<PAGE> 1
[LOGO
ROTHSCHILD
ASSET MANAGEMENT]
FIVE ARROWS
SHORT-TERM
INVESTMENT TRUST
REPORT &
ACCOUNTS
for period ended
December 31, 1997
<PAGE> 2
[LOGO]
Contents
Investment Adviser's Commentary 2
Report of Independent Accountants 3
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
Statements of Assets and Liabilities 4
Statements of Operations 5
Statements of Changes in Net Assets 6
Notes to the Financial Statements 7 - 9
Financial Highlights 10
INTERNATIONAL CURRENCY FUND
Report of Independent Accountants 11
Portfolios of Investments 12 - 13
Statements of Assets and Liabilities 14
Statements of Operations 15
Statements of Changes in Net Assets 16
Notes to Financial Statements 17 - 18
Financial Highlights 19
<PAGE> 3
[LOGO]
INVESTMENT ADVISER'S COMMENTARY
At year-end, net assets in the International Currency Fund totalled (pound)128
million in the Pound Sterling Portfolio and $54 million in the United States
Dollar Portfolio. These figures represent substantial gains from the end of June
1997 when the totals were (pound)96.1 million and $24.5 million respectively. In
general the sterling and dollar funds have both achieved their investment
targets. Both funds have at all times been fully compliant with the rules of
their regulators and the guidelines of their rating agency.
The second half of 1997 has seen substantial swings in market expectations.
Rather strong growth has occurred in both the UK and US. However, cyclical
concern came to the fore in the third quarter. In the UK, in particular, the
newly autonomous Bank of England raised rates in several 25 basis points
increments in order to slow the ongoing expansion which threatened the Bank's
inflation target. Expectation of further rate above trend growth was widespread
and the yield curve steepened in expectation of further rate rises later in
1997-98.
The onset of the crisis in Asia, however, has shifted, at least temporarily,
market concerns away from inflation and toward deflation. Implied forward rates
in money markets (UK and US) have retreated steadily in the fourth quarter and
are now pricing in only modest rate changes, up and down, for all of 1998. In
consequence yield curves have flattened substantially and, in our view, by too
much.
Economic data released thus far in January in the UK all points to continuing
strength in the UK economy despite the strength of sterling and the crisis in
Asia. Thus, we believe that UK rates have not yet peaked and that the Bank of
England will again raise rates at least once more before the spring.
Above trend growth has also continued apace in the US, inflation has been
surprisingly quiescent even as labour market tightening and monetary stimulus
have failed to rekindle much pressure. Consequently, the Federal Reserve has not
raised rates since last March. Given the strong growth experienced over the
second half of 1997, it was an open question as to whether or not rates would
have been raised in November or December to slow the expansion in the absence of
heightened concerns from Asia.
Looking ahead, we expect a significant co-ordinated effort among governments,
agencies and financial intermediaries to begin to come to grips with the
reflation of Asia's financial sector. The impact on market psychology,
underpinned by the current momentum in the G7 economies excepting Japan, should
diminish deflationary expectations and may well lead to US rates rising again by
next summer.
The United States Dollar Fund, the Pound Sterling Fund, the Canadian Dollar Fund
and the Deutschemark Fund are money market Funds. The Pound Sterling Fund, the
Canadian Dollar Fund and the Deutschemark Fund gained Stock Exchange Commission
approval to operate as money market Funds on September 26, 1997.
The seven day yield for the Five Arrows Short-Term Investment Trust Share class
of the United States Dollar Fund at December 31, 1997 was 5.49% (U.S.$).
* An investment in the Funds is neither insured nor guaranteed by the US
Government. Yields will fluctuate, and there can be no assurance that a Fund
will be able to maintain a stable NAV.
2
<PAGE> 4
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of Five Arrows Short-Term Investment
Trust:
We have audited the accompanying statements of assets and liabilities of each
series Five Arrows Short-Term Investment Trust, comprised of the United States
Dollar Fund, Pound Sterling Fund, Canadian Dollar Fund and the Deutsche Mark
Fund, (the "Funds"), as of December 31, 1997, the related statement of
operations, the statement of changes in net assets and the financial highlights
for the periods then ended. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
each series of Five Arrows Short-Term Investment Trust as of December 31, 1997,
the results of operations, the changes in its net assets and their financial
highlights for the period then ended in conformity with generally accepted
accounting principles.
Boston, Massachusetts. COOPERS & LYBRAND L.L.P.
Dated: February 26, 1998
3
<PAGE> 5
[LOGO]
<TABLE>
<CAPTION>
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
STATEMENTS OF ASSETS AND LIABILITIES
(LOCAL CURRENCIES) AS AT DECEMBER 31, 1997
UNITED STATES POUND CANADIAN DEUTSCHE MARK
DOLLAR FUND STERLING FUND*** DOLLAR FUND*** FUND***
$ (POUND) C$ DEM
ASSETS:
<S> <C> <C> <C> <C>
Investment in International Currency Fund 8,315,447 10 10 10
Deferred organizational costs 48,880 37,000 82,000 99,000
Receivable from Manager 10,068 - - -
Prepaid expenses 5,208 - - -
------------------------------------------------------------------------
TOTAL ASSETS 8,379,603 37,010 82,010 99,010
------------------------------------------------------------------------
LIABILITIES:
Amounts payable to Manager 61,000 37,000 82,000 99,000
Distribution payable from net investment income 30,541 - - -
Legal fees payable 9,902 - - -
Audit fees payable 6,420 - - -
Shareholder service fees payable 993 - - -
Administration fees payable 235 - - -
Other accrued expenses 1,184 - - -
------------------------------------------------------------------------
TOTAL LIABILITIES 110,275 37,000 82,000 99,000
------------------------------------------------------------------------
NET ASSETS 8,269,328 10 10 10
------------------------------------------------------------------------
NET ASSETS
Five Arrows Shares 8,269,328 10 10 10
Five Arrows Service Shares - - - -
------------------------------------------------------------------------
8,269,328 10 10 10
------------------------------------------------------------------------
SHARES OUTSTANDING
Five Arrows Shares 8,269,328 10 10 10
Five Arrows Service Shares - - - -
------------------------------------------------------------------------
TOTAL SHARES OUTSTANDING 8,269,328 10 10 10
------------------------------------------------------------------------
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 827 - - -
Additional paid-in capital 8,268,501 10 10 10
------------------------------------------------------------------------
NET ASSETS, DECEMBER 31, 1997 8,269,328 10 10 10
------------------------------------------------------------------------
<FN>
*** not yet commenced operations
</FN>
See notes to financial statements
</TABLE>
4
<PAGE> 6
[LOGO]
<TABLE>
<CAPTION>
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
STATEMENTS OF OPERATIONS
(local currencies) For the period ended December 31, 1997
UNITED STATES POUND CANADIAN DEUTSCHE MARK
DOLLAR FUND* STERLING FUND*** DOLLAR FUND*** FUND***
$ (POUND) C$ DEM
INVESTMENT INCOME:
Investment income allocated from
<S> <C>
International Currency Fund 210,153 - - -
------------------------------------------------------------------------
Expenses 30,023 - - -
Less: Fee waivers (7,534) - - -
Less: International Currency Fund
expense reimbursement (12,205) - - -
------------------------------------------------------------------------
NET EXPENSES 10,284 - - -
------------------------------------------------------------------------
NET INVESTMENT INCOME
FROM INTERNATIONAL CURRENCY FUND 199,869 - - -
------------------------------------------------------------------------
FUND EXPENSES:
Administration fees 1,875 - - -
Shareholder servicing fees 12,047 - - -
Printing fees 26,330 - - -
Amortization of organization costs 12,120 - - -
Registration fees 9,835 - - -
Legal fees 10,507 - - -
Audit fees 6,420 - - -
Other operating expenses 4,817 - - -
------------------------------------------------------------------------
TOTAL EXPENSES 83,951 - - -
Less Fee waivers and reimbursements - - -
by the Advisor and Administrator (83,951)
------------------------------------------------------------------------
TOTAL NET EXPENSES - - - -
------------------------------------------------------------------------
NET INVESTMENT INCOME 199,869 - - -
------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 199,869 - - -
------------------------------------------------------------------------
<FN>
* for period March 26, 1997 (commencement of operations) to December 31, 1997
*** not yet commenced operations
</FN>
See notes to financial statements
</TABLE>
5
<PAGE> 7
[LOGO]
<TABLE>
<CAPTION>
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
STATEMENTS OF CHANGES IN NET ASSETS
(local currencies) For the period ended December 31, 1997
UNITED STATES POUND CANADIAN DEUTSCHE MARK
DOLLAR FUND* STERLING FUND*** DOLLAR FUND*** FUND***
$ (POUND) C$ DEM
INCREASE IN NET ASSETS FROM:
OPERATIONS:
<S> <C>
Net investment income 199,869 - - -
------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 199,869 - - -
------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -
Five Arrows Shares (199,869) - - -
Net investment income -
Five Arrows Service Shares - - - -
------------------------------------------------------------------------
CHANGE IN NET ASSETS
FROM SHAREHOLDER DISTRIBUTIONS (199,869) - - -
------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 18,651,422 10 10 10
Dividends reinvested 169,328 - - -
Cost of shares redeemed (10,551,422) - - -
------------------------------------------------------------------------
CHANGE IN NET ASSETS
FROM CAPITAL SHARE TRANSACTIONS 8,269,328 10 10 10
------------------------------------------------------------------------
CHANGE IN NET ASSETS 8,269,328 10 10 10
------------------------------------------------------------------------
NET ASSETS:
Beginning of period - - - -
------------------------------------------------------------------------
End of period 8,269,328 10 10 10
------------------------------------------------------------------------
<FN>
* for period March 26, 1997 (commencement of operations) to December 31, 1997.
*** not yet commenced operations
</FN>
See notes to financial statements
</TABLE>
6
<PAGE> 8
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
"1940 Act"), as an open-ended management investment company. At December 31,
1997 the Trust consisted of four Funds, the United States Dollar Fund, the Pound
Sterling Fund, the Canadian Dollar Fund and the Deutsche Mark Fund,
(individually a "Fund" and collectively the "Funds").
Each Fund seeks to achieve its investment objective by investing substantially
all of its investable assets in the corresponding portfolio of the International
Currency Fund, (individually a "Portfolio" and collectively the "Portfolios"),
which 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 December 31, 1997, the Funds held
proportionate interests in the corresponding Portfolios in the following
amounts:
- --------------------------------------------------------------------------------
United States Dollar Fund 15.4%
- --------------------------------------------------------------------------------
Pound Sterling Fund 00.0%
- --------------------------------------------------------------------------------
Canadian Dollar Fund 00.0%
- --------------------------------------------------------------------------------
Deutsche Mark Fund 00.0%
- --------------------------------------------------------------------------------
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 Inc., (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 on the basis of their
relative net assets.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Each Fund's net investment income, if any, is declared daily in respect 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 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 as amended (the "Code"), the
Funds will be treated as separate corporations for U.S. federal income tax
purposes. It is intended that each Fund will qualify for each fiscal year as a
"regulated investment company" under the 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
7
<PAGE> 9
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 United States Dollar Fund, will translate
its net income for each year from its Designated Currency into U.S. dollars for
U.S. federal income tax purposes. Under current Treasury regulations, regulated
investment companies are normally required to recognize for U.S. federal income
tax purposes income or loss attributable to changes in exchange rates between
the U.S. dollar and the Fund's Designated Currency (i.e. currency gain or loss)
absent a ruling to the contrary from the Internal Revenue Service. Recognition
of currency gain in excess of currency loss in any given year would require the
affected fund to pay dividends in excess of its interest income in order to pay
out all income as calculated for U.S. federal income tax purposes. In reliance
upon a ruling from the U.S. Internal Revenue Service, the Trust calculates the
income of each Fund without recognising currency gain or loss.
ORGANIZATIONAL EXPENSES:
The Funds incurred certain costs in connection with their organization. The
Funds are expected to reimburse the Investment Adviser for the payment of these
expenses made in advance by the Manager. These costs have been deferred and are
being amortized on a straightline basis over five years from the date of
commencement of operations by each of 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 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 Portfolios' Investment Adviser has voluntarily agreed to waive such portion
of its advisory fee, pro rata as is necessary to cause the annualized total
expenses of each class of shares of a Fund not to exceed a specified percentage
of such class' average daily net assets (0.275% in the case of the Five Arrows
share class of the United States Dollar Fund and 0.35% in the case of the Five
Arrows share class of each other Fund). Similarly, for the Five Arrows Service
share class these percentages are 0.625% for the United States Dollar Fund and
0.70% for the other three Funds. If this waiver is not sufficient to cause the
total expenses of any Fund not to exceed the specified percentage of average
daily net assets, the Investment Adviser has agreed to reimburse such other
expenses of the applicable Fund as is necessary to keep total expenses from
exceeding the specified percentage. This undertaking has remained in effect for
the fiscal period ended December 31, 1997, and will remain in effect thereafter
at the discretion of the Investment Adviser. The Investment Adviser and
Administrator waived fees and reimbursed expenses in the following amounts so
that the Funds could meet these expense limitations:
- --------------------------------------------------------------------------------
United States Dollar Fund $103,690
- --------------------------------------------------------------------------------
Pound Sterling Fund nil
- --------------------------------------------------------------------------------
Canadian Dollar Fund nil
- --------------------------------------------------------------------------------
Deutsche Mark Fund nil
- --------------------------------------------------------------------------------
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 Rule 12b-1
promulgated under the 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
8
<PAGE> 10
payments of the 12b-1 fee to a total of 0.35% (on an annual basis) of the
average daily net assets of the Five Arrows Service class shares of any Fund.
This waiver has remained in effect for the fiscal period ended December 31, 1997
and will remain in effect 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 December 31,
1997, the Funds paid the following amounts to the Distributor in connection with
the Plan:
- --------------------------------------------------------------------------------
United States Dollar Fund nil
- --------------------------------------------------------------------------------
Pound Sterling Fund nil
- --------------------------------------------------------------------------------
Canadian Dollar Fund nil
- --------------------------------------------------------------------------------
Deutsche Mark Fund nil
- --------------------------------------------------------------------------------
NOTE 4 - TRUSTEE'S FEES
The Trust has to date 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 Trust's officers.
NOTE 5 - CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds for the period ended December 31, 1997 are
summarized below:
<TABLE>
<CAPTION>
FIVE ARROWS SHARES
UNITED STATES POUND CANADIAN DEUTSCHE MARK
DOLLAR FUND STERLING FUND DOLLAR FUND FUND
<S> <C>
Shares subscribed 18,651,422 nil nil nil
Shares issued in reinvestment
of dividends 169,328 nil nil nil
Shares redeemed (10,551,422) nil nil nil
-----------------------------------------------------------------------------
Net increase 8,269,328 nil nil nil
-----------------------------------------------------------------------------
</TABLE>
9
<PAGE> 11
[LOGO]
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
For the period ended December 31, 1997
Contained below is the per share operating performance data for a share
outstanding throughout the period, total investment return, ratios and
supplemental data. This information has been derived from information provided
in the financial statements.
<TABLE>
<CAPTION>
UNITED STATES DOLLAR FUND (d)
FIVE ARROWS FIVE ARROWS
SHARES* SERVICE SHARES***
PER SHARE OPERATING PERFORMANCE:
<S> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $1.00 -
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.04 -
-------------------------------------
TOTAL INCOME FROM INVESTMENT OPERATIONS 0.04 -
-------------------------------------
LESS DISTRIBUTIONS:
Net investment income (0.04) -
TOTAL DISTRIBUTIONS (0.04) -
-------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $1.00 -
-------------------------------------
TOTAL RETURN 4.18% (b) -
-------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (`000) $8,269 -
Ratio of expenses to average net assets after waivers and reimbursements 0.275% (c) -
Ratio of net investment income to average net assets after waivers 5.33% (c) -
and reimbursements
Ratio of expenses to average net assets (a) 3.04% (c) -
Ratio of net investment income to average net assets (a) 2.56% (c) -
<FN>
* for period March 26, 1997 (commencement of operations) to December 31, 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 occurred, the ratios would have been as indicated.
(b) Not annualized
(c) Annualized
(d) Per share amounts and ratios/supplemental data reflect income and expenses
assuming inclusion of the Fund's proportionate share of the income and
expenses of the related Portfolio.
</FN>
</TABLE>
See notes to financial statements
10
<PAGE> 12
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of International Currency Fund:
We have audited the accompanying statements of assets and liabilities of each
series of International Currency Fund, comprised of the United States Dollar
Portfolio, Pound Sterling Portfolio, Canadian Dollar Portfolio and Deutschmark
Portfolio, (the "Portfolios"), including the portfolios of investments for the
United States Dollar Portfolio and the Pound Sterling Portfolio as of December
31, 1997, the related statements of operations, the statements of changes in net
assets and the financial highlights for the period then ended. These financial
statements and the financial highlights are the responsibility of the
Portfolios' management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
International Currency Fund as of December 31, 1997, the results of operations,
the changes in their net assets and their financial highlights for the periods
then ended in conformity with generally accepted accounting principles.
Boston, Massachusetts. COOPERS & LYBRAND L.L.P.
Dated: February 26, 1998
11
<PAGE> 13
[LOGO]
<TABLE>
<CAPTION>
INTERNATIONAL CURRENCY FUND
UNITED STATES DOLLAR PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
PRINCIPAL DESCRIPTION RATE MATURITY MOODYS/ AMORTISED
AMOUNT DATE S&P (a) COST
TIME DEPOSITS -- 40.72%
BANKS
<S> <C> <C> <C> <C> <C>
2,000,000 ABN 5.69% 01/07/98 P1/A1+ $2,000,000
2,000,000 Bank of Montreal 5.69% 01/07/98 P1/A1+ 2,000,000
2,000,000 Credit Anstalt Bankverein 5.94% 01/07/98 P1/A1 2,000,000
2,000,000 Commerzbank, London 6.00% 01/05/98 P1/A1+ 2,000,000
2,000,000 Swiss Bank Corporation 5.88% 01/05/98 P1/A1+ 2,000,000
2,000,000 Den Danske Bank, London 5.80% 01/07/98 P1/A1 2,000,000
2,000,000 Dresdner Bank 5.75% 01/06/98 P1/A1+ 2,000,000
2,000,000 Lloyds Bank, London 5.88% 01/06/98 P1/A1+ 2,000,000
2,000,000 Rabobank 5.88% 01/05/98 P1/A1+ 2,000,000
2,000,000 Royal Bank of Canada 6.00% 01/05/98 P1/A1+ 2,000,000
2,000,000 Royal Bank of Scotland 5.69% 01/06/98 P1/A1+ 2,000,000
-----------
TOTAL TIME DEPOSITS 22,000,000
-----------
CERTIFICATES OF DEPOSIT -- 6.48%
1,000,000 Bank of Nova Scotia 5.74% 01/26/98 P1/A1+ 999,846
1,500,000 Barclays Bank, Canada 5.84% 01/05/98 P1/A1+ 1,499,980
1,000,000 Suedwestdeutsche Landesbank Euro 5.66% 01/05/98 P1/A1+ 999,948
-----------
TOTAL CERTIFICATES OF DEPOSIT 3,499,774
-----------
COMMERCIAL PAPER -- 3.70%
2,000,000 Halifax Building Society 6.03% 01/07/98 P1/A1+ 1,997,995
-----------
REPURCHASE AGREEMENTS -- 49.23%
13,300,000 Credit Suisse First Boston, dated
12/31/97, with a maturity value of
$13,304,618 (Collateralized by
$13,830,000 (par value) zero coupon
various U.S. Government Federal Home
Loan Notes, due 03/10/98, 01/21/98,
with a market value of $13,599,512) 6.25% 01/02/98 P1/A1+ 13,300,000
13,300,000 Merrill Lynch dated 12/31/97, with a
maturity value of $13,304,803
(Collateralized by $19,885,000 (par
value) zero coupons various U.S.
Government Federal National Mortgage
Association Medium Term Notes due
10/08/03, 04/08/04 & 10/08/04, with
a market value of $13,567,536) 6.50% 01/02/98 P1/A1+ 13,300,000
-----------
TOTAL REPURCHASE AGREEMENTS 26,600,000
-----------
TOTAL INVESTMENTS AT AMORTISED COST-- 100.13% 54,097,769
Liabilities in excess of other assets-- (0.13%) (70,328)
-----------
NET ASSETS-- 100.0% $54,027,441
-----------
<FN>
Percentages indicated are based on net assets of $54,027,441
(a) The Moody's or Standard & Poor's ratings 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 ascribe to these securities
as of December 31, 1997. Ratings are not covered by the report of independent
accountants.
</FN>
</TABLE>
See notes to financial statements
12
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[LOGO]
<TABLE>
<CAPTION>
INTERNATIONAL CURRENCY FUND
POUND STERLING PORTFOLIO
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1997
PRINCIPAL DESCRIPTION RATE MATURITY MOODYS/ AMORTISED
AMOUNT DATE S&P (a) COST
TIME DEPOSITS -- 41.98%
BANKS
<S> <C> <C> <C> <C>
6,000,000 Bank of Montreal 7.25% 01/02/98 P1/A1+ (pound)6,000,000
6,000,000 Barclays 7.19% 01/02/98 P1/A1+ 6,000,000
6,000,000 Commerzbank 7.25% 01/02/98 P1/A1+ 6,000,000
6,000,000 Den Danske Bank 7.25% 01/02/98 P1/A1 6,000,000
6,000,000 Republic National Bank, New York 7.00% 01/02/98 P1/A1+ 6,000,000
6,000,000 Royal Bank of Canada 7.25% 01/02/98 P1/A1+ 6,000,000
5,752,000 Royal Bank of Scotland, London 6.94% 01/02/98 P1/A1+ 5,752,000
6,000,000 Bank of Nova Scotia 7.25% 01/02/98 P1/A1+ 6,000,000
6,000,000 Toronto Dominion Bank 7.25% 01/02/98 P1/A1+ 6,000,000
-----------
TOTAL TIME DEPOSITS 53,752,000
-----------
CERTIFICATES OF DEPOSIT -- 16.40%
BANKS
5,000,000 BNP 7.47% 01/06/98 P1/A1 5,000,000
5,000,000 Halifax 7.48% 01/16/98 P1/A1+ 5,000,000
6,000,000 NationsBank 7.47% 02/23/98 P1/A1+ 6,000,000
5,000,000 Westdeutsche Landesbank 7.50% 01/27/98 P1/A1+ 5,000,000
-----------
TOTAL CERTIFICATES OF DEPOSIT 21,000,000
-----------
COMMERCIAL PAPER -- 41.55%
BANKS
6,000,000 ANZ Melbourne 7.49% 02/18/98 P1/A1 5,940,748
5,000,000 National Australia Bank 7.11% 01/02/98 P1/A1+ 4,999,024
CONSUMER CREDIT
6,000,000 Avco Trust Plc 7.54% 02/17/98 P1/A1 5,941,654
DIVERSIFIED FOOD
5,000,000 Nestle 7.36% 01/09/98 P1/A1+ 4,991,883
FINANCIAL SERVICES
6,000,000 General Electric Capital Corporation 7.42% 02/24/98 P1/A1+ 5,934,002
INSURANCE
5,000,000 Commercial Union 7.52% 01/20/98 P1/A1+ 4,980,666
LEASING
3,500,000 ABN Lease Holdings 7.00% 01/05/98 P1/A1+ 3,497,147
PRINTING
6,000,000 Xerox Capital Europe 7.37% 01/30/98 P1/A1 5,964,625
UTILITIES
5,000,000 Scottish Power 7.53% 01/16/98 P1/A1 4,984,717
6,000,000 Scottish Hydro Electric 7.36% 01/30/98 P1/A1 5,964,672
-----------
TOTAL COMMERCIAL PAPER 53,199,138
-----------
TOTAL INVESTMENTS AT AMORTISED COST-- 99.93% 127,951,138
Other assets in excess of liabilities 0.07% 86,764
-----------
NET ASSETS-- 100.0% (pound)128,037,902
-----------
<FN>
Percentages indicated are based on net assets of (pound)128,037,902
(a) The Moody's or Standard & Poor's ratings 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 ascribe to these securities
as of December 31, 1997. Ratings are not covered by the report of independent
accountants.
</FN>
See notes to financial statements
</TABLE>
13
<PAGE> 15
[LOGO]
<TABLE>
<CAPTION>
INTERNATIONAL CURRENCY FUND
STATEMENTS OF ASSETS AND LIABILITIES
(LOCAL CURRENCIES) AS AT DECEMBER 31, 1997
UNITED STATES POUND STERLING CANADIAN DOLLAR DEUTSCHEMARK
DOLLAR PORTFOLIO PORTFOLIO PORTFOLIO*** PORTFOLIO***
$ (POUND) C$ DEM
ASSETS:
<S> <C> <C> <C> <C>
Investments in securities, at amortised cost 54,097,769 127,951,138 -
(cost $54,097,769 and (pound)127,951,138,
respectively, including Repurchase
Agreements of $26,600,000 and
(pound)0 respectively.)
Deferred organisational costs 60,030 36,211 100,000 121,000
Cash - 986 10 10
Interest receivable 38,823 160,242 - -
Prepaid expenses 1,109 717 - -
-------------------------------------------------------------------------
TOTAL ASSETS 54,197,731 128,149,294 100,010 121,010
-------------------------------------------------------------------------
LIABILITIES:
Amounts payable to Manager 75,000 45,000 100,000 121,000
Administration fees payable 2,122 5,456 - -
Transaction fees payable 65,048 18,434 - -
Advisory fees payable - 19,865 - -
Legal fees payable 14,569 6,118 - -
Audit fees payable 5,904 2,639 - -
Custody fees payable 3,024 7,384 - -
Fund accounting fees payable 861 2,182 - -
Trustees fees payable 536 1,896 - -
Other accrued expenses 3,226 2,418 - -
-------------------------------------------------------------------------
TOTAL LIABILITIES 170,290 111,392 100,000 121,000
-------------------------------------------------------------------------
NET ASSETS, DECEMBER 31, 1997 54,027,441 128,037,902 10 10
-------------------------------------------------------------------------
<FN>
*** not yet commenced operations
</FN>
</TABLE>
See notes to financial statements
14
<PAGE> 16
[LOGO]
<TABLE>
<CAPTION>
INTERNATIONAL CURRENCY FUND
STATEMENTS OF OPERATIONS
(LOCAL CURRENCIES) FOR THE PERIOD ENDED DECEMBER 31, 1997
UNITED STATES POUND STERLING CANADIAN DOLLAR DEUTSCHEMARK
DOLLAR PORTFOLIO* PORTFOLIO** PORTFOLIO*** PORTFOLIO***
$ (POUND) C$ DEM
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest income 1,686,338 4,955,525 - -
Other Income 741 - - -
-------------------------------------------------------------------------
TOTAL INCOME 1,687,079 4,955,525 - -
-------------------------------------------------------------------------
EXPENSES:
Advisory fees 60,474 146,274 - -
Administration fees 15,118 36,568 - -
Transactions fees 65,048 18,435 - -
Trustees fees 40,023 24,634 - -
Legal fees 20,819 27,786 - -
Amortisation of organisation costs 14,970 8,789 - -
Audit fees 12,009 6,363 - -
Fund accounting fees and expenses 6,048 12,627 - -
Custodian fees and expenses 3,024 7,384 - -
Other operating expenses 19,942 12,606 - -
-------------------------------------------------------------------------
TOTAL EXPENSES 257,475 301,466 - -
Fee Waivers (60,474) (126,409) - -
-------------------------------------------------------------------------
TOTAL NET EXPENSES 197,001 175,057 - -
-------------------------------------------------------------------------
NET INVESTMENT INCOME 1,490,078 4,780,468 - -
-------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,490,078 4,780,468 - -
-------------------------------------------------------------------------
<FN>
* for period from March 26, 1997 (commencement of operations) to December 31, 1997.
** for period from March 3, 1997 (commencement of operations) to December 31, 1997.
*** not yet commenced operations
</FN>
</TABLE>
See notes to financial statements
15
<PAGE> 17
[LOGO]
<TABLE>
<CAPTION>
INTERNATIONAL CURRENCY FUND
STATEMENTS OF CHANGES IN NET ASSETS
(LOCAL CURRENCIES) FOR THE PERIOD ENDED DECEMBER 31, 1997
UNITED STATES POUND STERLING CANADIAN DOLLAR DEUTSCHEMARK
DOLLAR PORTFOLIO* PORTFOLIO** PORTFOLIO*** PORTFOLIO***
$ (POUND) C$ DEM
INCREASE IN NET ASSETS FROM:
Operations:
<S> <C> <C> <C> <C>
Net investment income 1,490,078 4,780,468 - -
-------------------------------------------------------------------------
Change in net assets resulting from operations 1,490,078 4,780,468 - -
-------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Contributions 177,719,547 182,128,181 10 10
Withdrawals (125,182,184) (58,870,747) - -
-------------------------------------------------------------------------
Change in net assets
resulting from capital transactions 52,537,363 123,257,434 10 10
-------------------------------------------------------------------------
Change in Net Assets 54,027,441 128,037,902 10 10
-------------------------------------------------------------------------
NET ASSETS:
Beginning of period - - - -
-------------------------------------------------------------------------
End of period 54,027,441 128,037,902 10 10
-------------------------------------------------------------------------
<FN>
* for period from March 26, 1997 (commencement of operations) to December 31, 1997.
** for period from March 3, 1997 (commencement of operations) to December 31, 1997.
*** not yet commenced operations
</FN>
</TABLE>
See notes to financial statements
16
<PAGE> 18
(LOGO)
INTERNATIONAL CURRENCY FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANISATION
International Currency Fund (the "Portfolio Trust"), a Delaware business trust,
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-ended management investment company. At December 31, 1997 the
Portfolio Trust consisted of four portfolios; the United States Dollar
Portfolio, the Pound Sterling Portfolio, the Canadian Dollar Portfolio and the
Deutschemark Portfolio, (individually a "Portfolio" and 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 as Administrator to the 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 amortised cost, which
approximates market value. The amortised cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortisation to maturity of the difference between the principal amount due at
maturity and cost. In accordance with policies adopted by the Portfolio Trust in
this regard, the Portfolios may not (a) purchase any instrument with an
effective remaining maturity greater than thirteen months, or (b) maintain a
weighted average maturity which exceeds 90 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 recognised on the accrual basis and
includes, where applicable, the amortisation of premium or accretion of
discount. Gains or losses realised on sales of securities are determined by
comparing the amortised 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 on the basis of their relative net assets.
REPURCHASE AGREEMENTS:
The Portfolios will enter into repurchase agreements only with financial
institutions rated by a U.S. nationally recognised statistical rating
organisation (NRSRO) in the highest rating category for short term obligations
and deemed to be creditworthy by the Investment Adviser, pursuant to guidelines
established by the Portfolio Trust's Board of Trustees. During the term of any
repurchase agreement, the Investment Adviser will monitor the creditworthiness
of the seller, and the seller must maintain the value of the securities subject
to the agreement in an amount that is greater than or equal to the repurchase
price. Default or bankruptcy of the seller would, however expose the Portfolios
to possible loss because of adverse market action or delays in connection with
the disposition of the underlying obligations. Because of the seller's
repurchase obligations, the securities subject to repurchase agreements do not
have maturity limitations. Repurchase agreements are considered to be loans by a
Portfolio under the 1940 Act.
ORGANISATIONAL EXPENSES:
The deferred organisation costs were incurred by the Portfolios in connection
with their organisation. The Portfolios are expected to reimburse the Investment
Adviser for the payment of these costs made in advance by the Manager. The costs
have been deferred and will be amortised on a straight line basis over a five
year period from the commencement of operations by the Portfolios.
FEDERAL INCOME TAXES:
Each Portfolio will be treated as a partnership for U.S. federal income tax
purposes. As such, each U.S. investor in a Portfolio will be taxed on its share
of the Portfolio's ordinary income and capital gains. It is intended that the
17
<PAGE> 19
[LOGO]
Portfolios will be managed in such a way to satisfy the requirements of 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 the Investment Adviser and an Administration Agreement
with BISYS.
The Investment Adviser 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, the
Investment Adviser 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 December 31, 1997, the Investment
Adviser waived its entire fee for the United States Dollar Portfolio and
partially waived its fee for the Pound Sterling Portfolio in the following
amounts.
- --------------------------------------------------------------------------------
United States Dollar $60,474
- --------------------------------------------------------------------------------
Pound Sterling (pound)126,409
- --------------------------------------------------------------------------------
Canadian Dollar nil
- --------------------------------------------------------------------------------
Deutschemark nil
- --------------------------------------------------------------------------------
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 December 31, 1997 BISYS earned the following fees as Administrator
for each Portfolio.
- --------------------------------------------------------------------------------
United States Dollar $15,118
- --------------------------------------------------------------------------------
Pound Sterling (pound)36,568
- --------------------------------------------------------------------------------
Canadian Dollar nil
- --------------------------------------------------------------------------------
Deutschemark nil
- --------------------------------------------------------------------------------
BISYS is entitled to a fee from each Portfolio which is accrued daily and
payable monthly at an annual rate of 0.02% of each of the Portfolios average
daily net assets. BISYS earned the following amounts for the period ended
December 31, 1997 for providing accounting services to each portfolio.
United States Dollar $6,048
- --------------------------------------------------------------------------------
Pound Sterling (pound)12,627
- --------------------------------------------------------------------------------
Canadian Dollar nil
- --------------------------------------------------------------------------------
Deutschemark nil
- --------------------------------------------------------------------------------
NOTE 4 - TRUSTEES AND OFFICERS COMPENSATION
The Portfolio Trust has to date paid US$40,023 and (pound)24,634 in total 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 December 31, 1997, each Portfolio purchased and matured
portfolio securities, in the following amounts:
PURCHASES MATURITIES
- --------------------------------------------------------------------------------
United States
Dollar Portfolio $3,978,547,508 $3,924,490,999
- --------------------------------------------------------------------------------
Pound Sterling Portfolio (pound)8,529,021,163 (pound)8,402,385,073
- --------------------------------------------------------------------------------
Canadian Dollar Portfolio nil nil
- --------------------------------------------------------------------------------
Deutschemark Portfolio nil nil
- --------------------------------------------------------------------------------
18
<PAGE> 20
[LOGO]
<TABLE>
<CAPTION>
INTERNATIONAL CURRENCY FUND
FINANCIAL HIGHLIGHTS
FOR THE PERIOD ENDED DECEMBER 31, 1997
UNITED STATES POUND STERLING CANADIAN DOLLAR DEUTSCHEMARK
DOLLAR PORTFOLIO* PORTFOLIO** PORTFOLIO*** PORTFOLIO***
RATIOS/SUPPLEMENTAL DATA:
<S> <C> <C> <C> <C>
Net assets, end of period (`000) $54,027 (pound)128,038 - -
Ratio of expenses to average net assets
after waivers and reimbursements 0.65% (b) 0.24% (b) - -
Ratio of net investment income to average
net assets after waivers and reimbursements 4.93% (b) 6.56% (b) - -
Ratio of expenses to average net assets (a) 0.85% (b) 0.41% (b) - -
Ratio of net investment
income to average net assets (a) 4.73% (b) 6.38% (b) - -
Total Return since inception 3.00% (c) 4.00% (c) - -
<FN>
* for the period March 26, 1997 (commencement of operations) to December 31, 1997.
** for the period March 3, 1997 (commencement of operations) to December 31, 1997.
*** not yet commenced operations
(a) During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(b) Annualised
(c) Not annualised
</FN>
</TABLE>
See notes to financial statements
19
<PAGE> 21
[LOGO]
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
INVESTMENT ADVISER
Rothschild International Asset
Management Limited
Five Arrows House
St. Swithin's Lane, London EC4N 8NR
United Kingdom
DISTRIBUTOR
Five Arrows Fund Distributors Inc.
3435 Stelzer Road
Columbus, OH 43219-3035
ADMINISTRATOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, OH 43219-3035
TRANSFER AGENT
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, OH 43219
CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Centre
Brooklyn, NY 11245
AUDITORS
Coopers & Lybrand L.L.P
One Post Office Square
Boston, MA 02109
COUNSEL:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
International investing is subject to certain factors such as currency exchange
rate volatility, possible political, social or economic instability, foreign
taxation and differences in auditing and other financial standards.
The Fund is AAAm rated by Standard & Poor's. This rating is historical and is
based upon the Fund's credit quality, market exposure and management. It
signifies that the Fund's safety is excellent and that it has a superior
capacity to maintain a US$1.00/(pound)1.00/DM 1/C$1.00 per share.
<PAGE> 22
[LOGO]
ROTHSCHILD
ASSET MANAGEMENT
2/98
