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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 21, 1998
File No. 811-07773
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
INTERNATIONAL CURRENCY FUND
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (809) 949-2001
Charles L. Booth
International Currency Fund
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Services)
With a copy to:
Geoffrey R.T. Kenyon, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
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Dated September 21, 1998
EXPLANATORY NOTE
This Registration Statement on Form N-1A (the "Registration
Statement") has been filed by the Registrant pursuant to Section 8(b) of the
Investment Company Act of 1940, as amended. However, beneficial interests in
the series of the Registrant are not being registered under the Securities Act
of 1933, as amended (the "1933 Act"), because such interests will be issued
solely in transactions that are exempt from registration under the 1933 Act.
Investments in the Registrant's series may only be made by investment
companies, insurance company separate accounts, common or commingled trust
funds or similar organizations or entities that are "accredited investors"
within the meaning of Regulation D under the 1933 Act. The Registration
Statement does not constitute an offer to sell, or the solicitation of an
offer to buy, any beneficial interests in any series of the
Registrant.
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INTERNATIONAL CURRENCY FUND
PART A
THIS PART A DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, ANY BENEFICIAL INTERESTS IN THE INTERNATIONAL CURRENCY FUND.
Response to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4 GENERAL DESCRIPTION OF REGISTRANT.
International Currency Fund (the "Portfolio Trust") is an open-end
management investment company which is a Delaware business trust, which is
governed by the laws of the State of Delaware and was created on August 13,
1996. Beneficial interests in the Portfolio Trust are divided into separate
sub-trusts or series, each having distinct investment objectives and policies,
which are the U.S. Dollar Portfolio, the Pound Sterling Portfolio, the
Deutschemark Portfolio and the Canadian Dollar Portfolio (the "Portfolios").
Beneficial interests in each Portfolio are issued solely in transactions that
are exempt from registration under the Securities Act of 1933 (the "1933 Act").
Investments in the Portfolio Trust may only be made by investment companies,
insurance company separate accounts, common or commingled trust funds or
similar organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This Registration Statement does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
The Portfolios' investment objectives are to seek to maintain a high
level of liquidity, preserve capital and stability of principal expressed in the
Portfolio's designated currency ("Designated Currency") and, consistent with
those objectives, earn current income. The Portfolios will seek to achieve their
investment objectives primarily through investing in a portfolio of high
quality, short-term instruments denominated in the Portfolio's Designated
Currency. Because of the uncertainty inherent in all investments, no assurance
can be given that the Portfolio will achieve its investment objectives.
The investment objectives of a Portfolio are not fundamental policy
and may be changed upon notice to, but without the approval of, the
Portfolio's investors. Investment policies which are not fundamental policies
may be changed by the Trustees of the Portfolio Trust, without the approval of
the Portfolios' investors. The Portfolios' investment policies are described
further in Part B.
INVESTMENT POLICIES AND RESTRICTIONS
Except as otherwise provided below, the Portfolios' investment policies
are not "fundamental policies" within the meaning of the 1940 Act and may,
therefore, be changed by the Portfolio Trust's Board of Trustees without a
shareholder vote.
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U.S. DOLLAR PORTFOLIO
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The U.S. Dollar Portfolio's investment objective is to seek to maintain
a high level of liquidity, to preserve capital and stability of principal
expressed in U.S. Dollars and, consistent with those objectives, earn current
income. The U.S. Dollar Portfolio will invest in securities issued or
guaranteed as to principal and interest by the U.S. Government or its agencies
or instrumentalities or by foreign governments or Supranational Organizations
(such as the World Bank, the Inter-American Development Bank, the Asian
Development Bank and the European Bank for Reconstruction and Development) as
well as high-quality, short-term money market instruments such as bank
certificates of deposit, bankers' acceptances, and such short-term corporate
debt securities as commercial paper and master demand notes.
The U.S. Dollar Portfolio invests only in U.S. dollar-denominated high
quality securities as described in this paragraph. All of the U.S. Dollar
Portfolio's assets will consist of government securities and "first tier"
eligible securities as defined in Rule 2a-7 under the 1940 Act, which have been
(i) rated by at least two United States nationally recognized statistical rating
organizations ("NRSRO"s), such as Standard & Poor's Corporation or Moody's
Investors Service, Inc., in the highest rating category for short-term
obligations (or so rated by one such organization if it alone has rated the
security), (ii) issued by an issuer with comparable short-term obligations
that are rated in the highest rating category, or (iii) if unrated, determined
to be comparable to such securities. See Part B.
All securities in which the U.S. Dollar Portfolio invests have
remaining maturities of thirteen months or less at the date of acquisition. The
U.S. Dollar Portfolio also maintains a dollar-weighted average portfolio
maturity of 90 days or less. The U.S. Dollar Portfolio follows these policies in
seeking to maintain a constant net asset value of $1.00 per share, although
there is no assurance it can do so on a continuing basis.
The U.S. Dollar Portfolio may invest in U.S. dollar-denominated high
quality corporate debt securities such as commercial paper and bonds and
long-term unsecured debentures with remaining maturities of thirteen months or
less. These investments may include, for example, obligations issued by U.S. and
foreign corporations, Eurodollar bonds (which are U.S. dollar-denominated
obligations of foreign issuers), and Yankee bonds (which are U.S.
dollar-denominated bonds issued by foreign issuers in the U.S.). Under normal
market conditions, the U.S. Dollar Portfolio will have more than 25% of its
total assets invested in the obligations of issuers in the banking industry. See
"Special Investment Considerations and Risk Factors -- Concentration in
Obligations of Qualifying Banks." For further information concerning debt
securities ratings and permissible money market investments of the U.S. Dollar
Portfolio, see Part B.
Securities issued or guaranteed as to principal and interest by the
U.S. Government or its agencies or instrumentalities in which the U.S. Dollar
Portfolio may invest include direct obligations of the U.S. Treasury, including
bills, bonds and notes; and obligations issued or guaranteed as to principal and
interest by U.S. Government agencies or instrumentalities and supported by any
of (i) the full faith and credit of the U.S. Treasury (e.g., Government National
Mortgage Association participation certificates); (ii) the right of the issuer
to borrow a limited amount from the U.S. Treasury (e.g., securities of the
Farmers Home Administration); (iii) the discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality
(e.g., securities of the Federal National Mortgage Association); or (iv) the
credit of the agency or instrumentality (e.g., securities of a Federal Home Loan
Bank).
POUND STERLING PORTFOLIO
The Pound Sterling Portfolio's investment objective is to seek to
maintain a high level of liquidity, to preserve capital and stability of
principal expressed in Pounds Sterling and, consistent with those objectives,
earn current income. The Pound Sterling Portfolio will invest in securities
issued or guaranteed as to principal and interest by the United Kingdom ("U.K.")
Government, local authorities, city corporations and county councils or their
agencies or by non-U.K. governments or Supranational Organizations as well as
high-quality,
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short-term money market instruments such as bank certificates of deposit,
bankers' acceptances and such short-term corporate debt securities as commercial
paper.
The Pound Sterling Portfolio invests only in Pound Sterling-
denominated high quality securities as described in this paragraph. The Pound
Sterling Portfolio assets will consist of U.K. government securities and other
securities, which have been (i) rated by at least two NRSROs in the highest
rating category for short-term obligations (or so rated by one such
organization if it alone has rated the security), (ii) issued by an issuer with
comparable short-term obligations that are rated in the highest rating
category, or (iii) if unrated, determined to be comparable to thirteen months.
All securities in which the Pound Sterling Portfolio invests have
remaining maturities of thirteen months or less at the date of acquisition. The
Pound Sterling Portfolio also maintains a value-weighted average portfolio
maturity of 90 days or less. The Pound Sterling Portfolio follows these
policies in seeking to maintain a constant net asset value of (pound)1.00 per
share, although there is no assurance it can do so on a continuing basis.
The Pound Sterling Portfolio may invest in Pound Sterling-denominated
high quality corporate debt securities such as commercial paper and bonds and
long-term unsecured debentures with remaining maturities of thirteen months or
less. Under normal market conditions, the Pound Sterling Portfolio will have
more than 25% of its total assets invested in the obligations of issuers in
the banking industry. See "Special Investment Considerations and Risk Factors --
Concentration in Obligations of Qualifying Banks."
DEUTSCHEMARK PORTFOLIO
The Deutschemark Portfolio's investment objective is to seek to
maintain a high level of liquidity, to preserve capital and stability of
principal expressed in Deutschemarks and, consistent with those objectives, earn
current income. The Deutschemark Portfolio will invest in securities issued or
guaranteed as to principal and interest by the German Government, by its
sub-divisions or their agencies or by non-German governments or Supranational
Organizations, as well as high-quality, short-term money market instruments such
as bank certificates of deposit and such short-term corporate debt securities
as commercial paper.
The Deutschemark Portfolio invests only in Deutschemark-denominated
high quality securities as described in this paragraph. The Deutschemark
Portfolio's assets will consist of German government securities and other
securities, which have been (i) rated by at least two NRSROs in the highest
rating category for short-term obligations (or so rated by one such
organization if it alone has rated the security), (ii) issued by an issuer
with comparable short-term obligations that are rated in the highest rating
category, or (iii) if unrated, determined to be comparable to such securities.
All securities in which the Deutsche Mark Portfolio invests have
remaining maturities of thirteen months or less at the date of acquisition. The
Deutschemark Portfolio also maintains a value-weighted average portfolio
maturity of 90 days or less. The Deutschemark Portfolio follows these policies
in seeking to maintain a constant net asset value of DM1.00 per share, although
there is no assurance it can do so on a continuing basis.
The Deutschemark Portfolio may invest in Deutschemark-denominated high
quality corporate debt securities such as commercial paper and bonds and
long-term unsecured debentures with remaining maturities of thirteen months or
less. Under normal market conditions, the Deutschemark Portfolio will have
more than 25% of its total assets invested in the obligations of issuers in
the banking industry. See "Special Investment Considerations and Risk Factors --
Concentration in Obligations of Qualifying Banks."
CANADIAN DOLLAR PORTFOLIO
The Canadian Dollar Portfolio's investment objective is to seek to
maintain a high level of liquidity, to preserve capital and stability of
principal expressed in Canadian Dollars and, consistent with those objectives,
earn current income. The Canadian Dollar Portfolio will invest in securities
issued or guaranteed as to principal and interest by the Canadian Government,
the Provinces of Canada, or their agencies or by non-Canadian
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governments or Supranational Organizations as well as high-quality, short-term
money market instruments such as bank certificates of deposit and such
short-term corporate debt securities as commercial paper.
The Canadian Dollar Portfolio invests only in Canadian
Dollar-denominated high-quality securities as described in this paragraph. The
Canadian Dollar Portfolio's assets will consist of Canadian government
securities and other securities which have been (i) rated by at least two
NRSROs in the highest rating category for short-term obligations (or so rated
by one such organization if it alone has rated the security), (ii) issued by an
issuer with comparable short-term obligations that are rated in the highest
rating category by an NRSO, or (iii) if not rated by an NRSO, determined to be
comparable to such securities. Presently many high quality Canadian
Dollar-denominated securities are rated only by one or more Canadian rating
organizations, rather than by the U.S. rating organizations which qualify as
NRSROs. Accordingly, the Investment Adviser anticipates that many of the
securities held by the Canadian Dollar Portfolio will be securities which are
not rated by an NRSRO but are determined to be comparable to high quality
NRSRO-rated securities. In making this determination the Investment Adviser may
rely upon ratings given by one or more Canadian rating organizations. For
further information concerning the ratings given by Canadian rating
organizations, see Part B.
All securities in which the Canadian Dollar Portfolio invests have
remaining maturities of thirteen months or less at the date of acquisition. The
Canadian Dollar Portfolio also maintains a value-weighted average portfolio
maturity of 90 days or less. The Canadian Dollar Portfolio follows these
policies in seeking to maintain a constant net asset value of C$1.00 per share,
although there is no assurance it can do so on a continuing basis.
The Canadian Dollar Portfolio may invest in Canadian Dollar-denominated
high quality corporate debt securities such as commercial paper and bonds and
long-term unsecured debentures with remaining maturities of thirteen months or
less. Under normal market conditions, the Canadian Dollar Portfolio will have
more than 25% of its total assets invested in the obligations of issuers in
the banking industry. See "Special Investment Considerations and Risk Factors
- -- Concentration in Obligations of Qualifying Banks."
ALL PORTFOLIOS
In seeking to obtain its investment objectives, each Portfolio may
invest in the types of securities described below.
Variable and Floating Rate Notes
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Each Portfolio may purchase variable and floating rate instruments.
These instruments may include variable amount master demand notes, which are
instruments under which the indebtedness, as well as the interest rate, varies.
These securities must have the requisite credit quality (as described above) in
order to be purchased by a Portfolio. Unless guaranteed by the U.S. Government
or one of its agencies or instrumentalities, variable or floating rate
instruments purchased by the U.S. Dollar Portfolio must permit such Portfolio
to demand payment of the instrument's principal at least once every thirteen
months. Variable or floating rate instruments purchased by each of the other
Portfolios must permit such Portfolio to demand payment of the instrument's
principal at least once every 60 days. Because of the absence of a market in
which to resell a variable or floating rate instrument, a Portfolio might have
trouble selling an instrument should the issuer default or during periods when
a Portfolio is not permitted by agreement to demand payment of the instrument,
and for this or other reasons a loss could occur with respect to the
instrument.
Repurchase Agreements
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Each Portfolio may invest in repurchase agreements. A repurchase
agreement arises when an investor purchases a security and simultaneously agrees
to resell it to the counterparty on the repurchase agreement at an agreed-upon
future date, normally one day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon rate which is effective for
the period of time the investor's money is invested in the security and which is
not related to the coupon rate on the purchased security. By providing a
flexible investment vehicle, repurchase agreements permit the Portfolios to
remain fully invested pending the purchase of appropriate longer-term
investments.
The Portfolios will enter into repurchase agreements only with
financial institutions rated by an NRSRO in the highest rating category for
short-term obligations and deemed to be creditworthy by the Investment Adviser,
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pursuant to guidelines established by the Portfolio Trust's Board of Trustees.
During the term of any repurchase agreement, the Investment Adviser will monitor
the creditworthiness of the seller, and the seller must maintain the value of
the securities subject to the agreement in an amount that is greater than the
repurchase price. Default or bankruptcy of the seller would, however, expose the
Portfolios to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations. Because of the
seller's repurchase obligations, the securities subject to repurchase agreements
do not have maturity limitations.
When-Issued Securities
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Each Portfolio may purchase when-issued debt securities, which are
traded on a price or yield basis prior to actual issuance. Such purchases will
be made only to achieve the relevant Portfolio's investment objective and not
for leverage. The when-issued trading period generally lasts only from a few
days up to a month or more; during this period interest will not accrue. Such
transactions may involve a risk of loss if the value of the securities falls
below the price committed to prior to actual issuance. The Custodian will
establish a segregated account for a Portfolio when it purchases securities on a
when-issued basis consisting of cash or liquid securities equal to the amount of
the when-issued commitments.
Illiquid Securities
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Each Portfolio may invest up to 10% of its net assets in illiquid
securities (i.e. securities which a Portfolio could not reasonably expect to
sell within seven days at approximately the price at which they are valued).
Under the supervision of the Portfolio Trust's Board of Trustees the Investment
Adviser will determine the liquidity of each investment using various factors
such as (1) the frequency of trades and quotations, (2) the number of dealers
and prospective purchasers in the marketplace, (3) dealer undertakings to make a
market, (4) the nature of the security (including any demand or tender features)
and (5) the likelihood of continued marketability and credit quality of the
issuer. If they have a remaining maturity of more than seven days, time deposits
and repurchase agreements will be considered to be illiquid securities.
FUNDAMENTAL POLICIES
Each of the Portfolios have adopted certain fundamental policies which
may not be changed without the approval of that Portfolios' investors.
As a fundamental policy, no Portfolio may: (i) borrow money, except
from the Portfolio Trust's Custodian or from other banks in connection with
redemptions or for temporary or emergency purposes (borrowings by a Portfolio
may not exceed 20% of that Portfolio's net assets computed immediately after the
borrowing; no additional investments may be made while any borrowings exceed 5%
of the Portfolio's total assets), or (ii) make any investment which would cause
more than 25% of the value of such Portfolio's total assets to be invested in
securities of nongovernmental issuers principally engaged in any one industry,
except that under normal market conditions each Portfolio will invest more than
25% of its total assets in obligations of Qualifying Banks (as defined herein).
Additional fundamental policies of the Portfolios are set forth in Part B.
If a percentage restriction, including one that is a fundamental
policy, is adhered to at the time of investment, a later increase or decrease in
percentage resulting from a change in values or assets will not constitute a
violation of that restriction.
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SPECIAL INVESTMENT CONSIDERATIONS AND RISK FACTORS
Possible Changes in Net Asset Value and Yield
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Each Portfolio seeks to maintain a constant net asset value and
generally values its investments at amortized cost. However, the value of each
Portfolio may be affected by changes in interest rates and the credit standing
of issuers of the Portfolios' investments. The value of the investments held by
each of the Portfolios generally will vary inversely with changes in prevailing
interest rates, although this variance is expected to be minimal due to the
short maturities of the instruments held by the Portfolios.
Interest rates paid on instruments denominated in a given Designated
Currency may be higher or lower than those paid on instruments denominated in
other Designated Currencies. Investors should recognize that in periods of
declining short-term interest rates the inflow of net new money to a Portfolio
from the continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of such Portfolio's
investment portfolio, thereby reducing the current yield of the Portfolio. In
the periods of rising interest rates, the opposite can be true. The securities
in which the Portfolios invest may not produce as high a level of income as
could be obtained from securities with longer maturities or those having a
lesser degree of safety.
Investments in a Single Issuer
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Each Portfolio other than the U.S. Dollar Portfolio is non-diversified
under the 1940 Act. These Portfolios intend to comply, however, with the
diversification requirements applicable to regulated investment companies under
the United States Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"). Currently, those requirements provide that, as of the
last day of each fiscal quarter, each Portfolio's investments in the securities
of any one issuer must be limited to 25% of its total assets, provided that
with respect to at least 50% of its total assets, a Portfolio may not (a) have
invested more than 5% of its total assets in the securities of any one issuer
or (b) have invested more than 10% of the outstanding voting securities of any
one issuer. To the extent a Portfolio is not diversified under the 1940 Act, it
may be more susceptible than a fully diversified Portfolio to adverse
developments affecting a single issuer.
In addition to the foregoing, each of the Portfolios has adopted a
non-fundamental investment restriction which prevents it from investing (i) more
than 5% of the value of its total assets in the securities of any one issuer
(other than repurchase agreements and securities issued by its Designated
Government and certain of such government's agencies and instrumentalities) or
(ii) more than 25% of the value of its total assets in repurchase agreements
with one counterparty. Securities held solely as collateral for outstanding
repurchase agreements shall be excluded for purposes of computing compliance
with restriction (i). These restrictions may be eliminated or modified at any
time by the Trustees of the Portfolio Trust without a shareholder vote.
Concentration in Obligations of Qualifying Banks
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Under normal market conditions, each Portfolio will have more than 25%
of its total assets invested in obligations of Qualifying Banks. For the
purposes of this Part A, Qualifying Banks are defined as U.S.
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banks (including savings banks or savings and loan associations) that are
members of the Federal Deposit Insurance Corporation ("FDIC") and "foreign
banks," as defined in Rule 3a-6 under the 1940 Act, provided that any such
institution has, at the date of investment, capital, surplus and undivided
profits (as of the date of its most recently published financial statements) in
excess of U.S.$100,000,000 or the non-U.S. dollar equivalent, as the case may
be. This concentration may result in increased exposure to risks pertaining to
the banking industry. These risks include: a sustained increase in interest
rates, which can adversely affect the availability and cost of funds for a
bank's lending activities; exposure to credit losses during times of economic
decline; concentration of loan portfolios in certain industries; national and
local regulatory developments; and competition within the banking industry as
well as from other financial institutions. In addition, investments in banks
located in foreign countries are subject to risks resulting from the combination
in those banks of banking and securities underwriting and similar activities.
Investments in Foreign Securities
- ---------------------------------
Investing in securities issued by entities domiciled in a country other
than an investor's country of residence or denominated in a currency other than
the currency of the investor's country of residence may involve considerations
and possible risks and opportunities not typically encountered by the investor
in making investments in its country of residence and in securities denominated
in that country's currency. These considerations include favorable or
unfavorable changes in interest rates, currency exchange rates and exchange
control regulations, and the costs that may be incurred in connection with
conversions between various currencies. In addition, investments in countries
other than the United States could be affected by other factors generally not
thought by investors to be present in the United States, including less liquid
and efficient securities markets, greater price volatility, less publicly
available information about issuers, the imposition of withholding or other
taxes, restrictions on the expatriation of funds or other assets of a Portfolio,
expropriation of assets, adverse diplomatic developments, higher transaction and
custody costs, delays attendant in settlement procedures and difficulties in
enforcing contractual obligations.
Regulatory Status
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On September 26, 1997, the Portfolio Trust received a "no-action"
letter from the Division of Investment Management of the Securities and Exchange
Commission which permits the Pound Sterling Portfolio, the Deutsche Mark
Portfolio, and the Canadian Dollar Portfolio (the "Foreign Currency Portfolios")
to hold themselves out and otherwise operate as "money market funds" for
purposes of compliance with Rule 2a-7 under the 1940 Act and for purposes of all
other rules under the 1940 Act and all other rules and forms under the
Securities Act of 1933, as amended, that are applicable to "money market funds."
Notwithstanding the foregoing, the Foreign Currency Portfolios generally will
not be "money market funds" for purposes of the investment restrictions
applicable to other registered investment companies. Other entities whose
investment activities are regulated, such as banks and insurance companies
should consult their legal advisers before concluding that the Foreign Currency
Portfolios will be considered "money market funds" under any applicable
restriction.
ITEM 5. MANAGEMENT
TRUSTEES
The Portfolios' are a separate investment series of the Portfolio
Trust, a Delaware business trust governed by the laws of the State of Delaware.
Under the terms of the Declaration of Trust, the affairs of the Portfolio are
managed under the supervision of the Trustees of the Portfolio Trust.
A majority of the Trustees who are not "interested persons" (as defined
in the 1940 Act) of the Portfolio Trust, as the case may be, have adopted
written procedures reasonably appropriate to deal with potential conflicts of
interests arising from the fact that the same individuals are trustees of the
Portfolio Trust and an investor in the Portfolio Trust, up to and including
creating separate boards to trustees. See "Management" in Part B for more
information about the Trustees and officers of the Portfolio Trust.
INVESTMENT ADVISER
Effective September 22, 1998, State Street Bank and Trust Company (the
"Investment Adviser" or "State Street"), 225 Franklin Street, Boston, MA 02110,
through its division State Street Global Advisors, furnishes investment services
to the Portfolios pursuant to an Advisory Agreement and manages the Portfolios'
investments and affairs subject to the
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supervision of the Trustees of the Portfolio Trust. In consideration for its
services to the Portfolios, the Portfolio Trust has agreed to pay the Investment
Adviser an annual advisory fee with respect to each Portfolio. The advisory fee
for each Portfolio is calculated daily and payable monthly at an annual rate of
up to .25% of average daily net assets.
State Street is one of the largest providers of securities processing
and recordkeeping services for US mutual funds and pension funds. State Street
Global Advisors is the investment management business of State Street, a 200
year old pioneer and leader in the world of financial services. State Street
Global Advisors is a wholly owned subsidiary of State Street Corporation a
publicly held bank holding company. State Street, with over $430 billion (US)
under management as of August 10, 1998, provides complete global investment
management services from offices in Atlanta; Boston; Brussels; Clearwater,
Florida; Dubai; Geneva; Hong Kong; London; Prague; Minneapolis; Montpellier;
Montreal; Munich; Paris; San Francisco; Santiago; Sydney; Tokyo; Toronto;
Vienna; and Zurich.
The Glass-Steagall Act prohibits a depository state chartered bank such
as the Investment Adviser from engaging in the business of issuing,
underwriting, selling or distributing certain securities. Any activities of the
Investment Adviser in informing its customers of the Portfolios, performing
investment and redemption services and providing custodian, transfer,
shareholder servicing, dividend disbursing and investment advisory services may
raise issues under these provisions. The Investment Adviser has been advised by
its counsel that its activities in connection with the Fund are consistent with
its statutory and regulatory obligations. The shares offered by this Prospectus
are not endorsed or guaranteed by State Street or its affiliates, are not
deposits or obligations of State Street or its affiliates, and are not insured
by the Federal Deposit Insurance Corporation or any other governmental agency.
Changes in federal or state statutes and regulations relating to the
permissible activities of banks and their affiliates, as well as judicial or
administrative decisions or interpretations of such or future statutes and
regulations, could prevent the Investment Adviser from continuing to perform all
or a part of the above services for its customers and/or the Fund. If the
Investment Adviser were prohibited from serving the Fund in any of its present
capacities, the Board of Trustees would seek an alternative provider(s) of such
services. In such event, changes in the operation of the Fund may occur. It is
not expected by the Investment Adviser that existing shareholders would suffer
any adverse financial consequences (if another advisor with equivalent abilities
is found) as a result of any of these occurrences.
Under State Street Global Advisors' Code of Ethics, State Street Global
Advisors' employees in Boston (where investment management operations are
conducted) who are deemed to have access to management information are only
permitted to engage in personal securities transactions which do not involve
securities which the Investment Adviser had recommended for purchase or sale, or
purchased or sold, on behalf of its clients. Such employees must report their
personal securities transactions quarterly and supply broker confirmations to
the Investment Adviser.
ADMINISTRATOR OF THE PORTFOLIO
BISYS Fund Services Limited Partnership, a wholly-owned subsidiary of
the BISYS Group, Inc. serves as the administrator to the Portfolio (the
"Administrator") pursuant to a written administration agreement with the
Portfolio Trust on behalf of each Portfolio. The Administrator provides the
Portfolio Trust with office space and with certain clerical services and
facilities. The Administrator receives a fee calculated daily and paid monthly
at an annual rate of .05% of the average daily net assets of all of the
Portfolios from the Portfolios for its services to the Portfolio Trust.
EXPENSES
The Portfolios are responsible for all of its costs and expenses not
expressly stated to be payable by Investment Adviser, the Administrator or the
Custodian. Among other expenses, the Portfolios pay investment advisory fees;
bookkeeping, share pricing and custodian fees and expenses; expenses of notices
and reports to interest holders. The Portfolios will also pay legal and auditing
fees; any registration and reporting fees and expenses; and Trustees, fees and
expenses. Expenses of the Portfolio Trust which relate to more than one of the
Portfolios are allocated among such Portfolios by the Investment Adviser and the
Portfolio Trust in an equitable manner, primarily on the basis of relative net
asset values.
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ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
Under the Portfolio Trust's Declaration of Trust, the Trustees are
authorized to issue beneficial interests in separate series of the Portfolio
Trust. Each investor is entitled to a vote in proportion to the amount of its
investment in a Portfolio. Investments in the Portfolios may not be transferred,
but an investor may withdraw all or any portion of his investment at any time at
net asset value. Investors in the Portfolios will not be liable for the
obligations of the Portfolios although they will bear the risk of loss of their
entire respective interests in the Portfolios in which they invest. However,
there is a risk that interest-holders in the Portfolios may be held personally
liable as partners for the Portfolios obligations. Because the Portfolio Trust's
Declaration of Trust disclaims interest-holder liability and provides for
indemnification against such liability, the risk of an investor in the
Portfolios incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and a Portfolio itself
was unable to meet its obligations.
Each Portfolio intends to pay redemption proceeds in cash for all
interests redeemed, but, under certain conditions, each Portfolio may make
payment wholly or partly in portfolio securities. In addition, the Portfolio
Trust has elected to be governed by the provisions of Rule 18f-1 under the 1940
Act which limits each Portfolio's obligation to make cash redemption payments to
any investor during any 90 day period to the lesser of $250,000 or 1% of such
Portfolio's net asset value at the beginning of such period.
The Portfolio Trust reserves the right to create and issue any number
of series, in which case investments in each series would participate equally in
earnings and assets of the particular series. Currently, the Portfolio Trust has
four series: the U.S. Dollar Portfolio, the Pound Sterling Portfolio, the
Deutschemark Portfolio and the Canadian Dollar Portfolio.
Investments in the Portfolios have no pre-emptive or conversion rights
and are fully paid and non-assessable, except as set forth above. The Portfolio
Trust is not required and has no current intention to hold annual meetings of
investors, but the Portfolio Trust will hold special meetings of investors when
in the judgment of the Trustees it is necessary or desirable to submit matters
for an investor vote. Changes in fundamental policies will be submitted to
investors for approval. Investors have under certain circumstances (e.g. upon
application and submission of certain specified documents to the Trustees by a
specified percentage of the aggregate value of the Portfolio Trust's outstanding
interests) the right to communicate with other investors in connection with
requesting a meeting of investors for the purpose of removing one or more
Trustees. Investors also have the right to remove one or more Trustees without a
meeting by a declaration in writing by a specified number of investors. Upon
liquidation of a Portfolio, investors in that Portfolio would be entitled to
share pro rata in the net assets of the Portfolio available for distribution to
investors.
As of the close of business on August 31, 1998, SSgA Cash Management
Fund plc, an Irish umbrella company (the "Irish Company") consisting of numerous
classes of shares of beneficial interest categorized as sub-funds (the "Irish
Funds"), owned substantially all of the outstanding interests of the Portfolios.
Because each Irish Fund controls its corresponding Portfolio, it may take
actions without the approval of any other investor in such Portfolio.
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Inquiries concerning the Portfolios should be made by contacting the
Portfolios at the Portfolio Trust's registered office in care of the
Administrator.
Please see Item 7 for a discussion of the Portfolios' dividend
policies.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.
Beneficial interests in the Portfolios are issued solely in
transactions that are exempt from registration under the 1933 Act. See "General
Description of Registrant" above.
An investment in the Portfolios may be made without a sales load by
certain eligible investors. All investments are made at the net asset value next
determined after an order and payment for the investment is received by the
Portfolio Trust or its agent by the designated cutoff time for each investor.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in disbursable funds in the relevant Portfolio's
Designated Currency (i.e., monies credited to the account of the Portfolio
Trust's custodian bank by a designated bank.)
The net asset value per share of each Portfolio, expressed in the
relevant Designated Currency, is determined by dividing the value of the
Portfolio's net assets (i.e., the value of its investments, including accrued
but undistributed net investment income, less liabilities) by the total number
of shares of the Portfolio outstanding. Such net asset values are determined
once every Trust Business Day at 2:00 p.m. U.S. Eastern Time for the U.S. Dollar
and Canadian Dollar Portfolios, 9:00 a.m. U.S. Eastern Time for the Pound
Sterling Portfolio and noon U.S. Eastern Time for the Deutschemark Portfolio. A
"Portfolio Trust Business Day" is defined as any day on which the New York Stock
Exchange (the "Exchange") is open for trading or banks in New York City are open
for business from 9:00 a.m. to 5:00 p.m. U.S. Eastern Time ("Portfolio Trust
Hours of Operation"). Thus, the Trust will be open for business every day except
for Saturdays, Sundays and holidays which are observed by both the Exchange and
New York City banks (scheduled holidays for 1997 are New Year's Day, President's
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day). The value of the investments held by each Portfolio is determined in its
Designated Currency once every 24 hours during Portfolio Trust Hours of
Operation. Each Portfolio seeks to maintain the following constant net asset
value per share:
U.S. Dollar Portfolio U.S. $1.00
Pound Sterling Portfolio (pound)1.00
Deutschemark Portfolio DM1.00
Canadian Dollar Portfolio C$1.00
It is anticipated that each Portfolio's assets will utilize the
amortized cost method of valuation as a reasonable means of approximating each
Portfolio's market value. This method involves valuing an instrument at its cost
and thereafter assuming a constant amortization or accretion to maturity of any
premium or discount. If at any time, however, the market value of any
Portfolio's total assets deviates more than 1/2 of 1% from their value
determined on an amortized cost basis, the Portfolio Trust's Board of Trustees
will consider whether any action should be initiated to prevent any adverse
effects on the Portfolios' shareholders. The Portfolio Trust's Board of Trustees
will monitor the use of the amortized cost method of valuation in order to
ensure that this method continues to be in the best interest of the Portfolios'
shareholders. There may be periods during which the stated value of an
instrument determined under the amortized cost method of valuation is higher or
lower than the price the Portfolio would receive if the instrument were sold,
and the accuracy of amortized cost
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valuation can be affected by changes in interest rates and the credit standing
of issuers of the Portfolio's investments. There is no assurance that the
Portfolios will maintain a stable net asset value per share.
If in the view of the Portfolio Trust's Board of Trustees it is
inadvisable to continue maintaining a constant net asset value for any
Portfolio, the Board of Trustees may discontinue using the amortized cost method
of valuation for such Portfolio. Shareholders of a Portfolio would be notified
of a decision by the Board of Trustees to discontinue the use of the amortized
cost method with respect to such Portfolio. The form of notification would
depend on the context of such a decision and could include, for example, the
mailing of written notifications and/or the issuance of a press release.
Ownership of interests in the Portfolio Trust will be reflected by
book-entry, and certificates for shares will not be issued. Investment in the
Portfolio Trust is not recommended for any investors who require a stock
certificate to evidence their shares.
Purchases of shares of a Portfolio will be effected on Portfolio Trust
Business Days in accordance with the procedures set forth below and only when
the wire system designated for use in transmitting money to the relevant
Portfolio permits the timely transmission of funds that are immediately
available to the Portfolio Trust for investment purposes ("Disbursable Funds").
Additionally, on days when the relevant trading market and/or the Portfolio
Trust's Custodian close early due to a partial holiday or otherwise, the
Portfolio Trust reserves the right to advance the times at which purchase and
redemption orders must be received.
o Purchase orders for shares of the U.S. Dollar Portfolio
received prior to 11 a.m. U.S. Eastern Time on a Portfolio
Trust Business Day will settle on that same day (or the
next New York Banking Day (as defined below) if such Portfolio
Trust Business Day is not a New York Banking Day).
o Purchase orders for shares of the Canadian Dollar Portfolio
received prior to 11 a.m. U.S. Eastern Time on a Portfolio
Trust Business Day will settle on the same day (or the next
Toronto Banking Day (as defined below) if such Portfolio
Trust Business Day is not a Toronto Banking Day).
o Purchase orders for shares of the Pound Sterling Portfolio
received prior to 5 p.m. U.S. Eastern Time on a Portfolio
Trust Business Day will settle on the following London
Banking Day (as defined below).
o Purchase orders for shares of the Deutschemark Portfolio
received prior to 10 a.m. U.S. Eastern Time on a Portfolio
Trust Business Day will settle on the following Frankfurt
Banking Day (as defined below provided however that if such a
Portfolio Trust Business Day is not a Frankfurt Banking Day,
the purchase order will settle on its second following
Frankfurt Banking Day).
If a purchase order is not received prior to the applicable time listed
above, such purchase order shall be deemed to have been received on the next
following Portfolio Trust Business Day. Investors will be entitled to any
dividends declared or income earned on the day when their purchase orders are
processed, provided that Disbursable Funds are received in the relevant
Portfolio's Designated Currency in the appropriate bank account (details of
which are set out on the Application Agreement) by the close of business on that
same day. If Disbursable Funds, with respect to any purchase order, are not
received by this time by the Portfolio Trust, the Portfolio Trust reserves the
right, in its sole discretion, (a) to accept the order and assess interest on
the overdue payment, or (b) to cancel the order, and to hold the purchaser
responsible for any loss and other costs incurred by the Portfolio Trust.
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Under the anticipated method of operation of the Portfolios, it is
expected that each Portfolio will not be subject to any U.S. federal or state
income tax. However, any investor in the Portfolios that is subject to U.S. tax
will take into account its share (as determined in accordance with the governing
instruments of the relevant Portfolio) of that Portfolio's ordinary income and
capital gain in determining its income tax liability, if any. The determination
of such share will be made in accordance with the Internal Revenue Code.
It is intended that each Portfolio's assets, income and distributions
will be managed in such a way that an investor in any Portfolio will be able to
satisfy the requirements of Subchapter M of the Internal Revenue Code, assuming
that the investor invested all of its investment securities (as such phrase is
used in the 1940 Act) in the relevant Portfolio.
A "New York Banking Day" is every day except Saturdays, Sundays and
holidays observed by New York City banks (The Portfolio Trust expects the
following holidays to be observed in 1998 and 1999 are New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day).
A "London Banking Day" is every day except Saturdays, Sundays and
holidays observed by London banks (The Portfolio Trust expects the following
holidays to be observed in 1998 and 1999 are New Year's Day, Good Friday, Easter
Monday, May Holiday, Spring Holiday, Late Summer Holiday, Christmas Day and
Boxing Day).
A "Frankfurt Banking Day" is every day except Saturdays, Sundays and
holidays observed by Frankfurt banks (The Portfolio Trust expects the following
holidays to be observed in 1998 and 1999 are New Year's Day, Epiphany, Good
Friday, Easter Monday, Labor Day, Ascension Day, Whit Monday, Corpus Christii,
Assumption Day, German Unity Day, All Saint's Day, Day of Penance, Christmas Eve
Holiday, Christmas Day, Boxing Day and New Year's Holiday).
A "Toronto Banking Day" is every day except Saturdays, Sundays and
holidays observed by Toronto banks (The Portfolio Trust expects the following
holidays to be observed in 1998 and 1999 are New Year's Day, Good Friday, Easter
Monday, Victoria Day, Canada Day, Labour Day, Thanksgiving, Remembrance Day,
Christmas Eve Holiday, Christmas Day and Boxing Day).
ITEM 8. REDEMPTION.
Redemptions of shares of a Portfolio will be effected on Portfolio Trust
Business Days in accordance with the procedures set out below, and only when the
wire system designated for use in transmitting money from the relevant Portfolio
permits the timely transmission of redemption proceeds. Additionally, as for
purchases of shares, the Portfolio Trust reserves the right to advance the times
at which purchase and redemption orders must be received (see section headed
"Purchases Of Securities Being Offered" above).
o Redemption requests for shares of the U.S. Dollar Portfolio
received prior to 11 a.m. U.S. Eastern Time on a Portfolio
Trust Business Day will settle on that same day (or the next
New York Banking Day if such Portfolio Trust Business Day is
not a New York Banking Day).
o Redemption requests for shares of the Canadian Dollar
Portfolio received prior to 11 a.m. U.S. Eastern Time on a
Portfolio Trust Business Day settle on that same day (or
the next Toronto Banking Day if such Portfolio Trust Business
Day is not a Toronto Banking Day).
o Redemption requests for shares of the Pound Sterling Portfolio
received prior to 5 p.m. U.S. Eastern Time on a Portfolio
Trust Business Day will settle on the following London
Banking Day.
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o Redemption requests for shares of the Deutschemark Portfolio
received prior to 10 a.m. U.S. Eastern Time on a Portfolio
Trust Business Day will settle on the following Frankfurt
Banking Day provided, however, that if such a Portfolio Trust
Business Day is not a Frankfurt Banking Day , the redemption
request will settle on the second following Frankfurt Banking
Day.
If a redemption request is not received prior to the applicable time
listed above, such request shall be deemed to have been received on the next
following Portfolio Trust Business Day. Shareholders shall be entitled to any
dividends declared or income earned up to and including the day before the day
on which the redemption request is scheduled to be settle.
If the Investment Adviser believes that market conditions exist which
preclude the Portfolio Trust from making prompt payment in a Portfolio's
Designated Currency, the Portfolio Trust can elect to take up to seven days to
pay redemption proceeds or to pay redemption proceeds wholly or partly in
readily marketable portfolio securities. The Portfolio Trust is obligated to
effect a redemption in currency without regard to market conditions if
requested by a shareholder redeeming no more than either $250,000 (or in the
applicable Designated Currency equivalent thereof ) or 1% of a Portfolio's net
assets during any 90-day period.
Except as provided below, all redemptions in currency will be are
made by wire transfer on the settlement day in the Designated Currency of the
Portfolio whose shares are being redeemed through a recognized electronic funds
transfer system which handles such designated covering. A charge of $20 (or
the equivalent in the relevant Portfolio's Designated Currency) against the
shareholder's account will be imposed for each wire redemption. Banks receiving
redemption proceeds by wire may also impose a charge for doing so.
If a redemption request does not meet the minimum amount and other
requirements for sending currency through the electronic funds transfer system
employed by the Portfolio, redemption proceeds will be paid by check sent by
mail. Each shareholder may pre-designate one bank account per Portfolio to
which redemption proceeds can be directed.
When redemption proceeds are paid in portfolio securities, brokerage
costs may be incurred by the investor in converting the securities to currency.
For further information concerning redemptions in portfolio securities,
shareholders should telephone the Administrator. Redemption in portfolio
securities will be made by delivery to the shareholder, or to another party at
the shareholder's direction, of portfolio securities (together with a cash
payment in the Portfolio's Designated Currency equal to the value and in lieu of
any fractional securities required to be delivered) with a value determined at
the time the redemption is made to equal the aggregate net asset value of the
Portfolio shares being redeemed next determined following receipt of the
redemption request.
To the extent permitted by applicable law, the right of redemption with
respect to a Portfolio may be suspended or the date of payment postponed for
more than seven days when trading in the markets in which the Portfolio's
securities are traded is restricted or for a period during which an emergency
exists as a result of which disposal by the Portfolio of its securities is not
reasonably practicable or it is not reasonably practicable for the Portfolio
fairly to determine the value of its assets. In addition, the right of
redemption may be suspended or the date of payment postponed for such other
periods as the SEC by order may permit to protect the Portfolio Trust's
shareholders.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
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Dated September 21, 1998
INTERNATIONAL CURRENCY FUND
PART B
ITEM 10. COVER PAGE.
This Part B expands upon and supplements the information contained in Part A of
the International Currency Fund (the "Portfolio Trust") of which there are four
separate investment series: the U.S. Dollar Portfolio, the Pound Sterling
Portfolio, the Deutschemark Portfolio and the Canadian Dollar Portfolio. This
Part B should be read in conjunction with such Part A.
NEITHER PART A NOR THIS PART B CONSTITUTES AN OFFER TO SELL, OR THE SOLICITATION
OF AN OFFER TO BUY, ANY BENEFICIAL INTERESTS IN THE INTERNATIONAL CURRENCY FUND.
ITEM 11. TABLE OF CONTENTS PAGE
GENERAL INFORMATION AND HISTORY..................................1
INVESTMENT OBJECTIVES AND POLICIES...............................2
MANAGEMENT......................................................10
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.............11
INVESTMENT ADVISORY AND OTHER SERVICES..........................12
BROKERAGE ALLOCATION AND OTHER PRACTICES........................13
CAPITAL STOCK AND OTHER SECURITIES..............................14
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING
OFFERED................................................14
TAX STATUS......................................................16
UNDERWRITERS....................................................16
CALCULATION OF PERFORMANCE DATA.................................16
FINANCIAL STATEMENTS............................................16
ITEM 12. GENERAL INFORMATION AND HISTORY.
The Portfolios are series of the Portfolio Trust, which is an
open-end management investment company under the 1940 Act. The Portfolio Trust
was organized as a Delaware business trust under the laws of the State of
Delaware on August 13, 1996.
Interests in the Portfolios have no preemptive or conversion rights,
and are fully paid and non-assessable, except as set forth below. The Portfolios
normally will not hold meetings of holders of such interests except as required
under the 1940 Act. The Portfolios would be required to hold a meeting of
holders in the event that at any time less than a majority of its Trustees
holding office had been elected by holders. The Trustees of the Portfolio Trust
continue to hold office until their successors are elected and have qualified. A
Trustee of the Portfolio Trust may be removed upon a majority vote of the
interests held by holders in the Portfolios Trust qualified to vote in the
election. The 1940 Act requires the Portfolios to assist their holders in
calling such a meeting. Upon liquidation of the Portfolios, holders in the
Portfolios would be entitled to share pro rata in the net assets of the
Portfolio Trust available for distribution to holders.
<PAGE> 17
Each holder in a Portfolio is entitled to vote in proportion to its
percentage interest in such Portfolio.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
Part A contains additional information about the investment objectives
and policies of the Portfolios. This Part B should be read only in conjunction
with Part A. This section contains supplemental information concerning the types
of securities and other instruments in which the Portfolios may invest, the
investment policies and portfolio strategies that the Portfolios may utilize and
certain risks attendant to those investments, policies and strategies.
All of the Portfolios' fundamental investment restrictions are set
forth below. These fundamental investment restrictions may not be changed except
by the affirmative vote of a majority of the Portfolios outstanding voting
securities as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). Under the 1940 Act, a "vote of the majority of the outstanding
voting securities" means the vote, at the annual or a special meeting of
security holders duly called, (i) of 67% or more of the voting securities
present at the meeting if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy or (ii) of more than 50% of the
outstanding voting securities, whichever is less. Under these restrictions, it
is the policy of each Portfolio:
(1) not to invest in a security if the transaction would result in
the Portfolio owning more than 10% of any class of voting
securities of an issuer;
(2) not to issue senior securities, except that the Portfolio may
borrow money in accordance with Restriction 10 below;
(3) not to underwrite or participate in the marketing of
securities of other issuers;
(4) not to purchase or sell real estate in fee simple;
(5) not to invest in commodities or commodity contracts;
(6) not to make loans except that the Portfolio may purchase
bonds, debentures, notes and similar debt obligations,
including money market instruments, directly from the issuer
thereof or in the open market and may engage in repurchase
transactions;
(7) not to conduct arbitrage transactions;
(8) not to invest in interests in oil, gas or other mineral
exploration or development programs (provided that the
Portfolio may invest in securities which are based, directly
or indirectly, on the credit of companies which invest in or
sponsor such programs);
(9) not to make any investment which would cause more than 25% of
the value of such Portfolio's total assets to be invested in
securities of nongovernmental issuers principally engaged in
any one industry, except that under normal market conditions
each Portfolio will invest more than 25% of its total assets
in obligations of Qualifying Banks (as defined in Part A)
and further provided that in the event that the
diversification requirements of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code") are revised so
as to permit one or more of the Portfolios to invest more than
25% of its total assets in government obligations of the
country that issues the relevant Fund's Designated Currency,
then each such Portfolio will under normal market conditions
invest more than 25% of its total assets in such obligations;
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(10) not to borrow money except in connection with redemptions or
for temporary and emergency purposes and then not in an amount
in excess of 20% of the value of its net assets, provided that
additional investments will be suspended during any period
when borrowings exceed 5% of the Portfolio's total assets; and
(11) not to purchase securities on margin, make a short sale of any
securities or purchase or deal in puts, calls, straddles or
spreads with respect to any security, except that the
Portfolio may acquire puts in connection with enhancing the
liquidity of its securities.
The following investment restrictions may be changed by vote of a
majority of the Trustees of the Portfolio Trust. Under these restrictions, it is
the policy of each Portfolio:
(1) not to hypothecate, mortgage or pledge any of its assets
except as may be necessary in connection with permitted
borrowings;
(2) not to purchase a security issued by another investment
company if, immediately after such purchase, the Portfolio
would own, in the aggregate, (i) more than 3% of the total
outstanding voting stock of such other investment company;
(ii) securities issued by such other investment company having
an aggregate value in excess of 5% of the value of the
Portfolio's total assets; or (iii) securities issued by such
other investment company and all other investment companies
(other than treasury stock of the Portfolio) having an
aggregate value in excess of 10% of the value of the
Portfolio's total assets; provided, however, that the
Portfolio may purchase investment company securities without
limit for the purpose of completing a merger, consolidation or
other acquisition of assets;
(3) not to invest in companies for the purpose of exercising
control over their management;
(4) not invest more than 5% of the value of its total assets in
issuer (other than repurchase agreements and Designated
Government securities (defined as (a) any security issued or
guaranteed by the government issuing the Portfolio's
Designated Currency; (b) any security issued or guaranteed by
a person controlled or supervised by and acting as an
instrumentality of the government of such countries pursuant
to authority granted by the appropriate legislative or
executive body in such countries if, in each case, such
Portfolio's investment adviser shall have determined that such
security has a creditworthiness substantially equivalent to
that of a direct obligation of the applicable government; or
(c) any certificate of deposit for any of the foregoing); and
(5) not to invest more than 25% of its total assets in repurchase
agreements with any one counterparty.
MONEY MARKET INSTRUMENTS
U.S. Dollar Portfolio
---------------------
The following describes further the money market instruments in which
the U.S. Dollar Portfolio will invest and is provided as a supplement to the
discussion appearing in the Prospectus.
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Short-Term Corporate Debt Instruments
Short-term corporate debt instruments include commercial paper (i.e.,
short-term, unsecured promissory notes) issued by corporations (including bank
holding companies) to finance short-term credit needs. Commercial paper is
usually sold on a discounted basis and has a maturity at the time of issuance
not exceeding nine months.
Short-term corporate debt instruments also include master demand notes.
Master demand notes are obligations of companies that permit an investor to
invest fluctuating amounts at varying rates of interest pursuant to arrangements
between the investor, as lender, and the companies, as borrowers. The U.S.
Dollar Portfolio will have the right, at any time, to increase the amount lent
up to the full amount provided by a note. Because the U.S. Dollar Portfolio may
also decrease the amount lent at any time, such instruments are highly liquid
and in effect have a maturity of one business day. The borrower will have the
right, at any time, to prepay up to the full amount of the amount borrowed
without penalty. Because the notes are direct lending obligations between the
U.S. Dollar Portfolio and the borrowers, they are generally not traded and there
is no secondary market. Consequently, the U.S. Dollar Portfolio's ability to
receive repayment will depend upon the borrower's ability to pay principal and
interest on the U.S. Dollar Portfolio's demand. The U.S. Dollar Portfolio will
invest only in notes that either have the ratings described below for commercial
paper or (because notes are not typically rated by credit rating agencies)
unrated notes that are issued by companies having the ratings described below
for issuers of commercial paper. The Fund does not expect that the notes will be
backed by bank letters of credit. The Investment Adviser will monitor the value
of the U.S. Dollar Portfolio's investments in commercial paper and master demand
notes, taking into account such factors as the issuer's earning power, cash flow
and other liquidity ratios.
Commercial paper investments at the time of purchase will be rated in
the highest rating category by an NRSRO, such as A-1 by Standard & Poor's
Corporation ("S&P") or Prime-1 by Moody's Investors Service, Inc. ("Moody's"),
or, if not rated, issued by companies having an outstanding debt issue rated at
least AA by S&P or Aa by Moody's or equivalent or determined to be of comparable
quality. See "Information about Securities Ratings of NRSROs" below for further
information.
Under certain limited circumstances, the U.S. Dollar Portfolio may
invest in nonconvertible corporate debt securities (e.g., bonds and debentures
which may be issued by U.S. or non-U.S. corporations) with no more than thirteen
months remaining either to the date of maturity or the date on which, under the
indenture governing the security, it may be sold back to the issuer thereof for
payment of principal and accrued interest. Corporate debt securities with a
remaining maturity of thirteen months or less are liquid (and tend to become
more liquid as their maturities lessen) and are traded as money market
securities. Such securities also tend to have considerably less market value
fluctuation than longer term issues.
Corporate debt and other securities in which the U.S. Dollar Portfolio
invests must be U.S. dollar-denominated Eligible Securities (as defined in Rule
2a-7 under the 1940 Act) that are determined to present minimal credit risks. In
general, under Rule 2a-7, the term "Eligible Securities" is limited to:
(i) securities with remaining maturities of 13 months or less that
are rated (or have been issued by an issuer that is rated with
respect to a class of short-term debt obligations, or any
securities within that class, that are comparable in priority
and security with the relevant security) by the requisite
number (i.e., two, if two organizations have issued ratings
and one if only one has issued a rating) of NRSROs in one of
the two highest rating categories for short-term debt
obligations (within which there may be sub-categories or
gradations indicating relative standing), or
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(ii) securities that at the time of issuance were long-term
securities (i.e., that had remaining maturities greater than
397 calendar days) but that now have remaining maturities of
397 calendar days or less and which were issued by an issuer
that has received from the requisite NRSROs a rating, with
respect to a class of short-term debt obligations (or any
security within that class) that is comparable in priority and
security with the relevant security, in one of the two highest
rating categories for short-term debt obligations (within
which there may be sub-categories or gradations indicating
relative standing), or
(iii) securities which are "unrated" (as defined in Rule 2a-7) but
determined to be of comparable quality to the foregoing by the
Portfolio Trust's Board of Trustees or the Investment Adviser
under their supervision (provided that a security that at the
time of issuance was a long-term security but that has a
remaining maturity of 397 calendar days less and that is an
"unrated" security is not an "Eligible Security" if the
security has a long-term rating from any NRSRO that is not
within the NRSRO's three highest categories (within which
there may be sub-categories or gradations indicating relative
standing)).
As indicated in the Prospectus, the U.S. Dollar Portfolio will further
limit its investments to Eligible Securities that are government securities and
"first tier" Eligible Securities as defined in Rule 2a-7 under the 1940 Act.
Bank Money Investments
Bank money investments include but are not limited to certificates of
deposit, bankers' acceptances and time deposits. Certificates of deposit are
generally short-term (i.e., less than one year), interest-bearing negotiable
certificates issued by commercial banks or savings and loan associations against
funds deposited in the issuing institution. A banker's acceptance is a time
draft drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction (to finance the import, export, transfer or
storage of goods). A banker's acceptance may be obtained from a domestic or
foreign bank including a U.S. branch or agency of a foreign bank. The borrower
is liable for payment as well as the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity. Time deposits are nontransferable deposits made for a fixed period of
time at a stated interest rate. The U.S. Dollar Portfolio will not invest in any
bank money investment unless the investment is issued by a U.S. bank that is a
member of the Federal Deposit Insurance Corporation ("FDIC"), including any
foreign branch thereof, a U.S. branch or agency of a "foreign bank", as defined
under Rule 3a-6 of the 1940 Act, a foreign branch of a foreign bank, or a
savings bank or savings and loan association that is a member of the FDIC and
which at the date of investment has capital, surplus and undivided profits (as
of the date of its most recently published financial statements) in excess of
$100 million or the equivalent in the relevant Portfolio's Designated Currency
(a "Qualifying Bank").
U.S. branches and agencies of foreign banks are offices of foreign
banks and are not separately incorporated entities. They are chartered and
regulated either federally or under state law. U.S. federal branches or agencies
of foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect to obtain FDIC insurance. Unlike U.S. branches of
foreign banks, U.S. agencies of foreign banks may not accept deposits and thus
are not eligible for FDIC insurance. Both branches and agencies can maintain
credit balances, which are funds received by the office incidental to or arising
out of the exercise of their banking powers and can exercise other commercial
functions, such as lending activities.
U.S. Government Securities
5
<PAGE> 21
U.S. Government securities consist of various types of marketable
securities issued by the U.S. Treasury, i.e., bills, notes and bonds. Such
securities are direct obligations of the U.S. Government and differ mainly in
the lengths of their maturities. Treasury bills, the most frequently issued
marketable government security, have a maturity of up to one year and are issued
on a discount basis.
Government Agency Securities
Government agency securities consist of fixed income securities issued
or guaranteed by agencies and instrumentalities of the U.S. Government,
including the various types of instruments currently outstanding or which may be
offered in the future. Agencies and instrumentalities include, among others, the
Federal Housing Administration, Government National Mortgage Association
("GNMA"), Federal National Mortgage Association, Farmers Home Administration,
Export-Import Bank of the U.S., Federal Maritime Administration, General
Services Administration and Tennessee Valley Authority. Instrumentalities
include, for example, the Central Bank for Cooperatives, Federal Home Loan
Banks, Federal Farm Credit Banks, Student Loan Marketing Association, Federal
Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks and the U.S. Postal Service. The U.S. Dollar Portfolio will purchase such
securities only so long as they are backed by any of (i) the full faith and
credit of the U.S. Treasury (e.g., U.S. Treasury bills, bonds and notes and GNMA
participation certificates), (ii) the right of the issuer to borrow a limited
amount from the U.S. Treasury (e.g., securities of the Farmers Home
Administration), (iii) the discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality (e.g., securities
of the Federal National Mortgage Association) or (iv) the credit of the agency
or instrumentality (e.g., securities of a Federal Home Loan Bank).
Custodial Receipts
The U.S. Portfolio may acquire, subject to the limitations described
herein, custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds in connection
with programs sponsored by banks and brokerage firms. Such notes and bonds are
held in custody by a bank on behalf of the owners of the receipts. These
custodial receipts are known by various names, including "Treasury Receipts"
("TRs"), "Treasury Investment Growth Receipts" ("TIGRs") and "Certificates of
Accrual on Treasury Securities" (CATS"), and may not be treated as U.S.
Government securities.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES FOR ALL PORTFOLIOS
Each Portfolio may invest in the securities or utilize the investment
techniques listed in this section:
Repurchase Agreements
A repurchase agreement is an agreement under which a Portfolio acquires
money market instruments (generally government securities, bankers' acceptances
or certificates of deposit) from a commercial bank, broker or dealer, subject to
resale to the seller at an agreed-upon price and date (normally the next
business day). The resale price reflects an agreed-upon interest rate effective
for the period the instruments are held by a Portfolio and is unrelated to the
interest rate on the instruments. The instruments acquired by a Portfolio
(including accrued interest) must have an aggregate market value in excess of
the resale price and will be held by the Custodian for such Portfolio until they
are repurchased. The Trustees of the Portfolio Trust will monitor the standards
which the Investment Adviser will use in reviewing the creditworthiness of any
party to a repurchase agreement with any of the Portfolios.
6
<PAGE> 22
The use of repurchase agreements involves certain risks. For example,
if the seller defaults on its obligation to repurchase the instruments acquired
by a Portfolio at a time when their market value has declined, such Portfolio
may incur a loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by such Portfolio are collateral for a loan by such
Portfolio and therefore are subject to sale by the trustee in bankruptcy.
Finally, it is possible that a Portfolio may not be able to substantiate its
interest in the instruments it acquires. While the Trustees of the Portfolio
Trust acknowledge these risks, it is expected that they can be controlled
through careful documentation and monitoring.
Illiquid Securities
No Portfolio may invest more than 10% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise "illiquid". The Investment Adviser will monitor the
amount of illiquid securities in each Portfolio's portfolio, to ensure
compliance with such Portfolio's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Portfolio might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty in satisfying
redemption requests within seven days. The Portfolio might also have to register
such restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
All of the Portfolios may buy or sell restricted securities in
accordance with Rule 144A under the 1933 Act ("Rule 144A Securities").
Securities may be resold pursuant to Rule 144A under certain circumstances only
to qualified institutional buyers as defined in the rule, and the markets and
trading practices for such securities are relatively new and still developing;
depending on the development of such markets, such Rule 144A Securities may be
deemed to be liquid as determined by or in accordance with methods adopted by
the Trustees of the Portfolio Trust. In all other cases, however, securities
subject to restrictions on resale will be deemed illiquid. Under such methods
the following factors are considered, among others: the frequency of trades and
quotes for the security, the number of dealers and potential purchasers in the
market, marketmaking activity, and the nature of the security and marketplace
trades. Investments in Rule 144A Securities could have the effect of increasing
the level of the relevant Portfolio's illiquidity to the extent that qualified
institutional buyers become, for a time, disinterested in purchasing such
securities. Also, the relevant Portfolio may be adversely impacted by the
possible illiquidity and subjective valuation of such securities in the absence
of a market for them.
7
<PAGE> 23
Concentration in Obligations of Qualifying Banks
Under normal market conditions, more than 25% of the total assets of
each Portfolio will be invested in obligations of Qualifying Banks as set forth
in Part A.
Obligations of non-U.S. branches of U.S. banks and of non-U.S. banks,
such as certificates of deposit and time deposits, may be general obligations of
the parent banks in addition to the issuing branch, or may be limited by the
terms of a specific obligation and governmental regulation. Such obligations are
subject to different risks than are those of domestic U.S. banks or U.S.
branches of non-U.S. banks. These risks include foreign economic and political
developments, foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income. Non-U.S. branches of
U.S. banks are not necessarily subject to the same or similar regulatory
requirements that apply to U.S. banks such as mandatory reserve requirements,
loan limitations, and accounting, auditing and financial recordkeeping
requirements. In addition, less information may be publicly available about a
non-U.S. branch of a U.S. bank or about a non-U.S. bank than about a U.S. bank.
Investing in Non-U.S. Securities
Each of the Portfolios may invest in non-U.S. securities. Non-U.S.
securities markets generally are not as developed or as efficient as those in
the United States. Securities of some foreign issuers are less liquid and more
volatile than securities of comparable U.S. issuers. Similarly, volume and
liquidity in most foreign securities markets are less than in the United States
and, at times, volatility of prices can be greater than in the United States. In
addition, there may be less publicly available information about a non-U.S.
issuer, and non-U.S. issuers are not generally subject to uniform accounting and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers.
The value of securities purchased with and payable in one Designated
Currency will be affected favorably or unfavorably relative to other currencies
by changes in currency exchange rates and exchange control regulations.
Furthermore, some of the securities may be subject to foreign transaction taxes
which could have the effect of increasing the cost of such investments and which
would reduce the realized gain or increase the realized loss on such securities
at the time of sale. Transaction costs and custodial expenses for a portfolio of
non-U.S. securities generally are higher than for a portfolio of U.S.
securities. Interest payments from certain foreign securities may be subject to
foreign withholding taxes on interest income payable on the securities.
U.S. Government policies have in the past, through taxation and other
restrictions, discouraged certain investments abroad by U.S. investors. While no
material restrictions of that type are currently in effect, they could be
reinstituted. In an extreme case, restrictions of that type could require the
liquidation of a Portfolio (other than the U.S. Dollar Portfolio).
Floating Rate and Variable Rate Demand Notes
Each Portfolio may purchase floating rate and variable rate demand
notes and bonds. These securities may have a stated maturity in excess of one
year, but permit a holder to demand payment of principal plus accrued interest
upon a specified number of days notice. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks. The
issuer has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal of the obligation plus accrued interest
upon a specific number of days notice to the holders. The interest rate of a
floating rate instrument may be based on a known lending rate, such as a bank's
prime rate, and is reset whenever such rate is adjusted. The interest rate on a
variable rate demand note is reset at specified intervals at a market rate.
8
<PAGE> 24
Investing in Supranational Organizations
The supranational organizations in which each Portfolio may invest
include, without limitation, the organizations listed below:
The International Bank for Reconstruction and Development (the "World
Bank"), which was established in 1945, is an international institution having as
members a large portion of the world's sovereign governments. The principal
purposes of the World Bank are: (i) to assist in the reconstruction and
development of its member countries by facilitating the investment of capital
for productive purposes, thereby promoting the long-range growth of
international trade and the improvement of standards of living; (ii) to promote
private foreign investment by guarantees of and participation in loans and other
investments made by private investors; and (iii) when private capital is not
available on reasonable terms, to make loans for productive purposes out of its
own resources or funds borrowed by it.
The Inter-American Development Bank, which became effective in 1959,
has a membership comprised primarily of sovereign governments located in the
western hemisphere as well as a number of countries from outside that region.
The principal purposes of the Bank are: (i) to promote the investment of public
and private capital for development purposes in the Americas; (ii) to utilize
its own capital, funds raised by it in financial markets, and other available
resources, for financing development of member countries, giving priority to
those loans and guarantees that will contribute most effectively to their
economic growth; (iii) to encourage private investment in projects, enterprises,
and activities contributing to economic development and to supplement private
investment when private capital is not available on reasonable terms and
conditions; (iv) to cooperate with member countries to orient their development
policies toward a better utilization of their resources, in a manner consistent
with objectives of making their economics more complimentary, and of fostering
orderly growth of their foreign trade; and (v) to provide technical assistance
for preparation, financing and implementation of development plans and projects,
including the study of priorities and the formulation of specific project
proposals.
The Asian Development Bank was established in 1965 and has a membership
comprised primarily of sovereign governments located in Asia, as well as a
number of nations outside the region. The purposes of the Bank are: (i) to
encourage regional economic cooperation in the Asian and Pacific region and (ii)
to encourage economic growth of its developing members by lending funds,
promoting investment and providing technical assistance with special regard to
the needs of smaller or less developed countries.
The European Bank for Reconstruction and Development was established in
1991 and has a membership comprised primarily of sovereign governments, the
European Union and the European Investment Bank. The purpose of the Bank is to
provide project specific direct financing to foster the economic and democratic
transition process and to promote private and entrepreneurial initiatives in
those countries through the provision of loans, equity investments, guarantees
and technical cooperation.
9
<PAGE> 25
ITEM 14. MANAGEMENT.
TRUSTEES AND OFFICERS OF THE PORTFOLIO TRUST
The Trustees and executive officers of the Portfolio Trust, together
with information as to their principal business occupations during the last five
years, are shown below. All executive officers of the Portfolio Trust are
affiliates of Rothschild International Asset Management Limited, the Portfolios'
Investment Adviser (the "Investment Adviser"). Each Trustee who is an
"interested person" (as defined in the 1940 Act) of the Portfolio Trust is
indicated by an asterisk. Certain officers and members of the Board of Trustees
of the Portfolio Trust are not residents of the United States. Virtually all or
a substantial portion of the assets of such persons are located outside of the
United States. It may not be possible for shareholders to effect service of
process within the United States upon such persons or to enforce in courts
inside or outside the United States judgements obtained against such persons in
courts in jurisdictions outside the United States, in each case, in any action,
including actions predicated upon the civil liability provisions of the United
States securities laws. In addition, it may be difficult for shareholders to
enforce, in original actions brought in courts in jurisdictions outside the
United States, liabilities predicated solely upon the United States securities
laws.
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATION
NAME, ADDRESS AND POSITION HELD DURING PAST
DATE OF BIRTH WITH TRUST 5 YEARS
- ------------- ---------- -------
<S> <C> <C>
Peter B. Collacott* President and Trustee
State Street Global Advisors Director of Product
United Kingdom, Ltd. Development, State Street
Almack House
Global Advisors
United Kingdom, Ltd.,
Managing Director,
Rothschild, Asset
28 King Street Management Limited;
London SW1 Y6QW U.K. Director, International
Born June 19, 1944 Biotechnology Trust.
Alan T. Jeffers Trustee Private Investor;
51 Clearwater Cove Consultant to Rothschild
Old Dunleary Road Asset Management Limited
Dun Laoghaire, from 1986 to September 1996;
County Dublin, Ireland Chairman, Dipcot Holdings Ltd.;
Born August 17, 1938 Chairman, Danfay Ltd; Director,
Hibernian Group Plc; Founder and
Director, Banking Automation Ltd.;
Chairman, Provita Europe Ltd.; Chairman,
Biotrin Holdings Ltd.; Chairman,
Capteur Sensors & Analysers Limited.
Bryan J. Walsh Trustee President and Managing
11 Lower Tuckahoe Road West Director of Salisbury
Richmond, Virginia Research 1991-date.
23233-6129 U.S.A.
Born November 6, 1944
Roger M. Kubarych Trustee General Manager - Henry
65 East 55th Street Kaufman & Company Inc.
New York, NY 10022 overseeing the firm's
Born November 19, 1944 international money
management activities and
financial and economic
consulting services.
Tony Mercure Vice President Director of Client Services,
BISYS Fund Services, Inc. BISYS Fund Services, Inc.
3435 Stelzer Road and has served in a variety
Columbus, OH 43219 of positions within
BISYS Fund Services, Inc.
since 1991.
Adrian Waters Treasurer Managing Director,
BISYS Fund Services BISYS Fund Services (Ireland) LTD.,
(Ireland) Limited Manager, Price Waterhouse,
Floor 2, Block 2 1989 - May 1993.
The Harcourt Centre
Dublin 2 Ireland
Chuck Booth Vice President Vice President, BISYS Fund Services, Inc.
BISYS Fund Services, Inc. and Secretary and has served in a
3435 Stelzer Road variety of positions within
Columbus, OH 43219 BISYS Fund Services, Inc.
since 1991.
Bill Tomko Vice President Senior Vice President,
BISYS Fund Services, Inc. BISYS Fund Services, Inc.
3435 Stelzer Road and has served in a
Columbus, OH 43219 variety of positions within
BISYS Fund Services, Inc.
since 1991.
Alaina Metz Assistant Secretary Chief Administrator,
BISYS Fund Services, Inc. Administrative and Regulatory Services,
3435 Stelzer Road BISYS Fund Services, Inc.
Columbus, OH 43219 June 1995 to present; Supervisor,
Mutual Fund Legal Department,
Alliance Capital Management,
May 1989 to June 1995.
Catherine Brady Assistant Treasurer Accounting Services Manager,
BISYS Fund Services BISYS Fund Services (Ireland) LTD.,
(Ireland) Limited March 1994 to present;
Floor 2, Block 2 Supervisor, Price Waterhouse,
The Harcourt Centre 1990 to March 1994.
Dublin 2 Ireland
Louise Egan Assistant Secretary Shareholder Servicing Manager,
BISYS Fund Services BISYS Fund Services (Ireland) LTD.,
(Ireland) Limited February 1994 to present;
Floor 2, Block 2 Financial Controller,
The Harcourt Centre ITI Services Limited,
Dublin 2 Ireland 1990 to February 1994.
</TABLE>
10
<PAGE> 26
COMPENSATION OF TRUSTEES AND OFFICERS
The Portfolio Trust pays no compensation to the Trustees of the
Portfolio Trust affiliated with the Adviser or to the Portfolio Trust's
officers.
The following is an estimate of the compensation to be paid to the
Portfolio Trust's Trustees for the period ending December 31, 1998.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aggregate Aggregate Aggregate Aggregate Total
Compensation Compensation Compensation Compensation Compensation
Name of from U.S. from Pound from Deutschemark from Canadian from Fund
Trustee Dollar Portfolio Sterling Portfolio Portfolio Dollar Portfolio Complex (a)(b)
------- ---------------- ------------------ --------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Bryan J. Walsh $12,000 $12,000 $3,000 $3,000 $30,000
Roger M. Kubarych $10,000 $10,000 $2,500 $2,500 $25,000
Alan T. Jeffers $10,000 $10,000 $2,500 $2,500 $25,000
Peter B. Collacott $ 0 $ 0 $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------
<FN>
(a) Currently the U.S. Dollar Fund, the Pound Sterling Fund, the Deutsche Mark
Fund and the Canadian Dollar Fund of the Five Arrows Short-Term Investment
Trust (the "Trust") and their corresponding Portfolios in the Portfolio Trust
are the only funds in the fund complex. No other compensation, including
pension or other retirement benefits, is paid to the Trustees by the fund
complex. The Trustees receive no compensation for their service as Trustees of
the Trust.
(b) Trustees fees will be allocated among the Portfolios in proportion to their
respective net asset values. The allocation shown reflects an estimate of the
relative net asset values of the Portfolios for the period ending December 31,
1998.
</TABLE>
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
See the response to Item 6 above with respect to "control persons" of the
Portfolios.
Each Fund has informed the Portfolio Trust that whenever it is
requested to vote on matters pertaining to the fundamental policies of its
corresponding Portfolio, the relevant Fund will hold a meeting of shareholders
and will cast its votes as instructed by such Fund's shareholders. It is
anticipated that other registered investment companies investing in the
Portfolios will follow the same or a similar practice.
11
<PAGE> 27
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
INVESTMENT ADVISER OF THE PORTFOLIO TRUST
Effective September 22, 1998, State Street Bank and Trust Company,
through its division State Street Global Advisors, furnishes investment services
to the Portfolios pursuant to an Advisory Agreement and manages the Portfolios'
investments and affairs subject to the supervision of the Trustees of the
Portfolio Trust. State Street Global Advisors is the investment management
business of State Street, a 200 year old pioneer and leader in the world of
financial services. State Street Global Advisors is a wholly owned subsidiary of
State Street Corporation a publicly held bank holding company.
Certain services provided by the Investment Adviser under the Advisory
Agreement are described in Part A. These services are provided without
reimbursement by the Portfolios for any costs incurred. Under the Master
Investment Advisory Agreement, the Investment Adviser is paid a fee based upon a
percentage of the Portfolios' average daily net asset value computed as
described in Part A. The fee is accrued daily and paid monthly.
Pursuant to the Advisory Agreement, the Portfolios bear expenses of
their operations other than those incurred by the Investment Adviser pursuant to
the Investment Advisory Agreement. Among other expenses, the Portfolios will pay
share pricing expenses; custodian fees and expenses; administration fees; legal
and auditing fees and expenses; expenses of investor notices and reports;
registration and reporting fees and expenses; and Trustees, fees and expenses.
Unless terminated as provided below, the Investment Advisory Agreement
continues in full force and effect with respect to each Portfolio until
September 22, 2000 and for successive periods of one year thereafter, but only
so long as each such continuance is approved annually (i) by either the Trustees
of the Portfolio Trust or by the "vote of a majority of the outstanding voting
securities" of the Portfolio, and, in either event (ii) by vote of a majority of
the Trustees of the Portfolio Trust who are not parties to the Investment
Advisory Agreement or "interested persons" (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval. The Investment Advisory Agreement may be terminated at any time
without the payment of any penalty by vote of the Trustees of the Portfolio
Trust or by the "vote of a majority of the outstanding voting securities" of any
Portfolio or by the Investment Adviser, on sixty days' written notice to the
other parties. The Investment Advisory Agreement terminates in the event of its
assignment as defined in the 1940 Act.
In an attempt to avoid any potential conflict with portfolio
transactions for the Portfolio, the Adviser and the Portfolio Trust have each
adopted extensive restrictions on personal securities trading by personnel of
the Adviser and its affiliates. These restrictions include: pre-clearance of all
personal securities transactions and a prohibition of purchasing initial public
offerings of securities. These restrictions are a continuation of the basic
principle that the interests of the Portfolio and its investors, come before
those of the Adviser, its affiliates and their employees.
The Investment Advisory Agreement also provides that, with respect to
the Portfolio to which it pertains, the Investment Adviser shall not be liable
for any mistake of judgment or in any event whatsoever in the performance of its
duties to the Portfolio Trust, except for liability resulting from willful
misfeasance, bad faith or gross negligence in the performance of the Investment
Adviser's duties or by reason of reckless disregard of its obligations and
duties under the Investment Advisory Agreement.
12
<PAGE> 28
The Investment Advisory Agreement provides that the Investment
Adviser may render advisory services to others.
In addition to receiving its advisory fee, the Investment Adviser may
also act and be compensated as investment manager for its clients with respect
to assets which are invested in a Portfolio. In some instances the Investment
Adviser may elect to credit against any investment management fee received from
a client who is also a shareholder in the Portfolio Trust an amount equal to all
or a portion of the fees received by the Investment Adviser or any affiliate of
the Investment Adviser from a Portfolio with respect to the client's assets
invested in the Portfolio.
SUB-ADVISER
Effective September 22, 1998, Rothschild International Asset Management
Limited ("RIAM" or the "Sub-Adviser") will serve as sub-adviser to the
Portfolios pursuant to a Sub-Advisory Agreement between State Street and RIAM.
The Sub-Advisory Agreement provides that subject always to the control of the
Trustees of the Portfolio Trust and to such policies as the Trustees may
determine, RIAM (i) will, at its expense, furnish continuously an investment
program for each Portfolio and will make investment decisions on behalf of each
Portfolio and place all orders for the purchase and sale of its portfolio
securities (ii) will use its best efforts to safeguard and promote the welfare
of each Portfolio, (iii) will comply with other policies which the Trustees or
State Street, as the case may be, may from time to time determine as promptly as
practicable after such policies have been communicated to RIAM in writing, and
(iv) shall exercise the same care and diligence expected of the Trustees.
The Sub-Advisory Agreement also provides that in the absence of wilful
misfeasance, bad faith or gross negligence on the part of RIAM, or reckless
disregard of its obligations and duties hereunder, RIAM shall not be subject to
any liability to State Street, to the Portfolio Trust, to any Portfolio or to
any shareholder, officer, director or Trustee thereof, for any act or omission
in the course of, or connected with, rendering services under the Sub-Advisory
Agreement.
For the services provided by RIAM under the Sub-Advisory Agreement,
State Street will pay RIAM an advisory fee from each Portfolio payable monthly
at an annual rate of .05% of the Portfolio's net asset value as of the last
business day of the month.
The Sub-Advisory Agreement will continue in effect with respect to a
Portfolio for two years from September 22, 1998 and thereafter provided either
(a) the trustees of the Portfolio Trust, including a majority of those trustees
who are not interested persons of the Portfolio Trust, of State Street or of
RIAM, or (b) the shareholders of the Portfolio by the affirmative vote of a
majority of the outstanding shares, approve the continuance by vote cast in
person at a meeting called for the purpose of voting on such continuance. The
Portfolio Trust may terminate the Sub-Advisory Agreement at any time by notice
to State Street and RIAM pursuant to a vote of the majority of trustees of the
Portfolio Trust or a vote of a majority of the outstanding shares of each
Portfolio. Either State Street or RIAM may terminate the Sub-Advisory Agreement
with respect to a Portfolio upon not less than 90 days' written notice to the
other party. The Sub-Advisory Agreement will terminate automatically upon
termination of the Advisory Agreement. In each case, termination of the
Sub-Advisory Agreement shall be without penalty.
ADMINISTRATOR OF THE PORTFOLIO
BISYS Fund Services Limited Partnership, located at 3435 Stelzer Road,
Columbus, OH 43219, serves as the administrator to the Portfolios (the
"Administrator") pursuant to a written administration agreement with the
Portfolio Trust on behalf of the Portfolios. The Administrator provides the
Portfolio Trust with office space for managing its affairs and with certain
clerical services and facilities. The Administrator receives a fee calculated
daily and paid monthly at an annual rate of .05% of the Portfolios' average
daily net assets from the Portfolios for its services to the Portfolio Trust.
The Portfolios' administration agreement can be terminated by either
party on not more than sixty days' written notice.
CUSTODIAN
The Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, NY serves
as custodian of all cash and securities of the Portfolios.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. serves as independent accountants for the
Portfolio Trust and will audit each Portfolio's financial statements annually.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
Portfolio securities are ordinarily purchased directly from the issuer
or from an underwriter or a market maker for the securities. Usually no
brokerage commissions are paid by any Portfolio for such purchases. Purchases
from underwriters of Portfolio securities include a concession paid by the
issuer to the underwriter and the purchase price paid to market makers for the
securities may include the spread between the bid and asked price.
A Portfolio may not always pay the lowest commission or spread
available. Rather, in determining the amount of commission paid in connection
with Portfolio transactions, the Investment Adviser takes into account such
factors as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the services described below) and any
risk assumed by the executing broker. The Investment Adviser may also take into
account payments made by brokers effecting transactions with or for a Portfolio
(i) to the Portfolio or (ii) to other persons on behalf of the Portfolio for
services provided to it for which it would be obligated to pay.
Investment decisions for the Portfolios will be made independently from
those for any other account or investment company that is or may in the future
become managed by the Investment Adviser or its affiliates. If, however, a
Portfolio and other investment companies or accounts managed by the Investment
Adviser are contemporaneously engaged in the purchase or sale of the same
security, the transactions may be averaged as
13
<PAGE> 29
to price and allocated equitably to each account. In some cases, this policy
might adversely affect the price paid or received by a Portfolio or the size of
the position obtainable for the Portfolio. In addition, when purchases or sales
of the same security for a Portfolio and for other investment companies and
accounts managed by the Investment Adviser occur contemporaneously, the purchase
or sale orders may be aggregated in order to obtain any price advantages
available to large denomination purchases or sales.
No Portfolio transactions are executed with the Investment Adviser or
any of its affiliates.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
The Portfolios are series of the International Currency Fund, an
open-end management investment company registered under the 1940 Act (the
"Portfolio Trust"). The Portfolio Trust was organized as a business trust under
the laws of the state of Delaware on August 13, 1996.
Interests in the Portfolios have no preemptive or conversion rights,
and are fully paid and non-assessable, except as set forth described in Part A.
The Portfolios normally will not hold meetings of holders of such interests
except as required under the 1940 Act or its Declaration of Trust. The
Portfolios would be required to hold a meeting of holders in the event that at
any time less than a majority of their Trustees holding office had been elected
by holders. The Trustees of each Portfolio continue to hold office until their
successors are elected and have qualified. Holders holding a specified
percentage of interests in a Portfolio may call a meeting of holders in the
relevant Portfolios for the purpose of removing any Trustee. A Trustee of any
Portfolio may be removed upon a majority vote of the interests held by holders
in that Portfolio qualified to vote in the election. The 1940 Act requires the
Portfolio to assist their holders in calling such a meeting. Upon liquidation of
any Portfolio, holders in such Portfolio would be entitled to share pro rata in
the net assets of such Portfolio available for distribution to holders.
Each holder in a Portfolio is entitled to a vote in proportion to its
percentage interest in the Portfolio.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED.
Beneficial interests in the Portfolios are issued solely in
transactions that are exempt from registration under the Securities Act of 1933.
See "General Description of Registrant," "Purchase of Securities Being Offered"
and "Redemption" in Part A.
The net asset value of the Portfolios is determined by the
Administrator (as agent for the Portfolios). The Portfolios will only price
their respective shares or interests on Trust Business Days (as defined in Part
A). With respect to the U.S. Dollar Portfolio, which is a "money market fund,"
as defined in the 1940 Act, the valuation of the instruments it holds at
amortized cost is permitted in accordance with Rule 2a-7 and certain procedures
established by the Trustees of the Portfolio Trust thereunder. With respect to
all other Portfolios, which are not money market funds, the use of the
amortized cost method as a reasonable means of approximating the market value
of each other Portfolio's assets is consistent with a long-standing practice
of many U.S. registered investment companies to value "high-quality" debt
securities with maturities of 60 days or less at amortized cost.
The amortized cost of an instrument is determined by valuing it at cost
originally and thereafter accreting any discount or amortizing any premium from
its face value at a constant rate until maturity, regardless of the effect of
fluctuating interest rates on the market value of the instrument. Although the
amortized cost method provides certainty in valuation, it may result at times in
determinations of value that are higher or lower than the price the Portfolios
would receive if the instruments were sold. Consequently, changes
14
<PAGE> 30
in the market value of instruments held by the Portfolios during periods of
rising or falling interest rates will not be reflected either in the computation
of net asset value of the Portfolios or in the daily computation of its net
investment income.
The procedures of the Portfolios are designed to facilitate, to the
extent reasonably possible, the maintenance of the price per share of registered
investment companies and other collective investment vehicles that invest in the
Portfolios, as computed for the purpose of the distribution and redemption of
shares, at $1.00 in the case of an investor investing in the U.S. Dollar
Portfolio, at (pound)1.00 in the case of an investor investing in the Pound
Sterling Portfolio, at DM 1.00 in the case of an investor investing in the
Deutschemark Portfolio and at C$1.00 in the case of an investor investing in the
Canadian Dollar Fund (the "Stabilized Prices"). These procedures include review
of the Portfolios' holdings by the Trustees of the Portfolio Trust and Trust, at
such intervals as they may deem appropriate, to determine whether the
Portfolios' net asset values calculated by using readily available market
quotations deviates from the valuation based on amortized cost, and, if so,
whether such deviation may result in material dilution or is otherwise unfair to
existing interest holders. In the event the Trustees of the Portfolio Trust and
Trust determine that such a deviation exists, they will take such corrective
action as they consider to be necessary or appropriate, which action could
include the sale of instruments held by the Portfolios prior to maturity (to
realize capital gains or loses); the shortening of average portfolio maturity;
withholding dividends; redemption of shares in kind; or establishing a net asset
value per share by using readily available market quotations.
Since the net investment incomes of each entity investing in a
Portfolio is declared as a dividend each time such income is determined, the net
asset value per share of each entity investing in a Portfolio remains at its
respective Stabilized Price immediately after such determination and dividend
declaration. It is expected that each such investing entity's net investment
income will be positive each time it is determined. However, if because of
realized losses on sales of portfolio investments, a sudden rise in interest
rates, default by an issuer of a portfolio security, or for any other reason the
net investment income of each Portfolio determined at any time is a negative
amount, such Portfolio will offset such amount allocable to each then interest
holder's account from dividends accrued with respect to such account. If at the
time of payment of a dividend (either at the regular dividend payment date, or,
in the case of an interest holder who is withdrawing all or substantially all of
its interest in an account, at the time of redemption), such negative amount
exceeds an interest holder's accrued dividends, the relevant Portfolio will
reduce the interest by treating the interest holder as having contributed to the
capital of that Portfolio that amount of its interest which represents the
amount of the excess. Each shareholder is deemed to have agreed to such
contribution in these circumstances by his or her investment in the relevant
entity investing in such Portfolio.
Should the Portfolios incur or anticipate any unusual or unexpected
significant expense, loss or depreciation which would affect disproportionately
their investors' net investment income for a particular period, the Trustees of
the Portfolio Trust would at that time consider whether to adhere to its daily
dividend policy or to revise it in the light of the then prevailing
circumstances. Such expenses, losses or depreciation may nevertheless result in
a shareholder's receiving no dividends for the period during which the shares
are held and in receiving upon redemption a price per share lower than the
purchase price of such shares.
Each Portfolio intends to pay redemption proceeds in cash for all
interests redeemed but, under certain conditions, each Portfolio may make
payment wholly or partly in portfolio securities. Each Portfolio will select
such securities in a manner it considers equitable, regardless of which
securities were deposited by the investor or the composition of such Portfolio's
portfolio at the time of the redemption in-kind. Portfolio securities paid upon
withdrawal or reduction of an interest-holder's investment in such Portfolio
will be valued at their then current market value. The Portfolio Trust has
elected to be governed by the provisions of Rule 18f-1 under the 1940 Act which
limits each Portfolio's obligation to make cash redemption payments to any
investor during any 90 day period to the lesser of $250,000 or 1% of such
Portfolio's net asset value at the beginning of such period. An investor may
incur brokerage costs in converting portfolio securities received upon
redemption to
15
<PAGE> 31
cash. Each Portfolio intends not to redeem an investor's interest in-kind except
in circumstances in which the particular investor is permitted to redeem in-kind
or in the event that the particular investor completely withdraws its interest
in the such Portfolio.
ITEM 20. TAX STATUS.
The Portfolio Trust is organized as a business trust under Delaware
law. Under the Portfolio Trust's current method of operation as a partnership,
no Portfolio will be subject to any income tax. However, each investor in a
Portfolio will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio Trust) of such Portfolio's ordinary
income and capital gain in determining its income tax liability. The
determination of such share will be made in accordance with the Internal Revenue
Code of 1986, as amended, and regulations promulgated thereunder.
The Portfolio Trust's taxable year-end is the last day of December.
Although the Portfolio Trust will not be subject to Federal income tax, it will
file appropriate federal income tax returns.
Each Portfolio's assets, income and distributions will be managed in
such a way that an investor in the Portfolio will be able to satisfy the
requirements of Subchapter M of the Code, assuming that the investor invested
all of its investable assets in the Portfolio. Investors are advised to consult
their own tax advisors as to the tax consequences of an investment in a
Portfolio.
ITEM 21. UNDERWRITERS.
Not applicable.
ITEM 22. CALCULATION OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
Investors will receive the relevant Portfolio's unaudited semi-annual
reports and annual reports audited by the Portfolio's independent accountants.
16
<PAGE> 32
INFORMATION ABOUT SECURITIES RATINGS OF NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS ("NRSROs")
Ratings of Short-Term Corporate Debt Securities
- ----------------------------------------------
MOODY'S INVESTORS SERVICE, INC. Moody's Commercial Paper ratings, which
are also applicable to municipal paper investments permitted to be made by the
Fund, are opinions of the ability of issuers to repay punctually their
promissory obligations not having an original maturity in excess of nine months.
Moody's employs the following designations, all judged to be investment grade,
to indicate the relative repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P's
S&P's ratings are a current assessment of the likelihood of timely
payment of debt having an original maturity of no more than 365 days. Ratings
are graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues within the "A" category are delineated
with the numbers 1, 2, and 3 to indicate the relative degree of safety, as
follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as overwhelming as
for issues designated A-1.
A-3: Issues carrying this designation have an adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
IBCA LIMITED/IBCA INC. Short-term obligations, including commercial
paper, rated A-1+ by IBCA Limited or its affiliate IBCA Inc. are obligations
supported by the highest capacity for timely repayment. Obligations rated A-1
have a very strong capacity for timely repayment. Obligations rated A-2 have a
strong capacity for timely repayment, although such capacity may be susceptible
to adverse changes in business, economic or financial conditions.
FITCH INVESTORS SERVICES, INC. Fitch Investors Services, Inc. employs
the rating F-1+ to indicate issues regarded as having the strongest degree of
assurance for timely payment. The rating F-1 reflects an assurance of timely
payment only slightly less in degree than issues rated F-1+, while the rating
F-2 indicates a satisfactory degree of assurance for timely payment, although
the margin of safety is not as great as indicated by the F-1+ and F-1
categories.
DUFF & PHELPS INC. Duff & Phelps Inc. employs the designation of Duff 1
with respect to top grade commercial paper and bank money instruments. Duff 1+
indicates the highest certainty of timely payment; Short-term liquidity is
clearly outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations. Duff 1- indicates high certainty of time payment. Duff
2 indicates good certainty of timely payment: liquidity factors and company
fundamentals are sound.
THOMSON BANKWATCH, INC. ("BANKWATCH"). BankWatch will assign both
short-term debt ratings and issuer ratings to the issuers it rates. BankWatch
will assign a short-term ("TBW-1" "TBW-2," "TBW-3," or "TBW-4") to each class of
debt (e.g., commercial paper or non-convertible debt), having a maturity of
one-year or less, issued by a holding company structure or an entity within the
holding company structure that is rated by BankWatch. Additionally, BankWatch
will assign an issuer rating ("A" A/B," "B," "B/C," "C," "C/D" "D," "D/E," and
"E") to each issuer that it rates.
Certain NRSROs utilize rankings within rating categories indicated by a
+ or -. The Portfolios, in accordance with industry practice, recognize such
rankings with categories as graduations, viewing for example S&P's rating of
A-1+ and A-1 as being in S&P's highest rating category.
<PAGE> 33
Rating of Long-Term Corporate Debt Securities
- ----------------------------------------------
MOODY'S INVESTORS SERVICE, INC. Aaa-Best quality. These securities
carry the smallest degree if investment risk and are generally referred to as
"gilt edge." Interest payment are protected by a large, or by an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Aa-High quality by all
standards. They are rated lower than the best bond because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
which made the long-term risks appear somewhat greater.
STANDARD & POOR'S CORPORATION. AAA-Highest grade. They possess the
ultimate degree of protection as to principal and interest. Marketwise, they
move with interest rates, and hence provide the maximum safety on all counts.
AA-High grade. Generally, these bonds differ from AAA issues only in a small
degree. Here, too, prices move with the long-term money market.
FITCH INVESTORS SERVICE, INC. AAA-High grade, broadly marketable,
suitable for investment by trustees and fiduciary institutions, and liable to
but slight market fluctuation other than through changes in the money rate. The
prime feature of an "AAA" bond is the showing of earning several times or many
times interest requirements for such stability of applicable interest that
safety is beyond reasonable question whenever changes occur in conditions.
Other features may be considered, such as a wide margin of protection through
collateral, security or direct lien on specific property. Sinking funds or
voluntary reduction of debt by call or purchase are often factors, while
guarantee or assumption by parties other than the original debtor may influence
their rating. AA-Of safety virtually beyond question and readily salable. Their
merits are not greatly unlike those of "AAA" class but a bond so rated may be
junior though it has a strong lien, or the margin of safety may be less
strikingly broad. The issue may be the obligations of a small company, strongly
secured, but influenced as to rating by the lesser financial power of the
enterprise and more local type or market.
<PAGE> 34
INFORMATION ABOUT SECURITIES RATINGS OF CANADIAN
RATING ORGANIZATIONS
RATINGS OF LONG-TERM DEBT SECURITIES
CANADIAN BOND RATING SERVICE ("CBRS")
A++ - Highest Quality. This category encompasses bonds of outstanding quality.
They possess the highest degree of protection of principal and interest.
Companies with debt rated A++ are generally large national and/or multinational
corporations whose products or services are essential to the Canadian economy.
These companies are the acknowledged leaders in their respective industries and
have clearly demonstrated their ability to best withstand adverse economic or
trade conditions either national or international in scope. Characteristically,
these companies have had a long and credible history of superior debt
protection, in which the quality of their assets and earnings has been
constantly maintained or improved, with strong evidence that this will continue.
A+ - Very Good Quality. Bonds rated A+ are similar in characteristics to those
rated A++ and can also be considered superior in quality. These companies have
demonstrated a long and satisfactory history of growth and above-average
protection of principal and interest on their debt securities. These bonds are
generally rated lower in quality because the margin of assets or earnings
protection may not be as large or as stable as those rated A++. In both these
categories the nature and quality of the asset and earning coverages are more
important than numerical values of the ratios.
A - Good Quality. Bonds rated A are considered to be good quality securities
and to have favorable long-term investment characteristics. The main feature
that distinguishes them from the higher rated securities is that these
companies are more susceptible to adverse trade or economic conditions.
Consequently, the protection is lower than for the categories A++ and A+. In
all cases the A rated companies have maintained a history of adequate asset and
earnings protection. There may be certain elements that may impair this
protection sometime in the future. Confidence that the current overall
financial position will be maintained or improved is slightly lower than for
the securities rated above.
DOMINION BOND RATING SERVICE LIMITED ("DBRS")
AAA - highest credit quality. The degree of protection afforded principal and
interest is of the highest order. Earnings are relatively stable, the structure
of the industry in which the entity operates is very strong, and the outlook
for future profitability is extremely favorable. There are few qualifying
factors present which would detract from the performance of the entity, and the
strength of liquidity and coverage ratios is unquestioned.
AA - superior credit quality. Protection of interest and principal is considered
high. In many cases, they differ from bonds rated AAA to a small degree.
<PAGE> 35
A - upper medium grade credit quality. Protection of interest and principal is
still substantial, but the degree of strength is less than with AA rated
entities. Entities in the A category may be more susceptible to adverse
economic conditions and have greater cyclical tendencies.
Ratings of Short-Term Debt Securities
CBRS
A-1+ - Highest Quality. Corporate and government organizations with short-term
debt rated A-1+ are considered to be of outstanding credit quality. In general,
these organizations maintain a strong liquidity and capital position and have a
strong level of revenues/earnings/cash flow to meet all current and long-term
obligations. Characteristically, these organizations have a long and creditable
record of excellent performance. These organizations also have the ability to
maintain their performance over an extended period. Although these
organizations may experience a decline in revenues/earnings/cash flow during
recessionary periods, their ability to restore performance in subsequent
periods is very good. These organizations are generally well established and a
significant factor in their fields. Management has clearly demonstrated its
competence and reliability.
A-1 - Very Good Quality. Corporate and government organizations with short-term
debt rated A-1 are also very well established and have a creditable operating
history. However, their credit-risk profiles are not as strong as those
organizations in the A-1+ category. These organizations generally maintain very
good financial performance measurements throughout the economic cycle; however,
they are more vulnerable to economic and competitive conditions.
A-1 (Low) - Good Quality. Corporate and government organizations with
short-term debt rated A-1 (Low) have a creditable operating history. However,
their credit-risk profiles are not as strong as those organizations rated in
the A-1 or A-1+ category. These organizations generally maintain good financial
performance measurements throughout the economic cycle. However, they are more
vulnerable to economic and competitive conditions. Moreover, the level of debt
protection as measured by their access to capital, debt service coverage
ratios, and capital underpinning, is relatively lower.
DBRS
R-1 - high-grade prime credit. The entity's ability to repay its current
liabilities as they fall due is very high. The strength of the various liquidity
ratios is unquestioned, and alternative sources of funds to commercial paper
such as bank lines, ability to do long-term financing and a strong parent
exist. Furthermore, the outlook for future liquidity and the trend of these
ratios should be favorable. The level of profitability has been reasonable and
relatively stable, with only modest fluctuations. No substantial qualifying
negative factors exist, and the firm is of sufficient size to be a strong
influence in its industry.
2
<PAGE> 36
R-2 - medium grade credit. The liquidity ratios of entities in this
classification are not as strong as those in the R-1 category, and the past and
future trend may suggest some deterioration in the strength of these ratios.
Alternative sources of liquidity support are considered strong; however, even
the strongest liquidity support will not improve the commercial paper rating of
the issuer. The size of the entity may restrict its flexibility, and its
relative position in the industry is not as strong as an R-1. Profitability
trends, past and future, may be less favorable, earnings not as stable, and
there may be some negative qualifying factors present.
RATINGS OF GOVERNMENT-TERM DEBT SECURITIES
CBRS
AAA - Highest Quality. Debt securities rated AAA are considered to be of the
highest quality and have a history of excellent protection of both principal
and interest. The issuer has enjoyed excellent management with its debt load
well within its capacity to service debt even during periods of economic
decline.
AA - Very Good Quality. Issues rated AA are also considered to be of very good
quality and have recorded much of the same level of protection as those rated
AAA. However, the extent or margin of protection is slightly less than the
above category and there may be certain elements present which could cause a
decline in the quality.
A - Good Quality. Issues rated A are regarded as being good quality securities.
Management is also considered good and has recorded a history of providing good
protection and stewardship. However, there are weaknesses present which, under
adverse economic circumstances, would impair the issuer's ability to continue
to maintain a good level of protection for its debt.
NOTE: CBRS's Commercial Paper ratings refer to an issuer's commercial
paper, short-term promissory notes, short-term deposits, banker's
acceptances, letters of credit, treasury bills and/or other
short-term indebtedness with an original term of one year or less.
(High) and (Low) designations after a rating indicate an issuer's
relative strength within a rating category.
<PAGE> 37
FINANCIAL STATEMENTS
The financial statements of the Portfolio Trust for the fiscal period ended
December 31, 1997 are incorporated herein by reference to the annual report of
the Portfolio Trust (File No. 811-07773) filed with the SEC on September 21,
1998. The financial statements of the Portfolio Trust for the fiscal period
beginning January 1, 1998 and ending June 30, 1998 are incorporated herein by
reference to the semi-annual report of the Portfolio Trust (File No. 811-07773)
filed with the SEC on September 21, 1998.
<PAGE> 38
PART C
------
To the Registration Statement of The International
Currency Fund (the "Trust")
Item 24. Financial Statements and Exhibits.
- -------- ----------------------------------
(a) Financial Statements:
(1) Financial Statements included in PART A of
this Registration Statement:
[None]
(2) Financial Statements included in PART B of
this Registration Statement:
Financial Statements for the U.S. Dollar
Portfolio, Pound Sterling Portfolio,
Deutschemark Portfolio and Canadian Dollar
Portfolio (collectively, the "Portfolios")
for the fiscal period ended December 31,
1997 and for the fiscal period beginning
January 1, 1998 and ending June 30, 1998.
Report of Independent Accountants
Statement of Assets and Liabilities
(b) Exhibits:
Exhibit No. Description
----------- -----------
1 Agreement and Declaration of Trust of the
Trust. Incorporated by reference to
Pre-Effective Amendment No. 1 to this
Registration Statement filed via EDGAR on
November 25, 1996.
2 By-Laws of the Trust. Incorporated by
reference to Pre-Effective Amendment No. 1
to this Registration Statement filed via
EDGAR on November 25, 1996.
3 Not Applicable.
4 Not applicable.
5(a) Form of Advisory Agreement between
the International Currency Fund and State
Street Bank and Trust Company.
5(b) Form of Sub-Advisory Agreement between
State Street Bank and Trust Company and
Rothschild International Asset Management
Limited.
6 Not applicable.
<PAGE> 39
Exhibit No. Description
----------- -----------
7 Not applicable.
8 Custody Agreement between the Trust and The
Chase Manhattan Bank incorporated herein by
reference to this Exhibit number in
Amendment No. 2 to this Registration
Statement (File No. 811-07773) filed
February 4, 1997.
9 (a) Administration Agreement between the
Trust and BISYS Fund Services Limited
Partnership incorporated herein by
reference to this Exhibit number in
Amendment No. 2 to this Registration
Statement (File No. 811-07773) filed
February 4, 1997.
(b) Fund Accounting Agreement between the
Trust and BISYS Fund Services, Inc.
incorporated herein by reference to this
Exhibit number in Amendment No. 2 to this
Registration Statement (File No. 811-07773)
filed February 4, 1997.
10 Legal opinion and consent of Goodwin,
Procter & Hoar LLP with respect to the
Portfolio Trust incorporated herein by
reference to this Exhibit number in
Amendment No. 2 to this Registration
Statement (File No. 811-07773) filed
February 4, 1997.
11 Not applicable.
12 Not applicable.
13 Purchase Agreement with respect to initial
capital incorporated herein by reference to
this Exhibit number in Amendment No. 2 to
this Registration Statement (File
No. 811-07773) filed February 4, 1997.
14 Not applicable.
15 Not applicable.
16 Not applicable.
17 Financial Data Schedules for the
Portfolio Trust.
18 Not applicable.
19 Not applicable
Item 25. Persons Controlled by or Under Common Control with Trust.
- -------- ---------------------------------------------------------
As of the close of business on September 18, 1998, SSgA Cash Management
Fund plc, an Irish umbrella company (the "Irish Company") consisting of numerous
classes of shares of beneficial interest categorized as sub-funds (the "Irish
Funds"), owned substantially all of the outstanding interests of the Portfolios.
Because each Irish Fund controls its corresponding Portfolio, it may take
actions without the approval of any other investor in such Portfolio.
<PAGE> 40
Item 26. Number of Holders of Securities.
- -------- --------------------------------
As of September 21, 1998, the record holders of each class of the
Trust's securities were as follows:
Title of Class Number of Record Holders
-------------- ------------------------
U.S. Dollar Portfolio 2
Pound Sterling Portfolio 2
Deutschemark Portfolio 2
Canadian Dollar Portfolio 2
Item 27. Indemnification.
- -------- ----------------
Under Article VIII of the Trust's Agreement and Declaration of
the Trust, any present or former Trustee, Officer, agent or employee or person
serving in such capacity with another entity at the request of the Trust
("Covered Person") shall be indemnified against all liabilities, including, but
not limited to, amounts paid in satisfaction of judgments, in compromises or as
fines or penalties, and expenses, including reasonable legal and accounting
fees, in connection with the defense or disposition of any proceeding by or in
the name of the Trust or any shareholder in his capacity as such if: (i) a
favorable final decision on the merits is made by a court or administrative
body; or (ii) a reasonable determination is made by a vote of the majority of a
quorum of disinterested Trustees or by independent legal counsel that the
Covered Person was not liable by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in his office
("Disabling Conduct"); or (iii) a determination is made to indemnify the Covered
Person under procedures approved by the Board of Trustees which in the opinion
of independent legal counsel are not inconsistent with the Investment Company
Act of 1940. Said Article VI further provides that the Trust shall indemnify any
Covered Person against any such liabilities and expenses incurred in connection
with the defense or disposition of any other type of proceeding except with
respect to any matter as to which the Covered Person shall have engaged in
Disabling Conduct or shall have been finally adjudicated not to have acted in
good faith and in the reasonable belief that such Covered Person's action was in
or not opposed to the best interests of the Trust.
Item 28. Business and Other Connections of Investment Adviser.
- -------- -----------------------------------------------------
The Investment Management Division of State Street Bank and Trust
Company ("State Street") serves as adviser to the Registrant. State Street, a
Massachusetts bank, currently manages large institutional accounts and
collective investment funds. The business, profession, vocation or employment of
a substantial nature which each director or officer of the investment adviser is
or has been, at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or trustee,
is as follows:
NAME CAPACITY BUSINESS NAME
WITH ADVISOR AND ADDRESS*
Tenley E. Albright, MD Director Chairman, Western
Resources, Inc.
Commonwealth Avenue
Boston, MA 02116-3134
Joseph A. Baute Director Former Chairman and CEO,
Markem Corporation
515 East Surry Road
Surry, NH 03431
I. MacAlister Booth Director Retired Chairman, President and
CEO, Polaroid Corporation
P.O. Box 428 - 68 Barnes Hill Road
Concord, MA 01742
Marshall N. Carter Chairman and CEO State Street Bank and Trust Company
225 Franklin Street - P.O. Box 351
Boston, MA 02110
James I. Cash, Jr. Director The James E. Robison Professor of
Business Administration, Harvard
Business School (on sabbatical)
c/o Stanford Graduate School of
Business
518 Memorial Way
Stanford University
Stanford, CA 94305-5015
Truman S. Casner Director Partner, Ropes & Gray
One International Place - 37th Floor
Boston, MA 02110
Nader F. Darehshori Director Chairman, President and CEO,
Houghton Mifflin Company
222 Berkeley - 5th Floor
Boston, MA 02116-3764
Arthur L. Goldstein Director Chairman and CEO, Ionics, Inc.
65 Grove Street
P.O. Box 9131
Watertown, MA 02272-9131
David P. Gruber Director President and CEO,
Wyman-Gordon Company
244 Worchester Street
N. Grafton, MA 01536-8001
Charles F. Kaye Director President, Transportation
Investments Inc.
101 Federal Street - Suite 1900
Boston, MA 02110
John M. Kucharski Director Chairman and CEO, EG&G, Inc.
45 William Street
Wellesley, MA 02181
Charles R. LaMantia Director President and CEO, Arthur D. Little,
Inc.
25 Acorn Park
Cambridge, MA 02140
David B. Perini Director Chairman and President, Perini
Corporation
73 Mt. Wayte Avenue
Framingham, MA 01701
Dennis J. Picard Director Chairman and CEO, Raytheon Company
141 Spring Street
Lexington, MA 02173
Alfred Poe Director Former President, Meal Enhancement
Group, Campbell Soup Company
Nine Hickory Drive
Chester, NJ 07930
Bernard W. Reznicek Director President, Premier Group;
Retired Chairman and CEO,
Boston Edison Company
1212 N. 96th Street
Omaha, NE 68114-2274
David A. Spina President and State Street Corporation
Chief Operating 225 Franklin Street - P.O. Box 351
Officer Boston, MA 02110
Diana Chapman Walsh Director President, Wellesley College
106 Central Street
Wellesley, MA 02181
Robert E. Weissman Director Chairman and CEO, Cognizant
Corporation
200 Nyala Farms Road
Westport, CT 06880
<PAGE> 41
Item 29. Principal Underwriters.
- -------- -----------------------
(a) The shares of beneficial interest of the Trust are not publicly
offered and therefore the Trust does not utilize the services of a distributor
or principal underwriter.
(b) Not applicable
(c) Not applicable.
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
The accounts and records of the Trust are maintained at the
offices of the Trust at 3435 Stelzer Road, Columbus, OH 43219-3035.
Item 31. Management Services.
- -------- --------------------
Not applicable.
Item 32. Undertakings.
- -------- -------------
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
<PAGE> 42
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
registrant has duly caused this Amendment to its registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 21st day of September, 1998.
INTERNATIONAL CURRENCY FUND
By: /s/ Peter B. Collacott
-----------------------------
Peter B. Collacott, President
<PAGE> 1
Exhibit 5(a)
INVESTMENT ADVISORY AGREEMENT
BETWEEN
INTERNATIONAL CURRENCY FUND
AND
STATE STREET BANK AND TRUST COMPANY
This Agreement is made as of this ____ day of ________, 1998, between
International Currency Fund, a Delaware business trust (the "Investment
Company"), and State Street Bank and Trust Company, a Massachusetts trust
company (the "Adviser").
WHEREAS, the Investment Company is an open-end, diversified management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), currently consisting of the portfolio series, listed
on Schedule A hereto (the "Initial Portfolios"), each having its own investment
policies; and
WHEREAS, the Adviser is a Massachusetts trust company, and is in the
business of providing, among other things, fiduciary and investment advisory
services; and
WHEREAS, the Investment Company desires to retain the Adviser to render
investment advisory services to the Investment Company with respect to the
Initial Portfolios and possibly such other funds as the Investment Company and
the Adviser may agree upon (collectively, the "Funds"), and the Adviser is
willing to render such services;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the Investment Company and Adviser agree as follows:
1. Appointment of Adviser.
-----------------------
(a) INITIAL PORTFOLIOS. The Investment Company hereby appoints
the Adviser to act as investment adviser to the Initial Portfolios for the
period and on the terms set forth in this Agreement. The Adviser accepts such
appointment and agrees to render the services herein set forth, for the
compensation herein provided. The Investment Company warrants that the Adviser
has been duly appointed to act hereunder.
(b) ADDITIONAL FUNDS. In the event that the Investment Company
establishes one or more Funds other than the Initial Portfolios with respect to
which it desires to retain the Adviser to render investment advisory services
hereunder, it shall so notify the Adviser in writing, indicating the advisory
fee to be payable with respect to the additional Fund. If the Adviser is willing
to render such services, it shall so notify the Investment Company in writing,
whereupon such Fund shall become a Fund hereunder. In such event a writing
signed by both the Investment Company and the Adviser shall be annexed hereto as
a part hereof indicating that such additional Fund has become a Fund hereunder
and reflecting the agreed-upon fee schedule for such Fund.
2. ADVISORY DUTIES. Subject to the supervision of the Board of Trustees
of the Investment Company, the Adviser shall manage the investment operations
and the composition of the Fund, including the purchase, retention and
disposition thereof, in accordance with the Fund's investment objective and
policies as stated in the Investment Company's Registration Statement. The
Adviser is authorized to engage
<PAGE> 2
one or more sub-advisers in connection with the Adviser's duties under this
Agreement, which sub-advisers may be affiliates of the Adviser. The Adviser's
duties hereunder are subject to the following understandings:
(a) The Adviser shall provide supervision of investments,
furnish a continuous investment program for the Fund, determine from time to
time what investments or securities will be purchased, retained or sold by the
Fund, and what portion of the assets will be invested or held uninvested as
cash;
(b) The Adviser, in the performance of its duties and
obligations under this Agreement, shall act in conformity with the Master Trust
Agreement, By-Laws and Registration Statement of the Investment Company and with
the instructions and directions of the Board of Trustees of the Investment
Company, provided, however, the Adviser shall not be responsible for acting
contrary to any of the foregoing that are changed without notice of such change
to the Adviser; and the Adviser shall conform to and comply with the applicable
requirements of the 1940 Act and all other applicable federal or state laws and
regulations.
(c) The Adviser shall promptly communicate to the officers and
Trustees of the Investment Company such information relating to Fund
transactions as they may reasonably request. On occasions when the Adviser deems
the purchase or sale of a security to be in the best interest of a Fund as well
an other clients, the Adviser, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be sold or purchased, provided that
in the opinion of the Adviser, all accounts are treated equitably and fairly. In
such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, shall be made by the Adviser in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to Investment Company and to such other clients;
(d) The Adviser shall maintain books and records with respect
to the Investment Company's securities transactions and shall render to the
Investment Company's Board of Trustees such periodic and special reports as the
Board may reasonably request;
(e) The Adviser shall provide the Investment Company with a
list of all securities transactions as reasonably requested by the Investment
Company; and
(f) The investment advisory services of the Adviser to the
Investment Company under this Agreement are not to be deemed exclusive, and the
Adviser shall be free to render similar services to others.
3. EXECUTION AND ALLOCATION OF PORTFOLIO BROKERAGE COMMISSION. The
Adviser, subject to and in accordance with any directions which the Investment
Company's Board of Trustees may issue from time to time, shall place, in the
name of the Investment Company, orders for the execution of the securities
transactions in which any Fund is authorized to invest. When placing such
orders, the primary objective of the Adviser shall be to obtain the most
favorable price and execution for the Investment Company but this requirement
shall not be deemed to obligate the Adviser to place any order solely on the
basis of obtaining the lowest commission rate if the other standards set forth
in this section have been satisfied. The Investment Company recognizes that
there are likely to be many cases in which different brokers are equally able to
provide such best price and execution and that, in selection among such brokers
with respect to particular trades, it is desirable to choose those brokers who
furnish "brokerage and research services" (as defined in Section 28(e)(3) of the
Securities and Exchange Act of 1934) or statistical quotations and other
information to the Investment Company and/or the Adviser in accordance with the
standards set forth
2
<PAGE> 3
below. Moreover, to the extent that it continues to be lawful to do so and so
long as the Board determines as a matter of general policy that the Investment
Company will benefit, directly of indirectly, by doing so, the Adviser may place
orders with a broker who charges a commission for that transaction which is in
excess of the amount of commission that another broker would have charged for
effecting that transaction, provided that the excess commission is reasonable in
relation to the value of brokerage and research services provided by that
broker.
4. BOOKS AND RECORDS. The Adviser shall keep the Investment Company's
books and records required to be maintained by it pursuant to paragraph 2(d)
hereof. The Adviser agrees that all records which it maintains for the
Investment Company are the property of the Investment Company and it shall
surrender promptly to the Investment Company any of such records upon the
Investment Company's request. Nothing herein shall prevent the Adviser from
maintaining its own records as required by law, which may be a duplication of
the Investment Company's records.
5. REPORTS TO ADVISER. The Investment Company agrees to furnish the
Adviser at its principal office all prospectuses, proxy statements, reports to
stockholders, sales literature or other material prepared for distribution to
shareholders of the Investment Company or the public, which refer in any way to
the Adviser, ten (10) days prior to use thereof and not to use such material if
the Adviser should object thereto in writing within seven (7) days after receipt
of such material; provided, however, that the Adviser hereby approves all uses
of its name which merely refer in accurate terms to its appointment as
investment adviser hereunder, which merely identifies the Investment Company, or
which are required by the Securities and Exchange Commission or a state
securities commission. In the event of termination of this Agreement, the
Investment Company shall, on written request of the Adviser, forthwith delete
any reference to the Adviser from any materials described in the preceding
sentence. The Investment Company shall furnish or otherwise make available to
the Adviser such other information relating to the business affairs of the
Investment Company as the Adviser at any time, or from time to time, reasonably
requests in order to discharge its obligations hereunder.
6. PROXIES. Unless the Investment Company gives written instructions to
the contrary, the Adviser shall vote or not vote all proxies solicited by or
with respect to the issuers of securities in which assets of any Fund may be
invested. The Adviser shall use its best good faith judgment to vote or not vote
such proxies in a manner which best serves the interests of the Investment
Company's shareholders.
7. EXPENSES. During the term of this Agreement, the Adviser shall pay
all of its own expenses incurred by it in connection with its activities under
this Agreement and the Fund of the Investment Company shall bear all expenses
that are incurred in its operations not specifically assumed by the Adviser.
Expenses borne by the Fund will include but not be limited to the
following (or the Fund's proportionate share of the following): (a) brokerage
commissions relating to securities purchased or sold by the Fund or any losses
incurred in connection therewith; (b) fees payable to and expenses incurred on
behalf of the Fund by the Investment Company's administrator; (c) expenses of
organizing the Investment Company and the Fund; (d) filing fees and expenses
relating to the registration and qualification of the Fund's shares and the
Investment Company under federal or state securities laws and maintaining such
registrations and qualifications; (e) fees and salaries payable to the
Investment Company's Trustees and officers who are not officers or employees of
the Investment Company's administrator, any investment adviser or underwriter of
the Investment Company; (f) taxes (including any income or franchise taxes) and
governmental fees; (g) costs of any liability, uncollectible items of deposit
and other insurance or fidelity bonds; (h) any costs, expenses or losses arising
out of any liability of or claim for damage or other relief
3
<PAGE> 4
asserted against the Investment Company or the Fund for violation of any law;
(i) legal, accounting and auditing expenses, including legal fees of special
counsel for the independent Trustees; (j) charges of custodians, transfer agents
and other agents; (k) costs of preparing share certificates (if any); (l)
expenses of setting in type and printing Prospectuses and Statements of
Additional Information and supplements thereto for existing shareholders,
reports and statements to shareholders and proxy materials (m) any extraordinary
expenses (including fees and disbursements of counsel) incurred by the
Investment Company or the Fund; and (n) fees and other expenses incurred in
connection with membership in Investment Company organizations.
8. COMPENSATION OF THE ADVISER. For the services to be rendered by the
Adviser as provided in this Agreement, the Investment Company shall pay to the
Adviser such compensation as is designated in Schedule B to this Agreement, so
long as the Adviser has not waived all or a portion of such compensation.
9. LIMITATION OF ADVISER'S LIABILITY. In the absence of (a) willful
misfeasance, bad faith or gross negligence on the part of the Adviser, or any
sub-adviser engaged by the Adviser pursuant to Section 2 hereof, in performance
of its obligations and duties hereunder or (b) reckless disregard by the
Adviser, or any sub-adviser engaged by the Adviser pursuant to Section 2 hereof,
of its obligations and duties hereunder, the Adviser shall not be subject to any
liability whatsoever to the Investment Company, or to any shareholder of the
Investment Company, for any error of judgment, mistake of law or any other act
or omission in the course of, or connected with, rendering services hereunder
including, without limitation, for any losses that may be sustained in
connection with the purchase, holding, redemption or sale of any security on
behalf of the Investment Company.
10. Duration and Termination.
-------------------------
(a) This Agreement shall become effective with respect to each
Fund on the date on which the Fund commences offering its shares to the public,
so long as with respect to any additional Funds, the provisions of Section l(b)
have been complied with. This Agreement, unless sooner terminated as provided
herein, shall continue for each Fund for two years following the effective date
of this Agreement with respect to the Fund, or the date of the first annual or
special meeting of the shareholders of the Fund following such effective date,
if approved by a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act), and thereafter shall continue automatically for
periods of one year so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of those members of the Board of
Trustees of the Investment Company who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting such approval, and (b) by
the Board of Trustees of the Investment Company or by vote of a majority of the
outstanding voting securities of the Fund.
(b) This Agreement may be terminated by the Investment Company
at any time, without the payment of any penalty, by vote of a majority of those
members of the Board of Trustees who are not "interested persons" (as defined in
the 1940 Act) of the Adviser or the Investment Company or by the majority vote
of either the entire Board of Trustees of the Investment Company or by vote of a
majority of the outstanding voting securities of the Fund on 60 days' written
notice to the Adviser. This Agreement may also be terminated by the Adviser on
60 days' written notice to the Investment Company. This Agreement will
automatically and immediately terminate in the event of its assignment (as
defined in the 1940 Act).
11. CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts and any applicable
federal law.
4
<PAGE> 5
12. LIMITATION OF LIABILITY. The Master Trust Agreement dated August
13, 1996, as amended from time to time, establishing the Investment Company,
which is hereby referred to and a copy of which is on file with the Secretary of
State of the State of Delaware, provides that the name International Currency
Fund means the Trustees from time to time serving (as Trustees but not
personally) under said Master Trust Agreement. It is expressly acknowledged and
agreed that the obligations of the Investment Company hereunder shall not be
binding upon any of the shareholders, Trustees, officers, employees or agents of
the Investment Company, personally, but shall bind only the trust property of
the Investment Company, as provided in its Master Trust Agreement. The execution
and delivery of this Agreement have been authorized by the Trustees of the
Investment Company and signed by an officer of the Investment Company, acting as
such, and neither such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the trust property of the Investment Company as provided in its Master
Trust Agreement.
13. INITIALS "SSGA"; NAMES "STATE STREET" AND "STATE STREET GLOBAL
ADVISORS"; LOGOS. The Investment Company acknowledges that (i) the initials
"SSgA", (ii) the names "State Street" and "State Street Global Advisors", (iii)
the logo consisting of the initials "SSgA" with a globe inside the "g" and (iv)
all other related names, initials and logos (collectively with the names,
initials and logos referred to above, the "Marks") are the property of the
Adviser and its related entities and may be used by the Investment Company only
with the consent of the Adviser. The Adviser consents to the use by the
Investment Company of the Marks in such form as the Adviser shall in writing
approve, but only on condition and so long as (i) this Agreement shall remain in
full force and (ii) the Investment Company shall fully perform, fulfill and
comply with all provisions of this Agreement expressed herein to be performed,
fulfilled or complied with by it. No such name shall be used by the Investment
Company at any time or in any place or for any purposes or under any conditions
except as in this section provided. The foregoing authorization by the Adviser
to the Investment Company to use the Marks is not exclusive of the right of the
Adviser itself to use, or to authorize others to use, the same; the Investment
Company acknowledges and agrees that as between the Adviser and the Investment
Company, the Adviser has the exclusive right so to use, or authorize others to
use the Marks and the Investment Company agrees to take such action as may
reasonably be requested by the Adviser to give full effect to the provisions of
this section (including, without limitation, consenting to such use of the
Marks). Without limiting the generality of the foregoing, the Investment Company
agrees that, upon any termination of this Agreement by either party or upon the
violation of any of its provisions by the Investment Company, the Investment
Company will, at the request of the Adviser made within six months after the
Adviser has knowledge of such termination or violation, use its best efforts to
eliminate all reference, if any, to the initials "SSgA", and any other Marks and
will not thereafter transact any business in a name containing the initials
"SSgA" or any other Marks in any form or combination whatsoever, or designate
itself as the same entity as or successor to an entity of such name, or
otherwise use the initials "SSgA" or any other Mark or reference to the Adviser.
Such covenants on the part of the Investment Company shall be binding upon it,
its trustees, officers, stockholders, creditors and all other persons claiming
under or through it.
5
<PAGE> 6
IN WITNESS WHEREOF, the due execution hereof as of the date first above
written.
Attest: INTERNATIONAL CURRENCY FUND
By: By:
------------------------- -------------------------------
Attest: STATE STREET BANK AND TRUST COMPANY
By: By:
------------------------- -------------------------------
6
<PAGE> 7
SCHEDULE A
INITIAL PORTFOLIOS
------------------
U.S. Dollar Portfolio
Pound Sterling Portfolio
Deutsche Mark Portfolio
Canadian Dollar Portfolio
7
<PAGE> 8
SCHEDULE B
FEE SCHEDULE
------------
For the services to be provided by the Adviser hereunder,the Investment
Company agrees that each Initial Portfolio shall pay to the Adviser a monthly
fee as soon as practical after the last day of each calendar month, which fee
shall be paid at a rate equal to twenty-five one hundredths of one percent
(.25%) on an annual basis of the average daily net asset value of such Portfolio
for such calendar month, commencing as of the date on which this Agreement
becomes effective with respect to such Portfolio.
In case of commencement or termination of this Agreement with respect to
any Portfolio during any calendar month, the fee with respect to such Portfolio
for that month shall be reduced proportionately based upon the number of
calendar days during which this agreement is in effect with respect to such
Portfolio, and the fee shall be computed based upon the average daily net asset
value of such Portfolio during such period.
8
<PAGE> 1
Exhibit 5(b)
INTERNATIONAL CURRENCY FUND
SUB-ADVISER AGREEMENT
Sub-Adviser Agreement executed as of ____________, 1998 between STATE
STREET BANK AND TRUST COMPANY, a Massachusetts trust company (the "Adviser") and
ROTHSCHILD INTERNATIONAL ASSET MANAGEMENT LIMITED (the Sub-Adviser).
WITNESSETH
That in connection of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY SUB-ADVISER TO THE TRUST.
Subject always to the control of the trustees (the "Trustees")
of International Currency Fund, a Delaware business trust (the "Trust"), the
Sub-adviser, at its expense, will furnish continuously an investment program for
the Initial Portfolios listed on Schedule A hereto (the "Initial Portfolios")
and such other funds as the Investment Company and the Adviser may agree upon
(collectively, the "Funds") and will make investment decisions on behalf of the
Funds and place all orders for the purchase and sale of portfolio securities and
all other investments. In the event that the Trust establishes one or more Funds
other than the Initial Portfolios with respect to which the Adviser desires to
retain the Sub-adviser to render investment advisory services hereunder, it
shall so notify the Sub-adviser in writing, indicating the advisory fee to be
payable with respect to the additional Fund. If the Sub-adviser is willing to
render such services, it shall so notify the Adviser in writing, whereupon such
Fund shall become a Fund hereunder. In such event a writing signed by both the
Adviser and the Sub-adviser shall be annexed hereto as a part hereof indicating
that such additional Fund has become a Fund hereunder and reflecting the
agreed-upon fee schedule for such Fund.
In the performance of its duties, the Sub-adviser (i) will comply with
the provisions of the Trust's Agreement and Declaration of Trust and By-laws,
including any amendments thereto (upon receipt of such amendments by the
Sub-adviser), and the investment objectives, policies and restrictions of the
Fund as set forth in its current Registration Statement (copies of which will be
supplied to the Sub-adviser upon filing with the Securities and Exchange
Commission), (ii) will use its best efforts to safeguard and promote the welfare
of each Fund, (iii) will comply with other policies which the Trustees or the
Adviser, as the case may be, may from time to time determine as promptly as
practicable after such policies have been communicated to the Sub-adviser in
writing, and (iv) shall exercise the same care and diligence expected of the
Trustees. The Sub-adviser and the Adviser shall each make its officers and
employees available to the other from time to time at reasonable times to review
investment policies of the Funds and to consult with each other regarding the
investment affairs of the Funds.
(a) The Sub-adviser, at its expense, will furnish all
necessary investment and management facilities,
including salaries of personnel, required for it to
execute its duties hereunder faithfully.
(b) In the selection of brokers, dealers or futures
commissions merchants (collectively, brokers) and the
placing of orders for the purchase and sale of
portfolio investments for the Funds, the Sub-adviser
shall seek to obtain for each Fund the
<PAGE> 2
most favorable price and execution available, except
to the extent it may be permitted to pay higher
brokerage commissions for brokerage and research
services as described below. In using its best
efforts to obtain for each Fund the most favorable
price and execution available, the Sub-adviser,
bearing in mind the Fund's best interests at all
times, shall consider all factors it deems relevant,
including, by way of illustration, the price, the
size of the transaction, the nature of the market for
the security, the amount of the commission, the
timing of the transaction taking into account market
prices and trends, the reputation, experience and
financial stability of the broker involved and the
quality of service rendered by the broker in other
transactions. Subject to such policies as the
Trustees may determine and communicate to the
Sub-adviser in writing, the Sub-adviser shall not be
deemed to have acted unlawfully or to have breached
any duty created by this Agreement or otherwise
solely by reason of its having caused a Fund to pay a
broker that provides brokerage and research services
to the Sub-adviser or any affiliated person of the
Sub-adviser an amount of commission for effecting a
portfolio investment transaction in excess of the
amount of commission another broker would have
charged for effecting that transaction, if the
Sub-adviser determines in good faith that such amount
of commission was reasonable in relation to the value
of the brokerage and research services provided by
such broker, viewed in terms of either that
particular transaction or the Sub-adviser's overall
responsibilities with respect to the Fund and to
other clients of the Sub- adviser and any affiliated
person of the Sub-adviser as to which the Sub-adviser
or any affiliated person of the Sub-adviser exercises
investment discretion.
(c) The Sub-adviser shall not be obligated to pay any
expenses of or for the Trust or of or for a Fund not
expressly assumed by the Sub-adviser pursuant to this
Section 1.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a shareholder, partner, director, officer or
employee of, or be otherwise interested in, the Sub-adviser, and in any person
controlling, controlled by or under common control with the Sub-adviser, and
that the Sub- adviser and any person controlling, controlled by or under common
control with the Sub-adviser may have an interest in the Trust. It is also
understood that the Sub-adviser and persons controlling, controlled by or under
common control with the Sub-adviser have and may have advisory, management
service, distribution or other contracts with other organizations and persons,
and may have other interests and businesses.
3. COMPENSATION TO BE PAID BY THE ADVISER TO THE SUB-ADVISER
The Adviser will pay to the Sub-adviser as compensation for the
Sub-adviser's services rendered, for the facilities furnished and for the
expenses borne by the Sub-adviser pursuant to Section 1, a fee, computed and
paid monthly at the annual rate (based on the number of days elapsed through the
end of the month) set forth on Schedule B hereto. Such fee shall be payable for
each month within ten (10) business days after the end of such month. If the
Sub-adviser shall serve for less than the whole of a month, the foregoing
compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS
AGREEMENT
This Agreement shall automatically terminate as to a Fund, without the
payment of any penalty, in
2
<PAGE> 3
the event of its assignment or in the event that the Investment Advisory
Agreement dated as of ________________, 1998 between the Adviser and the Trust,
with respect to that Fund, shall have terminated for any reason, and the Adviser
shall provide notice of any such termination of the Investment Advisory
Agreement to the Sub-adviser; and this Agreement shall not be amended as to a
Fund unless such amendment be approved by the affirmative vote of a majority of
the outstanding shares of that Fund, and by the vote, cast in person at a
meeting called for the purpose of voting on such approval, of a majority of the
Trustees who are not interested persons of the Trust or of the Adviser or of the
Sub-adviser.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 4) until terminated as to a Fund as
follows:
(a) The Trust may at any time terminate this Agreement
with respect to a Fund by written notice delivered or
mailed by registered mail, postage prepaid, to the
Adviser and the Sub-adviser, or
(b) If (i) the Trustees or the shareholders of the Trust
by the affirmative vote of a majority of the
outstanding shares of a Fund, and (ii) a majority of
the Trustees who are not interested persons of the
Trust or of the Adviser or of the Sub-adviser, by
vote cast in person at a meeting called for the
purpose of voting on such approval, do not
specifically approve at least annually the
continuance of this Agreement, then this Agreement
shall automatically terminate at the close of
business on the second anniversary of its execution,
or upon the expiration of one year from the effective
date of the last such continuance, whichever is
later; provided, however, that if the continuance of
this Agreement is submitted to the shareholders of a
Fund for their approval and such shareholders fail to
approve such continuance of this Agreement as
provided herein, the Sub-adviser may continue to
serve hereunder in a manner consistent with the
Investment Company Act of 1940, as amended (the 1940
Act), and the rules and regulations thereunder, or
(c) The Adviser may at any time terminate this Agreement
by not less than 60 days' written notice delivered or
mailed by registered mail, postage prepaid, to the
Sub- adviser, and the Sub-adviser may at any time
terminate this Agreement by not less than 60 day's
written notice delivered or mailed by registered
mail, postage prepaid, to the Adviser.
Action by the Trust under paragraph (a) above may be taken either (i)
by vote of a majority of the Trustees, or (ii) by the affirmative vote of a
majority of the outstanding shares of the applicable Fund.
Termination of this Agreement pursuant to this Section 5 shall be
without the payment of any penalty.
6. CERTAIN INFORMATION
The Sub-adviser shall promptly notify the Adviser in writing of the
occurrence of any of the following events: (a) the Sub-adviser shall fail to be
registered as an investment adviser under the
3
<PAGE> 4
Investment Advisers Act of 1940, as amended from time to time, and under the
laws of any jurisdiction in which the Sub-adviser is required to be registered
as an investment adviser in order to perform its obligations under this
Agreement or any other agreement concerning the provision of investment advisory
services to the Trust, (b) the Sub-adviser shall have been served or otherwise
have notice of any action, suit, proceeding, inquiry or investigation, at law or
in equity, before or by any court, public board or body, involving the affairs
of the Trust, (c) there is a change in control of the Sub-adviser or any parent
of the Sub-adviser within the meaning of the 1940 Act or (d) there is a material
adverse change in the business or financial position of the Sub-adviser.
7. CERTAIN DEFINITIONS
For the purposes of this Agreement, the "affirmative vote of a majority
of the outstanding shares" means the affirmative vote, at a duly called and held
meeting of shareholders, (a) of the holders of 67% or more of the shares of a
Fund present (in person or by proxy) and entitled to vote at such meeting, if
the holders of more than 50% of the outstanding shares of the Fund entitled to
vote at such meeting are present in person or by proxy, or (b) of the holders of
more than 50% of the outstanding shares of the Fund entitled to vote at such
meeting, whichever is less.
For the purposes of this Agreement, the terms affiliated person,
control, interested person and assignment shall have their respective meanings
defined in the 1940 Act and the rules and regulations thereunder, subject,
however, to such exemptions as may be granted by the Securities and Exchange
Commission under the 1940 Act; the term specifically approve at least annually
shall be construed in a manner consistent with the 1940 Act and the rules and
regulations thereunder; and the term brokerage and research services shall have
the meaning given in the 1934 Act and the rules and regulations thereunder.
8. NONLIABILITY OF SUB-ADVISER
In the absence of wilful misfeasance, bad faith or gross negligence on
the part of the Sub-adviser, or reckless disregard of its obligations and duties
hereunder, the Sub-adviser shall not be subject to any liability to the Adviser,
to the Trust, to any Fund, or to any shareholder, officer, director or Trustee
thereof, for any act or omission in the course of, or connected with, rendering
services hereunder.
9. EXERCISE OF VOTING RIGHTS
Except with the agreement or on the specific instructions of the
Trustees or the Adviser, the Sub- adviser shall not exercise or procure the
exercise of any voting right attaching to investments of a Fund.
10. NOTICES
All notices, requests and consents shall be in writing and shall be
personally delivered or mailed by registered mail, postage prepaid, to the other
party at such address as may be furnished in writing by such party.
11. APPLICABLE LAW AND LIABILITIES
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
4
<PAGE> 5
IN WITNESS WHEREOF STATE STREET BANK AND TRUST COMPANY and ROTHSCHILD
INTERNATIONAL ASSET MANAGEMENT LIMITED have each caused this instrument to be
signed in duplicate on its behalf by its duly authorized representative, as of
the day and year first above written.
STATE STREET BANK AND TRUST
COMPANY
By:
----------------------------------
Name:
Title:
ROTHSCHILD INTERNATIONAL ASSET
MANAGEMENT LIMITED
By:
----------------------------------
Name:
Title:
5
<PAGE> 6
SCHEDULE A
INITIAL PORTFOLIOS
------------------
U.S. Dollar Portfolio
Pound Sterling Portfolio
Deutsche Mark Portfolio
Canadian Dollar Portfolio
6
<PAGE> 7
SCHEDULE B
FEE SCHEDULE
------------
For the services to be provided by the Sub-adviser hereunder, the Adviser
agrees that each Initial Portfolio shall pay to the Sub-adviser a monthly fee as
soon as practical after the last day of each calendar month, which fee shall be
paid at a rate equal to five one hundredths of one percent (.05%) on an annual
basis of the average daily net asset value of such Portfolio for such calendar
month, commencing as of the date on which this Agreement becomes effective with
respect to such Portfolio.
In case of commencement or termination of this Agreement with respect to
any Portfolio during any calendar month, the fee with respect to such Portfolio
for that month shall be reduced proportionately based upon the number of
calendar days during which this agreement is in effect with respect to such
Portfolio, and the fee shall be computed based upon the average daily net asset
value of such Portfolio during such period.
7
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