN AMRO Funds
(formerly, the "Rembrandt Funds")
Investment Advisor:
ABN AMRO Asset Management (USA) Inc.
This Statement of Additional Information ("SAI") is not a prospectus. It is
intended to provide additional information regarding the activities and
operations of ABN AMRO Funds (the "Trust") and should be read in conjunction
with the prospectuses dated May 3, 1999. The Trust has two prospectuses.
One prospectus relates to Common Shares of the funds and the other relates to
Investor Shares of the funds. Prospectuses may be obtained by writing to First
Data Distributors, Inc. (the "Distributor"), 4400 Computer Drive, Westborough,
Massachusetts 01581, or by calling 1-800-443-4725.
The Trust's most recent annual report is a separate document typically supplied
with the SAI and includes the Trust's audited financial statements, which are
incorporated by reference into this SAI. The annual and other shareholder
reports are available upon request and without charge. Please call 1-800-443-
4725 to obtain these reports.
TABLE OF CONTENTS
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THE TRUST.................................................................... 3
DESCRIPTION OF PERMITTED INVESTMENTS......................................... 3
INVESTMENT LIMITATIONS.......................................................28
NON-FUNDAMENTAL POLICIES.....................................................30
MANAGEMENT OF THE FUND.......................................................31
TRUSTEES AND OFFICERS OF THE TRUST...........................................31
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..........................34
INVESTMENT ADVISORY AND OTHER SERVICES.......................................38
THE ADVISOR..................................................................38
DISTRIBUTION AND SHAREHOLDER SERVICING.......................................40
THE ADMINISTRATOR AND SUB-ADMINISTRATOR......................................43
THE TRANSFER AGENT...........................................................44
THE CUSTODIAN................................................................45
COUNSEL AND AUDITORS.........................................................45
BROKERAGE ALLOCATION AND OTHER PRACTICES.....................................45
PORTFOLIO TRANSACTIONS.......................................................45
TRADING PRACTICES AND BROKERAGE..............................................45
DESCRIPTION OF THE TRUST.....................................................50
PURCHASE AND REDEMPTION OF SHARES............................................51
SHAREHOLDER LIABILITY........................................................53
DETERMINATION OF NET ASSET VALUE.............................................53
TAXATION.....................................................................54
GENERAL INFORMATION ABOUT FUND PERFORMANCE...................................59
COMPUTATION OF YIELD.........................................................60
CALCULATION OF TOTAL RETURN..................................................63
LIMITATION OF TRUSTEES' LIABILITY............................................66
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FINANCIAL STATEMENTS.........................................................66
APPENDIX....................................................................A-1
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May 3, 1999
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THE TRUST
ABN AMRO Funds (prior to April 29, 1998, Rembrandt Funds) is an open-end
management investment company established as a Massachusetts business trust
pursuant to a Declaration of Trust dated September 17, 1992. The Declaration of
Trust permits the Trust to offer separate series ("funds") of units of
beneficial interest ("shares") and different classes of shares of each fund.
Generally, investors may purchase shares through two separate classes, Common
Shares and the Investor Shares, which provide for variations in distribution
costs and other expenses. Except for these differences between Common Shares and
Investor Shares, each share of each fund represents an equal proportionate
interest in that fund. See "Description of Shares." This SAI relates to the
following funds: Value Fund\(US)\, Growth Fund\(US)\, International Equity
Fund\(US)\, Small Cap Growth Fund\(US)\ (formerly, the Small Cap Fund), Small
Cap Value Fund\(US)\, Asian Tigers Fund\(US)\, TransEurope Fund\(US)\, Latin
America Equity Fund\(US)\, Real Estate Fund\(US)\ (collectively, the "Equity
Funds"), Balanced Fund\(US)\ (the "Balanced Fund"), Fixed Income Fund\(US)\,
Intermediate Government Fixed Income Fund\(US)\, Tax-Exempt Fixed Income
Fund\(US)\, International Fixed Income Fund\(US)\, Limited Volatility Fixed
Income Fund\(US)\ (collectively, the "Fixed Income Funds"), Money Market
Fund\(US)\, Government Money Market Fund\(US)\, Treasury Money Market Fund\(US)\
and Tax-Exempt Money Market Fund\(US)\ (collectively, the "Money Market Funds"
and together with the Equity, Balanced, and Fixed Income Funds, the "Funds"). As
of December 31, 1998, the Limited Volatility Fixed Income Fund and TransEurope
Fund had not commenced operations.
DESCRIPTION OF PERMITTED INVESTMENTS
ADRs, Continental Depositary Receipts ("CDRs"), European Depositary Receipts
("EDRs") and Global Depositary Receipts ("GDRs")
A Fund may invest in depositary receipts and other similar instruments, such as
ADRs, CDRs, EDRs & GDRs. ADRs are securities, typically issued by a U.S.
financial institution (a "depositary"), that evidence ownership interest in a
security or a pool of securities issued by a foreign issuer and deposited with
the depositary, EDRs, which are sometimes referred to as CDRs, are securities,
typically issued by a non-U.S. financial institution, that evidence ownership
interest in security or a pool of securities issued by either a U.S. or foreign
issuer. GDRs are issued globally and evidence a similar ownership arrangement.
Generally, ADRs are designed for trading in the U.S. securities market. EDRs are
designed for trading in European Securities Markets and GDRs are designed for
trading in non-U.S. securities markets. Generally, depositary receipts may be
available through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the underlying security. Holders of
unsponsored depositary receipts generally bear all the costs of the unsponsored
facility. The depositary of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through, to the holders of the receipts,
voting rights with respect to the deposited securities.
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Asset-Backed Securities
Asset-backed securities consist of securities secured by company receivables,
truck and auto loans, leases and credit card receivables. Such securities are
generally issued as passthrough certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for purpose of owning such assets and issuing
such debt. A Fund may invest in other asset-backed securities that may be
created in the future if the Advisor determines they are suitable.
Asset-backed securities may be traded over-the-counter and typically have short
to intermediate maturities depending on the paydown characteristics of the
underlying financial assets which are passed through to the security holder.
Principal and interest on non-mortgage asset-backed securities may be guaranteed
up to certain amounts and for a certain time period by letters of credit issued
by financial institutions (such as banks or insurance companies) unaffiliated
with the issuers of such securities. The purchase of non-mortgage asset-backed
securities raises risk considerations peculiar to the financing of the
instruments underlying such securities. For example, there is a risk that
another party could acquire an interest in the obligations superior to that of
the holder of the asset-backed securities. There is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on those securities. Asset-backed securities entail prepayment
risk, which may vary depending on the type of asset, but is generally less than
the prepayment risk associated with mortgage-backed securities. In addition,
unlike most other asset-backed securities, credit card receivables are unsecured
obligations of the card holder.
Bankers' Acceptances
Bankers' acceptances are bills of exchange or time drafts drawn on and accepted
by a commercial bank. Bankers' acceptances are used by corporations to finance
the shipment and storage of goods. Maturities are generally six months or less.
Bank Investment Contracts ("BICS")
BICs are contracts issued by U.S. banks and savings and loan institutions.
Pursuant to such contracts, a Fund makes cash contributions to a deposit fund of
the general account of the bank or savings and loan institution. The bank or
savings and loan institution then credits to the Fund on a monthly basis
guaranteed interest at either a fixed, variable or floating rate. Generally,
BICs are issuing bank or savings and loan institution. For this reason, BICs
are considered to be illiquid investments.
Borrowing
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Borrowing may exaggerate changes in the net asset value of a Fund's shares and
in the return on the Fund's portfolio. Although the principal of any borrowing
will be fixed, a Fund's assets may change in value during the time the borrowing
is outstanding. A Fund may be required to liquidate portfolio securities at a
time when it would be disadvantageous to do so in order to make payments with
respect to an outstanding borrowing resulting in additional transaction costs.
In addition, liquidating portfolio securities may generate capital gains, which
will be distributed to shareholders as taxable income or capital gains. The
Funds may be required to segregate liquid assets in an amount sufficient to meet
their obligations in connection with such borrowings.
Brady Bonds
Brady Bonds are a particular type of debt obligation created through the
exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring. Around 1990, the Mexican
external debt markets experienced significant changes with the completion of the
"Brady Plan" restructurings in those markets. Brady Bonds are issued by
governments that may have previously defaulted on the loans being restructured
by the Brady Bonds, and are subject to the risk of default by the issuer. They
may be fully or partially collateralized or uncollateralized and issued in
various currencies (although most are U.S. dollar denominated). They are
actively traded in the over-the-counter secondary market. U.S. dollar-
denominated collateralized Brady Bonds are generally collateralized in full as
to principal due at maturity by U.S. Treasury zero coupon obligations with the
same maturity. Interest payments on these Brady Bonds may be collateralized by
cash or securities in an amount that is typically equal to between 12 and 18
months of interest payments. Payment of interest and (except in the case of
principal-collateralized Brady Bonds) principal on Brady Bonds with no or
limited collateral depends on the willingness and ability of the foreign
government to make payment. In the event of a default on collateralized Brady
Bonds for which obligations are accelerated, the collateral for the payment of
principal will not be distributed to investors, nor will such obligations be
sold and the proceeds distributed. The collateral will be held by the
collateral agent to the scheduled maturity of the defaulted Brady Bonds, which
will continue to be outstanding, at which time the face amount of the collateral
will equal the principal payments which would have then been due on the Brady
Bonds in the normal course. The restructurings provided for the exchange of
loans and cash for newly issued bonds, Brady Bonds. Brady Bonds generally fall
into two categories: collaterized Brady Bonds and bearer Brady Bonds. U.S.
dollar-denominated collaterized bonds, which may be fixed par bonds or floating
rate discount bonds, are collaterized in full as to principal by U.S. Treasury
zero coupon bonds having the same maturity. At least one year of rolling
interest payments are collaterized by cash or other investments.
Certificates of Deposit
Certificates of deposit are interest bearing instruments with a specific
maturity. Certificates of deposit are issued by banks and savings and loan
institutions in exchange for the deposit of funds
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and normally can be traded in the secondary market prior to maturity.
Certificates of deposit with penalties for early withdrawal are considered to be
illiquid.
Commercial Paper
Commercial paper is a term used to describe unsecured short-term promissory
notes issued by banks, municipalities, corporations and other entities.
Maturities on these issues vary from a few to 270 days.
Convertible Securities
Convertible securities are corporate securities that are exchangeable for a set
number of shares of another security at a prestated price. Convertible
securities have characteristics similar to both fixed income and equity
securities. Because of the conversion feature, the market value of convertible
securities tends to move together with the market value of the underlying stock.
The value of convertible securities is also affected by prevailing interest
rates, the credit quality of the issuer, and any call provisions.
Debt Securities -- Ratings
The quality standards of debt securities and other obligations as described for
the Funds must be satisfied at the time an investment is made. In the event
that an investment held by a Fund is assigned a lower rating or ceases to be
rated, the Advisor promptly reassesses whether such security presents suitable
credit risks and whether the Fund should continue to hold the security or
obligation in its portfolio. If a portfolio security or obligation no longer
presents suitable credit risks or is in default, the Fund disposes of the
security or obligation as soon as reasonably practicable unless the Trustees of
the Trust determine that to do so is not in the best interest of the Fund.
Dollar Rolls
Dollar roll transactions consist of the sale of mortgage-backed securities to a
bank or broker-dealer, together with a commitment to purchase similar, but not
necessarily identical, securities at a future date. Any difference between the
sale price and the purchase price is netted against the interest income foregone
on the securities to arrive at an implied borrowing (reverse repurchase) rate.
Alternatively, the sale and purchase transactions which constitute the dollar
roll can be executed at the same price, with a Fund being paid a fee as
consideration for entering into the commitment to purchase. Dollar rolls may be
renewed after cash settlement and initially may involve only a firm commitment
agreement by a Fund to buy a security.
If the broker-dealer to whom a Fund sells the security becomes insolvent, the
Fund's right to purchase or repurchase the security may be restricted. Also,
the value of the security may change adversely over the term of the dollar roll,
such that the security that the Fund is required to repurchase may be worth less
than the security that the Fund originally held.
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Equity Securities
Equity securities include common stocks, common stock equivalents, preferred
stocks, securities convertible into common stocks and securities having common
stock characteristics, such as rights and warrants to purchase common stocks,
sponsored and unsponsored depositary receipts (e.g., ADRs), REITs, and equity
securities of closed-end investment companies.
Euro-Denominated Securities
On January 1, 1999, the European Monetary Union (EMU) implemented a new currency
unit, the Euro. The countries that initially converted to the Euro include
Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal and Spain.
As of January 1, 1999, financial transactions and market information including
share quotations and company accounts, in participating countries are in Euros.
Over time, approximately 46% of the stock exchange capitalization of the total
European market may be reflected in Euros, and participating governments will
issue their bonds in Euros. Monetary policy for participating countries is
uniformly managed by a new central bank, the European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro on the Funds, the
transition may change the economic environment and behavior of investors,
particularly in European markets. In addition, investors may begin to view those
countries participating in the EMU as a single entity. The Advisor may need to
adapt investment strategies accordingly. The process of implementing the Euro
also may adversely affect financial markets world-wide and may result in changes
in the relative strength and value of the U.S. dollar or other major currencies,
as well as possible adverse tax consequences as a result of currency conversions
to the Euro. Until the Euro develops its reputation and the ECB gains
experience in managing monetary policy, it will be difficult to predict the
strengths and weaknesses of the Euro.
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Floating Rate Notes
Floating rate notes normally involve industrial development or revenue bonds
which provide that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate) at a major commercial bank, and
that a Fund can demand payment of the obligation at all times or at stipulated
dates on short notice (not to exceed 30 days) at par plus accrued interest. A
Fund may use the longer of the period required before the Fund is entitled to
prepayment under such obligations or the period remaining until the next
interest rate adjustment date for purposes of determining the maturity. Such
obligations are frequently secured by letters of credit or other credit
enhancements provided by banks. The Advisor monitors the earning power, cash
flow and liquidity ratios of the issuers of such instruments and the ability of
an issuer of a demand instrument to pay principal and interest on demand.
Foreign Securities
Foreign securities may subject a Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. domestic
issuers. Such risks include costs in connection with conversions between
various currencies, limited publicly available information regarding foreign
issuers, lack of uniformity in accounting, auditing and financial standards and
requirements, greater securities market volatility, less liquidity of
securities, less government supervision and regulations of securities markets,
future adverse political and economic developments, the possible imposition of
withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks. Government regulation in many of
the countries of interest to a Fund may limit the extent of the Fund's
investment in companies in those countries.
Further, it may be more difficult for a Fund's agents to keep currently informed
about corporate actions which may affect the prices of portfolio securities.
Communications between the U.S. and foreign countries may be less reliable than
within the U.S., increasing the risk of delayed settlements of portfolio
securities. Certain markets may require payment for securities before delivery.
A Fund's ability and decisions to purchase and sell portfolio securities may be
affected by laws or regulations relating to the convertibility of currencies and
repatriation of assets. Some countries restrict the extent to which foreigners
may invest in their securities markets.
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Investments in securities of foreign issuers are frequently denominated in
foreign currencies (including the Euro and other multinational currency units)
and the value of a Fund's assets measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, and a Fund may incur costs in connection with conversions between
various currencies. Although the Funds typically do not engage in hedging
activities, a Fund may enter into forward foreign currency contracts as a hedge
against possible variations in foreign exchange rates or to hedge a specific
security transaction or portfolio position. Currently, only a limited market, if
any, exists for hedging transactions relating to currencies in emerging markets,
including Latin American and Asian markets. This may limit a Fund's ability to
effectively hedge its investments in such markets if it chose to do so.
A Fund may invest in securities denominated in currencies of foreign countries.
Accordingly, changes in the value of these currencies against the U.S. dollar
will result in corresponding changes in the U.S. dollar value of a Fund's assets
denominated in those currencies. Foreign countries also may have managed
currencies, which are not free floating against the U.S. dollar. In addition,
there is risk that certain foreign countries may restrict the free conversion of
their currencies into other currencies, including the U.S. dollar. Further, it
may be difficult to reduce a Fund's currency risk through hedging if it chose to
engage in hedging activities. Any devaluations in the currencies in which a
Fund's portfolio securities are denominated may have a detrimental impact on the
Fund's net asset value.
Securities of issuers located in countries with developing securities markets
pose greater liquidity risks and other risks than securities of issuers located
in developed countries and traded in more established markets. Low liquidity in
markets may adversely affect a Fund's ability to buy and sell securities and
cause increased volatility. Developing countries may at various times have less
stable political environments than more developed nations. Changes of control
may adversely affect the pricing of securities from time to time. Some
developing countries may afford only limited opportunities for investing. In
certain developing countries, a Fund may be able to invest solely or primarily
through ADRs or similar securities and government approved investment vehicles,
including closed-end investment companies.
Certain risks associated with international investments and investing in
smaller, developing markets are heightened for investments in Latin American
countries. For example, some of the currencies of Latin American countries have
experienced steady devaluations relative to the U.S. dollar, and major
adjustments have been made in certain of these currencies periodically.
Furthermore, Latin American currencies may not be internationally traded. Also,
many Latin American countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain Latin American
countries. In addition, although there is a trend toward less government
involvement in commerce, governments of many Latin American countries have
exercised and continue to exercise substantial influence over many aspects of
the private sector. In certain cases, the government still owns or controls many
companies, including some of the largest companies in the country. Accordingly,
government actions in the future could have a significant effect on economic
conditions in Latin American countries, which could affect private sector
companies and the Fund, as well as the value of securities in the Fund's
portfolio.
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In making investment decisions for the Fund, the Advisor evaluates the risks
associated with investing Fund assets in a particular country, including risks
stemming from a country's financial infrastructure and settlement practices; the
likelihood of expropriation, nationalization or confiscation of invested assets;
prevailing or developing custodial practices in the country; the country's laws
and regulations regarding the safekeeping, maintenance and recovery of invested
assets; the likelihood of government-imposed exchange control restrictions which
could impair the liquidity of Fund assets maintained with custodians in that
country, as well as risks from political acts of foreign governments ("country
risks"). Of course, the Advisor's decisions regarding these risks may not be
correct or prove to be wise and, generally, any losses resulting from investing
in foreign countries will be borne by Fund shareholders.
Holding Fund assets in foreign countries presents additional risks including,
but not limited to, the risks that a particular foreign custodian or depositary
will not exercise proper care with respect to Fund assets or will not have the
financial strength or adequate practices and procedures to properly safeguard
Fund assets. A Fund may be precluded from investing in certain foreign
countries until such time as adequate custodial arrangements can be established.
Forward Foreign Currency Contracts
A forward contract involves an obligation to purchase or sell a specific
currency amount at a future date, agreed upon by the parties, at a price set at
the time of the contract.
At the maturity of a forward contract, a Fund may either sell a 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 with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. A Fund may realize a gain or loss from currency transactions.
Futures Contracts and Options on Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
purchaser the right, in exchange for a premium, to assume a position in a
futures contract at a specified exercise price during the term of the option.
Although the Funds typically do not engage in hedging activities, a Fund may use
futures contracts and related options for bona fide hedging purposes, to offset
changes in the value of securities held or expected to be acquired or be
disposed of, to minimize fluctuations in foreign currencies, or to gain exposure
to a particular market or instrument. A Fund will minimize the risk that it will
be unable to close out a futures contract by only entering into futures
contracts which are traded on national futures exchanges. In addition, a Fund
will only sell covered futures contracts and options on futures contracts.
Stock and bond index futures are futures contracts for various stock and bond
indices that are traded on registered securities exchanges, stock and bond index
futures contracts obligate the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount
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times the difference between the value of a specific stock or bond index at the
close of the last trading day of the contract and the price at which the
agreement is made.
No price is paid upon entering into futures contracts. Instead, a Fund is
required to deposit an amount of cash or liquid assets known as "initial
margin." Subsequent payments, called "variation margin," to and from the broker,
are made on a daily basis as the value of the futures position varies (a process
known as "marking to market"). The margin is in the nature of a performance bond
or good-faith deposit on a futures contract.
In order to avoid leveraging and related risks, when a Fund purchases futures
contracts, it will collateralize its position by depositing an amount of cash or
liquid assets, equal to the market value of the futures positions held, less
margin deposits, in a segregated account with the Trust's custodian. Collateral
equal to the current market value of the futures position will be marked to
market on a daily basis. Whenever a Fund is required to establish a segregated
account for any investment or strategy, notations in the books of the Trust's
custodian are sufficient to constitute a segregated account.
The Funds typically do not engage in hedging activities. Further, there are
risks associated with these activities, including the following: (1) the success
of a hedging strategy depends on an ability to predict movements in the prices
of individual securities, fluctuations in markets and movements in interest
rates; (2) there may be an imperfect or no correlation between the changes in
market value of the securities held by a Fund and the prices of futures and
options on futures; (3) there may not be a liquid secondary market for a futures
contract or option; (4) trading restrictions or limitations may be imposed by an
exchange; and (5) government regulations may restrict trading in futures
contracts and futures options.
Eurodollar futures are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of the funds and sellers to obtain a fixed rate for borrowings.
The Funds will only enter into futures contracts traded on a national futures
exchange or board of trade.
GNMA Certificates
GNMA Certificates are securities issued by the Government National Mortgage
Association ("GNMA"), a wholly-owned U.S. Government corporation which
guarantees the timely payment of principal and interest. The market value and
interest yield of these instruments can vary due to market interest rate
fluctuations and early prepayments of underlying mortgages. These securities
represent ownership in a pool of federally insured mortgage loans. GNMA
certificates consist of underlying mortgages with a maximum maturity of 30
years. However, due to scheduled and unscheduled principal payments, GNMA
certificates have shorter average maturities and, therefore, less principal
volatility than a comparable 30-year bond. Since prepayment rates vary widely,
it is not possible to accurately predict the average maturity of a particular
GNMA pool. The scheduled monthly interest and principal payments relating to
mortgages in the pool will be
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"passed through" to investors. GNMA securities differ from conventional bonds in
that principal is paid back to the certificate holders over the life of the loan
rather than at maturity. As a result, there will be monthly scheduled payments
of principal and interest. In addition, there may be unscheduled principal
payments representing prepayments on the underlying mortgages. Although GNMA
certificates may offer yields higher than those available from other types of
U.S. Government securities, GNMA certificates may be less effective than other
types of securities as a means of "locking in" attractive long-term rates
because of the prepayment feature. For instance, when interest rates decline,
the value of a GNMA certificate likely will not rise as much as comparable debt
securities due to the prepayment feature. In addition, these prepayments can
cause the price of a GNMA certificate originally purchased at a premium to
decline in price to its par value, which may result in a loss.
Guaranteed Investment Contracts ("GICs")
GICs are contracts issued by U.S. insurance companies. Pursuant to such
contracts, the Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the Fund on a
monthly basis guaranteed interest at either a fixed, variable or floating rate.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance companies. For this reason, GICs are considered to be
illiquid.
Illiquid Securities
Illiquid securities are securities that cannot be disposed of within 7 days at
approximately the price at which they are being carried on a Fund's books. An
illiquid security includes a demand instrument with a demand notice period
exceeding 7 days, if there is no secondary market for such security, and
repurchase agreements with durations (or maturities) over 7 days in length.
Investment Company Shares
Under applicable regulations, the Funds are generally prohibited from acquiring
the securities of other investment companies if, as a result of such
acquisition, the Funds own more than 3% of the total voting stock of the
company; securities issued by any one investment company represent more than 5%
of the Fund's total assets; or securities (other than treasury stock) issued by
all investment companies represent more than 10% of the total assets of the
Funds. By investing in securities of an investment company, Fund shareholders
will indirectly bear the fees of that investment company in addition to the
Fund's own fees and expenses.
The Trust has received an exemptive order from the Securities and Exchange
Commission ("SEC") to permit the Funds to invest in shares of ABN AMRO Money
Market Funds. Pursuant to this order, each Fund is permitted to invest in shares
of the Money Market Funds for cash management purposes, provided that the
Advisor and any of its affiliates waive management fees and other expenses with
respect to Fund assets invested therein.
It is the position of the staff of the SEC that certain nongovernmental issuers
of CMOs and REMICs constitute investment companies under the Investment Company
Act of 1940 ("1940 Act"), and either (a) investments in such instruments are
subject to the limitations set forth above
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or (b) the issuers of such instruments have been granted orders from the SEC
exempting such instruments from the definition of investment company.
Loan Participations
Loan participations are interests in loans to U.S. corporations which are
administered by the lending bank or agent for a syndicate of lending banks, and
sold by the lending bank or syndicate member ("intermediary bank"). In a loan
participation, the borrower corporation will be deemed to be the issuer of the
participation interest except to the extent a Fund derives its rights from the
intermediary bank. Because the intermediary bank does not guarantee a loan
participation in any way, a loan participation is subject to the credit risks
generally associated with the underlying corporate borrower. In the event of
the bankruptcy or insolvency of the corporate borrower, a loan participation may
be subject to certain defenses that can be asserted by such borrower as a result
of improper conduct by the intermediary bank. In addition, in the event the
underlying corporate borrower fails to pay principal and interest when due, a
Fund may be subject to delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a direct obligation of
such borrower. Under the terms of a loan participation, a Fund may be regarded
as a creditor of the intermediary bank (rather than of the underlying corporate
borrower), so that the Fund may also be subject to the risk that the
intermediary bank may become insolvent. The secondary market, if any, for these
loan participations is limited.
Master Limited Partnerships
Master limited partnerships are public limited partnerships composed of (i)
assets spun off from corporations or (ii) private limited partnerships. Master
limited partnerships are formed by reorganizing corporate assets or private
partnerships as public limited partnerships combining various investment
objectives. Interests in master limited partnerships are represented by
depositary receipts traded in the secondary market. Because limited partners
have no active role in management, the safety of a limited partner's investment
in a master limited partnership depends upon the management ability of the
general partner.
Money Market Instruments
Money market instruments include certificates of deposit, commercial paper,
bankers' acceptances, Treasury bills, time deposits, repurchase agreements and
shares of money market funds.
Mortgage-Backed Securities
Mortgage-backed securities are instruments that entitle the holder to a share of
all interest and principal payments from mortgages underlying the security. The
mortgages backing these securities include conventional thirty-year fixed rate
mortgages, graduated payment mortgages, balloon mortgages and adjustable rate
mortgages.
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Government Pass-Through Securities: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, Fannie Mae and FHLMC. GNMA, Fannie Mae and FHLMC guarantee
timely distributions of interest to certificate holders. GNMA and Fannie May
also guarantee timely distributions of scheduled principal. Fannie Mae and
FHLMC obligations are not backed by the full faith and credit of the U.S.
Government as GNMA certificates are, but Fannie Mae and FHLMC securities are
supported by the instrumentalities' right to borrow from the U.S. Treasury.
Private Pass-Through Securities: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust or corporation. These securities
include collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs"). While they are generally structured with one or
more types of credit enhancement, private pass-through securities typically lack
a guarantee by an entity having the credit status of a governmental agency or
instrumentality.
In a CMO, series of bonds or certificates are usually issued in multiple
classes. Principal and interest paid on the underlying mortgage assets may be
allocated among the several classes of a series of a CMO in a variety of ways.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code and invests in certain mortgages principally secured by interests
in real property. Investors may purchase beneficial interests in REMICs, which
are known as "regular" interests, or "residual" interests. Guaranteed REMIC
pass-through certificates ("REMIC Certificates") issued by Fannie Mae or FHLMC
represent beneficial ownership interests in a REMIC trust consisting principally
of mortgage loans or Fannie Mae. FHLMC or GNMA-guaranteed mortgage
pass,,through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the
timely payment of interest, and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage participation
certificates.
Stripped Mortgage-Backed Securities ("SMBs"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an interest-only class ("IO"), while
the other class may receive all of the principal payments and is thus termed the
principal-only class ("PO"). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until
that portion of such CMO obligation is repaid, investors in the longer
maturities
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receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. Government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed. FHLMC
has in the past guaranteed only the ultimate collection of principal of the
underlying mortgage loan; however, FHLMC now issues mortgage-backed securities
(FHLMC Gold PCS) which also guarantee timely payment of monthly principal
reductions. Government and private guarantees do not extend to the securities'
value, which is likely to vary inversely with fluctuations in interest rates.
A Fund also may invest in parallel pay CMOs and Planned Amortization Class CMOs
("PAC Bonds"). Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO structures, must be
retired by its stated maturity date or final distribution date, but may be
retired earlier. PAC Bonds are always parallel pay CMOs with the required
principal payment on such securities having the highest priority after interest
has been paid to all classes.
Municipal Securities
Municipal securities consist of (i) debt obligations issued by or on behalf of
public authorities to obtain funds to be used for various public facilities, for
refunding outstanding obligations, for general operating expenses, and for
lending such funds to other public institutions and facilities, and (ii) certain
private activity and industrial development bonds issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair, or improvement of privately operated facilities. General obligation
bonds are backed by the taxing power of the issuing municipality. Revenue bonds
are backed by the revenues of a project or facility; tolls from a toll bridge
for example. The payment of principal and interest on private activity and
industrial development bonds generally is dependent solely on the ability of
the facility's user to meet its financial obligations and the pledge, if any, of
real and personal property so financed as security for such payment.
Municipal securities include both municipal notes and municipal bonds.
Municipal notes include general obligation notes, tax anticipation notes,
revenue anticipation notes, bond anticipation notes, certificates of
indebtedness, demand notes, and construction loan notes. Municipal bonds
include general obligation bonds, revenue or special obligation bonds, private
activity and industrial development bonds.
A Fund's investments in any of the notes described above is limited to those
obligations (i) rated in the highest two rating categories by an NRSRO or (ii)
if not rated, of equivalent quality in the Advisor's judgment.
Municipal bonds must be rated in the highest four rating categories by an NRSRO
at the time of investment or, if unrated, must be deemed by the Advisor to have
essentially the same character-
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istics and quality as bonds rated in the above rating categories. The Advisor
may purchase industrial development and pollution control bonds if the interest
paid is exempt from federal income tax. These bonds are issued by or on behalf
of public authorities to raise money to finance various privately-operated
facilities for business and manufacturing, housing, sports, and pollution
control. These bonds are also used to finance public facilities such as
airports, mass transit systems, ports and parking facilities. The payment of the
principal and interest on such bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property so financed as security for such payment.
Obligations of Supranational Entities
Supranational entities are entities established through the joint participation
of several governments, and include the Asian Development Bank, Inter-American
Development Bank, International Bank for Reconstruction and Development (World
Bank), African Development Bank, European Economic Community, European
Investment Bank and Nordic Investment Bank. The governmental members, or
"stockholders," usually make initial capital contributions to the supranational
entity and in many cases are committed to make additional capital contributions
if the supranational entity is unable to repay its borrowings.
Options
A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying security at any time during the option period.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying security at any time during the option
period. The premium paid to the writer is the consideration for undertaking the
obligations under the option contract.
A Fund may purchase put and call options to protect against a decline in the
market value of the securities in its portfolio or to protect against an
increase in the cost of securities that the Fund may seek to purchase in the
future. A Fund purchasing put and call options pays a premium therefor. If
price movements in the underlying securities are such that exercise of the
options would not be profitable for a Fund, loss of the premium paid may be
offset by an increase in the value of the Fund's securities or by a decrease in
the cost of acquisition of securities by the Fund.
A Fund may write covered put and call options as a means of increasing the yield
on its portfolio and as a means of providing limited protection against
decreases in its market value. When a Fund sells an option, if the underlying
securities do not increase or decrease to a price level that would make the
exercise of the option profitable to the holder thereof, the option generally
will expire without being exercised and the Fund will realize as profit the
premium received for such option. When a call option of which a Fund is the
writer is exercised, the Fund will be required to sell the underlying securities
to the option holder at the strike price, and will not participate in any
increase in the price of such securities above the strike price. When a put
option of which a Fund is the writer is exercised, the Fund will be required to
purchase the underlying securities at the strike price. which may be in excess
of the market value of such securities.
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A Fund may purchase and write options on an exchange or over-the-counter. Over-
the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the SEC that OTC options are illiquid.
A Fund may purchase and write put and call options on foreign currencies (traded
on U.S. and foreign exchanges or over-the-counter markets) to manage its
exposure to exchange rates. Call options on foreign currency written by a Fund
will be "covered," which means that the Fund will own an equal amount of the
underlying foreign currency. With respect to put options on foreign currency
written by a Fund, the Fund will establish a segregated account with its
custodian bank consisting of cash or liquid assets in an amount equal to the
amount the Fund would be required to pay upon exercise of the put.
A Fund may purchase and write put and call options on indices and enter into
related closing transactions. Put and call options on indices are similar to
options on securities except that options on an index give the holder the right
to receive, upon exercise of the option, an amount of cash if the closing level
of the underlying index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number. Thus, unlike options on
individual securities, all settlements are in cash, and gain or loss depends on
price movements in the particular market represented by the index generally,
rather than the price movements in individual securities. All options written
on indices must be covered. When a Fund writes an option on an index, it will
establish a segregated account containing cash or liquid assets with its
custodian in an amount at least equal to the market value of the option and will
maintain the account while the option is open or will otherwise cover the
transaction.
Whenever a Fund is required to establish a segregated account, notations on the
books of the Trust's custodian are sufficient to constitute a segregated
account.
The Funds typically do not engage in hedging activities. Further, risks
associated with such activities include: (1) the success of a hedging strategy
depends on an ability to predict movements in the prices of individual
securities, fluctuations in markets and movements in interest rates; (2) there
may be an imperfect correlation between the movement in prices of options and
the securities underlying them; (3) there may not be a liquid secondary market
for options; and (4) while a Fund receives a premium when it writes covered call
options, it may not participate fully in a rise in the market value of the
underlying security. A Fund may choose to terminate an option position by
entering into a closing transaction. The ability of a Fund to enter into closing
transactions depends upon the existence of a liquid secondary market for such
transactions.
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Put and call options may be used by a Fund from time to time as the Advisor
deems to be appropriate, except as limited by each Fund's investment
restrictions. Options will not be used for speculative purposes. Among the
strategies the Advisor may use are: protective puts on stocks owned by a Fund,
buying calls on stocks a Fund is attempting to buy and writing covered calls on
stocks a Fund owns.
A put option gives the purchaser of the option the right to sell, and the writer
the obligation to buy, the underlying security at any time during the option
period. A call option gives the purchaser of the option the right to buy, and
the writer of the option the obligation to sell, the underlying security at any
time during the option period. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract. The
initial purchase (sale) of an option contract is an "opening transaction". In
order to close out an option position, a Fund may enter into a "closing
transaction" -- the sale (purchase) of an option contract on the same security
with the same exercise price and expiration date as the option contract
originally opened.
A Fund may buy protective put options from time to time on such portion of its
assets as the Advisor determines is appropriate in seeking the Fund's investment
objective. The advantage to the Fund of buying the protective put is that if
the price of the stock falls during the option period, the Fund may exercise the
put and receive the higher exercise price for the stock. However, if the
security rises in value, the Fund will have paid a premium for the put which
will expire unexercised.
A Fund may buy call options from time to time as the Advisor determines is
appropriate in seeking the Fund's investment objective. The Fund may elect to
buy calls on stocks that the Fund is trying to buy. The advantage of the Fund
buying the fiduciary call is that if the price of the stock rises during the
option period, the Fund may exercise the call and buy the stock for the lower
exercise price. If the security falls in value, the Fund will have paid a
premium for the call (which will expire worthless) but will be able to buy the
stock at a lower price.
A Fund may write covered call options from time to time on such portion of its
assets as the Advisor determines is appropriate in seeking the Fund's investment
objective. The advantage to the Fund of writing covered call options is that
the Fund receives a premium which is additional income. However, if the
security rises in value, the Fund may not fully participate in the market
appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction is one in which a Fund, when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written. A closing purchase
transaction cannot be effected with respect to an option once the option writer
has received an exercise notice for such option.
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A Fund may write covered put and call options as a means of increasing the yield
on its portfolio and as a means of providing limited protection against
decreases in its market value. When a Fund sells an option, if the underlying
securities do not increase or decrease to a price level that would make the
exercise of the option profitable to the holder thereof, the option generally
will expire without being exercised and the Fund will realize as profit the
premium received for such option. When a call option of which a Fund is the
writer is exercised, the Fund will be required to sell the underlying securities
to the option holder at the strike price, and will not participate in any
increase in the price of such securities above the strike price. When a put
option of which a Fund is the writer is exercised, the Fund will be required to
purchase the underlying securities at the strike price, which may be in excess
of the market value of such securities.
The market value of an option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the pricing volatility of the underlying
security and the time remaining until the expiration date.
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Real Estate Investing
Investments in companies in the real estate industry may be subject to the risks
associated with the direct ownership of real estate. These risks include: the
cyclical nature of real estate values; risks related to general and local
economic conditions; overbuilding and increased competition; increases in
property taxes and operating expenses; demographic trends and variations in
rental income; changes in zoning laws; casualty or condemnation losses;
environmental risks; regulatory limitations on rents; changes in neighborhood
values; related party risks; changes in the appeal of properties to tenants;
increases in interest rates; and other real estate capital market influences.
Generally, increases in interest rates increase the costs of obtaining
financing, which could directly and indirectly decrease the value of a Fund's
investments. A Fund's share price and investment return may fluctuate, and a
shareholder's investment when redeemed may be worth more or less than its
original cost. Certain of these securities that are issued by foreign companies
may be subject to the risks associated with investing in foreign securities in
addition to the risks associated with the direct ownership of real estate.
Real Estate Investment Trust (REITs)
REITs may be affected by changes in the value of their underlying properties and
by defaults by borrowers or tenants. Mortgage REITs may be affected by the
quality of the credit extended. Furthermore, REITs are dependent on specialized
management skills. Some REITs may have limited diversification and may be
subject to risks inherent in investments in a limited number of properties, in a
narrow geographic area, or in a single property type. REITs depend generally on
their ability to generate cash flow to make distributions to shareholders or
unitholders, and may be subject to defaults by borrowers and to self-
liquidations. In addition, the performance of a REIT may be affected by its
failure to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), or its failure to maintain
exemption from registration under the 1940 Act. Rising interest rates may cause
the value of the debt securities in which a Fund may invest to fall.
Conversely, falling interest rates may cause their value to rise. Changes in
the value of portfolio securities does not necessarily affect cash income
derived from these securities but will effect a Fund's net asset value.
Receipts
Receipts are interests in separately traded interest and principal component
parts of U.S. Treasury obligations that are issued by banks and brokerage firms
and are created by depositing U.S. Treasury obligations into a special account
at a custodian bank. The custodian holds the interest and principal payments
for the benefit of the registered owners of the certificates or receipts. The
custodian arranges for the issuance of the certificates or receipts evidencing
ownership and maintains the register. Receipts are sold as zero coupon
securities which means that they are sold at a substantial discount and redeemed
at face value at their maturity date without interim cash payments of interest
or principal. This discount is amortized over the life of the security, and
such amortization will constitute the income earned on the security for both
accounting and tax purposes. Because of these features, receipts may be subject
to greater price volatility than interest paying U.S. Treasury obligations.
Receipts include "Treasury Receipts" ("TRs"),
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"Treasury Investment Growth Receipts" ("TIGRs"), and "Certificates of Accrual on
Treasury Securities" ("CATS").
Repurchase Agreements
Repurchase agreements are agreements by which a person (e.g., a Fund) obtains a
security and simultaneously commits to return the security to the seller
(primary securities dealer recognized by the Federal Reserve Bank of New York or
a national member bank as defined in Section 3(d)(1) of the Federal Deposit
Insurance Act, as amended) at an agreed upon price (including principal and
interest) on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves
the obligation of the seller to pay the agreed upon price, which obligation is
in effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by the Funds for purposes of
their investment limitations. The repurchase agreements entered into by the
Funds will provide that the underlying security at all times shall have a value
at least equal to 100% of the resale price stated in the agreement (the Advisor
monitors compliance with this requirement). Under all repurchase agreements
entered into by the Funds, the custodian or its agent must take possession of
the underlying collateral. However, if the seller defaults, the Funds could
realize a loss on the sale of the underlying security to the extent that the
proceeds of sale including accrued interest are less than the resale price
provided in the agreement including interest. In addition, even though the
Bankruptcy Code provides protection for most repurchase agreements, if the
seller should be involved in bankruptcy or insolvency proceedings, the Funds may
incur delay and costs in selling the underlying security or may suffer a loss of
principal and interest if the Funds are treated as an unsecured creditors and
required to return the underlying securities to the seller's estate.
Restraints on Investments by Money Market Funds
Investments by each Money Market Fund are subject to limitations imposed under
rules adopted by the SEC. Under SEC rules, money market funds may acquire only
obligations that present minimal credit risks and that are "eligible
securities," which generally means they are rated, at the time of investment, by
at least two NRSROs (one if there is only one organization rating such
obligation) in one of the two highest short-term rating categories or, if
unrated, determined to be of comparable quality. First tier securities are
securities that are rated by at least two NRSROs (one if it is the only
organization rating such securities) or an unrated security determined to be of
comparable quality. Second tier securities are eligible securities that do not
qualify as first tier securities. The Advisor will determine that an obligation
presents minimal credit risks or that unrated instruments are of comparable
quality in accordance with guidelines established by the Trustees.
Restricted Securities
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Restricted securities are securities (including those of foreign issuers) that
may not be sold to the public without registration under the Securities Act of
1933 (the "1933 Act") absent an exemption from registration. Securities of
foreign issuers may be restricted. Up to 10% of a Fund's assets may consist of
restricted securities that are illiquid and the Advisor may invest up to an
additional 5% of the total assets of a Fund in restricted securities, provided
it determines that at the time of investment such securities are not illiquid
(generally, an illiquid security cannot be disposed of within seven days in the
ordinary course of business at its full value), based on guidelines and
procedures developed and established by the Board of Trustees of the Trust. The
Board of Trustees will periodically review such procedures and guidelines and
will monitor the Advisor's implementation of such procedures and guidelines.
Under these procedures and guidelines, the Advisor considers the frequency of
trades and quotes for the security, the number of dealers in, and potential
purchasers for, the securities, dealer undertakings to make a market in the
security and the nature of the security and of the marketplace trades.
Rights
Rights are instruments giving shareholders the right to purchase shares of newly
issued common stock below the public offering price before they are offered to
the public.
Securities Lending
Securities loaned by a Fund pursuant to an agreement which requires collateral
to secure the loan are not made if, as a result, the aggregate amount of all
outstanding securities loans for the Fund exceed one-third of the value of a
Fund's total assets (including the value of the collateral) taken at fair market
value. A Fund continues to receive interest on the loaned securities while
simultaneously earning interest on the investment of the cash collateral in U.S.
Government securities. However, a Fund normally pays lending fees to such
broker-dealers and related expenses from the interest earned on invested
collateral. Loans are made only to borrowers deemed by the Advisor to be of
good standing and when, in the judgment of the Advisor, the
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consideration which can be earned currently from such securities loans justifies
the attendant risk. Any loan may be terminated by either party upon reasonable
notice to the other party.
Lending portfolio securities involves risks that the borrower may fail to return
the securities or provide additional collateral. Voting rights with respect to
the loaned securities may pass with the lending of the securities and efforts to
call such securities promptly may be unsuccessful, especially for foreign
securities. A Fund may loan portfolio securities to qualified broker-dealers or
other institutional investors provided: (1) the loan is secured continuously by
collateral consisting of U.S. government securities, letters of credit, cash or
cash equivalents maintained on a daily marked-to-market basis in an amount at
least equal to the current market value of the securities loaned; (2) the Fund
may at any time call the loan and obtain the return of the securities loaned;
and (3) the Fund will receive any interest or dividends paid on the loaned
securities.
Short Sales
Selling securities short involves selling securities the seller (e.g., a Fund)
does not own (but has borrowed) in anticipation of a decline in the market price
of such securities. To deliver the securities to the buyer, the seller must
arrange through a broker to borrow the securities and, in so doing, the seller
becomes obligated to replace the securities borrowed at their market price at
the time of the replacement. In a short sale, the proceeds the seller receives
from the sale are retained by a broker until the seller replaces the borrowed
securities. The seller may have to pay a premium to borrow the securities and
must pay any dividends or interest payable on the securities until they are
replaced.
A Fund may sell securities short "against the box." A short sale is "against
the box" if, at all times during which the short position is open, the Fund owns
at least an equal amount of the securities or securities convertible into, or
exchangeable without further consideration for, securities of the same issuer as
the securities that are sold short.
A Fund may also maintain short positions in forward currency exchange
transactions, in which the Funds agree to exchange currency that does not own at
that time for another currency at a future date and specified price in
anticipation of a decline in the value of the currency sold short relative to
the currency that the Fund has contracted to receive in the exchange. To ensure
that any short position of a Fund is not used to achieve leverage, the Fund
establishes with its custodian a segregated account consisting of cash or liquid
assets equal to the fluctuating market value of the currency as to which any
short position is being maintained.
Whenever a Fund is required to establish a segregated account, notations on the
books of the Trust's custodian are sufficient to constitute a segregated
account.
Sovereign Debt Securities
Sovereign debt securities are debt securities issued by various foreign
governmental issuers. Investing in fixed and floating rate foreign sovereign
debt securities will expose a Fund to the direct or indirect consequences of
political, social or economic changes in the countries that issue the
securities. The ability and willingness of sovereign obligors in developing and
emerging market countries or the governmental authorities that control repayment
of their external debt to pay principal and interest on such debt when due may
depend on general economic and political conditions within the relevant country.
Countries such as those in which a Fund may invest have historically
experienced, and may continue to experience, high rates of inflation, high
interest rates, exchange rate or trade difficulties and extreme poverty and
unemployment. Many of these countries are also characterized by political
uncertainty or instability. Additional factors which may influence the ability
or willingness to service debt include, but are not limited to a country's cash
flow situation, the availability of sufficient foreign exchange on the date a
payment is due,
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the relative size of its debt service burden to the economy as a whole and its
government's policy towards the International Monetary Fund, the World Bank and
other International agencies.
The ability of a foreign sovereign obligor to make timely payments on its
external debt obligations will also be strongly influenced by the obligor's
balance of payments, including export performance, its access to international
credits and investments, fluctuations in interest rates and the extent of its
foreign reserves. A country whose exports are concentrated in a few commodities
or whose economy depends on certain strategic imports would be vulnerable to
fluctuations in international prices of these commodities or imports. To the
extent that a country receives payment for its exports in currencies other than
dollars, its ability to make debt payments denominated in dollars could be
adversely affected. If a foreign sovereign obligor cannot generate sufficient
earnings from foreign trade to service it external debt, it may need to depend
on continuing loans and aid from foreign governments, commercial banks and
multilateral organizations, and inflows of foreign investment. The commitment
on the part of these foreign governments, multilateral organizations and others
to make such disbursements may be conditioned to the government's implementation
of economic reforms and/or economic performance and the timely service of its
obligations. Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due may result in the
cancellation of such third parties' commitment to lend funds which may further
impair the obligor's ability or willingness to timely service its debts.
Standby Commitments or Puts
Securities subject to standby commitments or puts permit the holder thereof to
sell the securities at a fixed price prior to maturity. Securities subject to a
standby commitment or put may be sold at any time at the current market price.
However, unless the standby commitment or put was an integral part of the
security as originally issued, it may not be marketable or assignable;
therefore, the standby commitment or put would only have value to the Fund
owning the security to which it relates. In certain cases, a premium may be
paid for a standby commitment or put, which premium has the effect of reducing
the yield otherwise payable on the underlying security.
The Advisor has the authority to purchase securities at a price which would
result in a yield to maturity lower than that generally offered by the seller at
the time of purchase when they can simultaneously acquire the right to sell the
securities back to the seller, the issuer, or a third party (the "writer") at an
agreed-upon price at any time during a stated period or on a certain date. Such
a right is generally called a "standby commitment" or a "put." The purpose of
engaging in transactions involving puts is to maintain flexibility and liquidity
to permit a Fund to meet redemptions and remain as fully invested as possible in
municipal securities. The Funds reserve the right to engage in put
transactions. The right to put the securities depends on the writer's ability
to pay for the securities at the time the put is exercised. The Funds will
limit their put transactions to institutions which the Advisor believes present
minimal credit risks, and the Advisor will use its best efforts to initially
determine and continue to monitor the financial strength of the sellers of the
options by evaluating their financial statements and such other information as
is available in the marketplace. It may, however, be difficult to monitor the
financial strength of the writers because adequate current financial information
may not be available. In
24
<PAGE>
the event that any writer is unable to honor a put for financial reasons, the
Fund would be general creditor (i.e., on a parity with all other unsecured
creditors) of the writer. Furthermore, particular provisions of the contract
between the Fund and the writer may excuse the writer from repurchasing the
securities; for example, a change in the published rating of the underlying
municipal securities or any similar event that has an adverse effect on the
issuer's credit or a provision in the contract that the put will not be
exercised except in certain special cases, for example, to maintain portfolio
liquidity. The Fund could, however, at any time sell the underlying portfolio
security in the open market or wait until the portfolio security matures, at
which time it should realize the full par value of the security.
Securities purchased subject to a put may be sold to third persons at any time,
even though the put is outstanding, but the put itself, unless it is an integral
part of the security as originally issued, may not be marketable or otherwise
assignable. Therefore, the put would have value only to the Fund. Sale of the
securities to third parties or lapse of time with the put unexercised may
terminate the right to put the securities. Prior to the expiration of any put
option, the Fund could seek to negotiate terms for the extension of such an
option. If such a renewal cannot be negotiated on terms satisfactory to the
Fund, the Fund could sell the portfolio security. The maturity of the
underlying security will generally be different from that of the put. There
will be no limit to the percentage of portfolio securities that the Fund may
purchase subject to a put, but the amount paid directly or indirectly for puts
which are not integral parts of the security as originally issued which are held
by the Fund will not exceed 1/2 of 1% of the value of the total assets of such
Fund calculated immediately after any such put is acquired. For the purpose of
determining the "maturity" of securities purchased subject to an option to put,
and for the purpose of determining the dollar-weighted average maturity of the
Fund including such securities, the Trust will consider "maturity" to be the
first date on which it has the right to demand payment from the writer of the
put although the final maturity of the security is later than such date.
STRIPS
Separately traded interest and principal securities ("STRIPS") are component
parts of U.S. Treasury Securities traded through the Federal Book-Entry System.
The Advisor will purchase only STRIPS that it determines are liquid or, if
illiquid, that do not violate the Fund's investment policy concerning
investments in illiquid securities. Consistent with Rule 2a-7, the Advisor will
purchase for Money Market Funds only STRIPS that have a remaining maturity of
397 days or less. While there is no limitation on the percentage of a Fund's
assets that may be comprised of STRIPS, the Advisor will monitor the level of
such holdings to avoid the risk of impairing shareholders' redemption rights and
of deviations in the value of shares of the Money Market Funds.
Swaps, Caps, Floors and Collars
Interest rate swaps, mortgage swaps, currency swaps and other types of swap
agreements such as caps, floors and collars are designed to permit the purchaser
to preserve a return or spread on a particular investment or portion of its
portfolio, and to protect against any increase in the price of
25
<PAGE>
securities the Fund anticipates purchasing at a later date. In a typical
interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specific period of
time. Swaps may also depend on other prices or rates, such as the value of an
index or mortgage prepayment rates.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risk assumed. As a
result, swaps can be highly volatile and have a considerable impact on a Fund's
performance. Swap agreements are subject to risks related to the counterparty's
ability to perform, and may decline in value if the counterparty's
creditworthiness deteriorates. A Fund may also suffer losses if it is unable to
terminate outstanding swap agreements or reduce its exposure through offsetting
transactions. Any obligation a Fund may have under these types of arrangements
are covered by setting aside cash or liquid assets in a segregated account. A
Fund enters into swaps only with counterparties believed to be creditworthy.
In a typical cap or floor agreement, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specific interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate falls
below an agreed-upon level. An interest rate collar combines elements of buying
a cap and selling a floor. In swap agreements, if a Fund agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of a Fund's
investment and their share price and yield. Swap agreements will tend to shift
a Fund's investment exposure from one type of investment to another. Depending
on how they are used, swap agreements may increase or decrease the overall
volatility of a Fund's investment and their share price and yield.
Unit Investment Trusts
A unit investment trust ("UIT") is a type of investment company. Investments in
UITs are subject to regulations limiting a Fund's acquisition of investment
company securities. Standard and Poor's Depositary Receipts ("SPDRs") DIAMONDS,
MDYs and similar investments are interests in UITs that may be obtained directly
from the UIT or purchased in the secondary market. SPDRs consist of a portfolio
of securities substantially similar to the component securities of the Standard
and Poor's 500 Composite Stock Price Index. DIAMONDS and MDYs consist of a
portfolio of securities substantially similar to the component securities of the
Dow Jones Industrial Average and of the Standard and Poor's MidCap 400 Index,
respectively.
The price of a UIT interest is derived and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a UIT
interest is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for UITs is based on
a basket of stocks. Disruptions in the markets for the securities underlying
UITs purchased or sold by a Fund could result in losses on UITs. Trading
26
<PAGE>
in UITs involves risks similar to those risks, described above under "Options,"
involved in the writing of options on securities.
Interests in UITs are not individually redeemable, except upon termination of
the UIT. To redeem, a Fund must accumulate a certain amount of UIT interests.
The liquidity of small holdings of UITs, therefore, depends upon the existence
of a secondary market. Upon redemption of a UIT interest, a Fund receives
securities and cash identical to the deposit required of an investor wishing to
purchase a UIT interest that day.
U.S. Government Agency Obligations
Obligations issued or guaranteed by agencies of the U.S. Government, including,
among others, the Federal Farm Credit Bank, the Federal Housing Administration
and the Small Business Administration, and obligations issued or guaranteed by
instrumentalities of the U.S. Government, including, among others, the Federal
Home Loan Mortgage Corporation, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full faith and credit of
the U.S. Treasury (e.g.,GNMA securities), others are supported by the right of
the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank
securities), while still others are supported only by the credit of the
instrumentality (e.g., Fannie Mae securities). Guarantees of principal by
agencies or instrumentalities of the U.S. Government may be a guarantee of
payment at the maturity of the obligation so that in the event of a default
prior to maturity there might not be a market and thus no means of realizing on
the obligation prior to maturity. Guarantees as to the timely payment of
principal and interest do not extend to the value or yield of these securities
nor to the value of the Fund's shares.
U.S. Treasury Obligations
U.S. Treasury obligations consist of bills, notes and bonds issued by the U.S.
Treasury, as well as separately traded interest and principal component parts of
such obligations, known as "Separately Traded Registered Interest and Principal
Securities" ("STRIPS"), that are transferable through the Federal book-entry
system.
Variable Amount Master Demand Notes
Variable amount master demand notes may or may not be backed by bank letters of
credit. These notes permit the investment of fluctuating amounts at varying
market rates of interest pursuant to direct arrangements between the Trust, as
lender, and the borrower. Such notes provide that the interest rate on the
amount outstanding varies on a daily, weekly or monthly basis depending upon a
stated short-term interest rate index. Both the lender and the borrower have
the right to reduce the amount of outstanding indebtedness at any time. There
is no secondary market for the notes. It is not generally contemplated that
such instruments will be traded.
27
<PAGE>
Warrants
Warrants are instruments giving holders the right, but not the obligation, to
buy shares of a company at a given price usually higher than the market price at
the time of issuance during a specified period.
When-Issued Securities
When-issued or delayed delivery basis transactions involve the purchase of an
instrument with payment and delivery taking place in the future. Delivery of
and payment for these securities may occur a month or more after the date of the
purchase commitment. The interest rate realized on these securities is fixed as
of the purchase date and no interest accrues to the Fund before settlement.
These securities are subject to market fluctuations due to changes in market
interest rates, and it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed. Although a Fund generally purchases securities
on a when-issued or forward commitment basis with the intention of actually
acquiring securities for its portfolio, a Fund may dispose of a when-issued
security or forward commitment prior to settlement if it deems appropriate.
When investing in when-issued securities, a Fund will not accrue income until
delivery of the securities and will invest in such securities only for purposes
of actually acquiring the securities and not for the purpose of leveraging.
The when-issued securities are subject to market fluctuations, and the purchaser
accrues no interest on the security during this period. The payment obligation
and the interest rate that will be received on the securities are each fixed at
the time the purchaser enters into the commitment.
The Funds segregate cash or liquid assets in an amount at least equal in value
to the Funds' commitments to purchase when-issued securities. If the value of
these assets declines, the Funds place additional liquid assets aside on a daily
basis so that the value of the assets set aside is equal to the amount of such
commitments. Consequently, the Funds do not use such purchases for leveraging.
Whenever a Fund is required to establish a segregated account, notations on the
books of the Trust's custodian are sufficient to constitute a segregated
account.
Zero Coupon Obligations
Zero coupon obligations are debt obligations that do not bear any interest, but
instead are issued at a deep discount from face value or par. The value of a
zero coupon obligations increases over time to reflect the interest accreted.
Such obligations will not result in the payment of interest until maturity, and
will have greater price volatility than similar securities that are issued at
face value or par and pay interest periodically.
INVESTMENT LIMITATIONS
Each Fund has adopted certain investment limitations which are fundamental and
may not be changed without approval by a majority vote of the Fund's outstanding
shares. The term
28
<PAGE>
"majority of the Fund's outstanding shares" means the vote of (i) 67% or more of
the Fund's shares present at a meeting, if more than 50% of the outstanding
shares of the Fund are present or represented by proxy, or (ii) more than 50% of
the Fund's outstanding shares, whichever is less.
No Fund may:
1. Underwrite securities issued by others, except to the extent that a Fund
may be considered an underwriter within the meaning of the Securities Act
of 1933 in the disposition of shares of the Fund.
2. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described below or as permitted by rule,
regulation or order of the SEC.
3. Borrow money, except that a Fund (a) may borrow money for temporary or
emergency purposes in an amount not exceeding 5% of the Fund's total assets
determined at the time of the borrowing and (b) may borrow money from banks
or by engaging in reverse repurchase agreements. Asset coverage of at
least 300% is required for all borrowings, except where a Fund has borrowed
money for temporary purposes in amounts not exceeding 5% of its total
assets.
4. Purchase or sell real estate or physical commodities, unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent a Fund from investing in securities or other instruments either
issued by companies that invest in real estate, backed by real estate or
securities of companies engaged in the real estate business).
No Equity, Fixed Income or Balanced Fund may:
1. Purchase securities of any issuer (except securities issued or guaranteed
by the United States, its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the
total assets of the Fund would be invested in the securities of such issuer
or more than 10% of the outstanding voting securities of such issuer would
be owned by the Fund. This restriction applies to 75% of the Fund's assets,
and does not apply to the Latin America Equity, International Fixed Income
or Real Estate Funds.
2. Purchase securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or
instrumentalities, repurchase agreements involving such securities, and,
with respect to the Real Estate Fund, investments in the real estate
industry) if, as a result, more than 25% of the total assets of the Fund
are invested in the securities of one or more issuers whose principal
business activities are in the same industry.
3. Make loans, except as permitted by the 1940 Act, and the rules and
regulations thereunder.
29
<PAGE>
No Money Market Fund may:
1. Purchase securities of any issuer if, as a result, the Fund would violate
the diversification provisions of Rule 2a-7 under the 1940 Act.
2. Purchase securities of any issuer if, as a result, more than 25% of the
total assets of the Fund are invested in the securities of one or more
issuers whose principal business activities are in the same industry or
securities the interest upon which is paid from revenue of similar type
industrial development projects, provided that this limitation does not
apply to: (i) investment in obligations issued or guaranteed by the U.S.
Government or its agencies and instrumentalities or in repurchase
agreements involving such securities; (ii) obligations issued by domestic
branches of U.S. banks or U.S. branches of foreign banks subject to the
same regulations as U.S. banks; or (iii) tax-exempt securities issued by
government or political subdivisions of governments.
3. Make loans, except as permitted by the 1940 Act, and the rules and
regulations thereunder.
The foregoing percentages (except for the limitation on illiquid securities
below) apply at the time of the purchase of a security and shall not be
considered violated unless an excess occurs or exists immediately after and as a
result of a purchase of such security.
NON-FUNDAMENTAL POLICIES
No Fund may invest in illiquid securities in an amount exceeding, in the
aggregate, 15% of the Fund's net assets (except for all Money Market Funds for
which the limit is 10% of net assets).
For purposes of the Latin America Equity Fund's investment policies, Latin
American issuers means companies organized in, or for which the principal
securities trading market is in Latin America and (ii) companies, wherever
organized, that, in one of the last two fiscal years derived more than 50% of
their annual revenues or profits from goods produced, sales made or services
performed in Latin America.
For purposes of the Real Estate Fund's investment policies, a company is
"principally engaged" in the real estate industry if (i) it derives at least 50%
of its revenues or profits from the ownership, construction, management,
financing, or sale of residential, commercial, or industrial real estate, or
(ii) it has at least 50% of the fair market value of its assets invested in
residential, commercial, or industrial real estate. Companies in the real
estate industry may include, but are not limited to, REITs or other securitized
real estate investments, master limited partnerships that are treated as
corporations for Federal income tax purposes and that invest in interests in
real estate, real estate operating companies, real estate brokers or developers,
financial institutions that make or service mortgages, and companies with
substantial real estate holdings, such as lumber and paper companies, hotel
companies, residential builders and land-rich companies.
30
<PAGE>
A Fund may enter into futures contract transactions only to the extent that
obligations under such contracts represent less than 20% of the Fund's assets.
The aggregate value of option positions may not exceed 10% of a Fund's net
assets as of the time such options are entered into by a Fund.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which certain companies provide essential
management, administrative and other services to the Trust. The Trustees and
executive officers of the Trust and their principal occupations for the last
five years are set forth below.
ARNOLD F. BROOKSTONE (4/8/30) -- Trustee -- 950 N. Michigan Avenue, Chicago,
Illinois 60611. Retired. Executive Vice President, Chief Financial Officer and
Planning Officer of Stone Container Corporation (pulp and paper business),
1991-1996.
WILLIAM T. SIMPSON (7/26/27) -- Trustee -- 1318 Navajo Court, Louisville,
Kentucky 40207. Retired since July 1992.
ROBERT FIETLER (11/19/30) -- Trustee -- 179 East Lake Shore Drive, Chicago,
Illinois 60611. Retired. Chairman of Executive Committee, Board of Directors,
Weyco Group, Inc. (men's footwear), since 1996. President and Director, Weyco
Group, Inc., 1968-1996.
RICHARD A. FRODSHAM (3/23/40) -- Executive Vice President** -- Since October
1997, Executive Vice President and Chief Administrative Officer of ABN AMRO
Asset Management (USA) Inc., 208 S. LaSalle Street, Chicago, Illinois 60604.
President of LaSalle Street Capital Management, Ltd., January 1997 -September
1997. Senior Vice President of ABN AMRO Incorporated (formerly, ABN AMRO Chicago
Corporation, formerly, The Chicago Corporation), January 1994 -Present.
31
<PAGE>
MICHAEL T. CASTINO (8/10/62) -- Vice President** -- Since July 1997, Vice
President, Fund Marketing, of ABN AMRO Asset Management (USA) Inc., 208 S.
LaSalle Street, Chicago, Illinois 60604. Assistant Vice President, Rembrandt
Product Manager of LaSalle National Bank (formerly, LaSalle National Trust,
N.A.), June 1995-July 1997. Director of Fund Marketing, Kemper Financial
Services, Inc., October 1991-June 1995.
KATHRYN L. MARTIN (10/23/57) -- Vice President** -- Since March 1998, Senior
Vice President, Director of Compliance of ABN AMRO Asset Management (USA) Inc.,
208 S. LaSalle Street, Chicago, Illinois 60604. Vice President, ABN AMRO Asset
Management (USA) Inc. (formerly, LaSalle Street Capital Management, Ltd.), June
1995 - March 1998. Assistant Vice President, LaSalle Street Capital Management,
Ltd. (formerly, Chemical Investment Group), October 1989-June 1995.
LAURIE LYNCH (8/3/61) -- Vice President** -- Since April 1997, Marketing
Associate, Fund Marketing of ABN AMRO Asset Management (USA) Inc., 208 S.
LaSalle Street, Chicago, Illinois 60604. Executive Assistant, LaSalle Street
Capital Management, Ltd., April 1996-April 1997. Municipal Underwriting
Assistant, Fidelity Capital Markets, September 1994-April 1997. Office
Administrator, The Choice for Staffing, March 1992-September 1994.
COLEEN DOWNS DINNEEN (12/16/60) -- Vice President and Assistant Secretary --
Counsel, Mutual Fund Legal Division, First Data Investor Services Group, Inc.,
101 Federal Street, Boston, Massachusetts 02110 since 1997. Vice-President,
Scudder, Stevens & Clark, Inc (an investment management firm). (1989-1996).
MICHAEL C. KARDOK (7/17/59) -- Treasurer -- Vice President and Division Manager,
First Data Investor Services Group, Inc.; prior to May 1994, Vice President, The
Boston Company Advisors, Inc.
32
<PAGE>
JEFFREY MARSHALL (2/18/56) -- Vice President and Assistant Treasurer -- Since
1998, associated with the Distribution Services Division of First Data Investor
Services Group, Inc., 4400 Computer Drive, Westborough, Massachusetts 01581.
THERESE M. HOGAN (2/27/62) -- Vice President and Assistant Treasurer -- Director
of State Regulation of First Data Investor Services Group, Inc., 4400 Computer
Drive, Westborough, Massachusetts 01581 since June 1994. For more than eight
years prior thereto, a paralegal at Robinson & Cole in Hartford, Connecticut.
MARC PEIRCE (4/6/62) -- Vice President** -- Since September 1998, Compliance
Analyst of ABN AMRO Asset Management (USA) Inc., 208 S. LaSalle Street, Chicago,
IL 60604. Compliance Analyst, The Northern Trust Company from August 1996 --
September 1998; Tax Analyst, The Northern Trust Company, September 1991 --
August 1996.
KAREN DEPOUTOT (10/7/66) -- Assistant Treasurer -- Director of Mutual Fund
Treasury and Assistant Treasurer for First Data Investor Services Group, Inc.
since June 1994. Prior to June 1994, Ms. Depoutot was a Senior Treasury Analyst
at The New England and an Assistant Vice President in the Mutual Fund Accounting
Department at The Boston Company Advisors, Inc.
JOHN H. GRADY, JR. (6/1/61) -- Assistant Secretary -- 1701 Market Street,
Philadelphia, Pennsylvania 19103. Partner, Morgan, Lewis & Bockius LLP (law
firm) since 1995; Associate, Morgan, Lewis & Bockius LLP, 1993-1995.
RICHARD W. GRANT (10/25/45) -- Assistant Secretary -- 1701 Market Street,
Philadelphia, Pennsylvania 19103. Partner, Morgan, Lewis & Bockius LLP (law
firm) since 1989.
- ------------------
** This person is an "affiliated person" of both the Advisor and the Trust, as
the term is defined in the 1940 Act.
For the fiscal year ended December 31, 1998, the Trustees received the following
compensation:
<TABLE>
<CAPTION>
===================================================================================================
Total Compensation
Aggregate Pension or from Registrant and
Compensation Retirement Estimated Fund Complex Paid
From Registrant Benefits Accrued Annual Benefits to Directors for
Name of Person, for Fiscal Year as Part of Fund Upon Fiscal Year Ended
Position Ended 1998 Expenses Retirement 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Arnold F. Brookstone, $14,000 N/A N/A $14,000 for service
Trustee on one board
===================================================================================================
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================
Total Compensation
Aggregate Pension or from Registrant and
Compensation Retirement Estimated Fund Complex Paid
From Registrant Benefits Accrued Annual Benefits to Directors for
Name of Person, for Fiscal Year as Part of Fund Upon Fiscal Year Ended
Position Ended 1998 Expenses Retirement 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William T. Simpson, $14,000 N/A N/A $14,000 for service
Trustee on one board
- --------------------------------------------------------------------------------------------------------
John A. Wing, None N/A N/A None
Trustee/1/
- --------------------------------------------------------------------------------------------------------
Robert Fietler, $14,000 N/A N/A $14,000
Trustee
- --------------------------------------------------------------------------------------------------------
Timothy Leach, None N/A N/A None
Trustee/1/
========================================================================================================
</TABLE>
/1/ No longer serves on the Board.
The Trust pays the fees for unaffiliated Trustees who are not "interested
persons" of the Trust. Officers and affiliated Trustees are not compensated by
the Trust.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
5% AND 25% SHAREHOLDERS
As of March 31, 1999, the Trustees and officers of the Trust owned less than 1%
of the outstanding shares of the Trust.
As of March 31, 1999, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or 25%
or more of the shares of the Funds. Persons who owned of record or beneficially
more than 25% of a Fund's outstanding shares may be deemed to control the Fund
within the meaning of the 1940 Act. The Trust believes that most of the shares
of the Common Class shares of the Funds were held for the record owner's
fiduciary, agency or custodial customers.
TREASURY MONEY MARKET FUND
<TABLE>
<CAPTION>
Name of Owner and Class Percentage of Ownership
- ----------------------- -----------------------
<S> <C>
LaSalle National Bank 97.219
Attn: Demand Note Desk
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
ABN AMRO Chicago Corporation 99.376
Attn: Control Department
208 S. LaSalle St.
Chicago, IL 60604-1001
INVESTOR Shares
</TABLE>
34
<PAGE>
GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
Name of Owner and Class Percentage of Ownership
- ----------------------- -----------------------
<S> <C>
LaSalle National Trust N.A. 80.782
Attn: Income Collection
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
LaSalle National Bank 17.320
FBO Various Defined Contribution
P.O. Box 1443
Chicago, IL 60609-1443
COMMON Shares
ABN AMRO Incorporated 99.276
Attn: Control Department
208 S. LaSalle St.
Chicago, IL 60604-1001
INVESTOR Shares
MONEY MARKET FUND
LaSalle National Trust N.A. 94.223
Attn: Income Collection
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
ABN AMRO Chicago Corporation 99.114
Attn: Control Department
208 S. LaSalle St.
Chicago, IL 60604-1001
INVESTOR Shares
TAX-EXEMPT MONEY MARKET FUND
LaSalle National Bank 97.124
Attn: Income Collection
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
ABN AMRO Chicago Corporation 99.525
Attn: Control Department
208 S. LaSalle St.
Chicago, IL 60604-1001
INVESTOR Shares
FIXED INCOME FUND
LaSalle National Bank 75.896
Omnibus A/C 75953R109
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Name of Owner and Class Percentage of Ownership
----------------------- -----------------------
<S> <C>
LaSalle National Bank 17.617
FBO Various Defined Contribution P1
P.O. Box 1443
Chicago, IL 60609-1443
COMMON Shares
Delaware Charter Cust 34.790
IRA A/C Casmir F. Jezierny
7609 W Strong
Harwood Heights, IL 60656-3353
INVESTOR Shares
Delaware Charter Cust T 22.275
IRA A/C Thomas J. Odriska
6609 S Kedvale
Chicago, IL 60629-5127
INVESTOR Shares
ABN AMRO Incorporated 9.241
393-56020-15
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680-6108
INVESTOR Shares
Delaware Charter Cust 6.807
IRA A/C Christopher J. Nolfi
5131 W Melrose
Chicago, IL 60641-4225
INVESTOR Shares
Robert K. Moeller & 6.234
Donald R. Moeller JTWROS
4921 Newport Ave
Chicago, IL 60641-3559
INVESTOR Shares
Delaware Charter Cust 5.461
IRA A/C Donald Johnson
3304 N New England
Chicago, IL 60634-3745
INVESTOR Shares
Helen Ann Huber TR 5.025
J/A 12-04-1997 The Then Acting
Trustee of The Helen Ann Huber Self
Declaration Trust
6314 N Leona Ave
Chicago, IL 60646-4224
INVESTOR Shares
INTERMEDIATE GOVERNMENT FIXED INCOME FUND
LaSalle National Bank 95.822
Omnibus A/C 75953R307
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
Delaware Charter Cust 47.944
IRA A/C Christopher J. Nolfi
5131 W Melrose
Chicago, IL 60641-4225
INVESTOR Shares
ABN AMRO Incorporated 19.772
Attn: Mutual Fund Operations
395-01746-19
P.O. Box 6108
Chicago, IL 60680-6108
INVESTOR Shares
Delaware Charter Cust 13.222
IRA A/C Joanne Magnifico Madonia
291 Beaumont Ct
Bartlett, IL 60103-2982
INVESTOR Shares
Jennifer L. Billy 10.762
720 N. Lakeside Dr
Vernon Hills, IL 60061-2614
INVESTOR Shares
ABN AMRO Incorporated 8.289
Attn: Mutual Fund Operations
395-70333-13
PO Box 6108
Chicago, IL 60680-6108
INVESTOR Shares
TAX-EXEMPT FIXED INCOME FUND
LaSalle National Bank 99.432
Omnibus A/C 75953R505
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
ABN AMRO Incorporated 35.037
392-03740-18
Attn: Mutual Fund Operations
P.O. Box 6106
Chicago, IL 60680-6108
INVESTOR Shares
ABN AMRO Incorporated 17.866
040-88498-18
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680-6108
INVESTOR Shares
Anton Sivak & 6.672
Eugenia Sivak Jtten
6526 S Karlou Ave
Chicago, IL 60629-5124
INVESTOR Shares
Donald A. Peterson 6.578
5323 W Drummond
Chicago, IL 60639-1514
INVESTOR Shares
Hugh J. O'Malley & 5.993
Helen A O'Malley JT TEN
725 Newgate Ln Apt G
Prospect Hts, IL 60070-2893
INVESTOR Shares
Gloria Kokaisl 5.569
200 Vilalge Dr #224
Downers Grove, IL 60516-3050
INVESTOR Shares
ABN AMRO Incorporated 5.019
Attn: Mutual Fund Operations
392-06083-16
PO Box 6108
Chicago, IL 60680-6106
INVESTOR Shares
INTERNATIONAL FIXED INCOME FUND
LaSalle National Bank 98.650
Omnibus A/C 75953R703
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
Delaware Charter Cust 16.899
IRA A/C R/O Jeraldine Harris
4607 Lincoln Blvd
Richton Park, IL 60471-1868
INVESTOR Shares
Mae F. Belgrave 15.978
15022 South Champlain Avenue
Dolton, IL 60419-2661
INVESTOR Shares
Louis A. McDaniel Jr 10.388
15840 Campbell St
Harvey, IL 60426-2850
INVESTOR Shares
Benito Zapata Cust 9.508
Andrea Zapata
Unif Trans to Min Act - FL
8164 Boss Street
Vienna, VA 22182-3776
INVESTOR Shares
Ilene Wolthusen 7.638
416 E Reader St
Elburn, Il 60119-8937
INVESTOR Shares
Maria D. Dominquez 5.470
1114 George St
Calumet City, IL 60409-2024
INVESTOR Shares
ABN AMRO Incorporated 5.396
393-04255-11
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680-6108
INVESTOR Shares
Claudette C. Miles 5.166
8000 S Dante
Chicago, IL 60619-4621
INVESTOR Shares
ABN AMRO Incorporated 5.063
393-04254-12
Attn: Mutual Fund Operations
P.O. Box 6106
Chicago, IL 60680-6108
INVESTOR Shares
VALUE FUND
LaSalle National Bank 62.247
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
LaSalle National Bank 29.549
FBO Various Defined Contributions PL
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
GROWTH FUND
LaSalle National Bank 58.236
FBO Various Defined Contributions PL
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
LaSalle National Bank 33.577
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Name of Owner and Class Percentage of Ownership
- ----------------------- -----------------------
<S> <C>
SMALL CAP GROWTH FUND
LaSalle National Bank 84.717
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
LaSalle National Bank 10.511
FBO Various Defined Contribution PL
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
Sema & Co 12.051
100 Wall St.
New York, NY 10005-3701
INVESTOR Shares
Delaware Charter Cust 11.065
IRA A/C Ronald T. Anderson
3134 N 78th Ct.
Elmwood Park, IL 60707-1012
INVESTOR Shares
Phyllis L. Fisher 9.354
P.O. Box 427 Corning Rd.
Beecher, IL 60401-0427
INVESTOR Shares
Delaware Charter Cust 6.793
IRA A/C Sonny C. Lai
1760 Potter Rd.
Park Ridge, IL 60068-1131
INVESTOR Shares
Mark R. Dieter & 5.992
Dawn R. Dieter JTTEN
6859 South Plainfield Rd
Plainfield, IL 60544-0000
INVESTOR Shares
INTERNATIONAL EQUITY FUND
LaSalle National Bank 68.719
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
LaSalle National Bank 22.088
FBO Various Defined Contribution PL
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
ABN AMRO Incorporated 5.471
393-93306-13
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680-6108
INVESTOR Shares
ASIAN TIGERS FUND
LaSalle National Bank 72.312
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
LaSalle National Bank 24.945
FBO Various Defined Contribution PL
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
James G. Kokenes & 9.241
Lynn M. Kokenes JTTEN
510 North Richmond Avenue
Westmont, IL 60559-1539
INVESTOR Shares
Donaldson Lufkin Jenrette 8.927
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
INVESTOR Shares
Delaware Charter Cust 8.649
IRA A/C Thomas J. Plonka
126 N. Grant Street
Westmont, IL 60559-1608
INVESTOR Shares
Delaware Charter Cust 6.366
IRA A/C Roger J. Bianco, Sr.
1636 Gibson Dr.
Elk Grove Village, IL 60007-2704
INVESTOR Shares
BALANCED FUND
LaSalle National Bank 68.105
FBO Various Defined Contribution PL
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
LaSalle National Bank 16.101
P.O. Box 1443
Chicago, IL 60690-1443
COMMON Shares
ABN AMRO Incorporated 5.259
Attn: Mutual Fund Operations
395-00837-11
P.O. Box 6108
Chicago, IL 60680-6108
INVESTOR Shares
LATIN AMERICA EQUITY FUND
LaSalle National Bank
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Name of Owner and Class Percentage of Ownership
- ----------------------- -----------------------
<S> <C>
P.O. Box 1443 96.041
Chicago, IL 60690-1443
COMMON Shares
REAL ESTATE FUND
ABN AMRO Chicago Corporation 37.550
Attn: Bill Thiel
208 S. LaSalle Street
Chicago, IL 60604-1001
COMMON Shares
ABN AMRO Incorporated 32.628
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680-6108
COMMON Shares
ABN AMRO Incorporated 10.830
022-81283-10
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680-6108
COMMON Shares
ABN AMRO Incorporated 5.511
022-81280-13
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680-6108
COMMON Shares
ABN AMRO Incorporated 47.500
292-00034-11
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680-6108
INVESTOR Shares
ABN AMRO Incorporated 47.500
292-00035-10
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680-6108
INVESTOR Shares
ABN AMRO Incorporated 5.000
398-49208-13
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680-6108
INVESTOR Shares
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
THE ADVISOR
The Trust and ABN AMRO Asset Management (USA) Inc., 208 South LaSalle Street,
Chicago, Illinois 60604 (the "Advisor"), have entered into an advisory agreement
(the "Advisory Agreement"). The Advisory Agreement provides that the Advisor
shall not be protected against any liability to the Trust or its shareholders by
reason of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
The Advisor is a direct, wholly-owned subsidiary of ABN AMRO Capital Markets
Holding, Inc., which is an indirect, wholly-owned subsidiary of ABN AMRO Holding
N.V., a Netherlands company. The Administrator and Advisor are affiliated and
under the common control of ABN AMRO Holding N.V.
The continuance of the Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are not parties to the
Agreement or "interested persons" of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to the Funds by a majority of the outstanding shares of the Funds, on
not less than 30 days' nor more than 60 days' written notice to the Advisor, or
by the Advisor on 90 days' written notice to the Trust.
38
<PAGE>
For the fiscal years ended December 31, 1996, 1997, and 1998, the Funds paid the
following advisory fees:
<TABLE>
<CAPTION>
Net Fees Paid Fees waived
---------------------------------- ----------------------------------
Fund 1996 1997 1998 1996 1997 1998
===========================================================================================
<S> <C> <C> <C> <C> <C> <C>
Treasury Money $ 291,794 $ 374,682 $ 458,132 $235,779 $ 301,942 $ 343,600
Market Fund
- -------------------------------------------------------------------------------------------
Government $ 448,001 $ 497,187 $ 474,566 $ 0 $ 0 $ 263,355
Money Market
Fund
- -------------------------------------------------------------------------------------------
Money Market $1,138,578 $1,386,860 $2,020,937 $853,933 $1,040,154 $1,515,702
Fund
- -------------------------------------------------------------------------------------------
Tax-Exempt $ 318,245 $ 484,301 $ 613,501 $275,379 $ 413,335 $ 460,126
Money Market
Fund
- -------------------------------------------------------------------------------------------
Fixed Income $ 625,690 $ 670,250 $ 833,301 $125,138 $ 134,049 $ 166,660
Fund
- -------------------------------------------------------------------------------------------
Intermediate $ 334,912 $ 268,185 $ 243,361 $ 66,982 $ 53,637 $ 48,672
Government
Fixed Income
Fund
- -------------------------------------------------------------------------------------------
Tax-Exempt $ 218,761 $ 194,948 $ 184,668 $ 56,636 $ 43,866 $ 36,934
Fixed Income
Fund
- -------------------------------------------------------------------------------------------
International $ 140,609 $ 136,701 $ 132,776 $ 0 $ 0 $ 7,424
Fixed Income
Fund
- -------------------------------------------------------------------------------------------
Limited * * * * * *
Volatility Fixed
Income Fund
- -------------------------------------------------------------------------------------------
Value Fund $1,170,294 $1,620,699 $1,673,833 $ 0 $ 0 $ 0
- -------------------------------------------------------------------------------------------
Growth Fund $ 723,113 $ 972,369 $1,279,933 $ 0 $ 0 $ 0
- -------------------------------------------------------------------------------------------
Small Cap $ 235,012 $ 319,968 $ 390,042 $ 0 $ 0 $ 0
Growth Fund
- -------------------------------------------------------------------------------------------
Small Cap Value * * $ 25,004 * * $ 2,778
Fund
- -------------------------------------------------------------------------------------------
International $ 886,424 $ 972,268 $1,183,171 $ 0 $ 0 $ 0
Equity Fund
- -------------------------------------------------------------------------------------------
TransEurope * * * * * *
Fund
===========================================================================================
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Net Fees Paid Fees Waived
------------------------------ ---------------------------
Fund 1996 1997 1998 1996 1997 1998
====================================================================================
<S> <C> <C> <C> <C> <C> <C>
Asian Tigers $312,823 $393,065 $298,444 $0 $0 $0
Fund
- ------------------------------------------------------------------------------------
Latin America $ 44,270 $259,452 $287,872 $0 $0 $0
Equity Fund
- ------------------------------------------------------------------------------------
Real Estate Fund * $ 57 $ 34,196 * $25 $14,655
- ------------------------------------------------------------------------------------
Balanced Fund $391,615 $466,334 $545,646 $0 $0 $0
====================================================================================
</TABLE>
* Not in operation during the period.
The Advisor has agreed to waive its fee at least through April 2000 in order to
limit advisory fees to the amounts set forth below:
Fund Total Advisory Fees
- ---- -------------------
Real Estate Fund .70%
Fixed Income Fund .50%
Intermediate Government Fixed Income Fund .50%
Tax-Exempt Fixed Income Fund .50%
Limited Volatility Fixed Income Fund .50%
Treasury Money Market Fund .20%
Money Market Fund .20%
Tax-Exempt Money Market Fund .20%
After April 2000, the Advisor may continue, modify or cancel this waiver.
Advisory fees are paid separately by each Fund. For each Fund, advisory fees at
the Fund level rather than at the share class level.
DISTRIBUTION AND SHAREHOLDER SERVICING
First Data Distributors, Inc., (the "Distributor"), a wholly-owned subsidiary of
First Data Corporation, 4400 Computer Drive, Westborough, Massachusetts 01581,
and the Trust are parties to a distribution agreement (the "Distribution
Agreement") dated March 2, 1998. The Distribution Agreement shall be reviewed
and ratified at least annually (i) by the Trustees or by the vote of a majority
of the outstanding shares of the Trust, and (ii) by the vote of a majority of
the Trustees of the Trust who are not parties to the Distribution Agreement or
"interested persons" (as defined in the 1940 Act) of any party to the
Distribution Agreement, cast in person at a meeting called for the purpose of
voting on such approval. The Distribution Agreement will terminate in the event
of any assignment, as defined in the 1940 Act, and is terminable with respect to
a particular Fund on not less than 60 days' notice by the Trustees, by vote of a
majority of the outstanding shares of such Fund or by the Distributor. Under
the Distribution Agreement, the Distributor has agreed to use its best efforts
in connection with the distribution of Fund shares. Fund shares are offered
continuously.
Distribution Plan
The Trust has adopted a distribution plan for the Investor Shares of each Fund
(the "Distribution Plan") in accordance with the provisions of Rule 12b-1 under
the 1940 Act. Rule 12b-1 regulates the circumstances under which an
investment company may directly or indirectly bear expenses relating to the
distribution of its shares. Continuance of the Distribution Plan must be
approved annually by a majority of the Trustees of the Trust and by a majority
of the Trustees who are not "interested persons" of the Trust or the
Distributor, as that term is defined in the 1940 Act ("Disinterested Trustees").
The Distribution Plan requires that quarterly written reports of amounts spent
under the Distribution Plan and the purposes of such expenditures be furnished
to and reviewed by the Trustees. In accordance with Rule 12b-1 under the 1940
Act, the Distribution Plan may be terminated with respect to any Fund by a vote
of a majority of the Disinterested Trustees, or by a vote of a majority of the
outstanding shares of that Fund. The
40
<PAGE>
Distribution Plan may be amended by vote of the Trust's Board of Trustees,
including a majority of the Disinterested Trustees, cast in person at a meeting
called for such purpose, except that any change that would effect a material
increase in any distribution fee with respect to a Fund requires the approval of
that Fund's shareholders. All material amendments of the Plan will require
approval by a majority of the Trustees of the Trust and of the Disinterested
Trustees.
The Distribution Plan provides for payments to the Distributor at an annual rate
of .25% of the Investor Shares average daily net assets. This ongoing
distribution fee is calculated on each Fund's aggregate average daily net assets
attributable to its Investor Shares. From this amount, the Distributor may make
payments to financial institutions and intermediaries such as banks, savings and
loan associations, insurance companies, and investment counselors, broker-
dealers, and the Distributor's affiliates and subsidiaries as compensation for
services, reimbursement of expenses incurred in connection with distribution
assistance, or provision of shareholder services. The Distribution Plan is
characterized as a compensation plan and is not directly tied to expenses
incurred by the Distributor; the payments the Distributor receives during any
year may therefore be higher or lower than its actual expenses.
Prior to March 2, 1998, Rembrandt Financial Services Company ("RFS"), Oaks,
Pennsylvania 19456, served as the Trust's distributor. RFS is a wholly-owned
subsidiary of SEI Financial Services Company.
For the fiscal year ended December 31, 1998, the Funds paid the following
amounts pursuant to the Distribution Plan:
<TABLE>
<CAPTION>
=====================================================================
Distribution Amount Paid
Fund 1998
- ---------------------------------------------------------------------
<S> <C>
Treasury Money Market Fund $ 35,204
- ---------------------------------------------------------------------
Government Money Market Fund $144,655
- ---------------------------------------------------------------------
Money Market Fund $369,611
- ---------------------------------------------------------------------
Tax-Exempt Money Market Fund $114,248
- ---------------------------------------------------------------------
Fixed Income Fund $ 1,093
- ---------------------------------------------------------------------
Intermediate Government Fixed Income Fund $ 189
- ---------------------------------------------------------------------
Tax-Exempt Fixed Income Fund $ 1,337
- ---------------------------------------------------------------------
International Fixed Income Fund $ 135
- ---------------------------------------------------------------------
Limited Volatility Fixed Income Fund *
- ---------------------------------------------------------------------
Value Fund $ 4,184
- ---------------------------------------------------------------------
Growth Fund $ 7,913
- ---------------------------------------------------------------------
Small Cap Growth Fund $ 1,396
- ---------------------------------------------------------------------
Small Cap Value Fund $ 309
=====================================================================
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Distribution Amount Paid
Fund 1998
================================================================================
<S> <C>
International Equity Fund $ 2,742
- --------------------------------------------------------------------------------
TransEurope Fund *
- --------------------------------------------------------------------------------
Real Estate Fund $ 9
- --------------------------------------------------------------------------------
Asian Tigers Fund $ 467
- --------------------------------------------------------------------------------
Latin America Equity Fund *
- --------------------------------------------------------------------------------
Balanced Fund $ 9,436
================================================================================
</TABLE>
* Not in operation during the period.
The distribution-related services that may be provided under the Distribution
Plan include: incremental printing costs for reports, prospectuses, notices and
similar materials; advertising; cost of preparing, printing, and distributing
literature used in connection with the offering of shares; and expenses incurred
in the promotion and sale of shares. Certain state securities laws may require
those financial institutions providing such distribution services to register as
dealers pursuant to state law.
The Administrator or Advisor may benefit from the expenditures under the plan
through increased fees from an increase in the net assets of the Trust except
for affiliates of the Administrator and Advisor, no "interested person" of the
Trust or Disinterested Trustee had a direct or indirect financial interest in
the operation of the Distribution Plan or related agreements.
Shareholder Servicing Plan
The Trust has adopted a shareholder servicing plan for the Investor Shares of
each Fund (the "Shareholder Servicing Plan"). Under the Shareholder Servicing
Plan, the Trust pays a fee of .25% of the average daily net assets of the
Investor Shares. This fee is paid to the Distributor to perform, or to
compensate other service providers for performing, the following shareholder
services: maintaining client accounts; arranging for bank wires; responding to
client inquiries concerning services provided on investments; assisting clients
in changing dividend options, account designations and addresses; sub-
accounting; providing information on share positions to clients; forwarding
shareholder communications to clients; processing purchase, exchange and
redemption orders; and processing dividend payments. The Distributor may
voluntarily waive all or a portion of its shareholder servicing fee, and may
discontinue its waiver at any time. Currently, the Distributor is waiving, on a
voluntary basis, its shareholder servicing fee for the Money Market Funds. After
waivers, the Funds are paying shareholder servicing fees in the following
amounts:
Fund Net Fees
- ---- --------
Treasury Money Market Fund None
Government Money Market Fund .18%
Money Market Fund .14%
Tax-Exempt Money Market Fund None
It is possible that an intermediary may offer different classes of shares to its
customers and differing services to the classes, and thus receive compensation
with respect to different classes. Intermediaries also may charge separate fees
to their customers.
42
<PAGE>
The Funds may use the Distributor as a broker for the Funds' portfolio
transactions. The Distributor may receive compensation for its brokerage
services.
THE ADMINISTRATOR AND SUB-ADMINISTRATOR
ABN AMRO Fund Services, Inc. (the "Administrator") serves as the Administrator
for the Trust. The Administrator is an affiliate of the Advisor and both are
under common control of ABN AMRO Holding N.V., a Netherlands company. As
Administrator, it provides the Trust with administrative services, including
oversight and monitoring of the sub-administrator, transfer agent, distributor
and custodian. The Administrator is entitled to a fee, which is calculated
daily and paid monthly, at an annual rate of 0.15% of the average daily net
assets of the Fund.
Under the Administration Agreement: (i) the Administrator is entitled to
receive a fee at an annual rate of 0.15% of the average daily net assets of the
Funds; (ii) the Trust may withhold a portion of this fee in the event that the
Administrator fails to perform its duties according to the performance standards
as set forth in the Agreement; and (iii) the Trust agreed to pay the
Administrator $1,500,000 if the Trust terminates the Agreement within the first
year and $750,000 if the Trust terminates the Agreement in the second year.
The Administrator has agreed to waive its fees at least through April 2000 in
order to limit total administration fees to the amounts set forth below:
Fund Total Administrative Fees
- ---- -------------------------
Treasury Money Market Fund .07%
Government Money Market Fund .07%
Money Market Fund .07%
Tax-Exempt Money Market Fund .07%
Fixed Income Fund .10%
Intermediate Government Fixed Income Fund .10%
Tax-Exempt Fixed Income Fund .10%
International Fixed Income Fund .10%
Real Estate Fund .07%
Small Cap Value Fund .07%
After April 2000, the Administrator may continue, modify or cancel this waiver.
The Administrator, a Delaware corporation, has its principal business offices at
208 South LaSalle Street, Chicago, Illinois 60604. ABN AMRO Holding N.V. and
its subsidiaries and affiliates, including the Administrator, are global
providers of financial services, including banking and investment management.
Prior to March 2, 1998, SEI Fund Resources (SEI) served as the Trust's
administrator. SEI, a Delaware business trust, has its principal offices at
Oaks, Pennsylvania 19456. SEI Investments Management Corporation, a wholly-
owned subsidiary of SEI Investments Company, is the owner of all beneficial
interest in SEI.
First Data Investor Services Group, Inc. serves as the Sub-Administrator for the
Trust. As Sub-Administrator it provides the Trust with sub-administrative
services, including fund accounting, regulatory reporting, necessary office
space, equipment, personnel and facilities. Compensation for these services is
paid under a Sub-Administrative and Fund Accounting Agreement with the
Administrator. The Sub-Administrator has voluntarily agreed to waive a portion
of its accounting fees for the Real Estate and Small Cap Value Fund. The Sub-
Administrator may modify or discontinue this waiver at any time.
Under the Sub-Administration Agreement: (i) the Sub-Administrator is entitled
to receive a fee at an annual rate of 0.15% of the average daily net assets of
the Funds; (ii) the Administrator may withhold a portion of this fee in the
event that the Sub-Administrator fails to perform its duties according to the
performance standards as set forth in the Agreement; and (iii) the
Administrator agreed to pay the Sub-Administrator $1,500,000 if the
Administrator terminates the Agreement within the first year and $750,000 if the
Administrator terminates the Agreement in the second year.
From March 2, 1998 until June 30, 1998, Investor Services Group served as the
Trust's administrator. Investor Services Group, a Massachusetts corporation,
has its principal offices at
43
<PAGE>
4400 Computer Drive, Westborough, Massachusetts 01581. First Data Corporation
and its subsidiaries and affiliates, including Investor Services Group, are
leading providers of funds evaluation services, trust accounting systems, and
brokerage and information services to financial institutions, institutional
investors, and money managers.
For the fiscal years ended December 31, 1996, 1997, and 1998, the Funds paid the
following administrative fees:
<TABLE>
<CAPTION>
================================================================================
Net Fees Paid
-----------------------------------
Fund 1996 1997 1998
================================================================================
<S> <C> <C> <C>
Treasury Money Market Fund $226,103 $135,486 $187,851
- --------------------------------------------------------------------------------
Government Money Market Fund $336,001 $176,620 $290,086
- --------------------------------------------------------------------------------
Money Market Fund $853,933 $435,763 $738,080
- --------------------------------------------------------------------------------
Tax-Exempt Money Market Fund $254,410 $180,324 $255,157
- --------------------------------------------------------------------------------
Fixed Income Fund $187,707 $201,074 $178,994
- --------------------------------------------------------------------------------
Intermediate Government Fixed Income Fund $100,473 $ 80,456 $ 52,959
- --------------------------------------------------------------------------------
Tax-Exempt Fixed Income Fund $ 68,849 $ 59,704 $ 40,804
- --------------------------------------------------------------------------------
International Fixed Income Fund $ 26,364 $ 25,631 $ 18,863
- --------------------------------------------------------------------------------
Limited Volatility Fixed Income Fund * * *
- --------------------------------------------------------------------------------
Value Fund $219,430 $303,868 $313,844
- --------------------------------------------------------------------------------
Growth Fund $135,584 $182,319 $239,987
- --------------------------------------------------------------------------------
Small Cap Growth Fund $ 44,065 $ 59,994 $ 73,133
- --------------------------------------------------------------------------------
Small Cap Value Fund * * $ 2,431
- --------------------------------------------------------------------------------
International Equity Fund $132,965 $145,840 $177,476
- --------------------------------------------------------------------------------
TransEurope Fund * * *
- --------------------------------------------------------------------------------
Asian Tigers Fund $ 46,924 $ 58,960 $ 44,767
- --------------------------------------------------------------------------------
Latin America Equity Fund $ 6,640 $ 38,918 $ 43,181
- --------------------------------------------------------------------------------
Real Estate Fund * $ 12 $ 3,885
- --------------------------------------------------------------------------------
Balanced Fund $ 83,917 $ 99,929 $116,924
================================================================================
</TABLE>
* Not in operation during the period.
THE TRANSFER AGENT
44
<PAGE>
The Trust and First Data Investor Services Group (the "Transfer Agent"), 3200
Horizon Drive, King of Prussia, Pennsylvania 19406-0549, a wholly-owned
subsidiary of First Data Corporation, have entered into a transfer agency
agreement (the "Transfer Agency Agreement") dated May 11, 1998. Under the
Transfer Agency Agreement, the Transfer Agent is entitled to receive fees for
its services, which may be reduced in the event that the Transfer Agent fails to
meet certain performance standards set forth in the Agreement. Under the
Agreement, the Trust agreed to pay the Transfer Agent $1,500,000 if the Trust
terminates the Agreement within the first year and $750,000 if it terminates the
Agreement during the second year.
THE CUSTODIAN
The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, acts as
custodian of the Trust. The Custodian holds cash, securities, and other assets
of the Trust as required by the Investment Company Act of 1940.
COUNSEL AND AUDITORS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Ernst & Young LLP
serves as the independent auditors of the Trust.
BROKERAGE ALLOCATION AND OTHER PRACTICES
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in the
execution of trans actions in portfolio securities. Subject to policies
established by the Trustees, the Advisor is responsible for placing the orders
to execute transactions for the Fund. In placing orders, it is the policy of the
Trust to seek to obtain the best net results taking into account such factors as
price (including the applicable dealer spread), the size, type and difficulty of
the transaction involved, the firm's general execution and operational
facilities, research and the firm's risk in positioning the securities involved.
While the Advisor generally seeks reasonably competitive spreads or commissions,
the Trust will not necessarily be paying the lowest spread or commission
available.
The money market securities in which the Funds invest are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded over-the-
counter, but may be traded on an exchange. The Advisor usually deals directly
with the dealers who make a market in the securities, unless better prices and
execution are available elsewhere. Such dealers usually are acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Money market securities are generally traded on a net basis and do
not normally involve either brokerage commissions or transfer taxes. The cost of
executing portfolio securities transactions of the Trust will primarily consist
of dealer spreads and underwriting commissions.
TRADING PRACTICES AND BROKERAGE
45
<PAGE>
The Advisor selects brokers or dealers to execute transactions for the purchase
or sale of portfolio securities on the basis of their judgment of the
professional capability of the brokers or dealers to provide the service. The
primary consideration is to have brokers or dealers execute transactions at best
price and execution. Best price and execution refer to many factors, including
the price paid or received for a security, the commission charged, the
promptness and reliability of execution, the confidentiality and placement
accorded the order and other factors affecting the overall benefit obtained by
the account on the transaction. The Trust's determination of what are reasonably
competitive rates is based upon the professional knowledge of its trading
department as to rates paid and charged for similar transactions throughout the
securities industry. In some instances, the Trust pays a minimal share
transaction cost when the transaction presents no difficulty. Some trades are
made on a net basis where the Trust either buys securities directly from the
dealer or sells them to the dealer. In these instances, there is no direct
commission charged but there is a spread (the difference between the buy and
sell price) which is the equivalent of a commission.
The Trust may allocate out of all commission business generated by all of the
Funds (and any other accounts under management by the Advisor), brokerage
business to brokers or dealers who provide brokerage and research services.
These research services include advice, either directly or through publications
or writings, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing of analyses and reports
concerning issuers, securities or industries; providing information on economic
factors and trends; assisting in determining portfolio strategy; providing
computer software used in security analyses; and providing portfolio performance
evaluation and technical market analyses. Such services are used by the Advisor
in connection with their investment decision-making process with respect to one
or more funds and accounts managed by them, and may not be used exclusively with
respect to a fund or account generating the brokerage business.
As provided in the Securities Exchange Act of 1934 (the "1934 Act"), higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Trust believes that the
commissions paid to such broker-dealers are reasonable in relation to the value
of the brokerage and research services provided. In addition, portfolio
transactions which generate commissions or their equivalent may be directed to
broker-dealers who provide daily portfolio pricing services to the Trust.
Subject to best price and execution, commissions used for pricing may or may not
be generated by the funds receiving the pricing service.
The Advisor may place a combined order for two or more accounts or Funds engaged
in the purchase or sale of the same security if, in their judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or Fund. It is believed that an
46
<PAGE>
ability to participate in volume transactions will generally be beneficial to
the accounts and Funds. Although it is recognized that, in some cases, the joint
execution of orders could adversely affect the price or volume of the security
that a particular account or Fund may obtain, it is the opinion of the Advisor
and the Trust's Board of Trustees that the advantages of combined orders
outweigh the possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Funds may
place orders with broker-dealers which have agreed to defray certain Trust
expenses such as custodian fees, and may, at the request of the Distributor,
give consideration to sales of shares of the Trust as a factor in the selection
of brokers and dealers to execute Trust portfolio transactions.
The Trust may execute brokerage or other agency transactions through an
affiliate of the Advisor, which is a registered broker-dealer, for commissions
in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC.
Under these provisions, an affiliate of the Advisor is permitted to receive and
retain compensation for effecting portfolio transactions for the Trust on an
exchange. These rules further require that commissions paid to the Distributor
by the Trust for exchange transactions not exceed "usual and customary"
brokerage commissions. The rules define "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission, fee
or other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time." In addition,
the Trust may direct commission business to one or more designated broker-
dealers in connection with such broker-dealers' provision of services to the
Trust or payment of certain Trust expenses (e.g., custody, pricing and
professional fees). The Trustees, including those who are not "interested
persons" of the Trust, have adopted procedures for evaluating the reasonableness
of commissions paid to the Distributor and will review these procedures
periodically.
For the fiscal year ended December 31, 1998, the Funds paid the following
brokerage fees:
<TABLE>
<CAPTION>
=================================================================================================================================
% of Total Total
Total $ % of Total of Brokerage Commissions Total $
Total $ Amount of Brokerage Transactions Paid to Amount
Amount of Brokerage Commissions Effected Affiliates in of Brokerage
Brokerage Commissions Paid to Through Connection Commissions
Fund Commissions Paid to Affiliates in Affiliated with Paid for
Paid in 1998 Affiliates in 1998 Brokers in Repurchase Research
1998 1998 Agreement in 1998
Transactions in
1998
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Intermediate $0 $0 0.00% 0.00% $152 $0
Government Fixed
Income Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Fixed $0 $0 0.00% 0.00% $ 0 $0
Income Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund $0 $0 0.00% 0.00% $587 $0
=================================================================================================================================
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
% of Total Total
Total $ % of Total of Brokerage Commissions Total $
Total $ Amount of Brokerage Transactions Paid to Amount
Amount of Brokerage Commissions Effected Affiliates in of Brokerage
Brokerage Commissions Paid to Through Connection Commissions
Fund Commissions Paid to Affiliates in Affiliated with Paid for
Paid in 1998 Affiliates in 1998 Brokers in Repurchase Research
1998 1998 Agreement in 1998
Transactions in
1998
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
International Fixed $ 0 $ 0 0.00% 0.00% $ 0 $ 0
Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Limited Volatility Fixed * * *
Income Fund * * *
- ------------------------------------------------------------------------------------------------------------------------------------
Value Fund $343,492 $ 0 0.00% 0.00% $ 189 $282,758
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Fund $220,922 $ 0 0.00% 0.00% $ 501 $203,618
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Growth $ 78,745 $ 594 0.80% 0.00% $ 194 $ 67,444
Fund +
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund $ 20,732 $ 0 0% 0.00% $ 0 $ 18,172
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity $262,654 $ 0 0.00% 0.00% $ 0 $209,960
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Asian Tigers Fund $129,623 $ 0 0.00% 0.00% $ 0 $123,434
- ------------------------------------------------------------------------------------------------------------------------------------
TransEurope Fund * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
Latin America Equity $157,615 $ 0 0.00% 0.00% $ 0 $ 76,054
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Fund $ 8,665 $ 485 6.02% 7.69% $ 45 $ 5,640
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $ 62,210 $ 0 0.00% 0.00% $ 404 $ 50,879
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money $ 0 $ 0 0.00% 0.00% $ 0 $ 0
Market Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Fund $ 0 $ 0 0.00% 0.00% $17,895 $ 0
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury Money Market $ 0 $ 0 0.00% 0.00% $ 0 $ 0
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Government Money $ 0 $ 0 0.00% 0.00% $ 6,907 $ 0
Market Fund
====================================================================================================================================
</TABLE>
* Not in operation during the period.
+ Less than 1%.
For the fiscal years ended December 31, 1996 and 1997, Funds paid the following
brokerage fees:
48
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Total $ Amount of Brokerage Total $ Amount of Brokerage
Commissions Paid in Commissions Paid to Affiliates in
Fund 1996 1997 1996 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediate Government Fixed $ 0 $ 0 $0 $ 0
Income Fund
- ------------------------------------------------------------------------------------------------------
Tax-Exempt Fixed Income Fund $ 0 $ 0 $0 $ 0
- ------------------------------------------------------------------------------------------------------
Fixed Income Fund $ 0 $ 0 $0 $ 0
- ------------------------------------------------------------------------------------------------------
International Fixed Income Fund $ 0 $ 0 $0 $ 0
- ------------------------------------------------------------------------------------------------------
Limited Volatility Fixed Income * * * *
Fund
- ------------------------------------------------------------------------------------------------------
Value Fund $185,275 $256,616 $0 $19,358
- ------------------------------------------------------------------------------------------------------
Growth Fund $ 99,324 $135,230 $0 $ 0
- ------------------------------------------------------------------------------------------------------
Small Cap Growth Fund $ 89,340 $ 77,603 $0 $ 0
- ------------------------------------------------------------------------------------------------------
Small Cap Value Fund * * * *
- ------------------------------------------------------------------------------------------------------
International Equity Fund $ 80,851 $134,578 $0 $ 0
- ------------------------------------------------------------------------------------------------------
Asian Tigers Fund $109,083 $178,644 $0 $ 0
- ------------------------------------------------------------------------------------------------------
TransEurope Fund * * * *
- ------------------------------------------------------------------------------------------------------
Latin America Equity Fund $ 38,488 $117,515 $0 $ 0
- ------------------------------------------------------------------------------------------------------
Real Estate Fund * $ 4,285 * $ 0
- ------------------------------------------------------------------------------------------------------
Balanced Fund $ 37,786 $ 47,708 $0 $12,801
- ------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund $ 0 $ 0 $0 $ 0
- ------------------------------------------------------------------------------------------------------
Money Market Fund $ 0 $ 0 $0 $ 0
- ------------------------------------------------------------------------------------------------------
Treasury Money Market Fund $ 0 $ 0 $0 $ 0
- ------------------------------------------------------------------------------------------------------
Government Money Market Fund $ 0 $ 0 $0 $ 0
======================================================================================================
</TABLE>
* Not in operation during the period.
The broker-dealers who execute transactions on behalf of the Funds and who are
affiliates of the Fund's Advisor are brokers in the ABN AMRO International
brokerage network. In addition, the Funds executed brokerage trades through SEI
Financial Services Company, an affiliate of Rembrandt Financial Services Company
and SEI Fund Resources, the Funds' former distributor and administrator,
respectfully.
As of December 31, 1998, the following Funds owned securities of their regular
brokers or dealers, as defined in Rule 10b-1 under the Investment Company Act of
1940, with the following market values:
<TABLE>
<CAPTION>
Fund Broker Dealer Market Value
---- ------------- ------------
<S> <C> <C>
Fixed Income Fund: Paine Webber $ 1,742,175
Balanced Fund: Chase Manhattan $ 639,786
Paine Webber $ 215,268
Bear Sterns $ 310,213
Merrill Lynch Pierce Fenner & Smith $ 300,375
Value Fund: Chase Manhattan $ 5,431,388
Bear Sterns $ 2,182,700
Merrill Lynch Pierce Fenner & Smith $ 2,776,800
Growth Fund: Morgan Stanley Dean Witter $ 1,157,300
Treasury Money Market Fund: Morgan Stanley $ 15,097,949
Prudential Securities $ 18,876,200
Money Market Fund: Merrill Lynch Pierce Fenner & Smith $ 44,847,131
</TABLE>
49
<PAGE>
Except for the Small Cap Growth, Intermediate Government Fixed Income and Fixed
Income Funds, it is expected that the portfolio turnover rate normally will not
exceed 100% for any Fund. A portfolio turnover rate would exceed 100% if all of
its securities exclusive of U.S. Government securities and securities whose
maturities at the time of acquisition are one year or less are replaced in the
period of one year. Turnover rates may vary from year to year and may be
affected by cash requirements and by requirements which enable a Fund to receive
favorable tax treatment. A portfolio turnover rate of 100% or more will result
in higher transaction costs and may result in additional tax consequences for
shareholders. You will find portfolio turnover rates for each Fund (except the
Money Market Funds) in the "Financial Highlights" section of the Prospectus.
DESCRIPTION OF THE TRUST
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of the Funds each of which represents an equal proportionate interest in
that Fund with each other share. Shares are entitled upon liquidation to a pro
rata share in the net assets of the Funds. Share holders have no preemptive
rights. The Declaration of Trust provides that the Trustees of the Trust may
create additional series of shares. All consideration received by the Trust for
shares of any additional series and all assets in which such consideration is
invested would belong to that
50
<PAGE>
series and would be subject to the liabilities related thereto. Share
certificates representing shares will not be issued.
Each share held entitles the shareholder of record to one vote. Shareholders of
each Fund or class will vote separately on matters relating solely to that Fund
or class. As a Massachusetts business trust, the Trust is not required to hold
annual shareholder meetings but such meetings will be held from time to time to
seek approval for certain changes in the operation of the Trust and for the
election of Trustees under certain circumstances. In addition, a Trustee may be
removed by the remaining Trustees or by shareholders at a special meeting called
upon written request of shareholders owning at least 10% of the outstanding
shares of the Trust. In the event that such a meeting is requested, the Trust
will provide appropriate assistance and information to the shareholders
requesting the meeting.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering the
shares under Federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
PURCHASE AND REDEMPTION OF SHARES
It is currently the Trust's policy to pay for all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Funds in
lieu of cash. Shareholders may incur brokerage charges and taxes on the sale of
any such securities so received in payment of redemptions. However, a
shareholder will at all times be entitled to aggregate cash redemptions from all
Funds of the Trust during any 90-day period of up to the lesser of $250,000 or
1% of the Trust's net assets.
Your purchase request may be canceled if the Custodian does not receive federal
funds before net asset value is determined on the next Business Day, and you
could be liable for any fees or expenses incurred by the Trust.
51
<PAGE>
A redemption request submitted by mail must be received by the Transfer Agent in
order to constitute a valid request for redemption. The Transfer Agent may
require that the signature on the written request be guaranteed by a bank which
is a member of the Federal Deposit Insurance Corporation, a trust company,
broker dealer, credit union (if authorized under state law), securities exchange
or association, clearing agency or savings association. This signature guarantee
requirement will be waived if all of the following conditions apply: (1) the
redemption is for $5,000 worth of shares or less, (2) the redemption check is
payable to the shareholder(s) of record, and (3) the redemption check is mailed
to the shareholder(s) at the address of record or to a commercial bank account
previously designated either on the Account Application or by written
instruction to the Transfer Agent.
You may redeem your Money Market Investor Shares by writing checks on your
account. Once you have signed and returned a signature card, you will receive a
supply of checks. A check may be made payable to any person, and your account
will continue to earn dividends until the check clears.
Because of the difficulty of determining in advance the exact value of a Fund
account, you may not use a check to close your account. The checks are free, but
your account may be charged a fee for stopping payment of a check upon your
request or if the check cannot be honored because of insufficient funds or other
valid reasons. If you write a check on your account for an amount below $100,
you will be charged a $5 processing fee.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of
disposal or valuation of the Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of the Fund for any period during
which the New York Stock Exchange, the Advisor, the Administrator and/or the
Custodian are not open for business.
Neither the Trust nor the Transfer Agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and the
Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances exist, and a
financial intermediary experiences difficulties placing
52
<PAGE>
redemption orders by telephone, the intermediary may wish to consider placing
the order by other means.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust, under certain
circumstances, could be held personally liable as partners for the obligations
of the Trust. Even if, however, the Trust were held to be a partnership, the
possibility of shareholders incurring financial loss for that reason appears
remote because the Trust's Declaration of Trust contains an express disclaimer
of shareholder liability for obligations of the Trust and requires that notice
of such disclaimer be given in each agreement, obligation or instrument entered
into or executed by or on behalf of the Trust or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Trust property for
any shareholder held personally liable for the obligations of the Trust.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Funds is calculated by adding the value of
securities and other assets, subtracting liabilities and dividing by the total
number of outstanding shares. Although the methodology and procedures are
identical, the net asset value per share of Common Shares and Investor Shares
within the Funds may differ because of the distribution and shareholder
servicing expenses charged to Investor Shares.
The Money Market Funds
Securities of the Treasury Money Market, Government Money Market, Money Market
and Tax-Exempt Money Market Funds will be valued by the amortized cost method,
which involves valuing a security at its cost on the date of purchase and
thereafter (absent unusual circumstances) assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuations in
general market rates of interest on the value of the instrument. While this
method provides certainty in valuation, it may result in periods during which a
security's value, as determined by this method, is higher or lower than the
price the Fund would receive if it sold the instrument. During periods of
declining interest rates, the daily yield of the Fund may tend to be higher than
a like computation made by a company with identical investments utilizing a
method of valuation based upon market prices and estimates of market prices for
all of its portfolio securities. Thus, if the use of amortized cost by the Fund
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Fund would be able to obtain a somewhat higher yield than would
result from investment in a company utilizing solely market values, and existing
investors in the Fund would experience a lower yield. The converse would apply
in a period of rising interest rates.
A Fund's use of amortized cost and the maintenance of the Fund's net asset value
at $1.00 are permitted by Rule 2a-7 under the 1940 Act, provided that certain
conditions are met. Rule 2a-7 also requires the Trustees to establish procedures
which are reasonably designed to stabilize the net asset value per share at
$1.00 for the Funds. Such procedures include the determination of
53
<PAGE>
the extent of deviation, if any, of the Funds' current net asset value per share
calculated using available market quotations from the Funds amortized cost price
per share at such intervals as the Trustees deem appropriate and reasonable in
light of market conditions and periodic reviews of the amount of the deviation
and the methods used to calculate such deviation. In the event that such
deviation exceeds 1/2 of 1%, the Trustees are required to consider promptly what
action, if any, should be initiated, and, if the Trustees believe that the
extent of any deviation may result in material dilution or other unfair results
to shareholders, the Trustees are required to take such corrective action as
they deem appropriate to eliminate or reduce such dilution or unfair results to
the extent reasonably practicable. Such actions may include the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding dividends; redeeming shares in
kind; or establishing a net asset value per share by using available market
quotations. In addition, if the Funds incur a significant loss or liability, the
Trustees have the authority to reduce pro rata the number of shares of the Funds
in each shareholder's account and to offset each shareholder's pro rata portion
of such loss or liability from the shareholder's accrued but unpaid dividends or
from future dividends while each other Fund must annually distribute at least
90% of its investment company taxable income.
The Equity, Balanced and Fixed Income Funds
The securities of the Equity, Balanced and Fixed Income Funds are valued by the
Administrator pursuant to valuations provided by an independent pricing service.
The pricing service relies primarily on prices of actual market transactions as
well as trader quotations. However, the service may also use a matrix system to
determine valuations of fixed income securities, which system considers such
factors as security prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving at valuations.
TAXATION
The following is only a summary of certain income tax considerations generally
affecting a Fund and its shareholders, and is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisers with
specific reference to their own tax situations, including their state and local
income tax liabilities.
Federal Income Tax
All Funds
This discussion of Federal income tax consequences is based on the Internal
Revenue Code of 1986 (the "Code"), and the regulations issued thereunder, in
effect on the date of this Statement of Additional Information. New legislation,
as well as administrative changes or court decisions, may change the conclusions
expressed herein, and may have a retroactive effect with respect to the
transactions contemplated herein. No attempt has been made to present a detailed
explanation of the Federal, state, or local income tax treatment of a Fund or
its shareholders. In
54
<PAGE>
addition, state and local tax consequences on an investment in a Fund may differ
from the Federal income tax consequences described below. Accordingly, you are
urged to consult your tax advisor regarding specific questions as to Federal,
state, and local income taxes.
Tax Status of the Funds
Each Fund is treated as a separate entity for Federal income tax purposes and is
not combined with the other Funds. Each Fund intends to qualify for the special
tax treatment afforded regulated investment companies as defined under
Subchapter M of the Code. As long as each Fund qualifies for this special tax
treatment, it will be relieved of Federal income tax on that part of its net
investment income and net capital gains (the excess of net long-term capital
gain over net short-term capital loss) which is distributed to shareholders.
In order to qualify for treatment as a RIC under the Code, each Fund must
distribute annually to its shareholders at least the sum of 90% of its net
investment income excludable from gross income plus 90% of its investment
company taxable income (generally, net investment income plus net short-term
capital gain) (the "Distribution Requirement") and also must meet several
additional requirements. Among these requirements are the following: (a) at
least 90% of a Fund's gross income each taxable year must be derived from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock or securities, or certain other income;
and (b) diversify its holdings so that: (i) at the close of each quarter of a
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with such other securities limited, in respect
to any one issuer, to an amount that does not exceed 5% of the value of a Fund's
assets and that does not represent more than 10% of the outstanding voting
securities of such issuer; and (ii) at the close of each quarter of a Fund's
taxable year, not more than 25% of the value of its assets may be invested in
securities (other than U.S. Government securities or the securities of other
RICs) of any one issuer or of two or more issuers which are engaged in the same,
similar or related trades or businesses if the Fund owns at least 20% of the
voting power of such issuers.
Notwithstanding the Distribution Requirement described above, which only
requires a Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), a
Fund will be subject to a nondeductible 4% excise tax to the extent it fails to
distribute by the end of any calendar year 98% of its ordinary income for that
year and 98% of its capital gain net income for the one-year period ending on
October 31 of that year, plus certain other amounts. Each Fund intends to make
sufficient distributions to avoid liability for the 4% federal excise tax.
Tax Status of Distributions
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to shareholders.
Distributions from net investment income will be taxable to you as ordinary
income whether received in cash or in additional shares. Any
55
<PAGE>
net capital gains will be distributed annually as capital gains and will be
treated as gain from the sale or exchange of capital asset held for more than
one year, regardless of how long you have held shares and regardless of whether
the distributions are received in cash or in additional shares. Each Fund will
notify you annually of the Federal income tax character of all distributions.
It is possible that a Fund may make a distribution in excess of the Fund's
current and accumulated earnings and profits. Such a "return of capital"
distribution is applied against and reduces the tax basis of your shares. The
excess of a return of capital distribution over the tax basis of your shares is
treated as gain from a sale of exchange of the shares.
Certain securities purchased by a Fund (such as STRIPS, TRS, TIGRs and CATS) are
sold at original issue discount, and thus do not make periodic cash interest
payments. A Fund will be required to include as part of its current income the
imputed interest on such obligations even though the Fund has not received any
interest payments on such obligations during that period. Because each Fund
distributes substantially all of its net investment income to shareholders, a
Fund may have to sell portfolio securities to distribute such income, which may
occur at a time when the Advisor would not have chosen to sell such securities
and which may result in a taxable gain or loss.
Income received on U.S. obligations is exempt from tax at the state level when
received directly by a Fund and may be exempt, depending on the state, when
received by you as income dividends from the Fund, provided certain state-
specific conditions are satisfied. Each Fund will inform you annually of the
percentage of income and distributions derived from U.S. obligations. You should
consult your tax advisor to determine whether any portion of the income
dividends received from a Fund is considered tax exempt in your particular
state.
Dividends declared by a Fund in October, November or December of any year and
payable to shareholders of record on a date in that month will be deemed to have
been paid by the Fund and received by shareholders on December 31 of that year,
if paid by the Fund at any time during the following January.
Any gain or loss recognized on a sale or redemption of shares of a Fund by a
shareholder who is not a dealer in securities will generally be treated as long-
term capital gain or loss if the shares have been held for more than one year,
and short-term if for a year or less. If shares on which a net capital gain
distribution has been received are subsequently sold or redeemed, and such
shares have been held for six months or less, any loss recognized by a
shareholder will be treated as long-term capital loss to the extent of the long-
term capital gain distributions.
If for any taxable year a Fund does not qualify as a RIC, all of its taxable
income will be subject to tax at regular corporate rates without any deduction
for distributions to shareholders. In such case, distributions (including
capital gains distributions) will be taxable as ordinary dividends to the extent
of the Fund's current and accumulated earnings and profits.
56
<PAGE>
Each of the Tax-Exempt Fixed Income Fund and Tax-Exempt Money Market Fund
intends to qualify to pay "exempt interest dividends" by satisfying the Code's
requirement that at the close of each quarter of its taxable year at least 50
percent of the value of its total assets consists of obligations, the interest
on which is exempt from federal income tax. So long as this and certain other
requirements are met, dividends consisting of such Funds' net tax-exempt
interest income will be exempt interest dividends, which are exempt from federal
income tax in the hands of the shareholders of the Fund, but may have
alternative minimum tax consequences.
A Fund may sell securities short "against the box." Under certain circumstances,
these transactions may be treated as constructive sales, resulting in the
recognition of gain to the Fund.
Tax-Exempt Funds
Interest on indebtedness incurred by a shareholder in order to purchase or carry
shares in the Tax-Exempt Fixed Income Fund or Tax-Exempt Money Market Fund (the
"Tax-Exempt Funds") is generally not deductible for federal income tax purposes
to the extent that the Fund distributes exempt-interest dividends during the
taxable year. If a shareholder receives exempt-interest dividends with respect
to any share of these Funds and if such share is held by the shareholder for six
months or less, then any loss on the sale or exchange of such share will be
disallowed to the extent of the amount of exempt-interest dividends. In
addition, the Code may require a shareholder who receives exempt-interest
dividends to treat as taxable income a portion of certain social security and
railroad retirement benefit payments. Furthermore, entities or persons who are
"substantial users" (or persons related to "substantial users") of facilities
financed by "private activity bonds" or certain industrial development bonds
should consult their tax advisers before purchasing shares in the Tax-Exempt
Funds. For these purposes, the term "substantial user" is defined generally to
include a "non-exempt person" who regularly uses in trade or business a part of
a facility financed from the proceeds of such bonds. Moreover, some or all of
dividends received from the Tax-Exempt Funds may be a specific preference item,
or a component of an adjustment item, for purposes of the federal individual and
corporate alternative minimum taxes. The receipt of these exempt-interest
dividends and distributions also may affect a foreign corporate shareholder's
federal "branch profits" tax liability, and an S corporation shareholder's
federal excess "passive investment income."
Shareholders of the Tax-Exempt Funds should consult their tax advisers to
determine whether any portion of the income dividends received from such Funds
is considered tax exempt in their particular states.
Issuers of bonds purchased by the Tax-Exempt Funds (or the beneficiary of such
bonds) may have made certain representations or covenants in connection with the
issuance of such bonds to satisfy certain requirements of the Code that must be
satisfied subsequent to the issuance of such bonds. Shareholders should be aware
that exempt-interest dividends may become subject to federal income taxation
retroactively to the date of issuance of the bonds to which such dividends are
attributable if such representations are determined to have been inaccurate or
if the issuers (or the beneficiary) of the bonds fail to comply with certain
covenants made at that time.
57
<PAGE>
Current federal income tax laws limit the types and volume of bonds qualifying
for the federal income tax exemption of interest, which may have an effect on
the ability of the Tax-Exempt Funds to purchase sufficient amounts of tax-exempt
securities to satisfy the Code's requirements for the payment of "exempt
interest dividends."
Equity and Balanced Funds
Subject to certain restrictions, a dividends-received deduction is available to
corporations that receive dividends from domestic corporations. Income dividends
paid by an Equity or Balanced Fund will be eligible for the dividends-received
deduction for corporate shareholders (subject to the same restrictions) to the
extent they are derived from dividends from domestic corporations and to the
extent that the respective security has been held for at least three months.
Shareholders will be advised each year of the portion of ordinary income
dividends eligible for the deduction. Individual shareholders are not entitled
to the dividends received deduction regardless of which fund paid the dividend.
Dividends received from other funds, e.g., Money Market or Fixed Income Funds,
will not be eligible for the dividends-received deduction. Distributions of net
capital gains from any Fund do not qualify for the dividends received deduction.
State Taxes
A Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by the Funds
to shareholders and the ownership of shares may be subject to state and local
taxes. Shareholders should verify their state and local tax liability with their
tax advisors.
Foreign Taxes
Dividends and interest received by a Fund may be subject to income, withholding
or other taxes imposed by foreign countries and U.S. possessions that would
reduce the yield on a Fund's securities. Tax conventions between certain
countries and the United States may reduce or eliminate these taxes. Foreign
countries generally do not impose taxes on capital gains with respect to
investments by foreign investors. If a Fund meets the Distribution Requirement
and if more than 50% of the value of such Fund's total assets at the close of
its taxable year consists of stock or
58
<PAGE>
securities of foreign corporations, such Fund will be eligible to file an
election with the Internal Revenue Service that will enable shareholders, in
effect, to receive the benefit of the foreign tax credit with respect to any
foreign and U.S. possessions income taxes paid by the Fund. Pursuant to the
election, a Fund will treat those taxes as dividends paid to its shareholders.
Each shareholder will be required to include a proportionate share of those
taxes in gross income as income received from a foreign source and must treat
the amount so included as if the shareholder had paid the foreign tax directly.
The shareholder may then either deduct the taxes deemed paid by him or her in
computing his or her taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against the shareholder's
federal income tax. If a Fund makes the election, it will report annually to its
shareholders the respective amounts per share of such Fund's income from sources
within, and taxes paid to, foreign countries and U.S. possessions. The
International Equity Fund, TransEurope Fund, Latin America Equity Fund, Asian
Tigers Fund and International Fixed Income Fund expect to be able to elect to
treat shareholders as having paid their proportionate share of such foreign
taxes withheld.
GENERAL INFORMATION ABOUT FUND PERFORMANCE
The Equity, Balanced and Fixed Income Funds
From time to time, the Funds may advertise yield and total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. The yield of a Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the same amount of income generated by the investment during
that period is generated in each 30-day period over one year, and is shown as a
percentage of the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment for designated time periods (including, but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each period
and assuming the reinvestment of all dividend and capital gain distributions.
The total return of a Fund may also be quoted as a dollar amount, on an
aggregate basis, or an actual basis.
The Money Market Funds
From time to time a Fund may advertise its current yield and effective compound
yield. Both yield figures are based on historical earnings and are not intended
to indicate future performance. The current yield of a Fund refers to the income
generated by an investment in the Fund over a seven-day period (which period
will be stated in the advertisement). This income is the annualized. That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The effective compound yield is calculated similarly, but when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested. The effective compound yield will be slightly higher than the
current yield because of the compounding effect of this
59
<PAGE>
assumed reinvestment. The Tax-Exempt Money Market Fund may also advertise a tax-
equivalent yield, which is calculated by determining the rate of return that
would have to be achieved on a fully taxable investment to produce the after-tax
equivalent of the Tax-Exempt Money Market Fund's yield, assuming certain tax
brackets for a shareholder.
All Funds
A Fund may periodically compare its performance to that of other mutual funds
tracked by mutual fund rating services (such as Lipper Analytical Securities
Corp.) or by financial and business publications and periodicals, broad groups
of comparable mutual funds or unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs. A Fund may quote services such as Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance, and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. A Fund may use long-term performance of these
capital markets to demonstrate general long-term risk versus reward scenarios
and could include the value of a hypothetical investment in any of the capital
markets. A Fund may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.
A Fund may quote various measure of volatility and benchmark correlation in
advertising, and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to benchmark while measures of benchmark correlation indicate the
validity of a comparative benchmark. Measures of volatility and correlation are
calculated using averages of historical data and cannot be precisely calculated.
Additional performance information is set forth in the 1998 Annual Report to
Shareholders, and is available upon request and without charge by calling 1-800-
443-4725.
The performance of Common Shares will normally be higher than that of Investor
Shares because of the additional distribution and shareholder services expenses
charges to Investor Shares.
COMPUTATION OF YIELD
60
<PAGE>
From time to time the Treasury Money Market Fund, Government Money Market Fund,
Money Market Fund and Tax-Exempt Money Market Fund advertise their current yield
and effective compound yield. Both yield figures are based on historical
earnings and are not intended to indicate future performance. The yield of
the Funds refers to the income generated by an investment in a Fund over a
seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, the income earned by an investment in
a Fund is assumed to be reinvested. The effective yield will be slightly higher
than the yield because of the compounding effect of this assumed reinvestment.
The current yield of the Funds will be calculated daily based upon the seven
days ending on the date of calculation ("base period"). The yield is computed
by determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing shareholder account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing such net change by the value
of the account at the beginning of the same period to obtain the base period
return and multiplying the result by (365/7). Realized and unrealized gains and
losses are not included in the calculation of the yield. The effective yield of
the Funds is determined by computing the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then compounding the base period return by adding 1, raising
the sum to a power equal to 365 divided by 7, and subtracting 1 from the result,
according to the following formula: Effective Yield = (Base Period Return +
1)365/7) - 1. The current and the effective yields reflect the reinvestment of
net income earned daily on portfolio assets.
Tax Equivalent yields are computed by dividing that portion of a Fund's yield
which is tax-exempt by one minus a federal and/or state income tax rate and
adding the product to that portion, if any, of the Fund's yield that is not tax-
exempt.
Yield = 2[((a-b)/(cd) + 1)/6/ - 1] where a = dividends and interest earned
during the period; b = expenses accrued for the period (net of reimbursement); c
= the current daily number of shares outstanding during the period that were
entitled to receive dividends; and d = the maximum offering price per share on
the last day of the period.
The yield of these Funds fluctuates, and the annualization of a week's dividend
is not a representation by the Trust as to what an investment in the Fund will
actually yield in the future. Actual yields will depend on such variables as
asset quality, average asset maturity, the type of instruments the Fund
invests in, changes in interest rates on money market instruments, changes in
the expenses of the Fund and other factors.
For the seven-day period ended December 31, 1998, the end of the Trust's most
recent fiscal year, the Money Market Funds' current, effective and tax-
equivalent yields were as follows:
61
<PAGE>
<TABLE>
<CAPTION>
======================================================================================
7-Day Tax-
7-Day Tax- Equivalent
Equivalent Effective
7-Day Yield at a Yield at a
Effective tax rate tax rate of
Fund Class 7-Day Yield Yield of 39.6% 39.6%
======================================================================================
<S> <C> <C> <C> <C> <C>
Treasury Money Common 4.40% 4.49% N/A N/A
-----------------------------------------------------------------
Market Fund Investor 4.15% 4.23% N/A N/A
- --------------------------------------------------------------------------------------
Government Money Common 4.75% 4.87% N/A N/A
-----------------------------------------------------------------
Market Fund Investor 4.44% 4.54% N/A N/A
- --------------------------------------------------------------------------------------
Common 4.90% 5.02% N/A N/A
Money Market Fund -----------------------------------------------------------------
Investor 4.54% 4.64% N/A N/A
- --------------------------------------------------------------------------------------
Tax-Exempt Money Common 3.24% 3.29% 5.36% 5.45%
-----------------------------------------------------------------
Market Fund Investor 2.99% 3.04% 4.95% 5.03%
======================================================================================
N/A Not Applicable
</TABLE>
Yields are one basis upon which investors may compare the Funds with other money
market funds; however, yields of other money market funds and other investment
vehicles may not be comparable because of the factors set forth above and
differences in the methods used in valuing portfolio instruments.
The Value Fund, Growth Fund, Small Cap Growth Fund, Small Cap Value Fund,
International Equity Fund, TransEurope Fund, Asian Tigers Fund, Fixed Income
Fund, Intermediate Government Fixed Income Fund, Tax-Exempt Fixed Income Fund,
International Fixed Income Fund, Limited Volatility Fixed Income Fund, Latin
America Equity Fund, Real Estate Fund and Balanced Fund may also advertise a 30-
day yield figure. These figures will be based on historical earnings and are
not intended to indicate future performance. The yield of these Funds refers to
the annualized income generated by an investment in the Funds over a specified
30-day period. The yield is calculated by assuming that the income generated by
the investment during that 30-day period is generated over one year and is shown
as a percentage of the investment.
For the thirty-day period ended December 31, 1998, the yield for the following
Funds were:
<TABLE>
<CAPTION>
===================================================================
Fund Class 30-Day Yield
===================================================================
<S> <C> <C>
Common 4.82%
Fixed Income Fund ----------------------
Investor 4.32%
- -------------------------------------------------------------------
Common 4.47%
Intermediate Government Fixed Income Fund ----------------------
Investor 3.97%
- -------------------------------------------------------------------
Common 3.31%
Tax-Exempt Fixed Income Fund ----------------------
Investor 2.81%
- -------------------------------------------------------------------
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
============================================================
Fund Class 30-Day Yield
============================================================
<S> <C> <C>
Common 2.39%
International Fixed Income Fund ----------------------
Investor 1.89%
- ------------------------------------------------------------
Common 4.34%
Real Estate Fund ---------------------
Investor 3.84%
============================================================
</TABLE>
* Not in operation at the end of the period.
CALCULATION OF TOTAL RETURN
From time to time, the Value Fund, Growth Fund, Small Cap Growth Fund, Small Cap
Value Fund, International Equity Fund, TransEurope Fund, Asian Tigers Fund,
Latin America Equity Fund, Fixed Income Fund, Intermediate Government Fixed
Income Fund, Tax-Exempt Fixed Income Fund, International Fixed Income Fund,
Limited Volatility Fixed Income Fund, Balanced Fund and Real Estate Fund may
advertise total return. The total return of a Fund refers to the average
compounded rate of return to a hypothetical investment for designated time
periods (including but not limited to, the period from which the Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period. In particular, total return will be
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; and ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the designated time period as of the end of
such period.
Based on the foregoing, the average annual total return for the Funds from
commencement of operations through December 31, 1998, and for the one and three
year periods ended December 31, 1998, were as follows:
63
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================
Average Annual Total Return
----------------------------------
One Five Ten Since
Fund Class Year Year Year Inception
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Treasury Money Market Fund Investor/1#/ 4.64% 4.44% * 4.15%
---------------------------------------------------------------------
Common/2/ 4.90% 4.71% * 4.35%
- -----------------------------------------------------------------------------------------------------------------
Government Money Market Fund Investor/3#/ 4.91% 4.75% * 4.50%
---------------------------------------------------------------------
Common/2/ 5.24% 5.03% * 4.69%
- -----------------------------------------------------------------------------------------------------------------
Money Market Fund Investor/4#/ 4.97% 4.81% * 4.54%
---------------------------------------------------------------------
Common/2/ 5.33% 5.10% * 4.75%
- -----------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund Investor/5#/ 2.96% 2.88% * 2.72%
---------------------------------------------------------------------
Common/2/ 3.21% 3.14% * 2.95%
- -----------------------------------------------------------------------------------------------------------------
Fixed Income Fund Investor/6/ 6.81% 6.25% * 6.37%
---------------------------------------------------------------------
Common/2/ 7.13% 6.50% * 7.06%
- -----------------------------------------------------------------------------------------------------------------
Intermediate Government Fixed Income Fund Investor/7/ 7.56% 5.67% * 5.38%
---------------------------------------------------------------------
Common/2/ 8.16% 5.99% * 6.00%
- -----------------------------------------------------------------------------------------------------------------
Tax-Exempt Fixed Income Fund Investor/8/ 5.31% 5.23% * 5.26%
---------------------------------------------------------------------
Common/2/ 5.79% 5.55% * 6.05%
- -----------------------------------------------------------------------------------------------------------------
International Fixed Income Fund Investor/9/ 14.84% 5.58% * 5.61%
---------------------------------------------------------------------
Common/10/ 15.15% 5.85% * 7.42%
- -----------------------------------------------------------------------------------------------------------------
Limited Volatility Fixed Income Fund Investor * * * *
---------------------------------------------------------------------
Common * * * *
- -----------------------------------------------------------------------------------------------------------------
Balanced Fund Investor/8/ 9.72% 12.36% * 11.16%
---------------------------------------------------------------------
Common/2/ 9.97% 12.63% * 11.81%
- -----------------------------------------------------------------------------------------------------------------
Value Fund Investor/11/ 4.66% 16.56% * 14.55%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================
Average Annual Total Return
-----------------------------------
One Five Ten Since
Fund Class Year Year Year Inception
==================================================================================================
<S> <C> <C> <C> <C> <C>
Common/2/ 5.47% 16.96% * 15.20%
- --------------------------------------------------------------------------------------------------
Growth Fund Investor/12/ 29.52% 20.03% * 17.03%
---------------------------------------------------------------------
Common/2/ 30.23% 20.43% * 17.74%
- --------------------------------------------------------------------------------------------------
Small Cap Growth Fund Investor/7/ (7.25)% 9.46% * 9.60%
---------------------------------------------------------------------
Common/2/ (6.52)% 9.89% * 8.69%
- --------------------------------------------------------------------------------------------------
Small Cap Value Fund Investor/18/ * * * (14.59)%
---------------------------------------------------------------------
Common/18/ * * * (12.74)%
- --------------------------------------------------------------------------------------------------
International Equity Fund Investor/7/ 24.87% 10.90% * 12.25%
---------------------------------------------------------------------
Common/2/ 25.43% 11.21% * 13.61%
- --------------------------------------------------------------------------------------------------
Asian Tigers Fund Investor/13/ (11.89)% * * (7.57)%
---------------------------------------------------------------------
Common/14/ (11.37)% * * (7.19)%
- --------------------------------------------------------------------------------------------------
Latin America Equity Fund Investor * * * *
---------------------------------------------------------------------
Common/15/ (36.33)% * * (4.82)%
- --------------------------------------------------------------------------------------------------
TransEurope Fund Investor * * * *
---------------------------------------------------------------------
Common * * * *
- --------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================
Average Annual Total Return
----------------------------------
One Five Ten Since
Fund Class Year Year Year Inception
==============================================================================================
<S> <C> <C> <C> <C> <C>
Real Estate Fund Investor/16/ * * * *
------------------------------------------------------------------
Common/17/ (12.35)% * * (12.35)%
==============================================================================================
</TABLE>
* Not in operation during the period.
_______________
/1/ Commenced operations 3/25/93 /9/ Commenced operations 4/26/93
/2/ Commenced operations 1/4/93 /10/ Commenced operations 2/7/93
/3/ Commenced operations 4/22/93 /11/ Commenced operations 3/26/93
/4/ Commenced operations 3/31/93 /12/ Commenced operations 3/8/93
/5/ Commenced operations 3/24/93 /13/ Commenced operations 1/12/94
/6/ Commenced operations 3/12/93 /14/ Commenced operations 1/3/94
/7/ Commenced operations 4/12/93 /15/ Commenced operations 7/1/96
/8/ Commenced operations 3/9/93 /16/ Commenced Operations 10/8/98
/17/ Commenced operations 12/31/97
/18/ Commenced Operations 6/30/98
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisers, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the 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 Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended December 31, 1998,
including notes thereto and the report of Ernst & Young LLP are herein
incorporated by reference from the Trust's annual report.
66
