<PAGE> 1
[Rothschild Asset Management Logo]
FIVE ARROWS
SHORT-TERM
INVESTMENT TRUST
REPORT & ACCOUNTS
for period ended
June 30, 1998
<PAGE> 2
[Rothschild Asset Management Logo]
CONTENTS
Investment Adviser's Commentary 2
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
Statements of Assets and Liabilities 3
Statements of Operations 4
Statements of Changes in Net Assets 5 - 8
Notes to the Financial Statements 9 - 11
Financial Highlights 12
INTERNATIONAL CURRENCY FUND
Portfolios of Investments 13 - 14
Statements of Assets and Liabilities 15
Statements of Operations 16
Statements of Changes in Net Assets 17 - 18
Notes to Financial Statements 19 - 20
Financial Highlights 21 - 22
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[Rothschild Asset Management Logo]
INVESTMENT ADVISER'S COMMENTARY
PERIOD ENDING 30 JUNE 1998
At 30 June 1998, net assets in the International Currency Fund totalled L128.3
million in the Pound Sterling Portfolio and $19.6 million in the US Dollar
Portfolio. This compares with L128 million and $54 million respectively for
funds at year-end 1997. The portfolios and the funds have at all times been
fully compliant with the rules of their regulators and the guidelines of the
rating agency.
The first half of 1998 has seen very strong growth persist in the US and
continuing expansion in the UK. Neither economy has thus far been much
constrained by contraction in Asia. Indeed both the US and the UK have been
beneficiaries of investment flow as capital has been moved from Asia to markets
investors perceive as safe.
The ongoing expansion in the UK has generated wage and income pressures that
have made the Bank of England's Monetary Committee ("MPC") uncomfortable. Even
though manufacturing and exports have been weakened by the rise in sterling, the
MPC have continued to tighten policy. As income does not yet appear to have
levelled off yet, we expect the MPC to raise rates further in 25 basis points
increments later this summer. We have positioned the sterling portfolio's
investments accordingly.
Throughout the quarter to June 30, 1998, the inversion of the UK bond yield
curve as compared to the generally fairly steep UK deposit yield curve has made
sterling placements an attractive investment. This comparative should remain in
place for at least several months more.
US growth was surprisingly robust in the first quarter of 1998 and should remain
above trend levels of growth for the second quarter as well despite some
downward pressure from inventories and on ever larger trade gap. This normally
would exert upward pressure on interest rates and cause the yield curve to
steepen. Deflation fears spurred by Asian contraction and stream of funds
seeking the comparative safety of US markets has outweighed the pace of US
expansion, flattening the yield curve and depressing rates.
The scale of the US expansion over recent quarters has surpassed many forecasts.
Consequently, upward price pressure is finally appearing in various sectors of
the economy, which earlier had been well behaved. Although the Federal Reserve
has heretofore maintained a steady monetary policy in response to Asia's
contractions, there are now numerous signs the Chairman Greenspan and other
members of the Federal Open Market Committee are uneasy with that steady policy.
We expect the Federal Reserve to raise rates at least 25 basis points between
now and the US congressional elections in November.
Even a modest increase in the Federal Funds rate is not wholly priced into the
yield curve right now. There is consequently little value in extending
placements further out on the yield curve in advance of the rates increase we
are expecting. As we have for most of the second quarter, we anticipate holdings
to short maturities in the months ahead.
2
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[Rothschild Asset Management Logo]
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
(local currencies) as at June 30, 1998
<TABLE>
<CAPTION>
UNITED STATES POUND CANADIAN DEUTSCHE MARK
DOLLAR FUND STERLING FUND*** DOLLAR FUND*** FUND***
$ (POUND STERLING) C$ DEM
<S> <C> <C> <C> <C>
ASSETS:
Investment in International Currency Fund 529,246 10 10 10
Deferred organizational costs 40,780 37,000 82,000 99,000
Receivable from Administrator 8,846 - - -
-------------------------------------------------------------
TOTAL ASSETS 578,872 37,010 82,010 99,010
-------------------------------------------------------------
LIABILITIES:
Amounts payable to Manager 48,840 37,000 82,000 99,000
Distribution payable from net investment income 30,425 - - -
Legal fees payable 6,261 - - -
Audit fees payable 4,182 - - -
Shareholder service fees payable 1,333 - - -
Administration fees papayable 107 - - -
Other accrued expenses 4,539 - - -
-------------------------------------------------------------
TOTAL LIABILITIES 95,687 37,000 82,000 99,000
-------------------------------------------------------------
NET ASSETS 483,185 10 10 10
-------------------------------------------------------------
NET ASSETS
Five Arrows Shares 483,185 10 10 10
Five Arrows Service Shares - - - -
-------------------------------------------------------------
483,185 10 10 10
-------------------------------------------------------------
SHARES OUTSTANDING
Five Arrows Shares 483,185 10 10 10
Five Arrows Service Shares - - - -
-------------------------------------------------------------
TOTAL SHARES OUTSTANDING 483,185 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 482,358 10 10 10
-------------------------------------------------------------
NET ASSETS, JUNE 30, 1998 483,185 10 10 10
-------------------------------------------------------------
<FN>
*** not yet commenced operations
</TABLE>
See notes to financial statements
3
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[Rothschild Asset Management Logo]
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
STATEMENTS OF OPERATIONS (UNAUDITED)
(local currencies) For the period ended June 30, 1998
<TABLE>
<CAPTION>
UNITED STATES POUND CANADIAN DEUTSCHE MARK
DOLLAR FUND STERLING FUND*** DOLLAR FUND*** FUND***
$ POUND STERLING C$ DEM
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Investment income allocated from
International Currency Fund 224,808 - - -
-----------------------------------------------------------------
Expenses 21,128 - - -
Less: Fee waivers (8,080) - - -
Less: International Currency Fund
expense reimbursement (2,285) - - -
-----------------------------------------------------------------
10,763 - - -
-----------------------------------------------------------------
NET INVESTMENT INCOME
FROM INTERNATIONAL CURRENCY FUND 214,045 - - -
-----------------------------------------------------------------
FUND EXPENSES:
Administration fees 1,990 - - -
Shareholder servicing fees 6,981 - - -
Printing fees 8,234 - - -
Amortization of organization costs 8,100 - - -
Registration fees 6,265 - - -
Legal fees 18,616 - - -
Audit fees 2,506 - - -
Other operating expenses 2,998 - - -
-----------------------------------------------------------------
TOTAL EXPENSES 55,690 - - -
Less Fee waivers and reimbursements - - -
by the Advisor and Administrator (55,690)
-----------------------------------------------------------------
TOTAL NET EXPENSES - - - -
-----------------------------------------------------------------
NET INVESTMENT INCOME 214,045 - - -
-----------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 214,045 - - -
-----------------------------------------------------------------
<FN>
*** not yet commenced operations
</TABLE>
See notes to financial statements
4
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[Rothschild Asset Management Logo]
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
STATEMENTS OF CHANGES IN NET ASSETS
UNITED STATES DOLLAR FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MARCH 26, 1997
FOR THE SIX MONTHS (COMMENCEMENT OF
ENDED JUNE 30, 1998 OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1997
$ $
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS:
Net investment income 214,045 199,869
--------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 214,045 199,869
--------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -
Five Arrows Shares (214,045) (199,869)
Net investment income -
Five Arrows Service Shares - -
--------------------------------------------
CHANGE IN NET ASSETS
FROM SHAREHOLDER DISTRIBUTIONS (214,045) (199,869)
--------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 12,000,000 18,651,422
Dividends reinvested 213,857 169,328
Cost of shares redeemed (20,000,000) (10,551,422)
--------------------------------------------
CHANGE IN NET ASSETS
FROM CAPITAL SHARE TRANSACTIONS (7,786,143) 8,269,328
--------------------------------------------
CHANGE IN NET ASSETS (7,786,143) 8,269,328
--------------------------------------------
NET ASSETS:
Beginning of period 8,269,328 -
--------------------------------------------
End of period 483,185 8,269,328
--------------------------------------------
</TABLE>
See notes to financial statements
5
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[Rothschild Asset Management Logo]
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
STATEMENTS OF CHANGES IN NET ASSETS
POUND STERLING FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MARCH 26, 1997
FOR THE SIX MONTHS (COMMENCEMENT OF
ENDED JUNE 30, 1998 OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1997
POUND STERLING POUND STERLING
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS:
Net investment income - -
-------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS - -
-------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -
Five Arrows Shares - -
Net investment income -
Five Arrows Service Shares - -
-------------------------------------
CHANGE IN NET ASSETS
FROM SHAREHOLDER DISTRIBUTIONS - -
-------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold - 10
Dividends reinvested - -
Cost of shares redeemed - -
-------------------------------------
CHANGE IN NET ASSETS
FROM CAPITAL SHARE TRANSACTIONS - 10
-------------------------------------
CHANGE IN NET ASSETS - 10
-------------------------------------
NET ASSETS:
Beginning of period 10 -
-------------------------------------
End of period 10 10
-------------------------------------
</TABLE>
6
<PAGE> 8
[Rothschild Asset Management Logo]
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
STATEMENTS OF CHANGES IN NET ASSETS
CANADIAN DOLLAR FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MARCH 26, 1997
FOR THE SIX MONTHS (COMMENCEMENT OF
ENDED JUNE 30, 1998 OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1997
C$ C$
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS:
Net investment income - -
-------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS - -
-------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -
Five Arrows Shares - -
Net investment income -
Five Arrows Service Shares - -
-------------------------------------
CHANGE IN NET ASSETS
FROM SHAREHOLDER DISTRIBUTIONS - -
-------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold - 10
Dividends reinvested - -
Cost of shares redeemed - -
-------------------------------------
CHANGE IN NET ASSETS
FROM CAPITAL SHARE TRANSACTIONS - 10
-------------------------------------
CHANGE IN NET ASSETS - 10
-------------------------------------
NET ASSETS:
Beginning of period 10 -
-------------------------------------
End of period 10 10
-------------------------------------
</TABLE>
See notes to financial statements
7
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[Rothschild Asset Management Logo]
FIVE ARROWS SHORT-TERM INVESTMENT TRUST
STATEMENTS OF CHANGES IN NET ASSETS
DEUTSCHE MARK FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MARCH 26, 1997
FOR THE SIX MONTHS (COMMENCEMENT OF
ENDED JUNE 30, 1998 OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1997
DEM DEM
<S> <C> <C>
INCREASE IN NET ASSETS FROM:
OPERATIONS:
Net investment income - -
-------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS - -
-------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -
Five Arrows Shares - -
Net investment income -
Five Arrows Service Shares - -
-------------------------------------
CHANGE IN NET ASSETS
FROM SHAREHOLDER DISTRIBUTIONS - -
-------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold - 10
Dividends reinvested - -
Cost of shares redeemed - -
-------------------------------------
CHANGE IN NET ASSETS
FROM CAPITAL SHARE TRANSACTIONS - 10
-------------------------------------
CHANGE IN NET ASSETS - 10
-------------------------------------
NET ASSETS:
Beginning of period 10 -
-------------------------------------
End of period 10 10
-------------------------------------
</TABLE>
See notes to financial statements
8
<PAGE> 10
[Rothschild Asset Management Logo]
FIVE ARROWS SHORT TERM INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - ORGANISATION
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 1998 the Trust
consisted of four funds; the U.S. 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 June 30 1998, the Funds held proportionate
interests in the corresponding Portfolios in the following amounts:
<TABLE>
<CAPTION>
- -----------------------------------
<S> <C>
U.S. Dollar Fund 2.70%
- -----------------------------------
Pound Sterling Fund 00.00%
- -----------------------------------
Canadian Dollar Fund 00.00%
- -----------------------------------
Deutsche Mark Fund 00.00%
- -----------------------------------
</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 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.
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 (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
9
<PAGE> 11
[Rothschild Asset Management Logo]
FIVE ARROWS SHORT TERM INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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.
ORGANISATIONAL EXPENSES:
The Funds incurred certain costs in connection with their organisation. 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 straight-line basis over five years from the date of
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 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.
Pursuant to an agreement dated July 19, 1998 it is proposed that State Street
Bank and Trust Company will replace Rothschild International Asset Management
Limited as Investment Adviser of the Master Fund. The Portfolios' 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 shares of a
Fund not to exceed a specified percentage of such class' average daily net
assets 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 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 specified percentage of average daily net assets, the Investment
Advisor has agreed to pay 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 June 30, 1998,
and thereafter at the discretion of the Investment Adviser. The Investment
Advisor 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 $66,055
- -----------------------------------------------
Pound Sterling Fund Nil
- -----------------------------------------------
Canadian Dollar Fund Nil
- -----------------------------------------------
Deutsche Mark 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 rule 12b-1
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
10
<PAGE> 12
[Rothschild Asset Management Logo]
FIVE ARROWS SHORT TERM INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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 June 30, 1998 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 June 30, 1998. For the period ended June 30,
1998, the Funds paid the following amounts to the Distributor in connection with
the Plan:
<TABLE>
<S> <C>
- ----------------------------------------
United States Dollar Fund Nil
- ----------------------------------------
Pound Sterling Fund Nil
- ----------------------------------------
Canadian Dollar Fund Nil
- ----------------------------------------
Deutsche Mark Fund Nil
- ----------------------------------------
</TABLE>
NOTE 5 - CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds for the period ended June 30 1998 are
summarized below:
NOTE 4 - TRUSTEES' 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.
FIVE ARROWS SHARES
<TABLE>
<CAPTION>
UNITED STATES POUND CANADIAN DEUTSCHEMARK
DOLLAR FUND STERLING FUND DOLLAR FUND FUND
<S> <C> <C> <C> <C>
Shares subscribed 12,000,000 nil nil nil
Shares issued to shareholders
in reinvestment of dividends 213,857 nil nil nil
Shares redeemed (20,000,000) nil nil nil
-----------------------------------------------------------------
NET INCREASE (7,786,143) nil nil nil
------------------------------------------------------------------
</TABLE>
11
<PAGE> 13
[Rothschild Asset Management Logo]
FIVE ARROWS SHORT TERM INVESTMENT TRUST
FINANCIAL HIGHLIGHTS
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.
UNITED STATES DOLLAR FUND
FIVE ARROWS SHARES (d)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MARCH 26, 1997
FOR THE SIX MONTHS (COMMENCEMENT OF
ENDED JUNE 30, 1998 OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1997
$ $
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.04
-------------------------------------------
TOTAL INCOME FROM INVESTMENT OPERATIONS 0.03 0.04
-------------------------------------------
LESS DISTRIBUTIONS:
Net investment income (0.03) (0.04)
-------------------------------------------
TOTAL DISTRIBUTIONS (0.03) (0.04)
-------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $1.00 $1.00
-------------------------------------------
TOTAL RETURN 2.70%(b) 4.18%(b)
-------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period ('000) $483 $8,269
Ratio of expenses to average net assets 0.28%(c) 0.28%(c)
Ratio of net investment income to average net assets 6.66%(c) 5.33%(c)
Ratio of expenses to average net assets(a) 1.92%(c) 3.04%(c)
Ratio of net investment income to average net assets(a) 5.02%(c) 2.56%(c)
<FN>
(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 annualised
(c) Annualised
(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.
</TABLE>
See notes to financial statements
12
<PAGE> 14
[Rothschild Asset Management Logo]
INTERNATIONAL CURRENCY FUND
UNITED STATES DOLLAR PORTFOLIO
Portfolio of Investments, (unaudited) June 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION RATE MATURITY MOODYS/ AMORTISED
AMOUNT DATE S&P (a) COST
TIME DEPOSITS - 75.84%
BANKS
<S> <C> <C> <C> <C> <C>
$900,000 Bank of Montreal 6.12% 07/01/98 P1/A1+ $900,000
900,000 Barclays 6.00% 07/01/98 P1/A1+ 900,000
950,000 BNP (London) 5.93% 07/01/98 P1/A1+ 950,000
950,000 Credit Agricole 6.25% 07/01/98 P1/A1+ 950,000
950,000 CIBC London 6.18% 07/01/98 P1/A1+ 950,000
900,000 Deutsche Bank 6.00% 07/01/98 P1/A1+ 900,000
900,000 Kredietbank London 6.00% 07/01/98 P1/A1+ 900,000
950,000 Lloyds London 6.00% 07/01/98 P1/A1+ 950,000
950,000 Nationsbank NA TD 5.87% 07/01/98 P1/A1+ 950,000
940,000 Rabobank 5.75% 07/02/98 P1/A1+ 940,000
950,000 RBC London Royal Bank of Canada, London 6.25% 07/01/98 P1/A1+ 950,000
950,000 Republic National Bank, New York 6.00% 07/02/98 P1/A1+ 950,000
900,000 Bank of Nova Scotia 6.06% 07/01/98 P1/A1+ 900,000
900,000 Svenska Handlesbanken 6.00% 07/01/98 P1/A1 900,000
914,000 United Bank of Switzerland (London) 6.00% 07/01/98 P1/A1+ 914,000
940,000 West LB 5.75% 07/02/98 P1/A1+ 940,000
-------------
TOTAL TIME DEPOSITS 14,844,000
-------------
REPURCHASE AGREEMENTS - 24.52%
Merrill Lynch dated 06/30/98, with a
maturity value of $4,800,000 (Collateralized by
$23,262,000 (par value) zero coupon various U.S.
Government Federal National Mortgage Association,
Medium Term Notes due 01/15/23, 10/15/24,
7/15/25, 10/15/25, 4/15/26, 10/15/26 &
1/15/21.
With a market value of $4,896,586) 6.50% 01/02/98 P1/A1+ 4,800,000
-------------
TOTAL REPURCHASE AGREEMENTS 4,800,000
-------------
TOTAL INVESTMENTS AT AMORTISED COST - 100.36% 19,644,000
Liabilities in excess of other assets - (0.36%) (69,576)
-------------
-------------
NET ASSETS - 100.0% $19,574,424
-------------
</TABLE>
Percentages indicated are based on net assets of $19,574,424
(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 June 30, 1998.
See notes to financial statements
13
<PAGE> 15
[Rothschild Asset Management Logo]
INTERNATIONAL CURRENCY FUND
POUND STERLING PORTFOLIO
Portfolio of Investments (unaudited) June 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION RATE MATURITY MOODYS/ AMORTISED
AMOUNT DATE S&P (A) COST
TIME DEPOSITS - 22.91%
BANKS
<S> <C>
6,000,000 Bank of Montreal 7.31% 07/01/98 P1/A1+ 6,000,000 (pound sterling)
6,000,000 Commerzbank 7.25% 07/01/98 P1/A1+ 6,000,000
6,000,000 Dresdner Bank 7.25% 07/01/98 P1/A1+ 6,000,000
5,391,000 Republic National Bank, New York 7.25% 07/01/98 P1/A1+ 5,391,000
6,000,000 Westdeutsche Landesbank 7.25% 07/01/98 P1/A1+ 6,000,000
-----------
TOTAL TIME DEPOSITS 29,391,000
-----------
COMMERCIAL PAPER - 4.65%
FINANCIAL SERVICES
6,000,000 Sigma Finance 7.00% 07/01/98 P1/A1+ 5,967,661
-----------
TOTAL COMMERCIAL PAPER 5,967,661
-----------
REPURCHASE AGREEMENTS - 72.48%
31,000,000 CSFB London, dated 06/30/98, with a
maturity value of 31,006,285 (pound
sterling) (Collateralised by
26,461,000 (pound sterling) (par
value) UK Treasuries due 09/25/09,
with a market value of 31,000,000)
(pound sterling) P1/A1+ 31,000,000
30,999,999 Goldman Sachs, dated 06/30/98, with a maturity
value of 31,005,987 (pound sterling)
(Collateralised by 29,459,279 (pound
sterling) (par value) UK Treasuries due
06/10/03, with a market value of 30,999,999)
(pound sterling) P1/A1+ 30,999,999
31,000,000 UBS, dated 06/30/98, with a maturity
value 31,006,030 (pound sterling)
(Collateralised by 26,461,000 (pound
sterling) (par value) UK Treasuries
due 03/01/99, with a market value of
31,712,657) (pound sterling) P1/A1+ 31,000,000
-----------
92,999,999 (pound sterling)
-----------
Total Investments at Amortised Cost - 100.04% 128,358,660
Other assets in excess of liabilities - (0.04%) (46,657)
-----------
NET ASSETS - 100.0% 128,312,003 (pound sterling)
-----------
</TABLE>
Percentages indicated are based on net assets of 128,312,003 (pound sterling)
(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 June 30, 1998.
See notes to financial statements
14
<PAGE> 16
[Rothschild Asset Management Logo]
INTERNATIONAL CURRENCY FUND
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
(local currencies) As at June 30, 1998
<TABLE>
<CAPTION>
United States Pound Sterling Canadian Dollar Deutschemark
Dollar Portfolio Portfolio Portfolio*** Portfolio***
$ (pound sterling) C$ Dem
ASSETS:
<S> <C> <C> <C> <C>
Investments in securities, at amortised cost 19,644,000 128,358,660 -- --
(cost $19,644,000 and 128,358,660 (pound sterling)
C$0 and Dem) respectively, including Repurchase
Agreements of $4,800,000 and 92,999,999)
(pound sterling)
Deferred organisational costs 49,230 30,959 100,000 121,000
Cash -- -- 10 10
Interest receivable 4,136 24,227 -- --
-------------------------------------------------------------------------
Total Assets 19,697,366 128,413,846 100,010 121,010
-------------------------------------------------------------------------
LIABILITIES:
Amounts payable to Manager 60,030 45,000 100,000 121,000
Administration fees payable 2,348 5,184 -- --
Advisory fees payable -- 33,943 -- --
Legal fees payable 6,632 1,775 -- --
Audit fees payable 3,400 2,951 -- --
Custody fees payable 4,311 5,793 -- --
Other accrued expenses 46,221 7,197 -- --
-------------------------------------------------------------------------
Total Liabilities 122,942 101,843 100,000 121,000
-------------------------------------------------------------------------
NET ASSETS, JUNE 30, 1998 19,574,424 128,312,003 10 10
-------------------------------------------------------------------------
</TABLE>
*** not yet commenced operations
See notes to financial statements
15
<PAGE> 17
[Rothschild Asset Management Logo]
INTERNATIONAL CURRENCY FUND
STATEMENTS OF OPERATIONS (UNAUDITED)
(local currencies) For the period ended June 30, 1998
<TABLE>
<CAPTION>
United States Pound Sterling Canadian Dollar Deutschemark
Dollar Portfolio Portfolio Portfolio*** Portfolio***
$ (pound sterling) C$ Dem
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income 1,694,562 4,444,890 -- --
-----------------------------------------------------------------
TOTAL INCOME 1,694,562 4,444,890 -- --
-----------------------------------------------------------------
EXPENSES:
Advisory fees 60,169 122,087 -- --
Administration fees 15,042 30,522 -- --
Trustee fees 32,757 18.824 -- --
Legal fees 17,721 11,222 -- --
Amortization of organization costs 10,800 4,500 -- --
Audit fees 7,339 3,801 -- --
Fund accounting fees and expenses 6,017 12,209 -- --
Custodian fees and expenses 3,009 6,104 -- --
Other operating expenses 9,310 7,992 -- --
-----------------------------------------------------------------
TOTAL EXPENSES 162,164 21217,261 -- --
Fee waivers (60,169) (79,357) -- --
-----------------------------------------------------------------
TOTAL NET EXPENSES 101,995 137,904 -- --
-----------------------------------------------------------------
NET INVESTMENT INCOME 1,592,567 4,306,986 -- --
-----------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,592,567 4,4,306,986 -- --
-----------------------------------------------------------------
</TABLE>
*** not yet commenced operations
See notes to financial statements
16
<PAGE> 18
[Rothschild Asset Management Logo]
INTERNATIONAL CURRENCY FUND
STATEMENT OF CHANGES IN NET ASSETS
UNITED STATES DOLLAR PORTFOLIO
<TABLE>
<CAPTION>
For the period
from March 26, 1997
For the six months (commencement of
ended June 30, 1998 operations) to
(unaudited) December 31, 1997
$ $
INCREASE IN NET ASSETS FROM:
<S> <C> <C>
OPERATIONS:
Net investment income 1,592,567 1,490,078
------------ -------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 1,592,567 1,490,078
------------ -------------
CAPITAL TRANSACTIONS:
Contributions 169,773,940 177,719,547
Withdrawals (205,819,524) (125,182,184)
------------ -------------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS (36,045,584) 52,537,363
------------ -------------
CHANGE IN NET ASSETS (34,453,017) 54,027,441
------------ -------------
NET ASSETS:
Beginning of period 54,027,441 --
------------ -------------
End of period 19,574,424 54,027,441
------------ -------------
</TABLE>
See notes to financial statements
17
<PAGE> 19
[Rothschild Asset Management Logo]
INTERNATIONAL CURRENCY FUND
STATEMENT OF CHANGES IN NET ASSETS
POUND STERLING PORTFOLIO
<TABLE>
<CAPTION>
For the period
from March 26, 1997
For the six months (commencement of
ended June 30, 1998 operations) to
(unaudited) December 31, 1997
(pound sterling) (pound sterling)
INCREASE IN NET ASSETS FROM:
<S> <C> <C>
OPERATIONS:
Net investment income 4,306,986 4,780,468
---------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 4,306,986 4,780,468
---------------------------------------
CAPITAL TRANSACTIONS:
Contributions 65,708,956 182,128,181
Withdrawals (69,741,841) (58,870,747)
---------------------------------------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS (4,032,885) 123,257,434
---------------------------------------
CHANGE IN NET ASSETS 274,101 128,037,902
---------------------------------------
NET ASSETS:
Beginning of period 128,037,902 --
---------------------------------------
End of period 128,312,003 128,037,902
---------------------------------------
</TABLE>
See notes to financial statements
18
<PAGE> 20
[Rothschild Asset Management 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 "Act"),
as an open-end management investment company. At June 30 1998 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 Dollar 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. Pursuant to an agreement
dated June 19, 1998 it is proposed that the investment advisory service be
transferred to State Street Bank and Trust Company. 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
theis 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.
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 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.
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
Portfolios will be managed in such a way that an investor will be able to
satisfy the requirements of U.S. Internal Revenue code applicable to regulated
investment companies.
19
<PAGE> 21
[Rothschild Asset Management Logo]
INTERNATIONAL CURRENCY FUND
NOTES TO FINANCIAL STATEMENTS
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 June 30, 1998, 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 $60,169
- --------------------------------------------------------------------
Pound Sterling 122,087 (pound sterling)
- --------------------------------------------------------------------
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 June 30, 1998 BISYS earned the following fees as Administrator for
each Portfolio.
- --------------------------------------------------------------------
United States Dollar $15,042
- --------------------------------------------------------------------
Pound Sterling 30,522 (pound sterling)
- --------------------------------------------------------------------
Canadian Dollar Nil
- --------------------------------------------------------------------
Deutschemark Nil
- --------------------------------------------------------------------
In addition BISYS earned the following amounts for the period ended June 30,
1998 for providing fund accounting services on a daily basis to each Portfolio.
- --------------------------------------------------------------------
United States Dollar $6,017
- --------------------------------------------------------------------
Pound Sterling 12,209 (pound sterling)
- --------------------------------------------------------------------
Canadian Dollar Nil
- --------------------------------------------------------------------
Deutschemark Nil
- --------------------------------------------------------------------
NOTE 4 - TRUSTEES AND OFFICERS COMPENSATION
For the six months ended June 30, 1998 the Portfolio Trust paid US$32,757 and
18,824 (pound sterling) in total to the Trustees of each 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, 1998, each Portfolio purchased and matured
portfolio securities, in the following amounts:
<TABLE>
<CAPTION>
Purchases Maturities
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States
Dollar Portfolio $4,587,615,164 $4,622,186,000
- -------------------------------------------------------------------------------------------------------------
Pound Sterling
Portfolio 7,659,942,670 (pound sterling) 7,684,812,951 (pound sterling)
- -------------------------------------------------------------------------------------------------------------
Canadian Dollar
Portfolio nil nil
- -------------------------------------------------------------------------------------------------------------
Deutschemark
Portfolio nil nil
- -------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 22
[Rothschild Asset Management Logo]
INTERNATIONAL CURRENCY FUND
FINANCIAL HIGHLIGHTS
UNITED STATES DOLLAR PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MARCH 26, 1997
FOR THE SIX MONTHS (COMMENCEMENT OF
ENDED JUNE 30, 1998 OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1997
$ $
RATIOS/SUPPLEMENTAL DATA:
<S> <C> <C> <C>
Net assets, end of period ('000) $19,574 $54,027
Ratio of expenses to average net assets after waivers and reimbursements 0.36% (b) 0.65%(b)
Ratio of net investment income to average net assets 5.62%(b) 4.93%(b)
Ratio of expenses to average net assets (a) 0.56%(b) 0.85%(b)
Ratio of net investment income to average net assets (a) 5.42%(b) 4.73%(b)
</TABLE>
(a) During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions and expense reimbursements had not occurred the ratios
would have been as indicated.
(b) Annualized
See notes to financial statements
21
<PAGE> 23
[Rothschild Asset Management Logo]
INTERNATIONAL CURRENCY FUND
FINANCIAL HIGHLIGHTS
POUND STERLING PORTFOLIO
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MARCH 26, 1997
FOR THE SIX MONTHS (COMMENCEMENT OF
ENDED JUNE 30, 1998 OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1997
(POUND STERLING) (POUND STERLING)
<S> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period ('000) 128,312 (pound sterling) 128,038 (pound sterling)
Ratio of expenses to average net assets after waivers and reimbursements 0.22%(b) 0.24%(b)
Ratio of net investment income to average net assets 6.88%(b) 6.56%(b)
Ratio of expenses to average net assets (a) 0.35%(b) 0.41%(b)
Ratio of net investment income to average net assets (a) 6.75%(b) 6.38%(b)
</TABLE>
(a) During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions and expense reimbursements had not occurred the ratios
would have been as indicated.
(b) Annualized
See notes to financial statements
22
<PAGE> 24
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
PriceWaterhouseCoopers
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$1.00/1.00(pound sterling)/DM 1/C$1.00 per share.
<PAGE> 25
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