<PAGE> 1
As Filed with the Securities and Exchange
Commission on August 15, 1996
1933 Act File No. ________
1940 Act File No. ________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1 / X /
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1 / X /
(Check appropriate box or boxes.)
FIVE ARROWS WORLD CASH MANAGEMENT FUND
(Exact Name of Registrant)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Offices)
(614) 470-8000
(Registrant's Telephone Number)
George O. Martinez
Rothschild Five Arrows Currency Trust
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service of Process)
With a copy to:
Geoffrey R.T. Kenyon, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place, Boston, MA 02109
Approximate date of proposed public offering:
It is proposed that this filing will become effective under Rule 485
(check appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/ / On ___, pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On _____ pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On _____ pursuant to paragraph (a)(2).
If appropriate check the following box:
<PAGE> 2
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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The Registrant, pursuant to Rule 24f-2 promulgated under the Investment
Company Act of 1940, hereby elects to register an indefinite number of shares of
beneficial interest, par value $.0001 per share, of the U.S. Dollar Fund, the
Pound Sterling Fund, the Deutschemark Fund and the Canadian Dollar Fund series
of the Registrant.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
This Pre-Effective Amendment has been executed by the Trustees and
Officers of the International Currency Fund.
(ii)
<PAGE> 3
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
Form N-1A Item No. Caption or Location
Part A in Prospectuses
------ ---------------
1. Cover Page Same
2. Synopsis Summary; Fund and Allocated Fees and
Expenses
3. Condensed Financial n/a
Information
4. General Description of Description of the Trust and
Registrant Portfolio Trust; Investment
Objectives; Investment Policies
and Restrictions; Special
Considerations and Risk Factors;
Information Concerning the Master-
Feeder Fund Structure.
5. Management of the Fund Management; General Information
5A. Management's Discussion of Fund [To be included in Annual Reports to
Performance Shareholders]
6. Capital Stock and Other General Information; Dividends and
Securities Distributions; Taxation; How to Buy
Shares
7. Purchase of Securities Being How to Buy Shares
Offered
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
Caption or Location in
Form N-1A Item No. Statement of
Part B Additional Information
------ ----------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Information About the Trust and
Portfolio Trust.
(i)
<PAGE> 4
Caption or Location in
Form N-1A Item No. Statement of
Part B Additional Information
------ ----------------------
13. Investment Objectives and Additional Investment Policies and
Policies Restrictions; Money Market Instruments
Additional Information Concerning
Certain Investment Techniques for all
Portfolios
14. Management of the Fund Management of the Trust and Portfolio
Trust; Compensation of Trustees and
Officers
15. Control Persons and Principal Management of the Trust and
Holders of Securities Portfolio Trust
16. Investment Advisory and Other Investment Advisory Agreement and
Services Distribution and Administration
Agreements; Custodian, Transfer and
Dividend Distributing Agent, Counsel
and Independent Auditors.
17. Brokerage Allocation and Portfolio Transactions
Other Practices
18. Capital Stock and Other Information About the Trust and Port-
Securities folio Trust
19. Purchase, Redemption and Pricing Redemption of Shares; Calculation of
of Securities Being Offered Net Asset Value
20. Tax Status n/a
21. Underwriters Investment Advisory Agreement and
Distribution and Administration
Agreements.
22. Calculations of Performance Data Performance Information
23. Financial Statements Financial Statements and Independent
Accountants
(ii)
<PAGE> 5
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FIVE ARROWS WORLD CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
FIVE ARROWS SHARES
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PROSPECTUS
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<PAGE> 6
Prospectus
________________, 1996
FIVE ARROWS WORLD CASH MANAGEMENT FUND
INVESTMENT ADVISER:
Rothschild International Asset Management Limited
Five Arrows House, St. Swithin's Lane
London EC4N 8NR United Kingdom
DISTRIBUTOR:
Five Arrows Fund Distributors Inc.
3435 Stelzer Road
Columbus, OH 43219-3035
ADMINISTRATOR:
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, OH 43219-3035
TRANSFER AGENT:
BISYS Fund Services, Inc.
100 First Avenue, Suite 300
Pittsburgh, PA 15222
CUSTODIAN:
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
AUDITORS:
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, NY 10019-6013
COUNSEL:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
<PAGE> 7
Five Arrows World Cash Management Fund (the "Trust") is an open-end
management investment company designed to offer investors a selection of four
separate funds (the "Funds"): the U.S. Dollar Fund, the Pound Sterling Fund, the
Deutschemark Fund, and the Canadian Dollar Fund.
Each Fund seeks to maintain a high level of liquidity, to preserve
capital and stability of principal expressed in the Fund's designated currency
("Designated Currency") and, consistent with those objectives, to earn current
income. Unlike other mutual funds which acquire and manage their own portfolios
of securities, each Fund seeks to achieve its investment objective by investing
all of its investable assets (the "Investable Assets") in a portfolio which is a
series of the International Currency Fund (the "Portfolio Trust") which invests
in high quality, short-term instruments denominated in the Designated Currency
of the relevant Fund. See "Information Concerning the Master-Feeder Structure"
on page 10. The Portfolio Trust is also an open-end management investment
company which currently consists of four separate portfolios (the "Portfolios"):
the U.S. Dollar Portfolio, the Pound Sterling Portfolio, the Deutschemark
Portfolio and the Canadian Dollar Portfolio.
The Trust seeks to maintain a constant net asset value expressed in the
Designated Currency for each Fund. Accordingly, the Trust invests only in
securities with short remaining maturities and generally values its securities
at their amortized cost. ONLY THE U.S. DOLLAR FUND IS A "MONEY MARKET FUND"
UNDER REGULATIONS ADOPTED BY THE SECURITIES AND EXCHANGE COMMISSION (THE
"SEC"). NONE OF THE OTHER FUNDS IS A "MONEY MARKET FUND" UNDER THOSE
REGULATIONS. The net asset value of a Fund's shares, when expressed in a
currency other than the Fund's Designated Currency, will fluctuate, primarily
in response to changes in currency exchange rates between the Fund's
Designated Currency and other currencies, including other Designated
Currencies.
The Funds are designed primarily for use as a means of investing
short-term cash reserves in the Funds' Designated Currencies. Investors may also
consider purchasing Fund shares for a number of reasons including satisfying
settlement obligations or delivering a Fund's shares as collateral for a
transactional obligation in a Fund's Designated Currency. Each Fund offers two
classes of shares. The shares offered by this Prospectus are the Five Arrows
class, which are available for direct purchase in initial aggregate amounts of
$500,000 or more. In addition, the Fund offers by separate Prospectus the Five
Arrows Service shares, which are available for purchase through certain
broker-dealers and other service organizations.
AN INVESTMENT IN THE TRUST IS NOT A BANK DEPOSIT OR AN OBLIGATION OF
ROTHSCHILD INTERNATIONAL ASSET MANAGEMENT LIMITED OR ANY OF ITS AFFILIATES AND
IS NEITHER GUARANTEED NOR INSURED BY THE UNITED STATES GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE SYSTEM OR ANY OTHER AGENCY OF
THE UNITED STATES GOVERNMENT. THERE CAN BE NO ASSURANCE THAT ANY FUND WILL BE
ABLE TO MAINTAIN A CONSTANT NET ASSET VALUE PER SHARE. INVESTMENT IN THE FUNDS
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN
ADDITION, THE DIVIDENDS PAID BY A FUND WILL GO UP AND DOWN.
This Prospectus sets forth concisely information about the Five Arrows
shares of the Trust and each Fund that an investor should know before investing.
It should be read and retained for future reference.
A Statement of Additional Information dated ___________, 1996, and as it
may be further amended from time to time, which provides further discussion of
certain items in this Prospectus and other matters, has been filed with the SEC
and is incorporated herein by reference. For a free copy, call 1-800-499-3603
or write to the Trust at the address for the Trust's Distributor listed inside
the cover page.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 8
TABLE OF CONTENTS
PAGE
----
FUND (AND ALLOCATED PORTFOLIO) FEES AND EXPENSES ................2
SUMMARY .........................................................3
DESCRIPTION OF THE TRUST AND PORTFOLIO TRUST.....................4
INVESTMENT OBJECTIVES............................................4
INVESTMENT POLICIES AND RESTRICTIONS.............................5
U.S. DOLLAR PORTFOLIO....................................5
POUND STERLING PORTFOLIO.................................5
DEUTSCHEMARK PORTFOLIO...................................6
CANADIAN DOLLAR PORTFOLIO................................7
ALL PORTFOLIOS...........................................7
FUNDAMENTAL POLICIES.....................................8
SPECIAL INVESTMENT CONSIDERATIONS AND RISK FACTORS...............9
INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE.........10
MANAGEMENT......................................................12
CALCULATION OF NET ASSET VALUE..................................14
HOW TO BUY FIVE ARROWS SHARES...................................15
HOW TO REDEEM FIVE ARROWS SHARES................................17
HOW TO CHANGE FUNDS.............................................19
TAXATION........................................................19
DIVIDENDS AND DISTRIBUTIONS.....................................21
PERFORMANCE.....................................................22
GENERAL INFORMATION.............................................23
1
<PAGE> 9
FUND (AND ALLOCATED PORTFOLIO) FEES AND EXPENSES
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Five Arrows Shares are offered to shareholders on a no-load basis
without any commissions, distribution ("12b-1 plan") or service charges.
All Funds
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Redemption fees None
Exchange fees None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE
- -------------------------------------------
OF AVERAGE NET ASSETS AND NET OF REIMBURSEMENTS)
- ------------------------------------------------
<TABLE>
<CAPTION>
TOTAL FUND
ADVISORY FEES OTHER EXPENSES EXPENSES (1)
------------- -------------- --------
<S> <C> <C> <C>
U.S. Dollar .20% .075% .275%
Pound Sterling .20% .15% .35%
Deutschemark .20% .15% .35%
Canadian Dollar .20% .15% .35%
</TABLE>
EXPENSES PER 1,000 SHARE INVESTMENT
<TABLE>
<CAPTION>
1 YEAR 3 YEAR
------ ------
<S> <C> <C>
U.S. Dollar $3 $9
Pound Sterling (pound)4 (pound)11
Deutschemark DM4 DM11
Canadian Dollar C$4 C$11
</TABLE>
Assuming a hypothetical investment of U.S. $1,000, (pound)1,000,
DM1,000, or C$1,000 with a 5% annual return and redemption at the end of each
time period, an investor in the Trust will have paid transaction and operating
expenses over the time period as indicated above.
- --------------------------------------------------------------------------------
(1) The Investment Adviser has voluntarily agreed to reimburse such portion
of its advisory fee as is necessary to cause the annualized total
expenses of each class of a Fund not to exceed a specified percentage of
such class' average daily net asset value (.275% in the case of the Five
Arrows class of the U.S. Dollar Fund and .35% in the case of the Five
Arrows class of each other Fund). If this reimbursement is not
sufficient to cause the total expenses of any Fund not to exceed the
applicable percentage of average daily net asset value, the Investment
Adviser has agreed to pay such other expenses of the applicable Fund as
is necessary to keep total expenses from exceeding the applicable
percentage. This undertaking shall remain in effect for the fiscal
period ended December 31, 1997, and thereafter in the discretion of the
Investment Adviser. The Investment Adviser has reserved the right to
terminate or revise these limitations with respect to any period after
December 31, 1997. To the extent management fees are reimbursed by the
Investment Adviser, or expenses of a Fund are paid by the Investment
Adviser, the total return to shareholders will increase. Total return to
shareholder will decrease to the extent that management fees are no
longer reimbursed or expenses of a Fund are no longer paid.
[/R]
The above table of fees and expenses is provided to assist investors in
understanding the various costs and expenses which may be borne directly or
indirectly by investors in the Funds. The Trust does not charge a sales load in
connection with the purchase or redemption of its shares. The percentages shown
above are based on an annualized estimate of the expenses to be incurred during
the current fiscal year, after expense reimbursements, and should not be
considered a representation of future costs and expenses or performance. Actual
costs and expenses or performance in future periods may be more or less than
those shown above. For the purpose of the example, assume reinvestment of all
dividends and distributions. The table does not reflect charges for optional
services, such as the fee for remittance of redemption proceeds by wire. For a
more complete discussion of the fees connected with an investment in the Trust
and the services provided to the Trust, see "Management", "How to Buy Five
Arrows Shares" and "How to Redeem Five Arrows Shares."
The Funds invest all of their Investable Assets in the Portfolios. The
Trustees of the Trust believe that, over time, the aggregate per share expenses
of each Fund and its corresponding Portfolio should be approximately equal to,
or less than, the per share expenses the Fund would incur if the Fund were
instead to retain the services of an investment adviser and its assets were
invested directly in the type of securities being held by the Portfolios.
2
<PAGE> 10
SUMMARY
The investment objectives of each Fund are to seek to maintain a high
level of liquidity, to preserve capital and stability of principal expressed in
the Fund's Designated Currency and, consistent with those objectives, to earn
current income. A Fund's investment objectives are fundamental and may not be
changed without the approval of its shareholders. Each Fund will seek to achieve
its investment objectives by investing all of its Investable Assets in a
Portfolio which has the same investment objectives as such Fund. There can be no
assurance that the investment objectives of either the Funds or the Portfolios
will be achieved. (See "Investment Objectives" and "Investment Policies and
Restrictions.") An investment in shares of any of the Funds involves certain
risks, as discussed below, and may not be appropriate for all investors.
The Funds are designed primarily for use as a means of investing
short-term cash reserves in the Funds' Designated Currencies. Investors may also
consider purchasing Fund shares for a number of reasons including satisfying
settlement obligations or delivering a Fund's shares as collateral for a
transactional obligation in a Fund's Designated Currency.
Rothschild International Asset Management Limited (the "Investment
Adviser") manages the Portfolio Trust's Portfolios and receives an advisory fee
from each Portfolio calculated daily and payable monthly at an annual rate of up
to .20% of average daily net assets of such Portfolio.
BISYS Fund Services Limited Partnership (the "Administrator") acts as
the administrator of the Trust and Portfolio Trust. Its affiliates, Five Arrows
Fund Distributors Inc. (the "Distributor") and BISYS Fund Services, Inc. (the
"Transfer Agent"), act as the distributor and transfer/dividend disbursing
agent of the Trust, respectively, and The Chase Manhattan Bank acts as
custodian (the "Custodian") of the Trust and the Portfolio Trust. See
"Management."
The Trust and Portfolio Trust bear all operating costs not agreed to be
borne by the Investment Adviser, the Distributor, the Administrator, the
Transfer Agent or the Custodian including, without limitation, legal and
auditing fees and expenses, expenses of investor reports to be provided to
existing shareholders; registration and reporting fees and expenses; and
Trustees' fees and expenses. The Investment Adviser has voluntarily agreed to
reimburse such portion of its advisory fee as is necessary to cause the
annualized total expenses of each class of a Fund not to exceed a specified
percentage of such class' average daily net asset value (.275% in the case of
the Five Arrows class of the U.S. Dollar Fund and .35% in the case of the
Five Arrows class of each other Fund). If this reimbursement is not sufficient
to cause the total expenses of any Fund not to exceed the applicable percentage
of average daily net asset value, the Investment Adviser has agreed to pay such
other expenses of the applicable Fund as is necessary to keep total expenses
from exceeding the applicable percentage. This undertaking shall remain in
effect for the fiscal period ending December 31, 1997, and thereafter in the
discretion of the Investment Adviser. The Investment Adviser has reserved the
right to terminate or revise these limitations with respect to any period after
December 31, 1997.
Five Arrows shares will be issued at the net asset value next determined
after receipt by the Trust of an order in proper form and acceptance of that
order by the Trust. The Trust reserves the right to take appropriate action in
the event that Disbursable Funds (as defined below) for the purchase price for
the shares being issued are not received on a timely basis. Disbursable Funds
may only be received by the Trust during the operating times for the wire
transmission systems designated for use in transmitting money to the Funds. See
"How to Buy Five Arrows Shares."
The Trust seeks to maintain a constant net asset value per share for each
Fund, although no assurances can be given that those per share values will be
maintained. Shares of a Fund may be redeemed by the shareholder from the Trust
at their next-determined net asset value. Each Fund is open for business on any
day on which the New York Stock Exchange (the "Exchange") is open for trading
or banks in New York City are open for business (a "Trust Business Day") from
9:00 a.m. to 5:00 p.m. U.S. Eastern Time ("Trust Hours of Operation"). Thus,
the Trust will be open for business every day except for Saturdays, Sundays and
holidays which are observed by both the Exchange and New York City banks
(scheduled holidays
3
<PAGE> 11
for 1997 are New Year's Day, President's Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day) The value of the investments held
by each Fund is determined in its Designated Currency once every 24 hours during
Trust Hours of Operation. See "Calculation of Net Asset Value" and "How to
Redeem Five Arrows Shares."
Dividends of each Fund's net investment income are declared once a day
and paid monthly. Net capital gains, if any, realized by a Fund will be
distributed annually. Dividends paid by a Fund will be automatically reinvested
in additional shares of the Fund. See "Dividends and Distributions" and
"Taxation."
DESCRIPTION OF THE TRUST AND PORTFOLIO TRUST
The Trust is a newly-formed open-end management investment company,
registered under the Investment Company Act of 1940 (the "1940 Act"). Under the
terms of the Agreement and Declaration of Trust establishing the Trust, which
is governed by the laws of Delaware, the Trustees of the Trust are ultimately
responsible for the management of the Funds' business and affairs. The Trust is
currently authorized to offer four individual Funds, each of which represents a
separate series of the Trust's shares of beneficial interest. The Trust's Board
of Trustees is empowered to establish additional Funds at any time without
shareholder approval. The Trustees have authorized shares of the Fund to be
issued in two classes: Five Arrows and Five Arrows Service. Because expenses
will vary between the classes, performance will vary with respect to each
class. Except for differences related to such differential expenses, each share
of a Fund has equal dividend, redemption and liquidation rights with other
shares of such Fund. Each share is fully paid and nonassessable.
Each Portfolio is a newly-formed separate investment series of the
Portfolio Trust, a newly-formed business trust organized under the laws of the
State of Delaware, and intends to be treated as a partnership for federal tax
purposes. Under the terms of the Portfolio Trust's Declaration of Trust, the
affairs of the Portfolio are managed under the supervision of the Trustees of
the Portfolio Trust.
The net asset value of a Fund's shares, when expressed in any currency
other than the Fund's Designated Currency, will fluctuate in response to changes
in the exchange rates between the Fund's Designated Currency and other
currencies, including the Designated Currencies of other Funds.
INVESTMENT OBJECTIVES
The investment objectives of each Fund are to seek to maintain a high
level of liquidity, preserve capital and stability of principal expressed in the
Fund's Designated Currency and, consistent with those objectives, to earn
current income. A Fund's investment objectives are fundamental and may not be
changed without the approval of its shareholders.
Each Fund will seek to achieve its investment objectives by investing
all of its Investable Assets in a Portfolio which has the same investment
objectives as such Fund. The investment objectives of the Portfolios are not
fundamental and may be changed upon notice to, but without the approval of, the
Portfolios' investors. There can be no assurance that the investment objectives
of either the Funds or the Portfolios will be achieved.
Since the investment characteristics of the Funds will correspond
directly to those of the Portfolio, the following is a discussion of the various
investments and investment policies of the Portfolios. Except as otherwise
provided below, the Funds' investment policies are not "fundamental policies"
within the meaning of the 1940 Act and may, therefore, be changed by the Trust's
Board of Trustees without a shareholder vote.
4
<PAGE> 12
INVESTMENT POLICIES AND RESTRICTIONS
U.S. DOLLAR PORTFOLIO
The U.S. Dollar Portfolio's investment objective is to seek to maintain
a high level of liquidity, to preserve capital and stability of principal
expressed in U.S. Dollars and, consistent with those objectives, to earn current
income. The U.S. Dollar Portfolio will invest in securities issued or guaranteed
as to principal and interest by the U.S. Government or its agencies or
instrumentalities or by foreign governments or Supranational Organizations (such
as the World Bank, the Inter-American Development Bank, the Asian Development
Bank and the European Bank for Reconstruction and Development) as well as
high-quality, short-term money market instruments such as bank certificates of
deposit, bankers' acceptances and such short-term corporate debt securities as
commercial paper and master demand notes.
The U.S. Dollar Portfolio invests only in U.S. dollar-denominated high
quality securities as described in this paragraph. All of the U.S. Dollar
Portfolio's assets will consist of government securities and "first tier"
eligible securities as defined in Rule 2a-7 under the 1940 Act, which have been
(i) rated by at least two United States nationally recognized statistical rating
organizations ("NRSRO"s), such as Standard & Poor's Corporation or Moody's
Investors Service, Inc., in the highest rating category for short-term
obligations (or so rated by one such organization if it alone has rated the
security), (ii) issued by an issuer with comparable short-term obligations
that are rated in the highest rating category, or (iii) if unrated, determined
to be comparable to such securities. See the Statement of Additional
Information.
All securities in which the U.S. Dollar Portfolio invests have remaining
maturities of thirteen months or less at the date of acquisition. The U.S.
Dollar Portfolio also maintains a dollar-weighted average portfolio maturity of
90 days or less. The U.S. Dollar Portfolio follows these policies in seeking to
maintain a constant net asset value of $1.00 per share, although there is no
assurance it can do so on a continuing basis.
The U.S. Dollar Portfolio may invest in U.S. dollar-denominated high
quality corporate debt securities such as commercial paper and bonds and
long-term unsecured debentures with remaining maturities of thirteen months or
less. These investments may include, for example, obligations issued by foreign
corporations and foreign counterparts of U.S. corporations, Eurodollar bonds
(which are U.S. dollar-denominated obligations of foreign issuers), and Yankee
bonds (which are U.S. dollar-denominated bonds issued by foreign issuers in the
U.S.). Under normal market conditions, the U.S. Dollar Portfolio will have more
than 25% of its total assets invested in the obligations of issuers in the
banking industry. See "Special Investment Considerations and Risk Factors --
Concentration in Obligations of Qualifying Banks." For further information
concerning debt securities ratings and permissible money market investments of
the U.S. Dollar Portfolio, see the Statement of Additional Information.
Securities issued or guaranteed as to principal and interest by the U.S.
Government or its agencies or instrumentalities in which the U.S. Dollar
Portfolio may invest include direct obligations of the U.S. Treasury, including
bills, bonds and notes; and obligations issued or guaranteed as to principal and
interest by U.S. Government agencies or instrumentalities and supported by any
of (i) the full faith and credit of the U.S. Treasury (e.g., Government National
Mortgage Association participation certificates); (ii) the right of the issuer
to borrow a limited amount from the U.S. Treasury (e.g., securities of the
Farmers Home Administration); (iii) the discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality
(e.g., securities of the Federal National Mortgage Association); or (iv) the
credit of the agency or instrumentality (e.g., securities of a Federal Home Loan
Bank).
POUND STERLING PORTFOLIO
The Pound Sterling Portfolio's investment objective is to seek to
maintain a high level of liquidity, to preserve capital and stability of
principal expressed in Pounds Sterling and, consistent with those objectives,
5
<PAGE> 13
to earn current income. The Pound Sterling Portfolio will invest in securities
issued or guaranteed as to principal and interest by the United Kingdom ("U.K.")
Government, local authorities, city corporations and county councils or their
agencies or by non-U.K. governments or Supranational Organizations as well as
high-quality, short-term money market instruments such as bank certificates of
deposit, bankers' acceptances and such short-term corporate debt securities as
commercial paper.
The Pound Sterling Portfolio invests only in Pound Sterling-denominated
high quality securities as described in this paragraph. The Pound Sterling
Portfolio assets will consist of government securities and other securities,
which have been (i) rated by at least two NRSROs in the highest rating category
for short-term obligations (or so rated by one such organization if it alone has
rated the security), (ii) issued by an issuer with comparable short-term
obligations that are rated in the highest rating category, or (iii) if unrated,
determined to be comparable to such securities.
All securities in which the Pound Sterling Portfolio invests have
remaining maturities of 60 days or less at the date of acquisition. The Pound
Sterling Portfolio follows these policies in seeking to maintain a constant net
asset value of (pound)1.00 per share, although there is no assurance it can do
so on a continuing basis.
The Pound Sterling Portfolio may invest in Pound Sterling-denominated
high quality corporate debt securities such as commercial paper and bonds and
long-term unsecured debentures with remaining maturities of 60 days or less.
Under normal market conditions, the Pound Sterling Portfolio will have more than
25% of its total assets invested in the obligations of issuers in the banking
industry. See "Special Investment Considerations and Risk Factors --
Concentration in Obligations of Qualifying Banks."
DEUTSCHEMARK PORTFOLIO
The Deutschemark Portfolio's investment objective is to seek to maintain
a high level of liquidity, to preserve capital and stability of principal
expressed in Deutschemarks and, consistent with those objectives, to earn
current income. The Deutschemark Portfolio will invest in securities issued or
guaranteed as to principal and interest by the German Government, by its
sub-divisions or their agencies or by non-German governments or Supranational
Organizations, as well as high-quality, short-term money market instruments such
as bank certificates of deposit and such short-term corporate debt securities as
commercial paper.
The Deutschemark Portfolio invests only in Deutschemark-denominated high
quality securities as described in this paragraph. The Deutschemark Portfolio's
assets will consist of government securities and other securities, which have
been (i) rated by at least two NRSROs in the highest rating category for
short-term obligations (or so rated by one such organization if it alone has
rated the security), (ii) issued by an issuer with comparable short-term
obligations that are rated in the highest rating category, or (iii) if unrated,
determined to be comparable to such securities.
All securities in which the Deutschemark Portfolio invests have
remaining maturities of 60 days or less at the date of acquisition. The
Deutschemark Portfolio follows these policies in seeking to maintain a constant
net asset value of DM1.00 per share, although there is no assurance it can do so
on a continuing basis.
The Deutschemark Portfolio may invest in Deutschemark-denominated high
quality corporate debt securities such as commercial paper and bonds and
long-term unsecured debentures with remaining maturities of 60 days or less.
Under normal market conditions, the Deutschemark Portfolio will have more than
25% of its total assets invested in the obligations of issuers in the banking
industry. See "Special Investment Considerations and Risk Factors --
Concentration in Obligations of Qualifying Banks."
6
<PAGE> 14
CANADIAN DOLLAR PORTFOLIO
The Canadian Dollar Portfolio's investment objective is to seek to
maintain a high level of liquidity, to preserve capital and stability of
principal expressed in Canadian Dollars and, consistent with those objectives,
to earn current income. The Canadian Dollar Portfolio will invest in securities
issued or guaranteed as to principal and interest by the Canadian Government,
the Provinces of Canada, or their agencies or by non-Canadian governments or
Supranational Organizations as well as high-quality, short-term money market
instruments such as bank certificates of deposit and such short-term corporate
debt securities as commercial paper.
The Canadian Dollar Portfolio invests only in Canadian
Dollar-denominated high-quality securities as described in this paragraph. The
Canadian Dollar Portfolio's assets will consist of government securities and
other securities which have been (i) rated by at least two NRSROs in the highest
rating category for short-term obligations (or so rated by one such organization
if it alone has rated the security), (ii) issued by an issuer with comparable
short-term obligations that are rated in the highest rating category, or (iii)
if unrated, determined to be comparable to such securities.
All securities in which the Canadian Dollar Portfolio invests have
remaining maturities of 60 days or less at the date of acquisition. The Canadian
Dollar Portfolio follows these policies in seeking to maintain a constant net
asset value of C$1.00 per share, although there is no assurance it can do so on
a continuing basis.
The Canadian Dollar Portfolio may invest in Canadian Dollar-denominated
high quality corporate debt securities such as commercial paper and bonds and
long-term unsecured debentures with remaining maturities of 60 days or less.
Under normal market conditions, the Canadian Dollar Portfolio will have more
than 25% of its total assets invested in the obligations of issuers in the
banking industry. See "Special Investment Considerations and Risk Factors --
Concentration in Obligations of Qualifying Banks."
ALL PORTFOLIOS
In seeking to obtain its investment objectives, each Portfolio may
invest in the types of securities described below.
VARIABLE AND FLOATING RATE NOTES
--------------------------------
Each Portfolio may purchase variable and floating rate instruments.
These instruments may include variable amount master demand notes, which are
instruments under which the indebtedness, as well as the interest rate, varies.
In addition, these securities must be rated in the highest short-term rating
category by an NRSRO. Unless guaranteed by the U.S. Government or one of its
agencies or instrumentalities, variable or floating rate instruments purchased
by the U.S. Dollar Portfolio must permit such Portfolio to demand payment of the
instrument's principal at least once every thirteen months. Variable or floating
rate instruments purchased by each of the other Portfolios must permit such
Portfolio to demand payment of the instrument's principal at least once every 60
days. Because of the absence of a market in which to resell a variable or
floating rate instrument, a Portfolio might have trouble selling an instrument
should the issuer default or during periods when a Portfolio is not permitted by
agreement to demand payment of the instrument, and for this or other reasons a
loss could occur with respect to the instrument.
REPURCHASE AGREEMENTS
---------------------
Each Portfolio may invest in repurchase agreements. A repurchase
agreement arises when an investor purchases a security and simultaneously agrees
to resell it to the counterparty on the repurchase agreement at an agreed-upon
future date, normally one day or a few days later. The resale price is greater
than the purchase
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<PAGE> 15
price, reflecting an agreed-upon rate which is effective for the period of time
the investor's money is invested in the security and which is not related to the
coupon rate on the purchased security. By providing a flexible investment
vehicle, repurchase agreements permit the Portfolios to remain fully invested
pending the purchase of appropriate longer-term investments.
The Portfolios will enter into repurchase agreements only with financial
institutions rated by an NRSRO in the highest rating category for short-term
obligations and deemed to be creditworthy by the Investment Adviser, pursuant to
guidelines established by the Portfolio Trust's Board of Trustees. During the
term of any repurchase agreement, the Investment Adviser will monitor the
creditworthiness of the seller, and the seller must maintain the value of the
securities subject to the agreement in an amount that is greater than the
repurchase price. Default or bankruptcy of the seller would, however, expose the
Portfolios to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations. Because of the
seller's repurchase obligations, the securities subject to repurchase agreements
do not have maturity limitations.
WHEN-ISSUED SECURITIES
- ----------------------
Each Portfolio may purchase when-issued debt securities, which are
traded on a price or yield basis prior to actual issuance. Such purchases will
be made only to achieve the relevant Portfolio's investment objective and not
for leverage. The when-issued trading period generally lasts only from a few
days up to a month or more; during this period interest will not accrue. Such
transactions may involve a risk of loss if the value of the securities falls
below the price committed to prior to actual issuance. The Custodian will
establish a segregated account for a Portfolio when it purchases securities on a
when-issued basis consisting of cash or liquid securities equal to the amount of
the when-issued commitments.
ILLIQUID SECURITIES
- -------------------
Each Portfolio may invest up to 10% of its net assets in illiquid
securities (i.e. securities which a Portfolio could not reasonably expect to
sell within seven days at approximately the price at which they are valued).
Under the supervision of the Portfolio Trust's Board of Trustees the Investment
Adviser will determine the liquidity of each investment using various factors
such as (1) the frequency of trades and quotations, (2) the number of dealers
and prospective purchasers in the marketplace, (3) dealer undertakings to make a
market, (4) the nature of the security (including any demand or tender features)
and (5) the likelihood of continued marketability and credit quality of the
issuer. If they have a remaining maturity of more than seven days, time deposits
and repurchase agreements will be considered to be illiquid securities.
FUNDAMENTAL POLICIES
Each of the Funds and the Portfolios have adopted certain fundamental
policies which may not be changed without the approval of that Fund's
shareholders or that Portfolios' investors, as the case may be.
The Funds have the same investment restrictions as the Portfolios,
except that each Fund may invest all of its Investable Assets in an open-end
management investment company with substantially the same investment objectives
as that Fund. Therefore, references below to the Portfolios' investment
restrictions also include the Funds' investment restrictions. In addition, as a
fundamental policy, no Portfolio may: (i) borrow money, except from the
Portfolio Trust's Custodian or from other banks in connection with redemptions
or for temporary or emergency purposes (borrowings by a Portfolio may not exceed
20% of that Portfolio's net assets computed immediately after the borrowing; no
additional investments may be made while any borrowings exceed 5% of the
Portfolio's total assets), (ii) pledge, hypothecate, or mortgage any of the
Portfolio's assets other than in connection with permitted borrowings or (iii)
make any investment which would cause more than 25% of the value of such
Portfolio's total assets to be invested in securities of nongovernmental issuers
principally engaged in any one industry, except that under normal market
conditions each Portfolio will invest
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<PAGE> 16
more than 25% of its total assets in obligations of Qualifying Banks (as defined
herein). Additional fundamental policies of the Portfolios are set forth in
the Statement of Additional Information.
If a percentage restriction, including one that is a fundamental policy,
is adhered to at the time of investment, a later increase or decrease in
percentage resulting from a change in values or assets will not constitute a
violation of that restriction.
SPECIAL INVESTMENT CONSIDERATIONS AND RISK FACTORS
POSSIBLE CHANGES IN NET ASSET VALUE AND YIELD
- ---------------------------------------------
Each Portfolio seeks to maintain a constant net asset value and
generally values its investments at amortized cost. However, the value of each
Portfolio may be affected by changes in interest rates and the credit standing
of issuers of the Portfolios' investments. The value of the investments held by
each of the Portfolios in which the Funds invest generally will vary inversely
with changes in prevailing interest rates, although this variance is expected to
be minimal due to the short maturities of the instruments held by the
Portfolios.
Interest rates paid on instruments denominated in a given Designated
Currency may be higher or lower than those paid on instruments denominated in
other Designated Currencies. Investors should recognize that in periods of
declining short-term interest rates the inflow of net new money to a Portfolio
from the continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of such Portfolio's
portfolio, thereby reducing the current yield of the Portfolio. In the periods
of rising interest rates, the opposite can be true. The securities in which the
Portfolios invest may not produce as high a level of income as could be obtained
from securities with longer maturities or those having a lesser degree of
safety.
INVESTMENTS IN A SINGLE ISSUER
- ------------------------------
Each Portfolio other than the U.S. Dollar Portfolio is non-diversified
under the 1940 Act. These Portfolios intend to comply, however, with the
diversification requirements applicable to regulated investment companies under
the United States Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"). Currently, those requirements provide that, as of the last day
of each fiscal quarter, each Portfolio's investments in the securities of any
one issuer must be limited to 25% of its total assets, provided that with
respect to at least 50% of its total assets, a Portfolio may not have invested
more than (a) 5% of its total assets in the securities of any one issuer or (b)
10% of the outstanding voting securities of any one issuer. To the extent a
Portfolio is not diversified under the 1940 Act, it may be more susceptible
than a fully diversified Portfolio to adverse developments affecting a single
issuer.
In addition to the foregoing, each of the Portfolios has adopted a
non-fundamental investment restriction which prevents it from investing (i) more
than 5% of the value of its total assets in the securities of any one
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<PAGE> 17
issuer (other than repurchase agreements and securities issued by a sovereign
government, its agencies and instrumentalities), (ii) more than 25% of the value
of its total assets in repurchase agreements with one counterparty or (iii) more
than 25% of the value of its total assets in securities issued by any sovereign
government, its agencies and instrumentalities (other than the federal
government of the United States). Securities held solely as collateral for
outstanding repurchase agreements shall be excluded for purposes of computing
compliance with restriction (iii). These restrictions may be eliminated or
modified at any time by the Trustees of the Portfolio Trust without a
shareholder vote.
CONCENTRATION IN OBLIGATIONS OF QUALIFYING BANKS
- ------------------------------------------------
Under normal market conditions, each Portfolio will have more than 25%
of its total assets invested in obligations of Qualifying Banks. For the
purposes of this Prospectus, Qualifying Banks are defined as U.S. banks
(including savings banks or savings and loan associations) that are members of
the Federal Deposit Insurance Corporation ("FDIC") and "foreign banks," as
defined in Rule 3a-6 under the 1940 Act, provided that any such institution has,
at the date of investment, capital, surplus and undivided profits (as of the
date of its most recently published financial statements) in excess of
U.S.$100,000,000 or the non-U.S. dollar equivalent, as the case may be. This
concentration may result in increased exposure to risks pertaining to the
banking industry. These risks include: a sustained increase in interest rates,
which can adversely affect the availability and cost of funds for a bank's
lending activities; exposure to credit losses during times of economic decline;
concentration of loan portfolios in certain industries; national and local
regulatory developments; and competition within the banking industry as well as
from other financial institutions. In addition, investments in banks located in
foreign countries are subject to risks resulting from the combination in those
banks of banking and securities underwriting and similar activities.
INVESTMENTS IN FOREIGN SECURITIES
- ---------------------------------
Investing in securities issued by entities domiciled in a country other
than an investor's country of residence or denominated in a currency other than
the currency of the investor's country of residence may involve considerations
and possible risks and opportunities not typically encountered by the investor
in making investments in its country of residence and in securities denominated
in that country's currency. These considerations include favorable or
unfavorable changes in interest rates, currency exchange rates and exchange
control regulations, and the costs that may be incurred in connection with
conversions between various currencies. In addition, investments in countries
other than the United States could be affected by other factors generally not
thought by investors to be present in the United States, including less liquid
and efficient securities markets, greater price volatility, less publicly
available information about issuers, the imposition of withholding or other
taxes, restrictions on the expatriation of funds or other assets of a Portfolio,
expropriation of assets, adverse diplomatic developments, higher transaction and
custody costs, delays attendant in settlement procedures and difficulties in
enforcing contractual obligations.
INFORMATION CONCERNING THE
MASTER-FEEDER FUND STRUCTURE
Each of the Funds seeks to achieve its investment objectives by
investing all of its Investable Assets in the Portfolio which has the same
investment objectives as such Fund and invests solely in assets denominated in
that Fund's Designated Currency. These Portfolios in turn invest in securities
that are consistent with those objectives. In addition to selling beneficial
interests to the Funds, the Portfolios may sell beneficial interests
10
<PAGE> 18
to other mutual funds or institutional investors. Such investors will invest in
the Portfolios on the same terms and conditions and will pay a proportionate
share of the Portfolios' expenses. However, the other investors investing in the
Portfolios are not required to sell their shares at the same public offering
price as the Funds due to the imposition of sales commissions and variations in
other operating expenses. Therefore, investors in the Funds should be aware that
these differences may result in differences in returns experienced by investors
in the different funds that invest in the Portfolios. Such differences in
returns are also present in other mutual fund structures. Information concerning
other holders of interests in the Portfolios is available from the Administrator
by calling 1-800-499-3603.
Smaller funds investing in the Portfolios may be materially affected by
the actions of larger funds investing in the Portfolios. For example, if a large
fund withdraws from a Portfolio, the remaining funds investing in that Portfolio
may experience higher pro rata operating expenses, thereby producing lower
returns (however, this possibility exists as well for traditionally structured
funds that have large institutional investors). Additionally, because the
Portfolio would have fewer assets in such a case, it may become less
diversified, resulting in increased portfolio risk. Also, funds with a greater
pro rata ownership in such a Portfolio could have effective voting control of
the operations of that Portfolio. Except as permitted by the SEC, whenever the
Trust is requested to vote on matters pertaining to the Portfolios (other than a
vote by the Funds to continue operations of the Portfolios upon the withdrawal
of another investor in the Portfolios), the Trust will hold a meeting of
shareholders of the Funds and will cast all of its votes in the same proportion
as the votes of the Funds' shareholders. The percentage of the Trust's votes
representing Funds shareholders not voting will be voted by the Trustees or
officers of the Trust in the same proportion as the shareholders of the Funds
who do, in fact, vote. Shareholders of the Funds who do not vote will not affect
the Trust's votes at the Portfolios' meetings.
A Fund may withdraw its investment from a Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests of
the shareholders of that Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including
investing all the Investable Assets of that Fund in another pooled investment
entity having the same investment objectives as the Fund or retaining Rothschild
International Asset Management Limited or another investment adviser to manage
the Fund's assets directly in accordance with the investment policies described
above with respect to the relevant Portfolio. Any such withdrawal could result
in distributions to such Fund from the Portfolio "in kind" of portfolio
securities (as opposed to a cash distribution) to the extent permitted by the
1940 Act, or rules adopted thereunder. If securities are distributed, such Fund
could incur brokerage, tax or other charges in converting the securities to
cash. In addition, the distribution in kind may result in a less diversified
portfolio of investments or adversely affect the liquidity of that Fund.
Notwithstanding the above, there are other means for meeting redemption
requests, such as borrowing.
The Funds' investment objectives are fundamental policies and may not be
changed without the approval of the Funds' shareholders. The investment
objectives of the Portfolios are not fundamental policies and may be changed
without the approval of the investors in the Portfolio. Shareholders of a Fund
will receive 30 days prior written notice with respect to any change in the
investment objective of its corresponding Portfolio. See "Investment Objective"
and "Investment Policies and Restrictions" for a description of the fundamental
policies of the Portfolios that cannot be changed without approval of the "vote
of a majority of the outstanding voting securities" (as defined in the 1940 Act)
of the Portfolios.
For descriptions of the investment objectives, policies and restrictions
of the Portfolios, see "Investment Objectives" and "Investment Policies and
Restrictions." For descriptions of the management of the Portfolios, see
"Management" herein and in the Statement of Additional Information. For
descriptions of the expenses of the Portfolios, see "Management" herein.
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<PAGE> 19
MANAGEMENT
Each Fund is a separate series of the Trust, a Delaware business trust
under the terms of the Agreement and Declaration of Trust establishing the
Trust, which is governed by the laws of Delaware. The Trustees of the Trust are
ultimately responsible for the management of its business and affairs.
Each Portfolio is a separate investment series of the Portfolio Trust,
which is also a Delaware business trust under the terms of the Agreement and
Declaration of Trust establishing the Portfolio Trust, which is governed by the
laws of Delaware. Under the terms of the Portfolio Trust's Declaration of Trust,
the affairs of the Portfolio are managed under the supervision of the Trustees
of the Portfolio Trust.
The Boards of Trustees of the Portfolio Trust and the Trust establish
their respective policies and supervise and review the operations and management
of the Portfolio Trust and the Trust, respectively. The day-to-day operations of
the Portfolio Trust and the Trust are administered by officers elected by their
respective Board of Trustees.
A majority of the Trustees who are not "interested persons" (as defined
in the 1940 Act) of the Trust and the Portfolio Trust, as the case may be, have
adopted written procedures reasonably appropriate to deal with potential
conflicts of interest arising from the fact that the same individuals are
Trustees of the Trust and of the Portfolio Trust, up to and including creating
separate Boards of Trustees. See "Management of the Trust and Portfolio Trust"
in the Statement of Additional Information for more information about the
Trustees and officers of the Trust and the Portfolio Trust.
Investment Adviser and Investment Advisory Agreement
The Investment Adviser serves pursuant to a Master Investment Advisory
Agreement with the Portfolio Trust. The Investment Adviser is a British
corporation that was formed in 1975 and is registered under the U.S. Investment
Advisers Act of 1940, as amended. It is an indirect subsidiary of Rothschild
Concordia AG of Zug, Switzerland, a holding company whose subsidiaries manage
approximately $27 billion of assets, spread across equities, bonds and
currencies.
The Investment Adviser, subject to the supervision and direction of the
Portfolio Trust's Board of Trustees, professionally manages each Portfolio in
accordance with such Portfolio's investment objectives and policies and makes
all investment decisions for those Portfolios. In consideration of these
services, the Portfolio Trust has agreed to pay the Investment Adviser monthly
an annual advisory fee with respect to each Portfolio. The advisory fee for each
Portfolio is calculated daily and payable monthly at an annual rate of up to
.20% of average daily net assets.
The Investment Adviser and the Administrator may, at their own expense,
provide compensation to certain financial institutions whose customers purchase
significant amounts of shares of a Fund. The amount of such compensation may be
made on a one-time and/or periodic basis, and may be up to 100% of the annual
fees that are earned by the Investment Adviser or the Administrator (after
adjustments) and are attributable to shares held by such customers. Such
compensation will not represent an additional expense to the Funds or their
shareholders, since it will be paid from assets of the Investment Adviser and
the Administrator or their affiliates.
The portfolio manager for all of the Portfolios is Thomas Barman, who
has been employed by the Investment Adviser as its Director for Currency
Management since November 1994. He has been primarily responsible for the
day-to-day management of the Portfolios' portfolios since their commencement of
operations. He has over 25 years experience in fund management. From March 1993
to August 1994, Mr. Barman was
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<PAGE> 20
a portfolio manager for Glaxo (Bermuda) Limited. From April 1991 to February
1993, he was a portfolio manager for the U.S. Office of Caisse des Depots et
Consignations. Prior to that time, he served as Foreign Exchange Officer at the
Federal Reserve Bank of New York and was head of U.S. Treasury investments at
Credit Suisse (New York).
Prior to the Trust's commencement of operations, the Investment
Adviser and Mr. Barman had not had previous experience managing a mutual fund
registered under the 1940 Act. However, they have had substantial experience
managing publicly offered European mutual funds.
The Investment Adviser has a Code of Ethics governing personal
securities transactions of certain of its employees. See the Statement of
Additional Information.
Distributor
The Distributor is an affiliate of the Administrator. Mutual funds
structured like the Funds sell shares on a continuous basis. The Funds' Shares
are sold through the Distributor. Certain officers of the Trust are also
officers and/or directors of the Distributor.
Administrator
The Administrator, a wholly-owned subsidiary of The BISYS Group, Inc.,
is responsible for coordinating the Funds' efforts and generally assuring the
operation of the Funds' business. It has been providing services to mutual funds
since 1987.
The Administrator provides a wide range of services to the Funds,
including maintaining the Funds' offices, providing statistical and research
data, coordinating the preparation of reports to shareholders, calculating and
providing for the calculation of net asset values of Fund shares, dividends and
capital gains distributions to shareholders, and performing other administrative
functions necessary for the smooth operation of the Funds.
The Administrator provides the Portfolio Trust with office space and
with certain clerical services and facilities. The Administrator is entitled to
an administration fee calculated daily and payable monthly at an annual rate of
.10% of the average daily net assets of all of the Funds. The Administrator
serves as such for an initial two year term (with subsequent annual, renewable
terms) pursuant to administration agreements with the Trust and the Portfolio
Trust. Those agreements provide that the Administrator shall receive payment in
full of its fee for the remainder of the relevant term if the Administrator is
terminated without cause prior to the end of such term.
Transfer and Dividend Disbursing Agent
Under its agreement with the Trust, BISYS Fund Services, Inc., as
Transfer Agent, provides customary transfer and dividend disbursing agent
services, including processing purchase, redemption and transfer transactions,
responding to shareholder inquiries, automatically investing dividends in Fund
shares, transmitting dividends to shareholders, assisting shareholders in
changing account designations and addresses and transmitting to shareholders
proxy statements, annual reports, prospectuses and other Trust communications.
The Transfer Agent serves as such for an initial two year term (with subsequent
annual, renewable terms) pursuant to a transfer agency agreement with the
Trust. That agreement provides that the Transfer Agent shall receive payment
in full of its fee for the remainder of the relevant term if the Transfer Agent
is terminated without cause prior to the end of such term. The Transfer Agent
may sub-contract any of its duties to another person, including its affiliates.
See "How to Buy Five Arrows Shares" and "How to Change Funds."
Custodian
The Chase Manhattan Bank is the custodian of the Trust and Portfolio
Trust (the "Custodian") and, in that capacity, maintains custody of the Trust's
and Portfolio Trust's assets, including those located outside the United States.
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<PAGE> 21
Expenses
All expenses incurred in the operation of a Fund or a Portfolio are
borne by such Fund or Portfolio except to the extent specifically assumed by the
Investment Adviser, the Distributor, the Administrator, the Custodian, or the
Transfer Agent. Subject to the undertaking of the Investment Adviser to
reimburse the Funds or Portfolios, as the case may be, for certain of their
excess expenses, the Funds or Portfolios, as the case may be, have confirmed
their obligation to pay all their other respective expenses, including: taxes,
brokerage fees and commissions; certain insurance premiums; auditing, legal and
compliance expenses; costs of forming the Trust and Portfolio Trust and
maintaining corporate existence; costs of Trust accounting; costs of preparing
and printing the Trust's prospectuses, statements of additional information and
shareholder reports and delivering them to shareholders; compensation of
Trustees of the Trust or Portfolio Trust who are not employees of the
Distributor or Administrator or their affiliates and costs of other personnel
performing services for the Trust or Portfolio Trust; costs of corporate
meetings; registration fees and related expenses for the Trust's registration
with the SEC and the securities regulatory authorities of other jurisdictions in
which the Funds' shares are sold; state securities law registration fees and
related expenses and other required registrations and related publication fees;
fees payable to the Investment Adviser under the Investment Advisory Agreement;
fees payable to the Administrator, Transfer Agent and Custodian.
The Investment Adviser has voluntarily agreed to reimburse such portion
of its advisory fee as is necessary to cause the annualized total expenses of
each class of a Fund not to exceed a specified percentage of such class' average
daily net asset value (.275% in the case of the Five Arrows class of the
U.S. Dollar Fund and .35% in the case of the Five Arrows class of each other
Fund). If this reimbursement is not sufficient to cause the total expenses of
any Fund not to exceed the applicable percentage of average daily net asset
value, the Investment Adviser has agreed to pay such other expenses of the
applicable Fund as is necessary to keep total expenses from exceeding the
applicable percentage. This undertaking shall remain in effect for the fiscal
period ended December 31, 1997, and thereafter in the discretion of the
Investment Adviser. The Investment Adviser has reserved the right to terminate
or revise these limitations with respect to any period after December 31, 1997.
The Investment Adviser, the Distributor, the Administrator, the Transfer
Agent and the Custodian may also from time to time otherwise voluntarily waive
their respective fees. No fee waivers may be recouped beyond the end of any
fiscal year.
CALCULATION OF NET ASSET VALUE
The net asset value per share of each Fund, expressed in the relevant
Fund's Designated Currency, is determined by dividing the value of the Fund's
net assets (i.e., the value of its investment in its corresponding Portfolio and
other assets, including accrued but undistributed net investment income, less
liabilities) by the total number of shares of the Fund outstanding. Such net
asset values are determined once every Trust Business Day at 11:00 a.m. U.S.
Eastern Time for the U.S. Dollar and Canadian Dollar Funds and 9:00 a.m. U.S.
Eastern Time for the Pound Sterling Fund and 10:00 a.m. Eastern Time for the
Deutschemark Fund.
By investing all of their assets in the relevant Portfolio, each Fund
seeks to maintain the following constant net asset value per share:
U.S. Dollar Fund U.S. $1.00
Pound Sterling Fund (pound)1.00
Deutschemark Fund DM1.00
Canadian Dollar Fund C$1.00
It is anticipated that each Portfolio's assets will utilize the
amortized cost method of valuation as a reasonable means of approximating each
Portfolio's market value. This method involves valuing an instrument at its cost
and thereafter assuming a constant amortization or accretion to maturity of any
premium or discount.
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<PAGE> 22
If at any time, however, the market value of any Portfolio's total assets
deviates more than 1/2 of 1% from their value determined on an amortized cost
basis, the Portfolio Trust's Board of Trustees will consider whether any action
should be initiated to prevent any adverse effects on the Portfolios'
shareholders. The Portfolio Trust's Board of Trustees will monitor the use of
the amortized cost method of valuation in order to ensure that this method
continues to be in the best interest of the Portfolios' shareholders. There may
be periods during which the stated value of an instrument determined under the
amortized cost method of valuation is higher or lower than the price the
Portfolio would receive if the instrument were sold, and the accuracy of
amortized cost valuation can be affected by changes in interest rates and the
credit standing of issuers of the Portfolio's investments. There is no assurance
that the Portfolios will maintain a stable net asset value per share.
If in the view of the Portfolio Trust's Board of Trustees it is
inadvisable to continue maintaining a constant net asset value for any
Portfolio, the Board of Trustees may discontinue using the amortized cost method
of valuation for such Portfolio. Shareholders of a Portfolio would be notified
of a decision by the Board of Trustees to discontinue the use of the amortized
cost method with respect to such Portfolio. The form of notification would
depend on the context of such a decision and could include, for example, the
mailing of written notifications and/or the issuance of a press release.
HOW TO BUY FIVE ARROWS SHARES
Five Arrows Shares of the Funds are sold on a continuous basis by the
Distributor. Investors making an initial purchase of Five Arrows shares must
complete the Application Agreement accompanying this Prospectus, and forward it
to the Transfer Agent for acceptance by the Trust and establishment of an
account number. Subsequent investments may be made by notifying the Trust of a
purchase by telephoning the Distributor during Trust Hours of Operation and by
wiring funds that are immediately available to the Trust for investment
purposes ("Disbursable Funds") to the Distributor in accordance with the
payment instructions and bank account details set out in the Application
Agreement.
The minimum initial investment (the "Initial Investment Minimum") is
$500,000 for Five Arrows shares (or the equivalent in the relevant Fund's
Designated Currency). The Initial Investment Minimum amount may either be
satisfied by investing such an amount in a single Fund or by aggregating
purchases in several Funds. The minimum subsequent investment ("Subsequent
Investment Minimum") for Five Arrows shares is $5,000 (or the equivalent in the
relevant Fund's Designated Currency). The Trust may, at its discretion, waive
the minimum investment requirements. The purchase of shares of each Fund must be
made in the Designated Currency for such Fund.
Purchases of Five Arrows shares of any of the Funds will be processed in
accordance with the procedures set forth below, at the net asset value per share
of the relevant Fund next determined after the purchase order is duly received.
No sales charge will be imposed at the time of purchase or redemption. The full
amount of the investor's purchase payment received by the Distributor will be
invested in the relevant Fund.
Purchases of shares of a Fund will be effected on Trust Business Days in
accordance with the procedures set forth below and only when the wire system
designated for use in transmitting money to the relevant Fund permits the timely
transmission of Disbursable Funds. Additionally, on days when the New York Stock
Exchange and/or the Trust's Custodian or Distributor close early due to a
partial holiday or otherwise, the Trust reserves the right to advance the times
at which purchase and redemption orders must be received. Prospective or current
Five Arrows shareholders may transmit purchase orders by telephoning the
Distributor at 1-800-824-3863.
o Purchase orders for shares of the U.S. Dollar Fund received prior
to 11 a.m. U.S. Eastern Time on a Trust Business Day will
settle on that same day (or the next New York Banking Day (as
defined below) if such Trust Business Day is not a New York
Banking Day).
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o Purchase orders for shares of the Canadian Dollar Fund received
prior to 11 a.m. U.S. Eastern Time on a Trust Business Day will
settle on that same day (or the next Toronto Banking Day (as
defined below) if such Trust Business Day is not a Toronto
Banking Day).
o Purchase orders for shares of the Pound Sterling Fund received
prior to 5 p.m. U.S. Eastern Time on a Trust Business Day will
settle on the following London Banking Day (as defined
below).
o Purchase orders for shares of the Deutschemark Fund received
prior to 10 a.m. U.S. Eastern Time on a Trust Business Day will
settle on the following Frankfurt Banking Day (as defined
below) provided, however, that if such a Trust Business Day is
not a Frankfurt Banking Day, the purchase order will settle on
the second following Frankfurt Banking Day.
If a purchase order is not received by the Trust prior to the applicable
time listed above, such purchase order shall be deemed to have been received on
the next following Trust Business Day.
Before placing a purchase order investors should acquaint themselves
with the minimum amounts and other requirements for using the relevant wire
system for the transfer of Disbursable Funds, and should ascertain whether the
financial institution from which the purchase payment is being sent, has access
to the appropriate system. It is essential that complete information, regarding
the investor's account, accompany all wire instructions in order to facilitate
the prompt and accurate handling of investments. Investors may obtain, from
their financial institution, further information about remitting funds by wire
and any fees that may be imposed for so doing. The Trust does not impose a fee
for receiving payment by wire.
Investors will be entitled to any dividends declared or income earned
on the day when their purchase orders settle, provided that Disbursable Funds
are received in the relevant Fund's Designated Currency in the appropriate bank
account (details of which are set out on the Application Agreement) by the
close of business on that same day. If Disbursable Funds, with respect to any
purchase order, are not received by this time by the Distributor, the Trust
reserves the right, in its sole discretion, (a) to accept the order and assess
interest on the overdue payment, or (b) to cancel the order, and to hold the
purchaser responsible for any loss and other costs incurred by the Distributor
and/or the Trust.
The Trust reserves the right to reject any purchase order in whole or in
part. All of a shareholder's accounts will be subject to the elections and
instructions specified by the shareholder in the Application Agreement covering
the accounts.
United States Federal tax regulations require investors that are United
States persons to provide a certified Taxpayer Identification Number and/or
certain other required certifications within 30 days following the opening or
reopening of an account in order to avoid withholding of taxes on distributions
and proceeds of redemptions.
Ownership of the Trust's shares will be reflected by book-entry, and
certificates for shares will not be issued. Investment in the Trust is not
recommended for any investors who require a stock certificate to evidence their
shares.
All investments must be made in the Designated Currency of the Fund
whose shares are being purchased, as discussed above. Investors may convert
other currencies into the Designated Currency of a Fund through The Chase
Manhattan Bank, in accordance with its customary currency conversion credit and
operational arrangements and at its prevailing rates and fees to customers, or
through other dealers in foreign exchange, in accordance with their customary
credit and operational arrangements and at their prevailing rates and fees.
Currency conversions may result in capital gains or losses to an investor.
Neither the Trust nor its service contractors will be responsible for
any loss or expense for acting upon telephone instructions that are believed to
be genuine. In attempting to confirm that telephone instructions are
16
<PAGE> 24
genuine, the Trust will use procedures considered reasonable. These procedures
include recording all telephone conversations, sending confirmations to
shareholders within 72 hours of the telephone transaction, verifying the account
name and a shareholder's account number or tax identification number and sending
redemption proceeds only to the address of record or to a previously authorized
bank account. To the extent that the Trust does not use reasonable procedures to
form its belief, it and/or its service contractors may be responsible for
instructions that are fraudulent or unauthorized.
A "New York Banking Day" is every day except Saturdays, Sundays and
holidays observed by New York City banks (scheduled holidays for 1997 are New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day).
A "London Banking Day" is every day except Saturdays, Sundays and
holidays observed by London banks (scheduled holidays for 1997 are New Year's
Day, Good Friday, Easter Monday, May Holiday, Spring Holiday, Late Summer
Holiday, Christmas Day and Boxing Day).
A "Frankfurt Banking Day" is every day except Saturdays, Sundays and
holidays observed by Frankfurt banks (scheduled holidays for 1997 are New Year's
Day, Epiphany, Good Friday, Easter Monday, Labor Day, Ascension Day, Whit
Monday, Corpus Christii, Assumption Day, German Unity Day, All Saint's Day, Day
of Penance, Christmas Eve Holiday, Christmas Day, Boxing Day and New Year's
Holiday).
A "Toronto Banking Day" is every day except Saturdays, Sundays and
holidays observed by Toronto banks (scheduled holidays for 1997 are New Year's
Day, Good Friday, Easter Monday, Victoria Day, Canada Day, Labour Day,
Thanksgiving, Remembrance Day, Christmas Eve Holiday, Christmas Day and Boxing
Day).
HOW TO REDEEM FIVE ARROWS SHARES
Five Arrows shareholders will redeem their shares by contacting the
Transfer Agent directly in the manner specified in this prospectus. Subject to
the right of a Fund to make redemptions in kind under certain circumstances, all
redemption requests are treated as requests for redemption in the normal course
in the Fund's Designated Currency.
Redemptions of shares of a Fund will be effected on Trust Business Days
in accordance with the procedures set out below, and only when the wire system
designated for use in transmitting money from the relevant Fund permits the
timely transmission of redemption proceeds. Additionally, as for purchases of
shares, the Trust reserves the right to advance the times at which purchase and
redemption orders must be received (see section headed "How to Buy Five Arrows
Shares" above). Five Arrows shareholders will transmit redemption requests by
telephoning the Transfer Agent at 1-800-824-3863.
o Redemption requests for shares of the U.S. Dollar Fund received
prior to 11 a.m. U.S. Eastern Time on a Trust Business Day will
settle on that same day (or the next New York Banking Day if
such Trust Business Day is not a New York Banking Day).
o Redemption requests for shares of the Canadian Dollar Fund
received prior to 11 a.m. U.S. Eastern Time on a Trust Business
Day will settle on that same day (or the next Toronto Banking
Day if such Trust Business Day is not a Toronto Banking Day).
o Redemption requests for shares of the Pound Sterling Fund
received prior to 5 p.m. U.S. Eastern Time on a Trust Business
Day will settle on the following London Banking Day.
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<PAGE> 25
o Redemption requests for shares of the Deutschemark Fund received
prior to 10 a.m. U.S. Eastern Time on a Trust Business Day will
settle on the following Frankfurt Banking Day provided,
however, that if such a Trust Business Day is not a Frankfurt
Banking Day, the redemption request will settle on the second
following Frankfurt Banking Day.
If a redemption request is not received prior to the applicable time
listed above, such request shall be deemed to have been received on the next
following Trust Business Day. Shareholders shall be entitled to any dividends
declared or income earned up to and including the day before the day on which
the redemption request is scheduled to settle.
If the Investment Adviser believes that market conditions exist which
preclude the Trust from making prompt payment in a Fund's Designated Currency,
the Trust can elect to take up to seven days to pay redemption proceeds or to
pay redemption proceeds wholly or partly in readily marketable portfolio
securities. The Trust is obligated to effect a redemption in currency without
regard to market conditions if requested by a shareholder redeeming $250,000 or
less (or in the applicable Designated Currency equivalent thereof) or 1% or
less of a Fund's net assets, whichever is less, during any 90-day period.
Except as provided below, all redemptions in currency will be made by
wire transfer on the settlement day in the Designated Currency of the Fund whose
shares are being redeemed through a recognized electronic funds transfer system
which handles such Designated Currency. A charge of $20 (or the equivalent in
the relevant Fund's Designated Currency) against the shareholder's account will
be imposed for each wire redemption. Banks receiving redemption proceeds by wire
may also impose a charge for doing so.
If a redemption request does not meet the minimum amount and other
requirements for sending currency through the electronic funds transfer system
employed by the Fund, redemption proceeds will be paid by check mailed to the
shareholder. Each shareholder may pre-designate one bank account per Fund to
which redemption proceeds can be directed.
When redemption proceeds are paid in portfolio securities, brokerage
costs may be incurred by the investor in converting the securities to currency.
For further information concerning redemptions in portfolio securities,
shareholders should telephone the Administrator. Redemption in portfolio
securities will be made by delivery to the shareholder, or to another party at
the shareholder's direction, of portfolio securities (together with a cash
payment in the Fund's Designated Currency equal to the value and in lieu of any
fractional securities required to be delivered) with a value determined at the
time the redemption is made to equal the aggregate net asset value of the Fund
shares being redeemed next determined following receipt of the redemption
request.
To the extent permitted by applicable law, the right of redemption with
respect to a Fund may be suspended or the date of payment postponed for more
than seven days when trading in the markets in which the Fund's securities are
traded is restricted or for a period during which an emergency exists as a
result of which disposal by the Fund of its securities is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its assets. In addition, the right of redemption may be suspended
or the date of payment postponed for such other periods as the SEC by order may
permit to protect the Trust's shareholders.
The Trust will maintain a shareholder's account and the information
contained in the shareholder's Application Agreement in effect until the end of
the calendar year in which the redemption of all the shareholder's shares of the
Funds occurs. The Trust may thereafter require a shareholder to complete a new
Application Agreement in connection with a purchase of shares. This practice
permits a former shareholder to invest in shares of the Funds at any time during
the calendar year without completing a new Application Agreement.
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<PAGE> 26
The Trust reserves the right to redeem a shareholder's account at the
Trust's option, upon not less than 60 days' written notice to the shareholder,
if for a period of six months or more the account does not have in any Fund
shares with a net asset value equal to or greater than the Fund's Initial
Investment Minimum. During the 60-day period, a shareholder may avoid automatic
redemption by investing in any Fund an amount sufficient to increase the net
asset value of the account's shares of the Fund to the Fund's Initial Investment
Minimum.
Again, you should note that neither the Trust nor its service
contractors will be responsible for any loss or expense for acting upon
telephone instructions that are believed to be genuine. In attempting to confirm
that telephone instructions are genuine, the Trust will use procedures
considered reasonable, as described above.
HOW TO CHANGE FUNDS
A shareholder may change shares of one Fund into shares of another Fund
by redeeming shares of one Fund, converting the redemption proceeds into the
Designated Currency of another Fund and purchasing the shares of the other Fund
with the proceeds of the currency conversion. During the period between the net
asset value determination applicable to the shares being redeemed in one Fund
and the purchase of shares in another Fund, the shareholder will not be the
owner of, or be eligible to receive dividends with respect to, either the shares
which have been redeemed or the shares being acquired.
The length of time for completion of a Fund change will vary depending
on the Funds involved and the time during Trust Hours of Operation when the Fund
change is initiated. In general, the length of time for completion of a Fund
change will depend upon each of the time required to obtain payment of
redemption proceeds from the Fund whose shares are being redeemed and the time
required to effect any foreign exchange transaction which may be necessary for
the shareholder to obtain the currency of the Fund whose shares are being
acquired. The arrangements involved in effecting foreign exchange transactions
will depend, in part, on a shareholder's credit and operating relationships with
the foreign currency exchange dealer the shareholder uses and may shorten the
length of time required for completion of a Fund change. A shareholder is not
required to submit a new Application Agreement for the purchase of shares in
connection with a Fund change.
The Trust does not provide currency exchange services, either directly
or through its agents, and the selection of a foreign exchange dealer in
connection with a change of Funds is within the shareholder's sole discretion.
The Trust has been advised that The Chase Manhattan Bank's foreign exchange
department is available, at its customary currency conversion rates and fees and
subject to its customary credit and other requirements, to provide foreign
exchange services to shareholders changing Funds. Access to that facility can be
made through the Administrator by telephoning 1-800-499-3603.
Fund changes may result in recognition of a taxable gain or loss. See
"Taxation."
TAXATION
The following discussion is only a summary of certain tax issues that
may be of interest to shareholders. All shareholders are urged to consult their
tax advisers for further information concerning the tax consequences of
investing in the Trust.
Taxation of the Trust
Under Subchapter M of the Internal Revenue Code, each Fund of the Trust
is to be treated as a separate corporation for U.S. Federal income tax purposes.
It is intended that each Fund will qualify for each fiscal year as a "regulated
investment company" under the Internal Revenue Code by complying with certain
requirements
19
<PAGE> 27
of the Internal Revenue Code regarding sources of income, diversification of
assets, and distribution of income to shareholders, although no assurance can be
given in this regard. As regulated investment companies, the Funds will not be
liable for U.S. Federal income taxes on the net investment income and capital
gain distributed to shareholders in accordance with the applicable provisions of
the Internal Revenue Code. Since it is intended that each Fund will distribute
all of its net income and net capital gain each year, each Fund should avoid all
U.S. Federal income taxes.
Under current law, the Trust does not anticipate that interest derived
by the Funds from sources outside the United States will be subject to non-U.S.
withholding taxes. Under the terms of applicable United States income tax
treaties. To the extent any such withholding tax does arise, it may be possible
to reduce or eliminate it. If it is subject to any such withholding tax, the
Trust intends to undertake the procedural steps required to claim the benefits
of any such treaties. If any non-U.S. taxes are paid by a Fund and, as is
expected, more than 50% in value of the Fund's total assets at the close of any
taxable year consists of securities of non-U.S. banks or corporations, the Fund
may elect to treat any non-U.S. taxes paid by it as paid by its shareholders
with the consequences described under "U.S. Federal Income Taxation of U.S.
Shareholders" below.
Each Fund will determine its income in terms of its Designated Currency
and, in the case of each Fund other than the U.S. Dollar Fund, will translate
its net income for each year from its Designated Currency into U.S. dollars for
U.S. Federal income tax purposes. Under current Treasury regulations, regulated
investment companies are normally required to recognize for U.S. Federal income
tax purposes income or loss attributable to changes in exchange rates between
the U.S. dollar and the Fund's Designated Currency (i.e., currency gain or loss)
absent a ruling to the contrary from the Internal Revenue Service. Recognition
of currency gain in excess of currency loss in any given year would require the
affected Fund to pay dividends in excess of its interest income in order to pay
out all income as calculated for U.S. Federal income tax purposes. In reliance
upon a ruling from the Internal Revenue Service, the Trust calculates the income
of each Fund without recognizing currency gain or loss.
U.S. Federal Income Taxation of U.S. Shareholders
Dividends paid by each Fund out of its net investment income and net
realized short-term capital gain, if any, are taxable to the U.S. shareholders
of the Fund (i.e., a United States corporation or an individual who is a citizen
or resident of the United States) as ordinary income. Dividends to corporate
shareholders will not be eligible for the dividends-received deduction. To the
extent that the Trust elects to declare certain dividends in October, November
or December and to distribute them to the shareholders the following January,
the dividends would be included in the income of the shareholders as if received
in December.
A shareholder of a Fund, other than the U.S. Dollar Fund, will recognize
gain or loss on a sale or redemption of shares (or on a change of shares into
shares in another Fund) in respect of any appreciation or depreciation in the
U.S. dollar-value of the shares from the time the shares are acquired to the
time of disposition. In general, that gain or loss will be capital gain or loss.
In addition, as discussed above, it may eventually be determined that each Fund,
other than the U.S. Dollar Fund, is required to recognize currency gain or loss.
Recognition by a Fund of currency gain in excess of currency loss in any given
year would result in the shareholders of that Fund recognizing ordinary dividend
income in addition to the daily dividends that are attributable to the Fund's
interest income. Any such additional dividends would increase a shareholder's
basis in the shares and would affect the shareholder's calculation of capital
gain or loss on disposition of the shares.
The Trust is required by U.S. Federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions and
redemptions) paid to a non-corporate shareholder unless the shareholder
certifies on its Application Agreement that the social security or tax
identification number provided is correct and that the shareholder is not
subject to 31% backup withholding for prior under-reporting to the Internal
Revenue Service.
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Each Fund, other than the U.S. Dollar Fund, may be able to elect to
pass-through to its shareholders non-U.S. taxes paid by the Portfolio but does
not currently anticipate doing so. Shareholders of each Fund that so elects will
be required to include in income (in addition to any dividends the shareholders
receive) their proportionate shares of the amount of non-U.S. taxes paid by the
Portfolio and will be entitled to claim either a credit or a deduction for their
shares of such taxes in computing their U.S. Federal income tax liability.
Availability of such a credit or deduction is subject to certain limitations.
Shareholders will be informed each year in which a Fund makes such an election
regarding the amount and nature of non-U.S. taxes to be included in their
income. Dividends from a Fund will be considered to be from U.S. sources if an
election to pass-through non-U.S. taxes is not made. If such an election is
made, dividends from those Funds will be considered to be from non-U.S. sources
for purposes of computing the limitation of the Federal foreign tax credit.
Reports containing appropriate information with respect to the U.S.
Federal income tax status of dividends and distributions paid during the year by
each Fund will be mailed to shareholders shortly after the close of each year.
U.S. Federal Income Taxation of Non-U.S. Shareholders
Non-U.S. shareholders who are not engaged in a U.S. trade or business or
whose distributions from a Fund are not effectively connected with the conduct
of such a trade or business will be generally subject to U.S. withholding tax at
the rate of 30% (or a lower rate under an applicable U.S. income tax treaty) on
dividends of net investment income received from the Trust (including for this
purpose any dividends deemed resulting from a Fund's election to treat non-U.S.
taxes paid by it as paid by its shareholders and, if the Funds are required to
recognize currency gain or loss, any dividends that a Fund, other than the U.S.
Dollar Fund, declares as a consequence of recognizing currency gain in excess of
currency loss for a particular year). Any gains realized from the redemption,
sale or exchange of shares will generally not be subject to U.S. tax for those
non-U.S. shareholders. In the case of individual shareholders who fail to
furnish the Trust with certain required certifications regarding their foreign
status, the Trust may be required to impose backup withholding of U.S.
tax at the rate of 31% on the proceeds of redemptions and exchanges.
If the dividends received from a Fund or gains realized upon the
redemption, exchange or other taxable disposition of Fund shares are effectively
connected with a U.S. trade or business of the shareholder, then all such
dividends and gains will be subject to U.S. Federal income tax at the graduated
rates applicable to U.S. shareholders, although the tax may be eliminated under
the terms of an applicable U.S. income tax treaty. Non- U.S. corporate
shareholders may also be subject to the U.S. branch profits tax in respect of
those dividends and gains.
Non-U.S. shareholders are advised to consult their tax advisers for
further information concerning the U.S. Federal and foreign tax consequences of
investing in the Trust.
DIVIDENDS AND DISTRIBUTIONS
Dividends for each Fund are derived from the net investment of its
corresponding Portfolio, which flows from the interest that such Portfolio earns
on the money market and other instruments it holds. Dividends for each Fund are
derived from the net investment of its corresponding Portfolio, which flows from
the interest that such Portfolio earns on the money market and other instruments
it holds. Dividends on each share are determined in the same manner and are paid
in the same amount, regardless of class, except for such differences as are
attributable to differential class expenses.
Dividends will be declared daily and paid monthly with respect to shares
of each Fund. Generally, investors will receive dividends on shares from (and
including) the day upon which their purchase is effective
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to (but not including) the day upon which their redemption is effective. See
"How to Buy Five Arrows Shares" and "How to Redeem Five Arrows Shares."
Dividends from each Fund are automatically reinvested in additional
shares of that Fund at net asset value.
PERFORMANCE
U.S. Dollar Fund
From time to time, the Trust may publish the "yield" and "effective
yield" for the U.S. Dollar Fund. Both yield figures are based on historical
earnings and are not intended to indicate future performance.
The U.S. Dollar Fund's yield is a way of showing the rate of income the
Fund earns on its investments as a percentage of the Fund's share price. To
calculate yield, the Fund takes the interest income it earned from its Fund of
investments for a 7-day period (net of expenses), divides it by the average
number of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on the Fund's share price at the end of that
period.
The "effective yield" is calculated in a similar manner, but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
All Other Funds
From time to time, the Trust may publish the "current yield" and "total
return" for the Pound Sterling, Deutschemark and Canadian Dollar Funds. Both
calculations are based upon historical earnings and are not intended to indicate
future performances.
Current yield refers to a Fund's annualized net investment income per
share over a 30-day period, expressed as a percentage of the net asset value per
share at the end of the period. For purposes of calculating current yield, the
amount of net investment income per share during that 30-day period, computed in
accordance with regulatory requirements, is compounded by assuming that it is
reinvested at a constant rate over a six-month period. An identical result is
then assumed to have occurred during a second six-month period which, when added
to the result of the first six months, provides an "annualized" yield for an
entire one-year period. Calculations of current yield may reflect absorbed
expenses pursuant to any undertaking that may be in effect. See "Management."
Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is expressed
as a percentage rate which is calculated by combining the income and principal
changes for a specified period and dividing by the net asset value per share at
the beginning of the period. Advertisements may include the percentage rate of
total return or may include the value of a hypothetical investment at the end of
the period which assumes the application of the percentage rate of total return.
To the extent consistent with applicable law, the Trust may also publish
other measures of the historical investment performance of the Pound Sterling,
Deutschemark and Canadian Dollar Funds, including 7-day yield information,
calculated in the manner described above with respect to the U.S. Dollar Fund.
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Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a basis
for comparison with other investments or other investment companies using a
different method of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Standard & Poor's, Morningstar, Inc. and other
industry publications.
GENERAL INFORMATION
Organization
The Trust was organized as a Delaware business trust on August 13, 1996.
The Trust is authorized to issue an unlimited number of shares of beneficial
interest, par value of $.0001 per share. The Board of Trustees may, without
shareholder approval, divide the authorized stock into an unlimited number of
separate series, and the costs of doing so will be borne by the Trust.
Currently, the Board of Trustees has authorized four Funds.
Shares issued by the Funds have no preemptive, conversion or
subscription rights. Shareholders of a Fund have equal and exclusive rights to
dividends and distributions declared by that Fund and to the net assets of that
Fund upon liquidation or dissolution, except for such differences as are
attributable to differential class expenses. Voting rights are not cumulative,
so that the holders of more than 50% of the shares voting in any election of
Trustees can, if they choose to do so, elect all of the Trustees. All shares
when issued in accordance with the terms of this Prospectus will be fully paid
and nonassessable.
The Trust is not required to hold annual meetings of shareholders.
Special meetings of shareholders may be called from time to time for purposes
such as electing or removing Trustees, changing a fundamental policy or
approving an investment advisory agreement.
If less than two-thirds of the Trustees holding office have been elected
by shareholders, a special meeting of shareholders of the Trust will be called
to elect Trustees. Under the Trust's Master Trust Agreement and the 1940 Act,
the record holders of not less than two-thirds of the outstanding shares of
the Trust may remove a Trustee by votes cast in person or by proxy at a meeting
called for that purpose or by a written declaration filed with the Trust's
custodian bank. Except as described above, the Trustees will continue to hold
office and may appoint successor Trustees. Whenever ten or more shareholders of
the Trust who have been such for at least six months, and who hold in the
aggregate shares having a net asset value of at least $25,000 or which represent
at least 1% of the outstanding shares, whichever is less, apply to the Trustees
in writing stating that they wish to communicate with other shareholders with a
view to obtaining signatures to request a meeting, and such application is
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five (5) Trust Business Days after receipt of such
application either afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or inform
such applicants as to the approximate number of shareholders of record and the
approximate cost of mailing to them the proposed communication or form of
request.
The Portfolios, in which all the Investable Assets of the Funds are
invested, are series of the Portfolio Trust, which is an open-end management
investment company. The Portfolio Trust's Master Trust Agreement provides that
the Portfolio Trust may establish and designate separate series of the Portfolio
Trust. The Portfolio Trust has established four series and may establish
additional series at any time. The Portfolio Trust's Master Trust Agreement
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<PAGE> 31
also provides that the Funds and other entities investing in the Portfolios
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
the Portfolios in which they invest. However, the risk of the Funds incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance existed and the Portfolios themselves were
unable to meet their obligations. Accordingly, the Trustees of the Trust,
believe that neither the Funds nor their shareholders will be adversely
affected by reason of the Funds investing in the Portfolios. No series of the
Portfolio Trust has any preference over any other series.
Investors in other series of the Portfolio Trust will not be involved in
any vote involving only Portfolios in which they do not invest. Investors of all
of the series of the Portfolio Trust will, however, vote together to elect
Trustees of the Portfolio Trust and for certain other matters affecting the
Portfolio Trust. As provided by the 1940 Act, under certain circumstances, the
shareholders of one or more series could control the outcome of these votes.
Inquiries concerning the Funds should be made by contacting the
Administrator at the address stated on the cover of this Prospectus or by
telephoning 1-800-499-3603.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Trust's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Trust. This Prospectus does not
constitute an offer of any Fund's shares in any state in which, or to any person
to whom, such offering may not lawfully be made.
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- --------------------------------------------------------------------------------
FIVE ARROWS WORLD CASH MANAGEMENT FUND
- --------------------------------------------------------------------------------
FIVE ARROWS SERVICE SHARES
- --------------------------------------------------------------------------------
PROSPECTUS
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<PAGE> 33
Prospectus
________________, 1996
Five Arrows World Cash Management Fund
INVESTMENT ADVISER:
Rothschild International Asset Management Limited
Five Arrows House, St. Swithin's Lane
London EC4N 8NR United Kingdom
DISTRIBUTOR:
Five Arrows Fund Distributors Inc.
3435 Stelzer Road
Columbus, OH 43219-3035
ADMINISTRATOR:
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, OH 43219-3035
TRANSFER AGENT:
BISYS Fund Services, Inc.
100 First Avenue, Suite 300
Pittsburgh, PA 15222
CUSTODIAN:
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
AUDITORS:
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, NY 10019-6013
COUNSEL:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
<PAGE> 34
Five Arrows World Cash Management Fund (the "Trust") is an open-end
management investment company designed to offer investors a selection of four
separate funds (the "Funds"): the U.S. Dollar Fund, the Pound Sterling Fund, the
deutschemark Fund, and the Canadian Dollar Fund.
Each Fund seeks to maintain a high level of liquidity, to preserve
capital and stability of principal expressed in the Fund's designated currency
("Designated Currency") and, consistent with those objectives, to earn current
income. Unlike other mutual funds which acquire and manage their own portfolios
of securities, each Fund seeks to achieve its investment objective by investing
all of its investable assets (the "Investable Assets") in a portfolio which is a
series of the International Currency Fund (the "Portfolio Trust") which invests
in high quality, short-term instruments denominated in the Designated Currency
of the relevant Fund. See "Information Concerning the Master-Feeder Structure"
on page 11. The Portfolio Trust is also an investment company which currently
consists of four separate portfolios (the "Portfolios"): the U.S. Dollar
Portfolio, the Pound Sterling Portfolio, the Deutschemark Portfolio and the
Canadian Dollar Portfolio.
The Trust seeks to maintain a constant net asset value expressed in the
Designated Currency for each Fund. Accordingly, the Trust invests only in
securities with short remaining maturities and generally values its securities
at their amortized cost. ONLY THE U.S. DOLLAR FUND IS A "MONEY MARKET FUND"
UNDER REGULATIONS ADOPTED BY THE SECURITIES AND EXCHANGE COMMISSION
(THE "SEC"). NONE OF THE OTHER FUNDS IS A "MONEY MARKET FUND" UNDER THOSE
REGULATIONS. The net asset value of a Fund's shares, when expressed in a
currency other than the Fund's Designated Currency, will fluctuate, primarily
in response to changes in currency exchange rates between the Fund's Designated
Currency and other currencies, including other Designated Currencies.
The Funds are designed primarily for use as a means of investing
short-term cash reserves in the Funds' Designated Currencies. Investors may also
consider purchasing Fund shares for a number of reasons including satisfying
settlement obligations or delivering a Fund's shares as collateral for a
transactional obligation in a Fund's Designated Currency. Each Fund offers two
classes of shares. The shares offered by this Prospectus are the Five Arrows
Service shares, which are available for purchase through certain broker-dealers
and other authorized institutions ("Authorized Firms"). In addition, the Fund
offers by separate Prospectus the Five Arrows shares, which are available for
direct purchase in initial aggregate amounts of $500,000 or more.
AN INVESTMENT IN THE TRUST IS NOT A BANK DEPOSIT OR AN OBLIGATION OF
ROTHSCHILD INTERNATIONAL ASSET MANAGEMENT LIMITED OR ANY OF ITS AFFILIATES AND
IS NEITHER GUARANTEED NOR INSURED BY THE UNITED STATES GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE SYSTEM OR ANY OTHER AGENCY OF
THE UNITED STATES GOVERNMENT. THERE CAN BE NO ASSURANCE THAT ANY FUND WILL BE
ABLE TO MAINTAIN A CONSTANT NET ASSET VALUE PER SHARE. INVESTMENT IN THE FUNDS
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. IN
ADDITION, THE DIVIDENDS PAID BY A FUND WILL GO UP AND DOWN.
This Prospectus sets forth concisely information about the Five Arrows
Service shares of the Trust and each Fund that an investor should know before
investing. It should be read and retained for future reference.
A Statement of Additional Information dated ___________, 1996, and as it
may be further amended from time to time, which provides further discussion of
certain items in this Prospectus and other matters, has been filed with the SEC
and is incorporated herein by reference. For a free copy, call 1-800-499-3603 or
write to the Trust at the address for the Trust's Distributor listed inside the
cover.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 35
TABLE OF CONTENTS
Page
----
FUND (AND ALLOCATED PORTFOLIO) FEES AND EXPENSES .................2
SUMMARY ..........................................................4
DESCRIPTION OF THE TRUST AND PORTFOLIO TRUST......................5
INVESTMENT OBJECTIVES.............................................5
INVESTMENT POLICIES AND RESTRICTIONS..............................6
U.S. DOLLAR PORTFOLIO.....................................6
POUND STERLING PORTFOLIO..................................7
DEUTSCHEMARK PORTFOLIO....................................7
CANADIAN DOLLAR PORTFOLIO.................................8
ALL PORTFOLIOS............................................8
FUNDAMENTAL POLICIES......................................9
SPECIAL INVESTMENT CONSIDERATIONS AND RISK FACTORS...............10
INFORMATION CONCERNING THE MASTER-FEEDER FUND STRUCTURE..........11
MANAGEMENT.......................................................13
CALCULATION OF NET ASSET VALUE...................................16
HOW TO BUY FIVE ARROWS SERVICE SHARES............................17
HOW TO REDEEM FIVE ARROWS SERVICE SHARES.........................19
HOW TO CHANGE FUNDS..............................................21
TAXATION.........................................................22
DIVIDENDS AND DISTRIBUTIONS......................................24
PERFORMANCE......................................................24
GENERAL INFORMATION..............................................25
<PAGE> 36
FUND (AND ALLOCATED PORTFOLIO) FEES AND EXPENSES
- --------------------------------------------------------------------------------
FIVE ARROWS SERVICE SHARES
- --------------------------------------------------------------------------------
All Funds
Shareholder Transaction Expenses
- --------------------------------
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Redemption fees None
Exchange fees None
Annual Operating Expenses (as a percentage
- -------------------------------------------
of average net assets and net of reimbursements)
- ------------------------------------------------
<TABLE>
<CAPTION>
12b-1(1)(3) Total Fund
Advisory Fees Fee Other Expenses Expenses(2)(3)
------------- --- -------------- --------
<S> <C> <C> <C> <C>
U.S. Dollar .20% .35% .075% .625%
Pound Sterling .20% .35% .15% .70%
Deutschemark .20% .35% .15% .70%
Canadian Dollar .20% .35% .15% .70%
</TABLE>
EXPENSES PER 1,000 SHARE INVESTMENT
1 Year 3 Year
------ ------
U.S. Dollar $6 $20
Pound Sterling (pound)7 (pound)22
Deutschemark DM7 DM22
Canadian Dollar C$7 C$22
Assuming a hypothetical investment of U.S. $1,000, (pound)1,000,
DM1,000, or C$1,000 with a 5% annual return and redemption at the end of each
time period, an investor in the Trust will have paid transaction and operating
expenses over the time period as indicated above.
- --------------------------------------------------------------------------------
(1) The Trust's 12b-1 Plan provides for payments to the Distributor of up
to .50% of the average daily net asset value of the Five Arrows Service
class of each Fund. Of this total, .25% represents a service fee and any
remaining amount represents a distribution fee. The Distributor has
voluntarily agreed to waive a portion of these payments so that the
total amount paid under the 12b-1 Plan does not exceed 0.35% (on an
annual basis) of the average daily net asset value of the Five Arrows
Service class of any Fund.
(2) The Investment Adviser has voluntarily agreed to reimburse such portion
of its advisory fee as is necessary to cause the annualized total
expenses of each class of a Fund not to exceed (on an annual basis) a
specified percentage of such class' average daily net asset value (.625%
in the case of the Five Arrows Service class of the U.S. Dollar Fund and
.70% in the case of the Five Arrows Service class of each other Fund).
If this reimbursement is not sufficient to cause the total expenses of
any Fund not to exceed the applicable percentage of average daily net
asset value, the Investment Adviser has agreed to pay such other
expenses of the applicable Fund as is necessary to keep total expenses
from exceeding the applicable percentage.
(3) The foregoing undertakings shall remain in effect for the fiscal period
ending December 31, 1997, and thereafter in the discretion of the
Distributor and the Investment Adviser, respectively. The Distributor
and the Investment Adviser have reserved the right to terminate or
revise their respective undertakings with respect to any period after
December 31, 1997. To the extent 12b-1 are waived by the Distributor,
investment management fees are reimbursed by the Investment Adviser,
of expenses of a Fund are paid by the Investment Adviser, the total
return to shareholders will increase. Total return to shareholder will
decrease to the extent that such undertakings are no longer in effect.
The above table of fees and expenses is provided to assist investors in
understanding the various costs and expenses which may be borne directly or
indirectly by investors in the Funds. The Trust does not charge a sales load in
connection with the purchase or redemption of its shares. The percentages shown
above are based on an annualized estimate of the expenses to be incurred during
the current fiscal year, after expense reimbursements, and should not be
considered a representation of future costs and expenses or performance. Actual
costs and expenses or performance in future periods may be more or less than
those shown above. For the purpose of the example, assume reinvestment of all
dividends and distributions. The table does not reflect charges for optional
services, such as the fee for remittance of redemption proceeds by wire. For a
more complete discussion of the fees connected with an investment in the Trust
and the services provided to the Trust, see "Management", "How to Buy Five
Arrows Service Shares" and "How to Redeem Five Arrows Service Shares."
Authorized Firms acting on behalf of their clients may impose additional fees
upon an investor such as account maintenance fees, compensating balance
requirements or fees based upon account transactions, assets or income.
The Funds invest all of their Investable Assets in the Portfolios. The
Trustees of the Trust believe that, over time, the aggregate per share expenses
of each Fund and its corresponding Portfolio should be approximately equal to,
or less than, the per share expenses the Fund would incur if the Fund were
instead to retain the services of an investment adviser and its assets were
invested directly in the type of securities being held by the Portfolios.
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<PAGE> 37
SUMMARY
The investment objectives of each Fund are to seek to maintain a high
level of liquidity, to preserve capital and stability of principal expressed in
the Fund's Designated Currency and, consistent with those objectives, to earn
current income. A Fund's investment objectives are fundamental and may not be
changed without the approval of its shareholders. Each Fund will seek to achieve
its investment objectives by investing all of its Investable Assets in a
Portfolio which has the same investment objectives as such Fund. There can be no
assurance that the investment objectives of either the Funds or the Portfolios
will be achieved. (See "Investment Objectives" and "Investment Policies and
Restrictions.") An investment in shares of any of the Funds involves certain
risks, as discussed below, and may not be appropriate for all investors.
The Funds are designed primarily for use as a means of investing
short-term cash reserves in the Funds' Designated Currencies. Investors may also
consider purchasing Fund shares for a number of reasons including satisfying
settlement obligations or delivering a Fund's shares as collateral for a
transactional obligation in a Fund's Designated Currency.
Rothschild International Asset Management Limited (the "Investment
Adviser") manages the Portfolio Trust's Portfolios and receives an advisory fee
from each Portfolio calculated daily and payable monthly at an annual rate of up
to .20% of average daily net assets of such Portfolio.
BISYS Fund Services Limited Partnership (the "Administrator") acts as
the administrator of the Trust and Portfolio Trust. Its affiliates, Five Arrows
Fund Distributors Inc. (the "Distributor") and BISYS Fund Services, Inc. (the
"Transfer Agent"), act as the distributor and transfer/dividend disbursing agent
of the Trust, respectively, and The Chase Manhattan Bank acts as custodian (the
"Custodian") of the Trust and the Portfolio Trust. See "Management."
The Trust and Portfolio Trust bear all operating costs not agreed to be
borne by the Investment Adviser, the Distributor, the Administrator, the
Transfer Agent or the Custodian including, without limitation, legal and
auditing fees and expenses, expenses of investor reports to be provided to
existing shareholders; registration and reporting fees and expenses; and
Trustees' fees and expenses. The Investment Adviser has voluntarily agreed to
reimburse such portion of its advisory fee as is necessary to cause the
annualized total expenses of each class of a Fund not to exceed a specified
percentage of such class' average daily net asset value (.625% in the case of
the Five Arrows Service class of the U.S. Dollar Fund and .70% in the case of
the Five Arrows Service class of each other Fund). If this reimbursement is not
sufficient to cause total expenses of any Fund not to exceed the applicable
percentage of average daily net asset value, the Investment Adviser has agreed
to pay such other expenses of the applicable Fund as is necessary to keep total
expense from exceeding the applicable percentage. The foregoing undertaking
shall remain in effect for the fiscal period ending December 31, 1997, and
thereafter in the discretion of the Investment Adviser. The Investment Adviser
has reserved the right to terminate or revise this undertaking with respect to
any period after December 31, 1997.
Five Arrows Service shares will be issued at the net asset value next
determined after receipt by the Trust of an order in proper form and acceptance
of that order by the Trust. The Trust reserves the right to take appropriate
action in the event that Disbursable Funds (as defined below) for the purchase
price for the shares being issued are not received on a timely basis.
Disbursable Funds may only be received by the Trust during the operating times
for the wire transmission systems designated for use in transmitting money to
the Funds. The Trust has adopted a Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act") which provides for
the payment to the Distributor of up to .50% of the average daily net asset
value of the Five Arrows Service class of each Fund in order to finance
distribution and shareholder servicing activities. The Distributor has
voluntarily agreed to waive such portion of such payments as is necessary to
cause the annualized 12b-1 fee not to exceed 0.35% of the average daily net
asset value of the Five Arrows Service class of any Fund. This undertaking
shall remain in effect for the fiscal period ending December 31, 1997, and
thereafter in the discretion of the Distributor. The Distributor has reserved
the right to terminate or revise this undertaking with respect to any period
after December 31, 1997.
The Trust seeks to maintain a constant net asset value per share for
each Fund, although no assurances can be given that those per share values will
be maintained. Shares of a Fund may be redeemed by the shareholder from the
Trust at their next-determined net asset value. Each Fund is open for business
on any day on which the New York Stock Exchange (the "Exchange") is open for
trading or banks in New York City are open for business (a "Trust Business
Day") from 9:00 a.m. to 5:00 p.m. U.S. Eastern Time ("Trust Hours of
Operation"). Thus, the Trust will be open for business every day except for
Saturdays,
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<PAGE> 38
Sundays and holidays which are observed by both the Exchange and New York City
banks (scheduled holidays for 1997 are New Year's Day, President's Day, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day) The value
of the investments held by each Fund is determined in its Designated Currency
once every 24 hours during Trust Hours of Operation. See "Calculation of Net
Asset Value" and "How to Redeem Five Arrows Service Shares."
Dividends of each Fund's net investment income are declared once a day
and paid monthly. Net capital gains, if any, realized by a Fund will be
distributed annually. Dividends paid by a Fund will be automatically reinvested
in additional shares of the Fund. See "Dividends and Distributions" and
"Taxation."
DESCRIPTION OF THE TRUST AND PORTFOLIO TRUST
The Trust is a newly-formed open-end management investment company,
registered under the 1940 Act. Under the terms of the Master Trust Agreement
establishing the Trust, which is governed by the laws of Delaware, the Trustees
of the Trust are ultimately responsible for the management of the Funds'
business and affairs. The Trust is currently authorized to offer four individual
Funds, each of which represents a separate series of the Trust's shares of
beneficial interest. The Trust's Board of Trustees is empowered to establish
additional Funds at any time without shareholder approval. The Trustees have
authorized shares of the Fund to be issued in two classes: Five Arrows and Five
Arrows Service. Because expenses will vary between the classes, performance will
vary with respect to each class. Except for differences related to such
differential expenses, each share of a Fund has equal dividend, redemption and
liquidation rights with other shares of such Fund. Each share is fully paid and
nonassessable.
Each Portfolio is a newly-formed separate investment series of the
Portfolio Trust, a newly-formed business trust organized under the laws of the
State of Delaware, and intends to be treated as a partnership for federal tax
purposes. Under the terms of the Portfolio Trust's Master Trust Agreement, the
affairs of the Portfolio are managed under the supervision of the Trustees of
the Portfolio Trust.
The net asset value of a Fund's shares, when expressed in any currency
other than the Fund's Designated Currency, will fluctuate in response to changes
in the exchange rates between the Fund's Designated Currency and other
currencies, including the Designated Currencies of other Funds.
INVESTMENT OBJECTIVES
The investment objectives of each Fund are to seek to maintain a high
level of liquidity, preserve capital and stability of principal expressed in the
Fund's Designated Currency and, consistent with those objectives, to earn
current income. A Fund's investment objectives are fundamental and may not be
changed without the approval of its shareholders.
Each Fund will seek to achieve its investment objectives by investing
all of its Investable Assets in a Portfolio which has the same investment
objectives as such Fund. The investment objectives of the Portfolios are not
fundamental and may be changed upon notice to, but without the approval of, the
Portfolios' investors. There can be no assurance that the investment objectives
of either the Funds or the Portfolios will be achieved.
Since the investment characteristics of the Funds will correspond
directly to those of the Portfolio, the following is a discussion of the various
investments and investment policies of the Portfolios. Except as otherwise
provided below, the Funds' investment policies are not "fundamental policies"
within the meaning of the 1940 Act and may, therefore, be changed by the Trust's
Board of Trustees without a shareholder vote.
5
<PAGE> 39
INVESTMENT POLICIES AND RESTRICTIONS
U.S. DOLLAR PORTFOLIO
The U.S. Dollar Portfolio's investment objective is to seek to maintain
a high level of liquidity, to preserve capital and stability of principal
expressed in U.S. Dollars and, consistent with those objectives, to earn current
income. The U.S. Dollar Portfolio will invest in securities issued or guaranteed
as to principal and interest by the U.S. Government or its agencies or
instrumentalities or by foreign governments or Supranational Organizations (such
as the World Bank, the Inter-American Development Bank, the Asian Development
Bank and the European Bank for Reconstruction and Development) as well as
high-quality, short-term money market instruments such as bank certificates of
deposit, bankers' acceptances and such short-term corporate debt securities as
commercial paper and master demand notes.
The U.S. Dollar Portfolio invests only in U.S. dollar-denominated high
quality securities as described in this paragraph. All of the U.S. Dollar
Portfolio's assets will consist of government securities and "first tier"
eligible securities as defined in Rule 2a-7 under the 1940 Act, which have been
(i) rated by at least two United States nationally recognized statistical rating
organizations ("NRSRO"s), such as Standard & Poor's Corporation or Moody's
Investors Service, Inc., in the highest rating category for short-term
obligations (or so rated by one such organization if it alone has rated the
security), (ii) issued by an issuer with comparable short-term obligations
that are rated in the highest rating category, or (iii) if unrated, determined
to be comparable to such securities. See the Statement of Additional
Information.
All securities in which the U.S. Dollar Portfolio invests have remaining
maturities of thirteen months or less at the date of acquisition. The U.S.
Dollar Portfolio also maintains a dollar-weighted average portfolio maturity of
90 days or less. The U.S. Dollar Portfolio follows these policies in seeking to
maintain a constant net asset value of $1.00 per share, although there is no
assurance it can do so on a continuing basis.
The U.S. Dollar Portfolio may invest in U.S. dollar-denominated high
quality corporate debt securities such as commercial paper and bonds and
long-term unsecured debentures with remaining maturities of thirteen months or
less. These investments may include, for example, obligations issued by foreign
corporations and foreign counterparts of U.S. corporations, Eurodollar bonds
(which are U.S. dollar-denominated obligations of foreign issuers), and Yankee
bonds (which are U.S. dollar-denominated bonds issued by foreign issuers in the
U.S.). Under normal market conditions, the U.S. Dollar Portfolio will have more
than 25% of its total assets invested in the obligations of issuers in the
banking industry. See "Special Investment Considerations and Risk Factors --
Concentration in Obligations of Qualifying Banks." For further information
concerning debt securities ratings and permissible money market investments of
the U.S. Dollar Portfolio, see the Statement of Additional Information.
Securities issued or guaranteed as to principal and interest by the U.S.
Government or its agencies or instrumentalities in which the U.S. Dollar
Portfolio may invest include direct obligations of the U.S. Treasury, including
bills, bonds and notes; and obligations issued or guaranteed as to principal and
interest by U.S. Government agencies or instrumentalities and supported by any
of (i) the full faith and credit of the U.S. Treasury (e.g., Government National
Mortgage Association participation certificates); (ii) the right of the issuer
to borrow a limited amount from the U.S. Treasury (e.g., securities of the
Farmers Home Administration); (iii) the discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality
(e.g., securities of the Federal National Mortgage Association); or (iv) the
credit of the agency or instrumentality (e.g., securities of a Federal Home Loan
Bank).
POUND STERLING PORTFOLIO
The Pound Sterling Portfolio's investment objective is to seek to
maintain a high level of liquidity, to preserve capital and stability of
principal expressed in Pounds Sterling and, consistent with those objectives,
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<PAGE> 40
to earn current income. The Pound Sterling Portfolio will invest in securities
issued or guaranteed as to principal and interest by the United Kingdom ("U.K.")
Government, local authorities, city corporations and county councils or their
agencies or by non-U.K. governments or Supranational Organizations as well as
high-quality, short-term money market instruments such as bank certificates of
deposit, bankers' acceptances and such short-term corporate debt securities as
commercial paper.
The Pound Sterling Portfolio invests only in Pound Sterling-denominated
high quality securities as described in this paragraph. The Pound Sterling
Portfolio assets will consist of government securities and other securities,
which have been (i) rated by at least two NRSROs in the highest rating category
for short-term obligations (or so rated by one such organization if it alone has
rated the security), (ii) issued by an issuer with comparable short-term
obligations that are rated in the highest rating category, or (iii) if unrated,
determined to be comparable to such securities.
All securities in which the Pound Sterling Portfolio invests have
remaining maturities of 60 days or less at the date of acquisition. The Pound
Sterling Portfolio follows these policies in seeking to maintain a constant net
asset value of (pound)1.00 per share, although there is no assurance it can do
so on a continuing basis.
The Pound Sterling Portfolio may invest in Pound Sterling-denominated
high quality corporate debt securities such as commercial paper and bonds and
long-term unsecured debentures with remaining maturities of 60 days or less.
Under normal market conditions, the Pound Sterling Portfolio will have more than
25% of its total assets invested in the obligations of issuers in the banking
industry. See "Special Investment Considerations and Risk Factors --
Concentration in Obligations of Qualifying Banks."
DEUTSCHEMARK PORTFOLIO
The Deutschemark Portfolio's investment objective is to seek to maintain
a high level of liquidity, to preserve capital and stability of principal
expressed in Deutschemarks and, consistent with those objectives, to earn
current income. The Deutschemark Portfolio will invest in securities issued or
guaranteed as to principal and interest by the German Government, by its
sub-divisions or their agencies or by non-German governments or Supranational
Organizations, as well as high-quality, short-term money market instruments such
as bank certificates of deposit and such short-term corporate debt securities
as commercial paper.
The Deutschemark Portfolio invests only in Deutschemark-denominated high
quality securities as described in this paragraph. The Deutschemark Portfolio's
assets will consist of government securities and other securities, which have
been (i) rated by at least two NRSROs in the highest rating category for
short-term obligations (or so rated by one such organization if it alone has
rated the security), (ii) issued by an issuer with comparable short-term
obligations that are rated in the highest rating category, or (iii) if unrated,
determined to be comparable to such securities.
All securities in which the Deutschemark Portfolio invests have
remaining maturities of 60 days or less at the date of acquisition. The
Deutschemark Portfolio follows these policies in seeking to maintain a constant
net asset value of DM1.00 per share, although there is no assurance it can do so
on a continuing basis.
The Deutschemark Portfolio may invest in Deutschemark-denominated high
quality corporate debt securities such as commercial paper and bonds and
long-term unsecured debentures with remaining maturities of 60 days or less.
Under normal market conditions, the Deutschemark Portfolio will have more than
25% of its total assets invested in the obligations of issuers in the banking
industry. See "Special Investment Considerations and Risk Factors --
Concentration in Obligations of Qualifying Banks."
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<PAGE> 41
CANADIAN DOLLAR PORTFOLIO
The Canadian Dollar Portfolio's investment objective is to seek to
maintain a high level of liquidity, to preserve capital and stability of
principal expressed in Canadian Dollars and, consistent with those objectives,
to earn current income. The Canadian Dollar Portfolio will invest in securities
issued or guaranteed as to principal and interest by the Canadian Government,
the Provinces of Canada, or their agencies or by non-Canadian governments or
Supranational Organizations as well as high-quality, short-term money market
instruments such as bank certificates of deposit and such short-term corporate
debt securities as commercial paper and master demand notes.
The Canadian Dollar Portfolio invests only in Canadian
Dollar-denominated high-quality securities as described in this paragraph. The
Canadian Dollar Portfolio's assets will consist of government securities and
other securities which have been (i) rated by at least two NRSROs in the highest
rating category for short-term obligations (or so rated by one such organization
if it alone has rated the security), (ii) issued by an issuer with comparable
short-term obligations that are rated in the highest rating category, or (iii)
if unrated, determined to be comparable to such securities.
All securities in which the Canadian Dollar Portfolio invests have
remaining maturities of 60 days or less at the date of acquisition. The Canadian
Dollar Portfolio follows these policies in seeking to maintain a constant net
asset value of C$1.00 per share, although there is no assurance it can do so on
a continuing basis.
The Canadian Dollar Portfolio may invest in Canadian Dollar-denominated
high quality corporate debt securities such as commercial paper and bonds and
long-term unsecured debentures with remaining maturities of 60 days or less.
Under normal market conditions, the Canadian Dollar Portfolio will have more
than 25% of its total assets invested in the obligations of issuers in the
banking industry. See "Special Investment Considerations and Risk Factors --
Concentration in Obligations of Qualifying Banks."
ALL PORTFOLIOS
In seeking to obtain its investment objectives, each Portfolio may
invest in the types of securities described below.
Variable and Floating Rate Notes
--------------------------------
Each Portfolio may purchase variable and floating rate instruments.
These instruments may include variable amount master demand notes, which are
instruments under which the indebtedness, as well as the interest rate, varies.
In addition, these securities must be rated in the highest short-term rating
category by an NRSRO. Unless guaranteed by the U.S. Government or one of its
agencies or instrumentalities, variable or floating rate instruments purchased
by the U.S. Dollar Portfolio must permit such Portfolio to demand payment of the
instrument's principal at least once every thirteen months. Variable or floating
rate instruments purchased by each of the other Portfolios must permit such
Portfolio to demand payment of the instrument's principal at least once every 60
days. Because of the absence of a market in which to resell a variable or
floating rate instrument, a Portfolio might have trouble selling an instrument
should the issuer default or during periods when a Portfolio is not permitted by
agreement to demand payment of the instrument, and for this or other reasons a
loss could occur with respect to the instrument.
Repurchase Agreements
---------------------
Each Portfolio may invest in repurchase agreements. A repurchase
agreement arises when an investor purchases a security and simultaneously agrees
to resell it to the counterparty on the repurchase agreement at an agreed-upon
future date, normally one day or a few days later. The resale price is greater
than the purchase
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<PAGE> 42
price, reflecting an agreed-upon rate which is effective for the period of time
the investor's money is invested in the security and which is not related to the
coupon rate on the purchased security. By providing a flexible investment
vehicle, repurchase agreements permit the Portfolios to remain fully invested
pending the purchase of appropriate longer-term investments.
The Portfolios will enter into repurchase agreements only with financial
institutions rated by an NRSRO in the highest rating category for short-term
obligations and deemed to be creditworthy by the Investment Adviser, pursuant
to guidelines established by the Portfolio Trust's Board of Trustees. During the
term of any repurchase agreement, the Investment Adviser will monitor the
creditworthiness of the seller, and the seller must maintain the value of the
securities subject to the agreement in an amount that is greater than the
repurchase price. Default or bankruptcy of the seller would, however, expose the
Portfolios to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations. Because of the
seller's repurchase obligations, the securities subject to repurchase agreements
do not have maturity limitations.
When-Issued Securities
- ----------------------
Each Portfolio may purchase when-issued debt securities, which are
traded on a price or yield basis prior to actual issuance. Such purchases will
be made only to achieve the relevant Portfolio's investment objective and not
for leverage. The when-issued trading period generally lasts only from a few
days up to a month or more; during this period interest will not accrue. Such
transactions may involve a risk of loss if the value of the securities falls
below the price committed to prior to actual issuance. The Custodian will
establish a segregated account for a Portfolio when it purchases securities on a
when-issued basis consisting of cash or liquid securities equal to the amount of
the when-issued commitments.
Illiquid Securities
- -------------------
Each Portfolio may invest up to 10% of its net assets in illiquid
securities (i.e. securities which a Portfolio could not reasonably expect to
sell within seven days at approximately the price at which they are valued).
Under the supervision of the Portfolio Trust's Board of Trustees the Investment
Adviser will determine the liquidity of each investment using various factors
such as (1) the frequency of trades and quotations, (2) the number of dealers
and prospective purchasers in the marketplace, (3) dealer undertakings to make a
market, (4) the nature of the security (including any demand or tender features)
and (5) the likelihood of continued marketability and credit quality of the
issuer. If they have a remaining maturity of more than seven days, time deposits
and repurchase agreements will be considered to be illiquid securities.
FUNDAMENTAL POLICIES
Each of the Funds and the Portfolios have adopted certain fundamental
policies which may not be changed without the approval of that Fund's
shareholders or that Portfolios' investors, as the case may be.
The Funds have the same investment restrictions as the Portfolios,
except that each Fund may invest all of its Investable Assets in an open-end
management investment company with substantially the same investment objectives
as that Fund. Therefore, references below to the Portfolios' investment
restrictions also include the Funds' investment restrictions. In addition, as a
fundamental policy, no Portfolio may: (i) borrow money, except from the
Portfolio Trust's Custodian or from other banks in connection with redemptions
or for temporary or emergency purposes (borrowings by a Portfolio may not exceed
20% of that Portfolio's net assets computed immediately after the borrowing; no
additional investments may be made while any borrowings exceed 5% of the
Portfolio's total assets), (ii) pledge, hypothecate, or mortgage any of the
Portfolio's assets other than in connection with permitted borrowings or (iii)
make any investment which would cause more than 25% of the value of such
Portfolio's total assets to be invested in securities of nongovernmental issuers
principally engaged in any one industry, except that under normal market
conditions each Portfolio will invest
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<PAGE> 43
more than 25% of its total assets in obligations of Qualifying Banks (as defined
herein). Additional fundamental policies of the Portfolios are set forth in the
Statement of Additional Information.
If a percentage restriction, including one that is a fundamental policy,
is adhered to at the time of investment, a later increase or decrease in
percentage resulting from a change in values or assets will not constitute a
violation of that restriction.
SPECIAL INVESTMENT CONSIDERATIONS AND RISK FACTORS
Possible Changes in Net Asset Value and Yield
- ---------------------------------------------
Each Portfolio seeks to maintain a constant net asset value and
generally values its investments at amortized cost. However, the value of each
Portfolio may be affected by changes in interest rates and the credit standing
of issuers of the Portfolios' investments. The value of the investments held by
each of the Portfolios in which the Funds invest generally will vary inversely
with changes in prevailing interest rates, although this variance is expected to
be minimal due to the short maturities of the instruments held by the
Portfolios.
Interest rates paid on instruments denominated in a given Designated
Currency may be higher or lower than those paid on instruments denominated in
other Designated Currencies. Investors should recognize that in periods of
declining short-term interest rates the inflow of net new money to a Portfolio
from the continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of such Portfolio's
portfolio, thereby reducing the current yield of the Portfolio. In the periods
of rising interest rates, the opposite can be true. The securities in which the
Portfolios invest may not produce as high a level of income as could be obtained
from securities with longer maturities or those having a lesser degree of
safety.
Investments in a Single Issuer
- ------------------------------
Each Portfolio other than the U.S. Dollar Portfolio is non-diversified
under the 1940 Act. These Portfolios intend to comply, however, with the
diversification requirements applicable to regulated investment companies under
the United States Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"). Currently, those requirements provide that, as of the last day
of each fiscal quarter, each Portfolio's investments in the securities of any
one issuer must be limited to 25% of its total assets, provided that with
respect to at least 50% of its total assets, a Portfolio may not have invested
more than (a) 5% of its total assets in the securities of any one issuer or (b)
10% of the outstanding voting securities of any one issuer. To the extent a
Portfolio is not diversified under the 1940 Act, it may be more susceptible
than a fully diversified Portfolio to adverse developments affecting a single
issuer.
In addition to the foregoing, each of the Portfolios has adopted a
non-fundamental investment restriction which prevents it from investing (i) more
than 5% of the value of its total assets in the securities of any one
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<PAGE> 44
issuer (other than repurchase agreements and securities issued by a sovereign
government, its agencies and instrumentalities), (ii) more than 25% of the value
of its total assets in repurchase agreements with one counterparty or (iii) more
than 25% of the value of its total assets in securities issued by any sovereign
government, its agencies and instrumentalities (other than the federal
government of the United States). Securities held solely as collateral for
outstanding repurchase agreements shall be excluded for purposes of computing
compliance with restriction (iii). These restrictions may be eliminated or
modified at any time by the Trustees of the Portfolio Trust without a
shareholder vote.
Concentration in Obligations of Qualifying Banks
- ------------------------------------------------
Under normal market conditions, each Portfolio will have more than 25%
of its total assets invested in obligations of Qualifying Banks. For the
purposes of this Prospectus, Qualifying Banks are defined as U.S. banks
(including savings banks or savings and loan associations) that are members of
the Federal Deposit Insurance Corporation ("FDIC") and "foreign banks," as
defined in Rule 3a-6 under the 1940 Act, provided that any such institution has,
at the date of investment, capital, surplus and undivided profits (as of the
date of its most recently published financial statements) in excess of
U.S.$100,000,000 or the non-U.S. dollar equivalent, as the case may be. This
concentration may result in increased exposure to risks pertaining to the
banking industry. These risks include: a sustained increase in interest rates,
which can adversely affect the availability and cost of funds for a bank's
lending activities; exposure to credit losses during times of economic decline;
concentration of loan portfolios in certain industries; national and local
regulatory developments; and competition within the banking industry as well as
from other financial institutions. In addition, investments in banks located in
foreign countries are subject to risks resulting from the combination in those
banks of banking and securities underwriting and similar activities.
Investments in Foreign Securities
- ---------------------------------
Investing in securities issued by entities domiciled in a country other
than an investor's country of residence or denominated in a currency other than
the currency of the investor's country of residence may involve considerations
and possible risks and opportunities not typically encountered by the investor
in making investments in its country of residence and in securities denominated
in that country's currency. These considerations include favorable or
unfavorable changes in interest rates, currency exchange rates and exchange
control regulations, and the costs that may be incurred in connection with
conversions between various currencies. In addition, investments in countries
other than the United States could be affected by other factors generally not
thought by investors to be present in the United States, including less liquid
and efficient securities markets, greater price volatility, less publicly
available information about issuers, the imposition of withholding or other
taxes, restrictions on the expatriation of funds or other assets of a Portfolio,
expropriation of assets, adverse diplomatic developments, higher transaction and
custody costs, delays attendant in settlement procedures and difficulties in
enforcing contractual obligations.
INFORMATION CONCERNING THE
MASTER-FEEDER FUND STRUCTURE
Each of the Funds seeks to achieve its investment objectives by
investing all of its Investable Assets in the Portfolio which has the same
investment objectives as such Fund and invests solely in assets denominated in
that Fund's Designated Currency. These Portfolios in turn invest in securities
that are consistent with those objectives. In addition to selling beneficial
interests to the Funds, the Portfolios may sell beneficial interests
11
<PAGE> 45
to other mutual funds or institutional investors. Such investors will invest in
the Portfolios on the same terms and conditions and will pay a proportionate
share of the Portfolios' expenses. However, the other investors investing in the
Portfolios are not required to sell their shares at the same public offering
price as the Funds due to the imposition of sales commissions and variations in
other operating expenses. Therefore, investors in the Funds should be aware that
these differences may result in differences in returns experienced by investors
in the different funds that invest in the Portfolios. Such differences in
returns are also present in other mutual fund structures. Information concerning
other holders of interests in the Portfolios is available from the Administrator
by calling 1-800-499-3603.
Smaller funds investing in the Portfolios may be materially affected by
the actions of larger funds investing in the Portfolios. For example, if a large
fund withdraws from a Portfolio, the remaining funds investing in that Portfolio
may experience higher pro rata operating expenses, thereby producing lower
returns (however, this possibility exists as well for traditionally structured
funds that have large institutional investors). Additionally, because the
Portfolio would have fewer assets in such a case, it may become less
diversified, resulting in increased portfolio risk. Also, funds with a greater
pro rata ownership in such a Portfolio could have effective voting control of
the operations of that Portfolio. Except as permitted by the SEC, whenever the
Trust is requested to vote on matters pertaining to the Portfolios (other than a
vote by the Funds to continue operations of the Portfolios upon the withdrawal
of another investor in the Portfolios), the Trust will hold a meeting of
shareholders of the Funds and will cast all of its votes in the same proportion
as the votes of the Funds' shareholders. The percentage of the Trust's votes
representing Funds shareholders not voting will be voted by the Trustees or
officers of the Trust in the same proportion as the shareholders of the Funds
who do, in fact, vote. Shareholders of the Funds who do not vote will not affect
the Trust's votes at the Portfolios' meetings.
A Fund may withdraw its investment from a Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests of
the shareholders of that Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including
investing all the Investable Assets of that Fund in another pooled investment
entity having the same investment objectives as the Fund or retaining Rothschild
International Asset Management Limited or another investment adviser to manage
the Fund's assets directly in accordance with the investment policies described
above with respect to the relevant Portfolio. Any such withdrawal could result
in distributions to such Fund from the Portfolio "in kind" of portfolio
securities (as opposed to a cash distribution) to the extent permitted by the
1940 Act, or rules adopted thereunder. If securities are distributed, such Fund
could incur brokerage, tax or other charges in converting the securities to
cash. In addition, the distribution in kind may result in a less diversified
portfolio of investments or adversely affect the liquidity of that Fund.
Notwithstanding the above, there are other means for meeting redemption
requests, such as borrowing.
The Funds' investment objectives are fundamental policies and may not be
changed without the approval of the Funds' shareholders. The investment
objectives of the Portfolios are not fundamental policies and may be changed
without the approval of the investors in the Portfolio. Shareholders of a Fund
will receive 30 days prior written notice with respect to any change in the
investment objective of its corresponding Portfolio. See "Investment Objective"
and "Investment Policies and Restrictions" for a description of the fundamental
policies of the Portfolios that cannot be changed without approval of the "vote
of a majority of the outstanding voting securities" (as defined in the 1940 Act)
of the Portfolios.
For descriptions of the investment objectives, policies and restrictions
of the Portfolios, see "Investment Objectives" and "Investment Policies and
Restrictions." For descriptions of the management of the Portfolios, see
"Management" herein and in the Statement of Additional Information. For
descriptions of the expenses of the Portfolios, see "Management" herein.
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<PAGE> 46
MANAGEMENT
Each Fund is a separate series of the Trust, a Delaware business trust
under the terms of the Agreement and Declaration of Trust establishing the
Trust, which is governed by the laws of Delaware. The Trustees of the Trust are
ultimately responsible for the management of its business and affairs.
Each Portfolio is a separate investment series of the Portfolio Trust,
which is also a Delaware business trust under the terms of the Agreement and
Declaration of Trust establishing the Portfolio Trust, which is governed by the
laws of Delaware. Under the terms of the Portfolio Trust's Declaration of Trust,
the affairs of the Portfolio are managed under the supervision of the Trustees
of the Portfolio Trust.
The Boards of Trustees of the Portfolio Trust and the Trust establish
their respective policies and supervise and review the operations and management
of the Portfolio Trust and the Trust, respectively. The day-to-day operations of
the Portfolio Trust and the Trust are administered by officers elected by their
respective Board of Trustees.
A majority of the Trustees who are not "interested persons" (as defined
in the 1940 Act) of the Trust and the Portfolio Trust, as the case may be, have
adopted written procedures reasonably appropriate to deal with potential
conflicts of interest arising from the fact that the same individuals are
Trustees of the Trust and of the Portfolio Trust, up to and including creating
separate Boards of Trustees. See "Management of the Trust and Portfolio Trust"
in the Statement of Additional Information for more information about the
Trustees and officers of the Trust and the Portfolio Trust.
Investment Adviser and Investment Advisory Agreement
The Investment Adviser serves pursuant to a Master Investment Advisory
Agreement with the Portfolio Trust. The Investment Adviser is a British
corporation that was formed in 1975 and is registered under the U.S. Investment
Advisers Act of 1940, as amended. It is an indirect subsidiary of Rothschild
Concordia AG of Zug, Switzerland, a holding company whose subsidiaries manage
approximately $27 billion of assets, spread across equities, bonds and
currencies.
The Investment Adviser, subject to the supervision and direction of the
Portfolio Trust's Board of Trustees, professionally manages each Portfolio in
accordance with such Portfolio's investment objectives and policies and makes
all investment decisions for those Portfolios. In consideration of these
services, the Portfolio Trust has agreed to pay the Investment Adviser monthly
an annual advisory fee with respect to each Portfolio. The advisory fee for each
Portfolio is calculated daily and payable monthly at an annual rate of up to
.20% of average daily net assets.
The Investment Adviser and the Administrator may, at their own expense,
provide compensation to certain financial institutions whose customers purchase
significant amounts of shares of a Fund. The amount of such compensation may be
made on a one-time and/or periodic basis, and may be up to 100% of the annual
fees that are earned by the Investment Adviser or the Administrator (after
adjustments) and are attributable to shares held by such customers. Such
compensation will not represent an additional expense to the Funds or their
shareholders, since it will be paid from assets of the Investment Adviser and
the Administrator or their affiliates.
The portfolio manager for all of the Portfolios is Thomas Barman, who
has been employed by the Investment Adviser as its Director for Currency
Management since November 1994. He has been primarily responsible for the
day-to-day management of the Portfolios' portfolios since their commencement of
operations. He has over 25 years experience in fund management. From March 1993
to August 1994, Mr. Barman was
13
<PAGE> 47
a portfolio manager for Glaxo (Bermuda) Limited. From April 1991 to February
1993, he was a portfolio manager for the U.S. Office of Caisse des Depots et
Consignations. Prior to that time, he served as Foreign Exchange Officer at the
Federal Reserve Bank of New York and was head of U.S. Treasury investments
at Credit Suisse (New York).
Prior to the Trust's commencement of operations, the Investment Adviser
and Mr. Barman had not had previous experience managing a mutual fund
registered under the 1940 Act. However, they have had substantial experience
managing publicly offered European mutual funds.
The Investment Adviser has a Code of Ethics governing personal
securities transactions of certain of its employees. See the Statement of
Additional Information.
Distributor
The Distributor is an affiliate of the Administrator. Mutual funds
structured like the Funds sell shares on a continuous basis. The Funds' Shares
are sold through the Distributor. Certain officers of the Trust are also
officers and/or directors of the Distributor.
Administrator
The Administrator, a wholly-owned subsidiary of The BISYS Group, Inc.,
is responsible for coordinating the Funds' efforts and generally assuring the
operation of the Funds' business. It has been providing services to mutual funds
since 1987.
The Administrator provides a wide range of services to the Funds,
including maintaining the Funds' offices, providing statistical and research
data, coordinating the preparation of reports to shareholders, calculating and
providing for the calculation of net asset values of Fund shares, dividends and
capital gains distributions to shareholders, and performing other administrative
functions necessary for the smooth operation of the Funds.
The Administrator provides the Portfolio Trust with office space and
with certain clerical services and facilities.
The Administrator is entitled to an administration fee calculated daily
and payable monthly at an annual rate of .10% of the average daily net assets of
all of the Funds. The Administrator serves as such for an initial two year term
(with subsequent annual, renewable terms) pursuant to administration agreements
with the Trust and the Portfolio Trust. Those agreements provide that the
Administrator shall receive payment in full of its fee for the remainder of the
relevant term if the Administrator is terminated without cause prior to the end
of such term. The Administrator or its affiliates may also act as Authorized
Firms (as defined below).
12b-1 Plan
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1
(the "12b-1 Plan") in accordance with the regulations promulgated under the
1940 Act. The 12b-1 Plan provides that each Fund will make payments to the
Distributor equal to .50% (on an annual basis) of the average daily value of
the net assets of such Fund's Five Arrows Service class of shares (the "12b-1"
fee). The 12b-1 fee has two components: a service fee and a distribution fee.
The 12b-1 Plan provides that each of these components will be paid at an annual
rate of 0.25% of the average daily value of the net assets of such Fund's Five
Arrows Service class of shares. The Distributor has voluntarily agreed to waive
a portion of the distribution fee component in order to limit payments of the
12b-1 fee to 0.35% (on an annual basis) of the average daily net asset value of
the Five Arrows Service class of any Fund. This waiver shall remain in effect
for the fiscal period ending December 31, 1997, and thereafter in the
discretion of the Distributor. The Distributor has reserved the right to
terminate or revise this undertaking with respect to any period after December
31, 1997.
Some or all of the service fees are used to compensate Authorized Firms
for providing account administration services to their clients who are
beneficial owners of such shares. One or more affiliates of the Investment
Adviser and the Administrator may act as Authorized Firms. The Distributor will
enter into agreements with Authorized Firms which purchase Five Arrows Service
shares on behalf of their clients ("Service Agreements"). The Service Agreements
will provide for compensation to the Authorized Firms in an amount up to .25%
(on an annual basis) of the average daily net assets of the Five Arrows Service
shares of the applicable Fund attributable to or held in the name of the
Authorized Firm for its clients.
The services provided by the Authorized Firms may include, among other
things, receiving, aggregating and processing shareholder or beneficial owner
(collectively "shareholder") orders; furnishing shareholder subaccounting;
providing and maintaining retirement plan records; communicating periodically
with shareholders; acting as the sole shareholder of record and nominee for
shareholders; maintaining account records for shareholders; answering questions
and handling correspondence from shareholders about their accounts; issuing
various shareholder reports and confirmations for transactions by shareholders;
any service fees received by the distributor and not allocated to authorized
firms may be retained by the distributor in consideration of its own role in
servicing shareholder accounts.
Authorized Firms that have sold Five Arrows Service shares are eligible
for further compensation commencing as of the time of such sale. It is the
Distributor's current policy to pay a trailer commission to Authorized Firms in
an amount equal to .10% (on an annual basis) of the average daily net assets of
the Five Arrows Service shares of the applicable Fund attributable to or held in
the name of the Authorized Firm for its clients. This trailer commission
arrangement may be terminated or revised by the Distributor at any time. Any
distribution fee received by the Distributor and not allocated to Authorized
Firms may be applied by the Distributor in connection with sales or marketing
efforts (e.g. for advertising costs, the cost of printing and mailing
prospectuses and reports to potential investors) or retained by the Distributor
in consideration of its own role in marketing Five Arrows Service Shares.
Holders of Five Arrows Service shares of a Fund will bear all fees paid
under the 12b-1 Plan with respect to such shares as well as any other expenses
which are directly attributable to such shares.
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<PAGE> 48
Transfer and Dividend Disbursing Agent
Under its agreement with the Trust, BISYS Fund Services, Inc., as
Transfer Agent, provides customary transfer and dividend disbursing agent
services, including processing purchase, redemption and transfer transactions,
responding to shareholder inquiries, automatically investing dividends in Fund
shares, transmitting dividends to shareholders, assisting shareholders in
changing account designations and addresses and transmitting to shareholders
proxy statements, annual reports, prospectuses and other Trust communications.
The Transfer Agent serves as such for an initial two year term (with subsequent
annual, renewable terms) pursuant to a transfer agency agreement with the
Trust. That agreement provides that the Transfer Agent shall receive payment
in full of its fee for the remainder of the relevant term if the Transfer Agent
is terminated without cause prior to the end of such term. The Transfer Agent
may sub-contract any of its duties to another person, including its affiliates.
See "How to Buy Five Arrows Service Shares" and "How to Change Funds."
Custodian
The Chase Manhattan Bank is the custodian of the Trust and Portfolio
Trust (the "Custodian") and, in that capacity, maintains custody of the Trust's
and Portfolio Trust's assets, including those located outside the United States.
Expenses
All expenses incurred in the operation of a Fund or a Portfolio are
borne by such Fund or Portfolio except to the extent specifically assumed by the
Investment Adviser, the Distributor, the Administrator, the Custodian, or the
Transfer Agent. Subject to the undertaking of the Investment Adviser to
reimburse the Funds or Portfolios, as the case may be, for certain of their
excess expenses, the Funds or Portfolios, as the case may be, have confirmed
their obligation to pay all their other respective expenses, including: taxes,
brokerage fees and commissions; certain insurance premiums; auditing, legal and
compliance expenses; costs of forming the Trust and Portfolio Trust and
maintaining corporate existence; costs of Trust accounting; costs of preparing
and printing the Trust's prospectuses, statements of additional information and
shareholder reports and delivering them to shareholders; compensation of
Trustees of the Trust or Portfolio Trust who are not employees of the
Distributor or Administrator or their affiliates and costs of other personnel
performing services for the Trust or Portfolio Trust; costs of corporate
meetings; registration fees and related expenses for the Trust's registration
with the SEC and the securities regulatory authorities of other jurisdictions in
which the Funds' shares are sold; state securities law registration fees and
related expenses and other required registrations and related publication fees;
fees payable to the Investment Adviser under the Investment Advisory Agreement;
fees payable to the Administrator, Transfer Agent and Custodian and all fees
paid by the Trust pursuant to the 12b-1 Plan.
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<PAGE> 49
The Investment Adviser has voluntarily agreed to reimburse such portion
of its advisory fee as is necessary to cause the annualized total expenses of
each class of a Fund not to exceed a specified percentage of such class'
average daily net asset value (.625% in the case of the Five Arrows Service
class of the U.S. Dollar Fund and .70% in the case of the Five Arrows Service
class of each other Fund). If this reimbursement is not sufficient to cause the
total expenses of any Fund not to exceed the applicable percentage of average
daily net asset value, the Investment Adviser has agreed to pay such other
expenses of the applicable Fund as is necessary to keep total expenses from
exceeding the applicable percentage. The foregoing undertaking shall remain in
effect for the fiscal period ending December 31, 1997, and thereafter in the
discretion of the Investment Adviser. The Investment Adviser has reserved the
right to terminate or revise this undertaking with respect to any period after
December 31, 1997.
The Investment Adviser, the Distributor, the Administrator, the Transfer
Agent and the Custodian may also from time to time otherwise voluntarily waive
their respective fees. No fee waivers may be recouped beyond the end of any
fiscal year.
CALCULATION OF NET ASSET VALUE
The net asset value per share of each Fund, expressed in the relevant
Fund's Designated Currency, is determined by dividing the value of the Fund's
net assets (i.e., the value of its investment in its corresponding Portfolio and
other assets, including accrued but undistributed net investment income, less
liabilities) by the total number of shares of the Fund outstanding. Such net
asset values are determined once every Trust Business Day at 11:00 a.m. U.S.
Eastern Time for the U.S. Dollar and Canadian Dollar Funds and 9:00 a.m. U.S.
Eastern Time for the Pound Sterling Fund and 10:00 a.m. Eastern Time for the
Deutschemark Fund.
By investing all of their assets in the relevant Portfolio, each Fund
seeks to maintain the following constant net asset value per share:
U.S. Dollar Fund U.S. $1.00
Pound Sterling Fund (pound)1.00
Deutschemark Fund DM1.00
Canadian Dollar Fund C$1.00
It is anticipated that each Portfolio's assets will utilize the
amortized cost method of valuation as a reasonable means of approximating each
Portfolio's market value. This method involves valuing an instrument at its cost
and thereafter assuming a constant amortization or accretion to maturity of any
premium or discount. If at any time, however, the market value of any
Portfolio's total assets deviates more than 1/2 of 1% from their value
determined on an amortized cost basis, the Portfolio Trust's Board of Trustees
will consider whether any action should be initiated to prevent any adverse
effects on the Portfolios' shareholders. The Portfolio Trust's Board of Trustees
will monitor the use of the amortized cost method of valuation in order to
ensure that this method continues to be in the best interest of the Portfolios'
shareholders. There may be periods during which the stated value of an
instrument determined under the amortized cost method of valuation is higher or
lower than the price the Portfolio would receive if the instrument were sold,
and the accuracy of amortized cost valuation can be affected by changes in
interest rates and the credit standing of issuers of the Portfolio's
investments. There is no assurance that the Portfolios will maintain a stable
net asset value per share.
If in the view of the Portfolio Trust's Board of Trustees it is
inadvisable to continue maintaining a constant net asset value for any
Portfolio, the Board of Trustees may discontinue using the amortized cost method
of valuation for such Portfolio. Shareholders of a Portfolio would be notified
of a decision by the Board of Trustees to discontinue the use of the amortized
cost method with respect to such Portfolio. The form of notification would
depend on the context of such a decision and could include, for example, the
mailing of written notifications and/or the issuance of a press release.
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<PAGE> 50
HOW TO BUY FIVE ARROWS SERVICE SHARES
Shares of the Funds are sold on a continuous basis by the Distributor.
Clients of an Authorized Firm may only purchase Five Arrows Service shares
through their accounts at such Authorized Firm and should contact such
Authorized Firm directly for appropriate purchase instructions. When Five Arrows
Service shares are purchased through such Authorized Firms, an account fee may
be charged by those Authorized Firms for providing services in connection with
an Investor's investment which are not related to the services provided under
the 12b-1 Plan. These fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Information concerning these services and any charges should
be obtained from these Authorized Firms before a client authorizes the purchase
of Fund shares, and this Prospectus should be read in conjunction with any
information so obtained.
As set forth above, Five Arrows Service shares of the Funds are offered
exclusively through participating Authorized Firms. All inquiries of
beneficial owners of Five Arrows Service shares should be directed to the
Authorized Firm from which such Five Arrows Service shares were purchased.
Purchases of Five Arrows Service shares of any of the Funds will be
processed in accordance with the procedures set forth below, at the net asset
value per share of the relevant Fund next determined after the purchase order is
duly received. No sales charge is imposed at the time of purchase or redemption.
However, as further described below, shareholders will bear an annual 12b-1 fee.
Because of the costs associated with the 12b-1 Plan, the dividends of
the Five Arrows Service shares of each Fund will be lower than the dividends of
the Five Arrows shares of that Fund.
Purchases of shares of a Fund will be effected on Trust Business Days in
accordance with the procedures set forth below and only when the wire system
designated for use in transmitting money to the relevant Fund permits the timely
transmission of funds that are immediately available to the Trust for
investment purposes ("Disbursable Funds"). Additionally, on days when the New
York Stock Exchange and/or the Trust's Custodian or Distributor close early due
to a partial holiday or otherwise, the Trust
17
<PAGE> 51
reserves the right to advance the times at which purchase and redemption orders
must be received. Prospective or current Five Arrows Service shareholders must
transmit purchase orders through their Authorized Firm.
o Purchase orders for shares of the U.S. Dollar Fund received
prior to 11 a.m. U.S. Eastern Time on a Trust Business Day will
settle on that same day (or the next New York Banking Day (as
defined below) if such Trust Business Day is not a New York
Banking Day).
o Purchase orders for shares of the Canadian Dollar Fund received
prior to 11 a.m. U.S. Eastern Time on a Trust Business Day will
settle on that same day (or the next Toronto Banking Day (as
defined below) if such Trust Business Day is not a Toronto
Banking Day).
o Purchase orders for shares of the Pound Sterling Fund received
prior to 5 p.m. U.S. Eastern Time on a Trust Business Day will
settle on the following London Banking Day (as defined below).
o Purchase orders for shares of the Deutschemark Fund received
prior to 10 a.m. U.S. Eastern Time on a Trust Business Day will
settle on the following Frankfurt Banking Day (as defined
below), provided however that if such a Trust Business Day is
not a Frankfurt Banking Day, the purchase order will settle on
the second following Frankfurt Banking Day.
If a purchase order is not received by the Trust prior to the
applicable time listed above, such purchase order shall be deemed to have been
received on the next following Trust Business Day. Before placing a purchase
order investors should acquaint themselves with the minimum amounts and other
requirements for using the relevant wire system for the transfer of Disbursable
Funds, and should ascertain whether the financial institution from which the
purchase payment is being sent, has access to the appropriate system. It is
essential that complete information, regarding the investor's account,
accompany all wire instructions in order to facilitate the prompt and accurate
handling of investments. Investors may obtain, from their financial
institution, further information about remitting funds by wire and any fees
that may be imposed for so doing. The Trust does not impose a fee for receiving
payment by wire.
Investors will be entitled to any dividends declared or income earned
on the day when their purchase orders settle provided that Disbursable Funds
are received in the relevant Fund's Designated Currency in the appropriate bank
account (details of which are set out on the Application Agreement) by the
close of business on that same day. If Disbursable Funds, with respect to any
purchase order, are not received by this time by the Distributor, the Trust
reserves the right, in its sole discretion, (a) to accept the order and assess
interest on the overdue payment, or (b) to cancel the order, and to hold the
purchaser responsible for any loss and other costs incurred by the Distributor
and/or the Trust.
Authorized Firms act as agents for their customers and not as agents
for the Trust. It is the responsibility of Authorized Firms to transmit orders
for purchases by their clients promptly to the Trust, and to deliver the
required Disbursable Funds by the time stated above. If Disbursable Funds are
not received by the required time, the order may be cancelled and the
Authorized Firm will be held responsible for any loss and other costs incurred
by the Distributor and/or the Trust.
The Trust reserves the right to reject any purchase order in whole or in
part. All of a shareholder's accounts will be subject to the elections and
instructions specified by the shareholder in the Application Agreement covering
the accounts.
United States Federal tax regulations require investors that are United
States persons to provide a certified Taxpayer Identification Number and/or
certain other required certifications within 30 days following the opening or
reopening of an account in order to avoid withholding of taxes on distributions
and proceeds of redemptions.
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Ownership of the Trust's shares will be reflected by book-entry, and
certificates for shares will not be issued. Investment in the Trust is not
recommended for any investors who require a stock certificate to evidence their
shares.
All investments must be made in the Designated Currency of the Fund
whose shares are being purchased, as discussed above. Investors may convert
other currencies into the Designated Currency of a Fund through The Chase
Manhattan Bank, in accordance with its customary currency conversion credit and
operational arrangements and at its prevailing rates and fees to customers, or
through other dealers in foreign exchange, in accordance with their customary
credit and operational arrangements and at their prevailing rates and fees.
Currency conversions may result in capital gains or losses to an investor.
Neither the Trust nor its service contractors will be responsible for
any loss or expense for acting upon telephone instructions that are believed to
be genuine. In attempting to confirm that telephone instructions are genuine,
the Trust will use procedures considered reasonable. These procedures include
recording all telephone conversations, sending confirmations to shareholders
within 72 hours of the telephone transaction, verifying the account name and a
shareholder's account number or tax identification number and sending redemption
proceeds only to the address of record or to a previously authorized bank
account. To the extent that the Trust does not use reasonable procedures to form
its belief, it and/or its service contractors may be responsible for
instructions that are fraudulent or unauthorized.
A "New York Banking Day" is every day except Saturdays, Sundays and
holidays observed by New York City banks (scheduled holidays for 1997 are New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day).
A "London Banking Day" is every day except Saturdays, Sundays and
holidays observed by London banks (scheduled holidays for 1997 are New Year's
Day, Good Friday, Easter Monday, May Holiday, Spring Holiday, Late Summer
Holiday, Christmas Day and Boxing Day).
A "Frankfurt Banking Day" is every day except Saturdays, Sundays and
holidays observed by Frankfurt banks (scheduled holidays for 1997 are New Year's
Day, Epiphany, Good Friday, Easter Monday, Labor Day, Ascension Day, Whit
Monday, Corpus Christii, Assumption Day, German Unity Day, All Saint's Day, Day
of Penance, Christmas Eve Holiday, Christmas Day, Boxing Day and New Year's
Holiday).
A "Toronto Banking Day" is every day except Saturdays, Sundays and
holidays observed by Toronto banks (scheduled holidays for 1997 are New Year's
Day, Good Friday, Easter Monday, Victoria Day, Canada Day, Labour Day,
Thanksgiving, Remembrance Day, Christmas Eve Holiday, Christmas Day and Boxing
Day).
12b-1 Plan
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1
(the "12b-1 Plan") in accordance with the regulations promulgated under the
1940 Act. The 12b-1 Plan provides that each Fund will make payments to the
Distributor equal to .50% (on an annual basis) of the average daily value of
the net assets of such Fund's Five Arrows Service class of shares (the "12b-1"
fee). The 12b-1 fee has two components: a service fee and a distribution fee.
The 12b-1 Plan provides that each of these components will be paid at an annual
rate of 0.25% of the average daily value of the net assets of such Fund's Five
Arrows Service class of shares. The Distributor has voluntarily agreed to waive
a portion of the distribution fee component in order to limit payments of the
12b-1 fee to 0.35% (on an annual basis) of the average daily net asset value of
the Five Arrows Service class of any Fund. This waiver shall remain in effect
for the fiscal period ending December 31, 1997, and thereafter in the
discretion of the Distributor. The Distributor has reserved the right to
terminate or revise this undertaking with respect to any period after December
31, 1997.
Some or all of the service fees are used to compensate Authorized Firms
for providing account administration services to their clients who are
beneficial owners of such shares. One or more affiliates of the Investment
Adviser and the Administrator may act as Authorized Firms. The Distributor will
enter into agreements with Authorized Firms which purchase Five Arrows Service
shares on behalf of their clients ("Service Agreements"). The Service Agreements
will provide for compensation to the Authorized Firms in an amount up to .25%
(on an annual basis) of the average daily net assets of the Five Arrows Service
shares of the applicable Fund attributable to or held in the name of the
Authorized Firm for its clients.
The services provided by the Authorized Firms may include, among other
things, receiving, aggregating and processing shareholder or beneficial owner
(collectively "shareholder") orders; furnishing shareholder subaccounting;
providing and maintaining retirement plan records; communicating periodically
with shareholders; acting as the sole shareholder of record and nominee for
shareholders; maintaining account records for shareholders; answering questions
and handling correspondence from shareholders about their accounts; issuing
various shareholder reports and confirmations for transactions by shareholders;
account and administrative services. Any service fees received by the
distributor and not allocated to authorized firms may be retained by the
distributor in consideration of its own role in servicing shareholder accounts.
Authorized Firms that have sold Five Arrows Service shares are eligible
for further compensation commencing as of the time of such sale. It is the
Distributor's current policy to pay a trailer commission to Authorized Firms in
an amount equal to .10% (on an annual basis) of the average daily net assets of
the Five Arrows Service shares of the applicable Fund attributable to or held in
the name of the Authorized Firm for its clients. This trailer commission
arrangement may be terminated or revised by the Distributor at any time. Any
distribution fee received by the Distributor and not allocated to Authorized
Firms may be applied by the Distributor in connection with sales or marketing
efforts (e.g. for advertising costs, the cost of printing and mailing
prospectuses and reports to potential investors) or retained by the Distributor
in consideration of its own role in marketing Five Arrows Service Shares.
Holders of Five Arrows Service shares of a Fund will bear all fees paid
under the 12b-1 Plan with respect to such shares as well as any other expenses
which are directly attributable to such shares.
Authorized Firms may charge other fees to their clients who are the
beneficial owners of Five Arrows Service shares in connection with their client
accounts. These fees would be in addition to any amounts received by the
Authorized Firms would be for services other than those provided under such an
Agreement. Under the terms of such Service Agreements, Authorized Firms are
required to provide their clients with a schedule of fees charged to such
clients which relate to the investment of customers' assets in Five Arrows
Service shares at the time of any investment and whenever changes to the
schedule are made.
Each Fund will accrue payments made pursuant to the 12b-1 Plan
daily. The 12b-1 payments which are required to be accrued to the Five Arrows
Service shares on any day will not exceed the distributable income to be accrued
to such shares on that day. All inquiries by a beneficial owner of Five Arrows
Service shares must be directed to such owner's Authorized Firm.
HOW TO REDEEM FIVE ARROWS SERVICE SHARES
Five Arrows Service shareholders will redeem their shares according to
the procedures established, if any, by the Authorized Firm through which they
purchased those shares. Thereafter, the relevant Authorized Firm may request
redemption of a Fund's shares at any time in any amount during Trust Hours of
Operation by contacting the Transfer Agent. Subject to the right of a Fund to
make redemptions in kind under certain circumstances, all redemption requests
are treated as requests for redemption in the normal course in the Fund's
Designated Currency.
Redemptions of shares of a Fund will be effected on Trust Business Days
in accordance with the procedures set out below, and only when the wire system
designated for use in transmitting money from the
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relevant Fund permits the timely transmission of redemption proceeds.
Additionally, as for purchases of shares, the Trust reserves the right to
advance the times at which purchase and redemption orders must be received. As
noted above, Five Arrows Service shareholders must transmit redemption requests
through their respective Authorized Firm.
o Redemption requests for shares of the U.S. Dollar Fund received
prior to 11 a.m. U.S. Eastern Time on a Trust Business Day will
settle on that same day (or the next New York Banking Day if
such Trust Business Day is not a New York Banking Day).
o Redemption requests for shares of the Canadian Dollar Fund
received prior to 11 a.m. U.S. Eastern Time on a Trust Business
Day will settle that same day (or the next Toronto Banking
Day if such Trust Business Day is not a Toronto Banking Day).
o Redemption requests for shares of the Pound Sterling Fund
received prior to 5 p.m. U.S. Eastern Time on a Trust Business
Day will settle on the following London Banking Day.
o Redemption requests for shares of the Deutschemark Fund received
prior to 10 a.m. U.S. Eastern Time on a Trust Business Day will
settle on the following Frankfurt Banking Day, provided,
however, that if such a Trust Business Day is not a Frankfurt
Banking Day, the redemption request will settle on the second
following Frankfurt Banking Day.
If a redemption request is not received by the Trust prior to the
applicable time listed above, such request shall be deemed to have been received
on the next following Trust Business Day. Authorized Firms as agents for their
customers and not as agents for the Trust. It is the responsibility of Service
Organizations to transmit orders for redemptions by their customers promptly to
the Trust. Shareholders shall be entitled to any dividends declared or income
earned up to and including the day before the day on which the redemption
request is scheduled to settle.
If the Investment Adviser believes that market conditions exist which
preclude the Trust from making prompt payment in a Fund's Designated Currency,
the Trust can elect to take up to seven days to pay redemption proceeds or to
pay redemption proceeds wholly or partly in readily marketable portfolio
securities. The Trust is obligated to effect a redemption in currency without
regard to market conditions if requested by a shareholder redeeming $250,000 or
less (or in the applicable Designated Currency equivalent thereof) or 1% or
less of a Fund's net assets, whichever is less, during any 90-day period.
Except as provided below, all redemptions in currency will be made by
wire transfer on the settlement day in the Designated Currency of the Fund whose
shares are being redeemed through a recognized electronic funds transfer system
which handles such Designated Currency. A charge of $20 (or the equivalent in
the relevant Fund's Designated Currency) against the shareholder's account will
be imposed for each wire redemption. Banks receiving redemption proceeds by
wire may also impose a charge for doing so.
If a redemption request does not meet the minimum amount and other
requirements for sending currency through the electronic funds transfer system
employed by the Fund, redemption proceeds will be paid by check mailed to the
shareholder. Redemption proceeds will be directed to the shareholder's account
at his Authorized Firm.
When redemption proceeds are paid in portfolio securities, brokerage
costs may be incurred by the investor in converting the securities to currency.
For further information concerning redemptions in portfolio securities,
shareholders should telephone the Administrator. Redemption in portfolio
securities will be made by delivery to the shareholder, or to another party at
the shareholder's direction, of portfolio securities (together with a cash
payment in the Fund's Designated Currency equal to the value and in lieu of any
fractional securities required to be delivered) with a value determined at the
time the redemption is made to equal the aggregate net asset value of the Fund
shares being redeemed next determined following receipt of the redemption
request.
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To the extent permitted by applicable law, the right of redemption with
respect to a Fund may be suspended or the date of payment postponed for more
than seven days when trading in the markets in which the Fund's securities are
traded is restricted or for a period during which an emergency exists as a
result of which disposal by the Fund of its securities is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its assets. In addition, the right of redemption may be suspended
or the date of payment postponed for such other periods as the SEC by order may
permit to protect the Trust's shareholders.
The Trust reserves the right to redeem a shareholder's account at the
Trust's option, upon not less than 60 days' written notice to the shareholder,
if for a period of six months or more the account does not have in any Fund
shares with a net asset value equal to or greater than the Fund's Initial
Investment Minimum. During the 60-day period, a shareholder may avoid automatic
redemption by investing in any Fund an amount sufficient to increase the net
asset value of the account's shares of the Fund to the Fund's Initial Investment
Minimum.
Again, you should note that neither the Trust nor its service
contractors will be responsible for any loss or expense for acting upon
telephone instructions that are believed to be genuine. In attempting to confirm
that telephone instructions are genuine, the Trust will use procedures
considered reasonable, as described above.
HOW TO CHANGE FUNDS
A shareholder may change shares of one Fund into shares of another Fund
by redeeming shares of one Fund, converting the redemption proceeds into the
Designated Currency of another Fund and purchasing the shares of the other Fund
with the proceeds of the currency conversion. All purchase and redemption
orders for Five Arrows Service shares must be made through a shareholder's
Authorized Firm. During the period between the net asset value determination
applicable to the shares being redeemed in one Fund and the purchase of shares
in another Fund, the shareholder will not be the owner of, or be eligible to
receive dividends with respect to, either the shares which have been redeemed
or the shares being acquired.
The length of time for completion of a Fund change will vary depending
on the Funds involved and the time during Trust Hours of Operation when the Fund
change is initiated. In general, the length of time for completion of a Fund
change will depend upon each of the time required to obtain payment of
redemption proceeds from the Fund whose shares are being redeemed and the time
required to effect any foreign exchange transaction which may be necessary for
the shareholder to obtain the currency of the Fund whose shares are being
acquired. The arrangements involved in effecting foreign exchange transactions
will depend, in part, on a shareholder's credit and operating relationships with
the foreign currency exchange dealer the shareholder uses and may shorten the
length of time required for completion of a Fund change.
The Trust does not provide currency exchange services, either directly
or through its agents, and the selection of a foreign exchange dealer in
connection with a change of Funds is within the shareholder's sole discretion.
The Trust has been advised that The Chase Manhattan Bank's foreign exchange
department is available, at its customary currency conversion rates and fees and
subject to its customary credit and other requirements, to provide foreign
exchange services to shareholders changing Funds. Shareholders should contact
their Authorized Firm for further information.
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Fund changes may result in recognition of a taxable gain or loss. See
"Taxation."
TAXATION
The following discussion is only a summary of certain tax issues that
may be of interest to shareholders. All shareholders are urged to consult their
tax advisers for further information concerning the tax consequences of
investing in the Trust.
Taxation of the Trust
Under Subchapter M of the Internal Revenue Code, each Fund of the Trust
is to be treated as a separate corporation for U.S. Federal income tax purposes.
It is intended that each Fund will qualify for each fiscal year as a "regulated
investment company" under the Internal Revenue Code by complying with certain
requirements of the Internal Revenue Code regarding sources of income,
diversification of assets, and distribution of income to shareholders, although
no assurance can be given in this regard. As regulated investment companies, the
Funds will not be liable for U.S. Federal income taxes on the net investment
income and capital gain distributed to shareholders in accordance with the
applicable provisions of the Internal Revenue Code. Since it is intended that
each Fund will distribute all of its net income and net capital gain each year,
each Fund should avoid all U.S. Federal income taxes.
Under current law, the Trust does not anticipate that interest derived
by the Funds from sources outside the United States will be subject to non-U.S.
withholding taxes. To the extent any such withholding tax does arise, it may be
possible to reduce or eliminate it under the terms of applicable United States
income tax treaties. If it is subject to any such withholding tax, the Trust
intends to undertake the procedural steps required to claim the benefits of such
treaties. If any non-U.S. taxes are paid by a Fund and, as is expected, more
than 50% in value of the Fund's total assets at the close of any taxable year
consists of securities of non-U.S. banks or corporations, the Fund may elect to
treat any non-U.S. taxes paid by it as paid by its shareholders with the
consequences described under "U.S. Federal Income Taxation of U.S. Shareholders"
below.
Each Fund will determine its income in terms of its Designated Currency
and, in the case of each Fund other than the U.S. Dollar Fund, will translate
its net income for each year from its Designated Currency into U.S. dollars for
U.S. Federal income tax purposes. Under current Treasury regulations, regulated
investment companies are normally required to recognize for U.S. Federal income
tax purposes income or loss attributable to changes in exchange rates between
the U.S. dollar and the Fund's Designated Currency (i.e., currency gain or loss)
absent a ruling to the contrary from the Internal Revenue Service. Recognition
of currency gain in excess of currency loss in any given year would require the
affected Fund to pay dividends in excess of its interest income in order to pay
out all income as calculated for U.S. Federal income tax purposes. In reliance
upon a ruling from the Internal Revenue Service, the Trust calculates the income
of each Fund without recognizing currency gain or loss.
U.S. Federal Income Taxation of U.S. Shareholders
Dividends paid by each Fund out of its net investment income and net
realized short-term capital gain, if any, are taxable to the U.S. shareholders
of the Fund (i.e., a United States corporation or an individual who is a citizen
or resident of the United States) as ordinary income. Dividends to corporate
shareholders will not be eligible for the dividends-received deduction. To the
extent that the Trust elects to declare certain dividends in October, November
or December and to distribute them to the shareholders the following January,
the dividends would be included in the income of the shareholders as if received
in December.
A shareholder of a Fund, other than the U.S. Dollar Fund, will recognize
gain or loss on a sale or redemption of shares (or on a change of shares into
shares in another Fund) in respect of any appreciation or
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depreciation in the U.S. dollar-value of the shares from the time the shares are
acquired to the time of disposition. In general, that gain or loss will be
capital gain or loss. In addition, as discussed above, it may eventually be
determined that each Fund, other than the U.S. Dollar Fund, is required to
recognize currency gain or loss. Recognition by a Fund of currency gain in
excess of currency loss in any given year would result in the shareholders of
that Fund recognizing ordinary dividend income in addition to the daily
dividends that are attributable to the Fund's interest income. Any such
additional dividends would increase a shareholder's basis in the shares and
would affect the shareholder's calculation of capital gain or loss on
disposition of the shares.
The Trust is required by U.S. Federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions and
redemptions) paid to a non-corporate shareholder unless the shareholder
certifies on its Application Agreement that the social security or tax
identification number provided is correct and that the shareholder is not
subject to 31% backup withholding for prior under-reporting to the Internal
Revenue Service.
Each Fund, other than the U.S. Dollar Fund, may be able to elect to
pass-through to its shareholders non- U.S. taxes paid by the Portfolio but does
not currently anticipate doing so. Shareholders of each Fund that so elects will
be required to include in income (in addition to any dividends the shareholders
receive) their proportionate shares of the amount of non-U.S. taxes paid by the
Portfolio and will be entitled to claim either a credit or a deduction for their
shares of such taxes in computing their U.S. Federal income tax liability.
Availability of such a credit or deduction is subject to certain limitations.
Shareholders will be informed each year in which a Fund makes such an election
regarding the amount and nature of non-U.S. taxes to be included in their
income. Dividends from a Fund will be considered to be from U.S. sources if an
election to pass-through non-U.S. taxes is not made. If such an election is
made, dividends from those Funds will be considered to be from non-U.S. sources
for purposes of computing the limitation of the Federal foreign tax credit.
Reports containing appropriate information with respect to the U.S.
Federal income tax status of dividends and distributions paid during the year by
each Fund will be mailed to shareholders shortly after the close of each year.
U.S. Federal Income Taxation of Non-U.S. Shareholders
Non-U.S. shareholders who are not engaged in a U.S. trade or business or
whose distributions from a Fund are not effectively connected with the conduct
of such a trade or business will be generally subject to U.S. withholding tax at
the rate of 30% (or a lower rate under an applicable U.S. income tax treaty) on
dividends of net investment income received from the Trust (including for this
purpose any dividends deemed resulting from a Fund's election to treat non-U.S.
taxes paid by it as paid by its shareholders and, if the Funds are required to
recognize currency gain or loss, any dividends that a Fund, other than the U.S.
Dollar Fund, declares as a consequence of recognizing currency gain in excess of
currency loss for a particular year). Any gains realized from the redemption,
sale or exchange of shares will generally not be subject to U.S. tax for those
non-U.S. shareholders. In the case of individual shareholders who fail to
furnish the Trust with certain required certifications regarding their foreign
status, the Trust may be required to impose backup withholding of U.S.
tax at the rate of 31% on the proceeds of redemptions and exchanges.
If the dividends received from a Fund or gains realized upon the
redemption, exchange or other taxable disposition of Fund shares are effectively
connected with a U.S. trade or business of the shareholder, then all such
dividends and gains will be subject to U.S. Federal income tax at the graduated
rates applicable to U.S. shareholders, although the tax may be eliminated under
the terms of an applicable U.S. income tax treaty. Non-U.S. corporate
shareholders may also be subject to the U.S. branch profits tax in respect of
those dividends and gains.
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Non-U.S. shareholders are advised to consult their tax advisers for
further information concerning the U.S. Federal and foreign tax consequences of
investing in the Trust.
DIVIDENDS AND DISTRIBUTIONS
Dividends for each Fund are derived from the net investment of its
corresponding Portfolio, which flows from the interest that such Portfolio earns
on the money market and other instruments it holds. Dividends on each share are
determined in the same manner and are paid in the same amount, regardless of
class, except for such differences as are attributable to differential class
expenses.
Dividends will be declared daily and paid monthly with respect to shares
of each Fund. Generally, investors will receive dividends on shares from (and
including) the day upon which their purchase is effective to (but not including)
the day upon which their redemption is effective. See "How to Buy Five Arrows
Service Shares" and "How to Redeem Five Arrows Service Shares."
Dividends from each Fund are automatically reinvested in additional
shares of that Fund at net asset value.
PERFORMANCE
U.S. Dollar Fund
From time to time, the Trust may publish the "yield" and "effective
yield" for the U.S. Dollar Fund. Both yield figures are based on historical
earnings and are not intended to indicate future performance.
The U.S. Dollar Fund's yield is a way of showing the rate of income the
Fund earns on its investments as a percentage of the Fund's share price. To
calculate yield, the Fund takes the interest income it earned from its Fund of
investments for a 7-day period (net of expenses), divides it by the average
number of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on the Fund's share price at the end of that
period.
The "effective yield" is calculated in a similar manner, but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
All Other Funds
From time to time, the Trust may publish the "current yield" and "total
return" for the Pound Sterling, Deutschemark and Canadian Dollar Funds. Both
calculations are based upon historical earnings and are not intended to indicate
future performances.
Current yield refers to a Fund's annualized net investment income per
share over a 30-day period, expressed as a percentage of the net asset value per
share at the end of the period. For purposes of calculating current yield, the
amount of net investment income per share during that 30-day period, computed in
accordance with regulatory requirements, is compounded by assuming that it is
reinvested at a constant rate over a six-month period. An identical result is
then assumed to have occurred during a second six-month period which, when added
to the result of the first six months, provides an "annualized" yield for an
entire one-year period. Calculations of current yield may reflect absorbed
expenses pursuant to any undertaking that may be in effect. See "Management."
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Total return is computed on a per share basis and assumes the
reinvestment of dividends and distributions. Total return generally is expressed
as a percentage rate which is calculated by combining the income and principal
changes for a specified period and dividing by the net asset value per share at
the beginning of the period. Advertisements may include the percentage rate of
total return or may include the value of a hypothetical investment at the end of
the period which assumes the application of the percentage rate of total return.
To the extent consistent with applicable law, the Trust may also publish
other measures of the historical investment performance of the Pound Sterling,
Deutschemark and Canadian Dollar Funds, including 7-day yield information,
calculated in the manner described above with respect to the U.S. Dollar Fund.
Performance will vary from time to time and past results are not
necessarily representative of future results. You should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described above, may not provide a basis
for comparison with other investments or other investment companies using a
different method of calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Standard & Poor's, Morningstar, Inc. and other
industry publications.
GENERAL INFORMATION
Organization
The Trust was organized as a Delaware business trust on August 13, 1996.
The Trust is authorized to issue an unlimited number of shares of beneficial
interest, par value of $.0001 per share. The Board of Trustees may, without
shareholder approval, divide the authorized stock into an unlimited number of
separate series, and the costs of doing so will be borne by the Trust.
Currently, the Board of Trustees has authorized four Funds.
Shares issued by the Funds have no preemptive, conversion or
subscription rights. Shareholders of a Fund have equal and exclusive rights to
dividends and distributions declared by that Fund and to the net assets of that
Fund upon liquidation or dissolution, except such differences as are
attributable to differential class expenses. Voting rights are not cumulative,
so that the holders of more than 50% of the shares voting in any election of
Trustees can, if they choose to do so, elect all of the Trustees. All shares
when issued in accordance with the terms of this Prospectus will be fully paid
and nonassessable.
The Trust is not required to hold annual meetings of shareholders.
Special meetings of shareholders may be called from time to time for purposes
such as electing or removing Trustees, changing a fundamental policy or
approving an investment advisory agreement.
If less than two-thirds of the Trustees holding office have been
elected by shareholders, a special meeting of shareholders of the Trust will be
called to elect Trustees. Under the Trust's Master Trust Agreement and the 1940
Act, the record holders of not less than two-thirds of the outstanding shares
of the Trust may remove a Trustee by votes cast in person or by proxy at a
meeting called for that purpose or by a written declaration filed with the
Trust's custodian bank. Except as described above, the Trustees will continue
to hold office and may appoint successor Trustees. Whenever ten or more
shareholders of the Trust who have been such for at least six months, and who
hold in the aggregate shares having a net asset value of at least $25,000 or
which represent at least 1% of the outstanding shares, whichever is less, apply
to the Trustees in writing stating that
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they wish to communicate with other shareholders with a view to obtaining
signatures to request a meeting, and such application is accompanied by a form
of communication and request which they wish to transmit, the Trustees shall
within five (5) Trust Business Days after receipt of such application either
afford to such applicants access to a list of the names and addresses of all
shareholders as recorded on the books of the Trust; or inform such applicants as
to the approximate number of shareholders of record and the approximate cost of
mailing to them the proposed communication or form of request.
The Portfolios, in which all the Investable Assets of the Funds are
invested, are series of the Portfolio Trust, which is an open-end management
investment company. The Portfolio Trust's Master Trust Agreement provides that
the Portfolio Trust may establish and designate separate series of the
Portfolio Trust. The Portfolio Trust has established four series and may
establish additional series at any time. The Portfolio Trust's Master Trust
Agreement also provides that the Funds and other entities investing in the
Portfolios (e.g., other investment companies, insurance company separate
accounts and common and commingled trust funds) will each be liable for all
obligations of the Portfolios in which they invest. However, the risk of the
Funds incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the Portfolios
themselves were unable to meet their obligations. Accordingly, the Trustees of
the Trust, believe that neither the Funds nor their shareholders will be
adversely affected by reason of the Funds investing in the Portfolios. No
series of the Portfolio Trust has any preference over any other series.
Investors in other series of the Portfolio Trust will not be involved in
any vote involving only Portfolios in which they do not invest. Investors of all
of the series of the Portfolio Trust will, however, vote together to elect
Trustees of the Portfolio Trust and for certain other matters affecting the
Portfolio Trust. As provided by the 1940 Act, under certain circumstances, the
shareholders of one or more series could control the outcome of these votes.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Trust's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Trust. This Prospectus does not
constitute an offer of any Fund's shares in any state in which, or to any person
to whom, such offering may not lawfully be made.
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Five Arrows World Cash Management Fund
Statement of Additional Information
_____________, 1996
Five Arrows World Cash Management Fund (the "Trust") is an open-end
management investment company designed to offer four separate Funds (the
"Funds"): the U.S. Dollar Fund, which is diversified, and the Pound Sterling
Fund, the Deutschemark Fund, and the Canadian Dollar Fund, which are not
diversified. Each Fund is described in the Trust's Prospectus dated ________,
1996. This Statement of Additional Information supplements and should be read
in conjunction with the Prospectus as it may be revised from time to time. To
obtain a copy of the Prospectus, please write to the Trust at 3435 Stelzer
Road, Columbus, Ohio 43219-3035, or call Five Arrows Fund Distributors Inc.
(the "Distributor"), at 1-800-499-3603.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
<PAGE> 61
TABLE OF CONTENTS
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS............................1
MONEY MARKET INSTRUMENTS...................................................2
U.S. Dollar Portfolio.............................................2
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES FOR ALL PORTFOLIOS..................5
MANAGEMENT OF THE TRUST AND PORTFOLIO TRUST................................9
COMPENSATION OF TRUSTEES AND OFFICERS.....................................10
INVESTMENT ADVISORY, DISTRIBUTION,
AND ADMINISTRATION AGREEMENTS
AND 12b-1 PLANS..................................................11
REDEMPTION OF SHARES......................................................14
CALCULATION OF NET ASSET VALUE............................................14
PERFORMANCE INFORMATION...................................................15
PORTFOLIO TRANSACTIONS....................................................18
INFORMATION ABOUT THE TRUST AND
PORTFOLIO TRUST..................................................18
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING
AGENT, COUNSEL AND INDEPENDENT AUDITORS..........................20
ADDITIONAL INFORMATION....................................................20
INFORMATION ABOUT SECURITIES RATINGS
OF NATIONALLY RECOGNIZED STATISTICAL RATING
ORGANIZATIONS ("NRSROs").........................................21
Financial Statements
Report of Independent Auditors
<PAGE> 62
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As described in the Prospectus, each Fund seeks to achieve its
investment objectives by investing all of its Investable Assets in a Portfolio
which has the same investment objectives and restrictions as that Fund.
The Trust's Prospectus describes the investment objectives of the Funds
and the Portfolios and summarizes the investment policies they will follow.
Since the investment characteristics of the Funds will correspond directly with
those of the Portfolios, the following is a discussion of the various investment
policies and restrictions of the Portfolios and should be read in conjunction
with the sections in the Trust's Prospectus entitled "Description of the Trust
and Portfolio Trust," "Investment Objectives" and "Investment Policies and
Restrictions."
All of the Portfolios' fundamental investment restrictions are set
forth below. These fundamental investment restrictions may not be changed except
by the affirmative vote of a majority of the Portfolios outstanding voting
securities as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). Under the 1940 Act, a "vote of the majority of the outstanding
voting securities" means the vote, at the annual or a special meeting of
security holders duly called, (i) of 67% or more of the voting securities
present at the meeting if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy or (ii) of more than 50% of the
outstanding voting securities, whichever is less. Under these restrictions, it
is the policy of each Portfolio:
(1) not to invest in a security if the transaction would result in
the Portfolio owning more than 10% of any class of voting
securities of an issuer;
(2) not to issue senior securities, except that the Portfolio may
borrow money in accordance with Restriction 10 below;
(3) not to underwrite or participate in the marketing of securities
of other issuers;
(4) not to purchase or sell real estate in fee simple;
(5) not to invest in commodities or commodity contracts;
(6) not to make loans except that the Portfolio may purchase bonds,
debentures, notes and similar debt obligations, including money
market instruments, directly from the issuer thereof or in the
open market and may engage in repurchase transactions;
(7) not to conduct arbitrage transactions;
(8) not to invest in interests in oil, gas or other mineral
exploration or development programs (provided that the Portfolio
may invest in securities which are based, directly or
indirectly, on the credit of companies which invest in or
sponsor such programs);
(9) not to make any investment which would cause more than 25% of
the value of such Portfolio's total assets to be invested in
securities of nongovernmental issuers principally engaged in any
one industry, except that under normal market conditions each
Portfolio will invest more than 25% of its total assets in
obligations of Qualifying Banks (as defined in the Prospectus)
and further provided that in the event that the diversification
requirements of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code") are revised so as to permit one or
more of the Portfolios to invest more than 25% of its total
assets in government obligations of the country that issues the
relevant Fund's Designated Currency, then each such Portfolio
will under normal market conditions invest more than 25% of its
total assets in such obligations;
<PAGE> 63
(10) not to borrow money except in connection with redemptions or for
temporary and emergency purposes and then not in an amount in
excess of 20% of the value of its net assets, provided that
additional investments will be suspended during any period when
borrowings exceed 5% of the Portfolio's total assets; and
(11) not to purchase securities on margin, make a short sale of any
securities or purchase or deal in puts, calls, straddles or
spreads with respect to any security, except that the Portfolio
may acquire puts in connection with enhancing the liquidity of
its securities.
The following investment restrictions may be changed by vote of a
majority of the Trustees of the Portfolio Trust. Under these restrictions, it is
the policy of each Portfolio:
(1) not to hypothecate, mortgage or pledge any of its assets except
as may be necessary in connection with permitted borrowings;
(2) not to purchase a security issued by another investment company
if, immediately after such purchase, the Portfolio would own, in
the aggregate, (i) more than 3% of the total outstanding voting
stock of such other investment company; (ii) securities issued
by such other investment company having an aggregate value in
excess of 5% of the value of the Portfolio's total assets; or
(iii) securities issued by such other investment company and all
other investment companies (other than treasury stock of the
Portfolio) having an aggregate value in excess of 10% of the
value of the Portfolio's total assets; provided, however, that
the Portfolio may purchase investment company securities without
limit for the purpose of completing a merger, consolidation or
other acquisition of assets;
(3) not to invest in companies for the purpose of exercising control
over their management;
(4) not invest more than 5% of the value of its total assets in any
issuer (other than repurchase agreements and securities issued
by a sovereign government, its agencies or instrumentalities);
(5) not to invest more than 25% of its total assets in securities
issued by a sovereign government, its agencies or
instrumentalities (other than the U.S. federal government),
provided that securities held solely as collateral for
outstanding repurchase agreements shall be excluded for purposes
of computing compliance with this restriction; and
(6) not to invest more than 25% of its total assets in repurchase
agreements with any one counterparty.
MONEY MARKET INSTRUMENTS
U.S. Dollar Portfolio
---------------------
The following describes further the money market instruments in which
the U.S. Dollar Portfolio will invest and is provided as a supplement to the
discussion appearing in the Prospectus.
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Short-Term Corporate Debt Instruments
Short-term corporate debt instruments include commercial paper (i.e.,
short-term, unsecured promissory notes) issued by corporations (including bank
holding companies) to finance short-term credit needs. Commercial paper is
usually sold on a discounted basis and has a maturity at the time of issuance
not exceeding nine months.
Short-term corporate debt instruments also include master demand notes.
Master demand notes are obligations of companies that permit an investor to
invest fluctuating amounts at varying rates of interest pursuant to arrangements
between the investor, as lender, and the companies, as borrowers. The U.S.
Dollar Portfolio will have the right, at any time, to increase the amount lent
up to the full amount provided by a note. Because the U.S. Dollar Portfolio may
also decrease the amount lent at any time, such instruments are highly liquid
and in effect have a maturity of one business day. The borrower will have the
right, at any time, to prepay up to the full amount of the amount borrowed
without penalty. Because the notes are direct lending obligations between the
U.S. Dollar Portfolio and the borrowers, they are generally not traded and there
is no secondary market. Consequently, the U.S. Dollar Portfolio's ability to
receive repayment will depend upon the borrower's ability to pay principal and
interest on the U.S. Dollar Portfolio's demand. The U.S. Dollar Portfolio will
invest only in notes that either have the ratings described below for commercial
paper or (because notes are not typically rated by credit rating agencies)
unrated notes that are issued by companies having the ratings described below
for issuers of commercial paper. The Fund does not expect that the notes will be
backed by bank letters of credit. The Investment Adviser will monitor the value
of the U.S. Dollar Portfolio's investments in commercial paper and master demand
notes, taking into account such factors as the issuer's earning power, cash flow
and other liquidity ratios.
Commercial paper investments at the time of purchase will be rated in
the highest rating category by an NRSRO, such as A-1 by Standard & Poor's
Corporation ("S&P") or Prime-1 by Moody's Investors Service, Inc. ("Moody's"),
or, if not rated, issued by companies having an outstanding debt issue rated at
least AA by S&P or Aa by Moody's or equivalent or determined to be of comparable
quality. See "Information about Securities Ratings of NRSROs" below for further
information.
Under certain limited circumstances, the U.S. Dollar Portfolio may
invest in nonconvertible corporate debt securities (e.g., bonds and debentures
which may be issued by U.S. or non-U.S. corporations) with no more than thirteen
months remaining either to the date of maturity or the date on which, under the
indenture governing the security, it may be sold back to the issuer thereof for
payment of principal and accrued interest. Corporate debt securities with a
remaining maturity of thirteen months or less are liquid (and tend to become
more liquid as their maturities lessen) and are traded as money market
securities. Such securities also tend to have considerably less market value
fluctuation than longer term issues.
Corporate debt and other securities in which the U.S. Dollar Portfolio
invests must be U.S. dollar-denominated Eligible Securities (as defined in Rule
2a-7 under the 1940 Act) that are determined to present minimal credit risks. In
general, the term "Eligible Securities" is limited to:
(i) securities with remaining maturities of 13 months or less that
are rated (or have been issued by an issuer that is rated with
respect to a class of short-term debt obligations, or any
securities within that class, that are comparable in priority
and security with the relevant security) by the requisite number
(i.e., two, if two organizations have issued ratings and one if
only one has issued a rating) of NRSROs in one of the two
highest rating categories for short-term debt obligations
(within which there may be sub-categories or gradations
indicating relative standing), or
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(ii) securities that at the time of issuance were long-term
securities (i.e., that had remaining maturities greater than 397
calendar days) but that now have remaining maturities of 397
calendar days or less and which were issued by an issuer that
has received from the requisite NRSROs a rating, with respect to
a class of short-term debt obligations (or any security within
that class) that is comparable in priority and security with the
relevant security, in one of the two highest rating categories
for short-term debt obligations (within which there may be
sub-categories or gradations indicating relative standing), or
(iii) securities which are "unrated" (as defined in Rule 2a-7) but
determined to be of comparable quality to the foregoing by the
Portfolio Trust's Board of Trustees or the Investment Adviser
under their supervision (provided that a security that at the
time of issuance was a long-term security but that has a
remaining maturity of 397 calendar days less and that is an
"unrated" security is not an "Eligible Security" if the security
has a long-term rating from any NRSRO that is not within the
NRSRO's three highest categories (within which there may be
sub-categories or gradations indicating relative standing)).
As indicated in the Prospectus, the U.S. Dollar Portfolio will further
limit its investments to Eligible Securities that are government securities and
"first tier" Eligible Securities as defined in Rule 2a-7 under the 1940 Act.
Bank Money Investments
Bank money investments include but are not limited to certificates of deposit,
bankers' acceptances and time deposits. Certificates of deposit are generally
short-term (i.e., less than one year), interest-bearing negotiable certificates
issued by commercial banks or savings and loan associations against funds
deposited in the issuing institution. A banker's acceptance is a time draft
drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction (to finance the import, export, transfer
or storage of goods). A banker's acceptance may be obtained from a domestic or
foreign bank including a U.S. branch or agency of a foreign bank. The borrower
is liable for payment as well as the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity. Time deposits are nontransferable deposits made for a fixed period of
time at a stated interest rate. The U.S. Dollar Portfolio will not invest in
any bank money investment unless the investment is issued by a U.S. bank that
is a member of the Federal Deposit Insurance Corporation ("FDIC"), including
any foreign branch thereof, a U.S. branch or agency of a "foreign bank", as
defined under Rule 3a-6 of the 1940 Act, a foreign branch of a foreign bank, or
a savings bank or savings and loan association that is a member of the FDIC and
which at the date of investment has capital, surplus and undivided profits (as
of the date of its most recently published financial statements) in excess of
$100 million or the equivalent in the relevant Fund's Designated Currency (a
"Qualifying Bank").
U.S. branches and agencies of foreign banks are offices of foreign banks
and are not separately incorporated entities. They are chartered and regulated
either federally or under state law. U.S. federal branches or agencies of
foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect to obtain FDIC insurance. Unlike U.S. branches of
foreign banks, U.S. agencies of foreign banks may not accept deposits and thus
are not eligible for FDIC insurance. Both branches and agencies can maintain
credit balances, which are funds received by the office incidental to or arising
out of the exercise of their banking powers and can exercise other commercial
functions, such as lending activities.
U.S. Government Securities
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U.S. Government securities consist of various types of marketable
securities issued by the U.S. Treasury, i.e., bills, notes and bonds. Such
securities are direct obligations of the U.S. Government and differ mainly in
the lengths of their maturities. Treasury bills, the most frequently issued
marketable government security, have a maturity of up to one year and are issued
on a discount basis.
Government Agency Securities
Government agency securities consist of fixed income securities issued
or guaranteed by agencies and instrumentalities of the U.S. Government,
including the various types of instruments currently outstanding or which may be
offered in the future. Agencies and instrumentalities include, among others, the
Federal Housing Administration, Government National Mortgage Association
("GNMA"), Federal National Mortgage Association, Farmers Home Administration,
Export-Import Bank of the U.S., Federal Maritime Administration, General
Services Administration and Tennessee Valley Authority. Instrumentalities
include, for example, the Central Bank for Cooperatives, Federal Home Loan
Banks, Federal Farm Credit Banks, Student Loan Marketing Association, Federal
Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks and the U.S. Postal Service. The U.S. Dollar Portfolio will purchase such
securities only so long as they are backed by any of (i) the full faith and
credit of the U.S. Treasury (e.g., U.S. Treasury bills, bonds and notes and GNMA
participation certificates), (ii) the right of the issuer to borrow a limited
amount from the U.S. Treasury (e.g., securities of the Farmers Home
Administration), (iii) the discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality (e.g., securities
of the Federal National Mortgage Association) or (iv) the credit of the agency
or instrumentality (e.g., securities of a Federal Home Loan Bank).
Custodial Receipts
The U.S. Portfolio may acquire, subject to the limitations described
herein, custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds in connection
with programs sponsored by banks and brokerage firms. Such notes and bonds are
held in custody by a bank on behalf of the owners of the receipts. These
custodial receipts are known by various names, including "Treasury Receipts"
("TRs"), "Treasury Investment Growth Receipts" ("TIGRs") and "Certificates of
Accrual on Treasury Securities" (CATS"), and may not be treated as U.S.
Government securities.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES FOR ALL PORTFOLIOS
Each Portfolio may invest in the securities or utilize the investment
techniques listed in this section:
Repurchase Agreements
A repurchase agreement is an agreement under which a Portfolio acquires
money market instruments (generally government securities, bankers' acceptances
or certificates of deposit) from a commercial bank, broker or dealer, subject to
resale to the seller at an agreed-upon price and date (normally the next
business day). The resale price reflects an agreed-upon interest rate effective
for the period the instruments are held by a Portfolio and is unrelated to the
interest rate on the instruments. The instruments acquired by a Portfolio
(including accrued interest) must have an aggregate market value in excess of
the resale price and will be held by the Custodian for such Portfolio until they
are repurchased. The Trustees of the Portfolio Trust will monitor the standards
which the Investment Adviser will use in reviewing the creditworthiness of any
party to a repurchase agreement with any of the Portfolios.
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The use of repurchase agreements involves certain risks. For example,
if the seller defaults on its obligation to repurchase the instruments acquired
by a Portfolio at a time when their market value has declined, such Portfolio
may incur a loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by such Portfolio are collateral for a loan by such
Portfolio and therefore are subject to sale by the trustee in bankruptcy.
Finally, it is possible that a Portfolio may not be able to substantiate its
interest in the instruments it acquires. While the Trustees of the Portfolio
Trust acknowledge these risks, it is expected that they can be controlled
through careful documentation and monitoring.
Illiquid Securities
No Portfolio may invest more than 10% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise "illiquid". The Investment Adviser will monitor the
amount of illiquid securities in each Portfolio's portfolio, to ensure
compliance with such Portfolio's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Portfolio might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty in satisfying
redemption requests within seven days. The Portfolio might also have to register
such restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
All of the Portfolios may buy or sell restricted securities in
accordance with Rule 144A under the 1933 Act ("Rule 144A Securities").
Securities may be resold pursuant to Rule 144A under certain circumstances only
to qualified institutional buyers as defined in the rule, and the markets and
trading practices for such securities are relatively new and still developing;
depending on the development of such markets, such Rule 144A Securities may be
deemed to be liquid as determined by or in accordance with methods adopted by
the Trustees of the Portfolio Trust. In all other cases, however, securities
subject to restrictions on resale will be deemed illiquid. Under such methods
the following factors are considered, among others: the frequency of trades and
quotes for the security, the number of dealers and potential purchasers in the
market, marketmaking activity, and the nature of the security and marketplace
trades. Investments in Rule 144A Securities could have the effect of increasing
the level of the relevant Portfolio's illiquidity to the extent that qualified
institutional buyers become, for a time, disinterested in purchasing such
securities. Also, the relevant Portfolio may be adversely impacted by the
possible illiquidity and subjective valuation of such securities in the absence
of a market for them.
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Concentration in Obligations of Qualifying Banks
Under normal market conditions, more than 25% of the total assets of
each Portfolio may be invested in obligations of Qualifying Banks as set forth
in the Prospectus.
Obligations of non-U.S. branches of U.S. banks and of non-U.S. banks,
such as certificates of deposit and time deposits, may be general obligations of
the parent banks in addition to the issuing branch, or may be limited by the
terms of a specific obligation and governmental regulation. Such obligations are
subject to different risks than are those of domestic U.S. banks or U.S.
branches of non-U.S. banks. These risks include foreign economic and political
developments, foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income. Non-U.S. branches of
U.S. banks are not necessarily subject to the same or similar regulatory
requirements that apply to U.S. banks such as mandatory reserve requirements,
loan limitations, and accounting, auditing and financial recordkeeping
requirements. In addition, less information may be publicly available about a
non-U.S. branch of a U.S. bank or about a non-U.S. bank than about a U.S. bank.
Investing in Non-U.S. Securities
Each of the Portfolios may invest in non-U.S. securities. Non-U.S.
securities markets generally are not as developed or as efficient as those in
the United States. Securities of some foreign issuers are less liquid and more
volatile than securities of comparable U.S. issuers. Similarly, volume and
liquidity in most foreign securities markets are less than in the United States
and, at times, volatility of prices can be greater than in the United States. In
addition, there may be less publicly available information about a non-U.S.
issuer, and non-U.S. issuers are not generally subject to uniform accounting and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers.
The value of securities purchased with and payable in one Designated
Currency will be affected favorably or unfavorably relative to other currencies
by changes in currency exchange rates and exchange control regulations.
Furthermore, some of the securities may be subject to foreign transaction taxes
which could have the effect of increasing the cost of such investments and which
would reduce the realized gain or increase the realized loss on such securities
at the time of sale. Transaction costs and custodial expenses for a portfolio of
non-U.S. securities generally are higher than for a portfolio of U.S.
securities. Interest payments from certain foreign securities may be subject to
foreign withholding taxes on interest income payable on the securities.
U.S. Government policies have in the past, through taxation and other
restrictions, discouraged certain investments abroad by U.S. investors. While no
material restrictions of that type are currently in effect, they could be
reinstituted. In an extreme case, restrictions of that type could require the
liquidation of a Portfolio (other than the U.S. Dollar Portfolio).
Floating Rate and Variable Rate Demand Notes
Each Portfolio may purchase floating rate and variable rate demand
notes and bonds. These securities may have a stated maturity in excess of one
year, but permit a holder to demand payment of principal plus accrued interest
upon a specified number of days notice. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks. The
issuer has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal of the obligation plus accrued interest
upon a specific number of days notice to the holders. The interest rate of a
floating rate instrument may be based on a known lending rate, such as a bank's
prime rate, and is reset whenever such rate is adjusted. The interest rate on a
variable rate demand note is reset at specified intervals at a market rate.
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Investing in Supranational Organizations
The supranational organizations in which each Portfolio may invest
include, without limitation, the organizations listed below:
The International Bank for Reconstruction and Development (the "World
Bank"), which was established in 1945, is an international institution having as
members a large portion of the world's sovereign governments. The principal
purposes of the World Bank are: (i) to assist in the reconstruction and
development of its member countries by facilitating the investment of capital
for productive purposes, thereby promoting the long-range growth of
international trade and the improvement of standards of living; (ii) to promote
private foreign investment by guarantees of and participation in loans and other
investments made by private investors; and (iii) when private capital is not
available on reasonable terms, to make loans for productive purposes out of its
own resources or funds borrowed by it.
The Inter-American Development Bank, which became effective in 1959,
has a membership comprised primarily of sovereign governments located in the
western hemisphere as well as a number of countries from outside that region.
The principal purposes of the Bank are: (i) to promote the investment of public
and private capital for development purposes in the Americas; (ii) to utilize
its own capital, funds raised by it in financial markets, and other available
resources, for financing development of member countries, giving priority to
those loans and guarantees that will contribute most effectively to their
economic growth; (iii) to encourage private investment in projects, enterprises,
and activities contributing to economic development and to supplement private
investment when private capital is not available on reasonable terms and
conditions; (iv) to cooperate with member countries to orient their development
policies toward a better utilization of their resources, in a manner consistent
with objectives of making their economics more complimentary, and of fostering
orderly growth of their foreign trade; and (v) to provide technical assistance
for preparation, financing and implementation of development plans and projects,
including the study of priorities and the formulation of specific project
proposals.
The Asian Development Bank was established in 1965 and has a membership
comprised primarily of sovereign governments located in Asia, as well as a
number of nations outside the region. The purposes of the Bank are: (i) to
encourage regional economic cooperation in the Asian and Pacific region and (ii)
to encourage economic growth of its developing members by lending funds,
promoting investment and providing technical assistance with special regard to
the needs of smaller or less developed countries.
The European Bank for Reconstruction and Development was established in
1991 and has a membership comprised primarily of sovereign governments, the
European Union and the European Investment Bank. The purpose of the Bank is to
provide project specific direct financing to foster the economic and democratic
transition process and to promote private and entrepreneurial initiatives in
those countries through the provision of loans, equity investments, guarantees
and technical cooperation.
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MANAGEMENT OF THE TRUST AND PORTFOLIO TRUST
The Trustees and executive officers of the Trust are listed below. The
Trustees of the Portfolio Trust are identical to the Trustees of the Trust. The
officers of the Portfolio Trust hold the same offices with the Portfolio Trust
as with the Trust. All executive officers of the Trust and the Portfolio Trust
are affiliated persons of Rothschild International Asset Management Limited,
(the "Investment Adviser").
The Trustees and executive officers of the Trust and Portfolio Trust,
together with information as to their principal business occupations during the
last five years, are shown below. Each Trustee who is an "interested person" (as
defined in the 1940 Act) of the Trust or Portfolio Trust is indicated by an
asterisk.
Certain officers and members of the Board of Trustees of the Trust and the
Portfolio Trust are not residents of the United States. Virtually all or a
substantial portion of the assets of such persons are located outside of the
United States. It may not be possible for shareholders to effect service of
process within the United States upon such persons or to enforce in courts
inside or outside the United States judgements obtained against such persons in
courts in jurisdictions outside the United States, in each case, in any action,
including actions predicated upon the civil liability provisions of the United
States securities laws. In addition, it may be difficult for shareholders to
enforce, in original actions brought in courts in jurisdictions outside the
United States, liabilities predicated solely upon the United States securities
laws.
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATION
NAME, ADDRESS AND POSITION HELD DURING PAST
DATE OF BIRTH WITH TRUST 5 YEARS
- ------------- ---------- -------
<S> <C> <C>
Peter B. Collacott* President and Trustee Managing Director,
Five Arrows House Rothschild, Asset
St. Swithin's Lane Management Limited;
London EC4N 8NR U.K. Director, International
Born June 19, 1944 Biotechnology Trust.
Paul R. Freeman* Senior Vice President Director, Rothschild Asset
Five Arrows House and Trustee Management Limited
St. Swithin's Lane (July 1994 to date);
London EC4N 8NR U.K. Product Development
Born September 30, 1955 Director,
Henderson Touche
Remnant Unit Trust
Management Limited
(Oct. 1993 - July 1994);
Prior to October 1993,
Company Secretary and
Head of Product
Development for GT
Management PLC
(Dec. 1988 - Oct. 1993).
Alan T. Jeffers Trustee Private Investor;
51 Clearwater Cove Consultant
Old Dunleary Road to Rothschild Asset
Dun Laoghaire, Management Limited from
County Dublin, Ireland 1986 to September 1996;
Born August 17, 1938 Chairman, Dipcot Holdings
Ltd.; Chairman, Danfay Ltd.;
Director, Hibernian Group
Plc; Founder and Director,
Banking Automation Ltd.;
Chairman, Provita Europe
Ltd.; Chairman, Biotrin
Holdings Ltd.; Chairman,
Capteur Sensors & Analysers
Limited.
Bryan J. Walsh Trustee President and Managing
11 Lower Tuckahoe Road West Director of Salisbury
Richmond, Virginia Research 1991-date.
23233-6129 U.S.A.
Born November 6, 1944
Roger M. Kubarych Trustee General Manager - Henry
65 East 55th Street Kaufman & Company Inc.
New York, NY 10022 overseeing the firm's
Born ______________ international money
management activities and
financial and economic
consulting services.
FIVE ARROWS WORLD CASH MANAGEMENT
BISYS Representatives:
- ----------------------
Tony Mercure Vice President Director of Client Services,
BISYS Fund Services, Inc. BISYS Fund Services, Inc.
3435 Stelzer Road and has served in a variety
Columbus, OH 43219 of positions within
BISYS Fund Services, Inc.
since 1991.
Adrian Waters Vice President Managing Director,
BISYS Fund Services BISYS Fund Services (Ireland) LTD.,
(Ireland) Limited. May 1993 to present;
Floor 2, Block 2 Manager, Price Waterhouse,
The Harcourt Centre 1989 - May 1993.
Dublin 2 Ireland
Mary Gamble Vice President Associate Director,
BISYS Fund Services, Inc. BISYS Fund Services, Inc.,
First and Market Building, March 1995 to present;
Suite 300 Assistant Vice President,
100 First Avenue Concord Financial Group,
Pittsburgh, PA 15222 July 1987 to March 1995.
Chuck Booth Vice President Vice President, BISYS Fund Services, Inc.
BISYS Fund Services, Inc. and has served in a
3435 Stelzer Road variety of positions within
Columbus, OH 43219 BISYS Fund Services, Inc.
since 1991.
Bill Tomko Treasurer Senior Vice President,
BISYS Fund Services, Inc. BISYS Fund Services, Inc.
3435 Stelzer Road and has served in a
Columbus, OH 43219 variety of positions within
BISYS Fund Services, Inc.
since 1991.
Alaina Metz Assistant Secretary Chief Administrator,
BISYS Fund Services, Inc. Administrative and Regulatory Services,
3435 Stelzer Road BISYS Fund Services, Inc.
Columbus, OH 43219 June 1995 to present; Supervisor,
Mutual Fund Legal Department,
Alliance Capital Management,
May 1989 to June 1995.
Catherine Brady Assistant Treasurer Accounting Services Manager,
BISYS Fund Services BISYS Fund Services (Ireland) LTD.;
(Ireland) Limited March 1994 to present;
Floor 2, Block 2 Supervisor, Price Waterhouse,
The Harcourt Centre 1990 to March 1994.
Dublin 2 Ireland
Louise Egan Assistant Secretary Shareholder Servicing Manager,
BISYS Fund Services BISYS Fund Services (Ireland) LTD.;
(Ireland) Limited February 1994 to present;
Floor 2, Block 2 Financial Controller,
The Harcourt Centre ITI Services Limited,
Dublin 2 Ireland 1990 to February 1994.
</TABLE>
9
<PAGE> 71
COMPENSATION OF TRUSTEES AND OFFICERS
Each of the Trust and the Portfolio Trust pays no compensation to the
Trustees of the Trust or Portfolio Trust affiliated with the Administrator, the
Distributor or the Investment Adviser, respectively, or the Trust's and
Portfolio Trust's officers.
The following sets forth an estimate of the compensation to be paid to
the Trust's Trustees for the period ending December 31, 1997.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aggregate Aggregate Aggregate Aggregate Total
Compensation Compensation Compensation Compensation Compensation
Name of from U.S. from Pound from Deutschemark from Canadian from Fund
Trustee Dollar Portfolio Sterling Portfolio Portfolio Dollar Portfolio Complex (a)(b)
------- ---------------- ------------------ --------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Bryan J. Walsh $12,000 $12,000 $3,000 $3,000 $30,000
Roger M. Kubarych $10,000 $10,000 $2,500 $2,500 $25,000
Alan T. Jeffers $10,000 $10,000 $2,500 $2,500 $25,000
Peter B. Collacott $ 0 $ 0 $ 0 $ 0 $ 0
Paul R. Freeman $ 0 $ 0 $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------
<FN>
(a) Currently the U.S. Dollar Fund, the Pound Sterling Fund, the
Deutschemark Fund and the Canadian Dollar Fund and their corresponding
Portfolios are the only funds in the fund complex. No other
compensation, including pension or other retirement benefits, is paid to
the Trustees by the fund complex. The Trustees receive no compensation
for their service as Trustees of the Trust.
(b) Trustees fees will be allocated among the Portfolios in proportion to
their respective net asset values. The allocation shown reflects an
estimate of the relative net asset values of the Portfolios for the
period ending December 31, 1997.
</TABLE>
As of the approximate time of this Statement of Additional Information,
an affiliated person of the Investment Adviser was the beneficial owner of all
or a substantial amount of the outstanding Five Arrows and Five Arrows Service
shares of the Funds and may be deemed to be in control of the Funds as control
is defined in the 1940 Act. Such owner may acquire additional shares of the
Funds. Although sales of the Funds' shares to other investors will reduce its
percentage ownership, so long as 25% of a class of shares is so owned, the owner
will be presumed to be in control of such class of shares for purposes of voting
on certain matters submitted to a vote of shareholders.
INVESTMENT ADVISORY, DISTRIBUTION,
AND ADMINISTRATION AGREEMENTS
AND 12b-1 PLANS
The following information supplements and should be read in conjunction
with the section in the Trust's Prospectus entitled "Management."
Investment Adviser of the Portfolio Trust
The Investment Adviser serves as the investment adviser to the
Portfolio pursuant to a written investment advisory agreement with the Portfolio
Trust (the "Master Investment Advisory Agreement"). The Investment Adviser is a
British corporation organized in 1975 and is registered under the U.S.
Investment Advisers Act of 1940.
10
<PAGE> 72
The Investment Adviser is an indirect, wholly-owned subsidiary of
Rothschild Continuation Holdings AG, a Swiss corporation. Twenty percent (20%)
of the equity of such entity is held by Sun Alliance Group Limited, a British
insurance company. The remainder of the equity is held by Rothschild Concordia
A.G., a holding company controlled by members of the Rothschild family.
Certain services provided by the Investment Adviser under the Master
Investment Advisory Agreement are described in the Prospectus. These services
are provided without reimbursement by the Portfolios for any costs incurred.
Under the Master Investment Advisory Agreement, the Investment Adviser is paid a
fee based upon a percentage of the Portfolios' average daily net asset value
computed as described in the Prospectus. The rate and time at which the fee is
paid is described in the Prospectus.
Pursuant to the Master Investment Advisory Agreement, the Portfolios
bear expenses of their operations other than those incurred by the Investment
Adviser pursuant to the Master Investment Advisory Agreement. Among other
expenses, the Portfolios will pay share pricing expenses; custodian fees and
expenses; administration fees; legal and auditing fees and expenses, expenses of
investor reports to be provided to existing shareholders; registration and
reporting fees and expenses; and Trustees' fees and expenses.
Unless terminated as provided below, the Master Investment Advisory
Agreement continues in full force and effect until October 16, 1998 and for
successive periods of one year thereafter, but only so long as each such
continuance is approved annually (i) by either the Trustees of the Portfolio
Trust or by the "vote of a majority of the outstanding voting securities" of
each Portfolio, and, in either event (ii) by vote of a majority of the Trustees
of the Portfolio Trust who are not parties to the Master Investment Advisory
Agreement or "interested persons" (as defined int he 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The Master Investment Advisory Agreement may be terminated at any time
without the payment of any penalty by vote of the Trustees of the Portfolio
Trust or by the "vote of a majority of the outstanding voting securities" of the
Portfolio or by the Investment Adviser, on sixty days' written notice to the
other parties. The Master Investment Advisory Agreement terminates in the event
of its assignment as defined in the 1940 Act.
In an attempt to avoid any potential conflict with portfolio
transactions for the Portfolios, the Investment Adviser, the Trust and the
Portfolio Trust have each adopted extensive restrictions on personal securities
trading by personnel of the Investment Adviser and its affiliates. These
restrictions are a continuation of the basic principle that the interests of the
Fund and its shareholders, and the Portfolio and its investors, come before
those of the Investment Adviser and its employees.
The Master Investment Advisory Agreement also provides that, with
respect to the Portfolio to which it pertains, the Investment Adviser shall not
be liable for any mistake of judgment or in any event whatsoever in the
performance of its duties to the Portfolio Trust, except for liability resulting
from willful misfeasance, bad faith or gross negligence in the performance of
the Investment Adviser's duties or by reason of reckless disregard of its
obligations and duties under the Master Investment Advisory Agreement.
The Master Investment Advisory Agreement provides that the Investment
Adviser may render advisory services to others.
In addition to receiving its advisory fee, the Investment Adviser may
also act and be compensated as investment manager for its clients with respect
to assets which are invested in a Portfolio. In some instances the Investment
Adviser may elect to credit against any investment management fee received from
a client who is also a shareholder in the Portfolio Trust an amount equal to all
or a portion of the fees received by the Investment Adviser or any affiliate of
the Investment Adviser from a Portfolio with respect to the client's assets
invested in the Portfolio.
11
<PAGE> 73
Distributor of the Trust
Five Arrows Fund Distributors Inc. (the "Distributor"), an affiliate
of the Administrator, serves as the Trust's exclusive principal underwriter
and holds itself available to receive purchase orders for the Funds' shares. In
that capacity, the Distributor has been granted the right, as agent of the
Trust, to solicit and accept orders for the purchase of the Funds' shares in
accordance with the terms of the Distribution Agreement between the Trust and
the Distributor. The Distribution Agreement shall continue in effect with
respect to each Fund until two years after its execution and for successive
periods of one year thereafter only if it is approved at least annually
thereafter (i) by a vote of the holders of a majority of the relevant Fund's
outstanding shares or by the Trustees of the Trust or (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval. The
Distribution Agreement will terminate automatically if assigned by either party
thereto and is terminable at any time without penalty by a vote of a majority
of the Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or by a vote of the holders of a majority of
the relevant Fund's outstanding shares, in any case without payment of any
penalty on not more than 60 days' written notice to the other party.
Administrator
BISYS Fund Services Limited Partnership, 3435 Stelzer Road, Columbus,
OH 43219-3035 serves as the administrator to the Funds and the Portfolios (the
"Administrator") pursuant to written administration agreements with the Trust on
behalf of the Funds and the Portfolio Trust on behalf of the Portfolios. Certain
services provided by the Administrator under these administration agreements are
described in the Prospectus. For the services provided to the Funds, each Fund
pays its pro-rata share of an annual fee to the Administrator, computed daily
and payable monthly, of .10% of the Fund's average net assets.
The administration agreement relating to the Funds provides that if the
total expenses of the Funds in any fiscal year exceed the most restrictive
expense limitation applicable to the Funds in any state in which shares of the
Funds are then qualified for sale, the compensation due the Administrator shall
be reduced by the amount of the excess, by a reduction or refund thereof at the
time such compensation is payable after the end of each calendar month during
the fiscal year, subject to readjustment during the year. Currently, the most
restrictive state expense limitation provision limits the Fund's expenses to
2 1/2% of the first $30 million of average net assets, 2% of the next $70
million of such net assets and 1 1/2% of such net assets in excess of $100
million.
The Administrator provides the Portfolio Trust with office space for
managing its affairs and with certain clerical services and facilities. The
Administrator currently does not receive a fee for these services.
12b-1 Plan
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1
(the "12b-1 Plan") in accordance with the regulations promulgated under the
1940 Act. The 12b-1 Plan provides that each Fund will make payments to the
Distributor equal to 0.50% (on an annual basis) of the average daily value of
the net assets of such Fund's Five Arrows Service class of shares (the "12b-1
fee"). The 12b-1 fee has two components: a service fee and a distribution fee.
The 12b-1 Plan provides that each of these components will be paid at an annual
rate of 0.25% of the average daily value of the net assets of such Fund's Five
Arrows Service class of shares. The Distributor has voluntarily agreed to
waive a portion of the distribution fee component in order to limit payments of
the 12b-1 fee to 0.35% (on an annual basis) of the average daily net asset value
of the Five Arrows Service shares of any Fund. This waiver shall remain in
effect for the fiscal period ending December 31, 1997, and thereafter in the
discretion of the Distributor. The Distributor has reserved the right to
terminate or revise this undertaking with respect to any period after December
31, 1997.
Some or all of the service fees are used to compensate Authorized Firms
for providing account administration services to their clients who are
beneficial owners of such shares. One or more affiliates of the Investment
Adviser and the Administrator may act as Authorized Firms. The Trust will enter
into agreements with Authorized Firms which purchase Five Arrows Service shares
on behalf of their clients ("Service Agreements"). The Service Agreements will
provide for compensation to the Authorized Firms in an amount up to 0.25% (on an
annual basis) of the average daily net assets of the Five Arrows Service shares
of the applicable Fund attributable to or held in the name of the Authorized
Firm for its clients.
The services provided by the Authorized Firms may include, among other
things, receiving, aggregating and processing shareholder or beneficial owner
(collectively "shareholder") orders; furnishing shareholder subaccounting;
providing and maintaining retirement plan records; communicating periodically
with shareholders; acting as the sole shareholder of record and nominee for
shareholders; maintaining account records for shareholders; answering questions
and handling correspondence from shareholders about their accounts; issuing
various shareholder reports and confirmations for transactions by shareholders;
performing daily investment ("sweep") functions for shareholders and performing
similar account and administrative services. Any service fees received by the
Distributor and not allocated to Authorized Firms may be retained by the
Distributor in consideration of its own role in servicing shareholder accounts.
Authorized Firms that have sold Five Arrows Service shares are eligible
for further compensation commencing as of the time of such sale. It is the
Distributor's current policy to pay a trailer commission to Authorized Firms in
an amount equal to .10% (on an annual basis) of the average daily net assets of
the Five Arrows Service shares of the applicable Fund attributable to or held
in the name of the Authorized Firm for its clients. This trailer commission
arrangement may be terminated or revised by the Distributor at any time. Any
distribution fee received by the Distributor and not allocated to Authorized
Firms may be applied by the Distributor in connection with sales or
marketing efforts (e.g. for advertising costs, the cost of printing and mailing
prospectuses and reports to potential investors) or retained by the Distributor
in consideration of its own role in marketing Five Arrows Service shares.
12
<PAGE> 74
Conflict of interest restrictions (including the Employee Retirement
Income Security Act of 1974) may apply to an Authorized Firm's receipt of
compensation paid by the Funds in connection with the investment of fiduciary
funds in Five Arrows Service shares. Authorized Firms, including banks
regulated by the Comptroller of the Currency, the Federal Reserve Board or the
Federal Deposit Insurance Corporation, and investment advisers and other money
managers subject to the jurisdiction of the Securities and Exchange Commission,
the Department of Labor or State Securities Commissions, are urged to consult
legal advisers before investing fiduciary assets in Five Arrows Service shares.
In addition, under some state securities laws, banks and other financial
institutions purchasing Five Arrows Service shares on behalf of their customers
may be required to register as dealers.
The Trustees of the Trust, including a majority of the Trustees who
are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the 12b-1 Plan or the related Service
Agreements, voted to adopt the 12b-1 Plan and Service Agreements at a meeting
called for the purpose of voting on such 12b-1 Plan and Service Agreements on
October 16, 1996. The 12b-1 Plan and Service Agreements will remain in effect
until October 16, 1998 and will continue in effect thereafter only if such
continuance is specifically approved annually by a vote of the Trustees in the
manner described above. All material amendments of the 12b-1 Plan must also be
approved by the Trustees in the manner described above. The 12b-1 Plan may be
terminated at any time by a majority of the Trustees as described above or by
vote of a majority of the outstanding Five Arrows Service shares of the
affected Fund. The Service Agreements may be terminated at any time, without
payment of any penalty, by vote of a majority of the Trustees as described
above or by a vote of a majority of the outstanding Five Arrows Service shares
of the affected Fund on not more than 60 days' written notice to any other
party to the Service Agreements. The Service Agreements shall terminate
automatically if assigned. So long as the 12b-1 Plan is in effect, the
selection and nomination of those Trustees who are not interested persons shall
be committed to the discretion of the non-interested members of the Board of
Trustees. The Trustees have determined that, in their judgment, there is a
reasonable likelihood that the 12b-1 Plan will benefit the Funds and holders of
Five Arrows Service shares of such Funds. In the Trustees' quarterly review of
the 12b-1 Plan and Service Agreements, they will consider their continued
appropriateness and the level of compensation provided therein.
REDEMPTION OF SHARES
Detailed information on redemption of shares is included in the
Prospectus in the section entitled "How to Redeem Shares."
The Trust intends to pay in cash in the Designated Currency of the Fund
from which shares are redeemed for all Fund shares redeemed, but under certain
conditions, the Trust may make payment wholly or partly in portfolio securities
from the Portfolio, in conformity to the applicable rule of the SEC. Portfolio
securities paid upon redemption of Fund shares will be valued at their then
current market value. The Trust, on behalf of each of its series, has elected to
be governed by the provisions of Rule 18f-1 under the 1940 Act
13
<PAGE> 75
which contains a formula for determining the minimum amount of cash which may be
paid as part of any redemption, limiting cash payments to any shareholder during
any 90-day period to the lesser of $250,000 or 1% of the Fund's net asset value
at the beginning of such period.
An investor may incur brokerage costs in converting portfolio
securities received upon redemption to cash. The Portfolio Trust has advised the
Trust that the Portfolio Trust will not redeem in-kind except in circumstances
in which the Fund is permitted to redeem in-kind or except in the event the Fund
completely withdraws its interest from the Portfolio.
CALCULATION OF NET ASSET VALUE
The net asset value of the Portfolios and of shares of the Funds is
determined by the Administrator (as agent for the Funds and the Portfolios). The
Funds and the Portfolios will only price their respective shares or interests on
Trust Business Days (as such term is defined in the Prospectus).
It is anticipated that each Portfolio will utilize the amortized cost
method of valuation as a reasonable means of approximating the market value of
each Portfolio's assets. With respect to the U.S. Dollar Fund, which is a "money
market fund," as defined in the 1940 Act, and its corresponding Portfolio, the
valuation of the instruments held by the U.S. Dollar Portfolio at amortized
costs is permitted in accordance with Rule 2a-7 and certain procedures
established by the Trustees of the Trust and the Portfolio thereunder. With
respect to all other Funds, which are not money market funds, and their
corresponding Portfolios, the valuation of the instruments held by those
Portfolios is consistent with a long-standing practice of many U.S. registered
investment companies to value "high-quality" debt securities with maturities of
60 days or less at amortized cost.
The amortized cost of an instrument is determined by valuing it at cost
originally and thereafter accreting any discount or amortizing any premium from
its face value at a constant rate until maturity, regardless of the effect of
fluctuating interest rates on the market value of the instrument. Although the
amortized cost method provides certainty in valuation, it may result at times in
determinations of value that are higher or lower than the price the Portfolios
would receive if the instruments were sold. Consequently, changes in the market
value of instruments held by the Portfolios during periods of rising or falling
interest rates will not be reflected either in the computation of net asset
value of the Portfolios or in the daily computation of its net investment
income.
The procedures of the Funds and the Portfolios are designed to
facilitate, to the extent reasonably possible, the maintenance of the Funds'
price per share, as computed for the purpose of the distribution and redemption
of shares, at $1.00 in the case of the U.S. Dollar Fund, at (pound) 1.00 in the
case of the Pound Sterling Fund, at DM 1.00 in the case of the Deutschemark Fund
and at C$1.00 in the case of the Canadian Dollar Fund (the "Stabilized Prices").
These procedures include review of the Portfolios' holdings by the Trustees of
the Portfolio Trust and Trust, at such intervals as they may deem appropriate,
to determine whether the Portfolios' net asset values calculated by using
readily available market quotations deviates from the valuation based on
amortized cost, and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing shareholders. In the event that the
Trustees of the Portfolio Trust and Trust determine that such a deviation
exists, they will take such corrective action as they consider to be necessary
or appropriate, which action could include the sale of instruments held by the
Portfolios prior to maturity (to realize capital gains or losses); the
shortening of average portfolio maturity; withholding dividends; redemption of
shares in kind; or establishing a net asset value per share by using readily
available market quotations.
14
<PAGE> 76
Since the net investment income of each Fund is declared as a dividend
each time such income is determined, the net asset value per share of each Fund
remains at its respective Stabilized Price immediately after such determination
and dividend declaration. It is expected that each Fund's net investment income
will be positive each time it is determined. However, if because of realized
losses on sales of portfolio investments, a sudden rise in interest rates,
default by an issuer of a portfolio security, or for any other reason the net
investment income of each Portfolio determined at any time is a negative amount,
such Portfolio will offset such amount allocable to each then shareholder's
account from dividends accrued with respect to such account. If at the time of
payment of a dividend (either at the regular dividend payment date, or, in the
case of an interest holder who is withdrawing all or substantially all of such
shareholder's interest in an account, at the time of redemption), such negative
amount exceeds a shareholder's accrued dividends, the relevant Portfolio will
reduce the interest by treating the shareholder as having contributed to the
capital of that Portfolio that amount of its interest which represents the
amount of the excess. Each shareholder is deemed to have agreed to such
contribution in these circumstances by his or her investment in the relevant
Fund.
Should the Portfolios incur or anticipate any unusual or unexpected
significant expense, loss or depreciation which would affect disproportionately
the Funds' net investment income for a particular period, the Trustees of the
Portfolio Trust and Trust would at that time consider whether to adhere to its
daily dividend policy or to revise it in the light of the then prevailing
circumstances. Such expenses, losses or depreciation may nevertheless result in
a shareholder receiving no dividends for the period during which the shares are
held and in receiving upon redemption a price per share lower than the purchase
price of such shares.
PERFORMANCE INFORMATION
Performance will vary from time to time and past results are not
necessarily representative of future results. Investors should remember that
performance is a function of portfolio management in selecting the type and
quality of portfolio securities and is affected by operating expenses.
Performance information, such as that described below, may not provide a basis
for comparison with other investments or other investment companies using a
different method of calculating performance.
The U.S. Dollar Fund
The U.S. Dollar Fund may provide current annualized and effective
annualized yield quotations based on its daily dividends. These quotations may
from time to time be used in advertisements, shareholder reports or other
communications to shareholders.
Any current yield quotation of the U.S. Dollar Fund which is used in
such a manner as to be subject to the provisions of Rule 482(d) under the
Securities Act of 1933, as amended, shall consist of an annualized historical
yield, carried at least to the nearest hundredth of one percent on a specific
seven calendar day period and shall be calculated by dividing the net change
during the seven day period in the value of an account having a balance of one
share at the beginning of the period by the value of the account at the
beginning of the period, and multiplying the quotient by 365/7. For this
purpose, the net change in account value would reflect the value of additional
shares purchased with dividends declared on the original share and dividends
declared on both the original share and any such additional shares, but would
not reflect any realized gains or losses from the sale of securities or any
unrealized appreciation or depreciation on portfolio securities. In addition,
any effective annualized yield quotation used by the Trust shall be calculated
by compounding the current yield quotation for such period by adding 1 to the
product, raising the sum to a power equal to 365/7, and subtracting 1 from the
result. A one day yield quotation is determined by taking one-seventh of the
most recent calculated seven day yield.
15
<PAGE> 77
Although published yield information is useful to investors in
reviewing the U.S. Dollar Fund's performance, investors should be aware that the
U.S. Dollar Fund's yield fluctuates from day to day and that a Fund's yield for
any given period is not an indication or representation by the Trust of future
yields or rates of return on the U.S. Dollar Fund's shares. The yield of the
U.S. Dollar Fund is not fixed or guaranteed. Accordingly, the U.S. Dollar Fund's
yield information may not necessarily be used to compare its shares with
investment alternatives which, like money market instruments or bank accounts,
may provide a fixed rate of interest. In addition, investments in the Trust are
not insured or guaranteed, so the U.S. Dollar Fund's yield information may not
necessarily be used to compare the U.S. Dollar Fund with investment alternatives
which are insured or guaranteed.
All Other Funds
Each Fund, other than the U.S. Dollar Fund, may provide Total Return
and Current Yield quotations, as described below.
A Fund's "Total Return," as referred to in the Prospectus (see
Performance") is calculated as follows: Total Return ("T") is computed by using
the value at the end of the period ("V") of a hypothetical initial investment
of [Pounds] 1,000, DM 1,000, or C $1,000 (as applicable) ("P") over a period of
years ("n") according to the following formula as required by the SEC:
P(1+T)n=EV (the ending redeemable value of initial investment). The following
assumptions will be reflected in computations made in accordance with this
formula: (1) a deduction of the maximum front-end sales charge, if any, from
the initial investment; (2) reinvestment of dividends and distributions at net
asset value on the reinvestment date determined by the Trust's Board of
Trustees; (3) a complete redemption at the end of any period illustrated, and
(4) deduction of any applicable CDSC.
Current yield ("YIELD") is computed by dividing the difference between
dividends and interest earned during a one-month period ("a") and expenses
accrued for the period (net of reimbursements) ("b") by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends ("c") and the maximum offering price per share on the last
day of the period ("d") according to the following formula as required by the
SEC:
YIELD = 2[(a-b+1)6-1]
cd
To the extent consistent with applicable law, each Fund may provide
quotations of other measures of historical investment performance, including
seven day yield information calculated in the manner described above with
respect to the U.S. Dollar Fund.
Each Fund's investment results will vary from time to time depending
upon market conditions, the composition of the Fund's Corresponding Portfolio's
portfolio and operating expenses of the Fund, so that current or past yield or
total return should not be considered representations of what an investment in a
Fund may earn in any future period. These factors and possible differences in
the methods used in calculating investment results should be considered when
comparing a Fund's investment results with those published for other investment
companies and other investment vehicles. A Fund's results also should be
considered relative to the risks associated with such Fund's investment
objectives and policies. Each Fund and the Distributor may from time to time
compare the Funds with the following:
(1) Various Salomon Brothers World Bond Indices, which measure the total
return performance of high-quality securities in major sections of the worldwide
bond markets.
(2) The Shearson Lehman Government Corporate Bond Index, which is a
comprehensive measure of all
16
<PAGE> 78
public obligations of the U.S. Treasury (excluding flower bonds and foreign
targeted issues), all publicly issued debt of agencies of the U.S. government
(excluding mortgage backed securities), and all public, fixed rate,
non-convertible investment grade domestic corporate debt rated at least Aa by
Moody's or AA by S&P, or, in the case of bonds not rated by Moody's or S&P, BBB
by Fitch Investors Service (excluding Collateralized Mortgage Obligations).
(3) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on figures supplied
by the U.S. League of Savings Institutions). Savings accounts offer a guaranteed
rate of return on principal, but no opportunity for capital growth. During a
portion of the period, the maximum rates on some savings deposits were fixed by
law.
(4) The Consumer Price Index, which is a measure of the average change
in prices over time in a fixed market basket of goods and services (e.g., food,
clothing, shelter, fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services that
people buy for day-to-day living).
(5) Data and mutual fund rankings and comparisons published and prepared
by Lipper Analytical Data Services, Inc. ("Lipper"), Morningstar Inc.
("Morningstar"), Micropal, Inc. ("Micropal"), CDA Investment Technologies, Inc.
("CDA"), Wiesenberger Investment Company Services ("Wiesenberger") and/or other
companies that rank or compare mutual funds by overall performance, investment
objectives, assets, expense levels, periods of existence and/or other factors.
In this regard, each Fund may be compared to its "peer group" as defined by
Lipper, Morningstar, Micropal, CDA, Wiesenberger and/or other firms, as
applicable or to specific funds or groups of funds within or without such peer
group.
(6) Bear Stearns Foreign Bond Index, which provides simple average
returns for individual countries and a GNP-weighted index, beginning in 1975.
The returns are broken down by local market and currency.
(7) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
Indices prepared by the research departments of such financial
organizations as Salomon Brothers, Inc.; Merrill Lynch, Pierce, Fenner & Smith,
Inc.; Bear Stearns & Co., Inc.; Morgan Stanley; and Ibbottson Associates may be
used, as well as information provided by the Federal Reserve Board. In addition,
performance rankings and ratings reported periodically in national financial
publications, including but not limited to Money Magazine, Forbes, Business
Week, The Wall Street Journal and Barrons's may also be used.
PORTFOLIO TRANSACTIONS
Portfolio securities are ordinarily purchased directly from the issuer
or from an underwriter or a market maker for the securities. Usually no
brokerage commissions are paid by any Portfolio for such purchases. Purchases
from underwriters of Portfolio securities include a concession paid by the
issuer to the underwriter and the purchase price paid to market makers for the
securities may include the spread between the bid and asked price.
A Portfolio may not always pay the lowest commission or spread
available. Rather, in determining the amount of commission paid in connection
with Portfolio transactions, the Investment Adviser takes into account such
factors as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the services described below) and any
risk assumed by the executing broker. The Investment Adviser may also take into
account payments made by brokers effecting transactions with or for a Portfolio
(i) to the Portfolio or (ii) to other persons on behalf of the Portfolio for
services provided to it for which it would be obligated to pay.
17
<PAGE> 79
Investment decisions for the Portfolios will be made independently from
those for any other account or investment company that is or may in the future
become managed by the Investment Adviser or its affiliates. If, however, a
Portfolio and other investment companies or accounts managed by the Investment
Adviser are contemporaneously engaged in the purchase or sale of the same
security, the transactions may be averaged as to price and allocated equitably
to each account. In some cases, this policy might adversely affect the price
paid or received by a Portfolio or the size of the position obtainable for the
Portfolio. In addition, when purchases or sales of the same security for a
Portfolio and for other investment companies and accounts managed by the
Investment Adviser occur contemporaneously, the purchase or sale orders may be
aggregated in order to obtain any price advantages available to large
denomination purchases or sales.
No portfolio transactions are executed with the Investment Adviser or
any of its affiliates.
INFORMATION ABOUT THE TRUST AND
PORTFOLIO TRUST
The Funds and Their Shares
The Funds are investment series of the Trust, a newly-formed
unincorporated business trust organized under the laws of the State of Delaware
pursuant to a Master Trust Agreement dated October 16, 1996. Under the Master
Trust Agreement of the Trust, the Trustees of the Trust have authority to
issue an unlimited number of shares of beneficial interest, par value $.0001
per share, of the Funds. Each share represents an equal proportionate interest
in the relevant Fund with each other share and is entitled to such dividends
and distributions as are declared by the Trustees. Upon any liquidation of the
Funds, shareholders are entitled to share pro rata in the net assets available
for distribution.
All Fund shares have equal rights with regard to voting, and
shareholders of the Fund have the right to vote as a separate class with respect
to matters as to which their interests are not identical to those of
shareholders of other classes of the Trust, including any change of investment
policy requiring the approval of shareholders.
Except as described below, whenever the Trust is requested to vote on a
fundamental policy of or matters pertaining to the Portfolios, the Trust will
hold a meeting of the Funds' shareholders and will cast its vote proportionately
as instructed by the Funds' shareholders. Fund shareholders who do not vote will
not affect the Trust's votes at the Portfolios meeting. The percentage of the
Trust's votes representing Fund shareholders not voting will be voted by the
Trustees of the Trust in the same proportion as the Fund shareholders who do, in
fact, vote. Subject to applicable statutory and regulatory requirements, the
Funds would not request a vote of their shareholders with respect to (a) any
proposal relating to the Portfolios, which proposal, if made with respect to the
Funds, would not require the vote of the shareholders of the Funds, or (b) any
proposal with respect to the Portfolios that is identical in all material
respects to a proposal that has previously been approved by shareholders of the
Funds. Any proposal submitted to holders in the Portfolios, and that is not
required to be voted on by shareholders of the Funds, would nonetheless be voted
on by the Trustees of the Trust.
The assets received by the Trust from the issue and sale of shares of
each Fund, and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are especially allocated to that Fund and constitute
the underlying assets of such Fund. The underlying assets of each Fund are
required to be segregated on the books of account and are to be charged with the
expenses of the Trust. Any general expenses of the Trust not readily
identifiable as belonging to a particular Fund shall be allocated by or under
the direction of the Trustees in such a manner as the Trustees determine to be
fair and equitable, taking into consideration, among other things, the nature
and the type of expense and the relative size of the Funds.
18
<PAGE> 80
Each share of a Fund has equal dividend, redemption and liquidation
rights with other shares of that Fund and when issued is fully paid and
non-assessable. Under the Trust's Agreement and Declaration of Trust
("Declaration of Trust"), no annual or regular meeting of shareholders is
required. Thus, there will ordinarily be no annual shareholders meeting unless
otherwise required by the 1940 Act. The initial shareholder elected the initial
Board of Trustees on October 16, 1996. Thereafter, the Board will be a
self-perpetuating body until fewer than 50% of the Trustees serving as such are
Trustees who were elected by shareholders. At that time, another meeting of
shareholders will be called to elect Trustees. Under the Declaration of Trust,
any Trustee may be removed by votes of two-thirds of the outstanding Trust
shares, and holders of ten percent or more of the outstanding shares of the
Trust can require the Trustees to call a meeting of shareholders for the
purpose of the removal of one or more Trustees. Whenever ten or more
shareholders of the Trust who have been such for at least six months, and who
hold in the aggregate shares having a net asset value of at least $25,000 or
which represent at least 1% of the outstanding shares, whichever is less, apply
to the Trustees in writing stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting, and such
application is accompanied by a form of communication and request which they
wish to transmit, the Trustees shall within five (5) Trust Business Days after
receipt of such application either (1) afford to such applicants access to a
list of the names and addresses of all shareholders as recorded on the books of
the Trust; or (2) inform such applicants as to the approximate number of
shareholders of record and the approximate cost of mailing to them the proposed
communication or form of request.
Shares do not have cumulative voting rights, which means that in
situations in which shareholders elect Trustees, holders of more than 50% of the
shares voting for the election of Trustees can elect 100% of the Trust's
Trustees, and the holders of less than 50% of the shares voting for the election
of Trustees will not be able to elect any person as a Trustee.
The Portfolio and its Investors
The Portfolios are series of the International Currency Fund (the
"Portfolio Trust"), which is a newly-formed business trust and, like the Trust,
an open-end management investment company under the 1940 Act. The Portfolio
Trust was organized as a Delaware business trust under the laws of the State of
Delaware on August 13, 1996.
Interests in the Portfolios have no preemptive or conversion rights,
and are fully paid and non-assessable, except as set forth below. The
Portfolio Trust normally will not hold meetings of holders of such interests
except as required under the 1940 Act. The Portfolio Trust would be required
to hold a meeting of holders in the event that at any time less than a majority
of its Trustees holding office had been elected by holders. The Trustees of the
Portfolio Trust continue to hold office until their successors are elected and
have qualified. A Trustee of the Portfolio Trust may be removed upon a majority
vote of the interests held by holders in the Portfolio Trust qualified to vote
in the election. The 1940 Act requires the Portfolio Trust to assist its
holders in calling such a meeting. Upon liquidation of a Portfolio, holders in
the Portfolio would be entitled to share pro rata in the net assets of the
Portfolio Trust available for distribution to holders.
Each holder in a Portfolio is entitled to vote in proportion to its
percentage interest in such Portfolio.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING
AGENT, COUNSEL AND INDEPENDENT AUDITORS
The Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, NY 11245,
acts as the Trust's and Portfolio Trust's Custodian. Rules adopted under the
1940 Act permit the Funds and Portfolios to maintain their foreign securities
and cash in the custody of certain eligible foreign banks. Sub-custodians
holding any foreign securities and cash on behalf of the Funds and Portfolios
will be approved by the Board of Trustees of
19
<PAGE> 81
the Trust or Portfolio Trust, as the case may be, in accordance with the
regulations of the Securities and Exchange Commission.
BISYS Fund Services, Inc., 100 First Avenue, Suite 300, Pittsburgh, PA
15222, provides customary transfer, dividend disbursing and shareholder
servicing agent services.
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, MA 02019-2881, is
legal counsel for the Trust and the Portfolio Trust.
Coopers & Lybrand L.L.P., 1301 Avenue of the Americas, New York, NY
10019-6013, independent auditors, have been selected to examine the annual
financial statements of the Trust and Portfolio Trust. The Trust and the
Portfolio Trust will send audited annual and unaudited semiannual financial
statements to all its shareholders of record.
ADDITIONAL INFORMATION
A Registration Statement, of which this Statement of Additional
Information is a part, in respect of the Fund's shares has been filed with the
Securities and Exchange Commission, Washington, D.C., under the Securities Act
of 1933, as amended.
This Statement of Additional Information omits certain information
contained in the Registration Statement. Items which are thus omitted, including
contracts and other documents referred to or summarized herein and therein, may
be inspected at the offices of the Securities and Exchange Commission or
obtained from the Securities and Exchange Commission upon payment of the
prescribed fees.
20
<PAGE> 82
INFORMATION ABOUT SECURITIES RATINGS
OF NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS ("NRSROs")
Ratings of Long-Term Corporate Debt Securities
- -----------------------------------------------
MOODY'S INVESTORS SERVICE, INC. Aaa-Best quality. These securities
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or by an
exceptionally stable, margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa-High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which made the long-term risks appear somewhat greater.
STANDARD & POOR'S CORPORATION. AAA-Highest grade. They possess the
ultimate degree of protection as to principal and interest. Marketwise, they
move with interest rates, and hence provide the maximum safety on all counts.
AA-High grade. Generally, these bonds differ from AAA issues only in a small
degree. Here, too, prices move with the long-term money market.
FITCH INVESTORS SERVICE, INC. AAA-High grade, broadly marketable,
suitable for investment by trustees and fiduciary institutions, and liable to
but slight market fluctuation other than through changes in the money rate. The
prime feature of an "AAA" bond is the showing of earnings several times or many
times interest requirements for such stability of applicable interest that
safety is beyond reasonable question whenever changes occur in conditions.
Other features may be considered, such as a wide margin of protection through
collateral, security or direct lien on specific property. Sinking funds or
voluntary reduction of debt by call or purchase are often factors, while
guarantee or assumption by parties other than the original debtor may influence
their rating. AA-Of safety virtually beyond question and readily salable. Their
merits are not greatly unlike those of "AAA" class but a bond so rated may be
junior though it has a strong lien, or the margin of safety may be less
strikingly broad. The issue may be the obligation of a small company, strongly
secured, but influenced as to rating by the lesser financial power of the
enterprise and more local type of market.
21
<PAGE> 83
Rating of Long-Term Corporate Debt Securities
- ---------------------------------------------
MOODY's
Moody's Commercial Paper ratings, which are also applicable to
municipal paper investments permitted to be made by the Fund, are opinions of
the ability of issuers to repay punctually their promissory obligations not
having an original maturity in excess of nine months. Moody's employs the
following designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
22
<PAGE> 84
P-2 (Prime-2): Strong capacity for repayment.
S&P's
S&P's ratings are a current assessment of the likelihood of timely
payment of debt having an original maturity of no more than 365 days. Ratings
are graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues within the "A" category are delineated
with the numbers 1, 2, and 3 to indicate the relative degree of safety, as
follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as overwhelming as
for issues designated A-1.
A-3: Issues carrying this designation have an adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
IBCA LIMITED/IBCA INC.
Short-term obligations, including commercial paper, rated A-1+ by IBCA
Limited or its affiliate IBCA Inc. are obligations supported by the highest
capacity for timely repayment. Obligations rated A-1 have a very strong capacity
for timely repayment. Obligations rated A-2 have a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
FITCH INVESTORS SERVICES, INC.
Fitch Investors Services, Inc. employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance for timely payment.
The rating F-1 reflects an assurance of timely payment only slightly less in
degree than issues rated F-1+, while the rating F-2 indicates a satisfactory
degree of assurance for timely payment, although the margin of safety is not as
great as indicated by the F-1+ and F-1 categories.
DUFF & PHELPS INC.
Duff & Phelps Inc. employs the designation of Duff 1 with respect to
top grade commercial paper and bank money instruments. Duff 1+ indicates the
highest certainty of timely payment: Short-term liquidity is clearly
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations. Duff 1- indicates high certainty of time payment. Duff 2 indicates
good certainty of timely payment: liquidity factors and company fundamentals are
sound.
THOMSON BANKWATCH, INC. ("BANKWATCH")
BankWatch will assign both short-term debt ratings and issuer ratings
to the issuers it rates. BankWatch will assign a short-term rating ("TBW-1,"
"TBW-2," "TBW-3," or "TBW-4") to each class of debt (e.g., commercial paper or
non-convertible debt), having a maturity of one year or less, issued by a
holding company structure or an entity within the holding company structure that
is rated by BankWatch. Additionally, BankWatch will assign an issuer rating
("A," A/B," "B," "B/C, "C," "C/D," "D," "D/E," and "E") to each issuer that it
rates.
23
<PAGE> 85
Note: Certain NRSROs utilize rankings within rating categories
indicated by a + or -. The Fund, in accordance with industry practice,
recognizes such rankings with categories as graduations, viewing for example
S&P's rating of A-1+ and A-1 as being in S&P's highest rating category.
24
<PAGE> 86
PART C
------
To the Registration Statement of Five Arrows
World Cash Management Fund (the "Trust")
Item 24. Financial Statements and Exhibits.
- -------- ----------------------------------
(a) Financial Statements:
(1) Financial Statements included in PART A of this
Registration Statement:
[None]
(2) Financial Statements included in PART B of this
Registration Statement:
Financial Statements for the U.S. Dollar Fund,
Pound Sterling Fund, Deutschemark Fund and
Canadian Dollar Fund (collectively, the "Funds")
as of _______, 1996.*
Report of Independent Accountants
Statement of Assets and Liabilities
(b) Exhibits:
Exhibit No. Description
----------- -----------
1 Agreement and Declaration of Trust of the Trust.
2 By-Laws of the Trust.
3 Not Applicable.
4 Not applicable.
5 Investment Advisory Contract between the International
Currency Fund and Rothschild International Asset
Management Limited.*
6 Distribution Agreement between the Trust and
Five Arrows Fund Distributors Inc.*
* To be filed by amendment.
<PAGE> 87
Exhibit No. Description
----------- -----------
7 Not applicable.
8 Custody Agreement between the Trust and The Chase Manhattan
Bank.*
9 (a) Transfer Agency and Service Agreement between the Trust
and BISYS Fund Services, Inc.*
(b) Administration Agreement between the Trust and BISYS
Fund Services Limited Partnership.*
(c) Fund Accounting Agreement between the Trust and BISYS
Fund Services, Inc.*
(d) Form of Shareholder Servicing Agreement.*
(e) Feeder Fund Management Services Agreement.*
10 Legal opinion and consent of Goodwin, Procter & Hoar LLP
with respect to the Funds.*
11 Consent of Coopers & Lybrand L.L.P. with respect to the
Funds.*
12 Not applicable.
13 Purchase agreements with respect to initial capital.*
14 Not applicable.
15 Plan for distribution of Five Arrows Service shares
pursuant to Rule 12b-1.*
16 Not applicable.
17 Financial Data Schedules for the Funds.*
18 Plan for the issuance and distribution of multiple classes
of shares pursuant to Rule 18f-3.*
19 Not applicable.
* To be filed by amendment.
Item 25. Persons Controlled by or Under Common Control with Trust.
- -------- ---------------------------------------------------------
As of the close of business on ________, the U.S. Dollar Fund, the
Pound Sterling Fund, the Deutschemark Fund and the Canadian Dollar Fund (the
"Funds"), series of shares of the Trust, owned approximately __% of the value of
the outstanding interests in Portfolios of the International Currency Fund which
invest in securities denominated in the Designated Currencies of the Funds.
Because each Fund controls its corresponding Portfolio, it may take actions
without the approval of any other investor in such Portfolio.
Since, as of the approximate time of this Prospectus, an affiliated
person of the Investment Adviser was the beneficial owner of all or a
substantial amount of the outstanding shares of the Funds it may also be deemed
to be in control of the Portfolios as control is defined in the 1940 Act. Such
owners may acquire additional shares of the Funds. Although sales of the Funds'
shares to other investors will reduce its
<PAGE> 88
percentage ownership in the Funds and the Portfolios, so long as 25% of a class
of shares of either a Funds or a Portfolio is so owned, the owner will be
presumed to be in control of such class of shares for purposes of voting on
certain matters submitted to a vote of shareholders.
Item 26. Number of Holders of Securities.
- -------- --------------------------------
As of ___________, 1996, the record holders of each class of Trust's
securities were as follows:
Title of Class Number of Record Holders
-------------- ------------------------
U.S. Dollar Fund ________
Pound Sterling Fund ________
Deutschemark Fund ________
Canadian Dollar Fund ________
Item 27. Indemnification.
- -------- ----------------
Under Article VI of the Trust's Agreement and Declaration of
Trust, any present or former Trustee, Officer, agent or employee or person
serving in such capacity with another entity at the request of the Trust
("Covered Person") shall be indemnified against all liabilities, including, but
not limited to, amounts paid in satisfaction of judgments, in compromises or as
fines or penalties, and expenses, including reasonable legal and accounting
fees, in connection with the defense or disposition of any proceeding by or in
the name of the Trust or any shareholder in his capacity as such if: (i) a
favorable final decision on the merits is made by a court or administrative
body; or (ii) a reasonable determination is made by a vote of the majority of a
quorum of disinterested Trustees or by independent legal counsel that the
Covered Person was not liable by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in his office
("Disabling Conduct"); or (iii) a determination is made to indemnify the Covered
Person under procedures approved by the Board of Trustees which in the opinion
of independent legal counsel are not inconsistent with the Investment Company
Act of 1940. Said Article VI further provides that the Trust shall indemnify any
Covered Person against any such liabilities and expenses incurred in connection
with the defense or disposition of any other type of proceeding except with
respect to any matter as to which the Covered Person shall have engaged in
Disabling Conduct or shall have been finally adjudicated not to have acted in
good faith and in the reasonable belief that such Covered Person's action was in
or not opposed to the best interests of the Trust.
Item 28. Business and Other Connections of Investment Adviser.
- -------- -----------------------------------------------------
Rothschild International Asset Management Limited (the
"Investment Adviser") is a registered investment adviser. The Investment
Adviser's offices are located at Five Arrows House, St. Swithin's Lane,
London EC4N 8NR England. The Investment Adviser is a British corporation that
was formed in 1975. It is an indirect subsidiary of Rothschild Concordia AG of
Zug, Switzerland, a holding company whose subsidiaries manage approximately
$27 billion of assets, spread across equities, bonds and currencies. The
Investment Adviser offers a wide range of investment advisory services to both
individuals and institutions.
<PAGE> 89
The business and other connections of the officers and directors of
Rothschild International Asset Management Limited , the Investment Adviser to
all series of the Trust, are listed on the Form ADV of the Investment Adviser as
currently on file with the Commission (File no. 801-15132), the text of which is
hereby incorporated by reference.
Item 29. Principal Underwriters.
- -------- -----------------------
(a) Five Arrows Fund Distributors Inc. acts as the distributor and
principal underwriter for each of the Funds. It does not act as principal
underwriter, depositor or investment adviser to any investment companies.
(b)(1) The following information relates to the directors, officers and
partners of Five Arrows Fund Distributors Inc.:
Name and Principal Positions and Offices Positions and Offices
Business Address With Registrant With Underwriter
---------------- --------------- ----------------
Lynn J. Mangum None Chairman
The BISYS Group, Inc.
150 Clove Road
Little Falls, New Jersey 07424
Walter B. Grimm None President/CEO
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Robert J. McMullan None Executive Vice President
The BISYS Group, Inc.
150 Clove Road
Little Falls, New Jersey 07424
J. Christopher Klutch None Senior Executive Vice
The BISYS Group, Inc. President
150 Clove Road
Little Falls, New Jersey 07424
William Blundin None Vice President
The BISYS Group, Inc.
150 Clove Road
Little Falls, New Jersey 07424
Dennis Sheehan None Vice President
The BISYS Group, Inc.
150 Clove Road
Little Falls, New Jersey 07424
Kevin Dell None Vice President/Secretary
The BISYS Group, Inc.
150 Clove Road
Little Falls, New Jersey 07424
Michael Burns None Vice President/
BISYS Fund Services, Inc. Compliance
3435 Stelzer Road
Columbus, Ohio 43219
Anna Porcaro None Assistant Secretary
The BISYS Group, Inc.
150 Clove Road
Little Falls, New Jersey 07424
(c) Not applicable.
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
The accounts and records of the Trust are maintained at the
offices of the Trust at 3435 Stelzer Road, Columbus, OH 43219-3035.
Item 31. Management Services.
- -------- --------------------
Not applicable.
Item 32. Undertakings.
- -------- -------------
(a) Not applicable.
(b) The Trust hereby undertakes to file a post-effective amendment,
using financial statements which do not have to be certified, within four to six
months from the effective date of the Trust's 1933 Act registration statement.
(c) Trust hereby undertakes to furnish each person, upon request and
without charge, to whom a Prospectus with respect to a series of the Trust is
delivered with a copy of the latest annual report to shareholders with respect
to that series.
<PAGE> 90
FIVE ARROWS WORLD CASH MANAGEMENT FUND
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant has duly caused this
Pre-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 25th day of
November, 1996.
FIVE ARROWS WORLD CASH
MANAGEMENT FUND
By: /s/ Peter B. Collacott
-----------------------------
Peter B. Collacott, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Peter B. Collacott and Paul R. Freeman,
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to the Registration Statement of Five Arrows World Cash Management
Fund, and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necesary
to be done in and about the premises, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment to its Registration Statement and Power of Attorney has
been signed below by the following persons in the capacities and on the dates
indicated:
Name Title Date
---- ----- ----
Principal Executive Officer
/s/ Peter B. Collacott President and Trustee November 25, 1996
- --------------------------
Peter B. Collacott
Principal Financial and
Accounting Officer
/s/ William Tomko Treasurer November 25, 1996
- --------------------------
William Tomko
/s/ Bryan J. Walsh Chairman and Trustee November 25, 1996
- --------------------------
Bryan J. Walsh
/s/ Paul R. Freeman Senior Vice President November 25, 1996
- -------------------------- and Trustee
Paul R. Freeman
/s/ Alan T. Jeffers Trustee November 25, 1996
- --------------------------
Alan T. Jeffers
/s/ Roger M. Kubarych Trustee November 25, 1996
- --------------------------
Roger M. Kubarych
<PAGE> 91
THE INTERNATIONAL CURRENCY FUND
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant has duly caused this
Pre-Effective Amendment to the Registration Statement of the Five
Arrows World Cash Management Fund to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 25th day of November, 1996.
THE INTERNATIONAL CURRENCY TRUST
By: /s/ Peter B. Collacott
-----------------------------
Peter B. Collacott, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Peter B. Collacott and Paul R. Freeman,
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to the Registration Statements for the Five Arrows World Cash
Management Fund and The International Currency Fund, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necesary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment to the Registration Statement of the Five Arrows
Currency Trust and Power of Attorney has been signed below by the following
persons in the capacities and on the dates indicated:
Name Title Date
---- ----- ----
Principal Executive Officer
/s/ Peter B. Collacott President and Trustee November 25, 1996
- --------------------------
Peter B. Collacott
Principal Financial and
Accounting Officer
/s/ Adrian Waters Treasurer November 25, 1996
- --------------------------
Adrian Waters
/s/ Bryan J. Walsh Chairman and Trustee November 25, 1996
- --------------------------
Bryan J. Walsh
/s/ Paul R. Freeman Senior Vice President November 25, 1996
- -------------------------- and Trustee
Paul R. Freeman
/s/ Alan T. Jeffers Trustee November 25, 1996
- --------------------------
Alan T. Jeffers
/s/ Roger M. Kubarych Trustee November 25, 1996
- --------------------------
Roger M. Kubarych
<PAGE> 1
Exhibit 1
FIVE ARROWS WORLD CASH MANAGEMENT FUND
MASTER TRUST AGREEMENT
AUGUST 13, 1996
(C)1996 GOODWIN, PROCTER & HOAR
ALL RIGHTS RESERVED
<PAGE> 2
TABLE OF CONTENTS
Page
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ARTICLE I - NAME AND DEFINITIONS..............................................1
--------------------
Section 1.1 Name and Principal Office.....................................1
-------------------------
Section 1.2 Definitions...................................................1
-----------
(a) "Act".........................................................1
(b) "By-Laws".....................................................2
(c) "class".......................................................2
(d) "Commission"..................................................2
(e) "Declaration of Trust"........................................2
(f) "Majority of the Outstanding Voting Shares"...................2
(g) "1940 Act"....................................................2
(h) "person"......................................................2
(i) "Shareholder".................................................2
(j) "Shares"......................................................2
(k) "Sub-Trust" or "Series".......................................2
(l) "Trust".......................................................2
(m) "Trustees"....................................................2
ARTICLE II - PURPOSE OF TRUST.................................................3
----------------
ARTICLE III - THE TRUSTEES..................................................3
------------
Section 3.1 Number, Designation, Election, Term, etc......................3
----------------------------------------
(a) Trustees......................................................3
--------
(b) Number........................................................3
------
(c) Election and Term.............................................3
-----------------
(d) Resignation and Retirement....................................3
--------------------------
(e) Removal.......................................................3
-------
(f) Vacancies.....................................................4
---------
(g) Effect of Death, Resignation, etc.............................4
---------------------------------
(h) No Accounting.................................................4
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Section 3.2 Powers of Trustees............................................4
------------------
(a) Investments...................................................5
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(b) Disposition of Assets.........................................6
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(c) Ownership Powers..............................................6
----------------
(d) Subscription..................................................6
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(e) Form of Holding...............................................6
---------------
(f) Reorganization, etc...........................................6
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(g) Voting Trusts, etc............................................6
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(h) Compromise....................................................6
----------
(i) Partnerships, etc.............................................6
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(i)
<PAGE> 3
Page
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(j) Borrowing and Security........................................7
----------------------
(k) Guarantees, etc...............................................7
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(l) Insurance.....................................................7
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(m) Pensions, etc.................................................7
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(n) Distribution Plans............................................7
------------------
Section 3.3 Certain Contracts.............................................7
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(a) Advisory......................................................8
--------
(b) Administration................................................8
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(c) Distribution..................................................8
------------
(d) Custodian and Depository......................................8
------------------------
(e) Transfer and Dividend Disbursing Agency.......................8
---------------------------------------
(f) Shareholder Servicing.........................................8
---------------------
(g) Accounting....................................................8
----------
Section 3.4 Payment of Trust Expenses and Compensation of Trustees........9
------------------------------------------------------
Section 3.5 Ownership of Assets of the Trust.............................10
--------------------------------
Section 3.6 Action by Trustees...........................................10
------------------
ARTICLE IV - SHARES..........................................................10
------
Section 4.1 Description of Shares........................................10
---------------------
Section 4.2 Establishment and Designation of Sub-Trusts and Classes......12
-------------------------------------------------------
(a) Assets Belonging to Sub-Trusts...............................12
------------------------------
(b) Liabilities Belonging to Sub-Trusts..........................12
-----------------------------------
(c) Dividends....................................................13
---------
(d) Liquidation..................................................14
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(e) Voting.......................................................14
------
(f) Redemption by Shareholder....................................14
-------------------------
(g) Redemption by Trust..........................................15
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(h) Net Asset Value..............................................15
---------------
(i) Transfer.....................................................15
--------
(j) Equality.....................................................16
--------
(k) Fractions....................................................16
---------
(l) Conversion Rights............................................16
-----------------
(m) Class Differences............................................16
-----------------
Section 4.3 Ownership of Shares..........................................16
-------------------
Section 4.4 Investments in the Trust.....................................17
------------------------
Section 4.5 No Pre-emptive Rights........................................17
---------------------
Section 4.6 Status of Shares and Limitation of Personal Liability........17
-----------------------------------------------------
Section 4.7 No Appraisal Rights..........................................17
-------------------
ARTICLE V - SHAREHOLDERS' VOTING POWERS AND MEETINGS.......................17
----------------------------------------
Section 5.1 Voting Powers................................................17
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Section 5.2 Meetings.....................................................18
--------
(ii)
<PAGE> 4
Page
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Section 5.3 Record Dates.................................................18
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Section 5.4 Quorum and Required Vote.....................................19
------------------------
Section 5.5 Action by Written Consent....................................19
-------------------------
Section 5.6 Inspection of Records........................................19
---------------------
Section 5.7 Additional Provisions........................................19
---------------------
ARTICLE VI - LIMITATION OF LIABILITY; INDEMNIFICATION......................19
----------------------------------------
Section 6.1 Trustees, Shareholders, etc. Not Personally Liable; Notice...19
----------------------------------------------------------
Section 6.2 Trustee's Good Faith Action;Expert Advice;No Bond or Surety..20
-----------------------------------------------------------
Section 6.3 Indemnification of Shareholders..............................21
-------------------------------
Section 6.4 Indemnification of Trustees, Officers, etc...................21
------------------------------------------
Section 6.5 Compromise Payment...........................................22
------------------
Section 6.6 Indemnification Not Exclusive, etc...........................22
----------------------------------
Section 6.7 Liability of Third Persons Dealing with Trustees.............22
------------------------------------------------
Section 6.8 Discretion...................................................22
----------
ARTICLE VII - MISCELLANEOUS................................................23
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Section 7.1 Duration and Termination of Trust............................23
---------------------------------
Section 7.2 Reorganization...............................................23
--------------
Section 7.3 Amendments...................................................24
----------
Section 7.4 Filing of Copies; References; Headings.......................24
--------------------------------------
Section 7.5 Applicable Law...............................................25
--------------
Section 7.6 Registered Agent.............................................25
----------------
Section 7.7 Integration..................................................25
-----------
(iii)
<PAGE> 5
MASTER TRUST AGREEMENT
AGREEMENT AND DECLARATION OF TRUST made as of this 13th day of August,
1996, by the Trustees hereunder, and by the holders of shares of beneficial
interest to be issued hereunder as hereinafter provided. This Declaration of
Trust shall be effective upon the filing of the Certificate of Trust in the
office of the Secretary of State of the State of Delaware.
W I T N E S S E T H:
WHEREAS this Trust has been formed to carry on the business of an
investment company; and
WHEREAS this Trust is authorized to issue its shares of beneficial
interest in separate series, each separate series to be a Sub-Trust hereunder,
and to issue classes of Shares of any Sub-Trust or divide Shares of any
Sub-Trust into two or more classes, all in accordance with the provisions
hereinafter set forth; and
WHEREAS the Trustees have agreed to manage all property coming into
their hands as trustees of a Delaware business trust in accordance with the
provisions of the Delaware Business Trust Act (12 Del. C. section 3801, et
seq.), as from time to time amended and including any successor statute of
similar import (the "Act"), and the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the benefit of the holders from time to
time of shares of beneficial interest in this Trust and the Sub-Trusts created
hereunder as hereinafter set forth.
ARTICLE I - NAME AND DEFINITIONS
--------- --------------------
Section 1.1 NAME AND PRINCIPAL OFFICE. This Trust shall be known as
"Five Arrows World Cash Management Fund" and the Trustees shall conduct the
business of the Trust under that name or any other name or names as they may
from time to time determine. The principal office of the Trust shall be located
at 3435 Stelzer Road, Columbus, OH 43219 or such location as the Trustees may
from time to time determine.
Section 1.2 DEFINITIONS. Whenever used herein, unless otherwise
required by the context or specifically provided:
(a) "Act" shall have the meaning given to it in the recitals of
this Declaration of Trust.
<PAGE> 6
(b) "By-Laws" shall mean the By-Laws of the Trust as amended
from time to time;
(c) "class" refers to any class of Shares of any Series or
Sub-Trust established and designated under or in accordance with the provisions
of Article IV;
(d) "Commission" shall have the meaning given it in the 1940
Act;
(e) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to time;
(f) "Majority of the Outstanding Voting Shares" of the Trust or
Sub-Trust or of a class of a Sub-Trust shall mean the vote, at the annual or a
special meeting of Shareholders duly called, (A) of 67 per centum or more of the
Shares of the Trust or Sub-Trust present at such meeting, (or of a class of a
Sub-Trust, as the case may be) if holders of more than 50 per centum of the
outstanding Shares of the Trust or Sub-Trust (or of a class of a Sub-Trust, as
the case may be) are present or represented by proxy; or (B) of more than 50 per
centum of the outstanding voting Shares of the Trust or Sub-Trust or of a class
of a Sub-Trust, as the case may be, whichever is the less.
(g) "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations thereunder, all as amended from time to time;
(h) "person" means a natural person, corporation, limited
liability company, trust, association, partnership (whether general, limited or
otherwise), joint venture or any other entity.
(i) "Shareholder" means a beneficial owner of record of Shares;
(j) "Shares" refers to the transferable units of interest into
which the beneficial interest in the Trust and each Sub-Trust of the Trust
and/or any class of any Sub-Trust (as the context may require) shall be divided
from time to time;
(k) "Sub-Trust" or "Series" refers to a series of Shares
established and designated under or in accordance with the provisions of Article
IV;
(l) "Trust" refers to the Delaware business trust established by
this Declaration of Trust, inclusive of each and every Sub-Trust established
hereunder; and
(m) "Trustees" refers to the trustees of the Trust and of each
Sub-Trust hereunder named herein or elected in accordance with Article III.
2
<PAGE> 7
ARTICLE II - PURPOSE OF TRUST
---------- ----------------
The purposes of the Trust are (i) to operate as an investment company
and to offer Shareholders of the Trust and each Sub-Trust of the Trust one or
more investment programs primarily in securities and debt instruments, and (ii)
to engage in such activities that are necessary, suitable, incidental or
convenient to the accomplishment of the foregoing.
ARTICLE III - THE TRUSTEES
----------- ------------
Section 3.1 Number, Designation, Election, Term, etc.
----------------------------------------
(a) TRUSTEES. The initial Trustee hereof and of each Sub-Trust
hereunder shall be Paul Freeman.
(b) NUMBER. The Trustees serving as such, whether named above or
hereafter becoming Trustees, may increase or decrease the number of Trustees to
a number other than the number theretofore determined. No decrease in the number
of Trustees shall have the effect of removing any Trustee from office prior to
the expiration of such Trustee's term, but the number of Trustees may be
decreased in conjunction with the removal of a Trustee pursuant to subsection
(e) of this Section 3.1.
(c) ELECTION AND TERM. Trustees, in addition to those named
above, may become such by election by Shareholders or the Trustees in office
pursuant to Section 3.1(f). Each Trustee, whether named above or hereafter
becoming a Trustee, shall serve as a Trustee of the Trust and of each Sub-Trust
hereunder during the lifetime of this Trust and until its termination as
hereinafter provided except as such Trustee sooner dies, resigns, retires or is
removed. Subject to Section 16(a) of the 1940 Act, the Trustees may elect
successors and may, pursuant to Section 3.1(f) hereof, appoint Trustees to fill
vacancies.
(d) RESIGNATION AND RETIREMENT. Any Trustee may resign or retire
as a trustee of the Trust, by written instrument signed by such Trustee and
delivered to the other Trustees or to any officer of the Trust, and such
resignation or retirement shall take effect upon such delivery or upon such
later date as is specified in such instrument and shall be effective as to the
Trust and each Sub-Trust hereunder.
(e) REMOVAL. Any Trustee may be removed with or without cause at
any time: (i) by written instrument, signed by at least three-fourths of the
number of Trustees in office immediately prior to such removal, specifying the
date upon which such removal shall become effective; or (ii) by vote of
Shareholders holding not less than two-thirds of the Shares then outstanding,
cast in person or by proxy at any meeting called for the purpose; or (iii) by a
written declaration signed by Shareholders holding not less than two-thirds of
the Shares then outstanding
3
<PAGE> 8
and filed with the minutes of the Trust. Any such removal shall be effective
as to the Trust and each Sub-Trust hereunder.
(f) VACANCIES. Any vacancy or anticipated vacancy resulting from
any reason, including without limitation the death, resignation, retirement,
removal or incapacity of any of the Trustees, or resulting from an increase in
the number of Trustees by the other Trustees may (but so long as there are at
least two remaining Trustees, need not unless required by the 1940 Act) be
filled by a majority of the remaining Trustees, subject to the provisions of
Section 16(a) of the 1940 Act, through the appointment in writing of such other
person as such remaining Trustees in their discretion shall determine and such
appointment shall be effective upon the written acceptance of the person named
therein to serve as a trustee of the Trust and agreement by such person to be
bound by the provisions of this Declaration of Trust, except that any such
appointment in anticipation of a vacancy to occur by reason of voluntary or
mandatory retirement, resignation or increase in number of Trustees to be
effective at a later date shall be deemed effective upon the effective date of
said retirement, resignation or increase in number of Trustees. As soon as any
Trustee so appointed shall have accepted such appointment and shall have agreed
in writing to be bound by this Declaration of Trust and the appointment is
effective, the Trust estate shall vest in the new Trustee, together with the
continuing Trustees, without any further act or conveyance.
(g) EFFECT OF DEATH, RESIGNATION, ETC. The death, resignation,
voluntary or mandatory retirement, removal or incapacity of the Trustees, or any
one of them, shall cause a Trustee to cease to be a trustee of the Trust but
shall not operate to annul or terminate the Trust or any Sub-Trust hereunder or
to revoke or terminate any existing agency or contract created or entered into
pursuant to the terms of this Declaration of Trust.
(h) NO ACCOUNTING. Except to the extent required by the 1940 Act
or under circumstances which would justify removal for cause, no person ceasing
to be a trustee of the Trust as a result of death, resignation, voluntary or
mandatory retirement, removal or incapacity (nor the estate of any such person)
shall be required to make an accounting to the Shareholders or remaining
Trustees upon such cessation.
Section 3.2 POWERS OF TRUSTEES. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility and the purpose of the Trust. The Trustees in all instances
shall act as principals, and are and shall be free from the control of the
Shareholders. The Trustees shall have full power and authority to do any and all
acts and to make and execute any and all contracts and instruments that they may
consider necessary or appropriate in connection with the management of the
Trust. The Trustees shall not be bound or limited by present or future laws or
customs with regard to investment by trustees or fiduciaries, but shall have
full authority and absolute power and control over the assets of the Trust and
the business of the Trust to the same extent as if the Trustees were the sole
owners of the assets of the Trust and the business in their own right, including
such authority, power and control to do all acts and
4
<PAGE> 9
things as they, in their sole discretion, shall deem proper to accomplish the
purposes of this Trust. Without limiting the foregoing, the Trustees may adopt
By-Laws not inconsistent with this Declaration of Trust providing for the
conduct of the business and affairs of the Trust and may amend and repeal them
to the extent that such By-Laws do not reserve that right to the Shareholders;
they may from time to time in accordance with the provisions of Section 4.1
hereof establish Sub-Trusts, each such Sub-Trust to operate as a separate and
distinct investment medium and with separately defined investment objectives and
policies and distinct investment purposes; they may from time to time in
accordance with the provisions of Section 4.1 hereof establish Series or
establish classes of Shares of any Series or Sub-Trust or divide the Shares of
any Series or Sub-Trust into classes; they may as they consider appropriate
designate employees and agents who may be denominated as officers with titles,
including, but not limited to, "president," "vice-president," "treasurer,"
"secretary," "assistant secretary," "assistant treasurer," "managing director,"
"chairman of the board" and "vice chairman of the board" and who in such
capacity may act for and on behalf of the Trust, as and to the extent authorized
by the Trustees, and appoint and terminate agents and consultants and hire and
terminate employees, any one or more of the foregoing of whom may be a Trustee,
and may provide for the compensation of all of the foregoing; they may appoint
from their own number, and terminate, any one or more committees consisting of
two or more Trustees, including without implied limitation an executive
committee, which may, when the Trustees are not in session and subject to the
1940 Act, exercise some or all of the power and authority of the Trustees as the
Trustees may determine; in accordance with Section 3.3 they may employ one or
more advisers, administrators, depositories and custodians and may authorize any
depository or custodian to employ subcustodians or agents and to deposit all or
any part of such assets in a system or systems for the central handling of
securities and debt instruments, retain transfer, dividend, accounting or
Shareholder servicing agents or any of the foregoing, provide for the
distribution of Shares by the Trust through one or more distributors, principal
underwriters or otherwise, and subject to Section 5.3, set record dates or times
for the determination of Shareholders or various of them with respect to various
matters; they may compensate or provide for the compensation of the Trustees,
officers, advisers, administrators, custodians, other agents, consultants and
employees of the Trust or the Trustees on such terms as they deem appropriate;
and in general they may delegate to any officer of the Trust, to any committee
of the Trustees and to any employee, adviser, administrator, distributor,
depository, custodian, transfer and dividend disbursing agent, or any other
agent or consultant of the Trust such authority, powers, functions and duties as
they consider desirable or appropriate for the conduct of the business and
affairs of the Trust, including without implied limitation, the power and
authority to act in the name of the Trust and any Sub-Trust and of the Trustees,
to sign documents and to act as attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with
the 1940 Act or other applicable law, the Trustees shall have power and
authority for and on behalf of the Trust and each separate Sub-Trust established
hereunder:
(a) INVESTMENTS. To invest and reinvest cash and other property,
including, without implied limitation, to invest any and all of the assets of
the Trust in the securities of one
5
<PAGE> 10
or more open-end management investment companies, and to hold cash or other
property uninvested without in any event being bound or limited by any present
or future law or custom in regard to investments by trustees;
(b) DISPOSITION OF ASSETS. To sell, exchange, lend, pledge,
mortgage, hypothecate, write options on and lease any or all of the assets of
the Trust;
(c) OWNERSHIP POWERS. To vote or give assent, or exercise any
rights of ownership, with respect to stock or other securities, debt instruments
or property; and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities, debt instruments
or property as the Trustees shall deem proper;
(d) SUBSCRIPTION. To exercise powers and rights of subscription
or otherwise which in any manner arise out of ownership of securities or debt
instruments;
(e) FORM OF HOLDING. To hold any security, debt instrument or
property in a form not indicating any trust, whether in bearer, unregistered or
other negotiable form, or in the name of the Trustees or of the Trust or of any
Sub-Trust or in the name of a custodian, subcustodian or other depository or a
nominee or nominees or otherwise;
(f) REORGANIZATION, ETC. To consent to or participate in any
plan for the reorganization, consolidation or merger of any corporation or
issuer, any security or debt instrument of which is or was held in the Trust; to
consent to any contract, lease, mortgage, purchase or sale of property by such
corporation or issuer, and to pay calls or subscriptions with respect to any
security or debt instrument held in the Trust;
(g) VOTING TRUSTS, ETC. To join with other holders of any
securities or debt instruments in acting through a committee, depositary, voting
trustee or otherwise, and in that connection to deposit any security or debt
instrument with, or transfer any security or debt instrument to, any such
committee, depositary or trustee, and to delegate to them such power and
authority with relation to any security or debt instrument (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to agree to
pay, and to pay, such portion of the expenses and compensation of such
committee, depositary or trustee as the Trustees shall deem proper;
(h) COMPROMISE. To compromise, arbitrate or otherwise adjust
claims in favor of or against the Trust or any Sub-Trust or any matter in
controversy, including but not limited to claims for taxes;
(i) PARTNERSHIPS, ETC. To enter into joint ventures, general or
limited partnerships, limited liability companies and any other combinations or
associations;
6
<PAGE> 11
(j) BORROWING AND SECURITY. To borrow funds and to mortgage and
pledge the assets of the Trust or any part thereof to secure obligations arising
in connection with such borrowing;
(k) GUARANTEES, ETC. To endorse or guarantee the payment of any
notes or other obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and to mortgage
and pledge the Trust property or any part thereof to secure any of or all such
obligations;
(l) INSURANCE. To purchase and pay for entirely out of Trust
property such insurance and/or bonding as they may deem necessary or appropriate
for the conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust and payment of distributions and
principal on its portfolio investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, consultants, investment
advisers, managers, administrators, distributors, principal underwriters, or
independent contractors, or any thereof (or any person connected therewith), of
the Trust individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
person in any such capacity, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such person against such liability;
(m) PENSIONS, ETC. To pay pensions for faithful service, as
deemed appropriate by the Trustees, and to adopt, establish and carry out
pension, profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust; and
(n) DISTRIBUTION PLANS. To adopt on behalf of the Trust or any
Sub-Trust, including with respect to any class thereof, a plan of distribution
and related agreements thereto pursuant to the terms of Rule 12b-1 of the 1940
Act and to make payments from the assets of the Trust or the relevant Sub-Trust
or Sub-Trusts pursuant to said Rule 12b-1 Plan.
Section 3.3 CERTAIN CONTRACTS. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time and without limiting the
generality of their powers and authority otherwise set forth herein, enter into
one or more contracts with any one or more corporations, trusts, associations,
partnerships, limited partnerships, limited liability companies, other type of
organizations, or individuals (a "Contracting Party"), to provide for the
performance and assumption of some or all of the following services, duties and
responsibilities to, for or on behalf of the Trust and/or any Sub-Trust, and/or
the Trustees, and to provide for the performance and assumption of such other
7
<PAGE> 12
services, duties and responsibilities in addition to those set forth below as
the Trustees may determine appropriate:
(a) ADVISORY. Subject to the general supervision of the Trustees
and in conformity with the stated policy of the Trustees with respect to the
investments of the Trust or of the assets belonging to any Sub-Trust of the
Trust (as that phrase is defined in subsection (a) of Section 4.2), to manage
such investments and assets, make investment decisions with respect thereto, and
to place purchase and sale orders for portfolio transactions relating to such
investments and assets;
(b) ADMINISTRATION. Subject to the general supervision of the
Trustees and in conformity with any policies of the Trustees with respect to the
operations of the Trust and each Sub-Trust (including each class thereof), to
supervise all or any part of the operations of the Trust and each Sub-Trust, and
to provide all or any part of the administrative and clerical personnel, office
space and office equipment and services appropriate for the efficient
administration and operations of the Trust and each Sub-Trust;
(c) DISTRIBUTION. To distribute the Shares of the Trust and each
Sub-Trust (including any classes thereof), to be principal underwriter of such
Shares, and/or to act as agent of the Trust and each Sub-Trust in the sale of
Shares and the acceptance or rejection of orders for the purchase of Shares;
(d) CUSTODIAN AND DEPOSITORY. To act as depository for and to
maintain custody of the property of the Trust and each Sub-Trust and accounting
records in connection therewith;
(e) TRANSFER AND DIVIDEND DISBURSING AGENCY. To maintain records
of the ownership of outstanding Shares, the issuance and redemption and the
transfer thereof, and to disburse any dividends declared by the Trustees and in
accordance with the policies of the Trustees and/or the instructions of any
particular Shareholder to reinvest any such dividends;
(f) SHAREHOLDER SERVICING. To provide service with respect to
the relationship of the Trust and its Shareholders, records with respect to
Shareholders and their Shares, and similar matters; and
(g) ACCOUNTING. To handle all or any part of the accounting
responsibilities, whether with respect to the Trust's properties, Shareholders
or otherwise.
The same person may be the Contracting Party for some or all of the services,
duties and responsibilities to, for and of the Trust and/or the Trustees, and
the contracts with respect thereto may contain such terms interpretive of or in
addition to the delineation of the services, duties and responsibilities
provided for, including provisions that are not inconsistent with the 1940 Act
relating to the standard of duty of and the rights to indemnification of the
Contracting Party and others, as the Trustees may determine. Nothing herein
shall preclude, prevent or limit the Trust
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<PAGE> 13
or a Contracting Party from entering into sub-contractual arrangements relating
to any of the matters referred to in Sections 3.3(a) through (g) hereof.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of or
for any Contracting Party, or of or for any parent or affiliate of any
Contracting Party or that the Contracting Party or any parent or
affiliate thereof is a Shareholder or has an interest in the Trust or
any Sub-Trust, or that
(ii) any Contracting Party may have a contract providing for
the rendering of any similar services to one or more other
corporations, trusts, associations, partnerships, limited partnerships,
limited liability companies or other organizations, or have other
business or interests,
shall not affect the validity of any contract for the performance and assumption
of services, duties and responsibilities to, for or of the Trust or any
Sub-Trust and/or the Trustees or disqualify any Shareholder, Trustee or officer
of the Trust from voting upon or executing the same or create any liability or
accountability to the Trust, any Sub-Trust or its Shareholders, provided that in
the case of any relationship or interest referred to in the preceding clause (i)
on the part of any Trustee or officer of the Trust either (x) the material facts
as to such relationship or interest have been disclosed to or are known by the
Trustees not having any such relationship or interest and the contract involved
is approved in good faith by a majority of such Trustees not having any such
relationship or interest (even though such unrelated or disinterested Trustees
are less than a quorum of all of the Trustees), (y) the material facts as to
such relationship or interest and as to the contract have been disclosed to or
are known by the Shareholders entitled to vote thereon and the contract involved
is specifically approved in good faith by vote of the Shareholders, or (z) the
specific contract involved is fair to the Trust as of the time it is authorized,
approved or ratified by the Trustees or by the Shareholders.
Section 3.4 PAYMENT OF TRUST EXPENSES AND COMPENSATION OF TRUSTEES. The
Trustees are authorized to pay or to cause to be paid out of the principal or
income of the Trust or any Sub-Trust, or partly out of principal and partly out
of income, and to charge or allocate the same to, between or among such one or
more of the Sub-Trusts and/or one or more classes of Shares thereof that may be
established and designated pursuant to Article IV, as the Trustees deem fair,
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, any Sub-Trust and/or any class of Shares thereof, or
in connection with the management thereof, including, but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, investment adviser, administrator, distributor,
principal underwriter, auditor, counsel, depository, custodian, transfer agent,
dividend disbursing agent, accounting agent, Shareholder servicing agent, and
such other agents, consultants, and independent contractors and such other
expenses and charges as the Trustees may deem necessary
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or proper to incur. Without limiting the generality of any other provision
hereof, the Trustees shall be entitled to reasonable compensation from the Trust
for their services as trustees of the Trust and may fix the amount of such
compensation.
Section 3.5 OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the
assets of the Trust and of each Sub-Trust shall at all times be considered as
vested in the Trust.
Section 3.6 ACTION BY TRUSTEES. Except as otherwise provided by the
l940 Act or other applicable law, this Declaration of Trust or the By-Laws, any
action to be taken by the Trustees on behalf of or with respect to the Trust or
any Sub-Trust or class thereof may be taken by a majority of the Trustees
present at a meeting of Trustees (a quorum, consisting of at least one-half of
the Trustees then in office, being present), within or without Delaware,
including any meeting held by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation by such means
shall constitute presence in person at a meeting, or by written consents of a
majority of the Trustees then in office (or such larger or different number as
may be required by the 1940 Act or other applicable law).
ARTICLE IV - SHARES
---------- ------
Section 4.1 DESCRIPTION OF SHARES. The beneficial interest in the Trust
shall be divided into Shares, all with $0.0001 par value, but the Trustees shall
have the authority from time to time to issue Shares in one or more Series (each
of which Series of Shares shall represent the beneficial interest in a separate
and distinct Sub-Trust of the Trust, including without limitation each Sub-Trust
specifically established and designated in Section 4.2), as they deem necessary
or desirable. For all purposes under this Declaration of Trust or otherwise,
including, without implied limitation, (i) with respect to the rights of
creditors and (ii) for purposes of interpreting the relevant rights of each
Sub-Trust and the Shareholders of each Sub-Trust, each Sub-Trust established
hereunder shall be deemed to be a separate trust. Notice of the limitation of
liabilities of a Sub-Trust shall be set forth in the certificate of trust of the
Trust, and debts, liabilities, obligations and expenses incurred, contracted for
or otherwise existing with respect to a particular Sub-Trust shall be
enforceable against the assets of such Sub-Trust only, and not against the
assets of the Trust generally or any other Sub-Trust. The Trustees shall have
exclusive power without the requirement of Shareholder approval to establish and
designate such separate and distinct Sub-Trusts, and to fix and determine the
relative rights and preferences as between the shares of the separate Sub-Trusts
as to right of redemption and the price, terms and manner of redemption, special
and relative rights as to dividends and other distributions and on liquidation,
sinking or purchase fund provisions, conversion rights, and conditions under
which the several Sub-Trusts shall have separate voting rights or no voting
rights.
In addition, the Trustees shall have exclusive power, without the
requirement of Shareholder approval, to issue classes of Shares of any Sub-Trust
or divide the Shares of any
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Sub-Trust into classes, each class having such different dividend, liquidation,
voting and other rights as the Trustees may determine in their sole discretion,
and may establish and designate the specific classes of Shares of each
Sub-Trust. The fact that a Sub-Trust shall have initially been established and
designated without any specific establishment or designation of classes (i.e.,
that all Shares of such Sub-Trust are initially of a single class), or that a
Sub-Trust shall have more than one established and designated class, shall not
limit the authority of the Trustees to establish and designate separate classes,
or one or more further classes, of said Sub-Trust without approval of the
holders of the initial class thereof, or previously established and designated
class or classes thereof.
The number of authorized Shares and the number of Shares of each
Sub-Trust or class thereof that may be issued is unlimited, and the Trustees may
issue Shares of any Sub-Trust or class thereof for such consideration and on
such terms as they may determine (or for no consideration if pursuant to a Share
dividend or split-up), all without action or approval of the Shareholders. All
Shares when so issued on the terms determined by the Trustees shall be fully
paid and non-assessable (but may be subject to mandatory contribution back to
the Trust as provided in subsection (h) of Section 4.2). The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued and
reacquired of any Sub-Trust or class thereof into one or more Sub-Trusts or
classes thereof that may be established and designated from time to time. The
Trustees may hold as treasury Shares, reissue for such consideration and on such
terms as they may determine, or cancel, at their discretion from time to time,
any Shares of any Sub-Trust or class thereof reacquired by the Trust.
The Trustees may from time to time close the transfer books or
establish record dates and times for the purposes of determining the holders of
Shares entitled to be treated as such, to the extent provided or referred to in
Section 5.3.
The establishment and designation of any Sub-Trust or of any class of
Shares of any Sub-Trust in addition to those established and designated in
Section 4.2 shall be effective (i) upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and designation of
the relative rights and preferences of the Shares of such Sub-Trust or class,
(ii) upon the execution of an instrument in writing by an officer of the Trust
pursuant to the vote of a majority of the Trustees, or (iii) as otherwise
provided in either such instrument. At any time that there are no Shares
outstanding of any particular Sub-Trust or class previously established and
designated, the Trustees may by an instrument executed by a majority of their
number (or by an instrument executed by an officer of the Trust pursuant to the
vote of a majority of the Trustees) abolish that Sub-Trust or class and the
establishment and designation thereof. Each instrument establishing and
designating any Sub-Trust shall have the status of an amendment to this
Declaration of Trust.
Any Trustee, officer or other agent of the Trust, and any organization
in which any such person is interested may acquire, own, hold and dispose of
Shares of any Sub-Trust (including any classes thereof) of the Trust to the same
extent as if such person were not a Trustee, officer or
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other agent of the Trust; and the Trust may issue and sell or cause to be issued
and sold and may purchase Shares of any Sub-Trust (including any classes
thereof) from any such person or any such organization subject only to the
general limitations, restrictions or other provisions applicable to the sale or
purchase of Shares of such Sub-Trust (including any classes thereof) generally.
Section 4.2 ESTABLISHMENT AND DESIGNATION OF SUB-TRUSTS AND CLASSES.
Without limiting the authority of the Trustees set forth in Section 4.1 to
establish and designate any further Sub-Trusts, the Trustees hereby establish
and designate four Sub-Trusts: "U.S. Dollar Fund", "Pound Sterling Fund",
"Deutschemark Fund" and Canadian Dollar Fund". The Shares of such Sub-Trusts and
any Shares of any further Sub-Trust or class thereof that may from time to time
be established and designated by the Trustees shall (unless the Trustees
otherwise determine with respect to some further Sub-Trust at the time of
establishing and designating the same) have the following relative rights and
preferences:
(a) ASSETS BELONGING TO SUB-TRUSTS. All consideration received
by the Trust for the issue or sale of Shares of a particular Sub-Trust or any
classes thereof, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall be held by the Trustees in trust for the
benefit of the holders of Shares of that Sub-Trust or class thereof and shall
irrevocably belong to that Sub-Trust (and be allocable to any classes thereof)
for all purposes, and shall be so recorded upon the books of account of the
Trust. Separate and distinct records shall be maintained for each Sub-Trust and
the assets associated with a Sub-Trust shall be held and accounted for
separately from the other assets of the Trust, or any other Sub-Trust. Such
consideration, assets, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, together with any General Items (as
hereinafter defined) allocated to that Sub-Trust as provided in the following
sentence, are herein referred to as "assets belonging to" that Sub-Trust (and
allocable to any classes thereof). In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Sub-Trust (collectively
"General Items"), the Trustees shall allocate such General Items to and among
any one or more of the Sub-Trusts established and designated from time to time
in such manner and on such basis as they, in their sole discretion, deem fair
and equitable; and any General Items so allocated to a particular Sub-Trust
shall belong to that Sub-Trust (and be allocable to any classes thereof). Each
such allocation by the Trustees shall be conclusive and binding upon the holders
of all Shares of all Sub-Trusts (including any classes thereof) for all
purposes.
(b) LIABILITIES BELONGING TO SUB-TRUSTS. The assets belonging to
each particular Sub-Trust shall be charged with the liabilities in respect of
that Sub-Trust and all expenses, costs, charges and reserves belonging to that
Sub-Trust, and any general liabilities, expenses, costs, charges or reserves of
the Trust which are not readily identifiable as belonging to any particular
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Sub-Trust shall be allocated and charged by the Trustees to and among any one or
more of the Sub-Trusts established and designated from time to time in such
manner and on such basis as the Trustees in their sole discretion shall
determine. In addition, the liabilities in respect of a particular class of
Shares of a particular Sub-Trust and all expenses, costs, charges and reserves
belonging to that class of Shares, and any general liabilities, expenses, costs,
charges or reserves of that particular Sub-Trust which are not readily
identifiable as belonging to any particular class of Shares of that Sub-Trust
shall be allocated and charged by the Trustees to and among any one or more of
the classes of Shares of that Sub-Trust established and designated from time to
time in such manner and on such basis as the Trustees in their sole discretion
shall determine. The liabilities, expenses, costs, charges and reserves
allocated and so charged to a Sub-Trust or class thereof are herein referred to
as "liabilities belonging to" that Sub-Trust or class thereof. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders, creditors and any other persons
dealing with the Trust or any Sub-Trust (including any classes thereof) for all
purposes. Any creditor of any Sub-Trust may look only to the assets of that
Sub-Trust to satisfy such creditor's debt.
The Trustees shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items shall be treated as income and which
items as capital; and each such determination and allocation shall be conclusive
and binding upon the Shareholders.
(c) DIVIDENDS. Dividends and distributions on Shares of a
particular Sub-Trust or any class thereof may be paid with such frequency as the
Trustees in their sole discretion may determine, which may be daily or otherwise
pursuant to a standing resolution or resolutions adopted only once or with such
frequency as the Trustees in their sole discretion may determine, to the holders
of Shares of that Sub-Trust or class, from such of the income and capital gains,
accrued or realized, from the assets belonging to that Sub-Trust, or in the case
of a class, belonging to that Sub-Trust and allocable to that class, as the
Trustees in their sole discretion may determine, after providing for actual and
accrued liabilities belonging to that Sub-Trust or class. All dividends and
distributions on Shares of a particular Sub-Trust or class thereof shall be
distributed pro rata to the holders of Shares of that Sub-Trust or class in
proportion to the number of Shares of that Sub-Trust or class held by such
holders at the date and time of record established for the payment of such
dividends or distributions, except that in connection with any dividend or
distribution program or procedure the Trustees in their sole discretion may
determine that no dividend or distribution shall be payable on Shares as to
which the Shareholder's purchase order and/or payment have not been received by
the time or times established by the Trustees under such program or procedure.
Such dividends and distributions may be made in cash or Shares of that Sub-Trust
or class or a combination thereof as determined by the Trustees in their sole
discretion or pursuant to any program that the Trustees may have in effect at
the time for the election by each Shareholder of the mode of the making of such
dividend or distribution to that Shareholder. Any such dividend or distribution
paid in Shares will be paid at the net asset value thereof as determined in
accordance with subsection (h) of this Section 4.2.
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The Trustees shall have full discretion to the extent not inconsistent
with the 1940 Act to determine which items shall be treated as income and which
items as capital; and each such determination and allocation shall be conclusive
and binding upon the Shareholders.
(d) LIQUIDATION. In the event of the liquidation or dissolution
of the Trust, subject to Section 7.1 hereof, the holders of Shares of each
Sub-Trust or any class thereof that has been established and designated shall be
entitled to receive, when and as declared by the Trustees, the excess of the
assets belonging to that Sub-Trust, or in the case of a class, belonging to that
Sub-Trust and allocable to that class, over the liabilities belonging to that
Sub-Trust or class. The assets so distributable to the holders of Shares of any
particular Sub-Trust or class thereof shall be distributed among such holders in
proportion to the number of Shares of that Sub-Trust or class thereof held by
them and recorded on the books of the Trust. The liquidation of any particular
Sub-Trust or class thereof may be authorized at any time by vote of a majority
of the Trustees then in office.
(e) VOTING. On each matter submitted to a vote of the
Shareholders, each holder of a Share shall be entitled to one vote for each
whole Share standing in such Shareholder's name on the books of the Trust
irrespective of the Series thereof or class thereof and all Shares of all Series
and classes thereof shall vote together as a single class; provided, however,
that as to any matter (i) with respect to which a separate vote of one or more
Series or classes thereof is required by the 1940 Act or the provisions of the
writing establishing and designating the Sub-Trust or class, such requirements
as to a separate vote by such Series or class thereof shall apply in lieu of all
Shares of all Series and classes thereof voting together; and (ii) as to any
matter which affects the interests of one or more particular Series or classes
thereof, only the holders of Shares of the one or more affected Series or
classes shall be entitled to vote, and each such Series or class shall vote as a
separate class.
(f) REDEMPTION BY SHAREHOLDER. Each holder of Shares of a
particular Sub-Trust or any class thereof shall have the right at such times as
may be permitted by the Trust to require the Trust to redeem all or any part of
such holder's Shares of that Sub-Trust or class thereof at a redemption price
equal to the net asset value per Share of that Sub-Trust or class thereof next
determined in accordance with subsection (h) of this Section 4.2 after the
Shares are properly tendered for redemption, subject to any contingent deferred
sales charge or redemption charge in effect at the time of redemption. Payment
of the redemption price shall be in cash; provided, however, that if the
Trustees determine, which determination shall be conclusive, that conditions
exist which make payment wholly in cash unwise or undesirable, the Trust may,
subject to the requirements of the 1940 Act, make payment wholly or partly in
securities or other assets belonging to the Sub-Trust of which the Shares being
redeemed are part at the value of such securities or assets used in such
determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the holders of Shares of any
Sub-Trust or class thereof to require
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the Trust to redeem Shares of that Sub-Trust during any period or at any time
when and to the extent permissible under the 1940 Act.
(g) REDEMPTION BY TRUST. Each Share of each Sub-Trust or class
thereof that has been established and designated is subject to redemption by the
Trust at the redemption price which would be applicable if such Share was then
being redeemed by the Shareholder pursuant to subsection (f) of this Section
4.2: (i) at any time, in the sole discretion of the Trustees, or (ii) upon such
other conditions as may from time to time be determined by the Trustees and set
forth in the then current Prospectus of the Trust. Upon such redemption the
holders of the Shares so redeemed shall have no further right with respect
thereto other than to receive payment of such redemption price.
(h) NET ASSET VALUE. The net asset value per Share of any
Sub-Trust shall be (i) in the case of a Sub-Trust whose Shares are not divided
into classes, the quotient obtained by dividing the value of the net assets of
that Sub-Trust (being the value of the assets belonging to that Sub-Trust less
the liabilities belonging to that Sub-Trust) by the total number of Shares of
that Sub-Trust outstanding, and (ii) in the case of a class of Shares of a
Sub-Trust whose Shares are divided into classes, the quotient obtained by
dividing the value of the net assets of that Sub-Trust allocable to such class
(being the value of the assets belonging to that Sub-Trust allocable to such
class less the liabilities belonging to such class) by the total number of
Shares of such class outstanding; all determined in accordance with the methods
and procedures, including without limitation those with respect to rounding,
established by the Trustees from time to time.
The Trustees may in their sole discretion determine to maintain the net
asset value per Share of any Sub-Trust at a designated constant dollar amount
and in connection therewith may adopt procedures not inconsistent with the 1940
Act for the continuing declarations of income attributable to that Sub-Trust as
dividends payable in additional Shares of that Sub-Trust at the designated
constant dollar amount and for the handling of any losses attributable to that
Sub-Trust. Such procedures may provide that in the event of any loss each
Shareholder shall be deemed to have contributed to the capital of the Trust
attributable to that Sub-Trust such Shareholder's pro rata portion of the total
number of Shares required to be cancelled in order to permit the net asset value
per Share of that Sub-Trust to be maintained, after reflecting such loss, at the
designated constant dollar amount. Each Shareholder of the Trust shall be deemed
to have agreed, by making an investment in any Sub-Trust with respect to which
the Trustees shall have adopted any such procedure, to make the contribution
referred to in the preceding sentence in the event of any such loss.
(i) TRANSFER. All Shares of each particular Sub-Trust or class
thereof shall be transferable, but transfers of Shares of a particular Sub-Trust
or class thereof will be recorded on the Share transfer records of the Trust
applicable to that Sub-Trust or class only at such times as Shareholders shall
have the right to require the Trust to redeem Shares of that Sub-Trust or class
and at such other times as may be permitted by the Trustees.
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(j) EQUALITY. Except as provided herein or in the instrument
designating and establishing any class of Shares or any Sub-Trust, all Shares of
each particular Sub-Trust or class thereof shall represent an equal
proportionate interest in the assets belonging to that Sub-Trust, or in the case
of a class, belonging to that Sub-Trust and allocable to that class, subject to
the liabilities belonging to that Sub-Trust or class, and each Share of any
particular Sub-Trust or class shall be equal to each other Share of that
Sub-Trust or class; but the provisions of this sentence shall not restrict any
distinctions permissible under subsection (c) of this Section 4.2 that may exist
with respect to dividends and distributions on Shares of the same Sub-Trust or
class. The Trustees in their sole discretion may from time to time divide or
combine the Shares of any particular Sub-Trust or class into a greater or lesser
number of Shares of that Sub-Trust or class without thereby changing the
proportionate beneficial interest in the assets belonging to that Sub-Trust or
class or in any way affecting the rights of Shares of any other Sub-Trust or
class.
(k) FRACTIONS. Any fractional Share of any Sub-Trust or class,
if any such fractional Share is outstanding, shall carry proportionately all the
rights and obligations of a whole Share of that Sub-Trust or class, including
rights and obligations with respect to voting, receipt of dividends and
distributions, redemption of Shares, and liquidation of the Trust.
(l) CONVERSION RIGHTS. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to provide
that holders of Shares of any Sub-Trust or class thereof shall have the right to
convert said Shares into Shares of one or more other Sub-Trust or class thereof
in accordance with such requirements and procedures as may be established by the
Trustees.
(m) CLASS DIFFERENCES. Subject to Section 4.1, the relative
rights and preferences of the classes of any Sub-Trust may differ in such other
respects as the Trustees may determine to be appropriate in their sole
discretion, provided that such differences are set forth in the instrument
establishing and designating such classes and executed by a majority of the
Trustees (or by an instrument executed by an officer of the Trust pursuant to a
vote of a majority of the Trustees).
Section 4.3 OWNERSHIP OF SHARES. The ownership of Shares shall be
recorded on the books of the Trust or of a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each
Sub-Trust and each class thereof that has been established and designated. No
certificates certifying the ownership of Shares need be issued except as the
Trustees in their sole discretion may otherwise determine from time to time. The
Trustees may make such rules as they consider appropriate for the issuance of
Share certificates, the use of facsimile signatures, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent, as the case may be, shall be conclusive as to who are
the Shareholders and as to the number of Shares of each Sub-Trust and class
thereof held from time to time by each such Shareholder.
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Section 4.4 INVESTMENTS IN THE TRUST. The Trustees may accept or reject
investments in the Trust and each Sub-Trust from such persons and on such terms
and for such consideration, not inconsistent with the provisions of the 1940
Act, as they from time to time authorize or determine. The Trustees may
authorize any distributor, principal underwriter, custodian, transfer agent or
other person to accept orders for the purchase of Shares that conform to such
authorized terms and to reject any purchase orders for Shares whether or not
conforming to such authorized terms.
Section 4.5 NO PRE-EMPTIVE RIGHTS. Shareholders shall have no
pre-emptive or other right to subscribe to any additional Shares or other
securities issued by the Trust or any Sub-Trust.
Section 4.6 STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY.
Shares shall be deemed to be personal property giving only the rights provided
in this Declaration of Trust. Every Shareholder by virtue of acquiring Shares
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death, incapacity, dissolution, termination or
bankruptcy of a Shareholder during the continuance of the Trust shall not
operate to dissolve or terminate the Trust or any Sub-Trust thereof nor entitle
the representative of such Shareholder to an accounting or to take any action in
court or elsewhere against the Trust or the Trustees, but only to the rights of
such Shareholder under this Trust. Ownership of Shares shall not entitle the
Shareholder to any title in or to the whole or any part of the Trust property or
right to call for a partition or division of the same or for an accounting, nor
shall the ownership of Shares constitute the Shareholders partners. Neither the
Trust nor the Trustees, nor any officer, employee or agent of the Trust shall
have any power to bind personally any Shareholder, nor except as specifically
provided herein to call upon any Shareholder for the payment of any sum of money
or assessment whatsoever other than such as the Shareholder may at any time
personally agree to pay.
Section 4.7 NO APPRAISAL RIGHTS. Shareholders shall have no right to
demand payment for their shares or to any other rights of dissenting
shareholders in the event the Trust participates in any transaction which would
give rise to appraisal or dissenters' rights by a shareholder of a corporation
organized under the General Corporation Law of the State of Delaware, or
otherwise.
ARTICLE V - SHAREHOLDERS' VOTING POWERS AND MEETINGS
--------- ----------------------------------------
Section 5.1 VOTING POWERS. The Shareholders shall have power to vote
only (i) for the election or removal of Trustees as provided in Section 3.1,
(ii) with respect to any contract with a Contracting Party as provided in
Section 3.3 as to which Shareholder approval is required by the 1940 Act, (iii)
with respect to any termination or reorganization of the Trust to the extent
and as provided in Sections 7.1 and 7.2, (iv) with respect to any amendment of
this Declaration of Trust to the extent and as provided in Section 7.3, and
(v) with respect to such additional matters relating to the Trust as may be
required by the 1940 Act, this Declaration of Trust, the By-Laws or any
registration of the Trust with the Commission (or any successor agency) or any
state, or as the Trustees may consider necessary or desirable. There shall be
no cumulative voting in the
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election of Trustees. Shares may be voted in person or by proxy. Proxies may be
given orally or in writing or pursuant to any computerized or mechanical data
gathering process specifically approved by the Trustees. A proxy with respect to
Shares held in the name of two or more persons shall be valid if executed by any
one of them unless at or prior to exercise of the proxy the Trust receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required by law, this
Declaration of Trust or the By-Laws to be taken by Shareholders.
Section 5.2 MEETINGS. No annual or regular meeting of Shareholders is
required. Special meetings of Shareholders may be called by the Trustees from
time to time for the purpose of taking action upon any matter requiring the vote
or authority of the Shareholders as herein provided or upon any other matter
deemed by the Trustees in their sole discretion to be necessary or desirable.
Shareholder meetings may be held at such time and place within the continental
United States as may be fixed by the Trustees. Written notice of any meeting of
Shareholders shall be given or caused to be given by the Trustees by mailing
such notice at least seven days and not more than 90 days before such meeting,
postage prepaid, stating the time, place and purpose of the meeting, to each
Shareholder at the Shareholder's address as it appears on the records of the
Trust. The Trustees shall promptly call and give notice of a meeting of
Shareholders for the purpose of voting upon removal of any Trustee of the Trust
when requested to do so in writing by Shareholders holding not less than 10% of
the Shares then outstanding. If the Trustees shall fail to call or give notice
of any meeting of Shareholders for a period of 30 days after written application
by Shareholders holding at least 10% of the Shares then outstanding requesting a
meeting be called for any other purpose requiring action by the Shareholders as
provided herein or in the By-Laws, then Shareholders holding at least 10% of the
Shares then outstanding may call and give notice of such meeting, and thereupon
the meeting shall be held in the manner provided for herein in case of call
thereof by the Trustees.
Section 5.3 RECORD DATES. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date and time not more
than 90 days prior to the date of any meeting of Shareholders or other action as
the date and time of record for the determination of Shareholders entitled to
vote at such meeting or any adjournment thereof or to be treated as Shareholders
of record for purposes of such other action, and any Shareholder who was a
Shareholder at the date and time so fixed shall be entitled to vote at such
meeting or any adjournment thereof or to be treated as a Shareholder of record
for purposes of such other action, even though such Shareholder has since that
date and time disposed of such Shareholder's Shares, and no Shareholder becoming
such after that date and time shall be so entitled to vote at such
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meeting or any adjournment thereof or to be treated as a Shareholder of record
for purposes of such other action.
Section 5.4 QUORUM AND REQUIRED VOTE. Except as otherwise provided by
the 1940 Act or other applicable law, thirty percent of the Shares entitled to
vote shall be a quorum for the transaction of business at a Shareholders'
meeting, but any lesser number shall be sufficient for adjournments. Any meeting
of shareholders, whether or not a quorum is present, may be adjourned for any
lawful purpose provided that no meeting shall be adjourned for more than six
months beyond the originally scheduled meeting date. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting without the necessity of further notice. A majority of the
Shares voted at a meeting at which a quorum is present, shall decide any
questions and a plurality shall elect a Trustee, except when a different vote is
required or permitted by any provision of the 1940 Act or other applicable law
or by this Declaration of Trust or the By-Laws.
Section 5.5 ACTION BY WRITTEN CONSENT. Subject to the provisions of the
1940 Act and other applicable law, any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote on the matter
(or such larger proportion thereof as shall be required by the 1940 Act or by
any express provision of this Declaration of Trust or the By-Laws) consent to
the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Section 5.6 INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders for any lawful purpose reasonably related to
a Shareholder's interest as a Shareholder. The Trustees may from time to time
establish reasonable standards, including standards governing what information
and documents are to be furnished, at what time and location and at whose
expense, with respect to Shareholders' inspection of Trust records.
Section 5.7 ADDITIONAL PROVISIONS. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
ARTICLE VI - LIMITATION OF LIABILITY; INDEMNIFICATION
---------- ----------------------------------------
Section 6.1 TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE.
All persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Sub-Trust with which such person
dealt for payment under such credit, contract or claim; and neither the
Shareholders of any Sub-Trust nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, nor any other Sub-Trust
shall be personally liable therefor. Every note, bond, contract, instrument,
certificate or undertaking and every other act or thing whatsoever executed or
done by or on behalf of the Trust, any Sub-Trust or the Trustees or any of them
in connection with the Trust shall be conclusively deemed to have
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<PAGE> 24
been executed or done only by or for the Trust (or the Sub-Trust) or the
Trustees and not personally. The Trustees and the Trust's officers, employees
and agents shall not be liable to the Trust or the Shareholders; provided
however, that nothing in this Declaration of Trust shall protect any Trustee or
officer, employee or agent against any liability to the Trust or the
Shareholders to which such Trustee or officer, employee or agent would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee or of such officer, employee or agent.
Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officers or officer shall give notice that
the same was executed or made by or on behalf of the Trust or by them as
Trustees or Trustee or as officers or officer and not individually and that the
obligations of such instrument are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust, or the particular Sub-Trust in question, as the case may be, but the
omission thereof shall not operate to bind any Trustees or Trustee or officers
or officer or Shareholders or Shareholder individually or otherwise invalidate
any such note, bond, contract, instrument, certificate or undertaking.
Section 6.2 TRUSTEE'S GOOD FAITH ACTION; EXPERT ADVICE; NO BOND OR
SURETY. The exercise by the Trustees of their powers and discretion hereunder
shall be binding upon everyone interested. A Trustee shall be liable to the
Trust and the Shareholders for such Trustee's own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee, and for nothing else, and shall not be liable
for errors of judgment or mistakes of fact or law. Subject to the foregoing, (a)
the Trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, consultant, adviser, administrator,
distributor or principal underwriter, custodian or transfer, dividend
disbursing, Shareholder servicing or accounting agent of the Trust, nor shall
any Trustee be responsible for the act or omission of any other Trustee; (b) the
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust and their duties as Trustees, and
shall be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice; and (c) in discharging their
duties, the Trustees, when acting in good faith, shall be entitled to rely upon
the books of account of the Trust and upon written reports made to the Trustees
by any officer appointed by them, any independent public accountant, and (with
respect to the subject matter of the contract involved) any officer, partner or
responsible employee of a Contracting Party appointed by the Trustees pursuant
to Section 3.3. The Trustees as such shall not be required to give any bond or
surety or any other security for the performance of their duties. To the extent
that, at law or in equity, a Trustee has duties (including fiduciary duties) and
liabilities relating thereto to the Trust or to a Shareholder, any such Trustee
acting under this Declaration of Trust shall not be liable to the Trust or to
any such Shareholder for the Trustee's good faith reliance on the provisions of
this Declaration of Trust. The provisions of this Declaration of Trust, to the
extent that they restrict the duties and liabilities of a Trustee otherwise
existing at law or in equity, are agreed by the Shareholders to replace such
other duties and liabilities of such Trustee.
20
<PAGE> 25
Section 6.3 INDEMNIFICATION OF SHAREHOLDERS. In case any Shareholder
(or former Shareholder) of any Sub-Trust of the Trust shall be charged or held
to be personally liable for any obligation or liability of the Trust solely by
reason of being or having been a Shareholder and not because of such
Shareholder's acts or omissions or for some other reason, the Trust on behalf of
said Sub-Trust (upon proper and timely request by the Shareholder) shall assume
the defense against such charge and satisfy any judgment thereon, and, to the
fullest extent permitted by law, the Shareholder or former Shareholder (or such
Shareholder's heirs, executors, administrators or other legal representatives or
in the case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets of said Sub-Trust estate to be
held harmless from and indemnified against all loss and expense arising from
such liability.
Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS, ETC. To the fullest
extent permitted by law, the Trust shall indemnify (from the assets of the
Sub-Trust or Sub-Trusts in question) each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise [hereinafter referred to as a "Covered
Person"]) against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such person may be or
may have been threatened, while in office or thereafter, by reason of being or
having been such a Trustee or officer, director or trustee, except with respect
to any matter as to which it has been determined that such Covered Person had
acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office
(such conduct referred to hereafter as "Disabling Conduct"). A determination
that the Covered Person is entitled to indemnification may be made by (i) a
final decision on the merits by a court or other body before whom the proceeding
was brought that the person to be indemnified was not liable by reason of
Disabling Conduct, (ii) dismissal of a court action or an administrative
proceeding against a Covered Person for insufficiency of evidence of Disabling
Conduct, or (iii) a reasonable determination, based upon a review of the facts,
that the Covered Person was not liable by reason of Disabling Conduct by (a) a
vote of a majority of a quorum of Trustees who are neither "interested persons"
of the Trust as defined in section 2(a)(l9) of the 1940 Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion. Expenses,
including accountants' and counsel fees so incurred by any such Covered Person
(but excluding amounts paid in satisfaction of judgments, in compromise or as
fines or penalties), may be paid from time to time from funds attributable to
the Sub-Trust in question in advance of the final disposition of any such
action, suit or proceeding, provided that the Covered Person shall have
undertaken to repay the amounts so paid to the Sub-Trust in question if it is
ultimately determined that indemnification of such expenses is not authorized
under this Article VI and (i) the Covered Person shall have provided security
for such undertaking, (ii) the Trust shall be insured against losses arising by
reason of any lawful advances, or (iii) a majority of a quorum of the
disinterested Trustees who are not a party to the proceeding, or an independent
legal
21
<PAGE> 26
counsel in a written opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the Covered Person ultimately will be found entitled to
indemnification.
Section 6.5 COMPROMISE PAYMENT. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 6.4,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such
indemnification shall be approved (a) by a majority of the disinterested
Trustees who are not parties to the proceeding or (b) by an independent legal
counsel in a written opinion. Approval by the Trustees pursuant to clause (a) or
by independent legal counsel pursuant to clause (b) shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with any of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Section 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The right of
indemnification provided by this Article VI shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As used in
this Article VI, "Covered Person" shall include such person's heirs, executors
and administrators, an "interested Covered Person" is one against whom the
action, suit or other proceeding in question or another action, suit or other
proceeding on the same or similar grounds is then or has been pending or
threatened, and a "disinterested" person is a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending or threatened.
Nothing contained in this Article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on behalf of any such person.
Section 6.7 LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 6.8 DISCRETION. Whenever in this Declaration of Trust the
Trustees are permitted or required to make a decision (a) in their "sole
discretion," "sole and absolute discretion," "full discretion" or "discretion,"
or under a similar grant of authority or latitude, the Trustees shall be
entitled to consider only such interests and factors as they desire, whether
reasonable or unreasonable, and may consider their own interests, and shall have
no duty or obligation to give any consideration to any interests of or factors
affecting the Trust or the Shareholders, or (b) in their "good faith" or under
another express standard, the Trustees shall act under such express standard and
shall not be subject to any other or different standards imposed by this
Declaration of Trust or by law or any other agreement contemplated herein. Each
22
<PAGE> 27
Shareholder and Trustee hereby agrees that any standard of care or duty imposed
in this Declaration of Trust or any other agreement contemplated herein or under
the Act or any other applicable law, rule or regulation shall be modified,
waived or limited in each case as required to permit the Trustees to act under
this Declaration of Trust or any other agreement contemplated herein and to make
any decision pursuant to the authority prescribed in this Declaration of Trust.
ARTICLE VII - MISCELLANEOUS
----------- -------------
Section 7.1 DURATION AND TERMINATION OF TRUST. Unless terminated as
provided herein, the Trust shall continue without limitation of time and,
without limiting the generality of the foregoing, no change, alteration or
modification with respect to any Sub-Trust or class thereof shall operate to
terminate the Trust. The Trust may be terminated at any time by a majority of
the Trustees then in office subject to a favorable vote of a Majority of the
Outstanding Voting Shares of the Trust.
Upon termination, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall in accordance with such procedures
as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with the
provisions of subsection (d) of Section 4.2.
Section 7.2 REORGANIZATION. The Trust, or any one or more Sub-Trusts,
may, either as the successor, survivor, or non-survivor, (1) consolidate or
merge with one or more other trusts, Sub-Trusts, partnerships, limited liability
companies, associations or corporations organized under the laws of the State of
Delaware or any other state of the United States, to form a consolidated or
merged trust, partnership, limited liability company, association or corporation
under the laws of which any one of the constituent entities is organized, with
the Trust in the case of a merger to be the survivor or non-survivor of such
merger, or (2) transfer a substantial portion of its assets to one or more other
trusts, Sub-Trusts, partnerships, limited liability companies, associations or
corporations organized under the laws of the State of Delaware or any other
state of the United States, or have one or more such trusts, Sub-Trusts,
partnerships, limited liability companies, associations or corporations merged
into or transfer a substantial portion of its assets to it, any such
consolidation, merger or transfer to be upon such terms and conditions as are
specified in an agreement and plan of reorganization authorized and approved by
the Trustees and entered into by the Trust, or one or more Sub-Trusts as the
case may be, in connection therewith. Any such consolidation, merger or transfer
shall require the affirmative vote of the holders of a Majority of the
Outstanding Voting Shares of the Trust (or each Sub-Trust affected thereby, as
the case may be), except that (a) such affirmative vote of the holders of Shares
shall not be required if the Trust (or Sub-Trust affected thereby, as the case
may be) shall be the survivor of such consolidation or merger or transferee of
such assets; (b) the Trustees may, without shareholder approval, cause the Trust
or any series of the Trust to invest any or all of its assets in securities
issued by a registered
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<PAGE> 28
investment company or series thereof, subject to the provisions of the 1940 Act;
and (c) the Trustees may, without shareholder approval, cause the Trust, or any
series of the Trust, to transfer all or substantially all of its assets and
liabilities to another registered investment company having substantially
identical investment objectives and policies in exchange for shares of such
other investment company if, but only if, the Trust or series, as the case may
be, retains the shares of such other investment company as an investment.
Section 7.3 AMENDMENTS. All rights granted to the Shareholders under
this Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or repeal the prohibition of assessment upon the Shareholders without the
express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time, so long as such
amendment does not materially adversely affect the rights of any Shareholder
with respect to which such amendment is or purports to be applicable and so long
as such amendment is not in contravention of applicable law, including the 1940
Act, by an instrument in writing signed by a majority of the then Trustees (or
by an officer of the Trust pursuant to the vote of a majority of such Trustees).
Any amendment to this Declaration of Trust that materially adversely affects the
rights of Shareholders may be adopted at any time by an instrument in writing
signed by a majority of the then Trustees (or by an officer of the Trust
pursuant to a vote of a majority of such Trustees) when authorized to do so by
the vote in accordance with subsection (e) of Section 4.2 of Shareholders as
specified in Section 5.4 hereof. Subject to the foregoing, any such amendment
shall be effective as of any past or future time as provided in the instrument
containing the terms of such amendment or, if there is no provision therein with
respect to effectiveness, upon the execution of such instrument and of a
certificate (which may be a part of such instrument) executed by a Trustee or
officer of the Trust to the effect that such amendment has been duly adopted.
Section 7.4 FILING OF COPIES; REFERENCES; HEADINGS. The original or a
copy of this instrument and of each amendment hereto shall be kept at the office
of the Trust where it may be inspected by any Shareholder. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made, as to the identities of the Trustees and
officers, and as to any matters in connection with the Trust hereunder; and,
with the same effect as if it were the original, may rely on a copy certified by
an officer of the Trust to be a copy of this instrument or of any such
amendments. In this instrument and in any such amendment, references to this
instrument, and all expressions like "herein", "hereof" and "hereunder" shall be
deemed to refer to this instrument as a whole as the same may be amended or
affected by any such amendments. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
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<PAGE> 29
Section 7.5 APPLICABLE LAW. This Declaration of Trust is created under
and is to be governed by and construed and administered according to the laws of
the State of Delaware. The Trust shall be of the type referred to in Section
3801 of the Act and of the type commonly called a business trust, and without
limiting the provisions hereof, the Trust may exercise all powers which are
ordinarily exercised by such a trust.
Section 7.6 REGISTERED AGENT. The Corporation Trust Company of 1209
Orange Street, City of Wilmington, County of New Castle, Delaware 19801 is
hereby designated as the initial registered agent for service of process on the
Trust in Delaware. The address of the registered office of the Trust in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware 19801.
Section 7.7 INTEGRATION. This Declaration of Trust constitutes the
entire agreement among the parties hereto pertaining to the subject matter
hereof and supersedes all prior agreements and understandings pertaining
thereto.
[END OF TEXT]
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<PAGE> 30
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seals for himself and his assigns, as of the day and year first above written.
/s/ Paul R. Freeman
----------------------------
Paul R. Freeman
26
<PAGE> 1
Exhibit 2
BY-LAWS
OF
FIVE ARROWS WORLD CASH MANAGEMENT FUND
(A Delaware Business Trust)
ARTICLE 1
Agreement and Declaration of Trust and Principal Office
-------------------------------------------------------
1.1 AGREEMENT AND DECLARATION OF TRUST. These By-Laws shall be subject
to the Master Trust Agreement, as from time to time in effect (the "Declaration
of Trust"), of Five Arrows World Cash Management Fund, the Delaware business
trust established by the Declaration of Trust (the "Trust").
1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of the Trust
shall be located in Columbus, Ohio.
ARTICLE 2
---------
Meetings of Trustees
--------------------
2.1 REGULAR MEETINGS. Regular meetings of the Trustees may be held
without call or notice at such places either within or without the State of
Delaware and at such times as the Trustees may from time to time determine,
provided that notice of the first regular meeting following any such
determination shall be given to absent Trustees.
2.2 SPECIAL MEETINGS. Special meetings of the Trustees may be held at
any time and at any place designated in the call of the meeting when called by
the Chairman of the Board, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Secretary
or an Assistant Secretary or by the officer of the Trust calling the meeting.
2.3 NOTICE. It shall be sufficient notice to a Trustee of a special
meeting to send notice by mail at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to the Trustee at his or
her usual or last known business or residence address or to give notice to him
or her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before or after the meeting, is filed with the
records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him or
her. Neither notice of a meeting nor a waiver of a notice need specify the
purposes of the meeting.
<PAGE> 2
2.4 QUORUM; ADJOURNMENT; VOTE REQUIRED FOR ACTION. At any meeting of
the Trustees a majority of the Trustees then in office shall constitute a
quorum. Any meeting may be adjourned from time to time by a majority of the
votes cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice. At the adjourned
meeting, the Trustees may transact any business which might have been transacted
at the original meeting. Except in cases where the Declaration of Trust or these
By-Laws otherwise provide, the vote of a majority of the Trustees present at a
meeting at which a quorum is present shall be the act of the Trustees.
2.5 PARTICIPATION BY TELEPHONE. One or more of the Trustees or of any
committee of the Trustees may participate in a meeting thereof by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
ARTICLE 3
---------
Officers
--------
3.1 ENUMERATION; QUALIFICATION. The officers of the Trust shall be a
Chairman of the Board, a President, a Treasurer, a Secretary and such other
officers, including Vice Presidents, Assistant Treasurers and Assistant
Secretaries, if any, as the Trustees from time to time may in their discretion
elect. The Trust may also have such agents as the Trustees from time to time may
in their discretion appoint. The Chairman of the Board shall be a Trustee and
may but need not be a beneficial owner of the Trust (a "Shareholder"); and any
other officer may be but none need be a Trustee or Shareholder. Any two or more
offices may be held by the same person.
3.2 ELECTION. The Chairman of the Board, the President, the Treasurer,
and the Secretary shall be elected annually by the Trustees at a meeting held
within the first four months of the Trust's fiscal year. The meeting at which
the officers are elected shall be known as the annual meeting of Trustees. Other
officers, if any, may be elected or appointed by the Trustees at said meeting or
at any other time. Vacancies in any office may be filled at any time.
3.3 TENURE. The Chairman of the Board, the President, the Treasurer,
and the Secretary shall hold office until the next annual meeting of the
Trustees and until their respective successors are chosen and qualified, or in
each case until he or she sooner dies, resigns, is removed or becomes
disqualified. Each other officer shall hold office and each agent shall retain
authority at the pleasure of the Trustees.
3.4 POWERS. Subject to the other provisions of these By-Laws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him or her as if the Trust were organized as a
Delaware business corporation and such other duties and powers as the Trustees
may from time to time designate.
2
<PAGE> 3
3.5 CHAIRMAN; PRESIDENT. Unless the Trustees otherwise provide, the
Chairman of the Board, or, if there is none, or in the absence of the Chairman,
the President shall preside at all meetings of the shareholders and of the
Trustees.
3.6 VICE PRESIDENT. The Vice President, or if there be more than one
Vice President, the Vice Presidents in the order determined by the Trustees (or
if there be no such determination, then in the order of their election) shall in
the absence of the President or in the event of his or her inability or refusal
to act, perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. The
Vice Presidents shall perform such other duties and have such other powers as
the Trustees may from time to time prescribe.
3.7 TREASURER. The Treasurer shall be the chief financial and
accounting officer of the Trust, and shall, subject to the provisions of the
Declaration of Trust and to any arrangement made by the Trustees with a
custodian, investment adviser or manager, or transfer, shareholder servicing or
similar agent, be in charge of the valuable papers, books of account and
accounting records of the Trust, and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the President.
3.8 ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Trustees
(or if there be no such determination, then in the order of their election),
shall, in the absence of the Treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the Treasurer
and shall perform such other duties and have such other powers as the Board of
Trustees may from time to time prescribe.
3.9 SECRETARY. The Secretary shall record all proceedings of the
Shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust. In the absence
of the Secretary from any meeting of the Shareholders or Trustees, an assistant
secretary, or if there be none or if he or she is absent, a temporary secretary
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.10 ASSISTANT SECRETARY. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Trustees (or
if there be no determination, then in the order of their election), shall, in
the absence of the Secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Trustees
may from time to time prescribe.
3.11 RESIGNATIONS AND REMOVALS. Any Trustee or officer may resign at
any time by written instrument signed by him or her and delivered to the
Chairman, the President or the Secretary or to a meeting of the Trustees. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time. The Trustees may remove any officer elected by
3
<PAGE> 4
them with or without cause. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee or officer resigning and no officer removed
shall have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal.
ARTICLE 4
---------
Committees
----------
4.1 GENERAL. The Trustees, by vote of a majority of the Trustees then
in office, may elect from their number an Executive Committee or other
committees and may delegate thereto some or all of their powers except those
which by law, by the Declaration of Trust, or by these By-Laws may not be
delegated. Except as the Trustees may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided by
the Trustees or in such rules, its business shall be conducted so far as
possible in the same manner as is provided by these By-Laws for the Trustees
themselves. All members of such committees shall hold such offices at the
pleasure of the Trustees. The Trustees may abolish any such committee at any
time. Any committee to which the Trustees delegate any of their powers or duties
shall keep records of its meetings and shall report its action to the Trustees.
The Trustees shall have power to rescind any action of any committee, but no
such rescission shall have retroactive effect.
ARTICLE 5
---------
Reports
-------
5.1 GENERAL. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers and Committees shall render such additional reports as they may deem
desirable or as may from time to time be required by the Trustees.
ARTICLE 6
---------
Fiscal Year
-----------
6.1 GENERAL. The fiscal year of the Trust shall be fixed by resolution
of the Trustees.
ARTICLE 7
---------
Seal
----
7.1 GENERAL. The seal of the Trust shall consist of a flat-faced die
with the word "Delaware", together with the name of the Trust and the year of
its organization cut or engraved
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<PAGE> 5
thereon, but, unless otherwise required by the Trustees, the seal shall not be
necessary to be placed on, and its absence shall not impair the validity of, any
document, instrument or other paper executed and delivered by or on behalf of
the Trust.
ARTICLE 8
---------
Execution of Papers
-------------------
8.1 GENERAL. Except as the Trustees may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President, any Vice President, or by the Treasurer and need not bear the
seal of the Trust.
ARTICLE 9
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Issuance of Share Certificates
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9.1 SHARE CERTIFICATES. In lieu of issuing certificates for shares of
the Trust, the Trustees or the transfer agent may either issue receipts therefor
or may keep accounts upon the books of the Trust for the record holders of such
shares, who shall in either case be deemed, for all purposes hereunder, to be
the holders of certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof.
The Trustees may at any time authorize the issuance of share
certificates either in limited cases or to all Shareholders. In that event, a
Shareholder may receive a certificate stating the number of shares owned by him
or her, in such form as shall be prescribed from time to time by the Trustees.
Such certificate shall be signed by the President or a Vice President and by the
Treasurer or Assistant Treasurer. Such signatures may be facsimiles if the
certificate is signed by a transfer agent, or by a registrar, other than a
Trustee, officer or employee of the Trust. In case any officer who has signed or
whose facsimile signature has been placed on such certificate shall cease to be
such officer before such certificate is issued, it may be issued by the Trust
with the same effect as if he were such officer at the time of its issue.
9.2 LOSS OF CERTIFICATES. In case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe. The Trust may
require the owner of the lost, destroyed or mutilated share certificate, or his
or her legal representative, to give the Trust a bond sufficient to indemnify
it against any claim that may be made against it on account of the alleged loss,
destruction or mutilation of any such certificate or the issuance of such new
certificate.
9.3 ISSUANCE OF NEW CERTIFICATE TO PLEDGEE. A pledgee of shares
transferred as collateral security shall be entitled to a new certificate if the
instrument of transfer substantially describes the debt or duty that is intended
to be secured thereby. Such new certificate shall
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express on its face that it is held as collateral security, and the name of the
pledgor shall be stated thereon, who alone shall be liable as a Shareholder, and
entitled to vote thereon.
9.4 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees may at any
time discontinue the issuance of share certificates and may, by written notice
to each Shareholder, require the surrender of shares certificates to the Trust
for cancellation. Such surrender and cancellation shall not affect the ownership
of shares in the Trust.
ARTICLE 10
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Dealings with Trustees and Officers
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10.1 GENERAL. Any Trustee, officer or other agent of the Trust may
acquire, own and dispose of shares of the Trust to the same extent as if he or
she were not a Trustee, officer or agent; and the Trustees may accept
subscriptions to shares or repurchase shares from any firm or company in which
any Trustee, officer or other agent of the Trust may have an interest.
ARTICLE 11
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Amendments to the By-Laws
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11.1 GENERAL. These By-Laws may be amended or repealed, in whole or in
part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
Adopted: October 16, 1996
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