<PAGE> 1
As Filed with the Securities and Exchange
Commission on August 7, 1997
1933 Act File No. 333-10237
1940 Act File No. 811-07775
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 1 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 / X /
(Check appropriate box or boxes.)
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
(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
Five Arrows Short-Term Investment 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):
/ X / 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.
- --------------------------------------------------------------------------------
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 Deutsche Mark Fund and the Canadian Dollar Fund series
of the Registrant.
This Post-Effective Amendment has been executed by the Trustees and
Officers of the International Currency Fund.
(ii)
<PAGE> 3
PART A
<PAGE> 4
PRELIMINARY NOTE
The Registrant's Prospectus dated February 7, 1997, to which the interim
financial statements contained herein are added by Post-Effective Amendment
No. 1, are incorporated by reference to the Registrant's filing of definitive
copies under Rule 497(c).
<PAGE> 5
U.S. Dollar Fund, a Portfolio
of
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
Supplement dated August 7, 1997
to the Prospectus dated February 7, 1997
The table of "Financial Highlights (unaudited) for a class share of beneficial
interest outstanding through the period ended June 30, 1997" below supplements
the unaudited financial statements of the U.S. Dollar Fund (the "Fund"), a
Portfolio of FIVE ARROWS SHORT-TERM INVESTMENT TRUST (the "Trust"), contained
in the Statement of Additional Information and sets forth certain information
regarding the investment operations of the Fund for the period presented.
This Supplement is provided to update, and should be read in conjunction with,
the information provided in the Prospectus.
Financial Highlights
(unaudited)
Selected ratios and data for a share of beneficial interest outstanding through
the period:
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<TABLE>
<CAPTION>
U.S. Dollar
Fund
-----------
March 26,
1997 to
June 30,
1997 (a)
-----------
<S> <C>
Net Asset Value,
Beginning of Period..................... $1.00
-----------
Investment Activities:
Net Investment income 0.01
Net realized and unrealized gains
(losses) from investment................ ----
-----------
Total from investment operations........ 0.01
Distributions:
Net investment income................... (0.01)
-----------
Total distributions..................... (0.01)
-----------
Net Asset Value,
End of Period $1.00
===========
Total Return............................ 1.42% (b)
Ratio/Supplemental Data:
Net assets, end of period ('000)........ $3,062
Ratio of expenses to average net
assets................................. 0.28% (c)
Ratio of net investment income to
average net assets...................... 5.30% (c)
Ratio of expenses to average net
assets"*................................ 7.23% (c)
Ratio of net investments income to
average net assets"*................... (1.65)% (c)
</TABLE>
*During the period certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements had
not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
<PAGE> 6
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> 7
Five Arrows Short-Term Investment Trust
Statement of Additional Information
August 7, 1997
Five Arrows Short-Term Investment Trust (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 Deutsche Mark Fund, and the Canadian Dollar Fund, which are not
diversified. Each Fund is described in the Trust's Prospectus dated February 7,
1997 and supplemented August 7, 1997. 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> 8
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> 9
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> 10
(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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<PAGE> 11
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
3
<PAGE> 12
(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
4
<PAGE> 13
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.
5
<PAGE> 14
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.
6
<PAGE> 15
Concentration in Obligations of Qualifying Banks
Under normal market conditions, more than 25% of the total assets of
each Portfolio will 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.
7
<PAGE> 16
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.
8
<PAGE> 17
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 November 19, 1944 international money
management activities and
financial and economic
consulting services.
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> 18
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 Deutsche Mark 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
Deutsche Mark 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 Pound Sterling, Deutsche Mark and Canadian Dollar Funds and may
be deemed to be in control of the Pound Sterling, Deutsche Mark and Canadian
Dollar 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.
The following persons are the owners of record of 5% or more of the
outstanding shares of the U.S. Dollar Fund as of July 21, 1997:
Percentage
Name Address of Ownership
---- ------- ------------
CEDE & Co. A-C Bank of New York Brussells 39.99%
1 Wall Street
New York, NY
CMB TTEE of the 4 Chase Metrotech Center-18 60.01%
General Motors EMP Brooklyn, NY 11245
Global Group Pension
Trust
Attn: Edward S. Mollahan
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
Portfolios pursuant to a written investment advisory agreement with the
Portfolio Trust (the "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> 19
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 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 Investment Advisory Agreement, the Portfolios bear
expenses of their operations other than those incurred by the Investment Adviser
pursuant to the 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 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 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 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 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 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 Investment Advisory Agreement.
The Investment Advisory Agreement provides that the Investment Advisor
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> 20
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 .05% 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. For the
services provided to the Portfolios, each Portfolio pays its pro-rata share of
an annual fee to the Administrator, computed daily and payable monthly, of .05%
of the Portfolio's average daily net assets.
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 brokers and
other authorized institutions that sell Five Arrows Service shares ("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> 21
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> 22
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 Deutsche Mark
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> 23
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.
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<PAGE> 24
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> 25
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.
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<PAGE> 26
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
and operates pursuant to an Amended and Restated 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.
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<PAGE> 27
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
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<PAGE> 28
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., One Post Office Square, Boston, MA 02109,
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.
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<PAGE> 29
INFORMATION ABOUT SECURITIES RATINGS OF UNITED STATES
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.
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<PAGE> 30
Rating of Short-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.
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<PAGE> 31
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.
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<PAGE> 32
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.
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<PAGE> 33
INFORMATION ABOUT SECURITIES RATINGS OF CANADIAN
RATING ORGANIZATIONS
Ratings of Long-Term Debt Securities
- ------------------------------------
CANADIAN BOND RATING SERVICE ("CBRS")
- -------------------------------------
A++ -- Highest Quality. This category encompasses bonds of outstanding quality.
They possess the highest degree of protection of principal and interest.
Companies with debt rated A++ are generally large national and/or multinational
corporations whose products or services are essential to the Canadian economy.
These companies are the acknowledged leaders in their respective industries and
have clearly demonstrated their ability to best withstand adverse economic or
trade conditions either national or international in scope. Characteristically,
these companies have had a long and credible history of superior debt
protection, in which the quality of their assets and earnings has been
constantly maintained or improved, with strong evidence that this will continue.
A+ -- Very Good Quality. Bonds rated A+ are similar in characteristics to those
rated A++ and can also be considered superior in quality. These companies have
demonstrated a long and satisfactory history of growth with above-average
protection of principal and interest on their debt securities. These bonds are
generally rated lower in quality because the margin of assets or earnings
protection may not be as large or as stable as those rated A++. In both these
categories the nature and quality of the asset and earning coverages are more
important than numerical values of the ratios.
A -- Good Quality. Bonds rated A are considered to be good quality securities
and to have favorable long-term investment characteristics. The main feature
that distinguishes them from the higher rated securities is that these companies
are more susceptible to adverse trade or economic conditions. Consequently, the
protection is lower than for the categories A++ and A+. In all cases the A rated
companies have maintained a history of adequate asset and earnings protection.
There may be certain elements that may impair this protection sometime in the
future. Confidence that the current overall financial position will be
maintained or improved is slightly lower than for the securities rated above.
DOMINION BOND RATING SERVICE LIMITED ("DBRS")
- ---------------------------------------------
AAA -- highest credit quality. The degree of protection afforded principal and
interest is of the highest order. Earnings are relatively stable, the structure
of the industry in which the entity operates is very strong, and the outlook
for future profitability is extremely favorable. There are few qualifying
factors present which would detract from the performance of the entity, and the
strength of liquidity and coverage ratios is unquestioned.
AA -- superior credit quality. Protection of interest and principal is
considered high. In many cases, they differ from bonds rated AAA to a small
degree.
<PAGE> 34
A -- upper medium grade credit quality. Protection of interest and principal is
still substantial, but the degree of strength is less than with AA rated
entities. Entities in the A category may be more susceptible to adverse
economic conditions and have greater cyclical tendencies.
Ratings of Short-Term Debt Securities
- -------------------------------------
CBRS
- ----
A-1+ -- Highest Quality. Corporate and government organizations with short-term
debt rated A-1+ are considered to be of outstanding credit quality. In general,
these organizations maintain a strong liquidity and capital position and have a
strong level of revenues/earnings/cash flow to meet all current and long-term
obligations. Characteristically, these organizations have a long and creditable
record of excellent performance. These organizations also have the ability to
maintain their performance over an extended period. Although these
organizations may experience a decline in revenues/earnings/cash flow during
recessionary periods, their ability to restore performance in subsequent
periods is very good. These organizations are generally well established and a
significant factor in their fields. Management has clearly demonstrated its
competence and reliability.
A-1 -- Very Good Quality. Corporate and government organizations with
short-term debt rated A-1 are also very well established and have a creditable
operating history. However, their credit-risk profiles are not as strong as
those organizations in the A-1+ category. These organizations generally
maintain very good financial performance measurements throughout the economic
cycle; however, they are more vulnerable to economic and competitive conditions.
A-1 (Low) -- Good Quality. Corporate and government organizations with
short-term debt rated A-1 (Low) have a creditable operating history. However,
their credit-risk profiles are not as strong as those organizations rated in
the A-1 or A-1+ category. These organizations generally maintain good financial
performance measurements throughout the economic cycle. However, they are more
vulnerable to economic and competitive conditions. Moreover, the level of debt
protection as measured by their access to capital, debt service coverage
ratios, and capital underpinning, is relatively lower.
DBRS
- ----
R-1 -- high-grade prime credit. The entity's ability to repay its current
liabilities as they fall due is very high. The strength of the various
liquidity ratios is unquestioned, and alternative sources of funds to
commercial paper such as bank lines, ability to do long-term financing and a
strong parent exist. Furthermore, the outlook for future liquidity and the
trend of these ratios should be favorable. The level of profitability has been
reasonable and relatively stable, with only modest fluctuations. No substantial
qualifying negative factors exist, and the firm is of sufficient size to be a
strong influence in its industry.
<PAGE> 35
R-2 -- medium grade credit. The liquidity ratios of entities in this
classification are not as strong as those in the R-1 category, and the past and
future trend may suggest some deterioration in the strength of these ratios.
Alternative sources of liquidity support are considered strong; however, even
the strongest liquidity support will not improve the commercial paper rating of
the issuer. The size of the entity may restrict its flexibility, and its
relative position in the industry is not as strong as an R-1. Profitability
trends, past and future, may be less favorable, earnings not as stable, and
there may be some negative qualifying factors present.
Ratings of Government Debt Securities
- -------------------------------------
CBRS
- ----
AAA -- Highest Quality. Debt securities rated AAA are considered to be of the
highest quality and have a history of excellent protection of both principal
and interest. The issuer has enjoyed excellent management with its debt load
well within its capacity to service debt even during periods of economic
decline.
AA -- Very Good Quality. Issues rated AA are also considered to be of very good
quality and have recorded much of the same level of protection as those rated
AAA. However, the extent or margin of protection is slightly less than the
above category and there may be certain elements present which could cause a
decline in the quality.
A -- Good Quality. Issues rated A are regarded as being good quality
securities. Management is also considered good and has recorded a history of
providing good protection and stewardship. However, there are weaknesses
present which, under adverse economic circumstances, would impair the issuer's
ability to continue to maintain a good level of protection for its debt.
NOTE: CBRS's Commercial Paper ratings refer to an issuer's
commercial paper, short-term promissory notes, short-
term deposits, banker's acceptances, letters of
credit, treasury bills and/or other short-term
indebtedness with an original term of one year or
less.
(High) and (Low) designations after a rating indicate
an issuer's relative strength within a rating category.
<PAGE> 36
FIVE ARROWS SHORT TERM INVESTMENT TRUST
===============================================================================
Statements of Assets and Liabilities (local currencies) (unaudited)
June 30, 1997
===============================================================================
<TABLE>
<CAPTION>
UNITED STATES POUND CANADIAN
DOLLAR STERLING DOLLAR DEUTSCHEMARK
FUND FUND* * * FUND * * * FUND * * *
------------- --------- ---------- ------------
$ (pound) C$ DM
<S> <C> <C> <C> <C>
ASSETS:
Investment in International Currency Fund............ 3,073,433 -- -- --
Deferred organizational costs........................ 61,000 37,000 82,000 99,000
Receivable from Administrator........................ 11,887 -- -- --
----------- ------ ------ ------
Total Assets.............................................. 3,146,320 37,000 82,000 99,000
----------- ------ ------ ------
LIABILITIES:
Amounts payable to Manager........................... 61,000 37,000 82,000 99,000
Distribution payable from net investment income...... 13,327 -- -- --
Shareholder service fees payable..................... 3,280
Administration fees payable.......................... 39 -- -- --
Other accrued expenses............................... 7,048 -- -- --
----------- ------ ------ ------
Total Liabilities......................................... 84,694 37,000 82,000 99,000
----------- ------ ------ ------
NET ASSETS................................................ 3,061,627 -- -- --
=========== ====== ====== ======
Net Assets
Five Arrows shares................................... 3,061,627 -- -- --
Five Arrows Service shares........................... -- -- -- --
----------- ------ ------ ------
3,061,627 -- -- --
=========== ====== ====== ======
Shares Outstanding
Five Arrows shares................................... 3,061,627 -- -- --
Five Arrows Service shares........................... -- -- -- --
----------- ------ ------ ------
Total Shares Outstanding 3,061,627 -- -- --
=========== ====== ====== ======
NET ASSET VALUE, OFFERING & REDEMPTION PRICE PER SHARE.... 1.00 1.00 1.00 1.00
=========== ====== ====== ======
COMPOSITION OF NET ASSETS:
Shares of common stock, at par....................... 306 -- -- --
Additional paid-in capital........................... 3,061,321 -- -- --
----------- ------ ------ ------
NET ASSETS, JUNE 30, 1997................................ 3,061,627 -- -- --
=========== ====== ====== ======
</TABLE>
* * * not yet commenced operations
See notes to financial statements.
<PAGE> 37
FIVE ARROWS SHORT TERM INVESTMENT TRUST
===============================================================================
Statements of Operations (local currencies) (unaudited)
For the Period Ended June 30, 1997
===============================================================================
<TABLE>
<CAPTION>
UNITED STATES POUND CANADIAN
DOLLAR STERLING DOLLAR DEUTSCHEMARK
FUND * FUND * * * FUND* * * FUND* * *
------------- ---------- --------- ------------
$ (pound) C$ DM
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Investment Income from International Currency Fund............ 26,249 -- -- --
Expenses...................................................... 6,959 -- -- --
Less: Fee waivers and expense reimbursements.................. (6,959) -- -- --
-------- ---- ---- ----
-- -- -- --
-------- ---- ---- ----
Net Investment Income from International Currency Fund.................. 26,249 -- -- --
-------- ---- ---- ----
EXPENSES:
Administration fees........................................... 235 -- -- --
Shareholder servicing fees.................................... 4,871 -- -- --
Legal fees.................................................... 10,088 -- -- --
Amortization of organization costs............................ 3,880 -- -- --
Registration fees............................................. 3,395 -- -- --
Printing fees................................................. 1,649 -- -- --
Audit fees.................................................... 1,344 -- -- --
Other operating expenses...................................... 1,649 -- -- --
-------- ---- ---- ----
TOTAL EXPENSES ............................................... 27,111 -- -- --
Less Fee waivers and reimbursements by the Administrator.. (25,816) -- -- --
-------- ---- ---- ----
TOTAL NET EXPENSES ........................................... 1,295 -- -- --
-------- ---- ---- ----
NET INVESTMENT INCOME................................................... 24,954 -- -- --
-------- ---- ---- ----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................... 24,954 -- -- --
======== ==== ==== ====
</TABLE>
* for period March 26, 1997 (commencement of operations) to June 30, 1997.
* * * not yet commenced operations
See notes to financial statements.
<PAGE> 38
FIVE ARROWS SHORT TERM INVESTMENT TRUST
===============================================================================
Statements of Changes in Net Assets (local currencies) (unaudited)
For the period ended June 30, 1997
================================================================================
<TABLE>
<CAPTION>
UNITED STATES POUND CANADIAN
DOLLAR STERLING DOLLAR DEUTSCHEMARK
FUND * FUND* * * FUND* * * FUND* * *
------------- ---------- --------- ------------
$ (pound) C$ DM
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................................ 24,954 -- -- --
--------- ---- ---- ----
Change in net assets resulting from operations................ 24,954 -- -- --
--------- ---- ---- ----
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - Five Arrows shares........... (24,954) -- -- --
Net investment income - Five Arrows Service shares... -- -- -- --
Change in net assets from shareholder distributions........... (24,954) -- -- --
---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold............................ 3,100,000 -- -- --
Dividends reinvested................................. 11,627 -- -- --
Cost of shares redeemed.............................. (50,000) -- -- --
--------- ---- ---- ----
Change in net assets from capital share transactions.......... 3,061,627 -- -- --
--------- ---- ---- ----
CHANGE IN NET ASSETS.......................................... 3,061,627 -- -- --
NET ASSETS:
Beginning of period.................................. -- -- -- --
--------- ---- ---- ----
End of period ....................................... 3,061,627 -- -- --
========= ==== ==== ====
</TABLE>
* for period March 26, 1997 (commencement of operations) to June 30, 1997.
* * * not yet commenced operations
See notes to financial statements.
<PAGE> 39
FIVE ARROWS SHORT TERM INVESTMENT TRUST
===============================================================================
Financial Highlights (unaudited)
For the period ended June 30, 1997
===============================================================================
<TABLE>
<CAPTION>
UNITED STATES DOLLAR FUND
FIVE ARROWS FIVE ARROWS
CLASS SERVICE
SHARES * SHARES * * *
----------- ------------
<S> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD .............. 1.00 --
----- ----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.01 --
----- ----
Total income from investment operations...................... 0.01 --
----- ----
LESS DISTRIBUTIONS:
Net investment income............................... (0.01) --
----- ----
NET ASSET VALUE PER SHARE, END OF PERIOD..................... 1.00 --
===== ====
TOTAL RETURN................................................. 1.42%(b) --
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period ('000)............................. 3,062 --
Ratio of expenses to average net assets .................... 0.28%(c) --
Ratio of net investment income to average net assets ........ 5.30%(c) --
Ratio of expenses to average net assets (a)................. 7.23%(c) --
Ratio of net investment income to average net assets (a)..... (1.65)%(c) --
- -------------------------------------------------------------------------------------------------
</TABLE>
* for period March 26, 1997 (commencement of operations) to June 30, 1997.
* * * not yet commenced operations
(a) During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements
had not occured the ratios would have been as indicated.
(b) Not annualized
(c) Annualized
See notes to financial statements.
<PAGE> 40
INTERNATIONAL CURRENCY FUND
===============================================================================
Statements of Assets and Liabilities (local currencies) (unaudited)
June 30, 1997
================================================================================
<TABLE>
<CAPTION>
UNITED STATES POUND CANADIAN
DOLLAR STERLING DOLLAR DEUTSCHEMARK
PORTFOLIO PORTFOLIO PORTFOLIO* * * PORTFOLIO* * *
------------- ---------- -------------- --------------
$ (pound) C$ DM
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at amortized cost 24,475,000 96,013,295 -- --
(original cost $24,475,000, (pound)95,964,208
c$0 and Dem 0, respectively)
Deferred organizational costs................... 75,000 45,000 100,000 121,000
Cash............................................ 42,851 815 -- --
Interest receivable............................. 6,759 131,856 -- --
Prepaid expenses................................ 4,237 3,845 -- -
---------- ---------- ------- -------
Total Assets............................................. 24,603,847 96,194,811 100,000 121,000
---------- ---------- ------- -------
LIABILITIES:
Amounts Payable to Manager...................... 75,000 45,000 100,000 121,000
Administration fees payable..................... 702 2,479 -- --
Transaction fees payable........................ 33,216 6,815 -- --
Trustees fees payable........................... 10,572 7,854 -- --
Legal fees payable ............................. 9,603 7,378 -- --
Audit fees payable.............................. 3,201 2,499 -- --
Fund accounting fees payable.................... 723 2,400 -- --
Custodian fees payable.......................... 482 1,877 -- --
Other accrued expenses.......................... 2,127 1,653 -- --
---------- ---------- ------- -------
Total Liabilities........................................ 135,626 77,955 100,000 121,000
---------- ---------- ------- -------
NET ASSETS, JUNE 30, 1997................................ 24,468,221 96,116,856 -- --
===============================================================
</TABLE>
* * * not yet commenced operations
See notes to financial statements.
<PAGE> 41
INTERNATIONAL CURRENCY FUND
===============================================================================
Statements of Operations (local currencies) (unaudited)
For the period ended June 30, 1997
===============================================================================
<TABLE>
<CAPTION>
United States Pound Canadian
Dollar Sterling Dollar Deutschemark
Portfolio * Portfolio * * Portfolio* * * Portfolio* * *
------------- ------------- -------------- --------------
$ (pound) C$ DM
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income............................... 267,731 1,104,314 -- --
Other Income.................................. 741 -- -- --
------- --------- ---- ----
Total Income ................................. 268,472 1,104,314 -- --
------- --------- ---- ----
EXPENSES:
Advisory fees................................. 9,645 36,144 -- --
Administration fees........................... 2,411 9,036 -- --
Transactions fees............................. 33,216 6,815 -- --
Trustees fees................................. 10,572 7,854 -- --
Legal fees.................................... 9,603 7,378 -- --
Amortization of organization costs............ 4,850 3,453 -- --
Audit fees.................................... 3,201 2,499 -- --
Fund accounting fees and expenses............. 964 3,614 -- --
Custodian fees and expenses................... 482 1,877 -- --
Other operating expenses...................... 5,927 2,246 -- --
------- --------- ---- ----
TOTAL EXPENSES ............................... 80,871 80,916 -- --
Fee waivers ................................. (9,645) (36,144) -- --
------- --------- ---- ----
Total Net Expenses ........................... 71,226 44,772 -- --
------- --------- ---- ----
NET INVESTMENT INCOME.................................. 197,246 1,059,542 -- --
------- --------- ---- ----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS... 197,246 1,059,542 -- --
======= ========= ==== ====
</TABLE>
* for period from March 26, 1997 (commencement of operations) to June 30,
1997.
* * for period from March 3, 1997 (commencement of operations) to June 30,
1997.
* * * not yet commenced operations
See notes to financial statements.
<PAGE> 42
INTERNATIONAL CURRENCY FUND
===============================================================================
Statements of Changes in Net Assets (local currencies) (unaudited)
For the period ended June 30, 1997
===============================================================================
<TABLE>
<CAPTION>
UNITED STATES POUND CANADIAN
DOLLAR STERLING DOLLAR DEUTSCHEMARK
PORTFOLIO * PORTFOLIO * * PORTFOLIO* * * PORTFOLIO* * *
------------- ------------- -------------- --------------
$ (pound) C$ DM
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income............................. 197,246 1,059,542 -- --
----------- ----------- ---- ----
Change in net assets resulting from operations............. 197,246 1,059,542 -- --
----------- ----------- ---- ----
CAPITAL TRANSACTIONS:
Contributions..................................... 34,968,496 103,891,390 -- --
Withdrawals....................................... (10,697,521) (8,834,076) -- --
----------- ----------- ---- ----
Change in net assets resulting from capital transactions... 24,270,975 95,057,314 -- --
----------- ----------- ---- ----
Change in Net Assets ...................................... 24,468,221 96,116,856 -- --
NET ASSETS:
Beginning of period............................... -- -- -- --
----------- ----------- ---- ----
End of period..................................... 24,468,221 96,116,856 -- --
=========== =========== ==== ====
</TABLE>
* for period from March 26, 1997 (commencement of operations) to June 30,
1997.
* * for period from March 3, 1997 (commencement of operations) to June 30,
1997.
* * * not yet commenced operations
See notes to financial statements.
<PAGE> 43
INTERNATIONAL CURRENCY FUND
===============================================================================
Supplementary Data (unaudited)
For the period ended June 30, 1997
===============================================================================
<TABLE>
<CAPTION>
UNITED STATES POUND CANADIAN
DOLLAR STERLING DOLLAR DEUTSCHEMARK
PORTFOLIO * PORTFOLIO * * PORTFOLIO* * * PORTFOLIO* * *
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net assets, end of period ('000)........................... 24,468 96,117 -- --
Ratio of expenses to average net assets ................... 1.48%(b) 0.25%(b) -- --
Ratio of net investment income to average net assets ...... 4.09%(b) 5.86%(b) -- --
Ratio of expenses to average net assets (a)................ 1.68%(b) 0.45%(b) -- --
Ratio of net investment income to average net assets (a)... 3.89%(b) 5.66%(b) -- --
Total Return since inception............................... 0.81%(c) 1.11%(c)
</TABLE>
* from March 26, 1997 (commencement of operations) to June 30, 1997.
* * from March 3, 1997 (commencement of operations) to June 30, 1997.
* * * not yet commenced operations
(a) During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occured the ratios would have been as
indicated.
(b) Annualized
(c) Not annualized
See notes to financial statements.
<PAGE> 44
INTERNATIONAL CURRENCY FUND
UNITES STATES DOLLAR PORTFOLIO
===============================================================================
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MOODYS AMORTIZED
AMOUNT DESCRIPTION RATE DATE S&P COST
------ ----------- ---- ---- --- ----
<S> <C> <C> <C> <C> <C>
TIME DEPOSITS --- 75.2%
BANKS
1,100,000 Australia & New Zealand Bank Group................. 6.00% 07/01/97 P1/A1 $1,100,000
1,100,000 Bank of Montreal ................................... 6.00% 07/01/97 P1/A1+ 1,100,000
1,000,000 Barclays Bank ...................................... 5.50% 07/01/97 P1/A1+ 1,000,000
1,100,000 Bayerische VereinsBank ............................. 6.00% 07/01/97 P1/A1+ 1,100,000
1,100,000 Canadian Imperial Bank of Commerce ................. 6.00% 07/01/97 P1/A1+ 1,100,000
1,100,000 Commerzbank London ................................. 6.00% 07/01/97 P1/A1+ 1,100,000
1,100,000 Credit Anstalt Bankverein London ................... 6.13% 07/01/97 P1/A1 1,100,000
1,100,000 Den Danske Bank London ............................. 6.00% 07/01/97 P1/A1 1,100,000
1,000,000 Deutsche Bank ...................................... 5.44% 07/01/97 P1/A1+ 1,000,000
1,100,000 Dresdner Bank ...................................... 6.00% 07/01/97 P1/A1+ 1,100,000
1,100,000 Kredietbank ........................................ 6.13% 07/01/97 A1+ 1,100,000
1,100,000 Lloyds Bank London ................................. 6.13% 07/01/97 P1/A1+ 1,100,000
1,100,000 NationsBank ........................................ 5.88% 07/01/97 A1+ 1,100,000
1,100,000 Royal Bank Of Canada ............................... 5.88% 07/01/97 P1/A1+ 1,100,000
1,100,000 Svenska Handelsbanken .............................. 6.13% 07/01/97 P1/A1 1,100,000
1,100,000 Toronto Dominion Bank London ....................... 6.06% 07/01/97 P1/A1+ 1,100,000
1,000,000 Westdeutsche Landesbank............................. 5.50% 07/01/97 P1/A1 1,000,000
-----------
TOTAL COMMERCIAL PAPER 18,400,000
-----------
REPURCHASE AGREEMENTS --- 24.83%
6,075,000 Credit Suisse First Boston dated 30/03/97, with a
maturity value of $6,075,987 (Collateralized by
$6,585,000 zero coupon various U.S. Government
Farm Credit Discount Notes due 1997--1998 market
value $6,274,332.................................... 5.85% 07/01/97 P1 6,075,000
-----------
TOTAL REPURCHASE AGREEMENTS 6,075,000
-----------
TOTAL INVESTMENTS AT AMORTIZED COST---100.03% 24,475,000
Liabilities in excess of other assets--0.03% (6,779)
-----------
NET ASSETS--100.0% $24,468,221
-----------
</TABLE>
(a) The Moody's or Standard & Poor's rating indicated are believed to be the
most recent ratings available for the securities listed. Ratings are
generally ascribed to securities at the time of issuance. While agencies
may from time to time revise such ratings, they undertake no obligation to
do so, and the ratings do not necessarily represent what the agencies would
ascrib to these securities as at June 30, 1997.
These ratings are unaudited.
<PAGE> 45
INTERNATIONAL CURRENCY FUND
POUND STERLING PORTFOLIO
===============================================================================
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY MOODYS AMORTIZED
AMOUNT DESCRIPTION RATE DATE S&P (A) COST
------ ----------- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C>
TIME DEPOSITS --- 13.08%
BANKS
4,573,000 Credit Anstalt Bankverein................................. 6.88% 07/01/97 P1/A1 (pound)4,573,000
4,000,000 Den Danske Bank.......................................... 6.75% 07/01/97 P1/A1 4,000,000
4,000,000 Royal Bank Of Canada ..................................... 6.44% 07/17/97 P1/A1+ 4,000,000
----------
TOTAL TIME DEPOSITS 12,573,000
----------
CERTIFICATE OF DEPOSIT --- 22.89%
BANKS
2,500,000 Bank of Nova Scotia ...................................... 6.25% 07/11/97 P1/A1+ 2,500,000
2,500,000 Bank of Scotland ......................................... 6.25% 07/11/97 P1/A1 2,500,000
4,000,000 Dresdner Bank ............................................ 6.44% 07/10/97 P1/A1+ 4,000,000
4,000,000 NationsBank .............................................. 6.47% 07/16/97 A1+ 4,000,000
2,500,000 Rabobank London .......................................... 6.25% 07/11/97 P1/A1+ 2,500,000
2,500,000 Royal Bank of Scotland London............................ 6.25% 07/17/97 P1/A1+ 2,500,000
4,000,000 Svenska Handelsbanken .................................... 6.50% 07/24/97 P1/A1+ 4,000,000
----------
TOTAL CERTIFICATE OF DEPOSIT 22,000,000
----------
COMMERCIAL PAPER --- 18.14%
UTILITIES
4,000,000 Scottish Hydro Electric .................................. 6.68% 08/22/97 A1 3,962,332
BANKS
3,500,000 Australia New Zealand Melbourne .......................... 6.43% 07/02/97 P1/A1 3,499,387
TELECOMMUNICATIONS
1,000,000 Vodafone Group Plc....................................... 6.50% 07/21/97 A1 996,455
3,000,000 Vodafone Group Plc....................................... 6.43% 07/04/97 A1 2,998,422
INSURANCE
4,000,000 Commercial Union ......................................... 6.49% 07/14/97 A1+ 3,990,800
DIVERSIFIED FOOD
2,000,000 Nestle ................................................... 6.50% 07/21/97 A1+ 1,992,910
----------
TOTAL COMMERCIAL PAPER 17,440,306
----------
REPURCHASE AGREEMENTS --- 45.78%
21,999,999 Credit Suisse First Boston dated 30/06/97, with a
maturity value of (pound)22,003,917 (Collateralized by
(pound)18,619,403 9% due 2012 U.K. Government Gilts
market value (pound)22,439,999)........................... 6.50% 07/01/97 P1/A1+ 21,999,999
21,999,990 Goldman Sachs, dated 30/06/97 with a maturity
value of (pound)22,003,848 (Collateralized by
(pound)19,599,100 9.75% due 2002 U.K Government
Gilts market value
(pound)22,439,989)........................................ 6.40% 07/01/97 A1+ 21,999,990
----------
TOTAL REPURCHASE AGREEMENTS 43,999,989
----------
TOTAL INVESTMENTS AT AMORTIZED COST--99.89% 96,013,295
Other assets in excess of liablilities 0.11% 103,561
----------
NET ASSETS--100.0% (pound)96,116,856
==========
</TABLE>
(a) The Moody's or Standard & Poor's rating indicated are believed to be the
most recent ratings available for the securities listed. Ratings are
generally ascribed to securities at the time of issuance. While agencies
may from time to time revise such ratings, they undertake no obligation
to do so, and the ratings do not necessarily represent what the agencies
would ascrib to these securities as at June 30, 1997.
These ratings are unaudited.
<PAGE> 46
FIVE ARROWS SHORT TERM INVESTMENT TRUST
Notes to Financial Statements
NOTE 1--ORGANIZATION
Five Arrows Short Term Investment Trust, a Delaware business trust
("the Trust"), is registered under the Investment Company Act of 1940, as
amended (the "Act"), as an open-end management investment company. At June 30,
1997 the Trust consisted of four funds; the U.S. Dollar Fund, the Pound Sterling
Fund, the Canadian Dollar Fund and the Deutschemark Fund, (individually a "Fund"
and collectively the "Funds").
Each Fund seeks to achieve its investment objective by investing substantially
all of its assets in the corresponding portfolio of the International Currency
Fund, (individually a "Portfolio" and collectively the "Portfolios" ), that
has the same investment objectives as that of such Fund. The value of each
Fund's investment in each Portfolio included in the accompanying statements of
assets and liabilities reflects each Fund's proportionate beneficial interest
in the net assets of that Portfolio. At June 30, 1997, the Funds held
proportionate interests in the corresponding Portfolios in the following
amounts:
<TABLE>
<S> <C>
U.S. Dollar Fund............................................. 12.5%
Pound Sterling Fund.......................................... 00.0%
Canadian Dollar Fund......................................... 00.0%
Deutschemark Fund............................................ 00.0%
</TABLE>
The financial statements of each Portfolio, including its portfolio of
investments, are included elsewhere within this report and should be read in
conjunction with each Fund's financial statements.
BISYS Fund Services Limited Partnership ("BISYS") serves as the Trust's
administrator. Its affiliates, Five Arrows Fund Distributors Incorporated, (the
"Distributor") and BISYS Fund Services Inc., (the "Transfer Agent"), act as the
distributor and transfer/dividend disbursing agent to the Funds, respectively.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Funds in the preparation of their financial statements. The policies are
in conformity with U.S. generally accepted accounting principles. The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
VALUATION OF INVESTMENTS:
The Funds record respective investments in the Portfolios of
International Currency Fund at value. The valuation of securities held by the
International Currency Fund is discussed in the notes to the International
Currency Fund Financial Statements included elsewhere in this report.
INVESTMENT INCOME AND EXPENSES:
The Funds record their proportionate share of the investment income,
expenses and realized gains and losses recorded by the corresponding Portfolio
on a daily basis. The investment income, expenses and realized gains and losses
are allocated daily to investors in each Portfolio based upon the value of their
investments in each Portfolio. Such investments are adjusted on a daily basis.
Expenses directly attributable to each Fund are charged directly to the
respective Fund, while general Trust expenses attributable to more than one Fund
of the Trust are allocated among the respective Funds.
<PAGE> 47
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
The Funds' net investment income, if any, is declared daily in repsect
of each class of share and paid monthly to shareholders of record on the date of
declaration. Dividends from each class of share are automatically reinvested in
additional shares of that class at net asset value unless the shareholders
specifically elect to receive dividends in the form of cash. Net realized gains
on portfolio securities, if any, are distributed at least annually. The amount
of dividends from net investment income and of distributions from net realized
gains are determined in accordance with U.S. federal income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments for net operating losses,
expiring capital loss carryforwards, and deferral of certain losses.
FEDERAL INCOME TAXES:
Under Subchapter M of the Internal Revenue Code (the "Code"), the Funds will be
treated as separate corporations for federal income tax purposes. It is
intended that each Fund will qualify for each fiscal year as a "regulated
investment company" under the Code by complying with certain requirements of
the 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 gains
distributed to shareholders in accordance with the applicable provisions of the
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.
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 losse 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 U.S. Internal Revenue Service, the Trust calculates the
income of each Fund without recognizing currency gain or loss.
ORGANIZATIONAL EXPENSES:
The Funds incurred certain costs in connection with their organization.
The Funds are expected to reimburse the Rothschild International Asset
Management Limited (the "Manager"), for the payment of these expenses made in
advance by the Manager. These costs have been deferred and are being amortized
on a straight-line basis over five years from the date from the commencement of
operations by the Funds.
NOTE 3--AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Funds have an Administration Agreement with BISYS and a
Distribution Agreement with the Distributor.
As Administrator, BISYS is responsible for coordinating the Funds'
efforts and generally administering the operation of the Funds' business.
Pursuant to the terms of the Administration Agreement, BISYS is entitled to a
fee, accrued daily and payable monthly, at an annual rate of 0.05% of each
Fund's average daily net assets. BISYS has agreed to provide 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 Investment Adviser has voluntarily agreed to waive such portion of
its advisory fee as is necessary to cause the annualized total expenses of each
class of share of a Fund not to exceed a specified percentage of such class'
average net daily net asset value (0.275% in the case of the Five Arrows share
class of the U.S. Dollar Fund and 0.35% in the case of the Five Arrows share
class of each
<PAGE> 48
other Fund). Similarly, for the Five Arrows Service share class these
percentages are 0.625% for the U.S. Dollar Fund and 0.70% for the other three
Funds. 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 Administrator 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 at the discretion of the Investment Adviser.
The Administrator waived fees and reimbursed expenses in the following amounts
so that the Funds could meet these expense limitations:
<TABLE>
<S> <C>
United States Dollar Fund.................................... $32,775
Pound Sterling Fund.......................................... nil
Canadian Dollar Fund......................................... nil
Deutschemark Fund............................................ nil
</TABLE>
The Distributor, 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.
The Funds have adopted a 12b-1 Plan (the "Plan") in accordance with the
regulations promulgated under the 1940 Act. The 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 has two components: a service fee and a distribution
fee. The 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 shares of any Fund. This waiver shall remain in effect for the
fiscal period ending December 31, 1997 and thereafter at 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. For the period
ended June 30, 1997, the Funds paid the following amounts to the Distributor in
connection with the Plan:
<TABLE>
<S> <C>
United States Dollar Fund.................................... $00,000
Pound Sterling Fund.......................................... nil
Canadian Dollar Fund......................................... nil
Deutschemark Fund............................................ nil
</TABLE>
NOTE 4--TRUSTEES' FEES
The Trust has to date paid paid no compensation to the Trustees of the
Trust and it will not pay any compensation to those Trustees affiliated with the
Investment Adviser, the Administrator or the Distributor. The Trust will not pay
any compensation to the Trusts officers.
NOTE 5--CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds for the period ended June 30, 1997
are summarized below:
<TABLE>
<CAPTION>
U.S. POUND CANADIAN
DOLLARS STERLING DOLLAR DEUTSCHEMARK
<S> <C> <C> <C> <C>
Shares subscribed............................. 3,100,000 nil nil nil
Shares issued to shareholders in reinvestment
of dividends.................................. 11,627 nil nil nil
Shares redeemed............................... (50,000) nil nil nil
--------- --- --- ---
Net increase.................................. 3,061,627 nil nil nil
</TABLE>
<PAGE> 49
INTERNATIONAL CURRENCY FUND
Notes to Financial Statements
NOTE 1--ORGANIZATION
International Currency Fund (the "Portfolio Trust"), a Delaware
business trust, is registered under the Investment Company Act of 1940, as
amended (the "Act"), as an open-end management investment company. At June 30,
1997 the Portfolio Trust consisted of four portfolios; the U.S. Dollar Portfolio
(the "U.S. Dollar Portfolio"), the Pound Sterling Portfolio (the "Pound Sterling
Portfolio"), the Canadian Dollars Portfolio (the "Canadian Dollar Portfolio" and
the Deutschemark Portfolio (the "Deutschemark Portfolio") (collectively the
"Portfolios").
The investment objectives of each Portfolio are to seek to maintain a
high level of liquidity, preserve capital and stability of principal expressed
in the Portfolio's designated currency and, consistent with those objectives, to
earn current income. A Portfolio's investment objectives are fundamental and may
not be changed without the approval of its shareholders.
Rothschild International Asset Management Limited (the " Investment
Adviser") serves as the Portfolio Trust's Investment Adviser. BISYS Fund
Services, Limited Partnership ("BISYS") acts Administrator as the to the
Portfolios' Trust's Portfolios.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Portfolios in the preparation of their financial statements. The policies
are in conformity with U.S. generally accepted accounting principles. The
preparation of financial statements, requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
PORTFOLIO VALUATIONS:
The securities of the Portfolios are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and cost. In addition, the U.S. Portfolio may not (a) purchase any
instrument with a remaining maturity greater than thirteen months, or (b)
maintain a weighted average maturity which exceeds 90 days. The other Portfolios
may not purchase securities with remaining maturities of longer than 60 days.
SECURITIES TRANSACTIONS AND RELATED INCOME:
Securities transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis and includes, where applicable, the amortization of premium or accretion
of discount. Gains or losses realised on sales of securities are determined by
comparing the amortized cost of the security sold with the net sale proceeds.
EXPENSES:
Expenses directly attributable to a Portfolio are charged to that
Portfolio, while general Portfolio Trust expenses are allocated among the
respective Portfolios of the Trust.
REPURCHASE AGREEMENTS:
The Portfolios will enter into repurchase agreements only with
financial institutions rated by a U.S. nationally recognized statistical rating
organization (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 Advisor 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
<PAGE> 50
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.
ORGANIZATIONAL EXPENSES:
The deferred organization costs were by the Portfolios in connection
with their organization. The Portfolios are expected to reimburse Rothschild
International Asset Management Limited (the "Manager"), for the payment of these
costs made in advance by the Manager. The costs have been deferred and will be
amortized on a straight line basis over a five year period from the commencement
of operations by the Portfolios.
FEDERAL INCOME TAXES:
The Portfolios will be treated as a partnership for U.S. federal income
tax purposes. As such, each U.S. investor in the Portfolios will be taxed on its
share of the Portfolio's ordinary income and capital gains. It is intended that
the Portfolios will be managed in such a way that if necessary, an investor will
be able to satisfy the requirements of the U.S.
Internal Revenue Code applicable to regulated investment companies.
NOTE 3--AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Portfolio Trust acting on behalf of each of the Portfolios has an
Investment Advisory Agreement with Rothschild and an Administration Agreement
with BISYS.
The Investment Adviser, Rothschild is responsible for managing the
investment of the assets of the Portfolios in conformity with the stated
objectives and policies of the Portfolios. Pursuant to the terms of the
Investment Advisory Agreement, Rothschild is entitled to a fee, which is accrued
daily and payable monthly, at an annual rate of 0.20% of the average daily net
assets of each Portfolio of the Trust. For the period ended June 30, 1997,
Rothschild waived its entire fees as Investment Adviser for each Portfolio in
the following amounts.
<TABLE>
<S> <C>
United States Dollar......................................... $9,645
Pound Sterling............................................... (pound)36,144
Canadian Dollar.............................................. nil
Deutschemark................................................. nil
</TABLE>
As Administrator, BISYS assists in supervising the operations of the
Portfolios. Pursuant to the terms of the Administration Agreement, BISYS is
entitled to a fee from each Portfolio which is accrued daily and payable
monthly, at an annual rate of 0.05% of each of the Portfolio's average daily net
assets. For the period ended June 30, 1997, BISYS earned the following fees as
Administrator for each Portfolio.
<TABLE>
<S> <C>
United States Dollar......................................... $2,411
Pound Sterling............................................... (pound)9,036
Canadian Dollar.............................................. nil
Deutschemark................................................. nil
</TABLE>
<PAGE> 51
NOTE 4--TRUSTEES AND OFFICERS COMPENSATION.
The Portfolio Trust has to date paid no compensation to the Trustees of
the Portfolio Trust. The Portfolio Trust will not pay compensation to the
Trustees of the Portfolio Trust affiliated with the Investment Adviser or the
Administrator nor will it pay any compensation to the Trustees who are officers
of the Trust .
NOTE 5--SECURITIES TRANSACTIONS
During the period ended June 30, 1997, each Portfolio purchased and
matured portfolio securities, in the following amounts:
<TABLE>
<CAPTION>
PURCHASES MATURITIES
--------- ----------
<S> <C> <C>
UNITED STATES DOLLAR PORTFOLIO
Total.............................. $590,089,000 $565,614,000
POUND STERLING PORTFOLIO
Total................................ (pound)2,255,744,102 (pound)2,159,917,674
CANADIAN DOLLARS PORTFOLIO
Total................................ nil nil
DEUTSCHEMARK PORTFOLIO
Total................................ nil nil
</TABLE>
<PAGE> 52
PART C
------
To the Registration Statement of Five Arrows
Short-Term Investment Trust (the "Trust")
Item 24. Financial Statements and Exhibits.
- -------- ----------------------------------
(a) Financial Statements:
(1) Financial Statements included in PART A of this
Registration Statement:
Financial Highlights
(2) Financial Statements included in PART B of this
Registration Statement:
Financial Statements for the Five Arrows
Short-Term Investment Trust: U.S. Dollar Fund,
Pound Sterling Fund, Deutsche Mark Fund and
Canadian Dollar Fund (collectively, the "Funds")
as of June 30, 1997 (unaudited).
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Financial Statements for the International
Currency Fund: U.S. Dollar Portfolio, Pound
Sterling Portfolio, Deutsche Mark Portfolio and
Canadian Dollar Portfolio (collectively, the
"Portfolios") as of June 30, 1997 (unaudited).
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements
(b) Exhibits:
Exhibit No. Description
----------- -----------
1 Agreement and Declaration of Trust of the Trust
incorporated by reference to Pre-Effective Amendment
No. 1 to the Registration Statement filed via EDGAR
on November 25, 1996.
2 By-Laws of the Trust incorporated by reference to
Pre-Effective Amendment No. 1 to the Registration
Statement filed via EDGAR on November 25, 1996.
3 Not Applicable.
4 Not applicable.
5 Investment Advisory Contract between the International
Currency Fund and Rothschild International Asset
Management Limited incorporated by reference to
Pre-Effective Amendment No. 2 to the Registration
Statement filed via EDGAR on February 4, 1997.
6 Distribution Agreement between the Trust and
Five Arrows Fund Distributors Inc. incorporated by
reference to Pre-Effective Amendment No. 2 to the
Registration Statement filed via EDGAR on February 4,
1997.
<PAGE> 53
Exhibit No. Description
----------- -----------
7 Not applicable.
8 Custody Agreement between the Trust and The Chase Manhattan
Bank incorporated by reference to Pre-Effective Amendment
No. 2 to the Registration Statement filed via EDGAR on
February 4, 1997.
9 (a) Transfer Agency and Service Agreement between the Trust
and BISYS Fund Services, Inc. incorporated by reference to
Pre-Effective Amendment No. 2 to the Registration Statement
filed via EDGAR on February 4, 1997.
(b) Administration Agreement between the Trust and BISYS
Fund Services Limited Partnership incorporated by reference
to Pre-Effective Amendment No. 2 to the Registration
Statement filed via EDGAR on February 4, 1997.
(c) Fund Accounting Agreement between the Trust and BISYS
Fund Services, Inc. incorporated by reference to
Pre-Effective Amendment No. 2 to the Registration Statement
filed via EDGAR on February 4, 1997.
(d) Feeder Fund Management Services Agreement incorporated
by reference to Pre-Effective Amendment No. 2 to the
Registration Statement filed via EDGAR on February 4, 1997.
10 Legal opinion and consent of Goodwin, Procter & Hoar LLP
with respect to the Funds.
11 Not applicable.
12 Not applicable.
13 Purchase agreements with respect to initial capital
incorporated by reference to Pre-Effective Amendment No. 2
to the Registration Statement filed via EDGAR on February
4, 1997.
14 Not applicable.
15 Plan for distribution of Five Arrows Service shares
pursuant to Rule 12b-1 incorporated by reference to
Pre-Effective Amendment No. 2 to the Registration Statement
filed via EDGAR on February 4, 1997.
16 Computation for U.S. Dollar Fund.
17 Financial Data Schedules for the Funds.
18 Plan for the issuance and distribution of multiple classes
of shares pursuant to Rule 18f-3 incorporated by reference
to Pre-Effective Amendment No. 2 to the Registration
Statement filed via EDGAR on February 4, 1997.
Item 25. Persons Controlled by or Under Common Control with Trust.
- -------- ---------------------------------------------------------
As of the close of business on June 30, 1997, the Deutsche Mark Fund
and the Canadian Dollar Fund (each a "Fund"), series of shares of the Trust,
owned approximately 100% of the value of the outstanding interests in their
corresponding Portfolios of the International Currency Fund ("Master Fund")
which invest in securities denominated in the Designated Currencies of these
Funds. Because each of the relevant Funds 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 Registration, Five Arrows
House Investments Limited, an affiliated person of the Investment Adviser, was
the beneficial owner of all or a substantial amount of the outstanding Five
Arrows shares of the Deutsche Mark Fund and Canadian Dollar Fund of the Trust
it may also be deemed to be in control of the Deutschemark and Canadian Dollar
Portfolios as control is defined in the 1940 Act. Five Arrows House Investments
Limited may acquire additional shares of these Funds. Although sales of the
Funds' shares to other investors will reduce its 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, Five Arrows House Investments Limited 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.
<PAGE> 54
Item 26. Number of Holders of Securities.
- -------- --------------------------------
As of July 21, 1997, the record holders of each class of Trust's
securities were as follows:
Title of Class Number of Record Holders
-------------- ------------------------
U.S. Dollar Fund 2
--------
Pound Sterling Fund 1*
--------
Deutsche Mark Fund 1*
--------
Canadian Dollar Fund 1*
--------
*Five Arrows House Investments Limited currently owns all of the outstanding
shares of the Funds.
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
$28.5 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> 55
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) Not applicable.
(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> 56
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, Registrant certifies that it meets
all the requirements for effectiveness of this Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 7th day of August, 1997.
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
By: /s/ Paul R. Freeman
-----------------------------
Paul R. Freeman,
Senior Vice President
Name Title Date
---- ----- ----
Principal Executive Officer
* President and Trustee August 7, 1997
- --------------------------
Peter B. Collacott
Principal Financial and
Accounting Officer
* Treasurer August 7, 1997
- --------------------------
William Tomko
* Chairman and Trustee August 7, 1997
- --------------------------
Bryan J. Walsh
/s/ Paul R. Freeman Senior Vice President August 7, 1997
- -------------------------- and Trustee
Paul R. Freeman
* Trustee August 7, 1997
- --------------------------
Alan T. Jeffers
* Trustee August 7, 1997
- --------------------------
Roger M. Kubarych
* By: /s/ Paul R. Freeman
--------------------------
Paul R. Freeman
Attorney-in-fact
Under a Power of Attorney
dated November 25, 1996 included
in the Pre-Effective Amendment
No. 1 and incorporated by reference
hereto.
<PAGE> 57
INTERNATIONAL CURRENCY FUND
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, Registrant certifies that it meets
all the requirements for effectiveness of this Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement of the Five Arrows
Short-Term Investment Trust to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 7th day of August, 1997.
INTERNATIONAL CURRENCY FUND
By: /s/ Paul R. Freeman
-----------------------------
Paul R. Freeman,
Senior Vice President
Name Title Date
---- ----- ----
Principal Executive Officer
* President and Trustee August 7, 1997
- --------------------------
Peter B. Collacott
Principal Financial and
Accounting Officer
* Treasurer August 7, 1997
- --------------------------
Adrian Waters
* Chairman and Trustee August 7, 1997
- --------------------------
Bryan J. Walsh
/s/ Paul R. Freeman Senior Vice President August 7, 1997
- -------------------------- and Trustee
Paul R. Freeman
* Trustee August 7, 1997
- --------------------------
Alan T. Jeffers
* Trustee August 7, 1997
- --------------------------
Roger M. Kubarych
* By: /s/ Paul R. Freeman
-------------------------------
Paul R. Freeman
Attorney-in-Fact
Under a Power of Attorney dated
November 25, 1996 included in the
Pre-Effective Amendment No. 1
and incorporated by reference hereto.
<PAGE> 1
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 5701-1000
TELECOPIER (617) 923-1231
August 6, 1997
Five Arrows Short-Term Investment Trust
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
We hereby consent to the reference in Post-Effective Amendment No. 1
(the "Amendment") to the Registration Statement (No. 333-10237) on Form N-1A of
Five Arrows Short-Term Investment Trust (the "Registrant"), a Delaware business
trust, to our opinion with respect to the legality of the shares of the
Registrant representing interests in the U.S. Dollar Fund, Pound Sterling
Fund, Deutsche Mark Fund and Canadian Dollar Fund series of the Registrant,
which opinion was filed with Pre-Effective Amendment No. 2 to the Registrant
Statement.
We also hereby consent to the reference to this firm in the
Prospectuses under the heading "Legal Counsel" and in the Statement of
Additional Information under the heading "Custodian, Transfer and Dividend
Disbursing Agent, Counsel and Independent Auditors" which form a part of the
Amendment and to the filing of this consent as an exhibit to the Amendment.
Very truly yours,
/s/ Goodwin, Procter, & Hoar LLP
--------------------------------
GOODWIN, PROCTER & HOAR LLP
<PAGE> 1
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
EXHIBIT 16
7 DAY YIELD (%)
(Sum (D)/7)*365*100
Where D = last 7 daily income factors
EXAMPLE:
From 06/01/97 to 06/07/97:
(0.001020084/7)*365*100 = 5.32%
7 DAY EFFECTIVE YIELD (%)
Sum ((1+E)*7/365)) to the power of (365/7)-1
Where E = 7 day yield on current day in percentage terms
EXAMPLE:
From 06/01/97 to 06/07/97:
((1+5.32%)*7/365)) to the power of (365/7)-1 = 5.46%
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 000102058
<NAME> FIVE ARROWS SHORT TERM INVESTMENT TRUST
<SERIES>
<NUMBER> 011
<NAME> INTERNATIONAL CURRENCY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAR-26-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 24475000
<INVESTMENTS-AT-VALUE> 24475000
<RECEIVABLES> 6759
<ASSETS-OTHER> 122088
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24603847
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 135626
<TOTAL-LIABILITIES> 135626
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24468221
<SHARES-COMMON-STOCK> 24468221
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 24468221
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 267731
<OTHER-INCOME> 741
<EXPENSES-NET> 71226
<NET-INVESTMENT-INCOME> 197246
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 197246
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34968496
<NUMBER-OF-SHARES-REDEEMED> 10697521
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 24468221
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9645
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 80871
<AVERAGE-NET-ASSETS> 18151769
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .000
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> .000
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 1.480
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 000102058
<NAME> FIVE ARROWS SHORT TERM INVESTMENT TRUST
<SERIES>
<NUMBER> 021
<NAME> FIVE ARROWS SHORT TERM INVESTMENT TRUST
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAR-26-1997
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