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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 2000
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. 5 /X/
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 7 /X/
HANSBERGER INSTITUTIONAL SERIES
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(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
Fort 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
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It is proposed that this filing become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b)
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on [date] pursuant to paragraph (b)
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X 60 days after filing pursuant to paragraph (a) (1)
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on [date] pursuant to paragraph (a) (1)
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75 days after filing pursuant to paragraph (a)(2)
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on [date] pursuant to paragraph (a)(2)
If appropriate, check the following box:
- ----- this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
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Hansberger
Institutional
Series
Prospectus
July 1, 2000
International Growth Fund
Adviser: Hansberger Global Investors, Inc.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
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Hansberger Institutional Series is a mutual fund that offers shares in four
separate investment portfolios (Funds). This prospectus gives you important
information about the International Growth Fund (the "Fund") that you should
know before investing and has been arranged into different sections so that you
can easily review this important information.
For more detailed information about the Fund, please see:
Introduction - Management Risk .........................................
Principal Investment Strategies and Risks...............................
Performance Information and Expenses....................................
The Fund's Other Investments............................................
More Information about Risk ............................................
The Investment Adviser..................................................
Purchasing, Selling and Exchanging Fund Shares..........................
Dividends, Distributions and Taxes......................................
To Obtain More Information about Hansberger Institutional Series, Please
Refer to the Back Cover of this Prospectus
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Please read this prospectus and keep it for future reference.
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Introduction - Management Risk
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Introduction
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using a
professional investment manager, invests it in securities like stocks and bonds.
This Fund is appropriate for long-term institutional investors who seek exposure
to global markets and are comfortable with the risks described here. Before you
invest, you should know a few things about investing in mutual funds.
Management Risk
The Fund seeks high long-term total return as its investment goal and has its
own strategies for reaching that goal. The Fund's assets are managed under the
direction of Hansberger Global Investors, Inc. (the "Adviser"). Still, investing
in the Fund involves risks, and there is no guarantee that the Fund will achieve
its goal. The Adviser makes judgments about several factors with respect to each
investment it makes on behalf of the Fund, but these judgments may not
anticipate actual market movements or the impact of economic conditions on
issuers. In fact, no matter how good a job the Adviser does, you could lose
money on your investment in the Fund, just as you could with other investments.
You should consider your own investment goals, time horizon and risk tolerance
before investing in the Fund.
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INTERNATIONAL GROWTH FUND
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Fund Summary
Investment Goal High long-term total return
Relative Share Price Volatility Medium to high
Principal Investment Strategy Investing in equity
securities of companies, domiciled in at
least three different countries, which
companies and countries the Adviser
anticipates and believes have favorable
long-term prospects
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Investment Strategy
The Fund seeks to achieve its investment objective by investing primarily (at
least 65% of total assets) in the equity securities (common, preferred and
convertible securities) of companies organized or located outside of the United
States. Even though these companies are based outside of the United States,
their securities may be traded on U.S. securities markets and the Fund may
purchase these securities. The Fund will invest in at least three different
countries and expects to be invested in more than three countries, including
countries considered to be emerging market countries. The Fund will not invest
more than 25% of its total assets in emerging markets. The Fund will primarily
invest in common stock.
The Fund invests a substantial amount of its assets in foreign investments which
are denominated in other currencies besides the U.S. dollar, and can be affected
by fluctuations in exchange rates.
For hedging purposes and to reduce the risks of fluctuating exchange rates, the
Fund may enter into forward foreign currency exchange contracts that obligate a
party to buy or sell a specific currency on a future date at a fixed price. The
Fund "locks in" an exchange rate. For hedging purposes, the Fund may also invest
in options on foreign currencies, in foreign currency futures and options and in
foreign currency exchange-related securities like foreign currency warrants and
other instruments linked to foreign currency exchange rates. The Fund's Adviser
generally chooses not to hedge the Fund's currency exposure.
The Adviser anticipates following a flexible investment policy that will allow
it to select those investments best suited to achieve the Fund's investment
objective over the long term. The Adviser uses a disciplined, long-term approach
to international investing. It has an extensive global network of investment
research sources. The Adviser focuses primarily on identifying successful
companies that have favorable, anticipated long-term prospects. Securities are
selected for the Fund's portfolio on the basis of fundamental company-by-company
analysis. In choosing equity instruments, the Fund's Adviser typically will
focus on the market price of a company's securities relative to its evaluation
of the company's long-term earnings and cash flow potential. In addition, a
company's valuation measures, including, but not limited to price/earnings ratio
and price/book ratio will customarily be considered. The Adviser generally sells
a security if the Adviser's price target is met, the company's fundamentals
change, or if the portfolio is fully invested and a better investment
opportunity arises. There are no limitations on the size of the companies in
which the Fund may invest.
The Adviser will also consider other factors in making portfolio investment
decisions including country and political risks, and economic and market
conditions. The Adviser seeks to broaden the scope and increase the
effectiveness of this fundamental analysis by searching for successful companies
in 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 companies with favorable long-term prospects.
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What are the risks of investing in the International Growth Fund?
Price Volatility
The value of your investment in the Fund is based on the market value (or price)
of the securities the Fund holds. These prices change daily due to economic and
other events that affect the securities markets generally, as well as those that
affect particular companies or governments. These price movements, sometimes
called volatility, will vary depending on the types of securities the Fund owns
and the markets in which they trade. Historically, the equity markets have moved
in cycles, and the value of the Fund's equity securities may fluctuate
drastically from day to day. Individual companies may report poor results or be
negatively affected by industry and/or economic trends and developments. The
prices of securities issued by such companies may suffer a decline in response
to such trends and developments. These factors contribute to price volatility,
which is the principal risk of investing in the Fund. The effect on the Fund's
share price of a change in the value of a single security will depend on how
widely the Fund's holdings are diversified.
International Investing
Investing in foreign countries poses distinct risks since political and economic
events unique to a country or region will affect those markets and their
issuers. These events will not necessarily affect the U.S. economy or similar
issuers located in the United States. In addition, investments in foreign
countries are generally denominated in a foreign currency. As a result, changes
in the value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of the Fund's investments. These currency
movements may happen separately from and in response to events that do not
otherwise affect the value of the security in the issuer's home country.
Emerging Markets
Emerging market countries are countries that the World Bank or the United
Nations considers to be emerging or developing. Emerging markets may be more
likely to experience political turmoil or rapid changes in market or economic
conditions than more developed countries. In addition, the financial stability
of issuers (including governments) in emerging market countries may be more
precarious than in other countries. As a result, there will tend to be an
increased risk of price volatility in the Fund's investments in emerging market
countries, which may be magnified by currency fluctuations relative to the U.S.
dollar.
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INTERNATIONAL GROWTH FUND
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Performance Information
The International Growth Fund has not commenced operations and, therefore, does
not yet have a performance history.
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Fund Fees and Expenses
Every mutual fund has operating expenses to pay for professional advisory,
shareholder, distribution, administration and custody services and other costs
of doing business. This table describes the highest fees and expenses that you
may currently pay if you hold shares of the Fund.
Shareholder Fees
Maximum Sales Charge (Load) None
Purchase Fee (as percentage of amount purchased)* .50%
Redemption Fee (as a percentage of amount redeemed)* .50%
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* These transaction fees represent the Adviser's estimate of transaction costs,
which include the costs of acquiring and disposing of the Fund's portfolio
securities. The transaction fees are not a sales charge or load, and are
retained by the Fund. The fees do not apply to, and are 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 fees.
Annual Fund Operating Expenses
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses* 0.25%
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Total Annual Fund Operating Expenses 1.00%
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* Other expenses are based on estimated amounts for the current fiscal year.
For more information about these fees, see "The Investment Adviser" and
"Purchasing, Selling and Exchanging Fund Shares."
Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund, if you redeem at the end of
one of the indicated time periods, would be:
1 Year 3 Years
$204 $425
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and, your approximate costs of investing $10,000 in the Fund, if you do not
redeem at the end of one of the indicated time periods, would be:
1 Year 3 Years
$152 $368
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The Fund's Other Investments
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This prospectus describes the Fund's primary investment strategies and the Fund
will normally invest at least 65% of its assets in the types of securities
described in this prospectus. However, although the Fund generally invests in
common stock, the Fund may also invest in preferred stocks and certain debt
securities, rated or unrated, such as convertible bonds, whether selling at a
premium or a discount, and straight bonds selling at a discount, when the
Adviser believes the defensive qualities are enhanced or the potential for
appreciation will equal or exceed that available from investments in common
stock. The 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"). The Fund may also lend its portfolio securities, sell securities
short, and borrow money for investment purposes (i.e., "leverage" its
portfolio). In addition, the Fund may invest in closed-end investment companies
holding foreign securities, and enter into transactions in options on
securities, securities indices and foreign currencies, forward foreign currency
contracts, futures contracts and related options, and swap transactions, as well
as other derivative instruments. 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 in
detail in the Statement of Additional Information ("SAI"). Of course, there is
no guarantee that the Fund will achieve its investment goal.
The investments and strategies described throughout this prospectus are those
that the Fund uses under normal conditions. During unusual economic or market
conditions, or for temporary defensive or liquidity purposes, the Fund may
invest up to 100% of its assets in cash, money market instruments, repurchase
agreements and short-term obligations that would not ordinarily be consistent
with the Fund's objectives. The Fund will do so only if the Adviser believes
that the risk of loss outweighs the opportunity for gains or income.
More Information about Risk
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International Investing
The Fund invests primarily in equity securities of issuers located in foreign
countries. Investment in securities of foreign issuers involves some risks
different from, or in addition to, those affecting investments in securities of
U.S. issuers, including:
Regulation There may be less government supervision
and regulation of foreign securities
exchanges, brokers and listed companies
than in the U.S.
Political/Economy A foreign jurisdiction might impose or
change withholding taxes, exit levies or
other levies on income payable or
profits earned and realized 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 capital or exchange
controls. Many emerging or developing
countries have less stable political and
economic environments than some more
developed countries.
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Liquidity and Many foreign securities markets have
Concentration 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 (more
difficult to sell) and more volatile
than those of comparable domestic
issuers.
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.
Brokerage Brokerage commissions, custody charges
and other transaction costs on foreign
securities exchanges are generally
higher than in the U.S.
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The Investment Adviser
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Hansberger Global Investors, Inc. is the Investment Adviser to the Trust. The
Adviser, a wholly-owned subsidiary of Hansberger Group, Inc., with its principal
offices at 515 East Las Olas Blvd., Fort Lauderdale, Florida, as well as offices
in Burlington, Ontario, Hong Kong and Moscow, conducts a world-wide portfolio
management business that provides a broad range of portfolio management services
to customers in the United States and abroad. As of March 31, 2000 the Adviser
had approximately $2.9 billion in assets under management. See "INVESTMENT
ADVISER" in the SAI.
The Adviser provides the 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 the
Fund's day-to-day investment decisions, arranges for the execution of portfolio
transactions and generally manages the Fund's investments. Under the terms of
its Advisory Agreement, the 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 the 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.
FUND ADVISORY FEE
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International Growth Fund 0.75%
Portfolio Management Teams
The Hansberger International Growth Fund is team-managed. The portfolio team
includes Thomas R.H. Tibbles, CFA; Eric H. Melis, CFA; and Barry A. Lockhart,
CFA.
Purchasing, Selling and Exchanging Fund Shares
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You may purchase, sell (redeem) and exchange shares of the 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 transaction fee; the amount
of any transaction fee is deducted from the total amount of your investment, and
the remaining amount of your investment is invested in Fund shares. The
redemption price of shares is a Fund's net asset value per share next determined
after receipt of your redemption request, less any applicable transaction fee.
The Fund's net asset value per share is determined on each business day at the
regular close of 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 Fund 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
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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
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,
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telephone the Trust at 1-800-414-6927 to receive a wire control
number. To be issued an account number, you will need to provide
a written application with your name, address, telephone number,
Social Security or Tax Identification 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 and/or wire control number (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 redemption 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 Trust 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.
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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.
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 canceled 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 Fund 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 the Fund through banks and registered
broker-dealers who do not have a dealer agreement with the Trust. Those banks
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 The Funds Calculate NAV
NAV for a Fund share is the value of that share's portion of all of the net
assets in the Fund. In calculating NAV, the Fund generally values its portfolio
securities at their market price. If market prices are unavailable or are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees. The Fund holds portfolio securities that are
listed on foreign exchanges. These securities may trade on weekends or other
days when the Fund does not calculate NAV. As a result, the value of these
investments may change on days when you cannot purchase or sell Fund shares.
Minimum Purchases
To purchase shares of the Fund for the first time, you must invest at least
$1,000,000 in the Fund. To purchase additional shares of the Fund, you must
invest at least $100,000. The Fund may accept investments of smaller amounts at
their discretion.
How to Sell Your Fund Shares
You may sell (usually called "redeem") your shares on any Business Day by
contacting the Fund directly by mail or telephone. Your 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. The sale price of each share will be the next NAV determined
after the Fund receives your request.
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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
By Telephone If you have telephone transaction privileges, you can request a
redemption of your shares by calling the Fund at 1-800-414-6927
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.
Receiving Your Money
Normally, the Fund will send your sale proceeds within five Business Days after
it receives your request. Your proceeds can be wired to a bank account or sent
to you by check. If you recently purchased your shares by check, redemption
proceeds may not be available until your check has cleared (which may take up to
15 Business Days).
Redemptions In Kind
The 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.
Suspension of Your Right to Sell Your Shares
The Fund may suspend your right to sell your shares if the NYSE restricts
trading, the SEC declares an emergency or for other reasons. More information
about this is in the SAI.
Closing Small Accounts
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.
Signature Guarantees
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. Please contact the Trust for further information.
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How to Exchange Your Shares
You may exchange your shares of any Fund in the Hansberger Institutional Series
for shares of any other Fund in the Hansberger Institutional Series on any
Business Day by contacting the Trust directly by mail or telephone. This
exchange privilege may be changed or canceled at any time upon 60 days' notice.
When you exchange shares, you are really selling your shares and buying other
Fund shares. So, your sale price and purchase price will be based on the NAV
next calculated after the Funds receive your exchange request. A current
prospectus for the other Funds in the Trust is available free of charge by
calling 1-800-414-6927.
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 Transactions
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although we have certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, the Trust is not responsible for any losses or costs incurred by
following telephone instructions the Trust reasonably believes to be genuine. If
you transact with the Trust over the telephone, you will generally bear the risk
of any loss.
Dividends, Distributions and Taxes
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Dividends and Distributions
The 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.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must check off the appropriate box in the Distribution Option Section on the
Account Registration Form or notify the Fund in writing prior to the date of the
distribution. Your election will be effective for dividends and distributions
paid after the Fund receives your written notice. To cancel your election,
simply send the Fund written notice.
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Taxes
Please consult your tax adviser regarding your specific questions about federal,
state and local income taxes. Below we have summarized some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.
The Fund is treated as a separate entity for federal income tax purposes. The
Fund intends to qualify for the special tax treatment afforded regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), so that the 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.
The 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.
Distributions of net capital gain are taxable to shareholders as long-term
capital gain, regardless of how long shareholders have held their shares. The
Fund sends reports annually to its shareholders of the federal income tax status
of all distributions made during the preceding year.
The 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) as to avoid the
4 percent excise tax imposed on undistributed income of regulated investment
companies. Dividends and other distributions declared by the 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. The character of such a gain or loss for tax purposes will
depend on how long you have held your shares.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. Information on
taxation of the 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, 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 the Fund intends
to meet Code requirements to pass through credit for such taxes, there can be no
assurance that the Fund will be able to do so.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL INFORMATION
ONLY. YOU SHOULD CONSULT YOUR OWN TAX ADVISERS ABOUT THE TAX CONSEQUENCES OF AN
INVESTMENT IN THE FUND. The Fund will distribute substantially all of its income
and capital gains, if any. The dividends and distributions you receive may be
subject to federal, state and local taxation, depending upon your tax situation.
Capital gains distributions may be taxable at different rates depending on the
length of time a Fund holds its portfolio securities. Each sale or exchange of
Fund shares is a taxable event.
More information about taxes is in the Fund's Statement of Additional
Information.
14
<PAGE>
[LOGO] Hansberger Institutional Series
Investment Adviser
Hansberger Global Investors, Inc.
Custodian
The Chase Manhattan Bank
Independent Accountants
Arthur Andersen LLP
Legal Counsel
Morgan, Lewis & Bockius LLP
More information about the Fund is available without charge through the
following:
Statement of Additional Information (SAI)
- --------------------------------------------------------------------------------
The SAI dated June 1, 2000, includes more detailed information about the Fund.
The SAI is on file with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
Annual and Semi-Annual Reports
- --------------------------------------------------------------------------------
Additional information about the Trust is available in the Trust's annual and
semi-annual reports to shareholders. In the Trust's annual report you will find
a discussion of the market conditions and investment strategies that
significantly affected a Fund's performance during the last fiscal year. You may
obtain either or both of these reports at no cost by calling 1-800-414-6927.
To Request Information or ask Questions:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By Telephone: Call 1-800-414-6927
By Mail: Write to the Trust at:
Hansberger Institutional Series
c/o Chase Global Funds Services Company
P.O. Box 2973
73 Tremont Street
Boston, MA 02208
From the SEC: You can also obtain the SAI or the Annual and Semi-Annual Reports
of, as well as other information about, Hansberger Institutional Series from the
EDGAR Database on the SEC's website ("http://www.sec.gov").* You may review and
copy documents at the SEC Public Reference Room in Washington, DC (for
information call 1-202-942-8090). You may request documents by mail from the
SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange
Commission, Public Reference Section, Washington, DC 20549-0102. You may also
obtain this information, upon payment of a duplicating fee, by e-mailing the SEC
at the following address: [email protected].
------------------
* The Trust's Investment Company Act registration number is 811-7729.
- --------------------------------------------------------------------------------
15
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
[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. The INTERNATIONAL GROWTH
FUND, (the "Fund") is described in this Statement of Additional Information. The
investment adviser of the 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
Fund dated July 1, 2000, 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 July 1, 2000.
- --------------------------------------------------------------------------------
This Statement of Additional Information does not constitute an offer to sell
securities.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT POLICIES AND TECHNIQUES......................................... 3
Temporary Investments................................................. 3
Sovereign Debt........................................................ 3
Brady Bonds........................................................... 4
Illiquid and Restricted Securities.................................... 4
Short Sales........................................................... 5
Warrants.............................................................. 6
Debt Obligations...................................................... 6
High Risk Debt Securities............................................. 7
Lending of Portfolio Securities....................................... 8
Depositary Receipts................................................... 9
Derivative Instruments................................................ 10
Forward Currency Contracts and Options on Foreign Currencies.......... 18
Foreign Currency Transactions......................................... 19
When-Issued Securities................................................ 19
Foreign Investment Companies.......................................... 20
Repurchase Agreements................................................. 20
Borrowing............................................................. 20
Mortgage Dollar Rolls and Reverse Repurchase Agreements............... 21
ADDITIONAL RISK FACTORS.................................................... 21
INVESTMENT RESTRICTIONS.................................................... 24
TRUSTEES AND OFFICERS OF THE TRUST......................................... 26
PRINCIPAL SHAREHOLDERS..................................................... 28
INVESTMENT ADVISER......................................................... 28
FUND TRANSACTIONS AND BROKERAGE............................................ 29
CUSTODIAN.................................................................. 31
TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT............................... 31
TAXES...................................................................... 32
DETERMINATION OF NET ASSET VALUE........................................... 34
ADDITIONAL SHAREHOLDER INFORMATION......................................... 36
ORGANIZATION OF THE TRUST AND THE FUND..................................... 36
PERFORMANCE INFORMATION.................................................... 37
GENERAL INFORMATION........................................................ 41
INDEPENDENT ACCOUNTANTS.................................................... 42
LEGAL COUNSEL.............................................................. 42
</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.
2
<PAGE>
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Fund's
investment goals and strategies that are described in detail in the Prospectus.
TEMPORARY INVESTMENTS
The 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, the 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
the 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).
SOVEREIGN DEBT
The 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 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
3
<PAGE>
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 to the
sovereign debtor, which may further impair the debtor's ability or willingness
to timely service its debts. In certain instances, the Fund may invest in
Sovereign Debt that is in default as to payments of principal or interest. The
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
The 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 and 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.
ILLIQUID AND RESTRICTED SECURITIES
4
<PAGE>
The 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, the 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 U.S. Securities Act of 1933, as
amended (the "1933 Act"). Subject to these limits, however, the 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 ("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 144A Securities. Rule 144A Securities may become
illiquid if qualified institutional buyers are not interested in acquiring them.
Investors should note that investments of 5% of the Fund's total assets may be
considered a speculative activity and may involve greater risk and expense to
the Fund. 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 the 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 Adviser and reported to the Board of
Trustees. If, through appreciation of Restricted Securities or depreciation of
other securities, the 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.
The 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 the 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
5
<PAGE>
The 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, the Fund sells securities it does not own (but has borrowed) in
anticipation of a decline in the securities' market price. 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.
The Fund's obligation to replace the securities borrowed in connection
with a short sale will be secured. The proceeds the 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 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).
The 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. This allows the Fund to hedge unrealized gains on
portfolio securities. If the 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
The 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. The 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 the 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
The 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,
6
<PAGE>
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.
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")
The 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. The 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.
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
7
<PAGE>
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 the Fund's net asset value.
If the 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.
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 the 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 the Fund's
investments and evaluate whether to dispose of or retain high-risk securities
whose credit quality may have changed.
Liquidity and Valuation. The 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 the 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
8
<PAGE>
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, the Fund's net asset values.
LENDING OF PORTFOLIO SECURITIES
The 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, the Fund does not intend 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.
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.
The Fund will retain authority to terminate any loan of its portfolio
securities at any time. The 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, the 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.
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
The 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"). 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 a foreign issuer issues the underlying securities. 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. 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
9
<PAGE>
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 distributions,
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 with respect to 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 of 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.
For purposes of the 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.
DERIVATIVE INSTRUMENTS
General Description. The Fund may invest in a variety of derivative
instruments, including structured notes, swaps, 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 U.S.
Securities and Exchange Commission ("SEC"), options and futures exchanges upon
which the instruments may be traded, the U.S. 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
the 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 the 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,
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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 the 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.
Fourth, if the 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.
The 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 U.S. National Futures
Association, which regulate trading in the futures markets. Pursuant to Rule 4.5
of the regulations under the U.S. Commodity Exchange Act (the "CEA"), the notice
of eligibility includes representations that the Fund will use futures contracts
and related options solely for bona fide hedging purposes within the meaning of
CFTC regulation, provided that the 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 the Fund or obligations underlying put options
on securities written by the 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 the Fund and which are being held will
not exceed 20% of the Fund's net assets; (iii) the 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 the Fund's total assets.
Transactions using options (other than purchased options) expose the
Fund to counterparty risk. To the extent required by SEC guidelines, the Fund
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, other options, or futures or
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(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. The 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 the 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.
Structured Notes. Structured notes are Derivatives on which the amount
of principal repayment and or interest payments is based upon the movement of
one or more factors. These factors include, but are not limited to, currency
exchange rates, interest rates (such as the prime lending rate and LIBOR) and
stock indices such as the S&P 500 Index. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The use of structured notes allows the Fund to tailor
its investments to the specific risks and returns the Adviser wishes to accept
while avoiding or reducing certain other risks.
Swaps, Caps, Collars, and Floors. The Fund may enter into various types
of privately negotiated or over-the-counter derivatives transactions, including
swap transactions ("Swaps"), caps ("Caps"), Floors ("Floors"), Collars
("Collars"), similar transactions and related options. A Swap is a
privately-negotiated derivatives contract in which two parties agree, on
specified payment dates, to make or exchange payments calculated by reference to
a specified rate, index or asset and an agreed "notional amount". Some common
examples of underlying rates, indices and assets include: the market value of a
single equity or debt security, a group or "basket" of securities or a stock or
fixed-income index; fixed and floating interest rates; foreign currency exchange
rates; and various commodity prices or indices. For example, the Fund may enter
into an equity Swap on the value of a single common stock. The Swap is a
separate contract that does not require ownership of the underlying stock. In
the Swap, the Fund will agree with a swap dealer to make payments based upon
changes in the value of the stock. For example, on a specified payment date, if
the value of the stock has increased, one party (such as the Fund) will receive
a payment equal to the amount of that increase for the time period involved and
the notional number of shares, as well as receiving equivalent payments after
any distribution of a dividend on the security and perhaps making certain
interest-like payments on specified dates. If the value of the stock has
decreased, then rather than receiving a payment, the first party (such as the
Fund, in this example) would be obligated to make a payment to the other party
to the Swap. The Fund can take either position in the Swap; that is, the Fund
may be the party that receives a payment following an increase in value and pays
following a decrease or vice versa. In some cases, the Fund may also make or
receive additional payments on the effective date and/or termination date of the
Swap. Swaps are very flexible financing tools whose terms can be negotiated
between the parties.
The Fund may enter into various Swaps that may be based upon the value
of various single debt and equity securities, baskets or indices. One example of
a situation is which the Fund may use an equity swap is to mimic some of the
benefits of ownership of "local shares" in a country in which the Fund, as a
foreigner, is prohibited from owning local shares. The terms of the Swaps
actually entered by the Fund may vary from the typical example described here.
In addition, the Fund may also enter into interest-rate and currency Swaps. Both
interest rate and currency Swaps involve exchanges of payment streams. In the
case of interest rate Swaps, the notional amount is used to calculate the size
of the payments, but generally is not exchanged; in certain currency Swaps,
payment of the entire notional amount in the two applicable currencies may be
exchanged by the
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parties on the effective date of the Swap and in some cases a reverse exchange
may be made on the termination date.
In addition to Swaps, the Fund may enter into Caps, Floors, Collars
relating to securities, interest rates or currencies. In a Cap or Floor, the
buyer pays a premium (which is generally, but not always a single up-front
amount) for the right to receive payments from the other party if, on specified
payment dates, the applicable rate, index or asset is greater than (in the case
of a Cap) or less than (in the case of a Floor) an agreed level, for the period
involved and the applicable notional amount. A Collar is a combination
instrument in which the same party buys a Cap and sells a Floor. Depending upon
the terms of the Cap and Floor comprising the Collar, the premiums will
partially or entirely offset each other. The notional amount of a Cap, Collar or
Floor is used to calculate payments, but is not itself exchanged. The Fund may
be both buyers and sellers of these instruments. In addition, the Fund may
engage in combinations of put and call options on securities (also commonly
known as "collars"), which may involve physical delivery of securities. Puts,
calls, and securities collars are described in more detail under "Options"
below. Like Swaps, Caps, Floor and Collars are very flexible products. The terms
of the transactions entered by the Fund may vary from the typical examples
described here.
The Fund may enter into these over-the-counter derivative transactions
with a number of dealers, generally using standard forms of master agreement
documentation customized to suit the needs and circumstances of the Fund and the
dealers. These instruments are not traded on an organized exchange or, generally
speaking, through a clearinghouse. Because they are privately negotiated
bilateral contracts, in each case, the Fund and the dealer are each exposed to
the credit risk that the other party will not meet its obligations. This risk
will be greater with some derivative transactions than others, depending upon
the nature, size and terms of the transaction, as well as the creditworthiness
of the dealer. The size of the Fund's potential loss upon default by the dealer
or by the Fund itself is primarily related to the market value of the
transactions at the time of the default; since markets move both up and down, it
is also possible that the Fund could realize a gain. Consistent with market
practices, the Fund will generally make and receive payments on a net basis and
will, to the extent feasible, document Swaps, Caps, Floors and Collars with a
single dealer under a single master agreement to obtain the risk-reduction and
other benefits, where permitted by applicable law, of netting upon default or
other early termination. Events of default, other termination events, damage
calculations and remedies are among the legal terms specified in the
documentation.
The Fund's obligations will be accrued daily (offset against any
amounts owing to the Fund) and any accrued but unpaid net amounts owed to a Swap
Counterparty will be covered by the maintenance of a segregated account
consisting of cash or liquid securities to avoid any potential leveraging of the
Fund. To the extent that these Swaps, Caps, Floors, and Collars are entered into
for hedging purposes, the Adviser believes such obligations do not constitute
"senior securities" under the 1940 Act and, accordingly, will not treat them as
being subject to the Fund's borrowing restrictions.
The over-the-counter derivatives markets have grown substantially in
recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized documentation. As a
result, these markets have become increasingly liquid. Different product and
geographic segments of these markets have developed at different rates and are
subject to different risks. As a result, both the liquidity and the risks
associated with individual derivative transactions will vary greatly.
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The use of over-the-counter derivatives is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary Fund securities transactions. If the Adviser is
incorrect in its forecasts of market values, interest rates, and currency
exchange rates, the investment performance of the Fund would be less favorable
than it would have been if this investment technique were not used.
Options. The 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 the 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.
The 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. The Fund may purchase puts on securities that it holds only to
protect itself against a decline in the value of those securities. If the 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.
The 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 the Fund's ability to purchase call and put options.
The Fund may also purchase put or call options on individual securities
or baskets of securities. When the 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 the Fund purchases a put, it acquires the right to
sell the underlying security at the exercise price on or before the termination
date.
The 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
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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.
The Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, the 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, the 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.
The 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
the Fund purchases or writes an OTC option, it relies on the 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.
The Fund's ability to establish and close out positions in exchange-
listed options depends on the existence of a liquid market. The 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 the 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 the 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 the 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.
The 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. 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 the Fund will minimize
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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. The 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 the 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, 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.
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. The 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. The
Fund's futures transactions may be entered into for hedging purposes or risk
management. The 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. The 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, the 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
techniques other than sales and purchases of futures contracts could be used to
reduce the 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
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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 the Fund will be able to enter into an
offsetting transaction with respect to a particular futures contract at a
particular time. If the 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 the 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 the 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 market. The 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 the 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
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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.
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.
FORWARD CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
The 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).
The 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, the Fund
may use forward currency contracts to shift exposure to foreign currency
fluctuations from one country to another. For example, if the 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.
The cost to the Fund of engaging in forward currency contracts varies
with factors such as
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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 the
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 the 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, the 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.
The 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 Fund are traded on U.S. and foreign exchanges or
over-the-counter.
FOREIGN CURRENCY TRANSACTIONS
Although the Fund values its assets daily in U.S. dollars, the Fund is
not required to convert their holdings of foreign currencies to U.S. dollars on
a daily basis. The 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, the Fund could suffer a loss of some
or all of the amounts deposited. The 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
19
<PAGE>
dealers are buying and selling foreign currencies.
WHEN-ISSUED SECURITIES
The 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 Fund will enter into these
transactions in order to lock in the yield (price) available at the time of
commitment. 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 the 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.
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. The 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 the 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.
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.
The 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 Fund 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 Fund 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, generally the 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. If the Fund invests in investment companies, 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 companies.
20
<PAGE>
REPURCHASE AGREEMENTS
The 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. In a repurchase agreement, the 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. 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.
The Fund may, under certain circumstances, deem repurchase agreements
collateralized by U.S. government securities to be investments in U.S.
government securities.
BORROWING
The Fund may borrow money from U.S.-regulated banks. The 1940 Act and
the 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 the Fund's net asset value per share and net yield. The
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.
The 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 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, to meet redemptions or to pay dividends.
The Fund may also engage in mortgage dollar roll transactions and
reverse repurchase agreements, which may be considered a form of borrowing. In
addition, the Fund may borrow up to an additional one-third of its total assets
from banks for temporary or emergency purposes. The Fund will not purchase
securities when bank borrowings exceed one-third of its total assets.
21
<PAGE>
MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS
The 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.
The 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 Fund.
(See "Borrowing" above.)
The mortgage dollar rolls and reverse repurchase agreements entered
into by the Fund may be used as arbitrage transactions in which the 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
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.
22
<PAGE>
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. Brokerage commissions and other transaction 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 Fund's 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 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 the 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 the Fund's assets in U.S. dollars. The
Fund may incur costs in converting between currencies.
Repatriation Restrictions. Foreign governments may delay or restrict
repatriation of the Fund's investment income or other assets. If, for any
reason, the 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").
23
<PAGE>
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
The 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,
regardless of prevailing interest rates. The Adviser will consider credit risk
and market risk in making debt security investment decisions for the Fund.
Investors should carefully consider the relative risks of investing in the 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 the Fund's net asset value.
24
<PAGE>
FOREIGN CUSTODIANS AND SECURITIES DEPOSITORIES
Rules adopted under the 1940 Act, permit the Fund to maintain its foreign
securities and cash in the custody of certain eligible non-U.S. banks and
securities depositories (collectively, "foreign custodians"). Pursuant to these
rules, the Fund's assets invested in foreign countries may be held by foreign
custodians that are approved by the Fund's Board of Trustees or by a foreign
custody manager selected by the Board. The Board or the fund's foreign custody
manager will consider a number of factors in determining whether a foreign
custodian can provide reasonable care, including but not limited to: the
financial strength of the institution; the general reputation, standing and
operating history of the institution; the practices, procedures and internal
controls of the institution; and whether the Fund will have jurisdiction over
the custodian. Certain banks in foreign countries may not be eligible foreign
custodians for the Fund, which may preclude the 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.
INVESTMENT RESTRICTIONS
The following are fundamental investment limitations of the Fund. These
fundamental limitations may not be changed without shareholder approval.
In accordance with these limitations, the Fund will not:
1. Invest in real estate or mortgages on real estate (although the 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
herein).
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 (except to the extent that it may distribute shares
of the Fund); issue senior securities except as set forth in investment
restrictions 5 and 6 below; or purchase on margin, except that the Fund may
make margin payments in connection with futures, options and currency
transactions.
4. Loan money, except that the 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 the 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).
25
<PAGE>
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 the 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.
ADDITIONAL RESTRICTIONS
The 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, the 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 the 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 the Fund's assets is calculated as described herein under
the heading "DETERMINATION OF NET ASSET VALUE."
26
<PAGE>
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>
OFFICES WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING THE PAST FIVE YEARS
- ---------------- --------- --------------------------
<S> <C> <C>
THOMAS L. HANSBERGER* President and Chairman, Chief Executive Officer,
(67) Trustee President and Treasurer, Hansberger 515
East Las Olas Blvd. Global Investors, Inc., 1994 to present;
Fort Lauderdale, FL Chairman, Chief Executive Officer, President and Treasurer,
Hansberger Group, Inc., 1999 to 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, Vice President and Senior Vice President and
ESQ.* (48) Trustee General Counsel, Hansberger Global
515 East Las Olas Blvd. Investors, Inc. 1996 to present;
Fort Lauderdale, FL Senior Vice President, General Counsel and Assistant Secretary,
Hansberger Group, Inc., 1999 to present; Vice President,
Associate General
Counsel and Assistant Secretary,
Van Kampen American Capital, Inc.
1986 to 1996.
KATHRYN B. MCGRATH, Trustee Partner, Morgan, Lewis & Bockius
ESQ.*(55) LLP, 1990 to present.
1800 M Street, N.W.
Washington, DC
STUART B. ROSS (63) 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. Trustee Retired; former Senior Vice President,
(68) Merrill Lynch & Co., 1984 to 1996.
640 Hollow Tree Ridge Road
Darien, CT
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C>
CHARLES F. GULDEN (38) 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.
WESLEY E. FREEMAN (50) 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, Treasurer Chief Financial Officer, 1998 to present; Vice
Jr. (29) President and Controller, Hansberger Global
515 East Las Olas Blvd. Investors, Inc. 1996 to 1998; Chief Financial
Fort Lauderdale, FL Officer, Hansberger Group, Inc., 1999 to present; Accountant,
Arthur Andersen LLP, 1993 to 1996.
KIMBERLEY SCOTT (37) Secretary Senior Vice President, Chief Administrative
515 East Las Olas Blvd. Officer Chief Compliance Officer and Assistant
Fort Lauderdale, FL Treasurer, Hansberger Global Investors, Inc.,
1994 to present; Senior Vice President and Secretary, Hansberger
Group, Inc., 1999 to present; Executive Assistant and Portfolio
Supervisor, Templeton Worldwide, 1992 to 1994.
KARL O. HARTMANN, ESQ. Assistant Secretary Senior Vice President and General
(45) Counsel, Chase Global Funds Services
73 Tremont Street Company, 1991 to present.
Boston, MA
HELEN A. ROBICHAUD, ESQ. Assistant Secretary Vice President and Associate General
(xx) Counsel, Chase Global Funds Services
73 Tremont Street Company, 1994 to present.
Boston, MA
</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 $3,500, 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. Messrs.
Hansberger, Ross and Waters are members of the Audit Committee of the Board of
Trustees, but receive no compensation for attendance at committee meetings.
Other officers and Trustees receive no compensation or expense reimbursement
from the Trust. For the fiscal year ending December 31, 1999, the Trust paid the
following amounts to Trustees and officers of the Trust:
28
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
Total Compensation
Aggregate Pension or from Registrant
Compensation From Retirement and Fund Complex
Registrant for Benefits Accrued Estimated Annual Paid to Directors
Name of Person, Fiscal Year Ended as Part of Fund Benefits Upon for Fiscal Year
Position 1999 Expenses Retirement Ended 1999
=======================================================================================================================
<S> <C> <C> <C> <C>
Stuart B, Ross, $5,500 N/A N/A $5,500 for service on
Trustee one board
William F. Waters, $5,500 N/A N/A $5,500 for service on
Trustee one board
</TABLE>
As of March 12, 2000, the officers and Trustees of the Trust, in the
aggregate, beneficially owned less than 1% of the outstanding shares of each
Fund.
INVESTMENT ADVISER
Hansberger Global Investors, Inc. (the "Adviser") is the investment
adviser to the Fund. The Adviser, a Delaware corporation, is a wholly owned
subsidiary of Hansberger Group, Inc. and is controlled by Mr. Thomas L.
Hansberger who founded the Adviser in 1994. A brief description of the
investment advisory agreement ("Advisory Agreement") is set forth in the
Prospectus under "The Investment Adviser."
The Advisory Agreement, dated October 17, 1996, will continue in effect
only if such continuance is approved annually by either the Board of Trustees or
by vote of a majority of the 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 the Fund's portfolio securities at that
Fund's expense.
Except for expenses assumed by the Adviser as set forth above, the 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.
29
<PAGE>
As compensation for its services, the Fund pays to the Adviser a fee as
described in the Prospectus. The Fund has not commenced operations as of
December 31, 1999, therefore, advisory fees were not paid as of December 31,
1999.
FUND TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for
the Fund and for the placement of the 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 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 the 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 Trust as a factor in the selection of broker-
dealers to execute the Fund's portfolio transactions. However, since shares of
the Fund 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.
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 the 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 the 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
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discretion. The investment advisory fees paid by the 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 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
Fund and other advisory clients.
From time to time, the Adviser may purchase securities for the 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 Fund 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 the
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.
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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 the 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 the 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 Fund) managed by the Adviser. Because the
volume and nature of the trading activities of the accounts are not 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 the Fund will not be disproportionate to the
benefits received by it on a continuing basis.
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 pursuant to guidelines
deemed fair and reasonable by the Adviser. Generally, under those guidelines,
the Fund and other participating clients will be allocated at least $25,000 of
the relevant security, with any remaining shares allocated on a pro rata basis.
In the event that there are not enough securities available to allocate each
participating client $25,000 worth of the security, the Adviser will use a
random allocation procedure, randomly selecting one participating client to
commence allocation.
It is anticipated that the annual portfolio turnover rate of the Fund
will not exceed 100% under normal circumstances.
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 the Fund.
TRANSFER AGENT AND DIVIDEND-DISBURSING 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
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related to the existence of the Fund, maintenance of its records, preparation of
reports, supervision of the Fund's arrangements with its custodian, and
assistance in preparing the Fund'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
Fund. For its services under the Administration Agreement, the Trust pays the
Administrator a monthly fee in proportion to the Trust's 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.
From time to time, the Fund, 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 the
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.
TAXES
GENERAL
As indicated under "Taxes" in the Prospectus, the 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 the
Fund's management practices or policies.
In order to qualify for treatment as a RIC under the Code, the 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 the 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
(the "Income Requirement"); and (b) diversify its holdings so that; (i) at the
close of each quarter of the 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 the 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 the Fund's taxable year, not more than 25% of the value
of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer or of two or more
issuers which are engaged in the same, similar or related trades or businesses
if the Fund owns at least 20% of the voting power of such issuers.
Notwithstanding the Distribution Requirement described above, which only
requires the 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-
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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. The 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 the Fund by a Shareholder who is
not a dealer in securities will generally be treated as long-term capital gain
or loss if the shares have been held for more than one year and short-term if
for a year or less. If shares on which a net capital gain distribution has been
received are subsequently sold or redeemed, and such shares have been held for
six months or less, any loss recognized by a shareholder will be treated as
long-term capital loss to the extent of the long-term capital gain
distributions.
FOREIGN TRANSACTIONS
Dividends and interest received by the 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
the Fund's total assets at the close of its taxable year consists of securities
of foreign corporations, the Fund will be eligible to, and currently intends to,
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.
Pursuant to the elections, the Fund 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. The 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.
The 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 the 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).
The 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, the Fund will be
subject to federal
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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
the 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 recent legislation, the Fund would be entitled to elect to
"mark-to-market" their stock in a PFIC. "Marking-to-market," in this context,
generally means recognizing as taxable 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).
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
transactions in options, futures, and forward currency contracts derived by the
Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
For federal income tax purposes, the 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 the 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.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the 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 trading (currently 4:00
p.m., Eastern time) of the New York Stock Exchange ("NYSE") on each day that 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 Christmas Day. Additionally,
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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.
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.
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 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.
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 Fund's net asset
value is 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 the 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.
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ADDITIONAL SHAREHOLDER INFORMATION
TELEPHONE EXCHANGE AND REDEMPTION PRIVILEGES
Shares of the 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 "Purchasing, Selling And Exchanging Fund 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 "Purchasing, selling and
exchanging Fund 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 FUND
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.
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 each series 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
International Growth Fund, International Value Fund, Emerging Markets Fund and
All Countries Fund are currently the only series of the Trust. The 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 the 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 the 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 the Fund may be presumed to "control" (as defined in the 1940 Act) the
Fund.
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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 the 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.
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.
PERFORMANCE INFORMATION
The 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 the Fund. Without waivers and
absorption of expenses, performance results will be lower. No historical
performance represents the future performance of the Fund.
AVERAGE ANNUAL TOTAL RETURN
The average annual total return of the 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.
TOTAL RETURN
Calculation of the 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
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"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 Fund's performance figures will be based upon historical results
and will not represent future performance. The Fund's shares are sold at net
asset value per share. The 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
less than original cost. Factors affecting the 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 the 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 the 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 the
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, the 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
40
<PAGE>
dividends reinvested. Such calculations do not include the effect of any sales
charges imposed by other funds. The Fund will be compared to Lipper's
appropriate funding category, that is, by fund objective and portfolio holdings.
The Fund's performance may also be compared to the average performance of its
Lipper category.
41
<PAGE>
Morningstar, Inc. The 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 the 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 the 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 Fund 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
Indices. The 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, the 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. The 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 the 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
the 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
42
<PAGE>
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 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 the 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 the 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 the Fund's performance has varied from its average
performance during a particular time period.
Standard deviation = the square root of Uro x\\i\\ - x\\m\\
-------------------
n-1
where Uro = "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.
43
<PAGE>
Statistics may also be used to discuss the Fund's relative performance.
One such measure is alpha. Alpha measures the actual return of the Fund compared
to the expected return of the 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.
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 Fund may be used in advertisements and sales materials. Such
factors that may affect the 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
44
<PAGE>
Morgan, Lewis & Bockius LLP acts as legal counsel for the Trust.
FINANCIAL STATEMENTS
The Fund's fiscal year ends on December 31st of each year. The Fund
will send annual and semi-annual reports to its shareholders; the financial
statements appearing in annual reports are audited by the Trust's independent
accountants.
45
<PAGE>
PART C: OTHER INFORMATION
Item 23. Exhibits:
Exhibits filed pursuant to Form N-1A:
(a) Articles of Incorporation
(1) 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).
(2) Amendment to the Agreement and Declaration of Trust (incorporated
herein by reference to Pre-Effective Amendment No. 1 filed on
September 23, 1996)
(3) 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).
(b) By-Laws
(1) By-Laws of the Registrant (incorporated herein by reference to
Initial Registration Statement filed on July 26, 1996).
(c) Instruments Defining Rights of Security Holders
(1) By-Laws
See Section 2 and Section 7
(2) Declaration
See Article III - "Shares", Section 1, Section 2 and Section 6
(d) Investment Advisory Contracts
(1) Investment Advisory Agreement (incorporated herein by reference
to Post-Effective Amendment No. 3 to the Registration Statement
filed on March 1, 1999).
1
<PAGE>
(e) Underwriting Contracts
Not Applicable
(f) Bonus or Profit Sharing Contracts
Not Applicable
(g) Custodian Agreements
(1) Custodian Agreement, (incorporated herein by reference to Post-
Effective Amendment No. 3 to the Registration Statement filed on March 1,
1999)
(h) Other Material Contracts
(1) Administrative Agreement, (incorporated herein by reference to Post-
Effective Amendment No. 3 to the Registration Statement filed on March 1,
1999)
(i) Legal Opinions
(1) Opinion and Consent of Counsel, (incorporated herein by
reference to the 24f-2 Notice filed on February 24, 1997).
(j) Other Opinions
(1) Opinion and Consent of Independent Public Accountants, (incorporated by
reference to Post-Effective Amendment No. 4 to the Registration Statement
filed of May 3, 2000)
(k) Omitted Financial Statements.
Not Applicable.
(l) Initial Capital Agreements.
Not Applicable.
(m) Rule 12b-1 Plan.
Not Applicable.
(n) Financial Data Schedule.
Not Applicable.
(o) Rule 18f-3 Plan.
Not Applicable.
(p) Code of Ethics
(1) Hansberger Institutional Series Amended Code of Ethics (incorporated by
reference to Post-Effective Amendment No. 4 to the Registration Statement
filed of May 3, 2000)
(2) Hansberger Global Investors Amended Code of Ethics (incorporated by
reference to Post-Effective Amendment No. 4 to the Registration Statement
filed of May 3, 2000)
Item 24. 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 25. Indemnification.
Article VIII of the Agreement and Restated Declaration of Trust filed as
Exhibit 1 to the Registration Statement is incorporated by reference to Pre-
Effective Amendment No. 2 filed on October 18, 1996. Insofar as indemnification
for liability arising under the Securities Act of 1933, as amended, may be
permitted to trustees, 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, officers or controlling persons of the Registrant
in connection with the successful defense of any act, suit or proceeding) is
asserted by such trustees, 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 26. Business and Other Connections of the 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").
2
<PAGE>
<TABLE>
<CAPTION>
Name and Position with Name of Other Company Connection with Other
Investment Adviser Company
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hansberger, Thomas Loren The Hansberger Global Fund PLC Director
Trustee and President
Hansberger Global Investors Ltd. Director
Hansberger Global Investors Inc. Chairman, CEO, President,
Director and Treasurer
Hansberger Global Investors Director
(Hong Kong) Limited
Hansberger Group, Inc. Director
- ---------------------------------------------------------------------------------------------------------
Jackson, J. Christopher Hansberger Global Board of Directors
Director Investors, Inc.
- ---------------------------------------------------------------------------------------------------------
Scott, Kimberley A. Hansberger Global Board of Directors
Director Investors, Inc.
- ---------------------------------------------------------------------------------------------------------
Cribiore, Alberto Hansberger Group, Inc. Board of Directors
Director
- ---------------------------------------------------------------------------------------------------------
Chapman, Max Carroll Jr. Hansberger Group, Inc. Board of Directors
Director
- ---------------------------------------------------------------------------------------------------------
Cumming, Virgil Howard Hansberger Group, Inc. Board of Directors
Director
- ---------------------------------------------------------------------------------------------------------
Teo, George Hansberger Group, Inc. Board of Directors
Director
- ---------------------------------------------------------------------------------------------------------
Bieck, Erik Erwin
Managing Director
- ---------------------------------------------------------------------------------------------------------
Scott, Kimberly Ann Hansberger Global Investors (HK) Director
SVP, Secretary, Chief Limited
Compliance Officer and
Chief Administrative The Hansberger Global Fund Director
Officer
Hansberger Global Investors Director
Limited
- ---------------------------------------------------------------------------------------------------------
Jackson, Jerald Christopher McCarthy, Crisanti & Maffei, Inc. General Counsel and
SVP, General Counsel, and Secretary
Assistant Secretary
MCM Group, Inc. General Counsel and
Secretary
- ---------------------------------------------------------------------------------------------------------
Freeman, Wesley Edmond
Managing Director,
Institutional
- ---------------------------------------------------------------------------------------------------------
Alzuru, Francisco
Managing Director of
Latin & South
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Item 27. Principal Underwriters.
None
Item 28. 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 29. Management Services.
None.
Item 30. Undertakings.
Not Applicable
3
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 5 to Registration Statement No. 333-8919 to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Fort Lauderdale, and State of Florida on the 4th day of May, 2000.
HANSBURGER INSTITUTIONAL SERIES
By: *
------------------------------------
Thomas L. Hansberger, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacity on the dates indicated.
* Trustee and President May 4, 2000
-------------------------------
Thomas L. Hansberger
* Trustee and Vice President May 4, 2000
-------------------------------
J. Christopher Jackson
* Trustee May 4, 2000
-------------------------------
Kathryn B. McGrath
* Trustee May 4, 2000
-------------------------------
Stuart B. Ross
May 4, 2000
* Trustee
-------------------------------
William F. Waters
* Chief Financial Officer May 4, 2000
-------------------------------
Thomas A. Christensen
*By: /s/ J. Christopher Jackson
---------------------------
J. Christopher Jackson,
Attorney-in-Fact
