Rule 497(a)
File Nos. 333-38916
and 811-09975
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
TT EAFE MUTUAL FUND
The Fund seeks total return in excess of the total return of the Morgan Stanley
Capital International Europe, Australasia and Far East Index
TT International, investment manager
Prospectus
________, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
FUND SUMMARY................................................3
Investment Goal...........................................3
Main Investment Strategies................................3
Main Risks................................................4
Performance History.......................................5
Fees and Expenses.........................................6
ADDITIONAL INVESTMENT STRATEGIES AND RISKS..................7
MANAGING THE FUND...........................................9
DISTRIBUTION ARRANGEMENTS...................................10
SHAREHOLDER INFORMATION.....................................10
How to Buy and Sell Shares................................10
How the Fund Calculates Share Price.......................10
DIVIDENDS, DISTRIBUTIONS AND TAXES..........................11
FINANCIAL HIGHLIGHTS........................................12
APPENDIX A - PURCHASES AND SALES OUTSIDE OF EMPLOYER -
SPONSORED RETIREMENT PLANS..................................A-1
<PAGE>
FUND SUMMARY
INVESTMENT GOAL
The Fund's goal is total return in excess of the total return of the Morgan
Stanley Capital International Europe, Australasia and Far East (EAFE) Index.
There is no assurance that the Fund will achieve its goal. The Fund is not
required to seek to invest in the same companies that are included in the EAFE
Index or any other index.
The Fund pursues this goal by investing in an underlying investment company, TT
EAFE Portfolio. The Portfolio invests directly in securities and has the same
investment goal and strategies as the Fund.
MAIN INVESTMENT STRATEGIES
The Fund seeks to achieve its investment goal by investing in a diversified
portfolio of primarily equity and equity-related securities in foreign markets
that the investment manager to the Fund (referred to as the Manager) believes
have sound prospects for sustainable growth and represent value in the form of
assets and earnings. Under normal circumstances, 65% or more of the Fund's
investments will consist of these securities. These equity and equity-related
securities include securities listed on recognized exchanges, convertible
bonds, warrants, equity and stock index futures contracts and options
(including options on equity securities and currency) and forward currency
exchange contracts.
The Manager uses both a "top-down" and a "bottom-up" investment strategy in
managing the Fund's investment portfolio. As part of its top-down strategy, the
Manager uses geopolitical analysis to eliminate countries where the Manager
believes it is unsafe to invest and to highlight countries where change is
likely to occur. In conducting the geopolitical analysis, the Manager may
consider such factors as the condition and growth potential of the various
economies and securities markets, currency and taxation policies and other
pertinent financial, social, national and political factors. Under certain
adverse investment conditions, the Fund may restrict the number of securities
markets in which it invests, although under normal market circumstances the
Fund's investments will involve securities principally traded in at least three
different countries. Otherwise, there are no prescribed limits on geographical
asset distribution.
The Fund's investments may include the securities of issuers located in
Argentina, Australia, Austria, Belgium, Brazil, Canada, China, the Czech
Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, India,
Ireland, Israel, Italy, Japan, Korea, Malaysia, Mexico, the Netherlands, New
Zealand, Norway, Poland, Portugal, Singapore, South Africa, Spain, Sweden,
Switzerland, Taiwan, Thailand, Turkey and the United Kingdom. These are not the
only countries in which the Fund can invest, and the Fund may invest in
companies located in other countries as well.
Once the Manager has completed the geopolitical analysis, it allocates Fund
assets among various sectors and industries. This primarily is part of the
Manager's top-down strategy, but also may be part of its bottom-up strategy,
especially when analyzing a narrow sector or industry.
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Within sectors and industries the Manager applies its bottom-up strategy to
identify attractive companies for investment. This strategy involves
considering a wide range of factors, including:
o perceived value in a company's assets or earnings, and
o the potential for realizing a company's value.
In addition, as part of its bottom up strategy, the Manager seeks to verify its
assessment of a company's value through research, economic modeling,
discussions with management, and other sources.
The Manager may decide to sell Fund investments under a wide range of
circumstances relating to the performance and potential of those investments
and to general, economic, sector or market conditions. These circumstances may
include:
o changes in the Manager's top-down geopolitical analysis,
o changes in the Manager's view of a sector or industry,
o changes in market conditions or perceptions,
o changes in a company's value in assets or earnings or the prospect for
realizing a company's value, and
o opportunities to realize a profit or mitigate a loss.
MAIN RISKS
There are several risk factors that could hurt the Fund's performance, cause
you to lose money or make the Fund perform less well than other investments.
The main risks of investing in the Fund are:
o Stock Market Risk: Funds that invest in equity securities are subject
to stock market risks and significant fluctuations in value. If the
stock markets in which the Fund invests decline in value, the Fund is
likely to decline in value. Decreases in the value of stocks are
generally greater than for bonds or other debt investments.
o Stock Selection Risk: Value stocks selected by the Manager may decline
in value or not increase in value when the stock market in general is
rising.
o Foreign Investment Risk. Investments in foreign securities involve
risks relating to adverse political, social and economic developments
abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign companies and markets are
subject.
o Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may
be less public information about their operations.
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o Foreign markets may be less liquid and more volatile than U.S.
markets. Rapid increases in money supply may result in speculative
investing, contributing to volatility. Also, equity securities may
trade at price-earnings multiples that are higher than those of
comparable U.S. companies, and that may not be sustainable. As a
result, there may be rapid changes in the value of foreign
securities.
o Foreign markets may offer less protection to investors. Enforcing
legal rights may be difficult, costly and slow. There may be special
problems enforcing claims against foreign governments.
o Since foreign securities often trade in currencies other than the
U.S. dollar, changes in currency exchange rates will affect the
Fund's net asset value, the value of dividends and interest earned,
and gains and losses realized on the sale of securities. An increase
in the U.S. dollar relative to these other currencies will adversely
affect the value of the Fund. In addition, some foreign currency
values may be volatile and there is the possibility of governmental
controls on currency exchanges or governmental intervention in
currency markets. Controls or intervention could limit or prevent
the Fund from realizing value in U.S. dollars from its investment in
foreign securities. The Fund could also be adversely affected by the
conversion of European currencies to the Euro.
Remember that mutual funds are investments, not bank deposits. They are not
insured or guaranteed by the FDIC or any other government agency, and you could
lose money by investing in them.
PERFORMANCE HISTORY
The chart and table below provide some indication of the risks of investing in
the Fund by illustrating that returns can differ from one year to the next and
comparing this information to a broad measure of market performance. The bar
chart and the table are based on the performance of the Fund's underlying
mutual fund. The performance of the Fund's underlying mutual fund, in turn, is
based on the performance of the LKCM International Fund. The LKCM International
Fund is a mutual fund that has been subadvised by the Manager since its
inception and that has investment objectives, policies, and strategies
substantially similar to those of the Fund. The bar chart shows total returns,
and the table compares average annual returns to the performance of the Morgan
Stanley Capital International Europe, Australasia and Far East Index. The
performance presented below is historical and does not represent projected
future investment performance of the Fund.
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Total Return
[BAR CHART]
1998 10.10%
1999 42.17%
As of June 30, 2000, the year-to-date return for the LKCM International Fund
was -5.50%.
Best and Worst Quarterly Returns
36.27% (4th quarter, 1999)
-12.82% (3rd quarter, 1998)
--------------------------------------------- -------- ---------------------
Average Annual Total Returns Since Inception
as of December 31, 1999 1 Year (December 30, 1997)
--------------------------------------------- -------- ---------------------
LKCM International Fund 42.71% 25.35%
--------------------------------------------- -------- ---------------------
Morgan Stanley Capital International Europe,
Australasia and Far East Index(1) 26.96% 23.43%
--------------------------------------------- -------- ---------------------
(1) The Morgan Stanley Capital International Europe, Australasia and Far East
Index is an unmanaged index composed of 20 European and Pacific Basin
countries, is the most recognized international index and is weighted by market
capitalization.
FEES AND EXPENSES
FEE TABLE
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.* The Fund does not have a sales charge (load).
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SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) None
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Redemption Fee............................ **
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ANNUAL OPERATING EXPENSES
(FEES DEDUCTED FROM FUND ASSETS)+
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Management Fees........................... 1.00%
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Distribution (12b-1) Fees................. None
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Other Expenses++.......................... 0.55%
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Total Annual Operating Expenses........... 1.55%
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Fee Waiver+++............................. (0.35)%
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NET EXPENSES.............................. 1.20%
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--------------
* Based on amounts estimated for the fiscal year ending December 31, 2000.
** If you wish to receive your redemption (sale) proceeds by wire, there is a
$7 wire fee. This fee may not apply for employer-sponsored accounts.
+ The Fund invests in securities through an underlying mutual fund, TT EAFE
Portfolio. This table reflects the expenses of the Fund and TT EAFE
Portfolio.
++ Includes costs of administration, custody, accounting services, and
similar expenses.
+++ For the period from commencement of operations of the Fund until December
31, 2001, the Manager has contractually agreed to waive certain fees
and/or reimburse certain expenses, including management fees, so that the
Fund's expenses will not exceed, on a per annum basis, 1.20% of its
average daily net assets.
EXAMPLE
This example is designed to help you compare the costs of investing in the Fund
to the costs of investing in other funds. The example assumes operating
expenses remain the same, that you invested $10,000, earned 5% annual returns,
reinvested all dividends and distributions, and sold your shares at the end of
each period, and that the fee waiver reflected in the fee table above is in
effect for the one year time period. This is only an example; your actual
expenses will be different.
1 Year 3 Years
$123 $456
ADDITIONAL INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies are described in the section
entitled " Main Investment Strategies." The Fund may use other strategies and
invest in other securities that are described below and in the Statement of
Additional Information. However, the Fund may not use all of the strategies and
techniques or invest in all of the types of securities described in this
prospectus or in the Statement of Additional Information. The Fund's goal and
strategies may be changed without shareholder approval.
In pursuing its investment objective, the Fund may invest in U.S. markets
through American Depositary Receipts (ADRs) and similar instruments. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying foreign security and denominated in U.S. dollars.
While the Fund expects to invest mainly in equity securities, the Fund may also
invest in investment grade debt securities and below investment grade debt
securities ("junk bonds").
The Fund will not participate in initial public offerings or other "hot issues"
unless the market capitalization of the issuer exceeds a minimum threshold
determined by the Manager from time to time, and the Manager otherwise
determines participation to be appropriate.
<PAGE>
The Manager may use foreign currency contracts to hedge the Fund's currency
exposure at its discretion. Hedging is used to protect against price movements
in a security that the Fund owns or intends to acquire that are attributable to
changes in the value of the currency in which the security is denominated. The
Manager may hedge anywhere from 0% to 100% of the Fund's currency exposure. In
determining whether to engage in foreign currency contracts, the Manager
carefully considers fundamental macro-economic factors, as well as the
geopolitical factors and capital flows. In addition, the Manager may purchase
and sell stock index futures contracts to hedge against the Fund's exposure to
the volatility of securities prices in a particular market or to reallocate the
Fund's equity market exposure.
The Fund may, from time to time, take temporary defensive positions that are
not consistent with the Fund's principal investment strategies in attempting to
respond to adverse market, political or other conditions. When doing so, the
Fund may invest without limit in high quality debt securities, and may not be
pursuing its investment goal.
INVESTMENT STRUCTURE
The Fund does not invest directly in securities but instead invests in another
fund, the TT EAFE Portfolio, having the same investment goal and strategies as
the Fund. The TT EAFE Portfolio, a registered investment company, buys, holds
and sells securities in accordance with these goals and strategies. Unless
otherwise indicated, references to the Fund in this prospectus include, as
appropriate, the TT EAFE Portfolio. The Fund may stop investing in the TT EAFE
Portfolio at any time, and will do so if the Fund's Trustees believe that to be
in the best interests of the Fund's shareholders. The Fund could then invest in
another mutual fund or pooled investment vehicle or invest directly in
securities.
ADDITIONAL RISK INFORMATION
The main risks of investing in the Fund are outlined above under "Fund Summary
- Main Risks." Additional, non-primary, risks of investing in the Fund are
described below. Please note that there are many other factors that could
adversely affect your investment and that could prevent the Fund from achieving
its goal, which are not described in this prospectus. More information about
risks appears in the Fund's Statement of Additional Information.
o Derivatives. The Fund's use of derivatives (such as futures contracts,
options and forward foreign currency exchange contracts) may represent a
significant portion of the Fund's investments and may be risky. This
practice could result in losses that are not offset by gains on other
portfolio assets. Losses would cause the Fund's share price to go down.
There is also the risk that the counterparty may fail to honor its
contract terms. The Fund's ability to use derivatives successfully depends
on the Manager's ability to accurately predict movements in stock prices,
interest rates and currency exchange rates. If the Manager's predictions
are wrong, the Fund could suffer greater losses than if the Fund had not
used derivatives.
o Investment in an Underlying Investment Company: Investment companies, in
addition to the Fund, may invest in TT EAFE Portfolio. If these other
investment companies withdraw their investments from the Portfolio, the
Fund may have to pay higher expenses in connection with its investment in
the Portfolio.
<PAGE>
o Interest Rate Risk. In general, the prices of debt securities rise when
interest rates fall, and fall when interest rates rise. Longer term
obligations are usually more sensitive to interest rate changes. If the
Fund invests in debt securities, a change in interest rates could cause
the Fund's share price to go down.
o Credit Risk. The Fund may invest in investment grade debt securities and,
to a lesser extent, in non-investment grade securities (known as "junk
bonds"). It is possible that some issuers will not make payments on debt
securities held by the Fund, causing a loss; or an issuer may suffer
adverse changes in its financial condition that could lower the credit
quality of a security, leading to greater volatility in the price of the
security and in shares of the Fund. A change in the quality rating of a
bond or other security can also affect the security's liquidity and make
it more difficult for the Fund to sell. The lower quality debt securities
in which the Fund may invest are more susceptible to these problems than
higher quality obligations.
o Junk Bonds. Credit risk is more pronounced with so-called "junk bonds"
which are debt obligations that are rated below investment-grade. The risk
of default may be greater and the market for these securities may be less
active, making it more difficult to sell the securities at reasonable
prices, and also making valuation of the securities more difficult. The
Fund may incur additional expenses if an issuer defaults and the Fund
tries to recover some of its losses in a bankruptcy or other similar
proceeding.
o Convertible Securities. Convertible securities, which are debt securities
or preferred stock that may be converted into common stock, are subject to
the market risk of stocks, and, like debt securities, are also subject to
interest rate risk and the credit risk of their issuers. Call provisions
may allow the issuer to repay, or force conversion of, the debt before it
matures.
o Emerging Markets. The Fund may invest in issuers located in emerging
markets, which are the markets of countries in the initial stages of their
industrialization cycles with low per capita income. All of the risks of
investing in foreign securities are heightened by investing in emerging
markets. Emerging markets have been more volatile than the markets of
developed countries with more mature economies.
MANAGING THE FUND
THE INVESTMENT MANAGER
The Manager for the Fund is TT International Investment Management (TT
International), 5 Martin Lane, London, England EC4R ODP. The Manager was
founded in 1993 and offers investment counseling services to investment
companies, pension plans, trusts, charitable organizations, and other
institutional investors. As of the date of this prospectus, the Manager had in
excess of $6.5 billion in assets under management. The Manager is registered as
an investment adviser under the U.S. Investment Advisers Act of 1940 and is
authorized to conduct its investment business in the United Kingdom by the
Investment Management Regulatory Organisation Limited (IMRO). TT International
also is registered as a commodity pool operator and commodity trading adviser
with the Commodity Futures Trading Commission (CFTC).
<PAGE>
As payment for serving as Manager, TT International receives a management fee
at an annual rate of 1.00% of the Fund's average daily net assets, before any
waivers or reimbursements.
THE PORTFOLIO MANAGERS
The Manager uses a team of individuals who are primarily responsible for the
day-to-day management of the Fund.
DISTRIBUTION ARRANGEMENTS
First Fund Distributors, Inc. is the distributor of the Fund's shares. The Fund
does not pay the distributor a fee for distribution services or for services
provided to shareholders.
SHAREHOLDER INFORMATION
HOW TO BUY AND SELL SHARES
If you have purchased shares or plan to invest as part of an employer-sponsored
retirement plan, such as a 401(k) plan, 403(b) plan, SEP-IRA or SIMPLE IRA,
please contact your employer's plan administrator for information on the types
of available accounts, minimum balances, and buying and selling shares.
If you have purchased shares or plan to invest outside of an employer-sponsored
retirement plan, please see Appendix A on page A-1 for information on the types
of available accounts and buying and selling shares.
POSTPONEMENT OF SALE PROCEEDS OR SUSPENSION OF REDEMPTION RIGHT
You will receive your redemption (sale) proceeds normally on the third business
day after you sell your shares but in any event within seven days. However, if
your purchase was made by check, transmittal of your redemption proceeds may be
delayed for up to ten days after the purchase or until the check has cleared,
whichever occurs first.
The Fund may stop selling its shares or postpone payment during any period in
which the New York Stock Exchange is closed or in which trading is restricted,
or if the Securities and Exchange Commission determines that an emergency
exists.
LARGE REDEMPTIONS
It is important that you call 1-888-465-5722 before you redeem shares with an
aggregate redemption price over $1 million. The Fund reserves the right to
delay delivery of your redemption proceeds up to seven days if the amount will
disrupt the Fund's operation or performance.
HOW THE FUND CALCULATES SHARE PRICE
The Fund determines its share price at the close of regular trading on the New
York Stock Exchange, normally 4 p.m. Eastern time, on each day the Exchange is
<PAGE>
open for trading. The share price is the Fund's net asset value per share, or
NAV. This calculation is made by deducting the amount of the Fund's liabilities
(debts) from the value of its assets (including its investment in another
investment company), and dividing the difference by the number of outstanding
shares of the Fund.
Net Asset Value (NAV) = Total Assets - Total Liabilities
--------------------------------
Number of Shares Outstanding
The Fund typically uses market prices to value securities. However, when a
market price isn't available, or when the Fund has reason to believe the market
price doesn't represent market realities, the Fund may use fair value methods
approved by its Trustees. In such a case, the Fund's value for a security is
likely to be different from quoted market prices.
Because the Fund invests in securities that are traded primarily in foreign
markets, the value of its holdings could change at a time when you aren't able
to buy or sell Fund shares. This is because some foreign markets are open on
days when the Fund doesn't price its shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Fund intends to declare and pay income dividends on an annual basis and
intends to distribute net capital gains and net gains from foreign currency
transactions, if any, on an annual basis in December. The Fund may make an
additional distribution, if necessary, to avoid income or excise taxes.
Dividends and other distributions, if any, will automatically be paid in
additional shares of the Fund unless the shareholder elects otherwise. Such
election must be made in writing to the Fund.
TAXATION OF THE FUND
This discussion of taxes is very general. You should consult your own tax
adviser about the effect that an investment in the Fund may have on your
particular tax situation.
As long as the Fund qualifies for treatment as a regulated investment company
(which it intends to do in its first and each subsequent taxable year), it will
pay no federal income tax on the earnings it distributes to shareholders. The
Fund may pay taxes to non-U.S. governments in connection with its foreign
investments.
TAXABILITY OF DISTRIBUTIONS
You will normally have to pay federal income taxes, and any state or local
taxes, on the distributions you receive from the Fund, whether you take the
distributions in cash or reinvest them in additional shares. Distributions
designated by the Fund as capital gain dividends are taxable as long-term
capital gains. Other distributions are generally taxable as ordinary income.
Some distributions paid in January may be taxable to you as if they had been
paid the previous December. The IRS Form 1099 that is mailed to you every
January details your distributions for the prior year and how they are treated
for federal tax purposes.
<PAGE>
Fund distributions will reduce the Fund's net asset value per share. As a
result, if you buy shares shortly before the record date of a distribution, you
may pay the full price for the shares and then effectively receive a portion of
the purchase price back as a taxable distribution.
The Fund may be eligible to elect to "pass through" to you foreign income taxes
that it pays or that are paid by the underlying investment vehicle through
which the Fund invests. If the Fund makes this election, you will be required
to treat your share of those tax payments as a distribution to you from the
Fund. You will then be allowed to claim a credit (or a deduction, if you
itemize deductions) for such amounts on your federal income tax return, subject
to certain limitations.
FOREIGN SHAREHOLDERS
If you are not a citizen or resident of the U.S., the Fund will withhold U.S.
federal income tax payments at the rate of 30% on taxable dividends and other
payments that are subject to such withholding. You may be able to arrange for a
lower withholding rate under an applicable tax treaty if you supply the
appropriate documentation required by the Fund. Your distributions from the
Fund also may be subject to tax under the laws of your own jurisdictions.
BACKUP WITHHOLDING
The Fund may be required to withhold 31% of a dividend or redemption payment
that is payable to you if you do not furnish certain information and
certifications, or if you are otherwise subject to backup withholding. Please
read the Fund's account application for additional information regarding backup
withholding of federal income tax.
TAXABILITY OF TRANSACTIONS
When you redeem, sell or exchange shares, it is generally considered a taxable
event for you. Depending on the purchase price and the sale price of the shares
you redeem, sell or exchange, you may have a gain or a loss on the transaction.
You are responsible for any tax liabilities generated by your transaction.
FINANCIAL HIGHLIGHTS
The Fund is newly-organized and has not yet commenced operations.
[Balance Sheet to be Inserted]
<PAGE>
APPENDIX A
PURCHASES AND SALES OUTSIDE OF EMPLOYER - SPONSORED RETIREMENT PLANS
The following pages provide information on how to invest in the Fund outside of
an employer-sponsored retirement program and what to expect as a shareholder.
IF YOU ARE INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN, SUCH AS A
401(K) PLAN, 403(B) PLAN, SEP-IRA OR SIMPLE IRA, PLEASE CONTACT YOUR EMPLOYER'S
PLAN ADMINISTRATOR FOR INFORMATION.
If you're investing through a "third party provider" -- for example, a
financial supermarket, or financial adviser -- your provider may have its own
policies or instructions that you will need to follow.
TYPES OF ACCOUNTS
You may invest through an individual account or with one or more person(s)
through a joint account. If you are opening a joint account, joint tenancy with
rights of survivorship will be assumed unless other ownership is noted on your
account application. You also may open an account to invest assets held in an
existing personal trust.
HOW TO BUY SHARES
Use these instructions to invest directly with the Fund.
NEW ACCOUNTS ADDITIONAL INVESTMENTS
MINIMUM INVESTMENTS o $50,000 o $25,000
These minimum investment levels do not apply to investments by officers or
trustees of the Fund or the TT EAFE Portfolio or by partners or employees of
the Manager.
BY CHECK o Mail the completed account o Fill out the investment form that
application and your check came with your trade
to: confirmation or account
statement, or send a note with
For regular mail - your account number and your
Investors Bank & Trust check to:
Company
P.O. Box 9130 For regular mail -
Boston, MA 02117 Investors Bank & Trust Company
P.O. Box 9130
For overnight mail - Boston, MA 02117
Investors Bank & Trust
Company For overnight mail -
200 Clarendon Street Investors Bank & Trust Company
<PAGE>
Boston, MA 02116 200 Clarendon Street
Boston, MA 02116
Your check must be in U.S.
dollars drawn on a U.S. bank Your check must be in U.S.
and be made payable to "TT dollars drawn on a U.S. bank
EAFE Fund." Third party and be made payable to "TT EAFE
checks cannot be accepted. Fund." Third party checks cannot
be accepted.
BY WIRE o Please call 1-888-465-5722 o Please call 1-888-465-5722 for
for instructions instructions
The Fund may reject any purchase order and may suspend, change or withdraw the
offering of its shares. In particular, the Fund may limit excessive trading in
its shares.
HOW TO SELL SHARES
Requests to sell shares must be submitted in writing. Transactions are
processed at the next determined share price after the transfer agent receives
your sale request in good order. To be in "good order" a request must include:
o Your account number.
o The amount of the transaction (in dollars or
shares).
o Signatures of all owners exactly as registered on
the account (for requests by mail).
o Signature guarantees (see "Signature Guarantees,"
on page A-3).
o Any supporting legal documentation that may be
required.
To sell shares of the Fund please complete a redemption form and mail the form
to:
For regular mail -
Investors Bank & Trust Company
P.O. Box 9130
Boston, MA 02117
For overnight mail -
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
Please note that the redemption request will need to include any required
signature guarantees (see "Signature Guarantee" below).
Shares also may be purchased and sold through certain brokers. These orders are
received when the authorized broker or its designee accepts the order and will
<PAGE>
be priced after they are accepted by the authorized broker or designee.
Investors may be charged a fee if they effect transactions in Fund shares
through a broker or agent.
SIGNATURE GUARANTEES
You are required to obtain a Signature Guarantee from an Eligible Guarantor for
any sales (redemptions).
Eligible Guarantors may include:
o Banks
o Savings institutions
o Credit unions
o Brokers
Note that you cannot get a signature guarantee from a notary public or from
organizations that do not provide reimbursement in the case of fraud.
The Fund or its service providers may request further documentation prior to
accepting sale requests. The Fund and its service providers may waive the
requirement for a signature guarantee.
POSTPONEMENT OF SALE PROCEEDS OR SUSPENSION OF REDEMPTION RIGHT
You will receive your redemption (sale) proceeds normally on the third business
day after you sell your shares but in any event within seven days. However, if
your purchase was made by check, transmittal of your redemption proceeds may be
delayed for up to ten days after the purchase or until the check has cleared,
whichever occurs first.
The Fund may stop selling its shares or postpone payment during any period in
which the New York Stock Exchange is closed or in which trading is restricted,
or if the Securities and Exchange Commission determines that an emergency
exists.
<PAGE>
LARGE REDEMPTIONS
It is important that you call 1-888-465-5722 before you redeem shares with an
aggregate redemption price over $1 million. The Fund reserves the right to
delay delivery of your redemption proceeds up to seven days if the amount will
disrupt the Fund's operation or performance.
MINIMUM BALANCE
If your account falls below $50,000 because of redemptions the Fund may close
your account by sending you a check for your balance. Before closing your
account, the Fund will give you 60 days notice and an opportunity to bring the
account up to the applicable minimum. The Fund and its service providers may
waive this investment minimum.
* * * * * * * *
The Fund reserves the right to change, add or withdraw various services, fees,
and account policies without notice.
Questions? Shareholders not investing through an employer-sponsored plan can
speak to a Fund representative between 9 a.m. and 5 p.m. Eastern
time on any Fund business day by calling 1-888-465-5722.
<PAGE>
TO GET MORE INFORMATION
STATEMENT OF ADDITIONAL INFORMATION
The Fund's Statement of Additional Information contains more detailed
information about the Fund and its management and operations. The Statement of
Additional Information is incorporated by reference into this prospectus and is
legally part of it.
To make shareholder inquiries or obtain copies of the Statement of Additional
Information and any reports to be issued by the Fund, free of charge, contact
your employer's plan administrator. IF YOU ARE NOT INVESTING THROUGH AN
EMPLOYER-SPONSORED RETIREMENT PLAN call 1-888-465-5722 or write to:
For regular mail -
Investors Bank & Trust Company
P.O. Box 9130
Boston, MA 02117
For overnight mail -
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
SECURITIES AND EXCHANGE COMMISSION
Information about the Fund (including its Statement of Additional Information)
is available on the Securities and Exchange Commission's website, www.sec.gov.
Copies also may be obtained upon payment of a duplicating fee by electronic
request at the following e-mail address: [email protected], or by writing the
Public Reference Section of the Commission, Washington, D.C. 20549-6009. You
also may visit the Commission's Public Reference Room in Washington, D.C. For
more information about the Public Reference Room you may call the Commission at
1-202-942-8090.
File No. 811-09975
<PAGE>
Rule 497(a)
File Nos. 333-38916
and 811-09975
The information in this statement of additional information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
statement of additional information is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
STATEMENT OF ADDITIONAL INFORMATION
________, 2000
TT EAFE MUTUAL FUND
(A SERIES OF TT INTERNATIONAL U.S.A. FEEDER TRUST)
TABLE OF CONTENTS PAGE
1. The Fund....................................................... 2
2. Investment Objectives; Information Concerning Investment
Structure; Investment Policies and Restrictions................ 2
3. Performance Information........................................ 19
4. Determination of Net Asset Value; Valuation of Portfolio Securities;
Additional Purchase Information................................ 20
5. Management of the Fund and the Portfolio....................... 22
6. Independent Auditors........................................... 27
7. Taxation....................................................... 27
8. Portfolio Transactions and Brokerage Commissions............... 30
9. Description of Shares, Voting Rights and Liabilities........... 31
10. Financial Statements........................................... 33
This Statement of Additional Information sets forth information which
may be of interest to investors but which is not necessarily included in the
Fund's Prospectus dated ________, 2000, as amended from time to time. This
Statement of Additional Information should be read in conjunction with the
Prospectus. An investor may obtain copies of the Fund's Prospectus and any
reports issued by the Fund without charge by contacting his or her employer's
plan administrator or by calling 1-888-465-5722.
This Statement of Additional Information is NOT a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by an effective prospectus and should be read only in conjunction
with such prospectus.
<PAGE>
1. THE FUND
TT EAFE Mutual Fund (the "Fund") is a no-load, diversified open-end
management investment company. The Fund is a series of shares of beneficial
interest of TT International U.S.A. Feeder Trust (the "Trust"), which was
organized as a business trust under the laws of the Commonwealth of
Massachusetts on May 26, 2000 and commenced operations on ________, 2000.
The Fund offers to buy back (redeem) its shares from its shareholders at
any time at net asset value. References in this Statement of Additional
Information to the "Prospectus" are to the current Prospectus of the Fund, as
amended or supplemented from time to time.
TT International Investment Management ("TT International") is the
investment manager to the Fund. The Board of Trustees provides broad
supervision over the affairs of the Fund. Shares of the Fund are continuously
sold by First Fund Distributors, Inc., the Fund's distributor (the
"Distributor").
The Fund seeks to achieve its investment objective by investing all its
assets in TT EAFE Portfolio (the "Portfolio"), a diversified, open-end,
registered, management investment company having the same investment objective
as the Fund. The Portfolio is a series of TT International U.S.A. Master Trust
(the "Portfolio Trust"). TT International is the Portfolio's investment manager
(the "Portfolio Manager").
2. INVESTMENT OBJECTIVES;
INFORMATION CONCERNING INVESTMENT STRUCTURE;
INVESTMENT POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
The investment objective of the Fund and the Portfolio is total return in
excess of the total return of the Morgan Stanley Capital International Europe,
Australasia and Far East Index.
The investment objective of the Fund may be changed without the approval
of the Fund's shareholders, but not without written notice thereof to
shareholders thirty days prior to implementing the change. If there is a change
in the Fund's investment objective, shareholders of the Fund should consider
whether the Fund remains an appropriate investment in light of their financial
positions and needs. The investment objective of the Portfolio also may be
changed without the approval of the investors in the Portfolio, but not without
written notice thereof to the investors in the Portfolio (and notice by the
Fund to its shareholders) 30 days prior to implementing the change. There can,
of course, be no assurance that the investment objective of either the Fund or
the Portfolio will be achieved.
INFORMATION CONCERNING INVESTMENT STRUCTURE
As noted above, the Fund does not invest directly in securities, but
instead invests all of its assets that are available for investment in the
Portfolio, which has the same investment objective and policies as the Fund.
The Portfolio, in turn, buys, holds and sells securities in accordance with
this objective and these policies.
<PAGE>
The Trustees of the Fund believe that the aggregate per share expenses of
the Fund and the Portfolio will be less than or approximately equal to the
expenses that the Fund would incur if the assets of the Fund were invested
directly in the types of securities held by the Portfolio. The Trust may
withdraw the investment of the Fund from the Portfolio at any time if the Board
of Trustees of the Trust determines that it is in the best interests of the
Fund to do so. Upon any such withdrawal, the Fund's assets would continue to be
invested in accordance with its investment objective and policies, either
directly in securities or in another mutual fund or pooled investment vehicle
having the same investment objective and policies. If the Fund were to
withdraw, the Fund could receive securities from the Portfolio instead of cash,
causing the Fund to incur brokerage, tax and other charges or leaving it with
securities which may or may not be readily marketable or widely diversified.
A change in investment objective, policies or restrictions by the
Portfolio may cause the Fund to withdraw its investment in the Portfolio.
Certain investment restrictions of the Portfolio are fundamental and cannot be
changed without approval by the investors in the Portfolio. When the Fund is
asked to vote on certain matters concerning the Portfolio, the Fund will either
hold a shareholder meeting and vote in accordance with shareholder instructions
or otherwise vote in accordance with applicable rules and regulations. Of
course, the Fund could be outvoted, or otherwise adversely affected by other
investors in the Portfolio. The Portfolio may sell interests to investors in
addition to the Fund. These investors may be mutual funds which offer shares to
their shareholders with different costs and expenses than the Fund. Therefore,
the investment return for all investors in funds investing in the Portfolio may
not be the same. These differences in returns are also present in other mutual
fund structures. Information about other holders of interests in the Portfolio
is available from the Fund's distributor, First Fund Distributors, Inc.
INVESTMENT POLICIES
The following supplements the information concerning the Fund's and the
Portfolio's investment policies contained in the Prospectus and should only be
read in conjunction therewith. References to the Fund include the Portfolio,
unless the context otherwise requires.
EQUITY-RELATED SECURITIES. The equity securities in which the Fund may
invest include common stocks, preferred stocks, warrants and rights, and debt
securities convertible into or exchangeable for common stock or other equity
securities.
PREFERRED STOCK. Preferred stock offers a stated dividend rate payable
from the corporation's earnings. These preferred stock dividends may be
cumulative or non-cumulative, participating, or auction rate. If interest rates
rise, the fixed dividend on preferred stocks may be less attractive, causing
the price of preferred stocks to decline. Preferred stock may have mandatory
sinking fund provisions, as well as call/redemption provisions prior to
maturity, a negative feature when interest rates decline. The rights of
preferred stocks are generally subordinate to rights associated with a
corporation's debt securities. Dividends on some preferred stock may be
"cumulative" if stated dividends from prior periods have not been paid.
Preferred stock also generally has a preference over common stock on the
distribution of a corporation's assets in the event of liquidation of the
corporation, and may be "participating," which means that it may be entitled to
a dividend exceeding the stated dividend in certain cases. The rights of
preferred stocks are generally subordinate to rights associated with a
corporation's debt securities.
WARRANTS AND RIGHTS. Warrants are options to purchase equity securities at
specific prices valid for a specific period of time. Their prices do not
<PAGE>
necessarily move parallel to the prices of the underlying securities. Rights
are similar to warrants but normally have a short duration and are distributed
by the issuer to its shareholders. Warrants and rights have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer.
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note
or other security that entitles the holder to acquire common stock or other
equity securities of the same or a different issuer. A convertible security
generally entitles the holder to receive interest paid or accrued until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to
nonconvertible debt securities. Convertible securities rank senior to common
stock in a corporation's capital structure and, therefore, generally entail
less risk than the corporation's common stock, although the extent to which
such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed-income security. A
convertible security may be subject to redemption at the option of the issuer
at a predetermined price. If a convertible security held by the Fund is called
for redemption, the Fund would be required to permit the issuer to redeem the
security and convert it to underlying common stock, or would sell the
convertible security to a third party.
The Fund will rely on the judgment, analysis and experience of TT
International in evaluating the creditworthiness of an issuer. In this
evaluation, TT International will take into consideration, among other things,
the issuer's financial resources and ability to cover its interest and fixed
charges, factors relating to the issuer's industry and its sensitivity to
economic conditions and trends, its operating history, the quality of the
issuer's management and regulatory matters.
The risk of loss due to default by the issuer is significantly greater for
the holders of lower quality securities because such securities are generally
unsecured and are often subordinated to other obligations of the issuer. During
an economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of lower quality securities may experience financial stress
and may not have sufficient revenues to meet their interest payment
obligations. An issuer's ability to service its debt obligations also may be
adversely affected by specific corporate developments, its inability to meet
specific projected business forecasts, or the unavailability of additional
financing.
Factors adversely affecting the market value of securities will adversely
affect the Fund's net asset value. In addition, the Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal of or interest on its portfolio holdings.
The secondary trading market for lower quality fixed-income securities is
generally not as liquid as the secondary market for higher quality securities
and is very thin for some securities. The relative lack of an active secondary
market may have an adverse impact on market price and the Fund's ability to
dispose of particular issues when necessary to meet the Fund's liquidity needs
or in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The relative lack of an active secondary market
for certain securities also may make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing the Fund's portfolio. Market
quotations are generally available on many lower quality issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales. During such times, the responsibility of
the Trust's Board of Trustees or TT International to value the securities
becomes more difficult and judgment plays a greater role in valuation because
there is less reliable, objective data available.
<PAGE>
FOREIGN SECURITIES. The Fund will invest in securities of foreign issuers.
These investments may include the securities of issuers located in Argentina,
Australia, Austria, Belgium, Brazil, Canada, China, the Czech Republic,
Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Ireland,
Israel, Italy, Japan, Korea, Malaysia, Mexico, the Netherlands, New Zealand,
Norway, Poland, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland,
Taiwan, Thailand, Turkey and the United Kingdom. These are not the only
countries in which the Fund can invest, and the Fund may invest in companies
located in other countries as well.
Investing in foreign issuers involves certain special considerations that
are not typically associated with investing in U.S. issuers. Since the
securities of foreign issuers are frequently denominated in foreign currencies,
and since the Fund may temporarily hold invested reserves in bank deposits in
foreign currencies, the Fund will be affected favorably or unfavorably by
changes in currency rates and in exchange control regulations, and may incur
costs in connection with conversions between various currencies. The investment
policies of the Fund permit it to enter into forward foreign currency exchange
contracts in order to hedge the Fund's holdings and commitments against changes
in the level of future currency rates. Such contracts involve an obligation to
purchase or sell a specific currency at a future date at a price set at the
time of the contract.
As foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more
volatile than securities of comparable domestic companies. There is generally
less government supervision and regulation of stock exchanges, brokers and
listed companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments that could affect
U.S. investments in those countries. Although the Fund will endeavor to achieve
most favorable execution costs in its portfolio transactions, fixed commissions
on many foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. In addition, it is expected that the expenses
for custodian arrangements of the Fund's foreign securities will be somewhat
greater than the expenses for custodian arrangements for handling U.S.
securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income paid by citizens or corporations operating therein to investors
in other countries. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from the companies comprising the holdings of the Fund.
However, these foreign withholding taxes are not expected to have a significant
impact on the Fund.
AMERICAN DEPOSITORY RECEIPTS ("ADRS"). The Fund may invest in ADRs, which
are receipts issued by an American bank or trust company evidencing ownership
of underlying securities issued by a foreign issuer. ADRs may be listed on a
national securities exchange or may trade in the over-the-counter market. ADR
prices are denominated in U.S. dollars; the underlying security is denominated
in a foreign currency.
FIXED-INCOME SECURITIES. The fixed-income securities in which the Fund may
invest include U.S. Government securities and corporate debt securities.
<PAGE>
INVESTMENT GRADE FIXED-INCOME SECURITIES. Investment grade fixed-income
securities include:
o U.S. government securities;
o Bonds or bank obligations rated in one of the four highest categories
(such as BBB or higher by S&P);
o Short-term notes rated in one of the two highest categories (such as
SP-2 or higher by S&P);
o Commercial paper or short-term bank obligations rated in one of the
three highest categories (such as A-3 or higher by S&P); and
o Repurchase agreements involving investment grade fixed-income
securities.
Investment grade fixed-income securities are generally believed to have a
lower degree of credit risk. However, certain investment grade securities with
lower ratings are considered medium quality and may be subject to greater
credit risk than the highest rated securities. If a security's rating falls
below that required at the time of purchase, TT International will consider
what action, if any, should be taken consistent with the Fund's investment
objective.
U.S. GOVERNMENT SECURITIES. U.S. Government agencies or instrumentalities
that issue or guarantee securities include, but are not limited to, Fannie Mae,
Government National Mortgage Association ("GNMA"), Federal Home Loan Banks,
Freddie Mac, Federal Intermediate Credit Banks, Federal Land Banks, Tennessee
Valley Authority, Inter-American Development Bank, Asian Development Bank, USA
Education, Inc. and the International Bank for Reconstruction and Development.
Except for U.S. Treasury securities, obligations of U.S. Government
agencies and instrumentalities may or may not be supported by the full faith
and credit of the United States. Some are backed by the right of the issuer to
borrow from the Treasury; others by discretionary authority of the U.S.
Government to purchase the agencies' obligations; while still others are
supported only by the credit of the instrumentality. In the case of securities
not backed by the full faith and credit of the United States, the investor must
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment. The Fund will invest in securities of such agencies or
instrumentalities only when TT International is satisfied that the credit risk
is acceptable.
The Fund may invest in component parts of U.S. Treasury notes or bonds,
namely either the corpus (principal) of such Treasury obligations or one of the
interest payments scheduled to be paid on such obligations. These obligations
may take the form of: (1) Treasury obligations from which the interest coupons
have been stripped; (2) the interest coupons that are stripped; (3)
book-entries at a Federal Reserve member bank representing ownership of
Treasury obligation components; or (4) receipts evidencing the component parts
(corpus or coupons) of Treasury obligations that have not actually been
<PAGE>
stripped. Such receipts evidence ownership of component parts of Treasury
obligations ( corpus or coupons) purchased by a third party (typically an
investment banking firm) and held on behalf of the third party in physical or
book-entry form by a major commercial bank or trust company pursuant to a
custody agreement with the third party. These custodial receipts are known by
various names, including "Treasury Receipts," "Treasury Investment Growth
Receipts" ("TIGRs") and "Certificates of Accrual on Treasury Securities"
("CATs"), and are not issued by the U.S. Treasury; therefore they are not U.S.
Government securities, although the underlying bonds represented by these
receipts are debt obligations of the U.S. Treasury.
LOWER RATED FIXED-INCOME SECURITIES. The Fund may invest in lower rated
fixed-income securities (commonly known as "junk bonds"). The lower ratings
reflect a greater possibility that adverse changes in the financial condition
of the issuer or in general economic conditions, or both, or an unanticipated
rise in interest rates, may impair the ability of the issuer to make payments
of interest and principal. The inability (or perceived inability) of issuers to
make timely payment of interest and principal would likely make the values of
such securities held by the Fund more volatile and could limit the Fund's
ability to sell its securities at prices approximating the values the Fund had
placed on such securities. In the absence of a liquid trading market for
securities held by it, the Fund at times may be unable to establish the fair
value of such securities. If the issuer defaults on its obligation, the value
of the security would fall and the Fund's income would also decline.
Securities ratings are based largely on the issuer's historical financial
condition and the rating agencies' analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better
or worse than the rating would indicate. In addition, the rating assigned to a
security by Moody's Investor Services Inc. ("Moody's") or Standard & Poor's
("S&P") (or by any other nationally recognized securities rating organization)
does not reflect an assessment of the volatility of the security's market value
or the liquidity of an investment in the security.
Like those of other fixed-income securities, the values of lower rated
securities go up and down in response to changes in interest rates. A decrease
in interest rates will generally result in an increase in the value of
fixed-income securities. Conversely, during periods of rising interest rates,
the value of the Fund's fixed-income securities will generally decline. The
values of lower rated securities may often be affected to a greater extent by
changes in general economic conditions and business conditions affecting the
issuers of such securities and their industries. Negative publicity or investor
perceptions may also adversely affect the values of lower rated securities.
Changes by recognized rating services in their ratings of any fixed-income
security and changes in the ability of an issuer to make payments of interest
and principal may also affect the value of these investments. Changes in the
value of portfolio securities generally will not affect income derived from
these securities, but will affect the Fund's net asset value.
Issuers of lower rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. Such issuers
may not have more traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by refinancing. The risk of
loss due to default in payment of interest or repayment of principal by such
issuers is significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior indebtedness.
CORPORATE DEBT SECURITIES. The Fund may invest in investment grade and
below investment grade U.S. dollar or foreign currency-denominated corporate
<PAGE>
debt securities of domestic or foreign issuers (corporate bonds, debentures,
notes and other similar corporate debt instruments). The rate of return or
return of principal on some debt obligations may be linked or indexed to the
level of exchange rates between the U.S. dollar and a foreign currency or
currencies.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
brokers, dealers or banks that meet the credit guidelines established by the
Board of Trustees of the Trust. In a repurchase agreement, the Fund buys a
security from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week
and never exceeds one year. A repurchase agreement may be viewed as a fully
collateralized loan of money by the Fund to the seller. The Fund always
receives securities as collateral with a market value at least equal to the
purchase price, including accrued interest, and this value is maintained during
the term of the agreement. If the seller defaults and the collateral value
declines, the Fund might incur a loss. If bankruptcy proceedings are commenced
with respect to the seller, the Fund's realization upon the collateral may be
delayed or limited.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with brokers, dealers, domestic and foreign banks or other financial
institutions. In a reverse repurchase agreement, the Fund sells a security and
agrees to repurchase it at a mutually agreed upon date and price, reflecting
the interest rate effective for the term of the agreement. It may also be
viewed as the borrowing of money by the Fund. The Fund's investment of the
proceeds of a reverse repurchase agreement is the speculative factor known as
leverage. The Fund may enter into a reverse repurchase agreement only if the
interest income from investment of the proceeds is greater than the interest
expense of the transaction and the proceeds are invested for a period no longer
than the term of the agreement.
WHEN-ISSUED SECURITIES. The Fund may purchase securities on a "when-
issued" basis. In buying "when-issued" securities, the Fund commits to buy
securities at a certain price even though the securities may not be delivered
for up to 120 days. No payment or delivery is made by the Fund in a "when-
issued" transaction until the Fund receives payment or delivery from the other
party to the transaction. Although the Fund receives no income from the
above-described securities prior to delivery, the market value of such
securities is still subject to change. As a consequence, it is possible that
the market price of the securities at the time of delivery may be higher or
lower than the purchase price.
DERIVATIVE INSTRUMENTS. In pursuing its investment objectives, the Fund
may purchase and sell (write) options on securities, securities indices, and
foreign currencies and enter into interest rate, foreign currency and index
futures contracts and purchase and sell options on such futures contracts and
enter into forward foreign currency exchange contracts for hedging purposes.
OPTIONS. An option is a legal contract that gives the holder the right to
buy or sell a specified amount of the underlying instrument at a fixed or
determinable price upon the exercise of the option. A call option conveys the
right to buy, in return for a premium paid, and a put option conveys the right,
in return for a premium, to sell a specified quantity of the underlying
instrument. Options on indices are settled in cash and gain or loss depends on
changes in the index in question rather than on price movement in individual
securities.
<PAGE>
There are certain risks associated with transactions in options on
securities and on indices. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. A decision as to whether, when, and how to use options involves
the exercise of skill and judgment, and even a well-conceived transaction may
be unsuccessful to some degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the
option in order to realize any profit or the option may expire worthless. If
the Fund were unable to close out a covered call option that it had written on
a security, it would not be able to sell the underlying security unless the
option expired without exercise. As the writer of a covered call option, the
Fund foregoes, during the life of the option, the opportunity to profit from
increases in the market value of the security covering the call option above
the sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased by the Fund, the Fund
would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it had purchased.
Except to the extent that a call option on an index written by the Fund is
covered by an option on the same index purchased by the Fund, movements in the
index may result in a loss to the Fund; however, such losses may be mitigated
by changes in the value of the Fund's securities during the period the option
was outstanding.
The Fund is authorized to purchase and sell over-the-counter options ("OTC
Options") in addition to exchange listed options. OTC Options are purchased
from or sold to securities dealers, financial institutions or other parties
("Counterparties") through direct bilateral agreement with the Counterparty. In
contrast to exchange listed options, which generally have standardized terms
and performance mechanics, all the terms of an OTC Option, including such terms
as method of settlement, term, exercise price, premium, guarantees and
security, are set by negotiation between the parties. The Fund will only sell
OTC Options that are subject to a buy-back provision permitting the Fund to
require the Counterparty to sell the option back to the Fund at a formula price
within seven days. The Fund expects generally to enter into OTC Options that
have cash settlement provisions, although it is not required to do so.
There is no central clearing or guaranty function in an OTC Option. As a
result, if the Counterparty fails to make or take delivery of the security,
currency or other instrument underlying an OTC Option it has entered into with
the Fund or fails to make a cash settlement payment due in accordance with the
terms of the option, the Fund will lose any premium it paid for the option as
well as any anticipated benefit of the transaction. Accordingly, TT
International must assess the creditworthiness of each such Counterparty or any
guarantor or credit enhancement of the Counterparty's credit to determine the
likelihood that the terms of the OTC Option will be satisfied. The Fund will
engage in OTC Option transactions only with U.S. government securities dealers
recognized by the Federal Reserve Bank of New York as "primary dealers," or
broker dealers, domestic or foreign banks or other financial institutions which
have received (or the guarantors of the obligation of which have received) a
short-term credit rating of "A-1" from S&P or "P-1" from Moody's or an
equivalent rating from any other Nationally Recognized Statistical Rating
Organization ("NRSRO").
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options on
foreign currencies for hedging purposes. For example, a decline in the dollar
<PAGE>
value of a foreign currency in which portfolio securities are denominated will
reduce the dollar value of such securities, even if their value in the foreign
currency remains constant. In order to protect against such diminutions in the
value of portfolio securities, the Fund may purchase put options on the foreign
currency. If the value of the currency does decline, the Fund will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio which
otherwise would have resulted.
Conversely, where the Manager perceives a risk of a rise in the dollar
value of a foreign currency in which securities to be acquired are denominated
(which would increase the dollar cost of these securities to the Fund) the Fund
may purchase call options on the currency involved. The purchase of such
options could offset, at least partially, the effects of the adverse movements
in exchange rates. As in the case of other types of options, however, the
benefit to the Fund deriving from purchases of foreign currency options will be
reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, the Fund could sustain losses on transactions in foreign
currency options which would require it to forego a portion or all of the
benefits of advantageous changes in such rates.
The Fund may write options on foreign currencies for the same types of
hedging purposes. For example, where the Fund anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the anticipated decline
occurs, the option will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received. Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types
of options, however, the writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium, and only if exchange
rates move in the expected direction. If this does not occur, the option may be
exercised and the Fund would be required to purchase or sell the underlying
currency at a loss, which may not be offset by the amount of the premium.
Through the writing of options on foreign currencies, the Fund also may be
required to forego all or a portion of the benefits that might otherwise have
been obtained from favorable movements in exchange rates.
The Fund may write covered call options on foreign currencies. A call
option written on a foreign currency by the Fund is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated
account by the Fund's custodian) upon conversion or exchange of other foreign
currency held in its portfolio. A call option is also covered if the Fund has a
call on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise
price of the call written if the difference is maintained by the Fund in cash,
or liquid assets in a segregated account with the custodian.
The Fund also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for
cross-hedging purposes if it is designed to provide a hedge against a decline
in the U.S. dollar value of a security which the Fund owns or has the right to
<PAGE>
acquire and which is denominated in the currency underlying the option due to
an adverse change in the exchange rate. In such circumstances, the Fund will
collateralize the option by maintaining in a segregated account with the
custodian, cash or liquid assets in an amount not less than the value of the
underlying foreign currency in U.S. dollars marked-to-market daily.
FUTURES CONTRACTS. Futures contracts provide for the future sale by one
party and purchase by another party of a specified amount of a specific
security, currency or index at a specified future time and at a specified
price. Futures contracts, which are standardized as to maturity date and
underlying financial instrument, are traded on national futures exchanges. U.S.
futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC").
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities or currency, in most cases the
contracts are closed out before the settlement date without the making or
taking of delivery. Closing out an open futures position is done by taking an
opposite position ("buying" a contract which has previously been "sold" or
"selling" a contract previously "purchased") in an identical contract to
terminate the position. Brokerage commissions are incurred when a futures
contract is bought or sold. Futures contracts on indices are settled in cash.
Futures traders are required to make a good faith margin deposit in cash
or acceptable securities with a broker or custodian to initiate and maintain
open positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying
securities) if it is not terminated prior to the specified delivery date.
Initial margin requirements are established by the futures exchange and may be
changed. Brokers may establish deposit requirements that are higher than the
exchange minimums.
After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required variation margin, resulting in a
repayment of excess variation margin to the contract holder. Variation margin
payments are made to and from the futures broker for as long as the contract
remains open.
Regulations of the CFTC applicable to the Fund require that it uses
futures contracts and options on futures contracts only for bona fide hedging
purposes, or to the extent that the Fund's futures and options on futures
positions are for other than bona fide hedging purposes, as described by the
CFTC, the aggregate initial margins and premiums required to establish such
non-bona fide hedging positions other than the "in-the-money" amount in the
case of options that are "in-the-money" at the time of purchase, may not exceed
5% of the Fund's net assets. Adherence to these guidelines does not limit the
Fund's risk to 5% of the Fund's assets. In practice, the Fund does not
anticipate a materially greater risk than 5%. The Fund will only sell futures
contracts to protect securities owned by it against price declines or purchase
contracts to protect against an increase in the price of securities it intends
to purchase. As evidence of this hedging intent, the Fund expects that
approximately 75% of the futures contracts purchased will be "completed;" that
is, equivalent amounts of related securities will have been purchased or in the
process of being purchased by the Fund upon sale of open futures contracts.
Futures contracts are typically not completed when the Manager decides that the
<PAGE>
hedge is no longer necessary or appropriate and closes out the position before
completion. Therefore, a futures contract that is not completed does not
necessarily provide additional risk to the Fund. Although techniques other than
the sale and purchase of futures contracts could be used to control the Fund's
exposure to market fluctuations, the use of futures contracts may be a more
effective means of hedging this exposure. While the Fund will incur commission
expenses in both opening and closing out futures positions, these costs may be
lower than transaction costs incurred in the purchase and sale of the
underlying securities.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("Forward Contract") is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders, usually large commercial banks, and their
customers. The Fund may use Forward Contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving Forward
Contracts that the Fund may use.
In connection with purchases and sales of securities denominated in
foreign currencies, the Fund may enter into Forward Contracts to fix a definite
price for the purchase or sale in advance of the trade's settlement date
("transaction hedge" or "settlement hedge").
The Fund also may use Forward Contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if
the Fund owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value ("position hedge"). A position
hedge would tend to offset both positive and negative currency fluctuations,
but would not offset changes in security values caused by other factors. The
Fund could also hedge the position by selling another currency expected to
perform similarly to the pound sterling ("proxy hedge"). A proxy hedge could
offer advantages in terms of cost, yield or efficiency, but generally would not
hedge currency exposure as effectively as a simple hedge into U.S. dollars.
Proxy hedges may result in losses if the currency used to hedge does not
perform similarly to the currency in which the hedged securities are
denominated.
The Fund's custodian will place cash or other liquid assets in a separate
account having a value equal to the aggregate amount of the Fund's commitments
under Forward Contracts entered into with respect to position hedges and
proxy-hedges. If the value of the assets placed in a segregated account
declines, additional cash or liquid assets will be placed in the account on a
daily basis so that the value of the account will equal the amount of the
Fund's commitments with respect to such contracts. Alternatively, the Fund may
purchase a call option permitting the Fund to purchase the amount of foreign
currency being hedged by a forward sale contract at a price no higher than the
Forward Contract price or the Fund may purchase a put option permitting the
Fund to sell the amount of foreign currency subject to a forward purchase
contract at a price as high or higher than the Forward Contract price.
Unanticipated changes in currency prices may result in poorer overall
performance for the Fund than if it had not entered into such contracts.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may
be closed out only on an exchange that provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may
not be possible to close a futures position. In the event of adverse price
movements, the Fund would continue to be required to make daily cash payments
to maintain its required margin. In such situations, if the Fund has
insufficient cash, it may have to sell portfolio securities to meet daily
<PAGE>
margin requirements at a time when it may be disadvantageous to do so. In
addition, the Fund may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability to
effectively hedge. The Fund will minimize the risk that it will be unable to
close out a futures contract by only entering into futures which are traded on
national futures exchanges and for which there appears to be a liquid secondary
market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures trading. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the Fund. For example, if at the time of
purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract.
Use of futures transactions by the Fund involves the risk of imperfect or
no correlation where the securities underlying futures contracts are different
than the portfolio securities being hedged. It is also possible that the Fund
could both lose money on futures contracts and also experience a decline in
value of its portfolio securities. There is also the risk of loss by the Fund
of margin deposits in the event of bankruptcy of a broker with whom the Fund
has an open position in a futures contract or option on a futures contract.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract and options prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract or
option on a futures contract may vary either up or down from the previous day's
settlement price at the end of a trading session. Once the daily limit has been
reached in a particular type of contract, no trades may be made on that day at
a price beyond that limit. The daily limit governs only price movement during a
particular trading day and therefore does not limit potential losses, because
the limit may prevent the liquidation of unfavorable positions. Futures
contract and options prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting some futures traders to
substantial losses.
RISKS OF OPTIONS ON FUTURES, FORWARD CONTRACTS, AND OPTIONS ON FOREIGN
CURRENCIES. Options on currencies may be traded over-the-counter and forward
currency contracts are always traded in the over-the-counter market. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchase of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. When the Fund enters into a forward
currency contract or purchases an over-the-counter option, it relies on its
counterparty to perform. Failure by the counterparty to do so would result in
the loss of any expected benefit of the transaction.
Futures contracts, options on futures contracts, Forward Contracts, and
options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
<PAGE>
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
non-business hours where the portfolio managers are located, (iv) the
imposition of different exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lesser trading volume.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default. The
purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effect of other political and
economic events. In addition, exchange-traded options of foreign currencies
involve certain risks not presented by the over-the-counter market. For
example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on
exercise and settlement, such as technical changes in the mechanics of delivery
of currency, the fixing of dollar settlement prices or prohibitions on
exercise.
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions,
multiple foreign currency transactions (including Forward Contracts) and any
combination of futures, options, and foreign currency transactions, instead of
a single transaction, as part of a single hedging strategy when, in the opinion
of TT International it is in the best interest of the Fund to do so. A combined
transaction, while part of a single hedging strategy, may contain elements of
risk that are present in each of its component transactions.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Fund will comply
with guidelines established by the SEC with respect to coverage of options,
futures and forward contracts strategies by mutual funds, and if the guidelines
so require will set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated account
cannot be sold while the futures, option or forward contract strategy is
outstanding, unless they are replaced with other suitable assets. Consequently,
there is a possibility that segregation of a large percentage of the Fund's
assets could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
ILLIQUID INVESTMENTS, RESTRICTED SECURITIES AND PRIVATE PLACEMENT
OFFERINGS. Illiquid investments are investments that cannot be sold or disposed
of within seven days in the ordinary course of business at approximately the
prices at which they are valued. Under the supervision of the Board of
Trustees, TT International determines the liquidity of the Fund's investments
and, through reports from TT International and the Fund's administrator, the
Board monitors investments in illiquid securities. In determining the liquidity
of the Fund's investments, TT International may consider various factors,
<PAGE>
including the frequency of trades and quotations, the number of dealers and
prospective purchasers in the marketplace, dealer undertakings to make a
market, the nature of the security, and the nature of the marketplace for
trades. Investments currently considered by the Fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, certain over-the-counter options, and restricted
securities (other than certain foreign securities, restricted securities
pursuant to Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act") and commercial paper sold in reliance on Section 4(2) of the
Securities Act). With respect to over-the-counter ("OTC") options that the Fund
writes, all or a portion of the value of the underlying instrument may be
illiquid depending on the assets held to cover the option and the nature and
terms of any agreement the Fund may have to close out the option before
expiration. The Fund will treat as illiquid an amount of assets used to cover
written OTC options, equal to the formula price at which the Fund would have
the absolute right to purchase the option less the amount by which the option
is "in-the-money." The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. When no market quotations
are available, illiquid investments are priced at fair value as determined in
good faith by TT International under the supervision of the Board of Trustees.
Disposing of these investments may involve time-consuming negotiation and legal
expenses, and it may be difficult or impossible for the Fund to sell them
promptly at an acceptable price. If through a change in values, net assets, or
other circumstances, the Fund was in a position where more than 15% of its net
assets were invested in illiquid securities, the Fund would take appropriate
steps to protect liquidity.
RESTRICTED SECURITIES. The Fund is permitted to invest in restricted
securities. Restricted securities can generally be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act or in a registered public offering. Where registration is required, the
Fund may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek registration
and the time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions
were to develop, the Fund might obtain a less favorable price than prevailed at
the time it decided to seek registration of the security.
CORPORATE REORGANIZATIONS. The Fund may invest a portion of its assets in
securities for which a tender or exchange offer has been made or announced if,
in the judgment of TT International, there is a reasonable prospect of capital
appreciation significantly greater than the added portfolio turnover expenses
inherent in the short-term nature of such transactions. The primary risk is
that such offers or proposals may not be consummated within the time and under
the terms contemplated at the time of the investment, in which case, unless
such offers or proposals are replaced by equivalent or increased offers or
proposals which are consummated, the Fund may sustain a loss.
TEMPORARY INVESTMENTS. The temporary investments that the Fund may make
include:
(1) Time deposits, certificates of deposit (including marketable variable
rate certificates of deposit) and bankers' acceptances issued by a
commercial bank or savings and loan association. Time deposits are
non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. Time deposits
maturing in more than seven days will not be purchased by the Fund.
Certificates of deposit are negotiable short-term obligations issued
by commercial banks or savings and loan associations against funds
<PAGE>
deposited in the issuing institution. Variable rate certificates of
deposit are certificates of deposit on which the interest rate is
periodically adjusted prior to their stated maturity based upon a
specified market rate. A bankers' 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).
The Fund will not invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion, or the
equivalent in other currencies, or, in the case of domestic banks
which do not have total assets of at least $1 billion, the aggregate
investment made in any one such bank is limited to $100,000 and the
principal amount of such investment is insured in full by the Federal
Deposit Insurance Corporation and (ii) in the case of U.S. banks, it
is a member of the Federal Deposit Insurance Corporation.
(2) Commercial paper which at the time of purchase is rated in the
highest rating category by a NRSRO or, if not rated, issued by a
corporation having an outstanding unsecured debt issue that meets
such rating requirement at time of purchase;
(3) Short-term corporate obligations rated in the highest rating category
by a NRSRO at time of purchase; and
(4) U.S. Government obligations, including bills, notes and other debt
securities issued by the U.S. Treasury. These are direct obligations
of the U.S. Government and differ mainly in interest rates,
maturities and dates of issue.
OTHER INVESTMENT COMPANIES. The Fund may invest in other investment
companies to the extent permitted by the Investment Company Act of 1940, as
amended (the "1940 Act"). In addition to the advisory fees and other expenses
the Fund bears directly in connection with its own operations, as a shareholder
of another investment company, the Fund would bear its pro rata portion of the
other investment company's advisory fees and other expenses. As such, the
Fund's shareholders would indirectly bear the expenses of the Fund and the
other investment company, some or all of which would be duplicative.
SECURITIES LENDING. The Fund may lend securities to qualified brokers,
dealers, banks and other financial institutions. Securities lending allows the
Fund to retain ownership of the securities loaned and, at the same time, to
earn additional income. Since there may be delays in the recovery of loaned
securities, or even a loss of rights in collateral supplied should the borrower
fail financially, loans will be made only to parties deemed by TT International
to be of good standing. In addition, they will only be made if, in TT
International's judgment, the consideration to be earned from such loans would
justify the risk. Such loans will not be made if, as a result, the aggregate of
all outstanding loans of the Fund exceed one-third of the value of its total
assets.
It is the Fund's understanding that the current view of the staff of the
SEC is that the Fund may engage in loan transactions only under the following
conditions: (1) the Fund must receive 100% collateral in the form of cash or
cash equivalents (i.e., U.S. Treasury bills or notes) from the borrower; (2)
the borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of the
collateral; (3) after giving notice, the Fund must be able to terminate the
<PAGE>
loan at any time; (4) the Fund must receive reasonable interest on the loan
(which may include the Fund investing any cash collateral in interest bearing
short-term investments) or a flat fee from the borrower, as well as amounts
equivalent to any dividends, interest, or other distributions on the securities
loaned and to any increase in market value; (5) the Fund may pay only
reasonable custodian fees in connection with the loan; and (6) the Board of
Trustees must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with the
borrower.
-------------------------
The approval of the Fund and of the other investors in the Portfolio and
the approval of shareholders of the Fund are not required to change the
investment objective or any of the investment policies discussed above,
including those concerning security transactions.
FUNDAMENTAL RESTRICTIONS. The Fund and the Portfolio each have adopted the
following policies which may not be changed without approval by holders of a
"majority of the outstanding voting securities" of the Fund or the Portfolio,
respectively, which as used in this Statement of Additional Information means
the vote of the lesser of (i) 67% or more of the outstanding "voting
securities" of the Fund or the Portfolio, respectively, present at a meeting,
if the holders of more than 50% of the outstanding "voting securities" of the
Fund or the Portfolio, respectively, are present or represented by proxy, or
(ii) more than 50% of the outstanding "voting securities" of the Fund or the
Portfolio, respectively (a "Majority Shareholder Vote"). The term "voting
securities" as used in this paragraph has the same meaning as in the 1940 Act.
Neither the Fund nor the Portfolio may:
(1) invest in physical commodities or contracts on physical commodities;
(2) purchase or sell real estate, although it may purchase and sell
securities of companies that deal in real estate, other than real
estate limited partnerships, and may purchase and sell marketable
securities that are secured by interests in real estate;
(3) make loans except: (i) by purchasing debt securities in accordance
with its investment objective and policies or entering into
repurchase agreements; or (ii) by lending its portfolio securities to
banks, brokers, dealers and other financial institutions, so long as
such loans are not inconsistent with the 1940 Act or the rules and
regulations or interpretations of the SEC thereunder;
(4) with respect to 75% of its assets, purchase more than 10% of any
class of the outstanding voting securities of any issuer; provided,
however, that the Fund may invest all or any portion of its assets in
one or more investment companies, to the extent not prohibited by the
1940 Act, the rules and regulations thereunder, and exemptive orders
granted under such Act;
(5) with respect to 75% of its assets, invest more than 5% of its total
assets in the securities of any single issuer (other than obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities); provided, however, that the Fund may invest all
or any portion of its assets in one or more investment companies, to
the extent not prohibited by the 1940 Act, the rules and regulations
thereunder, and exemptive orders granted under such Act;
<PAGE>
(6) borrow money, except (i) from banks and as a temporary measure for
extraordinary or emergency purposes (not for leveraging or
investment) or (ii) in connection with reverse repurchase agreements
provided that (i) and (ii) in combination do not exceed 33 1/3% of
the Fund's or the Portfolio's, as applicable, total assets (including
the amount borrowed) less liabilities (exclusive of borrowings);
(7) underwrite the securities of other issuers (except to the extent that
the Fund or the Portfolio may be deemed to be an underwriter within
the meaning of the Securities Act in the disposition of restricted
securities); provided, however, that the Fund may invest all or any
portion of its assets in one or more investment companies, to the
extent not prohibited by the 1940 Act, the rules and regulations
thereunder, and exemptive orders granted under such Act;
(8) acquire any securities of companies within one industry if, as a
result of such acquisition, 25% or more of the Fund's or the
Portfolio's, as applicable, total assets would be invested in
securities of companies within such industry; provided, however, that
there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
provided, further, that the Fund may invest all or any portion of its
assets in one or more investment companies, to the extent not
prohibited by the 1940 Act, the rules and regulations thereunder, and
exemptive orders granted under such Act; and
(9) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder.
NON-FUNDAMENTAL RESTRICTIONS. The Fund and the Portfolio also are subject
to the following restrictions, which are non-fundamental policies and may be
changed by the appropriate Board of Trustees without shareholder or investor
approval. As a matter of non-fundamental policy, the Fund and the Portfolio
will not:
(a) purchase securities on margin, except for use of short-term credit as
may be necessary for the clearance of purchases and sales of
securities, but it may make margin deposits in connection with
transactions in options, futures, and options on futures; or sell
securities short unless, by virtue of its ownership of other
securities, it has the right to obtain securities equivalent in kind
and amount to the securities sold and, if the right is conditional,
the sale is made upon the same conditions; transactions in futures
contracts, options and options on futures are not deemed to
constitute selling securities short;
(b) pledge, mortgage, or hypothecate any of its assets to an extent to
secure borrowing greater than 33 1/3% of its total assets at fair
market value;
(c) invest more than an aggregate of 15% of the net assets of the Fund or
the Portfolio, as applicable, in securities deemed to be illiquid,
including securities which are not readily marketable, the
disposition of which is restricted (excluding certain foreign
securities, securities that are not registered under the Securities
<PAGE>
Act but which can be sold to qualified institutional investors in
accordance with Rule 144A under the Securities Act and commercial
paper sold in reliance on Section 4(2) of the Securities Act),
repurchase agreements having maturities of more than seven days and
certain OTC options;
(d) invest its assets in securities of any investment company, except by
purchase in the open market involving only customary brokers'
commissions or in connection with mergers, acquisitions of assets or
consolidations; and except as may otherwise be permitted by the 1940
Act; and
(e) write or acquire options or interests in oil, gas or other mineral
exploration or development programs or leases.
PERCENTAGE RESTRICTIONS. With the exception of fundamental restriction (6)
and non-fundamental restriction (c), if a percentage restriction or rating
restriction on investment or utilization of assets set forth above or referred
to in the Prospectus is adhered to at the time an investment is made or assets
are so utilized, a later change in percentage resulting from changes in the
value of the securities held by the Fund or the Portfolio or a later change in
the rating of a security held by the Fund or the Portfolio will not be
considered a violation of policy.
3. PERFORMANCE INFORMATION
Performance information concerning the Fund may from time to time be used
in advertisements, shareholder reports or other communications to shareholders.
The Fund may provide its periodic, annualized, and average annual "total rates
of return." The "total rate of return" refers to the change in the value of an
investment over a stated period based on any change in net asset value per
share and includes the value of any shares purchasable with any dividends or
capital gains distributions declared during such period. Period total rates of
return may be "annualized." An average "annualized" total rate of return is a
compounded total rate of return which assumes that the period total rate of
return is generated over a 52-week period, and that all dividends and capital
gains distributions are reinvested. An annualized total rate of return will be
slightly higher than a period total rate of return if the period is shorter
than one year, because of the effect of compounding. Average annual total
return figures represent the average annual percentage change over the
specified period.
The Fund will calculate its total rate of return for any period by (a)
dividing (i) the sum of the net asset value per share on the last day of the
period and the net asset value per share on the last day of the period of
shares purchasable with dividends and capital gains distributions declared
during such period with respect to a share held at the beginning of such period
and with respect to shares purchased with such dividends and capital gains
distributions, by (ii) the public offering price per share (i.e., net asset
value) on the first day of such period, and (b) subtracting 1 from the result.
Any annualized total rate of return quotation will be calculated by (x) adding
1 to the period total rate of return quotation calculated above, (y) raising
such sum to a power which is equal to 365 divided by the number of days in such
period, and (z) subtracting 1 from the result.
Average annual total return is a measure of a fund's performance over
time. It is determined by taking a fund's performance over a given period and
expressing it as an average annual rate. The average annual total return
quotation is computed in accordance with a standardized method prescribed by
SEC rules. The average annual total return for a specific period is found by
taking a hypothetical $1,000 initial investment in Fund shares on the first day
<PAGE>
of the period and computing the redeemable value of the investment at the end
of the period. The redeemable value is then divided by the initial investment,
and its quotient is taken to the Nth root (N representing the number of years
in the period) and 1 is subtracted from the result, which is then expressed as
a percentage. The calculation assumes that all income and capital gains
distributions have been reinvested in Fund shares at net asset value on the
reinvestment date during the period.
The Fund may provide annualized "yield" and "effective yield" quotations.
The "yield" of the Fund refers to the income generated by an investment in the
Fund over a 30-day or one-month period (which period is stated in any such
advertisement or communication). This income is then annualized, that is, the
amount of income generated by the investment over that period is assumed to be
generated each month over a one-year period and is shown as a percentage of the
public offering price on the last day of that period. The "effective yield" is
calculated similarly, but when annualized the income earned by the investment
during that 30-day or one-month period is assumed to be reinvested. The
effective yield is slightly higher than the yield because of the compounding
effect of this assumed reinvestment. A "yield" quotation, unlike a total rate
of return quotation, does not reflect changes in net asset value.
A current yield quotation for the Fund consists of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a 30 calendar day or one month period and is calculated by (a) raising
to the sixth power the sum of 1 plus the quotient obtained by dividing the
Fund's net investment income earned during the period by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends and the maximum public offering price per share on the
last day of the period, (b) subtracting 1 from the result, and (c) multiplying
the result by 2.
Performance information for the Fund's underlying mutual fund, which, in
turn, is based on the performance information for the LKCM International Fund
is set forth in the Fund's prospectus. The LKCM International Fund is a mutual
fund that has been managed by TT International since its inception and that has
investment objectives, policies, and strategies substantially similar to those
of the Fund.
From time to time the Fund also may quote data and fund rankings from
various sources, such as Lipper Analytical Services, Inc., Morningstar, Inc.,
Wiesenberger, Money Magazine, The Wall Street Journal, Kiplinger's Personal
Finance Magazine, Smart Money Magazine, Business Week and The New York Times.
4. DETERMINATION OF NET ASSET VALUE;
VALUATION OF PORTFOLIO SECURITIES; ADDITIONAL PURCHASE
INFORMATION
The net asset value of each share of the Fund is determined each day on
which the New York Stock Exchange (the "NYSE") is open for trading ("Business
Day"). (As of the date of this Statement of Additional Information, the NYSE is
open for trading every weekday except for the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day). This
determination of net asset value of shares of the Fund is made once during each
such day as of the close of regular trading of the NYSE by dividing the value
of the Fund's net assets (i.e., the value of its investment in the Portfolio
<PAGE>
and any other assets less its liabilities, including expenses payable or
accrued) by the number of shares of the Fund outstanding at the time the
determination is made. Purchases and redemptions will be effected at the time
of determination of net asset value next following the receipt of any purchase
or redemption order deemed to be in good order.
The value of the Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued)
is determined at the same time and on the same day as the Fund determines its
net asset value per share. The net asset value of the Fund's investment in the
Portfolio is equal to the Fund's pro rata share of the total investment of the
Fund and of other investors in the Portfolio less the Fund's pro rata share of
the Portfolio's liabilities.
Options, futures, unlisted U.S. securities and listed U.S. securities not
traded on the valuation date for which market quotations are readily available
are valued at the mean of the most recent quoted bid and asked price.
Securities listed on a foreign exchange for which market quotations are readily
available are valued at the latest quoted sales price available before the time
when assets are valued. Quotations of foreign securities in foreign currency
are converted to U.S. dollar equivalents using exchange rates prior to or after
the close of the various securities markets. Unlisted foreign securities are
valued at fair value as determined in accordance with policies established by
the Board of Trustees. Although the Fund values its assets in U.S. dollars on a
daily basis, it does not intend to convert holdings of foreign currencies into
U.S. dollars on a daily basis.
Fixed-income securities (other than obligations having a maturity of 60
days or less) are normally valued on the basis of quotes obtained from pricing
services, which take into account appropriate factors such as
institutional-sized trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. Fixed-income securities purchased with remaining maturities of 60 days or
less are valued at amortized cost if it reflects fair value. In the event that
amortized cost does not reflect market, market prices as determined above will
be used. Other assets and securities for which no quotations are readily
available (including restricted securities) will be valued in good faith at
fair value using methods determined by the Board of Trustees of the Trust.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of regular trading on the New
York Stock Exchange and may also take place on days on which the Exchange is
closed. If events materially affecting the value of foreign securities occur
between the time when the exchange on which they are traded closes and the time
when the Fund's net asset value is calculated, such securities may be valued at
fair value in accordance with procedures established by and under the general
supervision of the Board of Trustees of the Trust.
A determination of value used in calculating net asset value must be a
fair value determination made in good faith utilizing procedures approved by
the Portfolio's Board of Trustees. While no single standard for determining
fair value exists, as a general rule, the current fair value of a security
would appear to be the amount which the Portfolio could expect to receive upon
its current sale. Some, but not necessarily all, of the general factors which
may be considered in determining fair value include: (i) the fundamental
analytical data relating to the investment; (ii) the nature and duration of
restrictions on disposition of the securities; and (iii) an evaluation of the
forces which influence the market in which these securities are purchased and
sold. Without limiting or including all of the specific factors which may be
considered in determining fair value, some of the specific factors include:
<PAGE>
type of security, financial statements of the issuer, cost at date of purchase,
size of holding, discount from market value of unrestricted securities of the
same class at the time of purchase, special reports prepared by analysts,
information as to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the security, price
and extent of public trading in similar securities of the issuer or comparable
companies, and other relevant matters.
The Fund may authorize certain brokers to accept on its behalf purchase
and redemption orders and may authorize these brokers to designate
intermediaries to accept such orders. The Fund will be deemed to have received
such an order when an authorized broker or its designee accepts the order.
Orders will be priced at the Fund's net asset value next computed after they
are accepted by an authorized broker or designee. Investors may be charged a
fee if they effect transactions in Fund shares through a broker or agent.
5. MANAGEMENT OF THE FUND AND THE PORTFOLIO
The management and affairs of the Fund are supervised by the Trustees of
the Trust under the laws of the Commonwealth of Massachusetts. The management
and affairs of the Portfolio are supervised by the Trustees of the Portfolio
Trust under the laws of the Commonwealth of Massachusetts.
The Trustees and officers of the Trust and the Portfolio Trust and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Fund. Unless otherwise indicated below, the address of each officer is
Martin House, 5 Martin Lane, London, England EC4R ODP.
TRUSTEES OF THE TRUST AND THE PORTFOLIO TRUST
John A. Benning - Senior Vice President and General Counsel, Liberty Financial
Companies, Inc. (financial services) (1985 through 1999); Acting General
Counsel, Liberty Financial Companies, Inc. (since April 2000); Director, ICI
Mutual Insurance Company (1996 through 1998 and since June 2000); Director,
SageLife Assurance of America (variable annuity insurance company) (since June
2000); General Partner, Mad River Green Partners (real estate) (since 1972);
Director, Liberty Newport World Portfolio Luxembourg (investment fund) (since
1987); Trustee, TT International U.S.A. Master Trust (since August 2000). His
date of birth is June 29, 1934.
Peter O. Brown - Partner, Harter, Secrest & Emery LLP (law firm) (since April
1993); Trustee, CGM Trust and CGM Capital Development Fund (since June 1993);
Trustee, TT International U.S.A. Master Trust (since August 2000). His date of
birth is August 20, 1940.
David J.S. Burnett - Managing Partner, TT International (since September 1998);
Director, C. Crosby Limited (property lease holding company) (since January
1999); Director, Brunswick UBS Warburg Ltd. (investment banking) (May 1998 to
August 1998); Dalgland Nominees (PM) Ltd. (nominee company) (November 1995 to
August 1998); Fenway Services Limited (securities trading) (November 1997 to
August 1998); UBS Warburg Securities Ltd. (October 1986 to November 1995);
Managing Director, Warburg Dillon Read (investment banking firm) (October 1979
to September 1998); Trustee and President, TT International U.S.A. Master Trust
(since May 2000). His date of birth is February 6, 1958.
Robert W. Uek - Partner, PricewaterhouseCoopers LLP (accounting firm) (1975 to
June 1999); Trustee, Hillview Investment Trust (mutual fund) (since June 2000);
Trustee, TT International U.S.A. Master Trust (since August 2000). His date of
birth is May 18, 1941.
<PAGE>
The compensation expected to be paid to the Trustees for the fiscal year
ending December 31, 2000 is set forth below. The Trustees may hold various
other directorships unrelated to the Trust or Portfolio Trust.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or
Retirement
Benefits Total
Accrued as Estimated Compensation
Aggregate Part of Annual Benefits from the Trust
Compensation Fund Upon and
from the Trust Expenses Retirement Portfolio Trust*
David J.S. None None None None
Burnett,
President
and Trustee
John A. Benning, $3,334 None None $6,667
Trustee
Peter O. Brown, $3,334 None None $6,667
Trustee
Robert W. Uek, $3,334 None None $6,667
Trustee
-------------
* Each of the Trustees serves as a trustee of the Trust and of TT
International U.S.A. Master Trust, a registered investment company having
two series. Each Trustee also will serve as a Trustee of one additional
series of the Trust.
</TABLE>
OFFICERS OF THE TRUST AND THE PORTFOLIO TRUST
S. Austin Allison - Secretary - Head of Compliance and Legal, TT International
(since June 2000); Director, Legal & Compliance, Westdeutsche Landesbank Group
(banking, financial services) (June 1996 to June 2000); Head of Group
Compliance, Standard Chartered Bank (banking, financial services) (February
1987 to December 1995); Secretary, TT International U.S.A. Master Trust. His
date of birth is June 30, 1947.
Graham Barr - Treasurer - Financial Controller, TT International (since June
1998); Company Secretary, C. Crosby Ltd. (holding company) (since November
1999); Head of Investment Accounting, AIB Govett Asset Management (fund
management) (August 1993 to June 1998); Treasurer, TT International U.S.A.
Master Trust. His date of birth is November 13, 1965.
David J.S. Burnett - President - Managing Partner, TT International (since
September 1998); Managing Director, Warburg Dillon Read (investment banking
firm) (October 1979 to September 1998); Trustee and President, TT International
U.S.A. Master Trust. His date of birth is February 6, 1958.
<PAGE>
Jeff Gaboury - Assistant Treasurer - Director, Mutual Fund Administration
(since October 1996); Assistant Treasurer, TT International U.S.A. Master
Trust. His date of birth is October 23, 1968.
Jill Grossberg - Assistant Secretary - Director and Counsel, Investors Bank &
Trust Company, Mutual Fund Administration (since April 2000); Assistant Vice
President and Associate Counsel, Putnam Investments (March 1995 to March 2000);
Assistant Secretary, TT International U.S.A. Master Trust. Her date of birth is
April 26, 1946.
As of the date of this Statement of Additional Information all of the
shares of the Fund are owned by TT International.
The Trustees who are not "interested persons" (the "Disinterested
Trustees") of the Trust as defined by the 1940 Act are the same as the
Disinterested Trustees of the Portfolio Trust. Any conflict of interest between
the Fund and the Portfolio will be resolved by the Trustees in accordance with
their fiduciary obligations and in accordance with the 1940 Act. The Trust's
Declaration of Trust provides that it will indemnify its Trustees and officers
(the "Indemnified Parties") against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Trust, unless, as to liability to the Trust or its
shareholders, it is finally adjudicated that the Indemnified Parties engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in their offices, or unless with respect to any other matter it
is finally adjudicated that the Indemnified Parties did not act in good faith
in the reasonable belief that their actions were in the best interests of the
Trust. In case of settlement, such indemnification will not be provided unless
it has been determined by a court or other body approving the settlement or
other disposition, or by a reasonable determination, based upon a review of
readily available facts, by vote of a majority of disinterested Trustees or in
a written opinion of independent counsel, that such Indemnified Parties have
not engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
MANAGER
TT International serves as the investment manager of the Portfolio and the
Fund pursuant to separate management agreements (the "Management Agreements").
Mr. Timothy A. Tacchi owns a controlling interest in TT International. Subject
to policies as the Board of Trustees of the Portfolio Trust may determine, TT
International manages the securities of the Portfolio and makes investment
decisions for the Portfolio. The Management Agreement with the Portfolio Trust
provides that TT International may delegate the daily management of the
securities of the Portfolio to one or more subadvisers. TT International
furnishes at its own expense all services, facilities and personnel necessary
in connection with managing the Portfolio's investments and effecting
securities transactions for the Portfolio. Unless otherwise terminated, the
Management Agreement with the Portfolio Trust will continue in effect for an
initial two-year period and thereafter as long as such continuance is
specifically approved at least annually by the Board of Trustees of the
Portfolio Trust or by a vote of a majority of the outstanding voting securities
of the Portfolio, and, in either case, by a majority of the Trustees of the
Portfolio Trust who are not parties to the Management Agreement or interested
persons of any such party, at a meeting called for the purpose of voting on the
Management Agreement. Unless otherwise terminated, the Management Agreement
<PAGE>
with the Trust will continue in effect for an initial two-year period and
thereafter as long as such continuance is specifically approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of
the outstanding voting securities of the Fund, and, in either case, by a
majority of the Trustees of the Trust who are not parties to the Management
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on the Management Agreement.
Each Management Agreement provides that TT International may provide
services to others. Each Management Agreement is terminable without penalty on
not more than 60 days' nor less than 30 days' written notice by the Portfolio
Trust or the Trust, as the case may be, when authorized either by a vote of a
majority of the outstanding voting securities of the Portfolio or Fund or by a
vote of a majority of the Board of Trustees of the Portfolio Trust or the
Trust, or by TT International on not more than 60 days' nor less than 30 days'
written notice, and will automatically terminate in the event of its
assignment. The Management Agreement with the Portfolio Trust provides that
neither TT International nor its personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission in the execution of security transactions for the
Portfolio, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or reckless disregard of its or their obligations and
duties under the Management Agreement with the Portfolio Trust. The Management
Agreement with the Trust provides that neither TT International nor its
personnel shall be liable for any error of judgment or mistake of law or for
any omission in the administration or management of the Trust or the
performance of its duties under the Management Agreement, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties or
reckless disregard of its or their obligations and duties under the Management
Agreement with the Trust.
For its services under the Management Agreement with respect to the Fund,
TT International receives fees, which are computed daily and paid monthly, at
an annual rate equal to the lesser of (i) 1.00% of the Fund's average daily net
assets for the Fund's then-current fiscal year or (ii) the difference between
1.00% of the Fund's average daily net assets for the Fund's then-current fiscal
year and the aggregate investment management fees allocated to the Fund for the
Fund's then-current fiscal year from the Portfolio. For its services under the
Management Agreement with respect to the Portfolio, TT International receives
fees, which are computed daily and paid monthly, at an annual rate equal to
0.50% of the Portfolio's average net assets. TT International may reimburse the
Fund or Portfolio or waive all or a portion of its management fees. For the
period from commencement of operations of the Fund until December 31, 2001 TT
International has contractually agreed to waive certain fees and/or reimburse
certain expenses, including management fees, so that the Fund's expenses will
not exceed, on a per annum basis, 1.20% of its average daily net assets.
Because the Fund is newly-organized, it has not paid management fees as of
the date of this Statement of Additional Information.
ADMINISTRATOR
Pursuant to administrative services agreements ("Administrative
Agreements") with each of the Trust and the Portfolio Trust, Investors Bank &
Trust Company ("IBT") performs administrative duties for the Fund and the
Portfolio, respectively. The address of IBT is 200 Clarendon St., Boston, MA
02116. For its services under the Administrative Agreement with respect to the
Portfolio, IBT receives fees, which are at annual rates equal to the following
percentages of the Portfolio's average daily net assets for the Portfolio's
then-current fiscal year:
First $250 Million in Assets 0.06%
Next $250 Million in Assets 0.04%
<PAGE>
Above $500 Million in Assets 0.03%
The fees above are subject to an annual minimum of $60,000 from the
Portfolio. The Fund will pay a pro-rata portion of these fees. IBT also will be
paid a one-time fee of $3,750 from each of the Fund and the Portfolio for
start-up legal services relating to organizational Board Meetings. The Fund
will pay IBT an annual fee of $30,000 for tax, compliance and financial
reporting, an annual fee of $35,000 for legal services, a $100 fee for each
state securities registration obtained by IBT on behalf of the Fund and a
$16,000 fee for fund accounting and net asset value calculation.
Because the Fund is newly-organized, it has not paid administrative fees
as of the date of this Statement of Additional Information.
DISTRIBUTOR
First Fund Distributors, Inc. ("First Fund Distributors"), 4455 East
Camelback Road, Suite 261E, Phoenix, Arizona 85018, serves as the Distributor
of the Fund's shares pursuant to the Distribution Agreement with the Trust with
respect to the Fund (the "Distribution Agreement"). Under the Distribution
Agreement, First Fund Distributors has agreed to sell shares of the Fund as the
agent of the Fund. The Fund does not pay the distributor a fee for distribution
services or for services provided to shareholders. First Fund Distributors,
Inc. also serves as the placement agent for the Portfolio. TT International
pays the distributor an annual fee of $30,000 for providing distribution and
placement agency services to the Fund and the Portfolio.
Either party may terminate the Distribution Agreement on not less than
thirty days' nor more than sixty days' written notice to the other party.
Unless otherwise terminated the Distribution Agreement will continue from year
to year upon annual approval by either the Trustees of the Trust or by vote of
a majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund, or (ii) by vote of a majority of the Trustees of the Trust who are
not parties to the Distribution Agreement or interested persons (as defined in
the 1940 Act) of any such party and who have no direct or indirect financial
interest in the Distribution Agreement or in any agreement related thereto. The
Distribution Agreement will terminate in the event of its assignment, as
defined in the 1940 Act.
First Fund Distributors acts as agent of the Trust in connection with the
offering of shares of the Fund pursuant to the Distribution Agreement. The
Distributor may make payments for distribution and/or shareholder servicing
activities out of its past profits and other available sources. The Distributor
also may make payments for marketing, promotional or related expenses to
dealers. The amount of these payments are determined by the Distributor and may
vary.
TRANSFER AGENT AND CUSTODIAN
The Fund has entered into a Transfer Agency Agreement with IBT, pursuant
to which IBT acts as the transfer agent for the Fund. The Fund also has entered
into a Custodian Agreement with IBT, pursuant to which IBT acts as custodian
for the Fund.
The Portfolio has entered into a Transfer Agency Agreement with IBT,
pursuant to which IBT acts as transfer agent for the Portfolio. The Portfolio
also has entered into a Custodian Agreement with IBT, pursuant to which IBT
<PAGE>
acts as custodian for the Portfolio. IBT's responsibilities include
safeguarding and controlling the Portfolio's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on the Portfolio's investments, maintaining books of original entry for
portfolio accounting and other required books and accounts, and calculating the
daily net asset value of the Portfolio. Securities held by the Portfolio may be
deposited into certain securities depositaries. IBT does not determine the
investment policies of the Portfolio or decide which securities the Portfolio
will buy or sell. The Portfolio may, however, invest in securities of IBT and
may deal with IBT as principal in securities transactions.
COUNSEL
Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, acts as counsel
for the Fund.
CODES OF ETHICS
The Fund, the Portfolio and TT International have each adopted a Code of
Ethics (collectively, the "Codes of Ethics") under Rule 17j-1 of the 1940 Act.
The Codes of Ethics permit personnel subject to the Codes to invest in
securities, including securities that may be purchased or held by the Portfolio
or the Fund. The Codes of Ethics can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-202-942-8090. The Codes
of Ethics are available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov, and copies of the Codes of Ethics may be obtained, after
paying a duplicating fee, by electronic request at the following e-mail
address: [email protected], or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
EXPENSES
In addition to amounts payable under its Management Agreement, the Fund is
responsible for its own expenses, including, among other things, the costs of
securities transactions, the compensation of Trustees that are not affiliated
with TT International or the Fund's Distributor, government fees, taxes,
accounting and legal fees, expenses of communication with shareholders,
interest expense, and insurance premiums.
6. INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP, 160 Federal St., Boston, MA 02110, are the
independent accountants for the Fund and for the Portfolio, providing audit
services and assistance and consultation with respect to the preparation of
filings with the SEC.
7. TAXATION
TAXATION OF THE FUND AND THE PORTFOLIO
FEDERAL TAXES. The Fund will elect to be treated, and intends to qualify
each year, as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), by meeting all
applicable requirements of Subchapter M, including requirements as to the
nature of the Fund's gross income, the amount of Fund distributions, and the
composition of the Fund's portfolio assets. Provided all such requirements are
<PAGE>
met, no U.S. federal income or excise taxes generally will be required to be
paid by the Fund. If the Fund should fail to qualify as a "regulated investment
company" for any year, the Fund would incur a regular corporate federal income
tax upon its taxable income whether or not distributed and Fund distributions
would generally be taxable as ordinary dividend income to shareholders. The
Portfolio Trust believes the Portfolio also will not be required to pay any
U.S. federal income or excise taxes on its income.
FOREIGN TAXES. Investment income and gains derived by the Portfolio from
non-U.S. securities may be subject to non-U.S. taxes. The U.S. has entered into
tax treaties with many other countries that may entitle the Portfolio and/or
the Fund to a reduced rate of tax or an exemption from tax on such income. The
Fund and the Portfolio intend to qualify for treaty reduced rates where
available. It is not possible, however, to determine the Fund's effective rate
of non-U.S. tax in advance since the amount of the Fund's assets to be invested
within various countries is not known. If the Fund holds more than 50% of its
assets in foreign stock and securities at the close of its taxable year, the
Fund may elect to "pass through" to the Fund's shareholders foreign income
taxes paid by it and by the Portfolio. If the Fund so elects, shareholders will
be required to treat their pro rata portion of such foreign income taxes as
part of the amounts distributed to them by the Fund and thus includible in
their gross income for federal income tax purposes. Shareholders who itemize
deductions would then be allowed to claim a deduction or credit (but not both)
on their federal income tax returns for such amounts, subject to certain
limitations. Shareholders who do not itemize deductions would (subject to such
limitations) be able to claim a credit but not a deduction. No deduction for
such amounts will be permitted to individuals in computing their alternative
minimum tax liability. If the Fund is not eligible or does not elect to "pass
through" to its shareholders foreign income taxes it has paid, directly or
indirectly, shareholders will not be able to claim any deduction or credit for
any part of such foreign taxes.
TAXATION OF SHAREHOLDERS
TAXATION OF DISTRIBUTIONS. Shareholders of the Fund will generally have to
pay federal income taxes and any state or local taxes on the dividends and
capital gain distributions they receive from the Fund. Dividends from ordinary
income and any distributions from net short-term capital gains are taxable to
shareholders as ordinary income for federal income tax purposes, whether the
distributions are made in cash or in additional shares. Distributions of net
capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses), whether made in cash or in additional shares, are
taxable to shareholders as long-term capital gains without regard to the length
of time the shareholders have held their shares. Any Fund dividend that is
declared in October, November, or December of any calendar year, that is
payable to shareholders of record in such a month, and that is paid the
following January, will be treated as if received by the shareholders on
December 31 of the year in which the dividend is declared. Any Fund
distribution will have the effect of reducing the per share net asset value of
shares in the Fund by the amount of the distribution. Shareholders purchasing
shares shortly before the record date of any distribution may thus pay the full
price for the shares and then effectively receive a portion of the purchase
price back as a taxable distribution.
DIVIDENDS-RECEIVED DEDUCTION. The portion of the Fund's ordinary income
dividends attributable to dividends received in respect to equity securities of
U.S. issuers is normally eligible for the dividends received deduction for
corporations subject to U.S. federal income taxes. Availability of the
deduction for particular shareholders is subject to certain limitations, and
deducted amounts may be subject to the alternative minimum tax and may result
in certain basis adjustments.
<PAGE>
SPECIAL CONSIDERATIONS FOR NON-U.S. PERSONS. The Fund will withhold tax
payments at a rate of 30% on taxable dividends and certain other payments that
are made to persons who are not citizens or residents of the U.S. A shareholder
may be able to arrange for a lower withholding rate under an applicable treaty
if the shareholder supplies the appropriate documentation required by the Fund.
Distributions received from the Fund by non-U.S. persons also may be subject to
tax under the laws of their own jurisdiction.
BACKUP WITHHOLDING. The Fund is required in certain circumstances to apply
backup withholding at the rate of 31% on taxable dividends and redemption
proceeds paid to any shareholder (including a shareholder who is neither a
citizen nor a resident of the U.S.) who does not furnish to the Fund certain
information and certifications or who is otherwise subject to backup
withholding. Prospective investors should read the Fund's account application
for additional information regarding backup withholding of federal income tax.
DISPOSITION OF SHARES. In general, any gain or loss realized upon a
taxable disposition of shares of the Fund by a shareholder that holds such
shares as a capital asset will be treated as a long-term capital gain or loss
if the shares have been held for more than twelve months and otherwise as a
short-term capital gain or loss. However, any loss realized upon a disposition
of shares in the Fund held for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gain
made with respect to those shares. Any loss realized upon a disposition of
shares may also be disallowed under rules relating to wash sales.
EFFECTS OF CERTAIN INVESTMENTS AND TRANSACTIONS
CERTAIN DEBT INVESTMENTS. Any investment by the Fund in certain stripped
securities and certain securities purchased at a market discount will cause the
Fund to recognize income prior to the receipt of cash payments with respect to
those securities. In order to distribute this income and avoid a tax on the
Fund, the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold potentially resulting in additional taxable
gain or loss to the Fund.
OPTIONS, ETC. The Fund's transactions in options, futures and forward
contracts will be subject to special tax rules that may affect the amount,
timing and character of Fund income and distributions to shareholders. For
example, certain positions held by the Fund on the last business day of each
taxable year will be marked to market (i.e., treated as if closed out) on that
day, and any gain or loss associated with the positions will be treated as 60%
long-term and 40% short-term capital gain or loss. Certain positions held by
the Fund that substantially diminish its risk of loss with respect to other
positions in its portfolio may constitute "straddles," and may be subject to
special tax rules that would cause deferral of Fund losses, adjustments in the
holding periods of Fund securities, and conversion of short-term into long-term
capital losses. Certain tax elections exist for straddles that may alter the
effects of these rules. The Fund intends to limit its activities in options,
futures and forward contracts to the extent necessary to meet the requirements
of Subchapter M of the Code.
FOREIGN INVESTMENTS. Special tax considerations apply with respect to
non-U.S. investments of the Fund. Foreign exchange gains and losses realized by
the Fund will generally be treated as ordinary income and loss. The Fund may
invest, through the Portfolio, in foreign entities that may be treated as
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"passive foreign investment companies" for U.S. federal income tax purposes. If
the Portfolio does invest in passive foreign investment companies, the Fund may
be required to pay additional tax (and interest) in respect of distributions
from, and gains attributable to the sale or other disposition of the stock of,
such entities. If the Fund is eligible to make and makes either a "qualified
electing fund" election or a "mark to market" election with respect to an
investment in a passive foreign investment company, then the Fund may have
taxable income from such investment regardless of whether or not the Fund
receives any actual distributions of cash derived from such passive foreign
investment company in any given year. In order to distribute this income and
avoid a tax on the Fund, the Fund may be required to liquidate portfolio
securities that it might have otherwise continued to hold, potentially
resulting in additional taxable gain or loss to the Fund.
8. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Portfolio are
made by portfolio managers who are partners or employees of TT International.
The portfolio managers of the Portfolio may serve other clients of TT
International in a similar capacity.
TT International determines which brokers or dealers are to be used for
brokerage transactions and negotiates and approves commission rates paid. In
the selection of brokers and dealers to execute security transactions for the
Portfolio, TT International will endeavor to ensure that the chosen brokers and
dealers have the ability to obtain best execution. TT International believes
that, particularly in countries with less developed securities markets, it is
important to deal with brokers and dealers that have experience and expertise
in the local markets. Other factors in the selection of brokers and dealers
include the reliability, integrity, financial condition and general execution
and operation capabilities of competitive brokers and dealers and research
services provided by them. Based on these factors, TT International may not
always direct trades to brokers or dealers that offer the lowest commission
rates. On at least an annual basis, TT International establishes for each
region or country in which it effects brokerage transactions, a schedule of
commissions that will apply generally to its transactions on behalf of its
clients in that region or country. As a result, TT International does not
negotiate commission rates for particular trades. TT International reviews
these commission levels periodically in light of prevailing market commission
rates.
TT International receives a wide range of research from brokers and
dealers. Research received includes economic forecasts and interpretations,
information on industries, groups of securities, individual companies,
statistics, political developments, technical market action pricing and
appraisal services, performance analysis and provision of computerized
quotation and other equipment. These research services are a significant
factor, among others, in the selection of brokers and dealers. Research
services may be provided directly by brokers and dealers, or pursuant to "soft
dollar" arrangements whereby the broker or dealer pays for the services to be
provided by others.
To the extent that research services of value are provided by brokers and
dealers, TT International is relieved of expenses that it might otherwise bear
and the Portfolio may pay commissions higher than those obtainable from brokers
or dealers who do not provide such research services.
Research services furnished by brokers or dealers through which TT
International effects securities transactions may be used in servicing all
accounts which it manages. Conversely, research services received from brokers
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or dealers which execute transactions for a particular account will not
necessarily be used by TT International specifically in connection with the
management of that account.
The Portfolio is newly-organized and has not paid brokerage commissions as
of the date of this Statement of Additional Information.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of TT International's other clients.
Investment decisions for the Portfolio and for TT International's other clients
are made with a view to achieving their respective investment objectives. It
may develop that a particular security is bought or sold for only one client
even though it might be held by, or bought or sold for, other clients.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling that same security. Some simultaneous transactions
are inevitable when several clients receive investment advice from the same
investment manager, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Portfolio is
concerned. However, it is believed that the ability of the Portfolio to
participate in volume transactions will produce better executions for the
Portfolio.
It is TT International's policy to exclude institutional accounts, such as
the Portfolio's, from allocations of stock in initial public offerings or other
"hot issues," unless the market capitalization of the issuer exceeds a minimum
threshold determined by TT International from time to time and TT International
otherwise determines participation to be appropriate. This policy is based on
TT International's judgment that companies with smaller market capitalizations
are not suitable for accounts such as those of the Portfolio and that even
larger initial public offerings may not be suitable for the Portfolio. TT
International may allocate these investments to other accounts managed by TT
International, which may include accounts in which TT International and its
principals have investment or carried interests. As a result the Portfolio may
not participate in short-term gains based upon post-issue appreciation in the
value of "hot issues" even in cases where these opportunities may result, at
least in part, from trading activity by the Portfolio. However, the Portfolio
will also avoid the risks associated with some initial public offerings and
other "hot issues" of smaller issuers.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trust to issue an unlimited
number of full and fractional shares of beneficial interest (without par value)
of each series and to divide or combine the shares of any series into a greater
or lesser number of shares of that series without thereby changing the
proportionate beneficial interests in that series and to divide such shares
into classes. The Trust has reserved the right to create and issue additional
series and classes of shares. Each share of each class represents an equal
proportionate interest in the Fund with each other share of that class. Shares
of each series of the Trust participate equally in the earnings, dividends and
distribution of net assets of the particular series upon liquidation or
dissolution (except for any differences between classes of shares of a series).
Shares of each series are entitled to vote separately to approve management
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agreements or changes in investment policy, and shares of a class are entitled
to vote separately to approve any distribution or service arrangements relating
to that class, but shares of all series may vote together in the election or
selection of Trustees and accountants for the Trust. In matters affecting only
a particular series or class, only shares of that series or class are entitled
to vote.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Trust may elect all of the Trustees of the Trust if
they choose to do so and in such event the other shareholders in the Trust
would not be able to elect any Trustee. The Trust is not required and has no
present intention of holding annual meetings of shareholders but the Trust will
hold special meetings of the Fund's shareholders when in the judgment of the
Trust's Trustees it is necessary or desirable to submit matters for a
shareholder vote. Shareholders have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees. Shareholders also have under certain
circumstances the right to remove one or more Trustees without a meeting by a
declaration in writing by a specified number of shareholders. No material
amendment may be made to the Trust's Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding shares of each
series affected by the amendment.
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by the vote of the holders
of two-thirds of the Trust's outstanding shares, voting as a single class, or
of the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such sale of assets, merger or consolidation,
the approval by a Majority Shareholder Vote would be sufficient. The Trust or
any series of the Trust, as the case may be, may be terminated (i) by a vote of
a majority of the outstanding voting securities of the Trust or the affected
series or (ii) by the Trustees by written notice to the shareholders of the
Trust or the affected series. If not so terminated, the Trust will continue
indefinitely.
The Fund's transfer agent maintains a share register for shareholders of
record. Share certificates are not issued.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Trust and provides for indemnification and reimbursement of expenses out of
Trust property for any shareholder held personally liable for the obligations
of the Trust. The Declaration of Trust also provides that the Trust may
maintain appropriate insurance (e.g., fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
The Trust's Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his or her office.
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The Portfolio is a series of the Portfolio Trust, which is organized as a
trust under the laws of Massachusetts. Each investor in the Portfolio,
including the Fund, may add to or withdraw from its investment in the Portfolio
on each Business Day. As of the close of regular trading on each Business Day,
the value of each investor's beneficial interest in the Portfolio is determined
by multiplying the net asset value of the Portfolio by the percentage,
effective for that day, that represents that investor's share of the aggregate
beneficial interest in the Portfolio. Any additions or withdrawals that are to
be effected on that day are then effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio is then re-computed as the
percentage equal to the fraction (i) the numerator of which is the value of
such investor's investment in the Portfolio as of the close of regular trading
on such day plus or minus, as the case may be, the amount of any additions to
or withdrawals from the investor's investment in the Portfolio effected on such
day, and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of the close of regular trading on such day plus or minus, as the
case may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined is then applied to determine the value of the
investor's interest in the Portfolio as of the close of regular trading on the
next following Business Day.
10. FINANCIAL STATEMENTS
The financial statements for the Fund are included below.
