<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
File No. 333-8919
File No. 811-7729
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 2 /X/
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4 /X/
HANSBERGER INSTITUTIONAL SERIES
--------------
(Exact Name of Registrant as Specified in Charter)
515 East Las Olas Boulevard
Suite 1300
Fort Lauderdale, Florida 33301
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (954) 522-5150
J. Christopher Jackson, Esq.
515 East Las Olas Boulevard
Suite 1300
Ft. Lauderdale, Florida 33301
(Name and Address of Agent for Service)
Copies to:
W. John McGuire, Esq.
MORGAN, LEWIS & BOCKIUS LLP
1800 M Street, N.W.
Washington, D.C. 20036
- --------------------------------------------------------------------------------
----------------------------
It is proposed that this filing become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b)
- -----
X on May 1, 1998 pursuant to paragraph (b)
- -----
60 days after filing pursuant to paragraph (a)
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on [date] pursuant to paragraph (a) of Rule 485
- -----
75 days after filing pursuant to paragraph (a)(2)
- -----
<PAGE>
HANSBERGER INSTITUTIONAL SERIES
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PART A -
Item 1. Cover Page Cover Letter
Item 2. Synopsis Fee Summary, Introduction
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Introduction; Investment Objectives and Policies; General Information:
Investment Limitations
Item 5. Management of the Fund Management of the Fund
Item 5A. Management's Discussion of Fund
Performance Not Applicable
Item 6. Capital Stock and Other Securities Valuation of Shares; Dividends and Capital Gains Distributions; Taxes;
Portfolio Transactions; Performance Information
Item 7. Purchase of Securities Being Offered Purchase and Redemption of Shares
Item 8. Redemption or Repurchase Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings Not Applicable
PART B -
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Organization of the Trust and the Funds
Item 13. Investment Objectives and Policies Investment Policies and Techniques; Additional Risk Factors; Investment
Restrictions
Item 14. Management of the Registrant Trustees and Officers of the Trust
Item 15. Control Persons and Principal
Holders of Securities Principal Shareholders
Item 16. Investment Advisory and Other
Services Investment Adviser; Custodian; Transfer Agent and
Dividend-Disbursing Agent
Item 17. Brokerage Allocation Fund Transactions and Brokerage
Item 18. Capital Stock and Other Securities Organization of the Trust and the Funds
Item 19. Purchase, Redemption, and Pricing
of Securities Being Offered Determination of Net Asset Value
Item 20. Tax Status Taxes
Item 21. Underwriters Transfer Agent and Dividend Disbursing Agent
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
</TABLE>
<PAGE>
LOGO
-----------------------
Hansberger
-----------------------
Institutional Series
-----------------------
PROSPECTUS
International Fund
Emerging Markets Fund
Foreign Small Cap Fund
All Countries FundSM
<PAGE>
HANSBERGER INSTITUTIONAL SERIES
PROSPECTUS
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
- ----------------- ----
<S> <C>
Introduction............................................................... 2
Fee Summary................................................................ 3
Investment Objectives and Policies......................................... 6
Risk Factors............................................................... 14
Investment Limitations..................................................... 16
Purchase and Redemption of Shares.......................................... 17
Shareholder Services....................................................... 21
Management of the Fund..................................................... 23
Valuation of Shares........................................................ 25
Performance Information.................................................... 26
Dividends and Capital Gains Distributions.................................. 26
Taxes...................................................................... 27
Portfolio Transactions..................................................... 28
General Information........................................................ 28
</TABLE>
<PAGE>
LOGO
HANSBERGER INSTITUTIONAL SERIES
515 EAST LAS OLAS BOULEVARD
SUITE 1300
FORT LAUDERDALE, FLORIDA
TELEPHONE NO. 954-522-5150
Hansberger Institutional Series (the "Trust"), a diversified management
investment company, is designed to provide institutional investors with multi-
national investment opportunities professionally managed by Hansberger Global
Investors, Inc. (the "Adviser"). The Trust currently consists of four separate
investment series (the "Funds") offering a range of investment choices. The
Funds and their investment objectives are:
International Fund. Seeks to achieve long-term capital growth through a
flexible policy of investing in stocks and debt obligations of companies and
governments outside the United States including developing countries.
Emerging Markets Fund. Seeks to achieve long-term capital growth through a
policy of investing primarily in publicly traded equity securities of
companies located in emerging markets.
Foreign Small Cap Fund. Seeks to achieve long-term capital growth through a
policy of investing primarily in equity securities of issuers with relatively
small market capitalizations located outside the United States.
All Countries Fund SM. Seeks to achieve long-term capital growth through a
policy of investing primarily in securities of companies located in any
country, including the United States.
Shareholders should understand that all investments involve risk and there
can be no guarantee against loss resulting from an investment in a Fund, nor
can there be any assurance that a Fund's investment objective will be
attained. Each Fund may invest without limit in developing countries, borrow
money for investment purposes, invest in a variety of derivative instruments,
and may invest up to 15% of its net assets in illiquid securities, each of
which may involve greater risk and/or increased Fund expenses. In addition,
investments in foreign securities involve certain risks which are not normally
involved in investment in U.S. securities. See "RISK FACTORS." Investors
should carefully consider these risks before investing.
This Prospectus sets forth concisely information about the Funds that you
should know before investing. You should read it carefully and retain it for
future reference. Additional information about, the Funds appears in a
Statement of Additional Information ("SAI"), also dated May 1, 1998, and has
been filed with the Securities and Exchange Commission (the "SEC"). The SAI is
incorporated in this Prospectus by reference. The SAI is available upon
request and without charge by writing or calling the Trust at the address or
telephone number provided above.
- -------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
TRUST'S SHARES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
The date of this Prospectus is May 1, 1998.
<PAGE>
INTRODUCTION
This Prospectus describes the International Fund, Emerging Markets Fund,
Foreign Small Cap Fund and All Countries FundSM (the "Funds"), four
diversified series of shares offered by the Hansberger Institutional Series
(the "Trust"), an open-end management investment company. Each Fund's
investment objective is long-term capital growth, but follows different
investment policies, and invests primarily in certain securities consistent
with those policies in attempting to meet its objective. See "INVESTMENT
OBJECTIVES AND POLICIES."
INVESTMENT ADVISER
Hansberger Global Investors, Inc. (the "Adviser") serves as investment
adviser to the Funds. See "MANAGEMENT OF THE FUND--Investment Adviser."
INVESTMENT RISKS
There can be no assurance that any Fund will achieve its investment
objectives. In addition, special risks may be presented by the particular
investment policies of each Fund. For example, each Fund has the right to
purchase securities in any foreign country, developed or developing. Investors
should consider carefully the substantial risks involved in investing in
securities issued by companies and governments of foreign nations, which are
in addition to the usual risks inherent in domestic investments. Each of the
Funds' investment strategies involves specific risks described in this
Prospectus under "INVESTMENT OBJECTIVES AND POLICIES" and "RISK FACTORS," and
under "INVESTMENT POLICIES AND TECHNIQUES" and "'ADDITIONAL RISK FACTORS" in
the SAI.
HOW TO INVEST
You may purchase shares at the Offering Price by check or by wire directly
from the Trust. The Offering Price is the net asset value per share next
determined after the Fund's transfer agent receives your order. See "FEE
SUMMARY." Your minimum initial investment in the Trust is normally $1,000,000,
and each subsequent investment must be at least $100,000. At its discretion,
the Adviser may waive minimum investment requirements for certain investors,
clients and employees. No minimum applies to automatic reinvestment of
dividends and capital gains distributions. You may be charged a fee if you
effect transactions through a broker or agent. See "PURCHASE AND REDEMPTION OF
SHARES." CURRENTLY, SHARES OF FOREIGN SMALL CAP FUND AND ALL COUNTRIES FUND SM
ARE NOT BEING OFFERED OR SOLD.
HOW TO REDEEM SHARES
You may redeem your shares of a Fund at any time at the net asset value per
share next determined after the Trust receives your redemption request in
"good order." Each Fund's net asset value per share fluctuates, so a share's
redemption price may be more or less than its purchase price. If you reduce
your total investment in a Fund to less than the minimum required initial
investment amount, your investment may be subject to redemption. See "PURCHASE
AND REDEMPTION OF SHARES."
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund expects to pay dividends and distribute capital gains at least
annually. Unless you provide written notice to the Fund to the contrary,
dividends and distributions will be automatically reinvested. See "DIVIDENDS
AND CAPITAL GAINS DISTRIBUTIONS."
2
<PAGE>
FEE SUMMARY
The following table and example are intended to assist you in understanding
the expenses and fees that a shareholder of a Fund will incur:
<TABLE>
<CAPTION>
EMERGING FOREIGN ALL
INTERNATIONAL MARKETS SMALL CAP COUNTRIES
FUND FUND FUND+ FUNDSM+
------------- -------- --------- ---------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Load Imposed on
Purchases......................... None None None None
Maximum Deferred Sales Load........ None None None None
Maximum Deferred Sales Load Imposed
on Reinvested Dividends........... None None None None
Exchange Fees...................... None None None None
Redemption Fees.................... 0.50% 1.00% 1.00% 0.50%
==== ==== ==== ====
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees (after voluntary
waivers)**........................ 0.52% 0.46% 0.90% 0.75%
12b-1 Fees......................... None None None None
Other Expenses (after voluntary
reimbursements)***................ 0.48% 1.04% 0.35% 0.25%
---- ---- ---- ----
Total Fund Operating Expenses
(after voluntary waivers and
reimbursements)****............... 1.00% 1.50% 1.25% 1.00%
==== ==== ==== ====
</TABLE>
- --------
* Shareholders will be charged a transaction fee, which is payable directly
to the Fund, in connection with each purchase and redemption of shares of
the Fund. The transaction fee is intended to allocate transaction costs
associated with purchases and redemptions of shares of the Fund to
investors actually making such purchases and redemptions rather than to the
Fund's other shareholders. The transaction fee represents the Adviser's
estimate of such transaction costs, which include the costs of acquiring
and disposing of the Fund's portfolio securities. The transaction fee is
1.00% for the Emerging Markets and Foreign Small Cap Funds and 0.50% for
the International and All Countries Funds. THE TRANSACTION FEE IS NOT A
SALES CHARGE OR LOAD, AND IS RETAINED BY THE FUND. The fee does not apply
to, and is not charged in connection with exchanges from one Fund to
another, certain insignificant transactions, including the reinvestment of
dividends or capital gain distributions, or transactions involving
shareholders who previously purchased shares that were not subject to the
transaction fee.
** Reflects voluntary waivers of fees by the Adviser. In the absence of such
voluntary waivers, management fees for the International Fund and the
Emerging Markets Fund were 0.75% and 1.00%, respectively, for the fiscal
year ended December 31, 1997.
*** Reflects voluntary reimbursements of fees and other expenses by the
Adviser. In the absence of such voluntary reimbursements, Other Expenses
for the International Fund and the Emerging Markets Fund were 0.54% and
1.18%, respectively, for the fiscal year ended December 31, 1997. Other
Expenses for the Foreign Small Cap Fund and the All Countries FundSM,
absent such voluntary waivers and reimbursements, are estimated to be
0.40% and 0.45%, respectively, for the fiscal year ending December 31,
1998.
**** Reflects voluntary waivers and reimbursements of fees by the Adviser. In
the absence of such voluntary waivers or reimbursements, Total Fund
Operating Expenses for the International Fund and the Emerging Markets
Fund would have been 1.29% and 2.18%, respectively, for the fiscal year
ended December 31, 1997. Other Expenses for the Foreign Small Cap Fund
and the All Countries FundSM, absent such voluntary waivers and
reimbursements, are estimated to be 1.30% and 1.20%, respectively, for
the fiscal year ending December 31, 1998.
+ As of May 1, 1998, the Foreign Small Cap Fund and All Countries FundSM had
not yet commenced operations.
3
<PAGE>
EXAMPLE
The following example demonstrates the expenses you would pay on a $1,000
investment assuming 5% annual return and (1) redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEAR 5 YEARS 10 YEARS
------ ------ ------- --------
<S> <C> <C> <C> <C>
International Fund......................... $20 $42 $ 66 $135
Emerging Markets Fund...................... $36 $68 $104 $203
Foreign Small Cap Fund..................... $33 $61
All Countries FundSM....................... $20 $42
</TABLE>
or (2) no redemption at the end of each period:
<TABLE>
<CAPTION>
1 YEAR 3 YEAR 5 YEARS 10 YEARS
------ ------ ------- --------
<S> <C> <C> <C> <C>
International Fund......................... $15 $37 $60 $127
Emerging Markets Fund...................... $25 $57 $92 $189
Foreign Small Cap Fund..................... $23 $50
All Countries FundSM....................... $15 $37
</TABLE>
THE EXAMPLE IS BASED UPON TOTAL OPERATING EXPENSES, EXCEPT WITH RESPECT TO
THE FOREIGN SMALL CAP AND ALL COUNTRIES FUNDS FOR WHICH IT IS BASED ON
ESTIMATED EXPENSES. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL
YEAR. THE ASSUMPTION OF A 5% ANNUAL RETURN IS REQUIRED BY THE SEC AND IS NOT A
PREDICTION OF A FUND'S FUTURE PERFORMANCE. THE EXAMPLE ASSUMES THE DEDUCTION
OF TRANSACTION FEES AT THE TIME OF PURCHASE AND REDEMPTION. INVESTMENTS IN THE
FUNDS PRIOR TO APRIL 15, 1997, ARE NOT SUBJECT TO THE TRANSACTION FEES.
The Adviser may direct a Fund's securities transactions to brokers who may
agree to assume (or to arrange for third parties to assume) certain expenses
of the Fund.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following information is included in the Trust's Annual Report and has
been audited by Arthur Andersen LLP, the Trust's independent accountants.
Their report on the financial statements and financial highlights is included
in the Annual Report, and is incorporated by reference into the SAI. As of
December 31, 1997, the Foreign Small Cap Fund and All Countries FundSM had not
yet commenced operations. The Trust's 1997 Annual Report to Shareholders is
available upon request and without charge by calling 1-800-414-6927.
For a Share Outstanding Throughout Each Period.
<TABLE>
<CAPTION>
INTERNATIONAL FUND EMERGING MARKETS FUND
-------------------------- -------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996*+ 1997 1996*+
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 10.12 $ 10.12 $ 10.12 $ 10.12
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income... 0.10 -- 0.05 --
Net Realized and
Unrealized Loss........ (0.25) -- (1.58) --
-------- ------- ------- -------
Total from Investment
Operations........... (0.15) -- (1.53) --
-------- ------- ------- -------
LESS DISTRIBUTIONS FROM:
Net Investment Income... (0.08) -- (0.07) --
In Excess of Net
Investment Income...... -- ++ -- -- --
Capital Gains........... (0.10) -- (0.02) --
-------- ------- ------- -------
Total Distributions... (0.18) -- (0.09) --
-------- ------- ------- -------
Net Asset Value, End of
Period................. $ 9.79 $ 10.12 $ 8.50 $ 10.12
======== ======= ======= =======
TOTAL RETURN............ (1.46)% 0.00 % (15.11)% 0.00 %
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of
Period (in Thousands).. $186,559 $ 4,296 $36,720 $ 5,233
RATIO OF EXPENSES TO
AVERAGE NET ASSETS(1).. 1.00 % 1.00 %** 1.50 % 1.50 %**
Ratio of Net Investment
Income to Average Net
Assets(1).............. 1.84 % 3.50 %** 1.12 % 2.87 %**
Portfolio Turnover
Rate................... 14 % 0 % 15 % 0 %
Average Commission Rate
Per Share............. $ 0.0078 $0.0000 $0.0034 $0.0000
As a Percentage of
Trade Amount......... 0.36 % -- 0.62 % --
- --------
(1) Effect of voluntary expense limitation during the period:
Ratio of Expenses to
Average Net Assets... 1.29 % 77.13 %** 2.18 % 65.28 %**
Ratio of Net
Investment Income
(Loss) to Average Net
Assets............... 1.55 % (72.63)%** 0.44 % (60.91)%**
</TABLE>
* The Fund commenced operations on December 30, 1996.
** Annualized.
+ The per share amounts for the two-day period ended December 31, 1996 are
based on average outstanding shares.
++ Amount represents less than $0.01 per share.
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objective and the investment restrictions set forth
under "INVESTMENT RESTRICTIONS" in the SAI are fundamental and may not be
changed without Shareholder approval. All other investment policies and
practices described in this Prospectus are not fundamental, and may be changed
by the Board of Trustees without Shareholder approval.
INTERNATIONAL FUND
The Fund's investment objective is long-term capital growth. The Fund seeks
to achieve its objective by investing in stocks and debt obligations of
companies and governments outside the United States which the Adviser believes
are undervalued. Income will be an incidental consideration.
The Adviser's portfolio investment decisions rely heavily on a fundamental
analysis of securities with a long-term investment perspective. The Adviser
seeks to increase the scope and effectiveness of this fundamental investment
approach by extending the search for value into many countries around the
world. This global search provides the Adviser with more diverse opportunities
and flexibility to shift portfolio investments not only from company to
company and industry to industry, but also country to country, in search of
undervalued securities. Under normal market conditions, the Fund will invest
more than 80% of its assets in issuers located in at least three countries
other than the United States. This 80% does not include the cash position of
the Fund.
EMERGING MARKETS FUND
The Fund's investment objective is long-term capital growth. The Fund seeks
to achieve this goal by investing primarily in a diversified portfolio of
publicly traded equity securities of companies located in emerging markets
that the Adviser believes are undervalued. The Fund may also, to a lesser
degree, invest in private placement emerging market equity securities.
Dividend and interest income from portfolio securities is largely an
incidental consideration.
The Adviser's portfolio investment decisions rely heavily on a fundamental
analysis of securities with a long-term investment perspective. The Adviser
seeks to increase the scope and effectiveness of this fundamental investment
approach by extending the search for value into many countries around the
world. This global search provides the Adviser with more diverse opportunities
and flexibility to shift portfolio investments not only from company to
company and industry to industry, but also country to country, in search of
undervalued securities.
Under normal circumstances, the Fund will invest at least 70% of the the
value of its total assets in securities of issuers located in emerging market
countries. As used in this Prospectus, the terms "emerging market country,"
"emerging country," or "developing country" apply to any country that, in the
Adviser's opinion, is generally considered to be an emerging or developing
country in the international financial community, which includes the
International Bank for Reconstruction and Development (the "World Bank") and
the International Finance Corporation. There are currently over 130 countries
that are emerging or developing countries under this standard; approximately
40 of these countries currently have stock markets. These countries generally
include every nation in the world except the United States, Canada, Japan,
Australia, New Zealand and most nations located in Western Europe. Securities
of issuers located in emerging market countries or traded in emerging markets
present greater liquidity risks and other risks than securities of issuers
located in developed countries and trade in more established markets.
By engaging in its own research and by reviewing research obtained through
outside sources, the Adviser seeks to identify appropriate investments for the
Fund. The Adviser considers a number of factors in evaluating potential
investments including political risks, classic macro-economic variables
6
<PAGE>
and equity market valuations. The Adviser also focuses on the quality of a
company's management, the company's growth prospects, and the financial
wellbeing of the company. The Fund's investments generally will reflect a
broad cross-section of countries, industries, and companies in order to
minimize risk. In situations where the market for a particular security is
determined by the Adviser to be sufficiently liquid, the Fund may engage in
short sales. These investment techniques are described below under "Investment
Techniques" and "RISK FACTORS," and under the heading "INVESTMENT POLICIES AND
TECHNIQUES" in the SAI.
FOREIGN SMALL CAP FUND
The Fund's investment objective is to provide long-term capital growth. It
seeks to achieve its objective by investing primarily in equity securities of
issuers with relatively small market capitalizations (share price times number
of equity securities outstanding) located outside the United States which the
Adviser believes are undervalued. Income will be an incidental consideration.
The Adviser's portfolio investment decisions rely heavily on a fundamental
analysis of securities with a long-term investment perspective. The Adviser
seeks to increase the scope and effectiveness of this fundamental investment
approach by extending the search for value into many countries around the
world. This global search provides the Adviser with more diverse opportunities
and flexibility to shift portfolio investments not only from company to
company and industry to industry, but also country to country, in search of
undervalued securities. Under normal market conditions, the Fund will invest
at least 70% of the value of its total assets in (1) companies located in
developing countries with individual market capitalizations of less than $750
million USD (at the time of purchase) and (2) companies located in developed
countries, other than the United States, with individual market
capitalizations of less than $1.5 billion USD (at the time of purchase).
ALL COUNTRIES FUND/SM/
The Fund's investment objective is long-term capital growth. The Fund seeks
to achieve its objective by investing in stocks and debt obligations of
companies and governments in any country which the Adviser believes are
undervalued. Income will be an incidental consideration.
The Adviser's portfolio investment decisions rely heavily on a fundamental
analysis of securities with a long-term investment perspective. The Adviser
seeks to increase the scope and effectiveness of this fundamental investment
approach by extending the search for value into many countries around the
world. This global search provides the Adviser with more diverse opportunities
and flexibility to shift portfolio investments not only from company to
company and industry to industry, but also country to country, in search of
undervalued securities. Under normal market conditions, the Fund will invest
its assets in at least three countries, which may include the United States.
INVESTMENT POLICIES COMMON TO EACH FUND
Although each Fund generally invests in common stock, a Fund may also invest
in preferred stocks and certain debt securities, rated or unrated, such as
convertible bonds and bonds selling at a discount, when the Adviser believes
the potential for appreciation will equal or exceed that available from
investments in common stock. Each Fund may also invest in warrants or rights
to subscribe to or purchase such securities, and sponsored or unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") and other depositary receipts
(collectively, "Depositary Receipts"). Each Fund may invest in securities of
companies or investment trusts that invest in, or securities backed by,
mortgages, real estate or interests in real estate, including, but not limited
to, real estate investment trusts ("REITs"). Each Fund may also lend its
portfolio securities and borrow money for investment purposes (i.e.,
"leverage" its portfolio). In addition, each Fund may invest in closed-end
investment companies holding foreign securities, and
7
<PAGE>
enter into transactions in options on securities, securities indices and
foreign currencies, forward foreign currency contracts, and futures contracts
and related options. When deemed appropriate by the Adviser, the Fund may
invest cash balances in repurchase agreements and other money market
investments to maintain liquidity in an amount sufficient to meet expenses or
for day-to-day operating purposes. These investment techniques are described
below under "Investment Techniques" and "Risk Factors," and under the heading
"INVESTMENT POLICIES AND TECHNIQUES" in the SAI. Whenever, in the judgment of
the Adviser, market or economic conditions warrant, each Fund may adopt a
temporary defensive position and may invest without limit in money market
securities denominated in U.S. dollars or in the currency of any foreign
country. See "Investment Techniques--Temporary Investments."
INVESTMENT TECHNIQUES
Unless specified to the contrary, each Fund may engage in the investment
techniques and make the types of investments described and discussed in this
section.
Depositary Receipts. Each Fund may purchase sponsored and unsponsored
Depositary Receipts that are or become available, including ADRs, GDRs, EDRs
and other Depositary Receipts. Depositary Receipts are typically issued by a
financial institution ("depository") and evidence ownership interests in a
security or a pool of securities ("underlying securities") that have been
deposited with the depository. In ADRs, the depository is typically a U.S.
financial institution and the underlying securities are issued by a foreign
issuer. In other Depositary Receipts, the depository may be a foreign or a
U.S. entity, and the underlying securities may have a foreign or a U.S.
issuer. Depositary Receipts will not necessarily be denominated in the same
currency as their underlying securities. Depositary Receipts may be issued
pursuant to sponsored or unsponsored programs. In sponsored programs, an
issuer has made arrangements to have its securities traded in the form of
Depositary Receipts. In unsponsored programs, the issuer may not be directly
involved in the creation of the program. Although regulatory requirements with
respect to sponsored and unsponsored programs are generally similar, in some
cases it may be easier to obtain financial information from an issuer that has
participated in the creation of a sponsored program. Accordingly, there may be
less information available regarding issuers of securities underlying
unsponsored programs and there may not be a correlation between such
information and the market value of the Depositary Receipts. For purposes of a
Fund's investment policies, investments in Depositary Receipts will be deemed
to be investments in the underlying securities. Thus, a Depositary Receipt
representing ownership of common stock will be treated as common stock.
Sovereign Debt. Each Fund may invest in Sovereign Debt, which may trade at a
substantial discount from face value. The Fund may hold and trade Sovereign
Debt of emerging market countries in appropriate circumstances and to
participate in debt conversion programs. Emerging country Sovereign Debt
involves a high degree of risk, is generally lower-quality debt, and is
considered speculative in nature. The issuer or governmental authorities that
control Sovereign Debt repayment ("sovereign debtors") may be unable or
unwilling to repay principal or interest when due in accordance with the terms
of the debt. A sovereign debtor's willingness or ability to repay principal
and interest due in a timely manner may be affected by, among other factors,
its cash flow situation, the extent of its foreign reserves, the availability
of sufficient foreign exchange on the date a payment is due, the relative size
of the debt service burden to the economy as a whole, the sovereign debtor's
policy towards the International Monetary Fund (the "IMF") and the political
constraints to which the sovereign debtor may be subject. Sovereign debtors
may also be dependent on expected disbursements from foreign governments,
multilateral agencies and others abroad to reduce principal and interest
arrearage on their debt. The commitment of these third parties to make such
disbursements may be conditioned on the sovereign debtor's implementation of
economic reforms or economic performance and the timely service of the
debtor's obligations. The sovereign debtor's failure to meet these conditions
may cause these third parties to cancel their commitments to provide funds
8
<PAGE>
to the sovereign debtor, which may further impair the debtor's ability or
willingness to timely service its debts. In certain instances, a Fund may
invest in Sovereign Debt that is in default as to payments of principal or
interest. A Fund holding non-performing Sovereign Debt may incur additional
expenses in connection with any restructuring of the issuer's obligations or
in otherwise enforcing its rights thereunder.
Brady Bonds. Each Fund may invest in Brady Bonds as part of its investment
in Sovereign Debt of countries that have restructured or are in the process of
restructuring their Sovereign Debt pursuant to the Brady Plan.
Brady Bonds are issued under the framework of the Brady Plan, an initiative
announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
indebtedness. The Brady Plan contemplates, among other things, the debtor
nation's adoption of certain economic reforms and the exchange of commercial
bank debt for newly issued bonds. In restructuring its external debt under the
Brady Plan framework, a debtor nation negotiates with its existing bank
lenders as well as the World Bank or IMF. The World Bank or IMF supports the
restructuring by providing funds pursuant to loan agreements or other
arrangements that enable the debtor nation to collateralize the new Brady
Bonds or to replenish reserves used to reduce outstanding bank debt. Under
these loan agreements or other arrangements with the World Bank or IMF, debtor
nations have been required to agree to implement certain domestic monetary and
fiscal reforms. The Brady Plan sets forth only general guiding principles for
economic reform and debt reduction, emphasizing that solutions must be
negotiated on a case-by-case basis between debtor nations and their creditors.
Brady Bonds are recent issues and do not have a long payment history.
Agreements implemented under the Brady Plan are designed to achieve debt and
debt-service reduction through specific options negotiated by a debtor nation
with its creditors. As a result, each country offers different financial
packages. Options have included the exchange of outstanding commercial bank
debt for bonds issued at 100% of face value of such debt, bonds issued at a
discount of face value of such debt, and bonds bearing an interest rate that
increases over time and the advancement of the new money for bonds. The
principal of certain Brady Bonds has been collateralized by U.S. Treasury zero
coupon bonds with a maturity equal to the final maturity of the Brady Bonds.
Collateral purchases are financed by the IMF, World Bank and the debtor
nations' reserves. Interest payments may also be collateralized in part in
various ways.
Brady Bonds are often viewed as having three or four valuation components:
(i) the collateralized repayment of principal at final maturity; (ii) the
collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute the "residual risk"). In light of
the residual risk of Brady Bonds and, among other factors, the history of
defaults with respect to commercial bank loans by public and private entities
of countries issuing Brady Bonds, investments in Brady Bonds can be viewed as
speculative.
Investment Funds. Some emerging countries have laws and regulations that
preclude direct foreign investment in the securities of companies located
there. However, indirect foreign investment in the securities of companies
listed and traded on the stock exchanges in these countries is permitted by
certain emerging countries through specifically authorized investment funds.
Each Fund may invest in these investment funds, as well as other closed-end
investment companies (collectively, "Investment Funds"), subject to the
provisions of the Investment Company Act of 1940, as amended, and rules
thereunder (the "1940 Act") and other applicable laws as discussed below under
"INVESTMENT LIMITATIONS." If a Fund invests in investment funds, shareholders
will bear not only their proportionate share of the Fund's expenses (including
operating expenses and the fees of the Adviser), but also, indirectly, the
similar expenses of the underlying investment funds.
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<PAGE>
Repurchase Agreements. Each Fund may enter into repurchase agreements with
brokers, dealers or banks ("counterparties") that the Adviser has determined
meet the credit guidelines established by the Board of Trustees. Repurchase
agreements will be fully collateralized, and may be viewed for purposes of the
1940 Act as a loan of money by the Fund to the counterparty. The Fund may
incur a loss if the counterparty defaults and the collateral value declines,
or if bankruptcy proceedings are commenced regarding the counterparty and the
Fund's realization upon the collateral is delayed or limited. Each Fund's
aggregate investment in certain illiquid repurchase agreements and other
investments is limited as set forth under "INVESTMENT LIMITATIONS."
Securities Lending. Each Fund is authorized to lend up to 33 1/3% of the
total market value of its portfolio securities to brokers, dealers, domestic
and foreign banks or other financial institutions for the purpose of
increasing its net investment income; however, currently, no Fund intends to
engage in such lending. Any such loan must be fully secured; however, there
may be risks of delay in recovery of the securities or even loss of rights in
the collateral should the borrower of the securities fail financially. For
more detailed information about securities lending, see "INVESTMENT POLICIES
AND TECHNIQUES" in the SAI.
Temporary Investments. Each Fund may make money market investments pending
other investment or settlement for liquidity, or in adverse market conditions.
These money market investments include obligations of the U.S. Government and
its agencies and instrumentalities, obligations of foreign sovereignties,
other debt securities, commercial paper including bank obligations,
certificates of deposit (including Eurodollar certificates of deposit) and
repurchase agreements.
For temporary defensive purposes, during periods in which the Adviser
believes changes in economic, financial or political conditions make it
advisable, each Fund may reduce its holdings in equity and other securities
and may invest up to 100% of its assets in certain short-term (less than
twelve months to maturity) and medium-term (not greater than five years to
maturity) debt securities and in cash (U.S. dollars, foreign currencies, or
multicurrency units). These short-term and medium-term debt securities consist
of (a) obligations of governments, agencies or instrumentalities of any member
state of the Organization for Economic Cooperation and Development ("OECD"),
(b) bank deposits and bank obligations (including certificates of deposit,
time deposits and bankers' acceptances) of banks organized under the laws of
any member state of the OECD, denominated in any currency; (c) floating rate
securities and other instruments denominated in any currency issued by
international development agencies; (d) finance company and corporate
commercial paper and other short-term corporate debt obligations of
corporations organized under the laws of any member state of the OECD meeting
the Fund's credit quality standards; and (e) repurchase agreements with banks
and broker-dealers covering any of the foregoing securities. The short-term
and medium-term debt securities in which a Fund may invest for temporary
defensive purposes will be those that the Adviser believes to be of high
quality, i.e., subject to relatively low risk of loss of interest or principal
(there is currently no rating system for debt securities in most emerging
countries). If rated, these securities will be rated in one of the three
highest rating categories by rating services such as Moody's Investors
Service, Inc. or Standard & Poor's Corporation (i.e., rated at least A).
"When-Issued" Securities. Each Fund may purchase securities on a when-issued
or delayed delivery basis. The price of debt obligations purchased on a when-
issued basis is fixed at the time the Fund commits to purchase, but delivery
and payment for the securities ("settlement") takes place at a later date. The
price of these securities may be expressed in yield terms; the Funds will
enter into these transactions in order to lock in the yield (price) available
at the time of commitment.
Between purchase and settlement, the Fund assumes the ownership risk of the
when-issued securities, including the risk of fluctuations in the securities'
market value due to, among other factors, a change in the general level of
interest rates. However, no interest accrues to the Fund during this period.
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Forward Foreign Currency Exchange Contracts and Options on Foreign
Currencies. Each Fund may enter into forward foreign currency exchange
contracts ("forward contracts"), providing for the purchase of or sale of an
amount of a specified currency at a future date. Each Fund may use forward
contracts to protect against a foreign currency's decline against the U.S.
dollar between the trade date and settlement date for a securities
transaction, or to lock in the U.S. dollar value of dividends declared on
securities it holds, or generally to protect the U.S. dollar value of the
securities it holds against exchange rate fluctuations. Each Fund may also use
forward contracts to protect against fluctuating exchange rates and exchange
control regulations. Forward contracts may limit a Fund's losses due to
exchange rate fluctuation, but they will also limit any gains that the Fund
might otherwise have realized. Each Fund may also enter into foreign currency
futures contracts ("currency futures").
Except where segregated accounts are not required by the 1940 Act, when a
Fund enters into a forward contract or currency future, the Custodian will
place cash, U.S. government securities, or high-grade debt securities into a
segregated account of the Fund in an amount equal to the value of the Fund's
total assets committed to consummation of forward contracts and currency
futures. If the value of these segregated securities declines, additional cash
or securities will be placed in the account on a daily basis so that the
account value is at least equal to the Fund's commitments to such contracts.
See "INVESTMENT POLICIES AND TECHNIQUES--Forward Currency Contracts" in the
SAI.
Each Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines
in the U.S. dollar value of foreign currency denominated portfolio securities
and against increases in the U.S. dollar cost of such securities to be
acquired. As in the case of other kinds of options, however, the writing of an
option on a foreign currency constitutes only a partial hedge, up to the
amount of the premium received, and the Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event
of rate movements adverse to the Fund's position, it may forfeit the entire
amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the Funds are traded on U.S. and
foreign exchanges or over the counter.
Non-Publicly Traded Securities. Each Fund may invest in securities that are
neither listed on a stock exchange nor traded over the counter, including
privately placed securities. These securities may present a higher degree of
business and financial risk, which can result in substantial losses. In the
absence of a public trading market for these securities, they may be less
liquid than publicly traded securities. Although these securities may be
resold in privately negotiated transactions, the prices realized from these
sales could be less than those originally paid by the Fund or less than what
the Fund may consider the fair value of such securities. Further, companies
whose securities are not publicly traded may not be subject to disclosure and
other investor protection requirements that might apply if their securities
were publicly traded. If such securities are required to be registered under
the securities laws of one or more jurisdictions before being resold, the Fund
may be required to bear the costs of registration. As a general matter, each
Fund may not invest more than 15% of its net assets in illiquid securities,
including securities for which there is no readily available secondary market,
nor more than 10% of its total assets in securities that are restricted from
sale to the public without registration ("Restricted Securities") under the
Securities Act of 1933, as amended (the "1933 Act"). Subject to these limits,
however, a Fund may invest up to 25% of its total assets in Restricted
Securities that can be offered and sold to qualified institutional buyers
under Rule 144A under the 1933 Act ("Rule 144A Securities"). The Board of
Trustees has adopted guidelines and delegated to the Adviser, subject to the
Board's supervision, the daily function of determining and monitoring the
liquidity of Rule 144A Securities. Rule 144A Securities may become illiquid if
qualified institutional buyers are not interested in acquiring them.
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<PAGE>
Borrowing and Other Forms of Leverage. Each Fund may borrow money from U.S.-
regulated banks. The 1940 Act and each Fund's fundamental investment policies
restrict such borrowing to 33 1/3% of the Fund's total assets (including the
amount borrowed) less all liabilities and indebtedness other than the
borrowing. Borrowing creates leverage, which is a speculative characteristic;
leverage from borrowing will magnify declines as well as increases in a Fund's
net asset value per share and net yield. A Fund will borrow only on a secured
basis, and only when the Adviser believes that borrowing will benefit the Fund
after taking into account considerations such as the costs of borrowing and
the likely investment returns on securities purchased with borrowed monies.
Options Transactions. Each Fund may seek to hedge all or a portion of its
investments through options on other securities in which it may invest.
Options in which a Fund may transact will be traded on a recognized securities
or futures exchange or over the counter. Options markets in emerging countries
are currently limited and the nature of the strategies adopted by the Adviser
and the extent to which those strategies are used will depend on the
development of such markets.
Each Fund may write (i.e., sell) covered call options. A call gives the
purchaser the right to buy the security underlying the option from the Fund at
the stated exercise price, on or before a specified date (the "termination
date") that is usually not more than nine months from the date the option is
issued. A "covered" call means that so long as the Fund is obligated as the
writer of the option, it will own (i) the securities underlying the option, or
(ii) securities convertible or exchangeable (without the payment of any
consideration) into the securities underlying the option.
Each Fund may also write (i.e., sell) covered put options. The writer of a
put incurs an obligation to buy the security underlying the option from the
put's purchaser at the exercise price at any time on or before the termination
date, at the purchaser's election (certain options a Fund writes will be
exercisable by the purchaser only on a specific date). Generally, a put is
"covered" if the Fund maintains cash, U.S. government securities or other
liquid high grade debt obligations equal to the exercise price of the option
or if the Fund holds a put on the same underlying security with a similar or
higher exercise price.
Each Fund may also purchase put or call options on individual securities or
baskets of securities. When a Fund purchases a call, it acquires the right to
buy the underlying security at the exercise price on or before the termination
date, and when a Fund purchases a put, it acquires the right to sell the
underlying security at the exercise price on or before the termination date.
The primary risks associated with the use of options on securities are (i)
imperfect correlation between the change in market value of the securities the
Fund holds and the prices of options relating to the securities purchased or
sold by the Fund; and (ii) possible lack of a liquid secondary market for an
option. Options not traded on an exchange (OTC options) are often considered
illiquid and may be difficult to value. The Adviser believes that each Fund
will minimize its risk of being unable to close out an options contract by
transacting in options only if there appears to be a liquid secondary market
for those options.
Futures Contracts. Each Fund may buy and sell financial futures contracts,
stock and bond index futures contracts, foreign currency futures contracts and
options on any of the foregoing for hedging purposes only. A financial futures
contract is an agreement between two parties to buy or sell a specified debt
security at a set price on a future date. An index futures contract is an
agreement to take or make delivery of an amount of cash based on the
difference between the value of the index at the beginning and at the end of
the contract period. A futures contract on a foreign currency is an agreement
to buy or sell a specified amount of a currency for a set price on a future
date.
When a Fund enters into a futures contract, it must make an initial deposit,
known as "initial margin," as a partial guarantee of its performance under the
contract. As the value of the security,
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<PAGE>
index or currency fluctuates, either party to the contract is required to make
additional margin payments, known as "variation margin," to cover any
additional obligation it may have under the contract. In addition, when the
Fund enters into a futures contract, it will segregate assets or "cover" its
position in accordance with the 1940 Act. See "INVESTMENT POLICIES AND
TECHNIQUES Derivative Instruments--Futures Contracts" in the SAI. With respect
to positions in futures and related options that do not constitute "bona fide
hedging" positions as defined in regulations of the Commodity Futures Trading
Commission, the Fund will not enter into a futures contract or related option
contract if, immediately thereafter, the aggregate initial margin deposits
relating to such positions plus premiums paid by it for open futures option
positions, less the amount by which any such options are "in-the-money," would
exceed 5% of the Fund's total assets. The value of the underlying securities
on which futures contracts will be written at any one time will not exceed 25%
of the total assets of the Fund.
The primary risks associated with the use of futures and options on futures
are (i) imperfect correlation between the change in market value of the
securities held by the Fund and the prices of related futures and options on
futures purchased or sold by the Fund, and (ii) possible lack of a liquid
secondary market for a futures contract (or related option) and the resulting
inability to close a futures position, which could have an adverse impact on
the Fund's ability to hedge. The risk of loss in trading on futures contracts
and related options in some strategies can be substantial, due both to the low
margin deposits required and the extremely high degree of leverage involved in
futures pricing. Gains and losses on futures and related options depend on the
Adviser's ability to predict correctly the direction of stock prices, interest
rates, and other economic factors. In the opinion of the Trustees, the risk
that Fund will be unable to close out a futures position or related options
contract will be minimized by only entering into futures contracts or related
options transactions for which there appears to be a liquid secondary market.
For more detailed information about futures transactions see "INVESTMENT
POLICIES AND TECHNIQUES" in the SAI.
Short Sales. Each Fund may from time to time sell securities short without
limitation, although initially it has no intention to sell securities short.
In a short sale, a Fund sells securities it does not own (but has borrowed) in
anticipation of a decline in the securities' market price. All short sales by
a Fund will be fully collateralized. Short sales involve certain risks and
special considerations; possible losses from short sales may be unlimited,
whereas losses from purchases of securities are limited to the total amount
invested. Each Fund may also sell short "against the box," that is, sell a
security that the Fund owns or has the right to acquire, for delivery at a
specified date in the future.
REITS. REITs are trusts that invest primarily in commercial real estate or
real estate-related loans. The value of interests in REITs may be affected by
the value of the underlying property owned or the quality of the loans held by
the trust.
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RISK FACTORS
FOREIGN INVESTMENT
Investment in securities of foreign issuers and in foreign branches of
domestic banks, involves some risks different from, or in addition to, those
affecting investments in securities of U.S. issuers:
Information Publicly available information about foreign
issuers and economies may be limited. Foreign
issuers are not generally subject to uniform
accounting, auditing and financial and other
reporting standards and requirements comparable
to those applicable to U.S. companies.
Statistical information about the economy in an
emerging market country may be unavailable, or
if available may be unreliable or not directly
comparable to information regarding the economy
of the U.S. or other more developed countries.
Regulation There may be less government supervision and
regulation of foreign securities exchanges,
brokers and listed companies than in the U.S.
Liquidity and Concentration Many foreign securities markets have
substantially less volume than U.S. national
securities exchanges. Available investments in
emerging countries may be highly concentrated
in a small number of issuers, or the issuers
may be unseasoned and/or have significantly
smaller market capitalization than in the U.S.
or more developed countries. Consequently,
securities of foreign issuers may be less
liquid and more volatile than those of
comparable domestic issuers.
Brokerage commissions and other transaction
Brokerage costs on foreign securities exchanges are
generally higher than in the U.S.
Taxes Dividends and interest paid by foreign issuers
may be subject to withholding and other foreign
taxes, which may decrease the net return on
foreign investments as compared to dividends
and interest paid to the Fund by U.S.
companies. It is expected that the Funds'
shareholders will be able to claim a credit for
U.S. tax purposes for any such foreign taxes,
although there can be no assurance that they
will be able to do so. See "TAXES."
Political/Economy Political and economic developments may present
risks. A foreign jurisdiction might impose or
change withholding taxes on income payable in
connection with foreign securities. There are
risks of seizure, nationalization or
expropriation of a foreign issuer or foreign
deposits, and adoption of foreign governmental
restrictions such as exchange controls. Many
emerging or developing countries have less
stable political and economic environments than
some more developed countries, and may face
external stresses (including war) as well as
internal ones (including hyperinflation,
currency depreciation, limited resource self-
sufficiency, and balance of
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<PAGE>
payments issues and associated social unrest).
It may be more difficult to obtain a judgment
in a court outside the U.S.
Currency Exchange Securities of foreign issuers are frequently
denominated in foreign currencies, and a Fund
may temporarily hold uninvested reserves in
bank deposits in foreign currencies. The
exchange rates between the U.S. dollar and the
currencies of emerging markets countries may be
volatile, and changes in currency rates and
exchange control regulations may affect
(favorably or unfavorably) the value of a
Fund's assets in U.S. dollars. A Fund may incur
costs in converting between currencies.
Repatriation Restrictions Foreign governments may delay or restrict
repatriation of a Fund's investment income or
other assets. If, for any reason, a Fund were
unable, through borrowing or otherwise, to
distribute an amount equal to substantially all
of its investment company taxable income (as
defined for U.S. tax purposes) within required
time periods, the Fund would cease to qualify
for the favorable tax treatment afforded
regulated investment companies under the U.S.
Internal Revenue Code of 1986, as amended (the
"Code").
INVESTING IN SMALLER CAPITALIZATION STOCKS
The Adviser believes that the issuers of smaller capitalization stocks often
have sales and earnings growth rates which exceed those of larger companies,
and that such growth rates may in turn be reflected in more rapid share price
appreciation. However, investing in smaller capitalization stocks can involve
greater risk than is customarily associated with investing in stocks of
larger, more established companies. For example, smaller capitalization
companies often have limited product lines, markets, or financial resources,
may be dependent for management on one or a few key persons, and can be more
susceptible to losses. Also, their securities may be thinly traded (and
therefore have to be sold at a discount from current prices or sold in small
lots over an extended period of time), may be followed by fewer investment
research analysts and may be subject to wider price swings and thus may create
a greater chance of loss than securities of larger capitalization companies.
Transaction costs in stocks of smaller capitalization companies may be higher
than those of larger capitalization companies.
INVESTING IN LOWER RATED DEBT SECURITIES
Each Fund may invest in lower rated or unrated debt securities. Debt
considered below investment grade may be referred to as "junk bonds" or "high
risk" securities. The emerging country debt securities in which the Fund may
invest are subject to significant risk and will not be required to meet any
minimum rating standard or equivalent. Debt securities are subject to the risk
of the issuer's inability to meet principal and interest payments (credit
risk) and may also be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the issuer's creditworthiness
and general market liquidity (market risk). Lower rated or unrated securities
are more likely to react to developments affecting market and credit risk than
are more highly rated securities, which react primarily to movements in
general levels of interest rates. The market values of debt securities tend to
vary inversely with interest rate levels. Yields and market values of lower
rated and unrated debt will fluctuate over time, reflecting not only changing
interest rates but also the market's perception of credit quality and the
outlook for economic growth. When economic conditions appear to be
deteriorating, medium to lower rated securities may decline in value due to
heightened concern over credit quality,
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<PAGE>
regardless of prevailing interest rates. The Adviser will consider credit risk
and market risk in making debt security investment decisions for each Fund.
Investors should carefully consider the relative risks of investing in a Fund
that purchases lower rated and unrated debt securities, and should understand
that such securities are not generally meant for short-term investing.
The U.S. market for lower rated and unrated corporate debt is relatively new
and its recent growth paralleled a long period of economic expansion and an
increase in merger, acquisition and leveraged buyout activity. In addition,
trading markets for debt securities of issuers located in emerging countries
may be limited. Adverse economic developments may disrupt the market for U.S.
corporate lower rated and unrated debt securities and for emerging country
debt securities. Such disruptions may severely affect the ability of issuers,
especially highly leveraged issuers, to service their debt obligations or to
repay their obligations upon maturity. In addition, the secondary market for
lower rated and unrated debt securities, which is concentrated in relatively
few market makers, may not be as liquid as the secondary market for more
highly rated securities. As a result, the Adviser could find it more difficult
to sell these securities or may be able to sell the securities only at prices
lower than if such securities were widely traded. Prices realized upon the
sale of such lower rated or unrated securities, under these circumstances, may
be less than the prices used in calculating a Fund's net asset value.
OTHER INVESTMENT RISK FACTORS
Each of the Funds' investment strategies involves specific risks. Further
information about these specific risks can be found in this Prospectus under
"INVESTMENT OBJECTIVES AND POLICIES--Investment Techniques" and under
"INVESTMENT POLICIES AND TECHNIQUES" and "ADDITIONAL RISK FACTORS" in the SAI.
INVESTMENT LIMITATIONS
Each Fund has adopted certain fundamental investment policies and
restrictions. A Fund may not change its investment objective or any
fundamental policy or restriction without approval of the holders of a
majority of the Fund's outstanding shares. Each Fund has also instituted non-
fundamental operating policies. Although the Board of Trustees may change
operating policies without shareholder approval, the Trust will promptly
notify shareholders of any material change in non-fundamental operating
policies. See "INVESTMENT RESTRICTIONS" in the SAI.
Each Fund is a diversified company under the 1940 Act and is therefore
subject to the following limitations:
. as to 75% of its total assets, the Fund may not invest more than 5% of
its total assets in the securities of any one issuer, except obligations
of or securities guaranteed by the U.S. Government and its agencies and
instrumentalities, and
. the Fund may not own more than 10% of the outstanding voting securities
of any one issuer.
Each Fund also intends to comply with the diversification requirements imposed
by the Code, for qualification as a regulated investment company. See "TAXES."
Under each Fund's non-fundamental restrictions, a Fund may not (i) invest
more than 15% of the market value of its net assets in investments for which
market quotations are not readily available or that are otherwise illiquid;
(ii) mortgage, pledge or hypothecate any assets except in connection with any
such borrowing in amounts up to 33 1/3% of the value of the Fund's net assets
at the time of borrowing; or (iii) invest more than 5% of its net assets in
warrants (exclusive of amounts acquired in units or attached to securities).
Each Fund may invest no more than 15% of its total assets in securities issued
by any one company or government, exclusive of U.S. Government securities.
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Each Fund will not invest 25% or more of the total value of its assets in a
particular industry. For purposes of this investment restriction, a foreign
government (but not the United States government) is deemed to be an
"industry," and therefore investments in the obligations of any one foreign
government may not equal or exceed 25% of a Fund's assets.
Each Fund's investment techniques are described herein under "Investment
Techniques" and "RISK FACTORS," and under the heading "INVESTMENT POLICIES AND
TECHNIQUES" in the SAI. Each Fund invests for long-term growth of capital and
does not intend to place emphasis upon short-term trading profits.
Accordingly, each Fund normally expects to have an annual portfolio turnover
rate of less than 50%.
PURCHASE AND REDEMPTION OF SHARES
You may purchase and redeem shares of each Fund on any day when the New York
Stock Exchange ("NYSE") is open for business (a "business day") so long as the
Custodian is also open for business that day. The purchase price of shares is
a Fund's net asset value per share next determined after receipt of your
purchase order, plus any applicable sales load; the amount of any sales load
is deducted from the total amount of your investment, and the remaining amount
of your investment is invested in the Fund. The redemption price of shares is
a Fund's net asset value per share next determined after receipt of your
redemption request in "good order." Each Fund's net asset value per share is
determined on each business day at the close of regular trading of the NYSE
(currently 4:00 p.m., Eastern time). Purchase orders and redemption requests
received prior to this time on any business day will be executed at the price
computed on that day; orders and requests received after the regular close of
the NYSE will be executed at the price computed on the next business day. The
Trust reserves the right to refuse any order for purchase of shares.
HOW TO PURCHASE SHARES
How to Open an Account. To open an account, you must complete an Account
Registration Form and send it to the Trust, and either send in your check or
arrange for a wire transfer. Your initial investment must be for at least
$1,000,000 unless you have received a waiver from the Adviser. For purposes of
meeting the required minimum investments, the Trust will aggregate all
accounts under common ownership or control, including accounts of spouses and
minor children. There is no minimum for employer sponsored 401(k) plans that
have more than 100 employee participants.
By Check Make your check (or other negotiable bank draft
or money order) payable to: "Hansberger
Institutional Series," and mail it with your
completed and signed Account Registration Form
to:
Hansberger Institutional Series
c/o Chase Global Funds Services
Company
P.O. Box 2973
73 Tremont Street
Boston, MA 02208
Checks must be drawn on U.S. banks.
By Wire Have your bank send a Federal funds wire or a
bank wire to the Trust, and mail your completed
and signed Account Registration Form to:
Hansberger Institutional Series
c/o Chase Global Funds Services
Company
P.O. Box 2973
73 Tremont Street
Boston, MA 02208
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<PAGE>
The Trust will accept your purchase order
before receiving your Account Registration Form
only if you have provided certain information
with your wire.
You must follow these steps to purchase shares
by wire: First, telephone the Trust at 1-800-
414-6927 to receive a wire control number. To
be issued your account number, you will need to
provide a written application with your name,
address, telephone number, Social Security or
Tax Identification ("I.D.") Number, the amount
being wired, and the name of the bank sending
the wire. Second, instruct your bank to wire
the specified amount to the following account
(be sure to have your bank include your account
number and the Fund's name):
The Chase Manhattan Bank
ABA Number 021000021
DDA Number 910 2 777076
Attn: Hansberger Institutional Series
Ref: (Fund name, account number,
account name, wire control
number).
Federal funds wires cannot be made on any
federal holiday restricting wire transfers,
even if the NYSE is open on that day. Liability
of the Fund or its agents for fraudulent or
unauthorized wire instructions may be limited.
See "Telephone Transactions."
Your bank may charge a service fee for sending
a Federal funds wire or bank wire.
Letter of Intent. You may make an initial investment of less than $1 million
if you execute a letter of intent ("Letter") which expresses your intention to
invest at least $1 million in the Funds within 13 months. The minimum initial
investment under a Letter is $100,000. If you do not invest at least $1
million in shares of the Funds or other funds advised by the Adviser within
the 13-month period from execution of the Letter, the shares actually
purchased may be involuntarily redeemed and the proceeds sent to you at your
address of record. Any redemptions you make during the 13-month period will be
subtracted from the amount of shares purchased for purposes of determining
whether the terms of the Letter have been completed.
How to Add to Your Investment. You may purchase additional shares for your
account at any time by mailing a check or by wiring funds to the Fund
according to the procedures above. If wiring funds, please call 1-800-414-6927
to receive a wire control number. Your check, a cover letter, or your wire
instructions must specify the name of the Fund, the name on your account and
your account number, and you must call the Fund before wiring funds. Your
check or wire must be for at least $100,000.
OTHER PURCHASE INFORMATION
Payment for shares of a Fund must be in United States dollars, unless you
have received the Fund's prior written approval to make payment in other
currencies or by tendering securities.
No share certificates will be issued. All shares purchased for your account
will be confirmed to you and credited to your account on the Fund's books
maintained by the Transfer Agent.
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<PAGE>
To ensure that checks are collected, you may not redeem shares purchased by
check until payment for the purchase has been received; receipt may take up to
eight business days after purchase. If your purchase is cancelled due to
nonpayment or because your check does not clear, you will be responsible for
any loss incurred by the Trust or its agents, and you may be restricted from
making future investments in the Trust. If you are already a shareholder, the
Trust may redeem shares from your account(s) as reimbursement for any such
loss.
If an investment in the Funds is made through a broker that has executed a
dealer agreement with the Trust, the Adviser or one of its affiliates may make
a payment out of its own resources to such dealer in an amount not to exceed
0.25% of the amount invested. Dealers may contact the Adviser for additional
information.
Investors may also purchase shares of a Fund through banks, brokers, agents
and registered broker-dealers who may or may not have a dealer agreement with
the Funds. Those banks, brokers, agents and broker-dealers, who make purchases
for their customers, may charge a fee for such services.
The Trust reserves the right to reject any purchase order for shares if the
Trust or its agents determine that accepting such order would not be in the
best interest of a Fund or its existing shareholders.
HOW TO REDEEM SHARES
You may withdraw all or any portion of the amount in your account by
redeeming your shares at any time. Redemption proceeds may be more or less
than the purchase price of your shares depending on, among other factors, the
market value of the investment securities held by the Fund at the time you
redeem. Please note that purchases made by check cannot be redeemed until
payment has been collected, which may take up to eight business days after
purchase. You may redeem shares of the Funds by mail or telephone.
By Mail Send your redemption request to:
Hansberger Institutional Series
c/o Chase Global Funds Services
Company
P.O. Box 2973
73 Tremont Street
Boston, MA 02208
"Good order" means that your redemption request
includes the following documentation:
. A letter of instruction or a stock
assignment specifying the number of shares
or dollar amount to be redeemed, signed by
all registered owners of the shares in the
exact names in which they are registered.
. Any required signature guarantees (see
"Further Redemption Information" below).
. Other supporting legal documents, if
required, in the case of estates, trusts,
guardianships, custodianships, corporations,
pension and profit sharing plans and other
organizations.
If you are uncertain of requirements for
redemption of your shares, consult with a
representative of the Trust.
19
<PAGE>
By Telephone
If you have telephone transaction privileges,
you can request a redemption of your shares by
calling the Fund prior to 4:00 P.M. Eastern
Time, to receive that day's closing net asset
value; redemption proceeds will be mailed to
you or wired to your bank. When placing a
redemption order by telephone, you should have
ready the name and address on your account and
the account number from which you want to
redeem shares, and your Social Security or Tax
I.D. number; additional personal identification
information may also be required. If you
experience difficulty placing a redemption
order by telephone, you may send your request
by regular or express mail and it will be
effective at the net asset value next
determined after it is received in good order.
The Fund's and the Transfer Agent's liability
for fraudulent or unauthorized telephone
redemption requests may be limited. See
"SHAREHOLDER SERVICES--Telephone Transaction
Privilege."
To change a bank or bank account designated to
receive your redemption proceeds by wire, you
must send a written request to the Fund at the
address above. Each shareholder must sign any
request to change the bank or bank account, and
each signature must be guaranteed.
FURTHER REDEMPTION INFORMATION
Normally the Funds make payment for all shares redeemed within one business
day after receiving the request in good order; payment may be delayed, but not
for more than seven days, except in the case of redemptions of shares
purchased by check, as discussed above. A Fund may suspend redemptions or
postpone the effective date of redemptions at times when the NYSE is closed,
or under any emergency circumstances as determined by the SEC.
Each Fund may, although it does not intend to do so under normal
circumstances, pay redemption proceeds in whole or in part by a distribution
in kind of securities held in its portfolio, in conformity with applicable SEC
rules.
Due to the relatively high cost of maintaining smaller accounts, the Trust
reserves the right to redeem all of your shares if your redemptions cause your
account value to drop below the minimum required investment. The Trust will
not redeem an account whose value has dropped solely because of market
reductions in net asset value. If at any time your account value does not
equal or exceed the required minimum, you may be notified of this fact. You
will be allowed at least 60 days to add to your investment before any
involuntary redemption is processed.
To protect your account, the Trust and its agents from fraud, signature
guarantees are required for certain redemptions to verify the identity of the
person who has authorized a redemption from your account. A signature
guarantee is not required for redemptions of $50,000 or less, requested by and
payable to all Shareholders of record.
Signature guarantees are required for the following redemptions:
. redemptions where the proceeds are to be sent to someone other than the
registered shareowner(s);
. redemptions where the proceeds are to be sent to someplace other than
the registered address; or
. share transfer requests.
20
<PAGE>
Signature guarantees will be accepted from any eligible guarantor
institution which participates in a signature guarantee program. Eligible
guarantor institutions include banks, brokers, dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations. Notaries public are not acceptable
guarantors.
Please contact the Trust for further information. See "ADDITIONAL
SHAREHOLDER INFORMATION" in the SAI.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
You may exchange your shares of a Fund for shares of any other available
Fund without charge once every six months. Call the Trust to find out what
Funds are available. An exchange is treated as a redemption followed by a
purchase, and is subject to all requirements that apply to redemptions and
purchases. An exchange request will normally be effective at the net asset
value next determined after it is received in "good order." An exchange will
be considered a taxable event for shareholders subject to tax. Before you make
an exchange, you should read the prospectus disclosure relating to the new
Fund(s) in which you seek to invest. Shares of the new Fund(s) must be
registered for sale in your state of residence for the exchange privilege to
be available.
You may exchange shares by mail and, if you have telephone transaction
privileges, by telephone. See "Telephone Transaction Privilege."
By Mail Send your exchange request to:
Hansberger Institutional Series
c/o Chase Global Funds Services
Company
P.O. Box 2973
73 Tremont Street
Boston, MA 02208
Your exchange request must be in "good order"
(see "How To Redeem Shares--By Mail" above),
and must also include the name of the new
Fund(s) into which you wish to exchange your
shares.
By Telephone If you have telephone transaction privileges,
you may exchange shares by calling the Trust at
1-800-414-6927. You should have ready the
account name and address and the account number
of the Fund account from which you intend to
exchange shares, the name of the Fund into
which you intend to exchange shares, and your
Social Security or Tax I.D. number; additional
personal identification information may also be
required. If you experience difficulty placing
an exchange order by telephone, you may send
your request by regular or express mail and it
will be effective at the net asset value next
determined after it is received in good order.
The Trust's and the Transfer Agent's liability
for fraudulent or unauthorized telephone
transactions may be limited. See "Telephone
Transaction Privilege."
In order to prevent abuse of the exchange privilege to the disadvantage of
other shareholders, the Trust reserves the right to terminate the exchange
privilege of any shareholder at the Trust's sole discretion.
21
<PAGE>
PURCHASES OR EXCHANGES BY TIMING ACCOUNTS
Market timing or allocation services ("Timing Accounts") generally include
accounts administered so as to redeem or purchase shares based upon certain
predetermined market indicators. The Trust reserves the right to temporarily
or permanently terminate the exchange privilege or reject any specific
purchase order for any Timing Account or any person whose transactions seem to
follow a timing pattern. In addition, the Trust reserves the right to refuse
the purchase side of a redemption and purchase request by any Timing Account,
person, or group if, in the Adviser's judgement, a Fund would be unable to
invest effectively in accordance with its investment objectives and policies,
or would otherwise potentially be adversely affected. A Shareholder's
exchanges into a Fund may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of the Fund's
assets. In particular, a pattern of exchanges, purchases and redemptions that
coincides with a "market timing" strategy may be disruptive to a Fund and
therefore may be refused.
TELEPHONE TRANSACTION PRIVILEGE
When you open your account, you may elect to have telephone transaction
privileges by completing the "Telephone Transaction" section of the Account
Registration Form. You may have telephone access to certain information
regarding your account, such as your current share value, even if you do not
want the ability to make transactions by telephone.
During periods of drastic economic or market changes, telephone redemption
and exchange options may be difficult to implement, and you may need to send
your requests by mail.
The Funds and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring you to provide certain personal identification
information when you open your account and prior to effecting each transaction
requested by telephone. In addition, all telephone transaction requests will
be recorded and you may be required to provide additional written instructions
by facsimile. Neither the Funds nor the Transfer Agent will be responsible for
any loss, liability, cost or expense for following instructions received by
telephone that either of them reasonably believes to be genuine. The Fund or
the Transfer Agent may be liable for any losses due to unauthorized or
fraudulent instructions in the event reasonable procedures are not followed.
TRANSFER OF REGISTRATION
You may transfer registration of any of your shares in a Fund to another
person by writing to the Transfer Agent at Hansberger Institutional Series,
c/o Chase Global Fund Services Company, 73 Tremont Street, Boston, MA 02108-
3913. Your written request must be in "good order" before any transfer can be
effective. For a description of "good order," see "How to Redeem Shares--By
Mail" above.
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<PAGE>
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Board of Trustees decides upon matters of general policy and reviews the
actions of each Fund's Adviser and Administrator. The officers of the Trust
conduct and supervise its daily business operations. See "TRUSTEES AND
OFFICERS OF THE TRUST" in the SAI.
INVESTMENT ADVISER
Hansberger Global Investors is the Investment Adviser to the Trust. The
Adviser, with principal offices at 515 East Las Olas Blvd., Suite 1300, Fort
Lauderdale, Florida, 33301, conducts a worldwide portfolio management business
that provides a broad range of portfolio management services to customers in
the United States and abroad. See "INVESTMENT ADVISER" in the SAI.
The Adviser provides each Fund with investment advice and portfolio
management services pursuant to an Investment Advisory Agreement (the
"Advisory Agreement"), and, subject to the supervision of the Board of
Trustees, makes each Fund's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages each Fund's
investments. Under the terms of its Advisory Agreement, each Fund pays the
Adviser a monthly advisory fee, accrued daily based on the Fund's average
daily net assets, at the annual rates set forth in the table below. Because
each Fund invests internationally, these advisory fees are higher than those
of most investment companies, but the Adviser believes the fees are comparable
to those of investment companies with similar objectives and policies.
<TABLE>
<CAPTION>
FUND ADVISORY FEE
---- ------------
<S> <C>
International Fund........................................... 0.75%
Emerging Markets Fund........................................ 1.00%
Foreign Small Cap Fund....................................... 0.90%
All Countries FundSM......................................... 0.75%
</TABLE>
PORTFOLIO MANAGEMENT TEAMS
FUNDS PORTFOLIO MANAGERS
Emerging THOMAS L. HANSBERGER is the Chairman and Chief Executive
Markets All Officer of the Adviser and the Trust. Mr. Hansberger is
Countries primarily responsible for the day-to-day management of the
Emerging Markets and All Countries Funds. Before forming the
Adviser, Mr. Hansberger had served as Chairman, President
and Chief Executive Officer of Templeton Worldwide, Inc.
("Templeton"), the parent holding company of the Templeton
group of companies. While at Templeton, Mr. Hansberger
served as director of research and was an officer, director
or primary portfolio manager for several Templeton Mutual
Funds.
23
<PAGE>
FUNDS PORTFOLIO MANAGERS
International JAMES E. CHANEY joined the Adviser in 1996 as Chief
Investment Officer and is primarily responsible for the day-
to-day management of the International Fund. Prior to
joining the Adviser, he was Executive Vice President for
Templeton Worldwide and a senior member of its Portfolio
Management/ Strategy Committee. While at Templeton, Mr.
Chaney managed numerous accounts, including the $2.5 billion
Templeton Institutional Funds Inc. Foreign Equity Series.
The Templeton Institutional Funds Inc. Foreign Equity Series
reported an average annual total return of 16.89% for the
one-year period ended June 30, 1996, and 13.59% for the
period of Mr. Chaney's tenure as portfolio manager, October
1, 1993 to June 30, 1996./1/ This is relevant because the
Templeton Institutional Funds Inc. Foreign Equity Series was
the only comparable account managed by Mr. Chaney while at
Templeton with substantially similar investment objectives,
policies and strategies as the International Fund. Of
course, past performance is not necessarily indicative of
future performance.
Foreign Small LAURETTA (RETZ) REEVES joined the Adviser in 1996 as a
Cap Managing Director, portfolio manager and research analyst.
She also serves as Director of Research for the Adviser. Ms.
Reeves is primarily responsible for the day-to-day
management of the Foreign Small Cap Fund. Prior to joining
the Adviser she was Senior Vice President of Templeton in
the research and portfolio management group with primary
responsibility for numerous industries and countries,
including global chemicals and European banks.
Emerging FRANCISCO ALZURU joined the Adviser in 1994 as a Managing
Markets All Director, portfolio manager and research analyst,
Countries specializing in Latin America. Prior to joining the Adviser,
he worked at Vestcorp Partners as their Latin American
analyst.
Emerging Markets
AJIT DAYAL joined the Adviser in 1998 as Managing Director
All Countries of India. Prior to joining the Adviser he was a Director of
all Jardine Fleming companies in India, with direct
responsibility for research and investment management.
International JOHN FENLEY joined the Adviser in 1997 as a research
analyst, responsible for research coverage of global
equities. Prior to joining the Adviser, he was the portfolio
manager for the Institutional Investment Department of Sun
Trust Bank, and before that served as a portfolio manager
and equity analyst for Fifth Third Bank.
Emerging Markets AUREOLE FOONG joined the Adviser in 1997 as Director of
Asian Research. Prior to joining the Adviser, he was a
Director of Peregrine Asset Management where he was
responsible for several mutual fund and private accounts
investing in regional Asian markets.
International VICTORIA GRETZKY joined the Adviser in 1995 as a research
analyst. Prior to joining the Adviser, she was a research
analyst for Optimum Consulting, a Russian based firm which
specialized in restructuring Russian Companies during
privatization.
- --------
1 Morningstar PrincipiaTM for Mutual Funds, July 1996. Performance data was
calculated using the SEC standardized method of calculating average annual
total return. See "PERFORMANCE INFORMATION" in the SAI.
24
<PAGE>
FUNDS PORTFOLIO MANAGERS
Foreign Small Cap CHARLES F. GULDEN joined the Adviser in 1996 as a Managing
Director, portfolio manager and research analyst. Prior to
joining the Adviser, he was Vice President and Director of
Templeton in the research and portfolio management group
with primary research responsibility for global health care
services and agricultural chemical sectors.
International JOHN HOCK joined the Adviser in 1996 as a research analyst.
Prior to joining the Adviser, he was a vice president and
senior analyst in the global securities research and
economics group at Merrill Lynch.
Foreign Small Cap RON HOLT joined the Adviser in 1997 as a research analyst.
Prior to joining the Adviser, he was a Vice President in the
Corporate and Institutional Client Group at Merrill Lynch.
Emerging ROBERT MAZUELOS joined the Adviser in 1995 as a research
Markets All analyst. Prior to joining the Adviser, he was a performance
Countries analyst at Templeton Investment Counsel, Inc. where he was
responsible for return analysis on separate accounts and
mutual funds.
Emerging VLADIMIR TYURENKOV joined the Adviser in 1995 as Managing
Markets Director of Eastern Europe and Russia, portfolio manager and
research analyst. Prior to joining the Adviser, he spent
Foreign Small several years working for the Russian Government and worked
Cap extensively on the Pepperdine University Russian Conversion
and Privatization Program.
ADMINISTRATOR AND TRANSFER AGENT
Chase Global Funds Services Company, a subsidiary of The Chase Manhattan
Bank, 73 Tremont Street, Boston MA 02108-3913, (the "Administrator" or
"Transfer Agent") provides administrative services to the Fund pursuant to an
Administration Agreement (the "Administration Agreement"). Services provided
under the Administration Agreement are subject to supervision by officers of
the Trust and the Board of Trustees, and include day-to-day administration of
matters related to the existence of the Trust, maintenance of its records,
preparation of reports, supervision of the Trust's arrangements with its
custodian, and assistance in preparing the Trust's registration statements
under federal and state laws. Also under the Administration Agreement, the
Administrator (through its agents) provides dividend disbursing and transfer
agent services to the Trust. For additional information regarding the
Administration Agreement, see "TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT"
in the SAI. For its services under the Administration Agreement, the Trust
pays the Administrator a monthly fee in proportion to the Funds' combined
average daily net assets at the following annual rate: 0.12% of the first $500
million in average daily net assets, 0.08% for the next $500 million, and
0.06% for average net assets over $1 billion.
EXPENSES
Each Fund is responsible for payment of certain other fees and expenses
(including legal fees, accountant's fees, custodial fees and printing and
mailing costs) specified in the Advisory and Administration Agreements. Each
Fund will also bear a portion of its operating costs, including amortized
organizational costs.
VALUATION OF SHARES
The net asset value per share of a Fund is determined by dividing the total
market value of the Fund's investments and other assets, less any liabilities,
by the total number of the Fund's outstanding shares. Net asset value per
share is determined as of the regular close of the NYSE on each day that
25
<PAGE>
the NYSE is open for business. Price information on listed securities is taken
from the exchange where the security is primarily traded. Securities listed on
a U.S. securities exchange for which market quotations are available are
valued at the last quoted sale price on the day the valuation is made.
Securities listed on a foreign exchange are valued at their closing price.
Unlisted securities and listed securities not traded on the valuation date for
which market quotations are not readily available are valued at a price within
a range not exceeding the current asked price nor less than the current bid
price. The current bid and asked prices are determined based on the average
bid and asked prices quoted on such valuation date by reputable brokers.
Bonds and other fixed income securities are valued according to the broadest
and most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily. In addition, bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. The prices
provided by a pricing service are determined without regard to bid or last
sale prices but take into account institutional size trading in similar groups
of securities and any developments related to the specific securities.
Securities not priced in this manner are valued at the most recently quoted
bid price, or, when securities exchange valuations are used, at the latest
quoted sale price on the day of valuation. If there is no such reported sale,
the latest quoted bid price will be used. Securities purchased with remaining
maturities of 60 days or less are valued at amortized cost, if it approximates
market value. In the event that amortized cost does not approximate market
value, market prices as determined above will be used.
The value of other assets and securities for which no quotations are readily
available (including restricted and unlisted foreign securities) and those
securities for which it is inappropriate to determine the prices in accordance
with the above-stated procedures are determined in good faith using methods
determined by the Board of Trustees. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be translated into U.S. dollars at the mean of the bid price
and asked price for such currencies against the U.S. dollar last quoted by any
major bank.
PERFORMANCE INFORMATION
Each Fund may advertise its "total return," which shows what an investment
in the Fund would have earned over a specified period of time (such as one,
five or ten years) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period. Total return does
not take into account any federal or state income taxes that may be payable on
dividends and distributions or on redemption. The Funds may also include
comparative performance information in advertising or marketing a Fund's
shares, including data from Lipper Analytical Services, Inc., other industry
publications, business periodicals, rating services and market indices. See
"PERFORMANCE INFORMATION" in the SAI.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All income dividends and capital gains distributions will automatically be
reinvested in additional shares at net asset value unless the shareholder has
elected to receive income dividends and capital gains distributions in cash. A
shareholder may make this election by providing written notice to the Fund or
by checking off the appropriate box in the Distribution Option Section on the
Account Registration Form.
Each Fund expects to distribute substantially all of its net investment
income in the form of dividends at least annually. Net capital gains, if any,
will be distributed annually.
Undistributed net investment income is included in a Fund's net assets for
the purpose of calculating net asset value per share. Therefore, on the "ex-
dividend" date, the net asset value per
26
<PAGE>
share excludes the dividend (i.e., is reduced by the per share amount of the
dividend). Dividends paid shortly after the purchase of shares by an investor,
although in effect a return of capital, are taxable to shareholders subject to
income tax.
TAXES
The following summary of United States federal income tax consequences is
based on current tax laws and regulations, which may be changed by
legislative, judicial, or administrative action.
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.
Accordingly, shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local income taxes.
Each Fund is treated as a separate entity for federal income tax purposes.
Each Fund intends to qualify for the special tax treatment afforded regulated
investment companies under Subchapter M of the Code so that each Fund will be
relieved of federal income tax on that part of its net investment income and
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) that is distributed to shareholders.
Each Fund distributes substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to shareholders.
Dividends from a Fund's net investment income are taxable to shareholders as
ordinary income, whether received in cash or in additional shares. Such
dividends paid by a Fund will generally qualify for the 70% dividends-received
deduction for corporate shareholders only to the extent of the aggregate
qualifying dividend income received by the Fund from U.S. corporations. Each
Fund will report annually to its shareholders the amount of dividend income
qualifying for such treatment.
Distributions of net capital gain are taxable to shareholders as long-term
capital gain, regardless of how long shareholders have held their shares. Each
Fund sends reports annually to its shareholders of the federal income tax
status of all distributions made during the preceding year.
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary income and capital gain net income (the excess of short-term
and long-term capital gains over short-term and long-term capital losses),
including any available capital loss carryforwards, prior to the end of each
calendar year to avoid liability for federal excise tax.
Dividends and other distributions declared by a Fund in October, November or
December of any year and payable to shareholders of record on a date in such
month will be deemed to have been paid by the Fund and received by the
shareholders on the last day of that year if the distributions are paid by the
Fund at any time during the following January.
The sale or redemption of shares may result in taxable gain or loss to the
redeeming shareholder, depending upon whether the fair market value of the
redemption proceeds exceeds or is less than the Shareholder's adjusted basis
in the redeemed shares. If capital gain distributions have been made in
respect of shares that are sold at a loss after being held for six months or
less, then the loss is treated as a long-term capital loss to the extent of
the capital gain distributions.
Shareholders are urged to consult with their tax advisers concerning the
application of state and local income taxes to investments in a Fund, which
may differ from the federal income tax consequences described above.
Investment income received by a Fund from sources within foreign countries
may be subject to foreign income taxes withheld at the source. Information on
taxation of a Fund by certain foreign countries is set out in the SAI. To the
extent that a Fund is liable for foreign income taxes so withheld,
27
<PAGE>
the Fund intends to operate so as to meet the requirements of the Code to pass
through to the shareholders credit for foreign income taxes paid. Although
each Fund intends to meet Code requirements to pass through credit for such
taxes, there can be no assurance that each Fund will be able to do so.
A Fund may be required to withhold Federal income tax at the rate of 31% of
all taxable distributions (including redemptions) paid to Shareholders who
fail to provide the Fund with their correct taxpayer identification number or
to make required certifications or where the Fund or the Shareholder has been
notified by the Internal Revenue Service that the Shareholder is subject to
backup withholding. Corporate Shareholders and certain other Shareholders
specified in the Code are exempt from backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
Shareholders' Federal income tax liability.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HERETO FOR GENERAL
INFORMATION ONLY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS
ABOUT THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE FUNDS.
PORTFOLIO TRANSACTIONS
Each Fund's Advisory Agreement authorizes the Adviser to select the brokers
or dealers that will execute the purchases and sales of investment securities
for the Fund and directs the Adviser to use its best efforts to obtain the
best available price and most favorable execution on all transactions for the
Fund. Each Fund has authorized the Adviser to pay higher commissions in
recognition of brokerage services which, in the opinion of the Adviser, are
necessary for the achievement of better execution, provided the Adviser
believes this to be in the best interest of the Fund.
Since shares of the Funds are not marketed through intermediary brokers or
dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of shares which may be made through such firms.
However, the Adviser may place portfolio orders with qualified broker-dealers
who recommend the Funds or who act as agents in the purchase of shares of the
Funds for their clients.
In purchasing and selling securities for a Fund, it is the Fund's policy to
seek to obtain quality execution at the most favorable prices, through
responsible broker-dealers. In selecting broker-dealers to execute the
securities transactions for a Fund, consideration will be given to such
factors as the price of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers,
and the brokerage and research services which they provide to the Fund. Some
securities considered for investment by the Fund may also be appropriate for
other clients served by the Adviser. If purchase or sale of securities
consistent with the investment policies of the Fund and one or more of these
other clients served by the Adviser is considered at or about the same time,
transactions in such securities will be allocated among the Fund and such
other clients in a manner deemed fair and reasonable by the Adviser. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser, and the results of such allocations,
are subject to periodic review by the Board of Trustees.
GENERAL INFORMATION
ORGANIZATION OF THE TRUST AND THE FUNDS; DESCRIPTION OF SHARES
The Trust was organized as a Massachusetts business trust under a
Declaration of Trust dated July 25, 1996. The Declaration of Trust permits the
Trust to issue an indefinite number of units of beneficial interest
("shares"), with or without par value.
28
<PAGE>
The Trust may issue shares in any number of "series"; each series of the
Trust is a separate portfolio and functions as a separate mutual fund,
although the Funds would share a common board of trustees, and may share an
adviser, administrator, transfer agent, or custodian. All consideration
received by the Trust for shares of any series, and all assets of that series,
belong only to that series and are subject to that series' liabilities. The
Funds are currently the only series of the Trust. Each Fund currently offers
only one class of shares. The Trustees may, however, create and issue
additional series of shares and may create and issue shares of additional
classes of one or more series.
Except as described below, the shares of each Fund, when issued, will be
fully paid, non-assessable, fully transferable and redeemable at the option of
the holder. The shares have no preference as to conversion, exchange,
dividends, retirement or other features and have no preemptive rights. Each
share entitles the shareholder of record to one vote. All shareholders of a
Fund may vote as a single class on each matter presented to shareholders for
action except with respect to any matter that affects one or more series or
class solely or in a manner different from others, in which case the shares of
the affected series or class are entitled to vote separately. The shares of
the Trust have non-cumulative rights, which means that the holders of more
than 50% of the shares voting for the election of Trustees can elect 100% of
the Trustees if they choose to do so. Persons or organizations owning 25% or
more of the outstanding shares of a Fund may be presumed to "control" (as
defined in the 1940 Act) the Fund.
The Trust is not required to hold annual shareholder meetings; shareholder
meetings will be held from time to time for the election of Trustees under
certain circumstances, or to seek approval for changes to the operations of
the Trust or a Fund. A Trustee may be removed from office by the remaining
Trustees, or by the shareholders at a special meeting called on the written
request of shareholders owning at least 10% of the Trust's outstanding shares.
REPORTS AND STATEMENTS TO SHAREHOLDERS
Each Fund's fiscal year ends on December 31st of each year. Each Fund will
send annual, semi-annual, and quarterly reports to its shareholders; the
financial statements appearing in annual reports are audited by the Trust's
independent accountants.
CUSTODIAN
The Chase Manhattan Bank serves as each Fund's custodian. For more
information on the custodian, see "CUSTODIAN" in the SAI.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, One International Place, Boston, Massachusetts 02110,
serves as independent accountants for the Trust and audits its annual
financial statements.
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[LOGO] HANSBERGER INSTITUTIONAL SERIES
515 E. Las Olas Blvd.
Fort Lauderdale, FL 33301
Tel.: 954-522-5150
Fax.: 954-522-3557
- --------------------------------------------------------------------------------
Internet e-mail:[email protected]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
[HANSBERGER INSTITUTIONAL SERIES LOGO]
HANSBERGER INSTITUTIONAL SERIES
515 East Las Olas Boulevard
Suite 1300
Fort Lauderdale, Florida 33301
Telephone No. 954-522-5150
Hansberger Institutional Series (the "Trust") is an open-end management
investment company currently consisting of four series, INTERNATIONAL FUND,
EMERGING MARKETS FUND, FOREIGN SMALL CAP FUND AND ALL COUNTRIES FUND(SM) (each
individually referred to as a "Fund" or collectively referred to as the
"Funds"), each of which is described in this Statement of Additional
Information. The investment adviser of each Fund is Hansberger Global
Investors, Inc. (the "Adviser").
This Statement of Additional Information ("SAI") is not a prospectus and
should be read in conjunction with the prospectus offering shares of the Trust
dated May 1, 1998, as it may be amended or supplemented from time to time (the
"Prospectus"). A copy of the Prospectus may be obtained without charge by
writing to, or calling, the Trust at the address and telephone number listed
above.
This Statement of Additional Information is dated May 1, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT POLICIES AND TECHINIQUES............................ 1
Illiquid and Restricted Securities........................ 1
Short Sales............................................... 1
Warrants.................................................. 2
Debt Obligations.......................................... 2
High Risk Debt Securities................................. 3
Lending of Portfolio Securities........................... 4
Depositary Receipts....................................... 5
Derivative Instruments.................................... 6
Forward Currency Contracts................................ 11
Foreign Currency Transactions............................. 12
When-Issued Securities.................................... 12
Foreign Investment Companies.............................. 13
Repurchase Agreements..................................... 13
Borrowing................................................. 13
Mortgage Dollar Rolls and Reverse Repurchase Agreements... 14
ADDITIONAL RISK FACTORS........................................ 14
INVESTMENT RESTRICTIONS........................................ 16
TRUSTEES AND OFFICERS OF THE TRUST............................. 18
PRINCIPAL SHAREHOLDERS......................................... 20
INVESTMENT ADVISER............................................. 21
FUND TRANSACTIONS AND BROKERAGE................................ 22
CUSTODIAN...................................................... 25
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT................... 25
TAXES.......................................................... 26
DETERMINATION OF NET ASSET VALUE............................... 28
ADDITIONAL SHAREHOLDER INFORMATION............................. 29
ORGANIZATION OF THE TRUST AND THE FUNDS........................ 30
PERFORMANCE INFORMATION........................................ 31
GENERAL INFORMATION............................................ 35
INDEPENDENT ACCOUNTANTS........................................ 35
LEGAL COUNSEL.................................................. 35
FINANCIAL STATEMENTS........................................... 35
Ratings Appendix............................................... A-1
</TABLE>
---------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS STATEMENT OF ADDITIONAL
INFORMATION AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN OFFER
TO SELL SECURITIES.
<PAGE>
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of each Fund's
investment objectives, policies and techniques that are described in detail in
the Prospectus under the caption "Investment Objectives and Policies".
Capitalized terms not defined herein are defined in the Prospectus.
ILLIQUID AND RESTRICTED SECURITIES
Certain securities which are exempt, or issued in transactions which
are exempt from registration under the Securities Act of 1933, as amended (the
"1933 Act"), including 144A Securities, may be considered illiquid. The Board of
Trustees is responsible for determining, to the extent permissible under the
federal securities laws, which securities are illiquid; the Board has delegated
this responsibility to the Adviser, who will make the day-to-day determinations
of the liquidity of securities. The Board retains oversight and ultimate
responsibility for these determinations. Although no definitive liquidity
criteria are used, the Board of Trustees has directed the Adviser to examine
factors such as (i) the nature of the market (including the institutional
private resale market) for a security, (ii) the terms of certain instruments
permitting disposition to the issuer thereof or a third party (e.g., certain
repurchase obligations and demand instruments), (iii) availability of market
quotations (e.g., for securities quoted in PORTAL system), and (iv) other
permissible relevant factors.
Restricted Securities may be sold only in privately negotiated
transactions or in a public offering under an effective registration statement
under the 1933 Act. If registration becomes necessary, the Fund may have to pay
all or part of the registration costs; in addition, considerable time may elapse
between the Fund's decision to sell and the time it may be permitted to sell a
security under an effective registration statement. If adverse market
conditions developed during such a period, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted Securities
will be priced at fair value, determined in good faith by the Board of Trustees.
If, through appreciation of Restricted Securities or depreciation of other
securities, a Fund finds that more than 15% of its net assets are invested in
illiquid securities, including illiquid Restricted Securities, it will take such
steps, if any, as the Trustees deem advisable to protect liquidity.
Each Fund may sell OTC options and may need to segregate assets or
cover its obligations as writer of such options. Assets used as cover for OTC
options written by a Fund will be considered illiquid unless such options are
sold to qualified dealers who agree that the Fund may repurchase any OTC option
it writes at a maximum price to be calculated by a formula set forth in the
option agreement. The cover for an OTC option written subject to this procedure
will be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the OTC option.
SHORT SALES
When a Fund sells short, it borrows the securities that it needs to
deliver to the buyer. The Fund must arrange through a broker to borrow these
securities and will become obligated to replace the borrowed securities at
whatever their market price may be at the time of replacement. The Fund 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's obligation to replace the securities borrowed in connection
with a short sale will be secured. The proceeds a Fund receives from the short
sale will be held on behalf of the broker until the Fund replaces the borrowed
securities, and the Fund will deposit collateral with the broker; this
collateral
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<PAGE>
will consist of cash or liquid, high grade debt obligations. In addition, the
Fund will deposit collateral in a segregated account with the Custodian; this
collateral will consist of cash or liquid, high grade debt obligations equal to
any difference between the market value of (1) the securities sold at the time
they were sold short and (2) any collateral deposited with the broker in
connection with the short sale (not including the proceeds of the short sale).
Each Fund may sell securities short against the box to hedge
unrealized gains on portfolio securities. If a Fund sells securities short
against the box, it may protect unrealized gains, but will lose the opportunity
to profit on such securities if the price rises.
WARRANTS
Each Fund may buy warrants, which give the holder the right, but not
the obligation, to buy stock of an issuer ("underlying stock") at a given price
(usually higher than the price of the underlying stock when the warrant is
issued) prior to a specified expiration date or perpetually. Warrants may trade
separately or in connection with the acquisition of securities. A Fund will not
purchase warrants, valued at the lower of cost or market value, in excess of 5%
of the Fund's net assets; this limit includes warrants that are not listed on
any stock exchange, and such warrants are limited to 2% of the Fund's net
assets. Warrants acquired by a Fund in units or attached to securities are not
subject to these limits. Warrants do not carry dividend or voting rights on the
underlying stock, and do not represent any rights in the assets of the issuer.
As a result, warrants may be considered more speculative than certain other
investments. A warrant's value does not necessarily change with the value of
the underlying stock. A warrant ceases to have value if it expires unexercised.
DEBT OBLIGATIONS: GENERAL
Each Fund may invest in debt obligations. Issuers of debt obligations
are contractually obliged to pay interest at a specified rate on specified dates
and to repay principal on a specified maturity date. Certain debt obligations
(usually intermediate- and long-term bonds) allow the issuer to redeem or "call"
a bond before its maturity. Issuers are most likely to call debt when interest
rates are falling.
PRICE VOLATILITY. The market value of debt generally varies inversely
to changes in interest rates; when interest rates decline, a debt obligation's
price usually rises, and when interest rates rise, a debt obligation's price
usually declines.
MATURITY. In general, the longer the maturity of a debt obligation,
the higher its yield and the more sensitive it is to changes in interest rates.
Conversely, the shorter the maturity, the lower the yield but the greater the
price stability. "Commercial paper" is generally considered the shortest form
of debt, and "bond" generally refers to securities with maturities over two
years. Bonds with maturities of three years or less are considered short-term,
bonds with maturities between three and seven years are considered intermediate-
term, and bonds with maturities greater than seven years are considered long-
term.
CREDIT QUALITY. The value of debt may also be affected by changes in
the issuer's credit rating or financial condition. Lower quality ratings
indicate a higher degree of risk as to payment of interest and return of
principal. To compensate investors for taking on increased risk, issuers
considered less creditworthy generally must offer investors higher interest
rates than issuers with better credit ratings.
2
<PAGE>
In conducting its credit research and analysis, the Adviser considers
both qualitative and quantitative factors to evaluate creditworthiness of
individual issuers. The Adviser also relies, in part, on credit ratings
compiled by a number of rating organizations. See the "Appendix of Ratings" set
forth in the back of this SAI.
HIGH RISK DEBT SECURITIES ("JUNK BONDS")
Each Fund may invest up to 20% of its net assets in non-investment
grade debt securities. Debt securities rated below Baa by Moody's Investors
Service ("Moody's") or BBB by Standard & Poor's Corporation ("S&P"), or of
comparable quality, are considered below investment grade. Non-investment grade
debt securities ("high risk debt securities") may include (i) debt not in
default but rated as low as C by Moody's, S&P, or Fitch Investors Service, Inc.
("Fitch"), CC by Thomson BankWatch ("TBW") or ICBA, or CCC by Duff & Phelps,
Inc. ("D&P"); (ii) commercial paper rated as low as C (or D if in default) by
S&P, Not Prime by Moody's, F-S (or D if in default) by Fitch, Duff 4 (or Duff 5
if in default) by Duff, TBW-4 by TBW, or D by ICBA; and (iii) unrated debt
securities of comparable quality. Each Fund may also buy debt in default (rated
D by S&P or TBW or Fitch, C by ICBA, DD by Duff, or of comparable quality) and
commercial paper in default (rated D by S&P or Fitch, Not Prime by Moody's, Duff
5 by Duff, TBW-4 by TBW, D by ICBA, or of comparable quality). Such securities,
while generally offering higher yields than investment grade securities with
similar maturities, involve greater risks, including the possibility of (or
actual) default or bankruptcy. They are regarded as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal. See
the "Appendix of Ratings" set forth in the back of this SAI for a description of
ratings.
The market for high risk debt securities is relatively new and its
growth has paralleled a long economic expansion. It is not clear how this
market would withstand a prolonged recession or economic downturn, which could
severely disrupt this market and adversely affect the value of such securities.
Market values of high risk debt securities tend to reflect individual
corporate developments to a greater extent, and tend to be more sensitive to
economic conditions, than do higher rated securities. As a result, high risk
debt securities generally involve more credit risks than higher rated debt.
During an economic downturn or a sustained period of rising interest rates,
highly leveraged issuers of high risk debt may experience financial stress and
may not have sufficient revenues to meet their payment obligations. An issuer's
ability to service its debt obligations may also be adversely affected by
specific corporate developments, its own inability to meet specific projected
business forecasts, or unavailability of additional financing. The risk of loss
due to default by an issuer is significantly greater for high risk debt than for
higher rated debt because the high risk debt is generally unsecured and often
subordinated.
If the issuer of high risk debt defaulted, the Fund might incur
additional expenses in seeking recovery. Periods of economic uncertainty and
changes would also generally result in increased volatility in the market prices
of these securities and thus in a Fund's net asset value.
If a Fund invested in high risk debt experiences unexpected net
redemptions in a rising interest rate market, it may be forced to liquidate a
portion of its portfolio without regard to their investment merits. Due to the
limited liquidity of high risk debt securities, the Fund may be forced to
liquidate these securities at a substantial discount. Any such liquidation
would reduce the Fund's asset base over which expenses could be allocated and
could result in a reduced rate of return for the Fund.
3
<PAGE>
PAYMENT EXPECTATIONS. During periods of falling interest rates,
issuers of high risk debt securities that contain redemption, call or prepayment
provisions are likely to redeem or repay the securities and refinance with other
debt at a lower interest rate. If a Fund holds debt securities that are
refinanced or otherwise redeemed, it may have to replace the securities with a
lower yielding security, which would result in a lower return.
CREDIT RATINGS. Credit ratings evaluate safety of principal and
interest payments, but do not evaluate the market value risk of high risk
securities and, therefore, may not fully reflect the true risks of an
investment. In addition, rating agencies may not make timely changes in a
rating to reflect changes in the economy or in the condition of the issuer that
affect the market value of the security. Consequently, credit ratings are used
only as a preliminary indicator of investment quality. Investments in high risk
securities will depend more heavily on the Adviser's credit analysis than
investment-grade debt securities. The Adviser will monitor each Fund's
investments and evaluate whether to dispose of or retain high risk securities
whose credit quality may have changed.
LIQUIDITY AND VALUATION. A Fund may have difficulty disposing of
certain high risk securities with a thin trading market. Not all dealers
maintain markets in all these securities, and for many such securities there is
no established retail secondary market. The Adviser anticipates that such
securities may be sold only to a limited number of dealers or institutional
investors. To the extent a secondary trading market does exist, it is generally
not as liquid as that for higher-rated securities; a lack of a liquid secondary
market may adversely affect the market price of a security, which may in turn
affect a Fund's net asset value and ability to dispose of particular securities
in order to meet liquidity needs or to respond to a specific economic event, or
may make it difficult for the Fund to obtain accurate market quotations for
valuation purposes. Market quotations on many high risk securities may be
available only from a limited number of dealers and may not necessarily
represent firm bids or prices for actual sales. During periods of thin trading,
the spread between bid and asked prices is likely to increase significantly, and
adverse publicity and investor perceptions (whether or not based on fundamental
analysis) may decrease the value and liquidity of a high risk security.
LEGISLATION. Legislation has from time to time been or may be
proposed that is designed to limit the use of certain high risk debt. It is not
possible to predict the effect of such legislation on the market for high risk
debt. However, any legislation that may be proposed or enacted could have a
material adverse effect on the value of these securities, the existence of a
secondary trading market for the securities and, as a result, a Fund's net asset
values.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend portfolio securities to qualified borrowers. In
determining whether to lend securities to a particular investor, the Adviser
will consider, and during the period of the loan will monitor, all relevant
facts and circumstances, including the borrower's creditworthiness. The
borrower must maintain collateral with the Custodian, either in cash, money
market instruments, or a letter of credit, in an amount at least equal to the
market value of the securities loaned, plus accrued interest and dividends or
other income, determined on a daily basis and adjusted accordingly.
Each Fund will retain authority to terminate any loan of its portfolio
securities at any time. A Fund may pay reasonable administrative and custodial
fees in connection with a loan and may pay the borrower or placing broker a
negotiated portion of the interest earned on cash or money market instruments
held as collateral. On any loan, a Fund will receive reasonable interest or a
flat fee from the borrower and amounts equivalent to any dividends, interest or
other distributions on the securities loaned.
4
<PAGE>
The Fund will retain record ownership of loaned securities to exercise
beneficial rights, such as voting and subscription rights and rights to
dividends, interest or other distributions, when retaining such rights is
considered to be in the Fund's interest.
DEPOSITARY RECEIPTS
Each Fund may invest in sponsored or unsponsored depositary receipts
and other similar instruments, including American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs")
(collectively, "Depositary Receipts"). Generally, ADRs are issued in registered
form, denominated in U.S. dollars, and designed for use in the U.S. securities
markets. Other Depositary Receipts, such as GDRs and EDRs, may be issued in
bearer form and denominated in other currencies, and are generally designed for
use in securities markets outside the U.S. While the two types of Depositary
Receipt facilities ("unsponsored" or "sponsored") are similar, there are
differences regarding a holders' rights and obligations and the practices of
market participants. A depositary may establish an unsponsored facility without
participation by (or acquiescence of) the underlying issuer; typically, however,
the depositary requests a letter of non-objection from the underlying issuer
prior to establishing the facility. Holders of unsponsored Depositary Receipts
generally bear all the costs of the facility. The depositary usually charges
fees upon the deposit and withdrawal of the underlying securities, the
conversion of dividends into U.S. dollars or other currency, the disposition of
non-cash distribution, and the performance of other services. The depositary of
an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the underlying issuer or to pass
through voting rights to Depositary Receipt holders in respect of the underlying
securities.
Sponsored Depositary Receipt facilities are created in generally the
same manner as unsponsored facilities, except that sponsored Depositary Receipts
are established jointly by a depositary and the underlying issuer through a
deposit agreement. The deposit agreement sets out the rights and
responsibilities o the underlying issuer, the depositary and the Depositary
Receipt holders. With sponsored facilities, the underlying issuer typically
bears some of the costs of the Depositary Receipts (such as dividend payment
fees of the depositary), although most sponsored Depositary Receipts holders may
bear costs such as deposit and withdrawal fees. Depositories of most sponsored
Depositary Receipts agree to distribute notices of shareholder meetings, voting
instructions, and other shareholder communications and information to the
Depositary Receipt holders at the underlying issuer's request.
5
<PAGE>
DERIVATIVE INSTRUMENTS
GENERAL DESCRIPTION. Each Fund may invest in a variety of derivative
instruments, including options, futures contracts (sometimes referred to as
"futures"), options on futures contacts, and forward contracts to hedge its
other investments, or for risk management.
The use of these instruments is subject to regulation by the
Securities and Exchange Commission ("SEC"), options and futures exchanges upon
which the instruments may be traded, the Commodity Futures Trading Commission
("CFTC") and state regulatory authorities. In addition, the Fund's ability to
use these instruments will be limited by tax considerations.
In addition to the investments and techniques described below and in
the Prospectus, the Adviser may use additional instruments and other hedging
techniques as they become available, to the extent that they are consistent with
a Fund's investment limitations and applicable regulation.
SPECIAL RISKS OF THESE INSTRUMENTS. Derivative instruments present
special considerations and risks. Risks pertaining to particular individual
instruments are described in following sections.
First, successful use of these instruments depends on the Adviser's
ability to predict movements in the overall securities and currency markets,
which requires different skills than predicting changes in the prices of
individual securities. There can be no assurance that any particular strategy
adopted will succeed.
Second, correlation between the price movements of a hedging
instrument and the price movements of the investment being hedged may be
imperfect or even non-existent. For example, if the value of an instrument used
in a short hedge (such as writing a call option, buying a put option, or selling
a futures contract) increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Imperfect correlation
could be due to factors unrelated to the value of the investments being hedged,
such as speculative or other pressures on the markets in which these instruments
are traded. The effectiveness of any hedge using instruments on indices will
depend on the degree of correlation between price movements in the index and
price movements in the hedged investments.
Third, while successful hedging strategies can reduce the risk of
loss, they can also reduce opportunity for gain by offsetting the positive
effect of favorable price movements in the hedged investments. For example, if
a Fund entered into a short hedge because the Adviser projected a decline in the
price of a portfolio security, but the price of that security increased, the
Fund's gain from that increase could be offset by a decline in the price of the
hedging instrument. Moreover, if the price of the hedging instrument declined
by more than the increase in the price of the hedged security, the Fund could
suffer a loss.
6
<PAGE>
Fourth, if a Fund is unable to close out its positions in derivative
instruments, assets maintained as "cover" might be required to continue to be
maintained until the hedge position expired or matured. The requirements might
impair the Fund's ability to sell a portfolio security at an advantageous time.
A Fund's ability to close out a position in an instrument prior to expiration or
maturity depends on the existence of a liquid secondary market or, in the
absence of such a market, the ability and willingness of the counterparty to the
transaction to close out the position. There is no assurance that any hedging
position can be closed out at a time and price favorable to the Fund.
GENERAL LIMITATION ON CERTAIN DERIVATIVE TRANSACTIONS. The Trust has
filed a notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the CFTC and the National Futures Association,
which regulate trading in the futures markets. Pursuant to Rule 4.5 of the
regulations under the Commodity Exchange Act (the "CEA"), the notice of
eligibility includes representations that a Fund will use futures contracts and
related options solely for bona fide hedging purposes within the meaning of CFTC
regulation, provided that a Fund may hold other positions in futures contracts
and related options that do not qualify as a bona fide hedging position if the
aggregate initial margin deposits and premiums required to establish these
positions, less the amount by which any such options positions are "in the
money," do not exceed 5% of the Fund's net assets. Adoption of these guidelines
does not limit the percentage of the Fund's assets at-risk to 5%.
In addition, (i) the aggregate value of securities underlying call
options on securities written by a Fund or obligations underlying put options on
securities written by a Fund determined as of the date of the options are
written will not exceed 25% of the Fund's net assets, (ii) the aggregate
premiums paid on all options purchased by a Fund and which are being held will
not exceed 20% of the Fund's net assets; (iii) a Fund will not purchase put or
call options, other than hedging positions, if, as a result thereof, more than
5% of its total assets would be so invested; and (iv) the aggregate margin
deposit required on all futures and options on futures transactions being held
will not exceed 5% of a Fund's total assets.
Transactions using options (other than purchased options) expose a
Fund to counterparty risk. To the extent required by SEC guidelines, each Fund
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, other options, or futures or (2)
cash and liquid high grade debt obligations with value sufficient at all times
to cover its potential obligations to the extent not covered as provided in (1)
above. Each Fund will also set aside cash and/or appropriate liquid assets in a
segregated custodial account if required to do so by the SEC and CFTC
regulations. Assets used as cover or held in a segregated account cannot be
sold while the position in the corresponding option or futures contract is open,
unless they are replaced with similar assets. As a result, the commitment of a
large portion of a Fund's assets to segregated accounts as a cover could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
OPTIONS. As described in the Prospectus, each Fund may write covered
call options and covered put options. As a matter of operating policy, the
value of the underlying securities on which a Fund will write options will not,
at any one time, exceed 5% of the Fund's total assets.
For writing a call, a Fund will receive a premium, which increases the
Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit; however, by writing the call, the Fund
also limits its opportunity to profit from an increase in the market value of
the underlying security above the exercise price of the option for as long as
the Fund's obligation as writer of the option continues. Thus, the Fund's total
return when it is writing covered calls may be more or less than the total
return would have been from its underlying securities had it not written the
calls.
7
<PAGE>
Each Fund may sell puts to receive the premiums paid by purchasers and
to close out long put positions. In addition, when the Adviser wishes to
purchase a security at a price lower than its current market price, the Fund may
write a covered put at an exercise price reflecting the lower purchase price
sought.
Each Fund may purchase calls to close out covered call positions or to
protect against an increase in the price of a security it anticipates
purchasing. Each Fund may purchase puts on securities that it holds only to
protect itself against a decline in the value of those securities. If a Fund
were to purchase a put on a security it holds, and the value of that underlying
security were to fall below the exercise price of the put, in an amount greater
than the premium paid for the option, the Fund would incur no additional loss.
Each Fund may also purchase puts to close out written put positions in a manner
similar to call option closing purchase transactions. There are no other limits
on each Fund's ability to purchase call and put options.
Each Fund may purchase or write put and call options on securities,
indices and foreign currency, and enter into closing transactions with respect
to such options to terminate an existing position. The purchase of call options
serves as a long hedge, and the purchase of put options serves as a short hedge.
Writing put or call options can enable the Fund to enhance income by reason of
the premiums paid by the purchaser of such options. Writing call options serves
as a limited short hedge because declines in the value of the hedged investment
would be offset to the extent of the premium received for writing the option.
However, if the security appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised and the
Fund will be obligated to sell the security at less than its market value or
will be obligated to purchase the security at a price greater than that at which
the security must be sold under the option. All or a portion of any assets used
as cover for OTC options written by the Fund would be considered illiquid to the
extent described above under "Illiquid and Restricted Securities." Writing put
options serves as a limited long hedge because increases in the value of the
hedged investment would be offset to the extent of the premium received for
writing the option. However, if the security depreciates to a price lower than
the exercise price of the put option, it can be expected that the put option
will be exercised and the Fund will be obligated to purchase the security at
more than its market value.
The value of an option position will reflect, among other things, the
historical price volatility of the underlying investment, the current market
value of the underlying investment, the time remaining until expiration, the
relationship of the exercise price to the market price of the underlying
investment, and general market conditions. Options that expire unexercised have
no value. Options used by the Fund may include European-style options, which
are exercisable only at expiration. American-style options are exercisable at
any time prior to the expiration date.
A Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, a Fund may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing purchase
transaction. Conversely, a Fund may terminate a position in a put or call
option it had purchased by writing an identical put or call option; this is
known as a closing sale transaction. Closing transactions permit the Fund to
realize the profit or limit the loss on an option position prior to its exercise
or expiration.
Each Fund may purchase or write both exchange-traded and OTC options.
Exchange-traded options are issued by a clearing organization affiliated with
the exchange on which the option is listed that, in effect, guarantees
completion of every exchange-traded option transaction. OTC options are
contracts between the Fund and the counterparty to the transaction (usually a
securities dealer or a bank) with no clearing organization guarantee. Thus,
when a Fund purchases or writes an OTC option, it relies on the
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<PAGE>
counterparty to make or take delivery of the underlying investment upon exercise
of the option. Failure by the counterparty to do so would result in the loss of
any premium paid by the Fund, as well as the loss of any expected benefit of the
transaction.
A Fund's ability to establish and close out positions in exchange-
listed options depends on the existence of a liquid market. Each Fund intends
to purchase or write only those exchange-traded options for which there appears
to be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. Although a Fund
will enter into OTC options only with counterparties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option at a
favorable price prior to expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration.
If a Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as a cover for the written option until the option
expires or is exercised.
Each Fund may engage in options transactions on indices in much the
same manner as the options on securities discussed above, except that index
options may serve as a hedge against overall fluctuations in the securities
markets in general.
The writing and purchasing of options is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. Imperfect correlation between
the options and securities markets may detract the effectiveness of attempted
hedging.
FUTURES CONTRACTS. Each Fund may enter into futures contracts,
including interest rate, index, and currency futures. Each Fund may also
purchase put and call options, and write covered put and call options, on
futures in which it is allowed to invest. The purchase of futures or call
options thereon can serve as a long hedge, and the sale of futures or the
purchase of put options thereon can serve as a short hedge. Writing covered
call options on futures contracts can serve as a limited short hedge, and
writing covered put options on futures contracts can serve as a limited long
hedge, using a strategy similar to that used for writing covered options in
securities. A Fund's hedging may include purchases of futures as an offset
against the effect of expected increases in securities prices or currency
exchange rates and sales of futures as an offset against the effect of expected
declines in securities prices or currency exchange rates. A Fund's futures
transactions may be entered into for hedging purposes or risk management. Each
Fund may also write put options on futures contracts while at the same time
purchasing call options on the same futures contracts in order to create
synthetically a long futures contract position. Such options would have the
same strike prices and expiration dates. A Fund will engage in this strategy
only when the Adviser believes it is more advantageous to the Fund than is
purchasing the futures contract.
To the extent required by regulatory authorities, each Fund will only
enter into futures contracts that are traded on national futures exchanges and
are standardized as to maturity date and underlying financial instrument.
Futures exchanges and trading are regulated under the CEA by the CFTC. Although
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<PAGE>
techniques other than sales and purchases of futures contracts could be used to
reduce a Fund's exposure to market, currency, or interest rate fluctuations, the
Fund may be able to hedge its exposure more effectively and perhaps at a lower
cost through using futures contracts.
A futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (e.g., debt security) or currency for a specified price at a
designated date, time, and place. An index futures contract is an agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index futures
contract was originally written. Transactions costs are incurred when a futures
contract is bought or sold and margin deposits must be maintained. A futures
contract may be satisfied by delivery or purchase, as the case may be, of the
instrument, the currency, or by payment of the change in the cash value of the
index. More commonly, futures contracts are closed out prior to delivery by
entering into an offsetting transaction in a matching futures contract.
Although the value of an index might be a function of the value of certain
specified securities, no physical delivery of those securities is made. If the
offsetting purchase price is less than the original sale price, the Fund
realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction costs
must also be included in these calculations. There can be no assurance,
however, that a Fund will be able to enter into an offsetting transaction with
respect to a particular futures contract at a particular time. If a Fund is not
able to enter into an offsetting transaction, it will continue to be required to
maintain the margin deposits on the futures contract.
No price is paid by a Fund upon entering into a futures contract.
Instead, at the inception of a futures contract, the Fund is required to deposit
in a segregated account with its custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of cash,
U.S. government securities or other liquid, high grade debt obligations, in an
amount generally equal to 10% or less of the contract value. Margin must also be
deposited when writing a call or put option on a futures contract, in accordance
with applicable exchange rules. Unlike margin in securities transactions,
initial margin on futures contracts does not represent a borrowing, but rather
is in the nature of a performance bond or good-faith deposit that is returned to
the Fund at the termination of the transaction if all contractual obligations
have been satisfied. Under certain circumstances, such as periods of high
volatility, the Fund may be required by an exchange to increase the level of its
initial margin payment, and initial margin requirements might be increased
generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the
futures broker daily as the value of the futures position varies, a process
known as "marking to market." Variation margin does not involve borrowing, but
rather represents a daily settlement of the Fund's obligations to or from a
futures broker.
When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of
adverse price movements. If the Fund does not have sufficient cash to meet
daily variation margin requirements, it might need to sell securities at a time
when such sales are disadvantageous. Purchasers and sellers of futures
positions and options on futures can enter into offsetting closing transactions
by selling or purchasing, respectively, an instrument identical to the
instrument held or written. Positions in futures and options on futures may be
closed only on an exchange or board of trade that provides a secondary
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<PAGE>
market. Each Fund intends to enter into futures transactions only on exchanges
or boards of trade where there appears to be a liquid secondary market.
However, there can be no assurance that such a market will exist for a
particular contract at a particular time.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a future or option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to be
required to make daily variation margin payments and might be required to
maintain the position being hedged by the future or option or to maintain cash
or securities in a segregated account.
Certain characteristics of the futures market might increase the risk
that movements in the prices of futures contracts or options on futures
contracts might not correlate perfectly with movements in the prices of the
investments being hedged. For example, all participants in the futures and
options on futures contracts markets are subject to daily variation margin calls
and might be compelled to liquidate futures or options on futures contracts
positions whose prices are moving unfavorably to avoid being subject to further
calls. These liquidations could increase price volatility of the instruments
and distort the normal price relationship between the futures or options and the
investments being hedged. Also, because initial margin deposit requirements in
the futures markets are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the futures
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.
FORWARD CURRENCY CONTRACTS
Each Fund may enter into forward currency contracts; such transactions
may serve as long hedges (for example, if the Fund seeks to buy a security
denominated in a foreign currency, it may purchase a forward currency contract
to lock in the $US price of the security) or as short hedges (the Fund
anticipates selling a security denominated in a foreign currency may sell a
forward currency contract to lock in the $US equivalent of the anticipated sale
proceeds).
A Fund may seek to hedge against changes in the value of a particular
currency by using forward contracts on another foreign currency or a basket of
currencies, the value of which the Adviser believes will have a positive
correlation to the values of the currency being hedged. In addition, a Fund may
use forward currency contracts to shift exposure to foreign currency
fluctuations from one country to another. For example, if a Fund owns
securities denominated in a foreign currency and the Adviser believes that
currency will decline relative to another currency, it might enter into a
forward contract to sell an appropriate amount of the first foreign currency,
with payment to be made in the second currency. Transactions that use two
foreign currencies are sometimes referred to as "cross hedges." Use of
different foreign currency magnifies the risk that movements in the price of the
instrument will not correlate or will correlate unfavorably with the foreign
currency being hedged.
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The cost to a Fund of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. When a Fund enters into a forward currency contract, it relies on the
counterparty to make or to take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would result in
the loss of any expected benefit of the transaction.
As is the case with future contracts, holders and writers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument held or written. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the counterparty. Thus, there can be no assurance
that a Fund will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the counterparty, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in securities denominated in the
foreign currency or to maintain cash or securities in a segregated account.
The precise matching of forward currency contract amounts and the
value of the securities involved generally will not be possible because the
value of such securities, measured in the foreign currency, will change after
the foreign currency contract has been established. Thus, a Fund might need to
purchase or sell foreign currencies in the spot (cash) market to the extent such
foreign currencies are not covered by forward contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
FOREIGN CURRENCY TRANSACTIONS
Although each Fund values its assets daily in U.S. dollars, the Funds
are not required to convert their holdings of foreign currencies to U.S. dollars
on a daily basis. Each Fund's foreign currencies generally will be held as
"foreign currency call accounts" at foreign branches of foreign or domestic
banks. These accounts bear interest at negotiated rates and are payable upon
relatively short demand periods. If a bank became insolvent, a Fund could
suffer a loss of some or all of the amounts deposited. Each Fund may convert
foreign currency to U.S. dollars from time to time. Although foreign exchange
dealers generally do not charge a stated commission or fee for conversion, the
prices posted generally include a "spread," which is the difference between the
prices at which the dealers are buying and selling foreign currencies.
WHEN-ISSUED SECURITIES
Normally, the settlement date on when-issued securities occurs within
one month of purchase commitment, but may take longer, albeit not more than 120
days after the trade date.
At the time a Fund commits to purchase a security on a when-issued
basis, it will record the transaction and reflect the value of that security in
determining its net asset value. The Adviser does not believe that any Fund's
net asset value will be adversely affected by purchases of securities on a when-
issued basis.
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While when-issued securities may be sold prior to settlement, the
Adviser intends to purchase such securities with the purpose of actually
acquiring them unless a sale appears desirable for investment reasons. Each
Fund will maintain a separate account with the Custodian, with a segregated
portfolio of cash and marketable securities at least equal in value to that
Fund's commitments to purchase when-issued securities. Such segregated
securities will mature (or, if necessary, be sold) on or before the settlement
date. When the time comes for a Fund to pay for when-issued securities, it will
meet its obligations from the then-available cash flow, the sale of the
securities held in this separate account, the sale of other securities; although
it would not normally expect to do so, the Fund may also meet this obligation
from the sale of the when-issued securities themselves, which may have increased
or decreased in market value.
When a Fund commits to purchase when-issued securities, it increases
its exposure to fluctuations in, e.g., market interest rates. Each Fund's
current policy is to limit its aggregate when-issued commitments to 15% of the
market value of its total assets less liabilities, other than the obligations
created by these commitments.
FOREIGN INVESTMENT COMPANIES
Some of the countries in which the Funds may invest may not permit, or
may place economic restrictions on, direct investment by outside investors.
Investments in such countries may only be permitted through foreign government-
approved or -authorized investment vehicles, which may include other investment
companies. The Funds may also invest in registered or unregistered closed-end
investment companies that invest in foreign securities. Investing through such
vehicles may involve frequent or layered fees or expenses and may also be
subject to limitation under the 1940 Act. Under the 1940 Act, a Fund may invest
up to 10% of its assets in shares of investment companies and up to 5% of its
assets in any one investment company as long as the investment does not
represent more than 3% of the voting stock of the acquired investment company.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements. In a repurchase
agreement, a Fund buys a security from a counterparty that has agreed to
repurchase it at a mutually agreed upon date and repurchase price, reflecting
the interest rate effective for the term of the repurchase agreement. The term
of a repurchase agreement is usually from overnight to one week and never
exceeds one year; repurchase agreements with a maturity in excess of seven days
are considered illiquid. The counterparty's obligation to repurchase is secured
by the value of the underlying security; when the Fund enters into a repurchase
agreement, it always receives, as collateral, underlying securities with a
market value at least equal to the purchase price (including accrued interest),
and the Adviser will monitor, on an ongoing basis, the value of the underlying
securities to ensure that such value always equals or exceeds the repurchase
price plus accrued interest.
A Fund may, under certain circumstances, deem repurchase agreements
collateralized by U.S. government securities to be investments in U.S.
government securities.
BORROWING
Borrowing by a Fund will create the opportunity for increased net
income but, at the same time, will involve special risk considerations. Each
Fund will secure all borrowings; either the Custodian will segregate the Fund's
assets securing the borrowing for the benefit of the lenders or similar
arrangements will be made with a suitable sub-custodian. If assets used to
secure the borrowing decrease in value, the
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Fund may be required to pledge additional collateral to the lender in the form
of cash or securities to avoid liquidation of those assets. Proceeds of
borrowing may be used for investment purposes or to pay dividends.
Each Fund may also engage in mortgage dollar roll transactions and
reverse repurchase agreements, which may be considered a form of borrowing. In
addition, each Fund may borrow up to an additional one-third of its total assets
from banks for temporary or emergency purposes. A Fund will not purchase
securities when bank borrowings exceed one-third of its total assets.
MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS
Each Fund may engage in reverse repurchase agreements to facilitate
portfolio liquidity, a practice common in the mutual fund industry, or for
arbitrage transactions discussed below. In a reverse repurchase agreement, the
Fund would sell a security and enter into an agreement to repurchase the
security at a specified future date and price. The Fund generally retains the
right to interest and principal payments on the security. Since the Fund
receives cash upon entering into a reverse repurchase agreement, it may be
considered a borrowing. (See "Borrowing" above.) When required by guidelines
of the SEC, the Fund will set aside permissible liquid assets in a segregated
account to secure its obligations to repurchase the security.
Each Fund may also enter into mortgage dollar rolls, in which the Fund
would sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While the Fund would forego principal and interest paid
on the mortgage-backed securities during the roll period, it would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any equivalent to a lower forward
price. At the time the Fund would enter into a mortgage dollar roll, it would
set aside permissible liquid assets in a segregated account to secure its
obligation for the forward commitment to buy mortgage-backed securities.
Mortgage dollar roll transactions may be considered a borrowing by the Funds.
(See "Borrowing" above.)
The mortgage dollar rolls and reverse repurchase agreements entered
into by the Funds may be used as arbitrage transactions in which a Fund will
maintain an offsetting position in investment grade debt obligations or
repurchase agreements that mature on or before the settlement date on the
related mortgage dollar roll or reverse repurchase agreements. Since the Fund
will receive interest on the securities or repurchase agreements in which it
invests the transaction proceeds, such transactions may involve leverage.
However, since such securities or repurchase agreements will be high quality and
will mature on or before the settlement date of the mortgage dollar roll or
reverse repurchase agreement, the Adviser believes that such arbitrage
transactions do not present the risks to the Fund that are associated with other
types of leverage.
ADDITIONAL RISK FACTORS
EURO IMPLEMENTATION PLAN
On January 1, 1999, the European Monetary Union ("EMU") plans to
implement a new currency unit, the Euro, which is expected to reshape financial
markets, banking systems and monetary policies in Europe and other parts of the
world. The countries that initially expected to convert or tie their currencies
to the Euro include Austria, Belgium, France, Germany, Luxembourg, the
Netherlands, Ireland, Finland, Italy, Portugal and Spain. Implementation of
this plan will mean that financial transactions and market
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information, including share quotations and company accounts, in participating
countries will be denominated in Euros. Approximately 46% of the stock exchange
capitalization of the total Euorpean market may be reflected in Euros, and
participating governments will issue their bonds in Euros. Monetary policy for
participating countries will be uniformly managed by a new central bank, the
European Central Bank ("ECB").
Although it is not possible to predict the impact of the Euro implementation
plan on the Funds, the transition to the Euro may change the economic
environment and behavior of investors, particularly in European markets. For
example, investors may begin to view those countries participating in the EMU as
a single entity, and the Adviser may need to adapt its investment strategy
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. The transition to the Euro is likely to have a
significant impact on fiscal and monetary policy in the participating countries
and may product unpredictable effects on trade and commerce generally. These
resulting uncertainties could create increased volatility in financial markets
worldwide.
YEAR 2000
Each Fund depends on the smooth functioning of computer systems in
almost every aspect of its business. Like other mutual funds, businesses and
individuals around the world, the Funds could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have
their computer systems adjusted for the year 2000 transition, and received
assurances from each that it is devoting significant resources to prevent
material adverse consequences to the Funds. A Fund and its shareholders may
experience losses if these assurances prove to be incorrect or as a result of
year 2000 computer difficulties experienced by issuers of portfolio securities
or third parties, such as custodians, banks, broker-dealers or others with which
the Fund does business.
FOREIGN CUSTODIANS AND SECURITIES DEPOSITORIES
Rules adopted under the 1940 Act, permit the Funds to maintain their
foreign securities and cash in the custody of certain eligible non-U.S. banks
and securities depositories (collectively, "foreign custodians"). Pursuant to
these rules, each Fund's assets invested in foreign countries may be held by
foreign custodians that are approved by the Fund's Board of Trustees. The Board
will consider a number of factors in selecting foreign custodians, including but
not limited to the reliability and financial stability of the institution, the
ability of the institution to capably perform custodial services for the Fund,
the reputation of the institution in its national market, the political and
economic stability of the countries in which the foreign custodian is located,
and risks of potential nationalization or expropriation of Fund assets. In
addition, foreign custodians must, among other things, meet minimum requirements
for shareholder equity, have no lien on Fund assets, and maintain adequate and
accessible records. Certain banks in foreign countries may not be eligible
foreign custodians for the Funds, which may preclude a Fund from purchasing
securities in which it would otherwise invest; banks that are eligible foreign
custodians may be recently organized or otherwise lack extensive operating
experience.
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INVESTMENT RESTRICTIONS
The following are fundamental investment limitations of each Fund.
These fundamental limitations may not be changed without shareholder approval.
In accordance with these limitations, each Fund will not:
1. Invest in real estate or mortgages on real estate (although a Fund may
invest in marketable securities secured by real estate or interests therein
or issued by companies or investment trusts which invest in real estate or
interests therein); invest in other open-end investment companies (except
in connection with a merger, consolidation, acquisition or reorganization);
invest in interests (other than debentures or equity stock interests) in
oil, gas or other mineral exploration or development programs; or purchase
or sell commodity contracts (except futures contracts, as described in the
Prospectus).
2. Purchase any security (other than obligations of the U.S. Government, its
agencies or instrumentalities) if, as a result, as to 75% of the Fund's
total assets (i) more than 5% of the Fund's total assets would then be
invested in securities of any single issuer, or (ii) the Fund would then
own more than 10% of the voting securities of any single issuer.
3. Act as an underwriter; issue senior securities except as set forth in
investment restrictions 5 and 6 below; or purchase on margin, except that a
Fund may make margin payments in connection with futures, options and
currency transactions.
4. Loan money, except that a Fund may (i) purchase a portion of an issue of
publicly distributed bonds, debentures, notes and other evidences of
indebtedness, (ii) enter into repurchase agreements and (iii) lend its
portfolio securities.
5. Borrow money, except that a Fund may engage in dollar roll transactions and
reverse repurchase agreements, and may borrow money from banks in an amount
not exceeding one-third of the value of its total assets (including the
amount borrowed).
6. Mortgage, pledge or hypothecate its assets (except as may be necessary in
connection with permitted borrowings); provided, however, this does not
prohibit escrow, collateral or margin arrangements in connection with its
use of options, futures contracts and options on future contracts.
7. Invest 25% or more of its total assets in a single industry. For purposes
of this restriction, a foreign government is deemed to be an "industry"
with respect to securities issued by it.
If a Fund receives from an issuer of securities held by the Fund
subscription rights to purchase securities of that issuer, and if the Fund
exercises such subscription rights at a time when the Fund's portfolio holdings
of securities of that issuer would otherwise exceed the limits set forth in
Investment Restrictions 2 or 7 above, it will not constitute a violation if,
prior to receipt of securities upon exercise of such rights, and after
announcement of such rights, the Fund has sold at least as many securities of
the same class and value as it would receive on exercise of such rights.
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ADDITIONAL RESTRICTIONS
Each Fund has adopted the following additional restrictions which are
not fundamental and which may be changed without Shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy. Under
these restrictions, each Fund may not:
1. Purchase or retain securities of any company in which Trustees or officers
of the Trust or of the Adviser, individually owning more than 1/2 of 1% of
the securities of such company, in the aggregate own more than 5% of the
securities of such company.
2. Invest more than 5% of the value of its total assets in securities of
issuers which have been in continuous operation less than three years.
3. Invest more than 5% of its net assets in warrants whether or not listed on
the New York or American Stock Exchanges, and more than 2% of its net
assets in warrants that are not listed on those exchanges. Warrants
acquired in units or attached to securities are not included in this
restriction.
4. Purchase or sell real estate limited partnership interests.
5. Purchase or sell interests in oil, gas and mineral leases (other than
securities of companies that invest in or sponsor such programs).
6. Invest for the purpose of exercising control over management of any
company.
7. Invest more than 15% of the Fund's net assets in securities that are not
readily marketable (including repurchase agreements maturing in more than
seven days and over-the-counter options purchased by the Fund). Rule 144A
securities determined by the Board of Trustees to be liquid are not subject
to this limitation.
Whenever any investment policy or investment restriction states a
maximum percentage of a Fund's assets which may be invested in any security or
other property, it is intended that such maximum percentage limitation be
determined immediately after and as a result of that Fund's acquisition of such
security or property. The value of a Fund's assets is calculated as described
in its Prospectus under the heading "Valuation of Shares."
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TRUSTEES AND OFFICERS OF THE TRUST
The name, age, address, principal occupation during the past five years and
other information about each Trustee and officer of the Trust is shown below.
Each Trustee who is considered to be an "interested person," as defined in the
1940 Act, of the Trust is indicated by an asterisk.
<TABLE>
<CAPTION>
NAME AND ADDRESS OFFICES WITH PRINCIPAL OCCUPATION
THE TRUST DURING THE PAST FIVE YEARS
<S> <C> <C>
THOMAS L. HANSBERGER* (65) President and Chairman and Chief Executive Officer,
515 East Las Olas Blvd. Trustee Hansberger Global Investors, Inc., 1994 to
Fort Lauderdale, FL present; Chairman and Chief Executive
Officer, Templeton Worldwide, 1992 to
1993; Director and Chief Executive
Officer, Templeton, Galbraith & Hansberger
Ltd., 1985 to 1992.
J. CHRISTOPHER JACKSON, ESQ.* (46) Vice President and Senior Vice President and General Counsel,
515 East Las Olas Blvd. Trustee Hansberger Global Investors, Inc. 1996 to
Fort Lauderdale, FL present; Vice President, Associate General
Counsel and Assistant Secretary, Van
Kampen American Capital, Inc. 1986 to 1996.
KATHRYN B. MCGRATH, ESQ.* (53) Trustee Partner, Morgan, Lewis & Bockius LLP, 1990
1800 M Street, N.W. to present.
Washington, DC
STUART B. ROSS (61) Trustee Executive Vice President, Xerox
100 First Stamford Place Corporation, 1990 to present; Chief
Stamford, CT Executive Officer, Xerox Financial
Services, Inc., 1990 to present.
WILLIAM F. WATERS, ESQ. (66) Trustee Retired; former Senior Vice President,
640 Hollow Tree Ridge Road Merrill Lynch & Co., 1984 to 1996.
Darien, CT
CHARLES F. GULDEN (36) Vice President Managing Director, Hansberger Global
515 East Las Olas Blvd. Investors, Inc. 1996 to present; Vice
Fort Lauderdale, FL President and Director of Research &
Portfolio Management, Templeton Worldwide,
1989 to 1996.
</TABLE>
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<TABLE>
<S> <C> <C>
WESLEY E. FREEMAN (48) Vice President Managing Director, Hansberger Global
515 East Las Olas Blvd. Investors, Inc. 1996 to present; Executive
Fort Lauderdale, FL Vice President for Institutional Business
Development, Templeton Worldwide, 1989 to
1996.
THOMAS A. CHRISTENSEN, Jr. (27) Treasurer Vice President and Controller, Hansberger
515 East Las Olas Blvd. Global Investors, Inc. 1996 to present;
Fort Lauderdale, FL Accountant, Arthur Andersen LLP, 1993 to
1996.
KIMBERLEY SCOTT (35) Secretary Senior Vice President, Hansberger Global
515 East Las Olas Blvd. Investors, Inc. 1994 to present; Executive
Fort Lauderdale, FL Assistant and Portfolio Supervisor,
Templeton Worldwide, 1992 to 1994.
KARL O. HARTMANN, ESQ. (43) Assistant Secretary Senior Vice President and General Counsel,
73 Tremont Street Chase Global Funds Services Company, 1991
Boston, MA to present.
</TABLE>
The Trust pays each Trustee who is not a director, officer, partner or
employee of the Adviser, any affiliated company, or legal counsel to the Adviser
("Disinterested Trustee"), an annual fee of $3500, plus $500 per Board meeting.
In addition, the Trust reimburses each Disinterested Trustee for travel and
other expenses incurred in connection with attendance at such meetings. Other
officers and Trustees receive no compensation or expense reimbursement from the
Trust. For the fiscal year ending December 31, 1997, the Trust paid the
following amounts to Trustees and officers of the Trust: As of April 1, 1998,
subject to officers and Trustees owning more than 1% of Fund(s), the officers
and Trustees of the Trust, in the aggregate, beneficially owned 64,722.781
shares (1.21% of the outstanding shares) of the Emerging Markets Fund. As of
the same date, the officers and Trustees of the Trust, in the aggregate,
beneficially owned less than 1% of the outstanding shares of the International
Fund.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Total Compensation
Aggregate Pension or from Registrant and
Compensation Retirement Fund Complex Paid
From Registrant Benefits Accrued Estimated Annual to Directors for
Name of Person, for Fiscal Year as Part of Fund Benefits Upon Fiscal Year Ended
Position Ended 1997 Expenses Retirement 1997
=======================================================================================================
<S> <C> <C> <C> <C>
Stuart B, Ross, $5,500 N/A N/A $5,500 for service
Trustee on one board
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
William F. Waters, $5,500 N/A N/A $5,500 for service
Trustee on one board
- --------------------------------------------------------------------------------------------------------
</TABLE>
PRINCIPAL SHAREHOLDERS
The following table sets forth the information concerning beneficial
ownership, as of April 1, 1998, of the Funds' shares by each person who
beneficially owned more than 5% of the voting securities of any Fund.
<TABLE>
<CAPTION>
Shares Percentage of
Name and Address Beneficially Outstanding
of Shareholder Fund Owned Shares Owned
-------------- ---- ----- ------------
<S> <C> <C> <C>
Citibank N.A. Trustee International Fund 4,959,713.996 21.9%
FBO Albemarle Corporation
Attn: Cathy Blackshear
111 Wall St. 14th Fl.
New York, NY 10043
Mercantile Safe Deposit & International Fund 2,704,963.233 11.9%
Trust
Trustee for NFL Reciprocal
Trust
766 Old Hammonds Ferry Rd.
Linthicum, MD 21090
Northern Trust Company, International Fund 2,258,202.936 10.0%
Trustee
FBO CPC International
Retirement Plan
P.O. Box 92956
Chicago, IL 60675
BOVA & COMPANY International Fund 1,424,613.551 6.3%
1525 W WT Harris Blvd.P.O.
Box 85539
Richmond, VA
23285-5539Charlotte, NC
28288
MAC & CO International Fund 1,160,282.665 5.1%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C> <C>
Royal Trust Trustee Emerging Markets Fund 1,240,045.503 23.2%
FBO Workplace Health Safety
and Compensation
Commission of New Brunswick
P.O. Box 7500 Station A
77 King Street West
Toronto Ontario Canada
M5W1P9
Tobias White & Co. Emerging Markets Fund 961,191.947 18.0%
Genesee Towers Suite 1802
120 E. 1st St.
Flint, MI 48502-1940
General Employees Retirement Emerging Markets Fund 393,930.329 7.4%
System of the City of Fort
Lauderdale
315 NE Third Avenue Suite 202
Fort Lauderdale, FL 33301
BOST & CO W E RF Emerging Markets Fund 299,553.482 5.6%
Mutual Funds Operations
P.O. Box 3198 Pittsburgh,
PA 15230-3198
</TABLE>
INVESTMENT ADVISER
Hansberger Global Investors, Inc. (the "Adviser") is the
investment adviser to each Fund. The Adviser, a Delaware corporation, is
controlled by Mr. Thomas L. Hansberger who founded the Adviser in 1994. A brief
description of
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<PAGE>
the investment advisory agreement ("Advisory Agreement") is set forth in the
Prospectus under "MANAGEMENT OF THE FUND -- Investment Adviser."
The Advisory Agreement, dated October 17, 1996, was approved by the sole
shareholder of the International Fund and the Emerging Markets Fund on October
4, 1996. The Advisory Agreement will continue in effect for two years following
its effective date, and will continue in effect thereafter only if such
continuance is approved annually by either the Board of Trustees or by vote of a
majority of each Fund's outstanding voting securities (as defined in the 1940
Act), and in either case by the vote of a majority of the Trust's trustees who
are neither parties to the Advisory Agreement nor interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement is terminable, without penalty, on 60 days'
written notice by the Board of Trustees, by vote of a majority of the Fund's
outstanding voting securities, or by the Adviser, and will terminate
automatically in the event of its assignment.
The Adviser is responsible for investment decisions and supplies investment
research and portfolio management. At its expense, the Adviser provides office
space and all necessary office facilities, equipment and personnel for servicing
the investments of the Fund. The Adviser places all orders for the purchase and
sale of each Fund's portfolio securities at that Fund's expense.
Except for expenses assumed by the Adviser as set forth above, each Fund is
responsible for all its other expenses, including, without limitation, interest
charges, taxes, brokerage commissions, and similar expenses, expenses of issue,
sale, repurchase, or redemption of shares; expenses of registering or qualifying
shares for sale; expenses for printing and distribution costs of Prospectuses
and quarterly financial statements mailed to existing shareholders; and charges
of custodians, transfer agents (including the printing and mailing of reports
and notices to shareholders); registrars; auditing and legal services, clerical
services related to record keeping and shareholder relations, and fees for
Trustees who are not "interested persons" of the Adviser.
As compensation for its services, each Fund pays to the Adviser a fee as
described in the Prospectus. For the fiscal year ended December 31, 1997, the
Trust paid advisory fees of $523,870 and $98,153, respectively, for the
International Fund and the Emerging Markets Fund. Because each Fund was newly
organized, neither Fund paid advisory fees during the fiscal year ended December
31, 1996. The Foreign Small Cap Fund and the All Countries Fund(SM) have not
commenced operations, therefore, advisory fees were not paid as of December 31,
1997.
FUND TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for
each Fund and for the placement of a Fund's investment business and the
negotiation of the commissions to be paid on such transactions. It is the
policy of the Adviser to seek the best execution at the best security price
available with respect to each transaction, in light of the overall quality of
brokerage and research services provided to the Adviser or the Fund. In over-
the-counter transactions, orders are placed directly with a principal market
maker unless it is believed that better price and execution can be obtained
using a broker. In determining the abilities of a broker or dealer to obtain
best execution, the Adviser considers relevant
22
<PAGE>
factors including: the ability and willingness of the broker or dealer to
facilitate the Fund's portfolio transaction by participating therein for its own
account; speed, efficiency and confidentiality; familiarity with the market for
a particular security; and the reputation and perceived soundness of the broker.
The best price to a Fund means the best net price without regard to the mix
between purchase or sale price and commissions, if any. In selecting broker-
dealers and in negotiating commissions, the Adviser considers a variety of
factors, including best price and execution, the full range of brokerage
services provided by the broker, as well as its capital strength and stability,
and the quality of the research and research services provided by the broker.
Consistent with the foregoing primary considerations, the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD") and such other
policies as the Trustees may determine, the Adviser may consider sales of shares
of the Funds as a factor in the selection of broker-dealers to execute the
Funds' portfolio transactions.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an account
to pay a broker or dealer a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction in recognition of the value of the brokerage and
research services provided by the broker or dealer. Brokerage and research
services include (a) furnishing advice 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; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
In carrying out the provisions of the Advisory Agreement, the Adviser may
cause a Fund to pay, to a broker that provides brokerage and research services
to the Adviser, a commission for effecting a securities transaction in excess of
the amount another broker would have charged for effecting the transaction. The
Adviser believes it is important to its investment decision-making process to
have access to independent research. The Advisory Agreements provide that such
higher commissions will not be paid by a Fund unless the Adviser determines in
good faith that such amount of commission is reasonable in relation to the value
of the brokerage or research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Adviser's overall
responsibilities with respect to the accounts as to which it exercises
investment discretion. The investment advisory fees paid by each Fund under its
Advisory Agreement are not reduced as a result of the Adviser's receipt of
research services.
Generally, research services provided by brokers may include information on
the economy, industries, groups of securities, individual companies, statistical
information, accounting and tax law interpretations, political developments,
legal developments affecting portfolio securities, technical market action,
pricing and appraisal services, credit analysis, risk measurement analysis,
performance analysis, and analysis of corporate responsibility issues. Such
research services are primarily in the form of written reports, telephone
contacts, and personal meetings with security analysts. In addition, such
research services may be provided in the form of access to various computer-
generated data, computer hardware and software, and meetings arranged with
corporate and industry spokesperson, economists, academicians, and
23
<PAGE>
government representatives. In some cases, research services are generated by
third parties but are provided to the Adviser by or through brokers. Such
brokers may pay for all or a portion of computer hardware and software costs
relating to the pricing of securities.
Where the Adviser itself receives both administrative benefits and research
and brokerage services from the services provided by brokers, it makes a good
faith allocation between the administrative benefits and the research and
brokerage services, and will pay for any administrative benefits with cash. In
making good faith allocations of costs between administrative benefits and
research and brokerage services, a conflict of interest may exist by reason of
the Adviser's allocation of the costs of such benefits and services between
those that primarily benefit the Adviser and those that primarily benefit the
Funds and other advisory clients.
From time to time, the Adviser may purchase securities for a Fund in a
fixed price offering. In these situations, the seller may be a member of the
selling group that will, in addition to selling the securities to the Funds and
other advisory clients, provide the Adviser with research. The NASD has adopted
rules expressly permitting these types of arrangements under certain
circumstances. Generally, the seller will provide research "credits" in these
situations at a rate that is higher than the rate available for typical
secondary market transactions. These arrangements may not fall within the safe
harbor of Section 28(e).
Twice a year, the Adviser, through a committee of its securities analysts,
will consider the amount and nature of research and research services provided
by brokers, as well as the extent to which such services are relied upon, and
attempt to allocate a portion of the brokerage business of the Fund and other
advisory clients on the basis of that consideration. In addition, brokers may
suggest a level of business they would like to receive in order to continue to
provide such services. The actual brokerage business received by a broker may
be more or less than the suggested allocations, depending upon the Adviser's
evaluation of all applicable considerations.
The Adviser may direct the purchase of securities on behalf of each Fund
and other advisory clients in secondary market transactions, in public offerings
directly from an underwriter, or in privately negotiated transactions with an
issuer. When the Adviser believes the circumstances so warrant, securities
purchased in public offerings may be resold shortly after acquisition in the
immediate aftermarket for the security in order to take advantage of price
appreciation from the public offering price or for other reasons. Short-term
trading of securities acquired in public offerings, or otherwise, may result in
higher portfolio turnover and associated brokerage expenses.
The Adviser is responsible for selecting brokers in connection with foreign
securities transactions. The fixed commissions paid in connection with most
foreign stock transactions are usually higher than negotiated commissions on
U.S. stock transactions. Foreign stock exchanges and brokers are subject to
less government supervision and regulation as compared with the U.S. exchanges
and brokers. In addition, foreign security settlements may in some instances be
subject to delays and related administrative uncertainties.
The Adviser places portfolio transactions for other advisory accounts,
including other mutual funds managed by the Adviser. Research services
furnished by firms through which each Fund effects its securities transactions
may be used by the Adviser in servicing all of its accounts; not all of such
services may be used by the Adviser in connection with each Fund. In the
opinion of the Adviser, it is not possible to measure separately the benefits
from research services to each of the accounts (including the Funds) managed by
the Adviser. Because the volume and nature of the trading activities of the
accounts are not
24
<PAGE>
uniform, the amount of commissions in excess of those charged by another broker
paid by each account for brokerage and research services will vary. However, in
the opinion of the Adviser, such costs to each Fund will not be disproportionate
to the benefits received by it on a continuing basis.
The Adviser seeks to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by a Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Fund. In making
such allocations between a Fund and other advisory accounts, the main factors
considered by the Adviser are the respective investment objectives, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held, and the opinions of the persons responsible for recommending the
investment.
For the fiscal year ended December 31, 1997, the International Fund and
Emerging Markets Fund paid brokerage commissions of approximately $664,634 and
$216,314, respectively. Because each Fund was newly organized, the Funds paid no
brokerage commissions during the fiscal year ended December 31, 1996. Because an
affiliate of J.M. Sassoon owns approximately 7.08% of the Adviser and affiliates
of Salomon Brothers and Smith Barney own approximately 6.93% of the Adviser,
J.M. Sassoon, Salomon Brothers, and Smith Barney, are considered affiliates of
the Adviser, which in turn is an affiliate of the Trust. For the fiscal year
ended December 31, 1997: (1) the Trust paid brokerage commissions of
approximately $5,591, $5,031, and $4,991 to J.M. Sassoon, Salomon Brothers, and
Smith Barney, respectively; (2) commissions paid to J.M. Sassoon, Salomon
Brothers, and Smith Barney, represented approximately .63%, .57%, and .57%,
respectively, of the total brokerage commissions paid; and (3) the dollar amount
of such transactions in which commissions paid to J.M. Sassoon, Salomon
Brothers, and Smith Barney, represented approximately .32%, .96%, and .37%,
respectively, of the aggregate dollar amount of transactions for which
commissions were paid by the Trust.
It is anticipated that the annual portfolio turnover rate of each Fund will
not exceed 100% under normal circumstances. For the fiscal year ended December
31, 1997, the portfolio turnover rates were approximately 14% and 15% for the
International Fund and the Emerging Markets Fund, respectively.
CUSTODIAN
The Chase Manhattan Bank, 4 Chase Metro Tech Center, 18th Floor, Brooklyn,
New York 11245, serves as custodian of the assets of the Trust and has custody
of all of its securities and cash. The Custodian delivers and receives payment
for securities sold, receives and pays for securities purchased, collects income
from investments, and performs other duties, all as directed by the officers of
the Trust. In addition, the Trust, with the approval of the Board of Trustees
and subject to the rules of the SEC, may have sub-custodians in those foreign
countries in which it invests its assets. The Custodian and sub-custodians are
in no way responsible for any of the investment policies or decisions of a Fund.
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Chase Global Funds Services Company, the Trust's Administrator, acts as
transfer agent and dividend-disbursing agent for the Funds. The Administrator
is compensated under the Administration Agreement discussed in the Prospectus.
From time to time, the Funds, directly or indirectly through arrangements
with the Adviser or Administrator, may pay amounts to third parties that provide
transfer agent and other administrative services relating to a Fund to persons
who beneficially own interests in the Fund, such as participants in 401(k)
plans.
These services may include, among other things, sub-accounting services,
answering inquiries relating to the Fund, transmitting, on behalf of the Fund,
proxy statements, annual reports, updated Prospectuses, other communications
regarding the Fund, and related services as the Fund or beneficial owners may
reasonably request. In such cases, the Fund will not pay fees at a rate that is
greater than the rate the Fund is currently paying the Administrator for
providing these services to Fund shareholders.
25
<PAGE>
TAXES
GENERAL
As indicated under "Taxes" in the Prospectus, each Fund intends to continue
to qualify annually for treatment as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended ("the
Code"). This qualification does not involve government supervision of a Fund's
management practices or policies.
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;
(b) a Fund must derive less than 30% of its gross income each taxable year from
the sale or other disposition of stocks, securities, options, futures or forward
contracts, or foreign currencies (or options, futures or forward contracts on
foreign currencies) that are not directly related to a Fund's business of
investing in stock or securities, held for less than three months; and (c)
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. Requirement (b) no longer applies for tax years beginning
after August 5, 1997.
Notwithstanding the Distribution Requirament 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.
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
eighteen months, mid-term if the shares have been held for more than eighteen
months, mid-term if the shares have been held for over one year but not for over
eighteen months, 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.
FOREIGN TRANSACTIONS
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 its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of a
Fund's total assets at the close of its taxable year consists of securities of
foreign corporations, the Fund will be eligible to, and may, file an election
with the Internal Revenue Service that would enable its 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.
26
<PAGE>
Pursuant to the elections, the Funds would treat those taxes as dividends paid
to its shareholders and each shareholder would be required to (1) include in
gross income, and treat as paid by him, his proportionate share of those taxes,
(2) treat his share of those taxes and any dividend paid by the Fund that
represents income from foreign or U.S. possessions sources as his own income
from those sources, and (3) either deduct the taxes deemed paid by him in
computing his taxable income, or, alternatively, use the foregoing information
in calculating the foreign tax credit against his federal income tax. Each Fund
will report to its shareholders shortly after each taxable year their respective
shares of its income from sources within, and taxes paid to, foreign countries
and U.S. possessions if it makes this election.
Each Fund maintains its accounts and calculates its income in U.S. dollars.
In general, gain or loss (1) from the disposition of foreign currencies and
forward currency contracts, (2) from the disposition of foreign-currency-
denominated debt securities that are attributable to fluctuations in exchange
rates between the date the securities are acquired and their disposition date,
and (3) attributable to fluctuations in exchange rates between the time the Fund
accrues interest or other receivables or expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects those
receivables or pays those liabilities, will be treated as ordinary income or
loss. A foreign-currency-denominated debt security acquired by a Fund may bear
interest at a high normal rate that takes into account expected decreases in the
value of the principal amount of the security due to anticipated currency
devaluations; in that case, the Fund would be required to include the interest
in income as it accrues but generally would realize a currency loss with respect
to the principal only when the principal was received (through disposition or
upon maturity).
Each Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of
the following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a Fund will be subject to
federal income tax on a portion of any "excess distribution" received on the
stock or of any gain on disposition of the stock (collectively, "PFIC income"),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included
in the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders. If
a Fund invests in a PFIC and elects to treat the PFIC as a "qualified electing
fund," then in lieu of the foregoing tax and interest obligation, the Fund will
be required to include in income each year its pro rata share of the qualified
electing fund's annual ordinary earnings and net capital gain (the excess of net
long-term capital gain over net short-term capital loss) - which probably would
have to be distributed to its shareholders to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax - - even if those earnings
and gain were not received by the Fund. In most instances it will be very
difficult, if not impossible, to make this election because of certain of its
requirements.
Pursuant to proposed regulations, open-end RICs such as the Funds would be
entitled to elect to "mark-to-market" their stock in certain PFICs. "Marking-to-
market," in this context, means recognizing as gain for each taxable year the
excess, as of the end of that year, of the fair market value of each such PFIC's
stock over the adjusted basis in that stock (including mark-to-market gain for
each prior year for which an election was in effect).
27
<PAGE>
DERIVATIVE INSTRUMENTS
The use of derivatives strategies, such as purchasing and selling (writing)
options and futures and entering into forward currency contracts, involves
complex rules that will determine for income tax purposes the character and
timing of recognition of the gains and losses the Fund realizes in connection
therewith.
Gains from the disposition of foreign currencies (except certain gains
therefrom that may be excluded by future regulations), and income from
transaction in options, futures, and forward currency contracts derived by a
Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
However, income from the disposition of options and futures (other than those on
foreign currencies) will be subject to the 30% Limitation if they are held for
less than three months. Income from the disposition of foreign currencies, and
options, futures, and forward contracts on foreign currencies, that are not
directly related to a Fund's principal business of investing in securities (or
options and futures with respect to securities) also will be subject to the 30%
Limitation if they are held for less than three months.
If a Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
30% Limitation. Thus, only the net gain (if any) from the designated hedge will
be included in gross income for purposes of that limitation. Each Fund intends
that, when it engages in hedging strategies, the hedging transactions will
qualify for this treatment, but at the present time it is not clear whether this
treatment will be available for all of the Fund's hedging transactions. To the
extent this treatment is not available or is not elected, a Fund may be forced
to defer the closing out of certain options, futures, or forward currency
contracts beyond the time when it otherwise would be advantageous to do so, in
order for the Fund to continue to qualify as a RIC.
For federal income tax purposes, each Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on options,
futures, or forward currency contracts that are subject to section 1256 of the
Code ("Section 1256 Contracts") and are held by the Fund as of the end of the
year, as well as gains and losses on Section 1256 Contracts actually realized
during the year. Except for Section 1256 Contracts that are part of a "mixed
straddle" and with respect to which a Fund makes a certain election, any gain or
loss recognized with respect to Section 1256 Contracts is considered to be 60%
long-term capital gain or loss and 40% short-term capital gain or loss, without
regard to the holding period of the Section 1256 Contract. Unrealized gains on
Section 1256 Contracts that have been held by a Fund for less than three months
as of the end of its taxable year, and that are recognized for federal income
tax purposes as described above, will not be considered gains on investments
held for less than three months for purposes of the 30% Limitation.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "Valuation of Shares" the
net asset value of each Fund will be determined as of the regular close of
trading (currently 4:00 pm, Eastern time) on each day the New York Stock
Exchange (the "NYSE") is open for business. The NYSE is open for trading Monday
through Friday except on the following holidays: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and
28
<PAGE>
Christmas Day. Additionally, if any of the holidays falls on a Sunday, the NYSE
will not be open for trading on the succeeding Monday, unless unusual business
conditions exist, such as the ending of a monthly or yearly accounting period.
Debt securities are valued by a pricing service that utilizes electronic
data processing techniques to determine values for normal institutional-sized
trading units of debt securities without regard to sale or bid prices when such
values are believed to more accurately reflect the fair market value for such
securities. Otherwise, sale or bid prices are used when such values are
believed to more accurately reflect the fair market value for such securities.
Any securities or other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by the Board of
Trustees. Debt securities having remaining maturities of 60 days or less when
purchased are valued by the amortized cost method when the Board of Trustees has
determined that the fair value of such securities is their amortized cost.
Under this method of valuation, a security is initially valued at its
acquisition cost, and thereafter, accretion of any discount or amortization of
any premium is assumed each day, regardless of the impact of the fluctuating
rates on the market value of the instrument.
The calculation of net asset value does not usually take place
contemporaneously with the determination of the prices of the portfolio
securities used in such calculation. Trading in securities on foreign
securities exchanges and over-the-counter markets is normally completed well
before the regular close of trading on the NYSE on each business day on which
the NYSE is open for trading. In addition, foreign securities trading in a
particular country or countries may not take place on all business days the NYSE
is open. Furthermore, trading takes place in various foreign markets on days
which are not business days on which the NYSE is open and on which the Funds'
net asset values are not calculated. As a result, events affecting the values
of portfolio securities that occur between the time their prices are determined
and the close of the NYSE will not be reflected in a Fund's calculation of net
asset values unless the Adviser determines that the particular event may
materially affect net asset value, in which case an adjustment will be made.
ADDITIONAL SHAREHOLDER INFORMATION
TELEPHONE EXCHANGE AND REDEMPTION PRIVILEGES
Shares of a Fund and any other mutual funds sponsored by the Adviser may be
exchanged for each other without charge at relative net asset values once per
six-month period. Exchanges will be effected by redemption of shares of the
Fund held and purchase of shares of the Fund for which Fund shares are being
exchanged (the "New Fund"). For federal income tax purposes, any such exchange
constitutes a sale upon which a capital gain or loss will be realized, depending
upon whether the value of the shares being exchanged is more or less than the
shareholder's adjusted cost basis. If you are interested in exercising any of
these exchange privileges, you should obtain Prospectuses of other sponsored
funds from the Adviser. Upon a telephone exchange, the transfer agent
establishes a new account in the New Fund with the same registration and
dividend and capital gains options as the redeemed account, unless otherwise
specified, and confirms the purchase to you.
The Telephone Exchange and Redemption Privileges are available only in
states where shares of the New Fund may be sold, and may be modified or
discontinued at any time. See "PURCHASE AND REDEMPTION OF SHARES" in the
Prospectus.
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SIGNATURE GUARANTEES
The signature(s) of redeeming shareholders must generally be guaranteed by
an "eligible guarantor," including: (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities broker-
dealers which are members of a national securities exchange or clearing agency
or which have minimum net capital of $100,000, or (4) institutions that
participate in the Securities Transfer Agent Medallion Program ("STAMP") or
other recognized signature medallion program. A notarized signature will not be
sufficient. If share are registered in more than one name, the signature of
each of the redeeming Shareholders must be guaranteed. See "PURCHASE AND
REDEMPITON OF SHARES" in the Prospectus.
REDEMPTIONS IN KIND
If the Board of Trustees determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment wholly
or partly in cash, the Fund may pay the redemption proceeds in whole or in part
by a distribution in-kind of portfolio securities, in conformity with applicable
rules of the SEC. Distributions-in-kind will be made in readily marketable
securities. Investors may incur brokerage charges on the sale of portfolio
securities received in distributions in kind.
ORGANIZATION OF THE TRUST AND THE FUNDS
The Funds are separate series of an open-end investment company organized
as a trust under the laws of the Commonwealth of Massachusetts, of a type
commonly known as a Massachusetts business trust. The Board of Trustees may
allocate assets, liabilities, income and expenses to the Trust's separate series
(and classes, if any), and may divide or redivide any unissued shares of the
Trust into one or more additional series. Fractional shares have the same
rights proportionately as do full shares. Shares have no subscription or
preemptive rights and only such conversion or exchange rights as the Board of
Trustees may grant in its discretion.
When issued for payment as described in the Prospectus and this SAI, each
Fund's shares will be fully paid and non-assessable, subject only to the
possibility of shareholder liability described in the Prospectus. All
consideration received by the Trust for shares of any Fund and all assets in
which such consideration is invested belong to that Fund and would be subject to
the liabilities related thereto.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for
his or her 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 or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
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PERFORMANCE INFORMATION
As described under "Performance Information" in the Prospectus, each Fund's
historical performance or return may be shown in the form of "average annual
total return," "total return," and "cumulative total return." From time to
time, the Adviser may voluntarily waive all or a portion of its management fee
and/or absorb certain expenses for a Fund. Without waivers and absorption of
expenses, performance results will be lower. No historical performance
represents the future performance of a Fund.
AVERAGE ANNUAL TOTAL RETURN
The average annual total return of a Fund is computed by finding the
average annual compounded rates of return over designated time periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)/n/=ERV
P = a hypothetical initial payment of $10,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $10,000 payment
made at the beginning of the stated periods at the end of
the stated periods.
The average annual total return of the International Fund and the Emerging
Markets Fund for the period from inception to March 31, 1998 were 8.80% and
(10.07)%, respectively. The average annual total return of the International
Fund and the Emerging Markets Fund for the fiscal year ended December 31, 1997
were (1.46%) and (15.11%), respectively.
TOTAL RETURN
Calculation of a Fund's total return is not subject to a standardized
formula. Total return performance for a specific period is calculated by first
taking an investment (assumed below to be $10,000) ("initial investment") in the
Fund's shares on the first day of the period and computing the "ending value" of
that investment at the end of the period. The total return percentage is then
determined by subtracting the initial investment from the ending value and
dividing the remainder by the initial investment and expressing the result as a
percentage. The calculation assumes that all income and capital gains dividends
paid by the Fund have been reinvested at net asset value on the reinvestment
dates during the period. Total return may also be shown as the increased dollar
value of the hypothetical investment over the period.
CUMULATIVE TOTAL RETURN
Cumulative total return represents the simple change in value of an
investment over a stated period and may be quoted as a percentage or as a dollar
amount. Total returns and cumulative total returns may be broken down into
their components of income and capital (including capital gains and changes in
share price) in order to illustrate the relationship between these factors and
their contributions to total return.
The Funds' performance figures will be based upon historical results and
will not represent future performance. Each Fund's shares are sold at net asset
value per share. Each Fund's returns and net asset value will fluctuate and
shares are redeemable at the then current net asset value, which may be more or
31
<PAGE>
less than original cost. Factors affecting a Fund's performance include general
market conditions, operating expenses, and investment management. Any
additional fees charged by a dealer or other financial services firm will reduce
the returns described in this section.
COMPARISONS
U.S. TREASURY BILLS, NOTES OR BONDS. Investors may want to compare the
performance of a Fund to that of U.S. Treasury bills, notes or bonds, which are
issued by the U.S. government. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the United States Treasury. The market value of such instruments will generally
fluctuate inversely with interest rates prior to maturity and will equal par
value at maturity. Generally, the values of obligations with shorter maturities
will fluctuate less than those with longer maturities.
CERTIFICATES OF DEPOSIT. Investors may want to compare a Fund's
performance to that of certificates of deposit offered by banks and other
depository institutions. Certificates of deposit may offer fixed or variable
interest rates and principal is guaranteed and may be insured. Withdrawal of
the deposits prior to maturity normally will be subject to a penalty. Rates
offered by banks and other depository institutions are subject to change at any
time specified by the issuing institution.
MONEY MARKET FUND. Investors may want to compare performance of a Fund to
that of money market funds. Money market fund yields will fluctuate and shares
are not insured, but share values usually remain stable.
LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT RANKING
ORGANIZATIONS. From time to time, in marketing and other fund literature, a
Fund's performance may be compared to the performance of other mutual funds in
general or to the performance of particular types of mutual funds, with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, may be
cited. Lipper performance figures are based on changes in net asset value, with
all income and capital gain dividends reinvested. Such calculations do not
include the effect of any sales charges imposed by other funds. Each Fund will
be compared to Lipper's appropriate funding category, that is, by fund objective
and portfolio holdings. Each Fund's performance may also be compared to the
average performance of its Lipper category.
MORNINGSTAR, INC. Each Fund's performance may also be compared to the
performance of other mutual funds by Morningstar, Inc., which ranks funds on the
basis of historical risk and total return. Morningstar's rankings range from
five stars (highest) to one star (lowest) and represent Morningstar's assessment
of the historical risk level and total return of a fund as a weighted average
for 3, 5 and 10 year periods. Rankings are not absolute and do not represent
future results.
INDEPENDENT SOURCES. Evaluations of Fund performance made by independent
sources may also be used in advertisements concerning a Fund, including reprints
of, or selections from, editorials or articles about the Fund, especially those
with similar objectives. Sources for Fund performance information and articles
about the Funds may include publications such as Money, Forbes, Kiplinger's,
Smart Money, Morningstar, Inc., Financial World, Business Week, U.S. News and
World Report, The Wall Street Journal, Barron's and a variety of investment
newsletters.
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<PAGE>
INDICES. A Fund may compare its performance to a wide variety of indices
including the Consumer Price Index; Dow Jones Average of 30 Industrials; NASDAQ
Over-the-Counter Composite Index; Standard & Poor's 500 Stock Index; Standard &
Poor's 400 Mid-Cap Stock Index; Standard & Poor's 600 Small-Cap Index; Wilshire
4500 Index; Wilshire 5000 Index; Wilshire Small Cap Index; Wilshire Small Cap
Growth Index; Wilshire Small Cap Value Index; Wilshire Midcap 750 Index;
Wilshire Midcap Growth Index; Wilshire Midcap Value Index; Wilshire Large Cap
Growth Index; Russell 1000 Index; Russell 1000 Growth Index; Russell 2000 Index;
Russell 2000 Small Stock Index; Russell 2000 Growth Index; Russell 2000 Value
Index; Russell 2500 Index; Russell 3000 Stock Index; Russell Mid Cap Index;
Russell Mid Cap Growth Index; Russell Mid Cap Value Index; Value Line Index;
Morgan Stanley Capital International EAFE(R) Index; Morgan Stanley Capital
International World Index; Morgan Stanley Capital International All Country
World Index; and Salomon Brothers World Index.
In addition, a Fund may compare its performance to certain other indices
that measure stock market performance in geographic areas in which the Fund may
invest. The market prices and yields of the stocks in these indexes will
fluctuate. A Fund may also compare its portfolio weighting to the EAFE Index
weighting, which represents the relative capitalization of the major overseas
markets on a dollar-adjusted basis.
There are differences and similarities between the investments that the
Fund may purchase for its portfolio and the investments measured by these
indices.
HISTORICAL INFORMATION. Because each Fund's investments are denominated
primarily in foreign currencies, the strength or weakness of the U.S. dollar as
against these currencies may account for part of the Fund's investment
performance. Historical information regarding the value of the dollar versus
foreign currencies may be used from time to time in advertisements concerning a
Fund. Such historical information is not indicative of future fluctuations in
the value of the U.S. dollar against these currencies. Marketing materials may
cite country and economic statistics and historical stock market performance for
any of the countries in which the Fund invests, including the following:
population growth, gross domestic product, inflation rate, average stock market
price earnings ratios and the total value of stock markets. Sources for such
statistics may include official publications of various foreign governments,
exchanges, or investment research firms. In addition, marketing materials may
cite the Adviser's views or interpretations of such statistical data or
historical performance.
HISTORICAL ASSET CLASS RETURNS. From time to time, marketing materials may
portray the historical returns of various asset classes. Such presentations
will typically compare the average annual rates of return of inflation, U.S.
Treasury bills, bonds, common stocks, and small stocks. There are important
differences between each of these investments that should be considered in
viewing any such comparison. The market value of stocks will fluctuate with
market conditions, and small-stock prices generally will fluctuate more than
large-stock prices. Bond prices generally will fluctuate inversely with
interest rates and other market conditions, and the prices of bonds with longer
maturities generally will fluctuate more than those of shorter-maturity bonds.
Interest rates for bonds may be fixed at the time of issuance, and the payment
of principal and interest may be guaranteed by the issuer and, in the case of
U.S. Treasury obligations, backed by the full faith and credit of the U.S.
Treasury.
OTHER FUNDS ADVISED BY HANSBERGER. Hansberger Global Investors, Inc.
advises a number of mutual funds investing in a variety of markets. The Fund
may be compared, from time to time, to other mutual funds advised by Hansberger
Global Investors, Inc. based on a risk/reward profile. In general, the degree
of risk associated with any investment product varies directly with that
product's potential level of reward. This correlation or any fund's individual
profile may be described or discussed
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in marketing materials; this discussion will not be used to compare the risk and
reward potential of the Fund with that of any mutual fund or investment product
other than those advised by Hansberger Global Investors, Inc. Marketing
materials may also discuss the relationship between risk and reward as it
relates to an individual investor's portfolio.
ADDITIONAL FUND INFORMATION
PORTFOLIO CHARACTERISTICS. In order to present a more complete picture of
a Fund's portfolio, marketing materials may include various actual or estimated
portfolio characteristics, including but not limited to median market
capitalizations, earnings per share, alphas, betas, price/earnings ratios,
returns on equity, dividend yields, capitalization ranges, growth rates,
price/book ratios, top holdings, sector breakdowns, asset allocations, quality
breakdowns, and breakdowns by geographic region.
MEASURES OF VOLATILITY AND RELATIVE PERFORMANCE. Occasionally statistics
may be used to specify Fund volatility or risk. The general premise is that
greater volatility connotes greater risk undertaken in achieving performance.
Measure of volatility or risk are generally used to compare the Fund's net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market as
represented by the Standard & Poor's 500 Stock Index. A beta of more than 1.00
indicated volatility greater than the market, and a beta of less than 1.00
indicates volatility less than the market. Another measures of volatility or
risk is standard deviation. Standard deviation is a statistical tool that
measures the degree to which a fund's performance has varied from its average
performance during a particular time period.
Standard deviation = the square root of (S)(x(i)-x(m))/2/
-----------------
n-1
where (S) = "the sum of,"
x(i) = each individual return during the time period,
x(m) = the average return over the time period, and
n = the number of individual returns during the time period.
Statistics may also be used to discuss a Fund's relative performance. One
such measure is alpha. Alpha measures the actual return of a fund compared to
the expected return of a fund given its risk (as measured by beta). The
expected return is based on how the market as a whole performed, and how the
particular fund has historically performed against the market. Specifically,
alpha is the actual return less the expected return. The expected return is
computed by multiplying the advance or decline in a market representation by the
fund's beta. A positive alpha quantifies the value that the fund manager has
added, and a negative alpha quantifies the value that the fund manager has lost.
Other measures of volatility and relative performance may be used as
appropriate. However, all such measures will fluctuate and do not represent
future results.
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GENERAL INFORMATION
BUSINESS PHILOSOPHY
The Adviser is an independent investment adviser, owned by professionals
active in its management. Recognizing that the investors are the focus of its
business, the Adviser strives for excellence both in investment management and
in the service provided to investors. This commitment affects many aspects of
the business, including professional staffing, product development, investment
management, and service delivery.
The increasing complexity of the capital markets requires specialized
skills and processes for each asset class and style. Therefore, the Adviser
believes that active management should produce greater returns than a passively
managed index. The Adviser has brought together a group of top-flight
investment professionals with diverse product expertise, and each concentrates
on their investment specialty. The Adviser believes that people are the firm's
most important asset. For this reason, continuity of professionals is critical
to the firm's long-term success.
INVESTMENT ENVIRONMENT
Discussions of economic, social and political conditions and their impact
on the Funds may be used in advertisements and sales materials. Such factors
that may affect a Fund include changes in interest rates, political
developments, the competitive environment, consumer behavior, industry trends,
technological advances, macroeconomic trends, and the supply and demand of
various financial instruments. In addition, marketing materials may cite the
Adviser's views or interpretations of such factors.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, 225 Franklin Street, Boston, MA 02110, are the
independent accountants for the Trust, providing audit services and assistance
and consultation with respect to the preparation of filings with the SEC.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. 20036,
acts as legal counsel for the Trust.
FINANCIAL STATEMENTS
The Trust's financial statements for the Funds, including the Portfolios
of Investments, Statements of Assets and Liabilities, Statements of Operations,
Statements of Changes in Net Assets, Financial Highlights, Notes to Financial
Statements and the Report of Independent Public Accountants, all of which are
included in the 1997 Annual Report to Shareholders, are hereby incorporated by
reference into this Statement of Additional Information. A copy of the Annual
Report to Shareholders must accompany this Statement of Additional
Information.
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RATINGS APPENDIX
STANDARD & POOR'S
- -----------------
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, as it does not comment on market price or suitability for a particular
investor.
The ratings are based, in varying degrees, on the following considerations:
(1) Likelihood of default. The rating assesses the obligor's capacity and
willingness as to timely payment of interest and repayment of principal in
accordance with the terms of the obligation.
(2) The obligation's nature and provisions.
(3) Protection afforded to, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under bankruptcy laws
and other laws affecting creditors' rights.
Likelihood of default is indicated by an issuer's senior debt rating. If
senior debt is not rated, an implied senior debt rating is determined.
Subordinated debt usually is rated lower than senior debt to better reflect
relative position of the obligation in bankruptcy. Unsecured debt, where
significant secured debt exists, is treated similarly to subordinated debt.
LONG-TERM RATINGS DEFINITIONS: The ratings from "AA" to "CCC" may be
modified by the addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories.
Investment Grade
AAA Highest rating assigned by S&P. Capacity to pay interest and repay
principal is extremely strong.
AA Very strong capacity to pay interest and repay principal and differs from
the highest rated debt only in small degree.
A Strong capacity to pay interest and repay principal, although it is
somewhat more susceptible to adverse effects of changes in circumstances
and economic conditions than debt in higher-rated categories.
BBB Adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than in higher
rated categories.
A-1
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Speculative Grade
BB Less near-term vulnerability to default than other speculative grade debt.
However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The "BB" rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied "BBB-" rating.
B Greater vulnerability to default but presently has the capacity to meet
interest payments and principal repayments. Adverse business, financial, or
economic conditions would likely impair capacity or willingness to pay
interest and repay principal. The "B" rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or
"BB-" rating.
CCC Current identifiable vulnerability to default, and is dependent on
favorable business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category
also is used for debt subordinated to senior debt that is assigned an
actual or implied "B" or "B-" rating.
CC Typically applied to debt subordinated to senior debt which is assigned an
actual or implied "CCC" rating.
C Typically applied to debt subordinated to senior debt which is assigned an
actual or implied "CCC-" debt rating. The "C" rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI Reserved for income bonds on which no interest is being paid.
D Issue is in payment default, or the obligor has filed for bankruptcy. The
"D" rating is used when interest or principal payments are not made on the
date due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
NOTES: An S&P note rating reflects the liquidity factors and market access
risks unique to notes. Notes due in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a long-
term debt rating. The following criteria will be used in making that
assessment: Amortization schedule - the larger the final maturity relative to
other maturities, the more likely it will be treated as a note; Source of
payment - the more dependent the issue is on the market for its refinancing, the
more likely it will be treated as a note.
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus(+)
designation.
SP-1 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3 Speculative capacity to pay principal and interest.
A-2
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COMMERCIAL PAPER/SHORT TERM RATING DEFINITIONS: A Standard & Poor's short term
rating is a current assessment of the likelihood of timely payment of debt with
an original maturity of no more than 365 days, such as commercial paper. It is
also assigned to remarketed long term debt with a provision that allows the
holder to put the debt back to the company in less than one year, in addition to
the usual long term rating. (Medium term note programs are assigned long term
ratings.)
A-1 Highest category; degree of safety regarding timely payment is strong. Debt
determined to possess extremely strong safety characteristics is denoted
with a plus sign (+) designation.
A-2 Capacity for timely payment is satisfactory. However, the relative degree
of safety is not as high as for issues designated "A-1".
A-3 Adequate capacity for timely payment. It is, however, more vulnerable to
the adverse effects of changes in circumstances than obligations carrying
the higher designations.
B Regarded as having only speculative capacity for timely payment.
C Assigned to short-term debt obligations with a doubtful capacity for
payment.
D Obligation is in payment default.
MOODY'S
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Moody's bond ratings, where specified, are applied to senior bank obligations
and insurance company senior policyholder and claims obligations with an
original maturity in excess of one year. Obligations relying upon support
mechanisms such as letters-of-credit and bonds of indemnity are excluded unless
explicitly rated.
Obligations of a branch of a bank are considered to be domiciled in the country
in which the branch is located. Unless noted as an exception, Moody's rating on
a bank's ability to repay senior obligations extends only to branches located in
countries which carry a Moody's sovereign rating. Such branch obligations are
rated at the lower of the bank's rating or Moody's sovereign rating for the bank
deposits for the country in which the branch is located.
When the currency in which an obligation is denominated is not the same as the
currency of the country in which the obligation is domiciled, Moody's ratings do
not incorporate an opinion as to whether payment of the obligation will be
affected by the actions of the government controlling the currency of
denomination. In addition, risk associated with bilateral conflicts between an
investor's home country and either the issuer's home country or the country
where an issuer branch is located are not incorporated into Moody's ratings.
Moody's makes no representation that rated bank obligations or insurance company
obligations are exempt from registration under the U.S. Securities Act of 1933
or issued in conformity with any other applicable law or regulation. Nor does
Moody's represent that any specific bank or insurance company obligation is
legally enforceable or is a valid senior obligation of a rated issuer.
Moody's ratings are opinions, not recommendations to buy or sell, and their
accuracy is not guaranteed. A rating should be weighed solely as one factor in
an investment decision and you should make your own study and evaluation of any
issuer whose securities or debt obligations you consider buying or selling.
A-3
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LONG TERM: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
Aaa Judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edged". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than the Aaa securities.
A Possess many favorable investment attributes and are to be considered as
upper-medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest
a susceptibility to impairment some time in the future.
Baa Considered as medium-grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal security
appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba Judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may
be very moderate and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B Generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa Of poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
Ca Speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C Lowest rated class of bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
SHORT-TERM:
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations which have an original maturity not exceeding
one year. Obligations relying upon support mechanisms such as letters-of-credit
and bonds of indemnity are excluded unless explicitly rated.
A-4
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Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by
many of the following characteristics: Leading market positions
in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate
reliance on debt and ample asset protection; broad margins in
earnings coverage of fixed financial charges and high internal
cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME Issuers rated Not Prime do not fall within any of the Prime
rating categories.
Obligations of a branch of a bank are considered to be domiciled in the country
in which the branch is located. Unless noted as an exception, Moody's rating on
a bank's ability to repay senior obligations extends only to branches located in
countries which carry a Moody's sovereign rating. Such branch obligations are
rated at the lower of the bank's rating or Moody's sovereign rating for bank
deposits for the country in which the branch is located.
When the currency in which an obligation is denominated is not the same as the
currency of the country in which the obligation is domiciled, Moody's ratings do
not incorporate an opinion as to whether payment of the obligation will be
affected by actions of the government controlling the currency of denomination.
In addition, risks associated with bilateral conflicts between an investor's
home country and either the issuer's home country or the country where an
issuer's branch is located are not incorporated into Moody's short-term debt
ratings.
Moody's makes no representation that rated bank or insurance company obligations
are exempt from registration under the U.S. Securities Act of 1933 or issued in
conformity with any other applicable law or regulation. Nor does Moody's
represent that any specific bank or insurance company obligation is legally
enforceable or a valid senior obligation of a rated issuer.
A-5
<PAGE>
When an issuer represents to Moody's that its short-term debt obligations are
supported by the credit of another entity or entities, then the names of such
supporting entities are listed with the name of the issuer, or indicated with a
footnote reference, in Moody's publications. In assigning ratings to such
issuer's, Moody's evaluates the financial strength of the affiliated
corporations, commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating assessment. Moody's
makes no representation and gives no opinion on the legal validity or
enforceability of any support arrangements.
Moody's ratings are opinions, not recommendations to buy or sell, and their
accuracy is not guaranteed. A rating should be weighed solely as one factor in
an investment decision and you should make your own study and evaluation of any
issuer whose securities or debt obligations you consider buying or selling.
THOMSON BANKWATCH
- -----------------
Thomson BankWatch ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization, including holding
company and operating subsidiaries.
SHORT-TERM RATINGS: TBW's short-term ratings do not consider any
collateral or security as the basis for the rating, although some securities may
in fact have collateral. Further, these ratings do not incorporate
consideration of the possible sovereign risk associated with a foreign deposit
(defined as a deposit taken in a branch outside the country in which the rated
entity is headquartered) of the rated entity. TBW's short-term ratings are
intended to assess the likelihood of an untimely or incomplete payment of
principal or interest.
TBW-1 Highest category; very high likelihood that principal and interest will be
paid on a timely basis.
TBW-2 Second-highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".
TBW-3 Lowest investment-grade category; while the obligation is more susceptible
to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
TBW-4 Lowest rating category; regarded as non-investment grade and therefore
speculative.
LONG-TERM DEBT RATINGS: TBW's long-term debt ratings apply to specific issues
of long-term debt and preferred stock. They specifically assess the likelihood
of an untimely repayment of principal or interest over the term to maturity of
the rated instrument. Ratings may include a plus (+) or minus (-) designation,
which indicates where within the respective category the issue is placed.
Investment Grade
AAA Highest category; ability to repay principal and interest on a timely basis
is very high.
AA Second-highest category; superior ability to repay principal and interest
on a timely basis, with limited incremental risk compared to issues rated
in the highest category.
A Third-highest category; ability to repay principal and interest is strong.
Issues rated "A" could be more vulnerable to adverse developments (both
internal and external) than obligations with higher ratings.
A-6
<PAGE>
BBB Lowest investment-grade category; acceptable capacity to repay principal
and interest. Issues rated "BBB" are, however, more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
Non-Investment Grade
BB Suggests that likelihood of default is considerably less than for lower-
rated issues. However, there are significant uncertainties that could
affect the ability to adequately service debt obligations.
B Higher degree of uncertainty and therefore greater likelihood of default
than higher-rated issues. Adverse developments could well negatively affect
the payment of interest and principal on a timely basis.
CCC Clearly have a high likelihood of default, with little capacity to address
further adverse changes in financial circumstances.
CC Applied to issues that are subordinate to other obligations rated "CCC" and
are afforded less protection in the event of bankruptcy or reorganization.
D Default
IBCA
- ----
LONG-TERM RATINGS: "+" or "-" may be appended to a rating to denote relative
status within major rating categories.
AAA Lowest expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial, such that adverse changes in
business, economic or financial conditions are unlikely to increase
investment risk substantially.
AA Very low expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk, albeit not
very significantly.
A Low expectation of investment risk. Capacity for timely repayment of
principal and interest is strong, although adverse changes in business,
economic or financial conditions may lead to increased investment risk.
BBB Currently low expectation of investment risk. Capacity for timely repayment
of principal and interest is adequate, although adverse changes in
business, economic or financial conditions are more likely to lead to
increased investment risk than for obligations in other categories.
BB Possibility of investment risk developing. Capacity for timely repayment of
principal and interest exists, but is susceptible over time to adverse
changes in business, economic or financial conditions.
B Investment risk exists. Timely repayment of principal and interest is not
sufficiently protected against adverse changes in business, economic or
financial conditions.
A-7
<PAGE>
CCC Current perceived possibility of default. Timely repayment of principal and
interest is dependent on favorable business, economic or financial
conditions.
CC Highly speculative or have a high risk of default.
C Currently in default.
SHORT-TERM RATINGS:
A1+ Highest capacity for timely repayment.
A1 Strong capacity for timely repayment.
A2 Satisfactory capacity for timely repayment, although such capacity may be
susceptible to adverse changes in business, economic, or financial
conditions.
A3 Adequate capacity for timely repayment. Such capacity is more susceptible
to adverse changes in business, economic, or financial conditions than for
obligations in higher categories.
B Capacity for timely repayment is susceptible to adverse changes in
business, economic, or financial conditions.
C Inadequate capacity to ensure timely repayment.
D High risk of default or currently in default.
FITCH
- -----
INVESTMENT GRADE BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
A-8
<PAGE>
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the
"AAA" category.
AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in
the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+".
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
SPECULATIVE GRADE BOND RATINGS
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the
"DDD", "DD", or "D" categories.
A-9
<PAGE>
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. "DDD" represents the lowest
potential for recovery on these bonds, and "D" represents the
lowest potential for recovery.
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+"
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great
as for issues assigned "F-1+" and "F-1" ratings.
F-3 Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse changes could cause these securities to be rated
below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and economic
conditions.
A-10
<PAGE>
D Default. Issues assigned this rating are in actual or imminent payment
default.
DUFF & PHELPS
- -------------
These ratings represent a summary opinion of the issuer's long-term fundamental
quality. Rating determination is based on qualitative and quantitative factors
which may vary according to the basic economic and financial characteristics of
each industry and each issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such factors as competition,
government action, regulation, technological obsolescence, demand shifts, cost
structure, and management depth and expertise. The projected viability of the
obligor at the trough of the cycle is a critical determination.
Each rating also takes into account the legal form of the security, (e.g., first
mortgage bonds, subordinated debt, preferred stock, etc.). The extent of rating
dispersion among the various classes of securities is determined by several
factors including relative weightings of the different security classes in the
capital structure, the overall credit strength of the issuer, and the nature of
covenant protection. Review of indenture restrictions is important to the
analysis of a company's operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per quarter (more
frequently, if necessary). Ratings of "BBB" and higher fall within the
definition of investment grade securities, as defined by bank and insurance
supervisory authorities.
LONG-TERM DEBT:
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA or AA- High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of
economic conditions.
A+, A or A- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic
stress.
BBB+, BBB or BBB- Below average protection factors but still considered
sufficient for prudent investment. Considerable variability
in risk during economic cycles.
BB+, BB or BB- Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently
within this category.
B+, B or B- Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry
conditions and/or company fortunes. Potential exists for
frequent changes in the rating within this category
or into a higher or lower rating grade.
A-11
<PAGE>
CCC Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
SHORT-TERM DEBT:
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations
with maturities of under one year, including commercial paper, the uninsured
portion of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which we define as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
The distinguishing feature of Duff & Phelps' short-term ratings is the
refinement of the traditional "1" category. The majority of short-term debt
issuers carry the highest rating, yet quality differences exist within that
tier. As a consequence, Duff & Phelps has incorporated gradations of "1+"(one
plus) and "1-" (one minus) to assist investors in recognizing those differences.
Duff & Phelps' ratings are recognized by the SEC for broker-dealer requirements,
specifically capital computation guidelines. Our ratings meet Department of
Labor ERISA guidelines governing pension and profit sharing investments. State
regulators also recognize Duff & Phelps' ratings for insurance company
investment portfolios.
Duff 1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
Duff 3 Satisfactory liquidity and other protection factors qualify issue as
to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
A-12
<PAGE>
Non-Investment Grade
Duff 4 Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and
market access may be subject to a high degree of variation.
Duff 5 Default. Issuer failed to meet scheduled principal and/or interest
payments.
SPECIALIZED RATINGS
TBW COUNTRY RATINGS
- -------------------
TBW's Country Ratings represent TBW's assessment of the overall political
and economic stability of a country in which a bank is domiciled.
TBW considers factors other than the financial strength of the individual
company. In particular, the context of the company--country risk and the
complexion of its domestic financial system--becomes critical. TBW focuses on
both political risk--the willingness to meet external debt obligations--and
economic risk--the ability to repay external debts.
I An industrialized country with a long history of political stability,
effective economic management, sustainable financial conditions, and
continuing access to global capital markets on favorable terms. Short-run
risk of default is nonexistent.
I/II An industrialized country with a long history of political and economic
stability that is currently experiencing some short-term political and/or
economic difficulties. It enjoys continuing access to global capital
markets, though at somewhat higher margins. Short-run risk of default is
very low.
II An industrialized country with a history of political and economic
stability that is currently experiencing serious political and/or
economic difficulties. It enjoys continuing access to global capital
markets, though at significantly higher margins. Short-run risk of
default is low.
II/III A newly industrialized country with a generally healthy economy that
currently enjoys wide access to global capital markets. Short-run risk of
default is very low.
III A newly industrialized country with a generally healthy economy but with
some significant political and/or economic difficulties. It currently
enjoys some access to global capital markets. Short-run risk of default
is low.
III/IV A newly industrialized country experiencing serious political and/or
economic difficulties. It enjoys only very limited access to global
capital markets. Short-run risk of default is low to medium.
IV A non-industrialized country that has limited access to world capital
markets. Short-run risk of default is low.
IV/V A non-industrialized country with a history of external debt servicing
problems that is currently experiencing serious political and/or economic
difficulties. It enjoys only limited access to world capital markets.
Short-run risk of default is low to medium.
A-13
<PAGE>
V A non-industrialized country with no access to world capital markets and
which is considered in default on some or all of its external debt.
Short-run risk of default is medium to high.
TBW INTRA-COUNTRY ISSUER RATINGS
- --------------------------------
TBW's Intra-Country Issuer Ratings provide a relative assessment of each
bank's financial performance and its ability to meet its obligations within the
context of the local market. These ratings are not directly comparable from
country to country.
Further, sovereign risk is not factored into the Intra-Country Ratings.
However, the ratings do incorporate systemic risks which may be prevalent within
certain banking systems that could preclude any bank within the system from
achieving the top rating.
TBW assigns only one Intra-Country Issuer Rating to each company,
factoring consolidated financials into the overall assessment.
The ratings are assigned using an intermediate time horizon. Intra-
Country Issuer Ratings incorporate an overall assessment of the company's
financial strength, in addition to TBW's opinion of the vulnerability of the
company to adverse developments (which may affect the market's perception of the
company, thereby its access to funding and the marketability of its securities).
IC-A Company possesses an exceptionally strong balance sheet and earnings
record, translating into an excellent reputation and very good access to
its natural money markets. If weakness or vulnerability exists in any
aspect of the company's business, it is entirely mitigated by other
consideration.
IC-A/B Company is financially very solid with a favorable track record and no
readily apparent weakness. Its overall risk profile, while low, is not
quite as favorable as for companies in the highest rating category.
IC-B A strong company with a solid financial record and well received by its
natural money markets. Some minor weaknesses may exist, but any deviation
from the company's historical performance levels should be both limited
and short-lived. The likelihood of a significant problem developing is
small, yet slightly greater than for a higher-rated company.
IC-B/C Company is clearly viewed as a good credit. While some shortcomings are
apparent, they are not serious and/or are quite manageable in the short-
term.
IC-C Company is inherently a sound credit with no serious deficiencies, but
financials reveal at least one fundamental area of concern that prevents
a higher rating. Company may recently have experienced a period of
difficulty, but those pressures should not be long-term in nature. The
company's ability to absorb a surprise, however, is less than that for
organizations with better operating records.
IC-C/D While still considered an acceptable credit, the company has some
meaningful deficiencies. Its ability to deal with further deterioration
is less than that of better-rated companies.
A-14
<PAGE>
IC-D Company's financials suggest obvious weaknesses, most likely created by
asset quality considerations and/or a poorly structured balance sheet. A
meaningful level of uncertainty and vulnerability exists going forward.
The ability to address further unexpected problems must be questioned.
IC-D/E Company has areas of major weakness that may include funding and/or
liquidity difficulties. A high degree of uncertainty exists about the
company's ability to absorb incremental problems.
IC-E Very serious problems exist for the company, creating doubt about its
continued viability without some form of outside assistance, regulatory
or otherwise.
ICBA
- ----
ICBA's bank rating sheets provide both specialist bank ratings and, in
most cases, short-and long-term ratings. The former were specifically developed
for banks and are designed to assess the current performance of a bank and
whether, in ICBA's opinion, it would receive support if it ran into
difficulties. ICBA assesses these two issues by means of the INDIVIDUAL RATING
and the LEGAL RATING.
LEGAL RATING: Banking differs from other industries in that it is
invariably dependent on depositor confidence. A bank may have excellent ratios
but, if it cannot maintain this confidence, it will have a liquidity crisis.
Because of the role that banks play in the financial system they are heavily
regulated and, as part and parcel of this regulation, central banks are seen as
potential lenders of last resort. Much interbank lending is done on the basis
of this lender of last resort role, and this consideration is assessed in ICBA's
Legal Rating.
The support provided by central banks or shareholders is rarely a
statutory requirement. Consequently, it is necessary to visit and study the
country concerned in order to gain a full understanding of the history and
traditions of its banking system and of the precedents which have been
established there. It is also necessary to assess the possible support a bank
might receive as a result of its ownership and/or economic and international
significance.
In all countries covered, IBCA has discussions with the supervisory
authorities. ICBA also analyzes their past behavior and keep abreast of all
relevant banking legislation. On these bases, ICBA assigns Legal Ratings to
particular banks. These ratings constitute IBCA's opinions alone and are not
submitted to the authorities for their comment or endorsement. A legal rating
of 2, 3 or 4 may be qualified by the suffix "T," which indicates significant
existing or potential transfer risk of economic and/or political origin that
might prevent support for foreign currency creditors.
1 A bank for which there is a clear legal guarantee on the part of a state
to provide support OR a bank of such importance both internationally and
domestically that, in our opinion, support from a state would be
forthcoming, if necessary. The state in question must clearly be prepared
and able to support its principal banks.
2 A bank for which, in ICBA's opinion, state support would be forthcoming,
even in the absence of a legal guarantee. This could be, for example,
because of the bank's importance to the economy or its historic
relationship with the authorities.
3 A bank which has institutional owners of sufficient reputation and
possessing such resources that, in our opinion, shareholder support wold
be forthcoming, if necessary.
A-15
<PAGE>
4 A bank for which support is likely but not certain.
5 A bank which cannot rely on outside assistance.
INDIVIDUAL RATING: ICBA's individual performance rating of banks attempts to
answer the question: "If the bank were entirely independent and could not rely
on support from the state authorities or its owners, how would it be viewed?".
Thus, the Individual bank rating permits an evaluation of banks divorced
entirely from consideration of support. ICBA may use gradations among these
ratings, i.e., A/B, B/C, C/D and D/E.
----
A A bank of impeccable financial condition, with a consistent record of
above average performance.
B A bank with a sound risks profile and without significant problems. The
bank's performance has generally been in line with or better than that of
its peers.
C A bank which has an adequate risks profile but possesses one or more
troublesome aspects, giving rise to the possibility of risk developing,
or which has generally failed to perform in line with its peers.
D A bank which is currently under performing in some notable manner. Its
financial condition is likely to be below average and its profitability
poor. The bank has the capability of recovering using its own resources,
but this is likely to take some time.
E A bank with very serious problems which either requires or is likely to
require external support.
A-16
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements
Part A: Financial Highlights
Part B: The following audited financial statements for Hansberger
Institutional Series as of December 31, 1997 and the report
of the independent public accountants, Arthur Andersen, LLP
dated February 6, 1998 are incorporated by reference to the
Statement of Additional Information from Form N-30D filed on
March 12, 1998 with Accession Number 0000950109-98-001722.
Portfolios of Investments
Statements of Assets & Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
(b) Exhibits
1(a) Agreement and Declaration of Trust of the Registrant, dated July
25, 1996 (incorporated herein by reference to Initial Registration
Statement filed on July 26, 1996).
1(b) Amendment to the Agreement and Declaration of Trust (incorporated
herein by reference to Pre-Effective Amendment No. 1 filed on
September 23, 1996)
1(c) Amended and Restated Agreement and Declaration of Trust of the
Registrant, dated October 4, 1996, (incorporated herein by
reference to Pre-Effective Amendment No. 2 filed on October 18,
1996).
2 By-Laws of the Registrant, dated (incorporated herein by reference
to Initial Registration Statement filed on July 26, 1996).
5 Form of Investment Advisory Agreement, (incorporated herein by
reference to Pre-Effective Amendment No. 2 filed on October 18,
1996).
C-1
<PAGE>
8 Form of Custodian Agreement, (incorporated herein by reference
to Pre-Effective Amendment No. 2 filed on October 18, 1996).
9 Form of Administrative Agreement, (incorporated herein by
reference to Pre-Effective Amendment No. 2 filed on October 18,
1996).
10 Opinion and Consent of Counsel, (incorporated herein by
reference to the 24f-2 Notice filed on February 24, 1997).
11 Opinion and Consent of Independent Public Accountants, filed
herewith.
17 Financial Data Schedules, filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant:
See the Prospectus and the Statement of Additional Information regarding
the Registrant's control relationships.
Item 26. Number of Holders of Securities as of March 31, 1998:
International Fund 84
--
Emerging Markets Fund 89
--
Foreign Small Cap Fund 1
--
All Countries Fund 1
--
Item 27. Indemnification:
Article VIII of the Agreement of Declaration of Trust filed as Exhibit 1
to the Registration Statement is incorporated by reference. Insofar as
indemnification for liability arising under the Securities Act of 1933, as
amended, may be permitted to trustees, directors, officers and controlling
persons of the Registrant pursuant to the Declaration of Trust or otherwise, the
Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, directors,
officers or controlling persons in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter had been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
Item 28. Business and Other Connections of Investment Adviser:
ADVISER
Hansberger Global Investors, Inc. (the "Adviser") is the investment adviser for
the Trust. The principal address is 515 East Las Olas Boulevard, Suite
1300, Fort Lauderdale, Florida 33301. The Adviser is an investment adviser
registered under the Investment Advisers Act of 1940, as amended (the "Advisers
Act").
C-2
<PAGE>
The list required by this item 28 of officers and Trustees of the Adviser,
together with information as to any other business profession, vocation or
employment of substantial nature engaged in by such officers and Trustees during
the past two years is incorporated by reference to Schedules A and D of Form ADV
filed by the Adviser under the Advisers Act (SEC File No. 801-46059).
Item 29. Principal Underwriters: None
Item 30. Location of Accounts and Records:
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940 as amended, (the "1940 Act"), and the rules
promulgated thereunder, are maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b); (2)(a) and (b); (3); (6); (8);
(12); and 31a-1(d), the required books and records will be maintained at the
offices of Registrant's Custodian:
The Chase Manhattan Bank
4 Chase Metro Tech Center
18th Floor
Brooklyn, New York 11245
(b)/(c) with respect to Rules 31a-1(a); 31a-1(b)(1), (4); (2)(C) and (D);
(4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the required books and
records are maintained at the offices of Registrant's Administrator:
Chase Global Funds Services Company
73 Tremont Street
Boston, Massachusetts 02108
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's Adviser:
Hansberger Global Investors, Inc.
515 East Las Olas Boulevard
Suite 1300
Fort Lauderdale, Florida 33301
Item 31. Management Services: None.
C-3
<PAGE>
Item 32. Undertakings:
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the 1940 Act inform the Board of Directors of
their desire to communicate with Shareholders of the Corporation, the Directors
will inform such Shareholders as to the approximate number of Shareholders of
record and the approximate costs of mailing or afford said Shareholders access
to a list of Shareholders.
Registrant hereby undertakes to call a meeting of Shareholders for the
purpose of voting upon the question of removal of a Director(s) when requested
in writing to do so by the holders of at least 10% of Registrant's outstanding
shares and in connection with such meetings to comply with the provisions of
Section 16(c) of the 1940 Act.
Registrant undertakes to furnish each person to whom a prospectus for
any series of the Registrant is delivered with a copy of the Registrant's latest
annual report to shareholders for such series; when such annual report is issued
containing information called for by Item 5A of Form N-1A, upon request and
without charge.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act") and the 1940 Act, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the 1933 Act and has duly caused this Post-Effective Amendment No.
2 to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Fort Lauderdale, State of Florida on
the 30th day of April, 1998.
Hansberger Institutional Series
By: /s/ Thomas L. Hansberger
----------------------------
Thomas L. Hansberger
President
Pursuant to the requirements of the 1933 Act, this Post-Effective Amendment No.
2 to the Registration Statement has been signed below by the following persons
in the capacities on the dates indicated:
/s/ Thomas L. Hansberger Trustee and April 30, 1998
- ---------------------------- President
Thomas L. Hansberger
/s/ J. Christopher Jackson Trustee and Vice April 30, 1998
- ---------------------------- President
J. Christopher Jackson
/s/ Kathryn B. McGrath * Trustee April 30, 1998
- ----------------------------
Kathryn B. McGrath
/s/ Stuart B. Ross * Trustee April 30, 1998
- ----------------------------
Stuart B. Ross
/s/ William F. Waters * Trustee April 30, 1998
- ----------------------------
William F. Waters
/s/ Thomas A. Christensen Chief Financial April 30, 1998
- ---------------------------- Officer
Thomas A. Christensen
* __________________________
J. Christopher Jackson,
Attorney-in-fact
C-5
<PAGE>
EXHIBIT INDEX
Name Exhibit Page
- ---- ------- ----
Opinion and Consent of Independent Public Accountants,
filed herewith. Ex-99.B11
Financial Data Schedule for the Emerging Markets Fund,
filed herewith. Ex-99.B27.1
Financial Data Schedule for the International Fund,
filed herewith. Ex-99.B27.2
C-6
<PAGE>
EXHIBIT 99.B11
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 6, 1998
for Hansberger Institutional Series and to all references to our firm included
in or made a part of Post-Effective Amendment No. 2 and Amendment No. 4 to
Registration Statement File Nos. 333-8919 and 811-7729, respectively.
Boston, Massachusetts
April 27, 1998
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<PAGE>
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<INVESTMENTS-AT-VALUE> 37,796,492
<RECEIVABLES> 3,208,100
<ASSETS-OTHER> 4,108
<OTHER-ITEMS-ASSETS> 40,319
<TOTAL-ASSETS> 41,049,019
<PAYABLE-FOR-SECURITIES> 2,404,503
<SENIOR-LONG-TERM-DEBT> 0
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<NET-ASSETS> 36,720,211
<DIVIDEND-INCOME> 365,424
<INTEREST-INCOME> 188,071
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<EXPENSES-NET> (316,711)
<NET-INVESTMENT-INCOME> 236,784
<REALIZED-GAINS-CURRENT> (334,732)
<APPREC-INCREASE-CURRENT> (9,456,399)
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<DISTRIBUTIONS-OF-INCOME> (319,047)
<DISTRIBUTIONS-OF-GAINS> (73,128)
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<NET-CHANGE-IN-ASSETS> 31,487,675
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 211,273
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<PAGE>
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<SERIES>
<NUMBER> 002
<NAME> INTERNATIONAL FUND
<MULTIPLIER> 1
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 206,280,415
<INVESTMENTS-AT-VALUE> 185,399,237
<RECEIVABLES> 3,425,551
<ASSETS-OTHER> 7,596
<OTHER-ITEMS-ASSETS> 40,294
<TOTAL-ASSETS> 188,872,678
<PAYABLE-FOR-SECURITIES> 919,251
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,394,572
<TOTAL-LIABILITIES> 2,313,823
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 206,594,633
<SHARES-COMMON-STOCK> 19,050,977
<SHARES-COMMON-PRIOR> 424,451
<ACCUMULATED-NII-CURRENT> (15,225)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 870,636
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (20,891,189)
<NET-ASSETS> 186,558,855
<DIVIDEND-INCOME> 2,161,679
<INTEREST-INCOME> 700,138
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<EXPENSES-NET> (1,009,254)
<NET-INVESTMENT-INCOME> 1,852,563
<REALIZED-GAINS-CURRENT> 2,371,356
<APPREC-INCREASE-CURRENT> (20,891,189)
<NET-CHANGE-FROM-OPS> (16,667,270)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,527,900)
<DISTRIBUTIONS-OF-GAINS> (1,851,460)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,303,555
<NUMBER-OF-SHARES-REDEEMED> 530
<SHARES-REINVESTED> 323,501
<NET-CHANGE-IN-ASSETS> 182,263,020
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