Investment Manager Due Diligence

Return to List Fourth Quarter 2003* MFS Massachusetts Investor Growth Fund The fund was subject to enhanced monitoring due to pending regulatory litigation as of December 10, 2003 related to allegations it facilitated excessive trading by hedge fund(s). MFS recently settled with the SEC and State of Massachusetts resulting in the dismissal of MFS's CEO and Chairman. However, other regulatory actions and shareholder settlements are still pending. Further, the fund has under-performed its performance benchmark and peer group median for 3 consecutive years. Three-year relative and risk-adjusted returns are in the bottom quartile of the Callan Large Cap Growth Peer Group. This performance weakness may be the result of a greater reliance on a team-oriented portfolio management process in recent periods. Turnover of portfolio holdings have also been very elevated during this period. PIMCO High Yield Fund The New Jersey Attorney General named the fund in a February 15, 2004 regulatory filing, alleging that PIMCO facilitated excessive trading by hedge fund(s) in the subject fund and other PIMCO funds. Additionally, longer-term performance has continued to lag the benchmark (Lehman Brothers Ba Intermediate High Yield Index), the Callan High Yield Peer Group and broad high yield indices (e.g. CSFB High Yield Index). While performance over the last 5 quarters has been quite strong relative to its benchmark, performance relative to peers has been middling; a result of the fund's normal bias to higher credit quality issues in an environment where lower credit quality issues posted exceptionally strong returns. Over the past 3- and 5-year periods, performance gross of fees (relative and risk-adjusted) was below the fund's median peer and performance net of fees was below the performance benchmark. Finally, the fund was previously subject to enhanced monitoring in 2003 for performance and portfolio management staff turnover. T Rowe Price Small Cap Fund Despite a respectable long-term performance record and a relatively low risk posture versus its benchmark, the fund lagged its benchmark for four consecutive quarters in 2003 and the fund ranked in the 92 percentile of its peers. The fund's 3- and 5-year averages are just above and just below the median, respectfully. Franklin Small/Mid Cap Growth Fund The fund was subject to enhanced monitoring for performance reasons. Recent performance has remained weak relative to peers and its benchmark. In each of the last four years, the fund has lagged the Callan median small cap growth peer. For the 3-year period, performance gross of fees (relative and risk-adjusted) was essentially in the bottom quartile of peers and performance net of fees was below the performance benchmark (lagging by over 500 basis points). Additionally, the Massachusetts Secretary of State named the fund in a February 4, 2004 regulatory filing, alleging that Franklin Resources facilitated excessive trading by hedge fund(s) in the subject fund. *Please note that in providing this information, the SBA is not in any way intending to influence or inform your investment decisions. Also, this list can change at any time without prior notice from the SBA.