1933 Act File No. 33-4965
1940 Act File No. 811-8706
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. __
Post-Effective Amendment No. 14
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 17
(Check appropriate box or boxes)
ANCHOR INTERNATIONAL BOND TRUST
(Exact Name of Registrant as Specified in Charter)
579 Pleasant Street, Suite 4
Paxton, Massachusetts 01612
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (508) 831-1171
It is proposed that this filing will become effective:
(Check appropriate box)
__ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1999 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1) ___ 75 days
after filing pursuant to paragraph (a)(2)
___ on ______________ pursuant to paragraph (a)(2) of Rule 485
Peter K. Blume, Esq.
Thorp Reed & Armstrong
One Riverfront Center
Pittsburgh, PA 15222
(Name and Address of Agent for Service)
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PROSPECTUS
ANCHOR INTERNATIONAL BOND TRUST
The Trust is a diversified open-end management investment company seeking the
highest total investment return consistent with prudent risk. The Trust invests
primarily in debt obligations issued by domestic and foreign corporations and
U.S. and foreign government obligations issued or guaranteed by those
governments or government agencies.
Trust Shares are not bank deposits, federally insured, or guaranteed, and may
lose value.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
CONTENTS
Risk/Return Summary
Fees and Expenses of the Trust
What are the Trust's Investment
Strategies?
What are the Specific Risks of
Investing in the Trust?
Management and Organization
Shareholder Information
Other Information
Financial Information
Application and Registration Form
PROSPECTUS DATED MAY 1, 1999
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RISK/RETURN SUMMARY
What is the Trust's Investment Objective?
The Trust's investment objective is to seek the highest total investment return,
including both investment income and capital gains, consistent with prudent
risk. While there is no assurance that the Trust will achieve its investment
objective, it will attempt to do so through the strategies and policies
described in this Prospectus.
What are the Trust's Main Investment Strategies?
The Trust invests primarily in debt obligations issued by U.S. and foreign
corporations and government obligations issued or guaranteed by U.S. or foreign
governments or their agencies or instrumentalities. These debt obligations may
be of short, intermediate or long maturities. The Trust's investments both in
the United States and elsewhere may cover a broad range of bonds, convertible
debentures and equities issued by companies in a variety of industries and by
governmental organizations. The Trust will invest at least 65% of the Trust's
total assets in foreign bonds and debentures which the Investment Adviser
determines to have a quality comparable to securities receiving investment grade
ratings. This determination is based on such factors as market risk (the
fluctuation of market value in response to changes in interest rates) and credit
risk (the risk that the issuer may become unable or unwilling to make timely
payments of principal and interest) . The balance of the Trust's total assets
may be invested in other debt instruments, including corporate bonds and
debentures convertible into equity securities, such as common and preferred
stocks. Investments in non-foreign bonds and debentures and convertible
securities will be limited to 35% of the Trust's total assets. Typically, it is
expected that more than 80% of the Trust's assets will be invested in foreign
bonds and debentures.
The Trust seeks to achieve its goal of high total return by combining the
potential for high current income afforded by largely foreign debt instruments
with the potential for capital appreciation afforded by convertible debt
securities. To the extent permitted by relevant provisions of the Commodity
Exchange Act, the Trust may also engage in option transactions and financial
futures transactions in connection with implementing its strategies. The Trust
may, for example, purchase covered call options or covered put options on
portfolio securities and securities indices. The Trust may also purchase put and
call options on foreign currencies in closing sale transactions. In addition,
the Trust may lend portfolio securities and invest in repurchase agreements.
What are the Main Risks of Investing in the Trust?
An investment in the Trust is subject to risks, and it is possible to lose money
by investing in the Trust. Changes in the value of the Trust's portfolio may
result from general changes in the market or the economy. Events affecting
individual issuers of the securities in the Fund's portfolio may also cause
fluctuations in the Trust's share price. In addition, the Trust's portfolio
includes foreign securities, which may be more volatile and less liquid than
securities of U.S. issuers.
The values of fixed income investments, including some of the debt instruments
in which the Trust invests, rise and fall in response to changes in interest
rates. Declining interest rates raise the value of investments in debt
instruments, while rising interest rates lower the value of investments in debt
instruments. Changes in the values of the Trust's investments will affect the
value of the Trust's shares.
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Accordingly, the primary factors that could reduce the Trust's returns include:
A general rise in interest rates, and
Defaults or an increase in the risk of defaults on portfolio debt securities
Fixed income securities rated below investment grade, also known as junk
bonds, generally entail greater risks than investment grade fixed income
securities.
A significant portion of the Trust's net asset value will be invested in
debt securities of non-U.S. issuers. Foreign securities pose additional risks
because foreign economic or political conditions may be less favorable than
those of the United States. There is usually less public information available
about foreign companies than U.S. companies. Foreign financial markets may also
have fewer investor protections. Securities in foreign markets may also be
subject to taxation policies that reduce returns for U.S. investors. Due to
these risk factors, foreign securities may be more volatile and less liquid than
similar securities traded in the U.S. In particular, investments in foreign
securities are subject to the following specific risks:
Country Risk. Debt or equity securities market movements in any
country will likely affect the value of the securities the Trust owns
which trade in that country. These movements will affect the Trust's share
price.
The political, economic and social structures of some countries in
which the Trust invests may be less stable and more volatile than those in
the U. S. The risks of investing in these countries include the
possibility of the imposition of exchange controls, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets and punitive taxes.
The Trust's investments in developing or emerging markets are
subject to all of the risks of foreign investing generally, and have
additional heightened risks due to a lack of legal, business and social
frameworks to support securities markets. Typically, investments by the
Trust in developing or emerging markets constitute less than 5% of the
Trust's total assets.
Company Risk. Foreign companies are not subject to the same
accounting, auditing, and financial reporting standards and practices as
U. S. companies and their stocks may not be as liquid as stocks of similar
U.S. companies. Foreign stock exchanges, brokers and companies generally
have less government supervision and regulation that in the U.S. The Trust
may have greater difficulty voting proxies, exercising shareholder rights,
pursuing legal remedies and obtaining judgments with respect to foreign
investments in foreign courts than with respect to U.S.
companies in U.S. courts.
Currency. Many of the Trust's investments are denominated
in foreign currencies. Changes in foreign currency exchange
rates will affect the value of securities the Trust owns and the
Trust's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment denominated in
that country's currency loses value because that currency is
worth fewer U.S. dollars.
Euro. On January 1, 1999, the European Monetary Union introduced a
new single currency, the euro. The euro will replace the national currency
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for participating member countries. The Trust's investments in countries
with currencies replaced by the euro, the investment process, including
trading, foreign exchange, payments, settlements, cash accounts, custody
and accounting, will be affected.
Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. Also, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the Trust may hold in its portfolio,
and their impact on the value of Trust shares. To the extent the Trust
holds non-U.S. dollar (euro or other) denominated securities, it will
still be exposed to currency risk due to fluctuations in those currencies
versus the U.S. dollar.
Other risks of investing in the Trust include call risks and liquidity
risks,. For a more detailed discussion of these and other risks, see "Specific
Risks of Investing in the Trust."
Bar Chart and Performance Table
The bar chart and performance table below indicate the risks of investing
in the Trust. The chart shows the annual total returns of the Trust on a
calendar year basis for each of the past ten years.
[GRAPHIC OMITTED]
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The total returns displayed for the Trust do not reflect the payment of
any sales charges or recurring shareholder account fees. If these charges or
fees were included, the returns shown would be lower.
Within the period shown in the chart, the Trust's highest quarterly
return was 11.64% for the quarter ended March 31, 1995. Its lowest quarterly
return was (10.32%) for the quarter ended December 31, 1992.
Average Annual Total Return
for the periods ended December 31, 1998
1 5 10
Year Years Years
- --------------------------------------------------------------
The Trust 10.20% 3.58% 5.30%
Solomon Brothers Non-
US Dollar World Gov.
Gov. Bond Index 11.53% 9.41% 8.66%
S&P 500 Index 26.67% 21.39% 16.04%
Consumer Price Index 1.50% 2.38% 3.13%
The table shows the Trust's total returns averaged over a period of years
as compared to the S&P 500 Index, a broad-based market index, the Consumer Price
Index, and the Soloman Brothers Non-US Dollar World Government Bond Index.
The bar chart and the performance table provide you with historical
performance information so that you can analyze the potential fluctuations in
the Trust's returns and analyze the risks of investing in the Trust. Past
results of the Trust, however, do not necessarily indicate how the Trust will
perform in the future.
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FEES AND EXPENSES OF THE TRUST
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Trust.
Shareholder Fees
(fees paid directly from your investment)
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of offering price) None
Redemption fee (as a percentage
of amount redeemed) None
Exchange fee None
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
Management fees 0.75%
Other expenses 0.55%
Total annual Fund operating expenses 1.30%
Example
The following example is intended to help you compare the cost of
investing in the Trust with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Trust for the time
periods indicated. The example also assumes that your investment has a 5% return
each year and that the Trust's operating expenses remain the same.
Although your actual costs may be higher or lower, under these
assumptions your costs would be:
Assuming Assuming
redemption at the end no redemption
of each period
One Year $132 $132
Three Years: $412 $412
Five Years $713 $713
Ten Years $1,568 $1,568
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WHAT ARE THE TRUST'S INVESTMENT STRATEGIES?
The Trust's investment objective is to seek the highest total investment
return, including both investment income and capital gains, consistent with
prudent risk. The Trust invests primarily in debt obligations issued by U.S. and
foreign corporations and government obligations issued or guaranteed by U.S. or
foreign governments or their agencies or instrumentalities. These debt
obligations may be of short, intermediate or long maturities.
Return from debt instruments comes from interest and possibly favorable
market price changes which could make it advantageous to sell an instrument for
a capital gain. Return from convertible debentures is based on the same factors,
but the market price of such an instrument is directly affected by the
conversion price and the price of the equity security into which it is
convertible. Return from common and preferred stocks may come from dividends or
favorable market price changes permitting sale for a capital gain. The Trust may
also hold cash or cash equivalents or certificates of deposit in various
currencies in anticipation of or as a hedge against changes in currency values.
The Trust is not subject to any limits on geographic asset distribution
and has the authority to invest in any country in the world. The Trust expects,
however, that it will invest its assets primarily in the United States and
Western European nations. The Trust's investment adviser, Anchor Investment
Management Corporation (Investment Adviser) will allocate the Trust's assets
among the various securities markets of the world. In allocating the Trust's
assets among the securities markets, the Investment Adviser will consider a
number of factors, specifically the following:
the condition and growth potential of the various economies and
securities markets
currency and taxation considerations
pertinent financial, social, national and political factors
Under certain adverse investment conditions in general, or relating only
to foreign investments, the Trust may restrict the securities markets in which
its assets will be invested. In these cases, the Trust may increase the
proportion of assets invested in the United States securities markets as a
temporary defensive strategy. The Trust's investments in these circumstances
might vary depending upon the nature of the perceived adverse conditions, and
thus might range from U. S. government securities to common stocks of U.S.
entities. The Trust may also, as a temporary defensive measure, increase its
position so that it holds at least 25% of its total assets in cash or cash
equivalents (in U. S. dollars or foreign currencies) and short-term securities,
including money market securities (such as certificates of deposit, commercial
paper and bankers' acceptances) and repurchase agreements.
When the Trust invests in the debt securities of foreign corporations,
the Trust intends to invest only in securities which the Investment Adviser
determines to have a quality comparable to securities receiving investment grade
ratings. These would be the equivalent of ratings of at least "BBB" by Standard
& Poor's Corporation or Fitch Investors Service, Inc. or "Baa" by Moody's
Investors Service, Inc. The Trust's investments in foreign securities involve
special risks. These risks are summarized in this Prospectus and discussed in
further detail in the Statement of Additional Information.
Although the Trust does not invest directly in equity securities, it may
invest up to 35% of the Trust's assets in debt instruments which are convertible
to equity securities. Accordingly, the return on such debt instruments may be
affected by the value of the equity security into which it is convertible. In
selecting such convertible debt instruments for the Trust, the Investment
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Adviser considers the value of the underlying equity security based on the
issuer's growth in earnings per share, its balance sheet with emphasis on a low
debt to equity ratio, adequate working capital, high return on invested capital
with an accompanying high capital reinvestment rate, and strong market and
product conditions relative to competition within a company's industry group.
The Trust's investment objective may be changed without the approval of
the shareholders by vote of a majority of the Trustees.
The investment restrictions to which the Trust is subject are more fully
described in the Trust's Statement of Additional Information.
To achieve its investment objective, the Trust may also use specialized
investment techniques by engaging in a variety of transactions using
"derivatives." The Trust's investments in derivatives are limited to 35% of the
Trust's total assets and will ordinarily not exceed 10% of such assets.
Derivatives are financial instruments whose value depends upon, or is derived
from, the value of something else, such as one or more underlying securities,
indices or currencies. These include transactions in options on securities,
securities indices and currencies, transactions in financial futures contracts
and related options. The Trust may also make loans of portfolio securities or
enter into transactions in repurchase agreements. The use of derivatives and
other specialized investment techniques involve special risks and may result in
losses to the Trust. See "Specific Risks of Investing in the Trust."
Some of the specialized investment techniques that the Trust may use are
summarized below and are discussed further in the Statement of Additional
Information.
Options Transactions
The Trust may invest in one or more of the following options
transactions. The Trust's investments in any such options transactions will not,
in the aggregate, exceed 35% of the Trust's total assets.
Options Transactions Involving Portfolio Securities and Securities
Indices: When the Investment Adviser decides it is appropriate, the Trust
may write call option contracts or purchase put or call options with respect
to portfolio securities and with respect to securities indices. A call
option is a short-term contract, usually nine months or less in duration,
that gives the purchaser the right to buy from the seller (writer) the
underlying security at a specified exercise price, regardless of the market
price of the security. A put option is a short-term contract that gives the
purchaser of the option the right to sell to the writer of the option the
underlying security at a specified exercise price. The purchaser of a put or
call option also pays the writer a premium. These options will be covered
options (options as to securities which the Trust owns). Options on U.S.
securities are generally listed on a national securities exchange. Options
on foreign securities and on some U.S. securities may not be listed on any
U.S. or foreign exchange.
The Trust receives a premium on the sale of an option, but gives up the
opportunity to profit from any increase in the price of the underlying
security (or representative securities, in the case of an index option)
above the option's exercise price. The Trust may not always be able to close
out option transactions at acceptable prices. The Trust pays a premium when
it purchases options, and the Trust may lose this premium if the option
proves to have no value.
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Options on Foreign Currencies: The Trust may purchase put and call
options on foreign currencies. These purchases will not exceed 35% of the
Trust's total assets. The Trust may purchase options on foreign currencies
only where economically appropriate as a hedging technique to reduce the
risks in management of its portfolio, and to preserve the Trust's net asset
value, and not for speculative purposes (i.e., not for profit). The Trust
may also purchase foreign currency options to seek positive results for its
investment objectives.
Financial Futures and Related Options: The Trust may purchase and sell
financial futures contracts and put and call options on financial futures
contracts as a hedge against anticipated changes in the market value of its
portfolio securities or securities which it intends to purchase.
Lending of Portfolio Securities: The Trust may seek to increase its
income by lending portfolio securities. Any loan will be continuously secured by
collateral at least equal to the market value of the security loaned. The total
value of the securities loaned at any time will not exceed 30% of the Trust's
total assets. The Trust will make loans only to U.S. entities which the Trust's
management deems to be creditworthy. In addition, in any loan transactions, the
Trust will have the right to call the loan and obtain the securities loaned at
any time on five days' notice.
Repurchase Agreements: The Trust may engage in transactions in repurchase
agreements. These are agreements under which the Trust acquires a money market
instrument (such as a security issued by the U.S. government or one of its
agencies, a bankers' acceptance or a certificate of deposit) from a commercial
bank, subject to resale to the seller at a specified price and date (normally
the next business day). The resale price is reflects an agreed-upon interest
rate effective for the period that the Trust holds the security and is not
related to the interest rate on the underlying instrument.
The Trust will enter into repurchase agreements only with banks whose
deposits are insured by the Federal Deposit Insurance Corporation and which have
capital and undivided surplus of at least $200,000,000. The Trust will require
that repurchase agreements be secured by acceptable collateral. The Trust may
not invest more than 10% of its assets in repurchase agreements having
maturities longer than seven days or other investments subject to legal or
contractual restrictions on resale or which are not readily marketable.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE TRUST?
Fixed Income Securities
Market Risk
The values of fixed income investments, including the debt instruments in
which the Trust invests, rise and fall in response to changes in interest
rates. Declining interest rates raise the value of debt instruments, while
rising interest rates lower the value of debt instruments. Debt instruments
with longer maturities are usually subject to a greater risk of an adverse
movement in interest rates and a decline in the price of the instrument.
Changes in the values of the Trust's investments will affect the value of
the Trust's shares.
Credit Risk
Credit risk is the possibility that an issuer will default (the issuer
fails to repay interest and principal when due). If an issuer defaults, the
Trust will lose money. Many fixed income securities receive credit ratings
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from companies such as Standard & Poor's and Moody's Investor Services.
Fixed income securities receive different credit ratings depending on the
rating company's assessment of the likelihood of default by the issuer. The
lower the rating of the fixed income security, the greater the credit risk.
Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable
maturity (the "spread") measures the additional interest received for taking
risk. Spreads may increase generally in response to adverse economic or
market conditions. A security's spread may also increase if the security
rating is lowered, or the security is perceived to have an increased credit
risk. An increase in the spread will cause the price of the security to
decline
Noninvestment Grade Securities
Securities rated below investment grade, also known as junk bonds,
generally entail greater risks than investment grade securities. Foe
example, their prices are more volatile, their values are more negatively
impacted by economic downturns, and their trading market may be more
limited.
Call Risk
Traditional debt instruments, such as U.S. Treasury Bonds, municipal
securities or corporate debt securities, typically pay a fixed rate of
interest until maturity, when the entire principal amount is due. An issuer
may redeem its debt securities before maturity (call) at a price below its
current market price. An issuer may also prepay its debt instruments
voluntarily or as a result of a refinancing, or the instruments may be
prepaid as a result of a foreclosure. The Trust may have to invest proceeds
that it receives from prepayment on its investments in debt securities with
lower interest rates, higher credit risks or other less favorable terms.
Convertible Securities
Convertible bonds and debentures are convertible into common stock.
Because of this conversion feature, the interest or dividend rate on a
convertible security is generally less than a security which is not convertible.
The value of a convertible security will be affected by both its stated interest
or dividend rate and the value of the underlying debt or equity security. Its
value will thus be affected by factors that affect both debt securities (such as
interest rates) and equity securities (such as stock market movements
generally). In addition, some convertible securities, by their terms, permit the
issuer to require the Trust to resell the convertible security, which could
occur at a time that is not favorable to the Trust based on then-prevailing
interest rates or equity values.
Equity Securities
When the Trust invests in debt securities that can be converted into
equity securities, the Investment Adviser considers the value of the underlying
equity security based on the issuer's growth in earnings per share, its balance
sheet with emphasis on a low debt to equity ratio, adequate working capital,
high return on invested capital with an accompanying high capital reinvestment
rate, and strong market and product conditions relative to competition within a
company's industry group. While stocks have historically outperformed other
asset classes over the long term, they tend to go up and down more dramatically
over the shorter term. These price movements may result from factors affecting
individual companies or industries or the securities market or the economy as a
whole. If the stocks the Trust holds fluctuate in price, the value of an
investment in the Trust will go up and down. This means you could lose money
over short or even extended periods of time.
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Foreign Investing
A significant portion of the Trust's net asset value will be invested in
debt securities of non-U.S. issuers. Foreign securities pose additional risks
because foreign economic or political conditions may be less favorable than
those of the United States. There is usually less public information available
about foreign companies than about U.S. companies. Foreign financial markets may
also have fewer investor protections. Securities in foreign markets may also be
subject to taxation policies that reduce returns for U.S. investors. Due to
these risk factors, foreign securities may be more volatile and less liquid than
similar securities traded in the U.S. In particular, investments in foreign
securities are subject to the following specific risks:
Country Risk. Debt securities market movements in any country will
likely affect the value of the securities the Trust owns which trade in
that country. These movements will affect the Trust's share price.
The political, economic and social structures of some countries in
which the Trust invests may be less stable and more volatile than those in
the U. S. The risks of investing in these countries include the
possibility of the imposition of exchange controls, expropriation,
restrictions on removal of currency or other assets, nationalization of
assets and punitive taxes.
The Trust's investments in developing or emerging markets are
subject to all of the risks of foreign investing generally, and have
additional heightened risks due to a lack of legal, business and social
frameworks to support securities markets. Typically, investments by the
Trust in developing or emerging markets constitute less than 5% of the
Trust's total assets.
Company Risk. Foreign companies are not subject to the same
accounting, auditing, and financial reporting standards and practices as
U. S. companies and their stocks may not be as liquid as stocks of similar
U.S. companies. Foreign stock exchanges, brokers and companies generally
have less government supervision and regulation than in the U.S. The Trust
may have greater difficulty voting proxies, exercising shareholder rights,
pursuing legal remedies and obtaining judgments with respect to foreign
investments in foreign courts than with respect to U.S.
companies in U.S. courts.
Currency. Many of the Trust's investments are denominated
in foreign currencies. Changes in foreign currency exchange
rates will affect the value of securities the Trust owns and the
Trust's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment denominated in
that country's currency loses value because that currency is
worth fewer U.S. dollars.
Euro. On January 1, 1999, the European Monetary Union introduced a
new single currency, the euro. The euro will replace the national currency
for participating member countries. The Trust's investments in countries
with currencies replaced by the euro, the investment process, including
trading, foreign exchange, payments, settlements, cash accounts, custody
and accounting, will be affected.
Because this change to a single currency is new and untested, the
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establishment of the euro may result in market volatility. Also, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the Trust may hold in its portfolio, and
their impact on the value of Trust shares. To the extent the Trust holds
non-U.S. dollar (euro or other) denominated securities, it will still be exposed
to currency risk due to fluctuations in those currencies versus the U.S. dollar.
Derivatives
The Trust may engage in transactions using derivatives, including options
and futures. Derivatives allow the Trust to increase or decrease the level of
risk to which the Trust is exposed more quickly and efficiently than
transactions in other types of instruments. Derivatives, however, are volatile
and involve significant risks, including the following:
Credit Risk. There is the risk that the other party on a
derivative transaction will be unable to honor its financial
obligation to the Trust.
Currency Risk. There is the risk that changes in the
exchange rate between two currencies will adversely affect the
value (in U.S. dollar terms) of the investment.
Leverage Risk. Leverage risk is created when an investment exposes
the Trust to a level of risk that exceeds the amount invested. Changes in
the value of such an investment magnify the Trust's risk of loss and
potential for gain. Investments can have these same results if their
returns are based on a multiple of a specified index, security or other
benchmark.
Liquidity Risk. There is the risk that certain debt or equity
securities may be difficult or impossible to sell at the time the seller
would like or at the price that the seller believes the security is
currently worth.
Index Risk. If the derivative is linked to the performance of an
index, it will be subject to the risks associated with changes in that
index. If the index changes, the Trust could receive lower interest
payments or experience a reduction in the value of the derivative to below
what the Trust paid. Certain indexed securities may create leverage, to
the extent that they increase or decrease in vale at a rate that is a
multiple of the changes in the applicable index.
Loans of Portfolio Securities and Repurchase Agreements
If the Trust makes loans of portfolio securities or uses repurchase
agreements, there is a risk that the other party to the transaction may not be
able to fulfill its obligations to the Trust. In the event of a default by the
borrower in a loan of portfolio securities, the Trust may not be able to recover
its securities. In the event of a default by the other party to a repurchase
agreement, the Trust may lose its interest in the underlying security.
Year 2000
The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after December
31, 1999. The Year 2000 problem may cause systems to process information
incorrectly and could disrupt businesses that rely on computers, like the Trust.
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While it is impossible to determine in advance all of the risks to the
Trust, the Trust could experience interruptions in basic financial and
operational functions. Trust shareholders could experience errors or disruptions
in Trust share transactions or Trust communications.
The Trust's service providers are making changes to their computer
systems to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000 readiness.
Year 2000 problems could also increase the risks of the Trust's
investments. To assess the potential effect of the Year 2000 problem, the
Investment Adviser is reviewing information regarding the Year 2000 readiness of
issuers of securities that the Trust may purchase.
The financial impact of these issues for the Trust is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Trust.
MANAGEMENT AND ORGANIZATION
Trustees
Under the terms of the Declaration of Trust establishing the Trust, which
is governed by the laws of the Commonwealth of Massachusetts, the Trustees of
the Trust are ultimately responsible for the management of its business and
affairs. The Statement of Additional Information contains background information
regarding each Trustee and executive officer of the Trust.
Investment Adviser
The Investment Adviser, Anchor Investment Management Corporation manages
the Trust's investments and affairs, subject to the supervision of the Trustees.
The principal offices of both the Trust and the Investment Adviser are located
at 579 Pleasant Street, Suite 4, Paxton, Massachusetts
01612.
The Investment Adviser manages the Trust's investments and affairs,
subject to the supervision of the Trustees. Its principal services to the Trust
are managing the investment and reinvestment of the Trust's assets and
providing, either directly or through a sub-administrator, various
administrative services to the Trust, including the provision of all necessary
office facilities, equipment and personnel for administering the business of the
Trust. The Investment Adviser has been engaged continuously in the investment
management business, including the management of investment company assets,
since 1983.
The person who is primarily responsible for the day-to-day management of
the Trust's portfolio is Paul Jaspard, who is a Vice President of the Investment
Advisor. Mr. Jaspard is president of Linden Investment Advisors, S.A., an
investment advisory firm headquartered in Belgium. He has managed other
portfolios for the Meeschaert organization (described below) for more than
fifteen years. He has been in the investment counseling business for more than
twenty years, giving investment advice to a wide variety of individual and
institutional clients.
For its service under its Investment Advisory Contract with the Trust,
the Investment Adviser receives a fee, payable monthly, calculated at 0.75% per
annum of the average daily net assets of the Trust. This fee is higher than that
of most other investment companies. For the fiscal year ended December 31, 1998,
the Investment Adviser received investment advisory fees of $101,903 for its
services to the Trust. The Investment Adviser may voluntarily waive a portion of
its fee or reimburse the Trust for certain operating expenses.
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The Investment Adviser and Meeschaert & Co., Inc., the Trust's principal
underwriter, are affiliated through common control with Societe D'Etudes et de
Gestion Financieres Meeschaert, S.A., one of France's largest privately-owned
investment management firms. The Meeschaert organization was established in
Roubiax, France in 1935 by Emile C. Meeschaert, and presently manages, with full
discretion, approximately $1.5 billion (including $250 million in French
mutual funds) for about 8,000 individual and institutional customers.
SHAREHOLDER INFORMATION
Purchase of Shares
You may purchase Trust shares directly from the Distributor, Meeschaert &
Co., Inc., 579 Pleasant Street, Suite 4, Paxton, Massachusetts 01612. An
application for your use in making an initial investment in the
Trust is included in the back of this Prospectus.
Investment Minimums
To establish a new account, the minimum investment is $500. There is no
minimum for shareholders who make additional investments to existing
accounts.
To exchange other securities for Trust shares, the minimum investment is
$5,000. See "EXCHANGES" below.
Share Price
The Trust's share price is its net asset value next determined after the
Distributor receives and accepts your order. The Trust calculates its net asset
value as of 12:00 noon Eastern Time on each day on which the New York Stock
Exchange is open for trading. The Trust may determine net asset value on a day
on which the New York Stock Exchange is closed but the Trust is open for
business if an event occurs that might materially affect net asset value.
In calculating net asset value, the Trust uses market prices of securities
traded on U.S. or foreign securities exchanges when available. The market price
of a security is equal to the last known sale price, or if there has been no
sale of the security, the known current bid price. If a particular security's
market price is not available, the Trust will determine the appropriate price
based on its "fair value". This means that the Trust may value such securities
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees. The market prices of all of the Trust's investments
are added together, liabilities of the Trust are deducted from the total, and
the resulting amount is divided by the number of shares outstanding.
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its net asset value,
the Trust values foreign securities at the latest closing price on the exchange
on which they are traded immediately prior to the time when the net asset value
of the Trust is calculated. All assets and liabilities of the Trust denominated
in foreign currencies are valued in U.S. dollars based on the exchange rate last
quoted by a major bank prior to the time when the net asset value of the Trust
is calculated.
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Exchanges of Shares
The Trust may accept U.S. government securities and U.S. government agency
fixed-income securities acceptable to the Investment Adviser in exchange for
shares of the Trust. The minimum value of securities accepted for deposit is
$5,000. The Trust will value securities accepted for exchange in the same manner
provided for valuing its portfolio securities (see "Share Price" above).
If the Trust, upon acceptance of securities for exchange of fund shares,
determines to sell these securities, the Trust will pay any liquidation costs
involved in disposing of these securities.
You should forward securities for exchange, in proper form for transfer to the
Trust, together with a completed and signed letter of transmittal in approved
form (available from the Distributor) to the Trust's custodian as follows:
Investors Bank & Trust Company
Financial Product Services Group
Attn: Anchor International Bond Trust
200 Clarendon Street, 16th Floor
Boston, Massachusetts 02116
Exchanges of shares must be done as follows:
1. You must forward all securities under a single Letter of Transmittal. In
certain instances indicated in the instructions to the Letter of Transmittal,
multiple Letters of Transmittal must be attached and transmitted as a single
exchange. The Trust may reject securities presented for exchange for any
reason, and will only accept securities which are delivered in proper form.
2. If you wish to exchange securities for Trust shares, your securities must not
be subject to any restrictions that would affect their resale by the Trust
for any reason. The Trust will not accept securities for exchange if, in the
opinion of its counsel, acceptance would violate any federal or other law
affecting the Trust. The Trust may reject securities for any reason.
3. If you are contemplating an exchange of securities for Trust shares, you or
your representative should contact the Distributor before you forward the
securities so that the Distributor can determine in advance whether the
securities are acceptable to the Trust.
4. If the Trust finds that securities presented for exchange are in good order
only in part, the Trust may issue the appropriate number of Trust shares for
that part and return the balance to you. The Trust will issue a confirmation
for Trust shares to you after securities that it has accepted for exchange
have cleared for transfer to the Trust. Certificates will not be issued
unless you so request.
5. By tendering securities for exchange, you agree to accept the determination
of their market value that the Trust makes at the time it determines the
Trust's net asset value per share. The number of shares of the Trust to be
issued in exchange for other securities will be the value of the accepted
securities determined as described above, divided by the net asset value per
Trust share next determined after the Trust's acceptance of the securities.
6. You may realize a gain for federal income tax purposes in connection with
your exchange of securities for Trust shares. You should consult your tax
advisor about the tax consequences of exchanging securities for Trust shares.
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Redemption and Repurchase of Shares
You may require the Trust to redeem your shares. The Trust also maintains a
continuous offer to repurchase its shares. Redemptions and repurchases will be
made in the following manner:
1. You may mail or present a written request written request that the
Trust redeem your shares to the Trust's transfer agent at 579 Pleasant
Street, Suite 4, Paxton, Massachusetts 01612. If you have share
certificates, you should properly endorse them and include them with your
request. The redemption price will be the net asset value next determined
after the Trust receives your request and/or certificates.
2. Your broker may present your request for repurchase to the Trust. The
repurchase price will be the net asset value next determined after the
Trust receives the request. If the broker receives the request before
12:00 p.m. Eastern Time and transmits it to the Trust before 1:00 p.m.
Eastern Time the same day, the repurchase price will be the net asset
value determined as of 12:00 p.m. Eastern Time that day. If the broker
receives the request after 12:00 p.m., the repurchase price will be the
net asset value determined as of 12:00 p.m. Eastern Time the following
day. If you use a broker, the broker may charge a reasonable fee for his
services.
The Trust will pay you for shares that it redeems or repurchases within seven
days after it receives your shares, or other required documents, properly
endorsed. Your signature on an issued certificate must be guaranteed by a
commercial bank or trust company or by a member of the New York, American,
Pacific, Boston or Chicago Stock Exchange. The Trust will not accept a signature
guarantee by a savings bank or savings and loan association or notarization by a
notary public.
To ensure proper authorization, the Trust's transfer agent may request
additional documents. These may include stock powers, trust instruments,
certificates of death, appointments as executor, certificates of corporate
authority or waiver of tax (required in some states from selling or exchanging
estates before redeeming shares).
There are no circumstances under which the Trust may redeem shares automatically
without action by the shareholder.
The right of redemption may be suspended or the payment date postponed at
certain times. These include days when the New York Stock Exchange is closed for
other than customary weekend and holiday closings, when trading on the New York
Stock Exchange is restricted, as determined by the Securities and Exchange
Commission, or for any period when an emergency (as defined by rules of the
Commission) exists, or during any period when the Commission has, by order,
permitted a suspension. In case of a suspension of the right of redemption, a
shareholder who has rendered a certificate for redemption through a broker may
withdraw his request or certificate. Otherwise, he will receive payment of the
net asset value determined next after the suspension has been terminated.
You may receive more or less than you paid for your shares, depending on the net
asset value of the shares at the time of redemption or repurchase.
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<PAGE>
Redemptions in Kind
Under unusual circumstances, when the Board of Trustees deems it in the best
interests of the Trust's shareholders, the Trust may pay for shares repurchased
or redeemed partly or entirely in securities or other assets of the Trust taken
at current values. If any such redemption in kind is to be made, the Trust
intends to make an election pursuant to Rule 18(f)(1) under the Investment
Company Act of 1940. This will require the Trust to redeem with cash at a
shareholder's election in any case where the redemption involves less than
$250,000 (or 1% of the Trust's net assets at the beginning of each 90-day period
during which such redemptions are in effect, if that amount is less than
$250,000). If payment is made in securities, the redeeming shareholder may incur
brokerage costs in converting his securities to cash.
Services for Shareholders
Open Accounts: For your convenience, all shares of the Trust registered in your
name are automatically credited to an Open Account maintained for you on the
books of the Trust. All shares that you acquire will be credited to your Open
Account and share certificates will not be issued unless you request.
Certificates representing fractional shares will not be issued in any case. You
may surrender certificates previously acquired to the Trust's transfer agent.
These certificates will be canceled and the shares so represented will continue
to be credited to your Open Account.
Each time shares are credited to or withdrawn from your Open Account, you will
receive a statement showing the details for the transaction and your then
current balance of shares. Shortly after the end of each calendar year you will
also receive a complete annual statement of your Open Account, as well as
information as to the Federal tax status of dividends and capital gain
distributions, if any, paid by the Trust during the year.
You may transfer shares credited to an Open Account upon proper written
instructions to the Trust's transfer agent. You may also redeem or sell shares
in the manner shown under the "Redemption and Repurchase of Shares."
Invest-By-Mail: An Open Account provides a single and convenient way of setting
up a flexible investment program for the accumulation of shares of the Trust.
You may purchase additional shares for your Open Account at any time by sending
a check (payable to the order of the Trust) to Anchor Investment Management
Corp. Shareholders Services, Attn: Anchor International Bond Trust, 579 Pleasant
Street, Suite 4, Paxton, Massachusetts 01612 (giving the full name or names of
your account). The Trust will bear the cost of administering shareholders' Open
Accounts as an expense of all its shareholders.
Distributions
The Trust currently intends to distribute any income dividends and capital gains
distributions in additional Trust shares or, if you elect, in cash. You may
elect (1) to receive both dividends and capital gain distributions in additional
shares or (2) to receive dividends in cash and capital gain distributions in
additional shares or (3) to receive both dividends and capital gain
distributions in cash.
You may change your distribution option at any time by notifying the Trust's
transfer agent in writing. The new distribution option must be received by the
Trust's transfer agent at least 30 days prior to the close of the fiscal year.
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If you have an account with a cash dividend option, and the Trust's transfer
agent discovers that your address of record is not current, your account will be
changed to reinvest both dividends and capital gains automatically.
Dividends and capital gain distributions received in shares will be made to the
Trust's transfer agent, as your agent, and credited to your Open Account in full
at the closing net asset value on the record date of the distributions.
Tax Consequences
Shareholders will be subject to federal income taxes on distributions made by
the Trust, whether you receive distributions in cash or additional Trust shares.
Distributions of net investment income and short-term capital gains, if any,
will be taxable to shareholders as ordinary income. Distributions of long-term
capital gains, if any, will be taxable to shareholders as long-term capital
gains, without regard to how long a shareholder has held shares of the Trust.
Dividends paid by the Trust will generally not qualify for the
dividends-received deductions for corporation. The Trust will notify
shareholders each year of the amount of dividends and distributions, including
the amount of any distribution of long-term capital gains.
The Trust's foreign investments may be subject to foreign withholding taxes. The
Trust will be entitled to claim a deduction for foreign withholding taxes for
federal income tax purposes. However, any such taxes will reduce the income
available for distribution to shareholders.
You must provide the Trust with a certified correct taxpayer identification
number (generally your Social Security Number) or certify that you are not
subject to withholding. If you fail to do so, the Trust may be required to
withhold 20% of the distributions paid to you.
Please consult your tax adviser for further information regarding your federal,
state and local tax liability.
OTHER INFORMATION
Custodian, Transfer Agent and Paying Agent
Investors Bank & Trust Company, Financial Product Services, 200 Clarendon
Street, 16th Floor, Boston, Massachusetts 02116 is the Trust's custodian bank.
The custodian bank receives and holds securities, cash and other assets of the
Trust and also makes distributions on behalf of the Trust. If foreign securities
must, as a practical matter, be held abroad, the custodian bank and the Trust
will arrange for those securities to be held abroad. The Trust's custodian bank
does not decide on purchases or sales or portfolio securities or the making of
distributions. As of April 1, 1999, Cardinal Investment Services, Inc., 579
Pleasant Street, Suite 4, Paxton, Massachusetts 01612, succeeded Anchor
Investment Management Corporation, as the transfer agent and dividend-paying
agent for the Trust.
Capitalization
The capitalization of the Trust consists of an unlimited number of shares of
beneficial interest, without par value, designated Common Shares, which
participate equally in dividends and distributions. Issued shares are fully paid
and non-assessable and transferable on the books of the Trust. The shares have
no preemptive rights. The shares each have one vote and proportionate
liquidation rights.
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Additional Information
You can find more detailed information about the Trust, its investment
strategies and risks of investing in the Trust in the Statement of Additional
Information.
Shareholder Inquiries
For further information about the Trust, you may call the Trust collect at (508)
831-1171. You may address any written inquiries to Anchor International Bond
Trust, 579 Pleasant Street, Suite 4, Paxton, Massachusetts 01612.
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<PAGE>
FINANCIAL INFORMATION
Financial Highlights
The following financial highlights table is intended to help you understand the
Trust's financial performance for its past five fiscal years. Some of the
information is presented on a per share basis. The total returns in the table
represent the rate an investor would have earned (or lost) on an investment in
the Trust, assuming reinvestment of all dividends and distributions.
This information has been audited by Livingston & Haynes, P.C., independent
public accountants, whose report, along with the Trust's audited financial
statements, is included in the Annual Report.
Year ended December 31
-------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------
Net Asset Value,
Beginning of Year $7.46 $8.32 $8.75 $8.07 $7.88
- -------------------------------------------------------------------------------
Income From Investment
Operations:
Net Investment Income 0.57 0.31 0.26 0.72 0.15
Net realized and unrealized
gain (loss) on investments 0.19 (1.17) (0.69) 0.69 0.48
- -------------------------------------------------------------------------------
Total income from investment
Operations 0.76 (0.86) (0.43) 1.41 0.63
- -------------------------------------------------------------------------------
Less Distributions:
Dividends from net
investment Income (0.61) -- -- (0.73) (0.44)
Distributions from capital
gains -- -- -- -- --
- -------------------------------------------------------------------------------
Total distributions (0.61) -- -- (0.73) (0.44)
Net Asset Value, End of Year $7.61 $7.46 $8.32 $8.75 $8.07
- -------------------------------------------------------------------------------
Total Return 10.20% (10.34%) (4.91%) 17.52% 7.99%
- -------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of year $5.5 $19.1 $28.0 $18.8 $17.0
(in millions)
Ratio of expenses to average
net assets 1.30% 1.11% 1.06% 1.06% 1.09%
Ratio of net income to
average Net assets 3.53% 3.16% 3.19% 4.40% 3.90%
Portfolio turnover rate -- -- -- -- --
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<PAGE>
ANCHOR INTERNATIONAL BOND TRUST
(the "Trust")
MEESCHAERT & CO., INC.
("Distributor")
APPLICATION AND REGISTRATION FORM1
Send Application to
Meeschaert & Co., Inc., 579 Pleasant Street, Suite 4, Paxton, Massachusetts
01612
Date:_____________
I. ACCOUNT REGISTRATION:
[GRAPHIC OMITTED] New: Social Security or Tax Number_____________________
(if two names below, circle which one has this number.)
[GRAPHIC OMITTED] Existing: Account Number ______________________________
(from your latest statement - vital for identification.)
Name(s)__________________________________________________________________
(Type or print exactly as they are to appear on the Trust's records.)
Street __________________________________________________________________
City ________________________ State ______________________ Zip __________
If address outside the U.S.A., please circle I (am) (am not) a citizen
of the U.S.A.
If registration requested in more than one name, shares will be registered as
"Joint Tenants with Rights of Survivorship" unless otherwise instructed.
II. BASIS FOR OPENING NEW ACCOUNT:
[GRAPHIC OMITTED] A check for $_______________ payable to the Trust attached.
or
[GRAPHIC OMITTED] Shares _______________ recently purchased on __________
(number) (date)
Distribution Option: (exercisable only by holders of Common Shares) Check
only one. If none checked, option A will be assigned.
[GRAPHIC OMITTED] A. Dividends and capital gains in additional full and
fractional shares credited to shareholder's account, no certificates issued.
OR
[GRAPHIC OMITTED] B. Dividends in cash; capital gains in additional full and
fractional shares credited to shareholder's account; no certificates issued.
OR
[GRAPHIC OMITTED] C. Dividends in cash; capital gains in cash.
(Certificates will be issued to shareholders requesting such in writing from
the Transfer Agent.)
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III. INVEST-BY-MAIL SERVICE: for periodic share accumulation (whether or
not dividends are received in shares)
[GRAPHIC OMITTED] Please check if you wish to utilize the Trust's Invest-By-Mail
Service. This is a voluntary service involving no extra charge to the
shareholder, and it may be changed or discontinued at any time.
IV. SHAREHOLDER'S SIGNATURE: Should be the same as name in Account
Registration.
__________________________________ ________________________________________
Signature Signature of Co-Owner (if any)
(I have received a current prospectus of the Trust and I understand that my
account will be covered by the provisions on the reverse side of this
Application.I also understand that I may terminate any of these services at any
time.)
DEALER AUTHORIZATION:
(please print)
Representative
_________________________________ ______________________________________
Dealer's Name (Representative's Name)
_________________________________ ______________________________________
Home Office Address Telephone Number(Representative's Number)
Branch Office:
_________________________________ ______________________________________
City State Zip Address
_________________________________ ______________________________________
Authorized Signature of Dealer City State Zip
_________________________________
Telephone Number
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<PAGE>
Anchor International Bond Trust
For investors who want more information about the Trust, the following documents
are available free upon request:
Annual Reports: Additional information about the Trust's investments is
available in the Trust's annual report to shareholders. The Trust's annual
report includes a discussion of the market conditions and investment strategies
that significantly affected the Trust's performance during its last fiscal year.
Statement of Additional Information (SAI): The SAI provides more detailed
information and is incorporated into this Prospectus by reference.
You can get free copies of the Trust's annual reports and SAIs
by writing or calling the Trust collect at:
Anchor International Bond Trust
579 Pleasant Street, Suite 4
Paxton, Massachusetts 01612
Telephone (collect): (508) 831-1171
Fax: (508) 831-1191
You can also review the Trust's reports and SAIs at the Public Reference Room of
the Securities and Exchange Commission.
You can obtain copies from the Securities and Exchange Commission as follows:
For a fee, by writing to or calling the Commission's
Public Reference Room, Washington, D.C. 20549
Telephone: 1-800-SEC-0330
Free from the Commission's Internet website at
http://www.sec.gov.
Investment Company Act
File no. 811-4644
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<PAGE>
ANCHOR INTERNATIONAL BOND TRUST
579 Pleasant Street, Suite 4
Paxton, Massachusetts 01612
(508) 831-1171
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1999
This Statement of Additional Information (SAI) is not a prospectus but should be
read in conjunction with the current Prospectus of Anchor International Bond
Trust (the "Trust") dated May 1, 1999, and the financial statements contained in
the Trust's Annual Report for the year ended December 31, 1998. The Trust's
Annual Report is incorporated by reference in this SAI. You may obtain the
Trust's Prospectus and Annual Report without charge by writing or calling the
Trust collect at (508) 831-1171.
----------------------------------------
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TABLE OF CONTENTS
THE TRUST..................................................................B-1
INVESTMENT STRATEGIES AND RISKS............................................B-1
Option Transactions..................................................B-1
Index Options .......................................................B-2
Risks of Options on Indices .........................................B-3
Options on Foreign Currencies .......................................B-4
Risks of Foreign Currency Option Activities .........................B-5
Special Risks of Foreign Currency options ...........................B-6
Financial Futures Contracts and Related Options .....................B-7
Limitations on Futures Contracts and Related Options.................B-9
Risks Relating to Futures Contracts and Related Options..............B-9
PORTFOLIO TURNOVER.......................................................B-10
INVESTMENT RESTRICTIONS...................................................B-11
MANAGEMENT OF THE TRUST...................................................B-12
Officers and Trustees...............................................B-12
Compensation of Officers and Trustees...............................B-14
Control Persons and Principal Holders of Trust Shares...............B-14
Investment Adviser..................................................B-15
Investment Advisory Contract........................................B-15
Administrator.......................................................B-16
Principal Underwriter...............................................B-17
Rule 12b-1 Plan.....................................................B-17
CAPITALIZATION............................................................B-18
PURCHASE, REDEMPTION AND PRICING OF SHARES................................B-19
Purchase of Shares..................................................B-19
Determination of Net Asset Value....................................B-20
Redemption and Repurchase of Shares.................................B-20
Redemptions in Kind.................................................B-21
DISTRIBUTIONS ............................................................B-21
TAXES.....................................................................B-22
General.............................................................B-22
Tax Treatment of Options............................................B-22
PORTFOLIO SECURITY TRANSACTIONS ..........................................B-24
OTHER INFORMATION.........................................................B-25
Custodian, Transfer Agent and Dividend-Paying Agent ................B-25
Independent Public Accountants .....................................B-26
Registration Statement .............................................B-26
FINANCIAL STATEMENTS......................................................B-26
26
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THE TRUST
Anchor International Bond Trust was established as a business trust under the
laws of Massachusetts by a Declaration of Trust dated April 10, 1986 and amended
and restated on September 3, 1986. The Trust is a diversified open-end
management investment company. The name of the Trust was changed from Meeschaert
International Bond Trust on December 5, 1990.
INVESTMENT STRATEGIES AND RISKS
The Trust's Prospectus describes the investment objectives and policies of the
Trust. The Prospectus also briefly describes specialized techniques that the
Trust may use in order to achieve its investment objectives. There can be no
assurance that the Trust will achieve its investment objectives. The following
discussion is intended to provide further information concerning investment
techniques and risk considerations which the Investment Adviser believes to be
of interest to investors.
To achieve its investment objective, the Trust may also use specialized
investment techniques by engaging in a variety of transactions using
"derivatives." Derivatives are financial instruments whose value depends upon,
or is derived from, the value of something else, such as one or more underlying
securities, indices or currencies. These include transactions in options on
securities, securities indices and currencies, transactions in financial futures
contracts and related options, loans of portfolio securities, transactions in
repurchase agreements. The use of derivatives involves special risks and may
result in losses to the Trust.
Foreign Securities and Risks
A significant portion of the Trust's net asset value will be invested in debt
securities of non-U.S. issuers. Foreign securities pose additional risks because
foreign economic or political conditions may be less favorable than those of the
United States. There is usually less public information available about foreign
companies than U.S. companies. Foreign financial markets may also have fewer
investor protections. Securities in foreign markets may also be subject to
taxation policies that reduce returns for U.S. investors. Due to these risk
factors, foreign securities may be more volatile and less liquid than similar
securities traded in the U.S. In particular, investments in foreign securities
are subject to the following specific risks:
Country Risk. Debt or equity securities market movements in any country
will likely affect the value of the securities the Trust owns which trade
in that country. These movements will affect the Trust's share price.
The political, economic and social structures of some countries in which
the Trust invests may be less stable and more volatile than those in the
U. S. The risks of investing in these countries include the possibility of
the imposition of exchange controls, expropriation, restrictions on
removal of currency or other assets, nationalization of assets and
punitive taxes.
The Trust's investments in developing or emerging markets are subject to
all of the risks of foreign investing generally, and have additional
heightened risks due to a lack of legal, business and social frameworks to
support securities markets. Typically, investments by the Trust in
developing or emerging markets constitute less than 5% of the Trust's
total assets.
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<PAGE>
Company Risk. Foreign companies are not subject to the same accounting,
auditing, and financial reporting standards and practices as U. S.
companies and their stocks may not be as liquid as stocks of similar U.S.
companies. Foreign stock exchanges, brokers and companies generally have
less government supervision and regulation that in the U.S. The Trust may
have greater difficulty voting proxies, exercising shareholder rights,
pursuing legal remedies and obtaining judgments with respect to foreign
investments in foreign courts than with respect to U.S.
companies in U.S. courts.
Currency. Many of the Trust's investments are denominated in
foreign currencies. Changes in foreign currency exchange rates
will affect the value of securities the Trust owns and the
Trust's share price. Generally, when the U.S. dollar rises in
value against a foreign currency, an investment denominated in
that country's currency loses value because that currency is
worth fewer U.S. dollars.
Euro. On January 1, 1999, the European Monetary Union introduced a new
single currency, the euro. The euro will replace the national currency for
participating member countries. The Trust's investments in countries with
currencies replaced by the euro, the investment process, including
trading, foreign exchange, payments, settlements, cash accounts, custody
and accounting, will be affected.
Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. Also, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the Trust may hold in its portfolio,
and their impact on the value of Trust shares. To the extent the Trust
holds non-U.S. dollar (euro or other) denominated securities, it will
still be exposed to currency risk due to fluctuations in those currencies
versus the U.S. dollar.
Option Transactions
A call option is a short-term contract (normally having a duration of nine
months or less) which gives the holder of the option (the buyer) the right to
buy from the seller (writer) the underlying security at a specified exercise
price during the option period. The buyer pays a premium to the writer for
undertaking the obligations of the option contract. Because the writer foregoes
the opportunity to profit from an increase in the market price of the underlying
security above the exercise price, the premium may represent the profit. If the
price of the security declines, on the other hand, the premium represents an
offset to the loss.
A put option gives the holder of the option the right to sell the underlying
security to the writer at the exercise price during the option period. The Trust
may purchase a put option on an underlying security that the Trust owns as a
defensive technique to protect against an anticipated decline in the value of
the security. For example, the Trust may purchase a put option to protect
unrealized appreciation of a security where the Investment Adviser deems it
desirable to continue to hold the security because of tax considerations. The
premium paid for the put option would reduce any capital gain when the security
is eventually sold.
The writing of call options and the purchasing of put options is a highly
specialized activity which involves investment techniques and risks different
28
<PAGE>
from those ordinarily associated with investment companies. The Investment
Adviser believes that the assets of the Trust can be increased by realizing
premiums on the writing of call options and by the purchasing of put options on
securities held by the Trust.
When a security is sold from the Trust's portfolio, the Trust effects a closing
call purchase or put sale transaction so as to close out any existing option on
the security. A closing transaction may be made only on an exchange or other
market which provides a secondary market for an option with the same exercise
price and expiration date. There is no assurance that there will be a liquid
secondary market on an exchange or otherwise for any particular option, or at
any particular time. There may not be a secondary market on an exchange for some
options. If the Trust is unable to effect a closing transaction, in the case of
a call option, the Trust will not be able to sell the underlying security until
the option expires or the Trust delivers the underlying security upon exercise.
The Trust pays brokerage commissions in connection with the writing and
purchasing of options and effecting closing transactions, as well as for
purchases and sales of underlying securities. The writing of options could
result in significant increases in the Trust's portfolio turnover rate,
especially during periods when market prices of the underlying securities
appreciate.
Index Options
The Trust may purchase put or call index options. Such investments typically
would be made by the Trust only as a temporary defensive strategy in an attempt
to preserve appreciation in the value of the portfolio's debt securities. A call
option on a securities index is similar to a call option on an individual
security, except that the option's value depends on the weighted value of the
group of securities constituting the index. Also, all settlements on index
options are made in cash. When the Trust purchases index options, a "multiplier"
is used to determine the total dollar value per contract of each point between
the exercise price of the option and the current level of the underlying index.
A multiplier of 100 means that a one-point difference will yield $100. Options
on different indices may have different multipliers.
The Trust has traded index options relating to the Standard & Poor's 100 and 500
Composite Stock Price Indices. In the future the Trust may also trade index
options relating to any of the following specific indices: Computer/Business
Equipment Index, Major Market Index, AMEX Market Value Index, Computer
Technology Index, Oil and Gas Index, NYSE Options Index, Gaming/Hotel Index,
Telephone Index, Transportation Index, Technology Index, and Gold/Silver Index.
The Trust may write call options and purchase put and call options on any other
traded indices. Call options on securities indices written by the Trust will be
"covered" by identifying the specific portfolio securities generally represented
by the index. A call is "covered" if the writer, at all times while obligated as
a writer, either owns the underlying securities (or comparable securities
satisfying the cover requirements of the securities exchanges ), or has the
right to acquire such securities through immediate conversion of securities. The
Trust will not engage in options on a particular stock index unless more than
10% of the Trust's total assets are invested in shares of stock represented by
the index.
To secure the obligation to deliver the underlying securities in the case of an
index call option written by the Trust, the Trust will be required to deposit
qualified securities. A "qualified security" is a security against which the
Trust has not written a call option and which has not been hedged by the Trust
by the sale of a financial futures contract. If at the close of business on any
day the market value of the qualified securities falls below 100% of the current
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index value times the multiplier times the number of contracts, the Trust will
deposit an amount of cash or liquid assets equal in value to the difference. In
addition, when the Trust writes a call on an index which is in the money (when
the market price of the index is above the exercise price of the call) at the
time the call is written, the Trust will segregate with its custodian bank cash
or liquid assets equal in value to the amount by which the call is in the money
times the multiplier times the number of contracts. Any amount segregated may be
applied to the Trust's obligation to segregate additional amounts if the market
value of the qualified securities falls below 100% of the current index value
times the multiplier times the number of contracts.
The Trust may also purchase put and call options for a premium. The Trust may
sell a put or call option which it has previously purchased prior to the sale of
the underlying security. Such a sale may result in a net gain or loss depending
on whether the amount received on the sale is more or less than the premium and
other transaction costs paid.
Because the Trust intends to qualify as a regulated investment company under the
Internal Revenue Code, the Trust may be subject to other restrictions on the
Trust's ability to enter into option transactions. See "Taxes -- Tax Treatment
of Options and Futures Transactions."
Risks of Index Options
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular security, whether the Trust will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of prices in the market generally or in an industry
or market segment, rather than movements in the price of an individual security.
Accordingly, the value of the Trust's index options transactions will be subject
to the Investment Adviser's ability to predict correctly movements in the
direction of the market generally or of a particular industry. This requires
different skills and techniques than predicting changes in the price of
individual securities.
Index prices may be distorted if trading of certain securities included in the
index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
securities included in the index. If this occurred, the Trust would not be able
to close out options which it has purchased or written. Also, if restrictions on
exercise were imposed, the Trust may be unable to exercise an option it
purchased. As a result, the Trust could incur substantial losses. It is the
Trust's policy to purchase or write options only on indices which include a
sufficient number of securities so that the likelihood of a trading halt in the
index is minimized.
Because the exercise of an index option is settled in cash, an index call writer
cannot determine the amount of its settlement obligation in advance. Further,
unlike call writing on portfolio securities, the writer cannot provide in
advance for its potential settlement obligation by holding the underlying
securities.
Price movements in securities in the Trust's portfolio will not correlate
perfectly with movements in the level of the index. Therefore, the Trust bears
the risk that the price of the securities held by the Trust may not increase as
much as the index. In this event, the Trust would bear a loss on the call which
would not be completely offset by movements in the prices of the Trust's
portfolio securities. It is also possible that the index may rise when the
Trust's portfolio securities do not. If this occurred, the Trust would
experience a loss on the call which would not be offset by an increase in the
value of its portfolio and also might experience a loss in its portfolio.
Unless the Trust has other liquid assets which will satisfy the exercise of a
call on an index, the Trust will have to liquidate portfolio securities in order
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to satisfy the exercise. Because an exercise must be settled within hours after
receiving the notice of exercise, if the Trust fails to anticipate an exercise,
it may have to borrow from a bank (in amounts not exceeding 5% of the Trust's
total assets) pending settlement of the sale of securities in its portfolio and
would incur interest charges thereon.
When the Trust has written a call on an index, there is also a risk that the
market may decline between the time the Trust has the call exercised against it,
at a price which is fixed as of the closing level of the index on the date of
exercise, and the time the Trust is able to sell securities in its portfolio. As
with options on portfolio securities, the Trust will not learn that a call has
been exercised until the day following the exercise date. Unlike a call on a
portfolio security in settlement, the Trust may have to sell part of its
portfolio securities to make settlement in cash, and the price of such
securities might decline before they can be sold.
If the Trust exercises a put option on an index which it has purchased before
final determination of the closing index value for that day, it runs the risk
that the level of the underlying index may change before closing. If this change
causes the exercised option to fall out of the money, the Trust will be required
to pay the difference between the closing index value and the exercise price of
the option (multiplied by the applicable multiplier) to the assigned writer. The
Trust may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than exercising an
option when the index level is close to the exercise price. The Trust may not be
able to eliminate this risk entirely because the cutoff time for index options
may be earlier than those fixed for other types of options and may occur before
definitive closing index values are announced.
The Trust pays brokerage commissions in connection with the writing and
purchasing of options and effecting closing transactions, as well as for
purchases and sales of underlying securities. The writing of options may cause
significant increases in the Trust's portfolio turnover rate, especially during
periods when the market prices of the underlying securities appreciate.
Options on Foreign Currencies
The Trust may engage in options on foreign currencies, also referred to as
foreign currency hedging transactions, in an attempt to minimize the effects of
currency fluctuations on the Trust. A put option on a foreign currency is a
short-term contract (generally having a duration of nine months or less) which
gives the purchaser of the put option, in return for a premium, the right to
sell the underlying currency at a specified price during the term of the option.
A call option on a foreign currency is a short-term contract which gives the
purchaser of the call option, in return for a premium, the right to buy the
underlying currency at a specified price during the term of the option. The
purchase of put and call options on foreign currencies is similar to the
purchase of puts and calls on stocks.
Options on foreign currencies are currently traded in the United States on the
Philadelphia Stock Exchange and the Chicago Board of Options Exchange. Foreign
currencies options are currently traded in British pounds, Swiss francs,
Japanese yen, Deutsche marks and Canadian dollars. The Trust may use foreign
currency options to protect against the decline in the value of portfolio
securities resulting from changes in foreign exchange rates, as the following
examples illustrate:
1. In connection with the Trust's payment for securities of a foreign issuer at
some future date in a foreign currency, the Trust may purchase call options on
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that foreign currency to hedge against the risk that the value of the foreign
currency might rise against the U. S. dollar, which would increase the cost of
the currency and the transaction.
EXAMPLE: The Trust must pay for the purchase of securities of a Swiss
issuer in Swiss francs. If the Trust is concerned that the price of Swiss
francs might rise in price (in U. S. dollars) from, for example, $.4780,
it might purchase Swiss franc June 48 call options for a premium of, for
example, $.50 (i.e. $.005 per Swiss franc times 62,500 Swiss francs per
contract, for a total premium of $312.50 -- plus transaction costs). This
would establish a maximum cost for Swiss francs and thus the maximum cost
in U.S. dollars for the Swiss securities. If Swiss francs subsequently
appreciated to $.4950 and the premium on Swiss franc June 48 call options
increased to, for example, $1.95 (for a total premium of $1,219.75), the
Trust could sell the option at a profit ($1,219.75 less the original
premium paid of $312.50 and transaction costs) to offset the increased
cost of acquiring Swiss francs. Alternatively, the Trust could exercise
the option contract. If the Swiss franc remained below $.48, the Trust
could let its calls expire (losing its premium) and purchase the Swiss
francs at a lower price.
2. The Trust may purchase foreign currency options to protect against a
decline in the Trust's cash and short-term U.S. government securities.
EXAMPLE: The Trust may have investments in cash and in short-term U.S.
Government securities e.g., U.S. Treasury bills having maturities of less
than one year). In order to hedge against a possible decline in the value
of the U.S. dollar, the Trust might purchase Deutsche mark 40 calls. If
the Deutsche mark appreciates above $.40, then the Trust could exercise
its option contract and stabilize the value of its cash holdings and the
underlying value of the U.S. Treasury bills in its portfolio as a result
of the improved exchange rate between the Deutsche mark and the U.S.
dollar.
As is the case with other listed options, the effectiveness of foreign currency
options in carrying out the Trust's objective will depend on the exercise price
of the option held and the extent to which the value of such option will be
affected by changes in the exchange rates of the underlying currency. To
terminate its rights in options which it has purchased, the Trust would sell an
option of the same series in a closing sale transaction. The Trust will realize
a gain or loss, which will be offset by a loss or gain on the U.S. dollar,
depending on whether the sale price of the option is more or less than the
Trust's cost of establishing the position. If the transaction is not completed,
the option may be allowed to expire (causing loss of the option premium amount)
or liquidated for any remaining value.
Foreign currency options purchased for the Trust will be valued at the last sale
price on the principal exchange on which such option is traded or, in the
absence of a sale, the mean between the last bid and offering prices. Options
which are not actively traded will be valued at the difference between the
option price and the current market price of the underlying security, provided
that the put price is higher than such market price or the call price is lower
than such market price. In the event that a put price is lower than the current
market value of the underlying security, or a call price is higher than the
current market value of the underlying security, then the option will be
assigned no value.
Risks of Foreign Currency Option Activities
If a decline in the value of the Trust's portfolio is accompanied by a rise in
the value of a foreign currency in relation to the U.S. dollar, the purchase of
options on that foreign currency may generate gains which would partially offset
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the decline. However, if after the Trust purchases an option, the value of the
Trust's portfolio moves in the opposite direction from that contemplated, the
Trust may experience losses to the extent of premiums it paid in purchasing the
options. This will reduce any gains the Trust would otherwise have. For this
reason, as well as supply and demand imbalances and other market factors, the
price movements of options on foreign currencies may not correspond to the price
movements of the Trust's portfolio securities. In these cases, the Trust may
incur losses on the options transactions.
The Trust's success in using options on foreign currencies depends, among other
things, on the Investment Adviser's ability to predict the direction and
volatility of price movements in the options markets as well as the general
securities markets and on the Investment Adviser's ability to select the proper
type time and duration of options. Although the Investment Adviser has prior
experience in using currency options, this technique may not produce its
intended results. The price movements of options relating to currencies
purchased by the Trust may not correspond to the price movements of the Trust's
portfolio securities and the options transactions.
Option positions on foreign currencies may be closed out only on an exchange or
other market which provides a secondary market for options of the same series.
Options on foreign currencies are currently traded in the United States on the
Philadelphia Stock Exchange and the Chicago Board of Options Exchange. Trading
in options on foreign currencies may be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers. In
addition, trading may be suspended after the price of an option has risen or
fallen more than a specified maximum amount. Exercise of foreign currency
options also could be restricted or delayed because of regulatory restrictions
or other factors. The ability to establish and close out positions in foreign
currency options will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will continue. The Trust
will not purchase foreign currency options on any exchange or other market
unless and until, in the Investment Adviser's opinion, the market for such
options has developed sufficiently. Although the Trust intends to purchase
options only when there appears to be an active market for them, there can be no
assurance that there will be a liquid market when the Trust seeks to close a
particular option position. Accordingly, the Trust may experience losses as a
result of its inability to close out an options position.
The Trust also may be generally restricted in the purchase and sale of options
because the Trust intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. One of the requirements for this
qualification is that less than 30% of the Trust's gross income must be derived
from gains on securities held for less than three months. Accordingly, the Trust
will be restricted in the purchasing of options on foreign currencies which
expire in less than three months, and in effecting closing purchase or sale
transactions relating to put options on foreign currencies which were purchased
less than three months prior to such transactions. The Trust may also be
restricted in the purchase of put options for the purpose of hedging underlying
foreign currencies because of the application of the short sale holding period
rules as to the underlying hedged currencies. Thus, the extent to which the
Trust may engage in option transactions may be materially limited by this 30%
test, by the additional Code requirement that at least 90% of the Trust's gross
income be derived from dividends, interest, and gains from the sale or other
disposition of securities, and by other Code requirements.
Special Risks of Foreign Currency Options
In addition to the risks described above, other special risks associated with
foreign currency options include the following:
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1. The value of foreign currency options depends upon the value of foreign
currencies relative to the U.S. dollar. As a result, the prices of foreign
currency options may vary with changes in the value of either or both
currencies. Thus, fluctuations in the value of the U.S. dollar will affect
exchange rates and the value of foreign currency options, even in the case of an
otherwise stable foreign currency. Conversely, fluctuations in the value of a
foreign currency will affect exchange rates and the value of foreign currency
options even if the value of the U.S. dollar remains relatively constant. Thus,
the Trust must consider carefully factors affecting both the U.S. economy and
the economy of the foreign country issuing the foreign currency underlying the
option.
2. The value of any currency, including U.S. dollars and foreign currencies, may
be affected by a number of complex factors applicable to the issuing country.
These factors include the prevailing monetary policy of that country, its money
supply, its trade deficit or surplus, its balance of payments, interest rates,
inflation rates and the extent or trend of its economic growth. In addition,
foreign countries may take a variety of actions, such as increasing or
decreasing the money supply or purchasing or selling government obligations,
which may have an indirect but immediate effect on exchange rates.
3. The exchange rates of foreign currencies (and therefore the value of foreign
currency options) could be significantly affected, fixed or supported directly
or indirectly by government actions. Any government intervention may increase
risks to investors since exchange rates may not be free to fluctuate in response
to other market forces.
4. Because foreign currency transactions occurring in the interbank market
involve substantially larger amounts than those likely to be involved in the
exercise of individual foreign currency option contracts, investors who buy or
write foreign currency options may be disadvantaged by having to deal in an odd
lot market for the underlying foreign currencies at prices that are less
favorable than for round lots. Because this price differential may be
considerable, it must be taken into account when assessing the profitability of
a transaction in foreign currency options.
5. There is no systematic reporting of last sale information for foreign
currencies. Reasonably current, representative bid and offer information is
available on the floor of the exchange on which foreign currency options are
traded, in certain brokers offices, in bank foreign currency trading offices,
and to others who wish to subscribe for this information. There is, however, no
regulatory requirement that those quotations be firm or revised on a timely
basis. The absence of last sale information and the limited availability of
quotations to individual investors may make it difficult for many investors to
obtain timely, accurate data about the state of the underlying market. In
addition, the quotation information that is available usually relates to very
large transactions in the interbank market and does not reflect exchange rates
for smaller transactions. Since the relatively small amount of currency
underlying a single foreign currency option would be treated as an odd lot in
the interbank market (i.e., less than $5 million), available pricing information
from that market may not necessarily reflect prices pertinent to a single
foreign currency option contract. Investors who buy or sell foreign currency
options covering amounts of less than $5 million should expect to deal in the
underlying market at prices that are less favorable than for round lots.
6. Foreign governmental restrictions or taxes could result in adverse changes in
the cost of acquiring or disposing of foreign currencies. If The Options
Clearing Corporation ("OCC") determines that these restrictions or taxes would
prevent the orderly settlement of foreign currency option exercises or impose
undue burdens on parties to exercise settlements, it is authorized to impose
special exercise settlement procedures, which could adversely affect the Trust.
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7. The interbank market in foreign currencies is a global, around-the-clock
market. Therefore, in contrast with the exchange markets for stock options, the
hours of trading for foreign currency options do not conform to the hours during
which the underlying currencies are traded. (Trading hours for foreign currency
options can be obtained from a broker.) To the extent that the options markets
are closed while the market for the underlying currencies remains open,
significant price and rate movements may take place in the underlying markets
that cannot be reflected in the options markets. The possibility of these
movements should be taken into account in (a) relating closing prices in the
options and underlying markets, and (b) determining whether to close out a short
option position that might be assigned in an exercise that takes place after the
options market is closed on the basis of underlying currency price movements at
a later hour.
8. Since settlement of foreign currency options must occur within the country
issuing that currency, investors, through their brokers, must accept or make
delivery of the underlying foreign currency in conformity with both U.S. and
foreign restrictions or regulations regarding foreign banking arrangements by
U.S. residents. The Trust may be required to pay any fees, taxes or charges
associated with such delivery which are assessed in the issuing country. Prior
to placing any assets with a foreign custodian in connection with the settlement
of foreign currency options, the Trustees of the Trust will determine that
maintaining these assets in a particular country or countries and with a
particular foreign custodian is consistent with the best interests of the Trust
and its shareholders. The Trustees will approve, as consistent with the best
interests of the Trust and its shareholders, a written contract between the
Trust and its foreign custodian. The Trustees will also establish a system to
monitor such foreign custody arrangements. The Trustees will, at least annually,
review and approve the continuance of these arrangements as consistent with the
best interests of the Trust and its shareholders.
Financial Futures Contracts and Related Options
The Trust may use financial futures contracts and related options to hedge
against changes in currency exchange rates or in the market value of its
portfolio securities or securities which it intends to purchase. Hedging is
accomplished when an investor takes a position in the futures market opposite to
his cash market position. There are two types of hedges -- long (or buying) and
short (or selling) hedges. Historically, prices in the futures market have
tended to move in concert with cash market prices, and prices in the futures
market have maintained a fairly predictable relationship to prices in the cash
market. Thus, a decline in the market value of securities in the Trust's
portfolio may be protected against to a considerable extent by gains realized on
futures contracts sales. Similarly, futures contracts may protect against an
increase in the market price of securities which the Trust may wish to purchase
in the future.
The Trust may purchase or sell any financial futures contracts which are traded
on an exchange or board of trade or other market. Financial futures contracts
consist of interest rate futures contracts, securities index futures contracts
and foreign currency contracts. A United States public market presently exists
in interest rate futures contracts on long-term U.S. Treasury bonds, U.S.
Treasury notes and three-month U.S. Treasury bills. Securities index futures
contracts are currently traded with respect to the Standard & Poor's 500
Composite Stock Price Index and such other broad-based stock market indices as
the New York Stock Exchange Composite Stock Index and the Value Line Composite
Stock Price Index. A clearing corporation associated with the exchange or board
of trade on which a financial futures contract trades assumes responsibility for
the completion of transactions and also guarantees that open futures contracts
will be performed. Currency futures contracts are also traded on various
exchanges or boards of trade.
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In contrast to the situation where the Trust purchases or sells a security, the
Trust does not deliver or receive a security upon the purchase or sale of a
financial futures contract. Initially, the Trust will be required to deposit in
a segregated account with its custodian bank an amount of cash or U.S. Treasury
bills. This amount is known as initial margin. The initial margin is like a
performance bond or good faith deposit on the contract. The current initial
margin deposit on the contract is approximately 5% of the contract amount. The
Trust will make subsequent payments, called variation margin, to and from the
account on a daily basis as the price of the futures contract fluctuates. This
process is known as marking to market.
The writer of an option on a futures contract is required to deposit margin
under requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. This amount will be equal to the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
Although financial futures contracts by their terms call for actual delivery or
acceptance of currencies or securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out is accomplished by effecting an offsetting transaction. A futures contract
sale is closed out by effecting a futures contract purchase for the same
aggregate amount of securities and the same delivery date. If the sale price
exceeds the offsetting purchase price, the seller is immediately paid the
difference and realizes a gain. If the offsetting purchase price exceeds the
sale price, the seller immediately pays the difference and realizes a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser realizes a gain.
If the purchase price exceeds the offsetting sale price, the purchaser realizes
a loss.
The Trust will pay commissions on financial futures contract and related options
transactions. These commissions may be higher than those which would apply to
purchases and sales of securities directly.
Limitations on Futures Contracts and Related Options
The Trust may not currently engage in transactions in financial futures
contracts or related options for speculative purposes, but only as a hedge
against anticipated changes in exchange rates or the market value of its
portfolio securities or securities which it intends to purchase. Also, the Trust
may not currently purchase or sell financial futures contracts or related
options if, immediately thereafter, the sum of the amount of initial margin
deposits on the Trust's existing futures and related option positions and the
premiums paid for related options would exceed 5% of the market value of the
Trust's total assets after taking into account unrealized profits and losses on
any such contracts. At the time of purchase of a futures contract or an option
on a futures contract, the Trust must deposit an amount of cash, U.S. government
securities or other appropriate high-grade debt obligations equal to the market
value of the futures contract, minus the Trust's initial margin deposit, in a
segregated account with the Trust's custodian bank to collateralize fully the
position and ensure that it is not leveraged.
The Trust's ability to enter into financial futures contracts and related
options also may be limited by the requirements of the Internal Revenue Code
relating to the Trust's qualification as a regulated investment company. See
"Taxes-Tax Treatment of Options and Futures Transactions."
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Risks Relating to Futures Contracts and Related Options
The Trust may close out positions in financial futures contracts and related
options only on an exchange or other market which provides a secondary market
for such contracts or options. The Trust will enter into futures or related
option positions only if there appears to be a liquid secondary market. However,
a liquid secondary market may not exist for any particular futures or related
option contract at any specific time. Thus, it may not be possible to close out
a futures or related option position. If there are adverse price movements in
the Trust's futures positions, the Trust will continue to be required to make
daily margin payments. In this situation, if the Trust has insufficient cash to
meet daily margin requirements, it may have to sell portfolio assets at a time
when it may be disadvantageous to do so. In addition, the Trust may be required
to take or make delivery of the securities underlying the futures contracts it
holds. The inability to close out futures positions also could have an adverse
impact on the Trust's ability to hedge its portfolio effectively.
There are several risks in connection with the use of futures contracts as a
hedging device. While hedging can provide protection against an adverse movement
in the market prices, it can also preclude a hedger's opportunity to benefit
from a favorable market movement. In addition, investing in futures contracts
and options on futures contracts will cause the Trust to incur additional
brokerage commissions and may cause an increase in the Trust's portfolio
turnover rate.
The successful use of futures contracts and related options also depends on the
ability of the Trust's Investment Adviser to forecast correctly the direction
and extent of currency exchange rate and market movements within a given time
frame. To the extent exchange rate and market prices remain stable during the
period that the Trust holds a futures contract or option, or prices move in a
direction opposite to that anticipated, the Trust may realize a loss on the
hedging transaction which is not offset by an increase in the value of its
portfolio securities. As a result, the Trust's total return for the period may
be less than if it had not engaged in the hedging transaction.
The Trust's use of futures contracts involves the risk of imperfect correlation
in movements in the price of futures contracts and movements in the price of the
currencies or securities which are being hedged. If the price of the futures
contract moves more or less than the price of the currencies or securities being
hedged, the Trust will experience a gain or loss which will not be completely
offset by movements in the price of the securities. It is possible that, where
the Trust has sold futures contracts to hedge its portfolio against decline in
the market, the market may advance and the value of securities held in the
Trust's portfolio (or related currencies) may decline. If this occurred, the
Trust would lose money on the futures contract and would also experience a
decline in value in its portfolio securities. Where futures are purchased to
hedge against a possible increase in the prices of securities before the Trust
is able to invest its cash (or cash equivalents) in securities (or options) in
an orderly fashion, it is possible that the market may decline. If this
occurred, the Trust would lose money on the futures contract and the value of
its portfolio securities would decline. If the Trust purchases future to hedge
against a possible increase in the prices of securities before the Trust is able
to invest its cash (or cash equivalents) in securities (or options) in an
orderly fashion, the market may decline. If the Trust then determines not to
invest in securities (or options) at that time because of concern as to possible
further market decline or for other reasons, the Trust will realize a loss on
the futures that would not be offset by a reduction in the price of securities
purchased.
The market prices of futures contracts may be affected if participants in the
futures market elect to close out their contracts through offsetting
transactions rather than to meet margin deposit requirements. In such case,
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distortions in the normal relationship between the cash and futures markets
could result. Price distortions could also result if investors in futures
contracts opt to make or take delivery of the underlying securities rather than
to engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, due to the fact that, from the
point of view of speculators, the deposit requirements in the futures markets
are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures market could cause temporary price
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the prices of
currencies and securities and movements in the prices of futures contracts, a
correct forecast of market trends may still not result in a successful hedging
transaction.
Compared to the purchase or sale of futures contracts, the purchase of put or
call options on futures contracts involves less potential risk for the Trust
because the maximum amount at risk is the premium paid for the options plus
transaction Costs. However, there may be circumstances when the purchase of an
option on a futures contract would result in a loss to the Trust while the
purchase or sale of the futures contract would not have resulted in a loss, such
as when there is no movement in the price of the underlying securities.
The Trust will not invest more than 35% of its total assets in any
option-related investments.
The Trust also may be generally restricted in dealing with options, futures
contracts and related options because the Trust intends to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code.
PORTFOLIO TURNOVER
The Trust will generally purchase securities for possible long-term
appreciation and not for short-term trading profits. However, when the
Investment Adviser deems changes appropriate, it will not be limited by the rate
of portfolio turnover. The Trust's annual portfolio turnover rate will normally
not exceed 50%. However, a rate of turnover of 100% could occur, for example, if
the value of the lesser of purchases and sales of portfolio securities for a
particular year equaled the average monthly value of portfolio securities owned
during the year (excluding short-term securities).
If the Trust has a high rate of portfolio turnover, it will pay greater
brokerage commissions and other costs. The Trust must bear these increased costs
directly and thus its shareholders will bear them indirectly. There may also be
the realization of larger amounts of short-term capital gains which are taxable
to shareholders as ordinary income.
The portfolio turnover rates for 1998 and 1997 were 0% and 0%,
respectively.
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions which are
fundamental policies and cannot be changed without approval by the holders of a
majority of the outstanding voting securities of the Trust. This means the
lesser of either (i) a majority of the outstanding shares of the Trust or (ii)
67% or more of the Trust's shares represented at a meeting if more than 50% of
the shares are present or represented by proxy at the meeting.
1. The Trust will not purchase any securities (other than securities of
the U.S. government, its agencies, or instrumentalities) if as a result more
than 5% of the Trust's total assets (taken at current value) would then be
invested in securities of a single issuer.
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2. The Trust will not make loans, but the Trust may purchase a portion of
an issue of publicly distributed bonds, debentures, or similar debt securities.
(These debt securities may including repurchase agreements in which the Trust's
cash is, in effect, deposited on a secured basis with a bank for a period and
yields a return, but no more than an aggregate of 10% of the Trust's total
assets will be invested in repurchase agreements having maturities longer than
seven days or other investments subject to legal or contractual restrictions on
resale or which are not readily marketable.) The Trust may also lend portfolio
securities upon conditions that the Securities and Exchange Commission may
impose, if the value of securities loaned at any time does not exceed 30% of the
Trust's total assets.
3. The Trust will not borrow in excess of 5% of its total assets (valued
at market or other fair value at the time of the borrowing). The Trust may
borrow funds as a temporary measure for extraordinary or emergency purposes. The
Trust may not pledge or mortgage its assets (valued at market) to an extent
greater than 15% of the Trust's gross assets (valued at cost).
4. The Trust will not purchase any securities if, as a result of the
purchase, the Trust would hold more than 10% of the total outstanding voting
securities of the issuer (other than any wholly owned subsidiary of the Trust).
5. The Trust will not purchase or hold the securities of any issuer if the
officers and Trustees of the Trust or its Investment Adviser who own
beneficially more than 1/2 of 1% of the securities of that issuer together own
beneficially more than 5% of the securities of that issuer.
6. The Trust will not purchase the securities of any other investment
company. The Trust may, however, make such a purchase in the open market if
there is no commission or profit to a sponsor or dealer (other than the
customary broker's commission). Further, not more than 10% of the Trust's total
assets (taken at market or other fair value) may be invested in investment
company securities and not more than 3% of the voting stock of another
investment company may be owned by the Trust immediately after the making of any
such investment. The Trust may purchase investment company securities as part of
a merger, consolidation or acquisition of assets.
7. The Trust will not purchase securities of companies that (including
their predecessors) have less than three years of continuous operations if such
a purchase would cause the Trust's investments in such companies (taken at cost)
to exceed 5% of the total assets of the Trust (taken at current values). This
restriction shall not apply to any of the Trust's investments in any of its
wholly owned subsidiaries.
8. The Trust will not participate in a joint venture or on a joint and
several basis in any securities trading account.
9. The Trust will not act as an underwriter of securities issued by
others, except to the extent that the Trust may be deemed so in connection with
the disposition of securities that it owns.
10. The Trust will not make short sales of securities unless at all times
when a short position is open, it owns an equal amount of the securities or owns
securities convertible into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and at least equal in amount to,
the securities sold short. Engaging in futures transactions and related options
will not be deemed a short sale or maintenance of a short position in
securities.
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11. The Trust will not purchase securities on margin, but may obtain
short-term credits as may be necessary for the clearance of purchases and sales
of securities.
12. The Trust will not invest in a company in any single industry if,
immediately after such an investment, more than 25% of the Trust's total assets
would be invested in companies in that industry.
13. The Trust will not make investments in real estate or in direct
interests in real estate.
14. The Trust will not issue senior securities.
15. The Trust will not write, purchase or sell puts, calls or combinations
of them or take positions in commodities or commodity futures contracts or
related options. The Trust may, however, write covered call options on
securities, securities indices and currencies and enter into closing purchase or
sale transactions relating to written options. The Trust may also purchase put
or call options on securities, securities indices and currencies. In addition,
the Trust may engage in financial futures contracts and related options
transactions.
MANAGEMENT OF THE TRUST
Officers and Trustees
The Trustees of the Trust are responsible for managing the Trust's business
affairs and for exercising all the powers of the Trust, except those reserved to
the shareholders. The Trust's officers and Trustees, their positions with the
Trust and their principal occupations during the past five years are listed
below. Unless otherwise noted, the business address of each officer and Trustee
is 579 Pleasant Street, Suite 4, Paxton, Massachusetts 01612, which is also the
address of the Trust's Investment Adviser, Anchor Investment Management
Corporation. An asterisk (*) indicates Trustees who are interested persons, as
defined in the Investment Company Act of 1940, of either the Trust or the
Investment Adviser.
Positions with Principal Occupation
Name, Address and Birth date the Trust During the Past 5 Years
- ---------------------------- --------- -----------------------
ERNEST BUTLER, Trustee President, I.E. Butler
Born June 17, 1928 Securities (securities
11809 Hinson Road, Suite 400 dealer); formerly Senior
Little Rock, AR 72212 Executive Vice President
Stephens, Inc.
(securities dealer)
(1982-February 1998).
SPENCER H. LEMENAGER, Trustee President, Equity, Inc.
Born January 25, 1938 (private investment
222 Wisconsin Avenue company)
P.O. Box 390
Lake Forest, IL 60045
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DAVID W. C. Chairman Chairman and Trustee,
PUTNAM, and Trustee Progressive Capital
Born October 8, 1939 Accumulation Trust
10 Langley Road (formerly Anchor Capital
Newton Centre, MA 02159 Accumulation Trust),
Anchor International Bond
Trust, Anchor Strategic
Assets Trust, Anchor
Resource and Commodity
Trust, and Anchor Gold and
Currency Trust (investment
companies); President and
Director, F. L. Putnam
Securities Company, Inc.
and subsidiaries
(investment advisor).
J. STEPHEN PUTNAM, Vice President and President, Robert Thomas
Born May 21, 1943 Treasurer Securities, Inc.
880 Carillon Parkway (securities dealer);
P.O. Box 12749 Director, F.L. Putnam
St. Petersburg, FL 33733 Securities Company, Inc.
(investment advisor)
DAVID Y. WILLIAMS2*, Trustee, President President and Director,
Born November 24, 1930 & Secretary Anchor Investment
579 Pleasant St., Suite 4 Management Corporation
Paxton, MA 01612 (investment adviser);
President and Director,
Meeschaert & Co., Inc.
(securities dealer);
Vice President,
Secretary and Treasurer,
Progressive Investment
Management,
Inc.(investment adviser)
CHRISTOPHER Y. WILLIAMS2, Vice President and Vice President and Asst.
Born December 12, 1964 Asst. Secretary Secretary, Progressive
579 Pleasant St., Suite 4 Investment Management
Paxton, MA 01612 Inc. (investment
adviser),; Vice
President and Secretary,
Anchor Investment
Management Corporation
(investment adviser);
Vice President and
Secretary, Meeschaert &
Co. Inc. (securities
dealer); President and
Secretary, Cardinal
Investment Services,
Inc. (financial
administrative services)
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JOSEPH C. Vice President and Vice President and Asst.
WILLIAMS2, Asst. Treasurer Treasurer, Progressive
Born January 13, 1971 Investment Management
579 Pleasant St., Suite 4 Inc. (investment
Paxton, MA 01612 adviser); Vice President
and Treasurer, Anchor
Investment Management
Corporation; Vice
President and Treasurer,
Meeschaert & Co. Inc.
(securities dealer);
Vice President and
Treasurer, Cardinal
Investment Services,
Inc. (financial
administrative services)
1. David W.C. Putnam and J. Stephen Putnam are brothers.
2. David Y. Williams is the father of Christopher Y. Williams and Joseph C.
Williams. Christopher Y. Williams and Joseph C. Williams are brothers.
The Officers and Trustees of the Trust as group owned less than one percent (1%)
of the Trust's shares outstanding on December 31, 1998.
Messrs. David Putnam, Ernest Butler and Spencer LeMenager are the Trustees
who are not interested persons (as defined in the Investment Company Act of
1940) of the Trust.
The standing audit committee is composed of Messrs. LeMenager and Butler. The
Trust does not have a nominating or compensation committee.
Compensation of Officers and Trustees
The Trust does not and will not pay any compensation to any of its officers or
Trustees who are interested persons (as defined in the Investment Company Act of
1940) of the Trust or of any investment adviser or distributor of the Trust. The
Trust pays an annual fee of up to $1,000 to each Trustee who is not an
interested person. The Trust did not pay any person, including directors,
officers, or employees, in excess of $60,000.00 during its most recent fiscal
year.
Principal Holders of Securities
As of the date of this SAI, Wendel & Co., c/o Bank of New York, P. O. Box 1066,
Wall Street Station, New York, New York 10268, as an indirect nominee of Societe
D'Etudes et de Gestion Financieres Meeschaert, S.A., a privately-owned
corporation organized under the laws of France, 23 Rue Drouot, 75009, Paris,
France, held of record 99.47% of the outstanding shares of the Trust.
Shareholders owning 25% or more of outstanding Trust shares may be in control
and be able to affect the outcome of certain matters presented for a vote of
shareholders.
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Investment Adviser
The Investment Adviser, Anchor Investment Management Corporation is located at
579 Pleasant Street, Suite 4, Paxton, Massachusetts 01612.
The Investment Adviser and Meeschaert & Co., Inc., the Trust's principal
underwriter, are affiliated through common control with Societe D'Etudes et de
Gestion Financieres Meeschaert, S.A., one of France's largest privately-owned
investment management firms. The Meeschaert organization was established in
Roubaix, France in 1935 by Emile C. Meeschaert. The Meeschaert organization
presently manages, with full discretion, an aggregate amount of approximately
$1.5 billion, including $250 million in French mutual funds, for about 8,000
individual and institutional customers.
On September 7, 1983, Emile C. Meeschaert and David Y. Williams purchased the
Investment Adviser from F. L. Putnam Securities Company Incorporated ("Putnam
Securities"). As of November 14, 1990, Luc E. Meeschaert purchased all of the
outstanding shares of the Investment Adviser previously owned by Emile C.
Meeschaert.
The Investment Adviser's Directors and Officers are as follows:
Luc E. Meeschaert, Chairman - Mr. Meeschaert is Chief Executive Officer of
Societe D'Etudes et de Gestion Financieres Meeschaert, S.A., 23 Rue Druout,
75009, Paris, France.
David Y. Williams, President and Director - Mr. Williams is also a Trustee of
the Trust and President and a Director of Meeschaert & Co., Inc., the Trust's
Distributor.
Paul Jaspard, Vice President - Mr. Jaspard is President of Linden Investment
Advisors, S.A. 67 Avenue Terlinden, La Hulpe, Belgium B1310 (investment
adviser). Mr. Jaspard manages other portfolios for the Meeschaert
organization. He is primarily responsible for the investment decisions of the
Trust.
Christopher Y. Williams, Vice President and Assistant Secretary - Mr. Williams
is also the Vice President and Assistant Secretary of the Trust and Vice
President and Secretary of the Distributor.
Joseph C. Williams, Vice President and Assistant Treasurer - Mr. Williams is
also the Vice President and Assistant Treasurer of the Trust and Vice President
and Treasurer of the Distributor.
Investment Advisory Contract
The Trust and the Investment Adviser entered into an Investment Advisory
Contract dated June 22, 1998. The Trust's Shareholders approved the Investment
Advisory Contract on the same date.
The Investment Adviser manages the investments and affairs of the Trust, subject
to the supervision of the Trust's Board of Trustees. The Investment Adviser
furnishes to the Trust investment advice and assistance, administrative
services, office space, equipment and clerical personnel. The Investment Advisor
also furnishes investment advisory, statistical and research facilities. The
Trust pays all its expenses not specifically assumed by the Investment Adviser
under the contract, including without limitation, the fees and expenses of the
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Trust's custodian and transfer agent; costs incurred in determining the Trust's
net asset value and keeping its books; the cost of share certificates;
membership dues in investment company organizations; distributions and brokerage
commissions and fees; fees and expenses of registering its shares; expenses of
reports to shareholders, proxy statements and other expenses of shareholders'
meetings; insurance premiums; printing and mailing expenses; interest, taxes and
corporate fees; legal and accounting expenses; and fees and expenses of Trustees
not affiliated with the Investment Adviser. The Trust will also bear any
expenses incurred in connection with litigation in which the Trust is a party
and the related legal obligation that the Trust may have to indemnify its
officers and trustees.
For the fiscal year ended December 31, 1998, the Trust paid expenses of
$177,918, which represented 1.30% of the Trust's average net assets.
The Trust pays the Investment Adviser, as compensation under the Investment
Advisory Contract, a monthly fee of .0625% (equivalent to 3/4 of 1% annually) of
the average daily net assets of the Trust. This fee may be higher than that paid
by other investment companies. For the Investment Adviser's services to the
Trust, Trust paid the Investment Adviser fees of $193,677 in 1996, $152,869 in
1997 and $101,903 in 1998. The Investment Adviser may voluntarily waive a
portion of its fee or reimburse the Trust for certain operating expenses.
The Investment Advisory Contract will remain in effect until June 21, 2000 or
until terminated by other party. In general, the contract may be extended from
year to year upon its expiration if approved at least annually (a) by the vote
of a majority of the outstanding shares of the Trust or by the Board of
Trustees, and in either case, (b) by vote of a majority of the Trustees of the
Trust who are not parties to the contract or interested persons (as that term is
defined in the Investment Company Act of 1940) of any such party cast in person
at a meeting called for the purpose. Amendments to the contract require similar
approval by the shareholders and disinterested Trustees. The contract is
terminable at any time without penalty by the Trustees of the Trust or by vote
of the holders of a majority of the Trust's shares on 60 days' written notice or
by the Investment Adviser on 90 days' written notice. The contract terminates
automatically in the event of its assignment (which includes the transfer of a
controlling interest in the Investment Adviser).
The Investment Advisory Contract provides that the Investment Advisor shall not
be liable to the Trust or its shareholders for anything other than willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties. The Investment Advisory Contract also provides that the
Investment Advisor and its officers, directors and employees may engage in other
business, devote time and attention to any other business whether of a similar
or dissimilar nature, and render investment advisory services to others.
Administrator
The Trust has entered into an administration agreement (the Administration
Agreement) with Anchor Investment Management Corporation (the Administrator),
579 Pleasant Street, Paxton, Massachusetts 01612. Under the Administration
Agreement, the Administrator is required generally to administer the Trust's
business. The Administrator's duties, which may be assigned to a
sub-administrator, include specifically the following. The Administrator
calculates the Trust's net asset value and prepares and files all registration
or other material required by federal and state laws for the registration or
other qualification of the Trust and its shares for sale to the public as
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required by those laws. The Administrator also prepares and files or mails all
reports and statements that the Trust is required by federal and state laws to
file or send to all authorities and shareholders of the Trust. The Administrator
maintains contact with and coordinates the Trust's public accountants, legal
counsel, custodian, transfer and service agent and other service providers, all
of whose fees are paid independently by the Trust. The Administrator also
coordinates the Trust's portfolio transactions and cash management with the
Trust's custodian and receives, confirms and pays over to the Trust's custodian
the proceeds of sales by the Trust of its shares. The Administrator administers
and confirms to the Trust's transfer agent and shareholders the sales of Trust
shares and prepares and maintains on behalf of the Trust such records of the
Trust's business transactions as are not maintained by other service providers
to the Trust. The Administrator is also required, at its own expense, to furnish
office space, facilities, and equipment necessary for the administration of the
Trust. For its services under the Administration Agreement, the Administrator
receives a monthly fee at the annual rate of $26,000. The Trust paid the
administrator, Anchor Investment Management Corporation, fees of $22,000,
$26,000 and $26,000 in 1996, 1997 and 1998, respectively, for its services to
the Trust.
The Administration Agreement will remain in effect until terminated by either
party. The Administration Agreement may be terminated, without payment of
penalty, at any time upon mutual consent of the Trust and the Administrator or
by either party upon not more than 60 days' and not less than 30 days' written
notice to the other party.
The Administration Agreement also provides that the Administrator shall not be
liable to the Trust or its shareholders for anything other than willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties. The Administration Agreement also provides that the
Administrator and its officers, directors and employees may engage in other
business, devote time and attention to any other business whether of a similar
or dissimilar nature, and render investment advisory services to others.
Principal Underwriter
Meeschaert & Co., Inc. (the Distributor) is the principal underwriter of the
Trust's shares. The Distributor is located at 579 Pleasant Street, Suite 4,
Paxton, Massachusetts 01612. Several of the officers and directors of the
Distributor are also officers and Trustees of the Trust. See "MANAGEMENT OF
THE FUND - Officers and Trustees" above.
CAPITALIZATION
The capitalization of the Trust consists of an unlimited number of shares of
beneficial interest, without par value, designated Common Shares, which
participate equally in dividends and distributions. Issued shares are fully paid
and non-assessable and transferable on the books of the Trust. The shares have
no preemptive rights. The shares each have one vote and proportionate
liquidation rights.
The Trust will normally not hold annual meetings of shareholders to elect
Trustees. If less than a majority of the Trustees holding office have been
elected by shareholders, a meeting of shareholders will be called to elect
Trustees. Under the Declaration of Trust and the Investment Company Act of 1940,
the record holders of not less than two-thirds of the outstanding shares of the
Trust may remove a Trustee by votes cast in person or by proxy at a meeting
called for the purpose or by a written declaration filed with the Trust's
custodian bank. Except as described above, the Trustees will continue to hold
office and may appoint successor Trustees.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee. The Declaration of Trust provides for indemnification from the assets
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of the Trust for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of a shareholder
incurring a financial loss on account of his or her liability as a shareholder
of the Trust is limited to circumstances in which the Trust itself would be
unable to meet its obligations. The possibility that these circumstances would
occur is remote upon payment of any liability incurred by the Trust, the
shareholder paying the liability will be entitled to reimbursement from the
general assets of the Trust. The Trustees intend to conduct the operations of
the Trust to avoid, to the extent possible, ultimate liability of shareholders
for liabilities of the Trust.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Purchase of Shares
Investors may purchase shares of the Trust from the Distributor at 579 Pleasant
Street, Suite 4, Paxton, Massachusetts 01612. Investors pay no sales charge or
commission upon investment. For new shareholders initiating accounts, the
minimum investment is $500, except for exchanges of securities for Trust shares,
where the minimum is $5,000. (See "SHAREHOLDER INFORMATION - Exchange of Shares"
in the Prospectus). There is no minimum for shareholders making additional
investments to existing accounts.
An application for use in making an additional investment in the Trust appears
in the back of the Trust's Prospectus. The method for determining the applicable
price is described in the Prospectus under "SHAREHOLDER INFORMATION - Share
Price."
The Distributor sells shares to the public as agent for the Trust and is the
sole principal underwriter for the Trust under a Distributor's Contract dated
October 5, 1990. This is the date on which the Board of Trustees adopted the
contract in connection with the Distribution Plan described above under
"Distribution of Shares." The contract automatically terminates upon assignment
(which includes the transfer of a controlling interest in the Distributor) by
either party. The contract also provides that it may be continued from year to
year upon approval by a majority of the Trust's shares or by the Board of
Trustees as well as, the approval, by vote cast in person at a meeting called
for the purpose, by a majority of the Independent Trustees. Under the contract,
the Distributor pays expenses of sales literature, including copies of the
Trust's Prospectus delivered to investors. The Trust pays for its registration
and registration of its shares under the federal Securities and Investment
Company Acts and state securities acts and other expenses in which it has a
direct interest.
During the years ended December 31, 1998, December 31, 1997 and December 31,
1996, the Distributor received no sales commissions.
Determination of Net Asset Value
The Trust net asset value as of 12:00 noon Eastern Time on each business day on
which the New York Stock Exchange is open for trading. The Trust may determine
net asset value on any day that the Trust is open, but the New York Stock
Exchange is not open for business if an event occurs which might materially
affect the net asset value.
The manner of determination of the net asset value is briefly as follows.
Securities traded on a United States national, or other foreign securities
exchange are valued at the last sale price on the primary exchange on which they
are listed, or if there has been no sale that day, at the current bid price.
Other United States and foreign securities for which market quotations are
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readily available are valued at the last known sales price, or, if unavailable,
the known current bid price which most nearly represents current market value.
Other securities (including limited trade securities) and all other assets are
valued at market value as determined in good faith by the Trustees of the Trust.
The market prices of all of the Trust's investments are added together,
liabilities are deducted from the total, and the resulting amount is divided by
the number of shares outstanding.
Redemption and Repurchase of Shares
Any shareholder may require the Trust to redeem his shares. The Trust also
maintains a continuous offer to repurchase its shares. If a shareholder uses the
services of a broker in selling his shares in the over-the-counter market, the
broker may charge a reasonable fee for his service. Redemptions and repurchases
will be made in the following manner:
1. A shareholder may mail or present a written request that the Trust redeem his
shares to the Trust's transfer agent at 579 Pleasant Street, Suite 4, Paxton,
Massachusetts 01612. If a shareholder has share certificates, the investor
should properly endorse them and include them with the written request. The
redemption price will be the net asset value next determined after the Trust
receives the request and, if applicable, the certificates.
2. A shareholder's broker may present request for repurchase to the Trust. The
repurchase price will be the net asset value next determined after Trust
receives the request. If the broker receives the request before noon and
transmits it to the Trust before 1:00 p.m. Eastern Time the same day, the
repurchase price will be the net asset value determined as of 12:00 noon Eastern
Time that day. If the broker receives the request after noon, the repurchase
price will be the net asset value determined as of 12:00 noon Eastern Time the
following day. If an investor uses the services of a broker in having his shares
repurchased, the broker may charge a reasonable fee for his services.
The Trust will pay for shares redeemed or repurchased within seven days after it
receives the request and any required documents, properly endorsed. The
signature(s) on the share certificate or request must be guaranteed by a
commercial bank or trust company or by a member of the New York, American,
Pacific Coast, Boston or Chicago Stock Exchange. The Trust will not accept
signature guarantee by a savings bank, or savings and loan association or
notarization by a notary public.
To insure proper authorization, the Trust's transfer agent may request
additional documents, including stock powers, trust instruments, certificates of
death, appointments as executor, certificates of corporate authority or waiver
of tax forms (required in some states from selling or exchanging estates before
redeeming shares).
The right of redemption may be suspended or the payment date postponed at
certain times. These include days when the New York Stock Exchange is closed for
other than customary weekend or holiday closings, or when trading on the New
York Stock Exchange is restricted, as determined by the Securities and Exchange
Commission, or for any period when an emergency (as defined by rules of the
Commission) exists or during any period when the Commission has, by order,
permitted a suspension. In case of a suspension of the right of redemption, a
shareholder who has tendered a certificate for redemption or made a request for
redemption through a broker may withdraw his request or certificate. Otherwise,
he will receive payment of the net asset value determined next after the
suspension has been terminated.
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A shareholder may receive more or less than he paid for his shares, depending on
the net asset value of the shares at the time of redemption or repurchase.
Redemptions in Kind
Under unusual circumstances, when the Board of Trustees deems it in the best
interests of the Trust's shareholders, the Trust may pay for shares repurchased
or redeemed partly or entirely in securities or other assets of the Trust taken
at current values. If any such redemption in kind is to be made, the Trust
intends to make an election pursuant to Rule 18(f)(1) under the Investment
Company Act of 1940. This will require the Trust to redeem with cash at a
shareholder's election in any case where the redemption involves less than
$250,000 (or 1% of the Trust's net assets at the beginning of each 90-day period
during which such redemptions are in effect, if that amount is less than
$250,000). If payment is made in securities, the redeeming shareholder may incur
brokerage costs in converting his securities to cash.
DISTRIBUTIONS
The Trust is authorized to issue two classes of shares, Common Shares and Class
A Common Shares. Only Common Shares are currently issued and outstanding. The
Trust does not presently intend to issue any more of its Class A Common Shares.
The Trust distributes any income dividends and any capital gain distributions in
additional Common Shares, or, at the option of the shareholder, in cash. In
accordance with his distribution option, a shareholder may elect (1) to receive
both dividends and capital gain distributions in additional Common Shares or (2)
to receive dividends in cash and capital gain distributions in additional Common
Shares or (3) to receive both dividends and capital gain distributions in cash.
A shareholder may change his distribution option at any time by notifying the
transfer agent in writing. To be effective with respect to a particular dividend
or distribution, the Trust's transfer agent must receive the new distribution
option at least 30 days prior to the close of the fiscal year. All accounts with
a cash dividend option will be changed to reinvest both dividends and capital
gains automatically if the Trust's transfer agent determines that the address of
record for the account is not current.
Dividends and capital gain distributions received in shares will be made to the
Trust's transfer agent, as agent for the shareholder, and credited to the
shareholder's Open Account in full and fractional shares computed at the record
date closing net asset value.
TAXES
General
The Trust intends to qualify each year as a regulated investment company under
Subchapter M of the Internal Revenue Code, as subsequently amended or reenacted.
In order to so qualify, the Trust, must, among other things, do the following:
(i) derive at least 90% of its gross income from dividends, interest, payments
as to certain securities loans and gains from the sale of securities; (ii)
derive less than 30% of its gross income from gains from the sale or other
disposition of securities held for less than three months; (iii) distribute at
least 90% of its dividend, interest and certain other taxable income each year;
(iv) maintain at least 50% of the value of its total assets in cash, cash items,
U.S. Government securities, securities of other regulated investment companies,
and other securities so that no more than 5% of its assets are invested in the
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securities of one issuer and it owns no more than 10% of the value of any
issuer's voting securities; and (v) have no more than 25% of its assets invested
in the securities (other than those of the U.S. Government or other regulated
investment companies) of any one issuer or of two or more issuers which the
Trust controls and which are engaged in the same, similar or related trades and
businesses. To the extent the Trust qualifies for treatment as a regulated
investment company, the Trust will not be subject to Federal income tax on
income paid to its shareholders in the form of dividends or capital gains
distributions.
Dividends paid by the Trust will generally not qualify for the 70%
dividends-received deductions for corporations. The Trust will notify
shareholders each year of the amount of dividends and distributions, including
the amount of any distribution of long-term capital gains.
The Trust will be subject to a nondeductible 4% excise tax in any calendar year
to the extent that its fails to distribute at least 98% of its ordinary income
for that calendar year and 98% of its capital gain net income for the one-year
period ending on October 31 of that calendar year. In addition, to the extent
that the Trust fails to distribute 100% of its ordinary and capital gain net
income for any calendar year, the amount of the shortfall is subject to the
excise tax unless distributed for the following calendar year. For a
distribution to qualify as a distribution for a calendar year under the
foregoing rules, the Trust must declare it before December 31 of the year and
pay it before the following February 1. These distributions will be taxable to
taxable shareholders in the year the distributions are declared rather than the
year in which the distributions are received.
The Trust's foreign investments may be subject to foreign withholding taxes and
other taxes at the Source. The Trust will be entitled to claim a deduction for
any foreign withholding taxes for federal income tax purposes. Any such taxes,
however, will reduce the income available for distribution to shareholders.
Under the Interest and Dividend Compliance Act of 1983, the Trust will be
required to withhold and remit to the U.S. Treasury 20% of the dividends and
proceeds of redemptions paid to any shareholder who fails to furnish the Trust
with a correct taxpayer identification number, who underreported dividends or
interest income, or who fails to certify that he or she is not subject to such
withholding. An individual's tax identification number is his or her social
security number.
Tax Treatment of Options
In connection with its operations, the Trust may write and purchase options. The
tax consequences of transactions in options will vary depending upon whether the
option expires or is exercised, sold or closed. The tax consequences of certain
of these transactions were changed or clarified by amendments made to the
Internal Revenue Code by the Deficit Reduction Act of 1984. Although final
regulations have not been adopted under the Deficit Reduction Act, the following
discussion reflects the Trust's interpretation of applicable changes made by the
Deficit Reduction Act.
The Trust will seek principally to purchase or write options that will be
classified as either equity options or non-equity options, to the extent
consistent with its investment objective and opportunities which appear
available. "Equity options" are any options to buy or sell stock, or any option,
the value of which is determined directly or indirectly by reference to any
stock (or group of stocks) or stock index. Equity options do not include any
options as to any group of stocks or stock index if the Commodity Futures
Trading Commission has designated a contract market for a contract based on that
group of stocks or index, or the Secretary of the Treasury determines that the
option meets the requirements of law for such a designation.
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"Non-equity options" are any listed options which are not equity options.
Non-equity options, defined as "Section 1256 Contracts" under the Deficit
Reduction Act, are subject to a marked-to-market rule for federal income tax
purposes. Under this rule, each such option held by the Trust at the end of each
fiscal year will be treated as sold for fair market value on the last business
day or such fiscal year. As described below, up to 60% of the gain or loss
resulting from the sale, disposition, closing out, expiration or other
termination of such options will be treated as long-term capital gain or loss,
and up to 40% will be treated as short-term capital gain or loss (60/40 gain or
loss). Equity options, on the other hand, are not subject to the
marked-to-market rule. The character of gain or loss resulting from the sale,
disposition, closing out, expiration or other termination of equity options is
not subject to the 60/40 gain or loss rule.
The Trust will not realize gain or loss on the receipt or payment of a premium.
If a call option written by the Trust expires without being exercised, the Trust
will recognize the premium received as a gain (60/40 gain or loss for a
non-equity call option or short-term for an equity call option). If a put option
purchased by the Trust expires without being exercised, the Trust will recognize
the premium paid as a loss (60/40 gain or loss for a non-equity put option or
short or long-term for an equity put option, depending on the holding period of
the put). If, however, the Trust acquired the put option on the same day it
acquired the property intended to be used in exercising the put, the premium
paid will be added to the basis of the underlying securities. If a non-equity or
equity call option written by the Trust is exercised (or a non-equity or equity
put option purchased by the Trust is sold), the Trust will recognize a short or
long-term capital gain or loss depending on the holding period of the underlying
securities. If a non-equity call option written by the Trust or non-equity put
option purchased by the Trust is closed (i.e., the Trust's obligations are
terminated other than through exercise or lapse), the Trust will recognize 60/40
gain or loss. If an equity call option written by the Trust is closed, the Trust
will recognize short-term capital gain or loss. If an equity put option
purchased by the Trust is closed, the Trust will recognize long or short-term
capital gain or loss, depending on the holding period of the put option.
Section 1092 of the Internal Revenue Code, which applies to certain straddles,
may affect the taxation of the Trust's transactions in options on portfolio
securities. As a result of rules under that section, the Trust may be required
to postpone recognition of losses incurred in certain closing purchase
transactions until the year in which the other leg of the straddle is closed.
The Treasury Department has issued temporary regulations on the holding period
of straddles held by regulated investment companies.
The Internal Revenue Service has ruled publicly that an exchange-traded call
option on a particular security is a security for purpose of the 50% of assets
diversification test and that its issuer is the issuer of the underlying
security, not the writer of the option, for purposes of diversification
requirements.
In other private rulings, the Internal Revenue Service has addressed other tax
issues arising from investments by regulated investment companies in options. In
particular, the Internal Revenue Service has stated in private rulings that the
gains recognized as a result of the deemed sale of certain options under the
marked-to-market rule (which are treated as 60/40 gain) will not be treated as
gains from the sale or exchange of securities held for less than three months,
regardless of the actual holding period prior to year end.
The legislative history of the Tax Reform Act of 1986 provides that income
realized in connection with writing covered and uncovered put and call options
is intended by Congress to be qualifying income for purposes of the 90% passive
income test. However, the requirement that less than 30% of the Trust's gross
income be derived from gains from the sale or other disposition of securities
held for less than three months will restrict the Trust's ability to write
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covered call options on securities that it has held less than three months, to
write options that expire in less than three months, to sell securities that
have been held less than three months, to effect closing purchase transactions
as to options that have been held less than three months, and to effect closing
purchase transactions as to options that have been written less than three
months prior to such transactions. Consequently, to avoid realizing a gain
within the three-month period, the Trust may be required to defer the closing
out of an option beyond the time when it might otherwise be advantageous to do
so.
The Tax Reform Act of 1986 revises the rules concerning gains from sales of
assets held less than three months in the case of a "designated hedge." In the
case of a "designated hedge," recognized gains may be offset by unrecognized
declines in value of the other leg of the hedge during the period of the hedge
for purposes of determining whether gains from sales of securities held for less
than three months equal or exceed 30% of gross income. For example, if a fund
sells for $4 one-month call at $95 on stock it owns which is worth $100, the
stock declines in value to $94 and the option is not exercised, the $4 of
recognized gain on lapse of the option is offset by the $6 decline in value of
the stock and there is no net gain for purposes of the three-month gains test.
The $4 is recognized under the usual rules for other purposes. The Conference
Committee Report on the 1986 Act established procedures for identification of a
"designated hedge" prior to issuance of regulations on the topic.
There are unanswered questions in the area. In particular, since taxpayers other
than the taxpayer requesting a particular private ruling are not entitled to
rely on it, the Trust intends to keep its activity in options at a low volume
until the service rules publicly, or the Treasury Department issues final
regulations, on open issues.
If, in any taxable year, the Trust fails to qualify as a regulated investment
company, the Trust would be taxed in the same manner as an ordinary corporation
and distributions to its shareholders would not be deductible by the Trust in
computing its taxable income. In addition, in the event of such failure to
qualify, the Trust's distributions, to the extent derived from the Trust's
current or accumulated earnings and profits, would be taxable to its
shareholders as ordinary income dividends, even if those dividends might
otherwise have been considered distributions of capital gains.
PORTFOLIO SECURITY TRANSACTIONS
Decisions to buy and sell portfolio securities for the Trust are made pursuant
to recommendations by the Trust's Investment Adviser. The Trust, through the
Investment Adviser, seeks to execute portfolio security transactions on the most
favorable terms and in the most effective manner possible. The Investment
Adviser uses its best judgment in evaluating the terms of a transaction and will
give consideration to various relevant factors, including the size and type of
the transaction, the nature and character of the markets for the security, the
confidentiality, speed and certainty of effective execution required for the
transaction, the reputation, experience and financial condition of the
broker-dealer and the quality of services rendered by the broker-dealer in other
transactions, and the reasonableness of the brokerage commission, if any.
The Trust expects that many broker-dealer firms will meet the foregoing criteria
for a particular transaction. In selecting among the firms, the Trust, through
the Investment Adviser, may give consideration to those firms which have sold,
or are selling, shares of the Trust. In addition, the Investment Adviser may
allocate Trust brokerage business on the basis of brokerage and research
services and other information provided by broker-dealer firms, which may
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<PAGE>
involve the payment of reasonable brokerage commissions in excess of those
chargeable by other broker-dealer firms for effecting the same transactions.
These brokerage and research services may be used for some of the Investment
Adviser's other advisory accounts. The Investment Adviser may not use all of
these services in managing the Trust. The term "brokerage and research services"
includes services as to the value of securities; the advisability of investing
in, purchasing or selling securities; the availability of securities, or
purchasers or sellers of securities; the furnishing of analyses and reports
concerning issuers, industries, securities, economic factors and trends;
portfolio strategy and the performance of account; and effecting securities
transactions and performing related functions (such as clearance and
settlement).
This policy of considering sales or shares of the Trust as one of the factors in
the selection of broker-dealer firms to execute portfolio transactions, subject
to the requirement of seeking best execution, is specifically permitted by a
rule of the National Association of Securities Dealers, Inc. The rule also
provides, however, that no member firm shall favor or disfavor the distribution
of shares of any particular fund or group of funds on the basis of brokerage
commissions received or expected by such firm from any source.
The Trust and one or more of the other investment companies or accounts for
which the Investment Adviser or its affiliates services may occasionally engage
in the purchase or sale of the same security at the same time. In this event,
the Investment Adviser will usually average the price and allocate the amount of
the security purchased or sold among the several clients or accounts in a manner
deemed equitable to all. In some cases this system could have a detrimental
effect on the price or volume of the security allocated to the Trust. In other
cases, however, the ability to participate in volume transactions may produce
better executions for the Trust.
To the extent consistent with the policy of seeking best price and execution, a
portion of the Trust's portfolio transactions may be executed through the
Trust's Distributor, which is an affiliate of the Investment Adviser. If this
occurs, it will be on the basis of what management believes to be current
information as to rates which are generally competitive with the rates available
from other responsible brokers and the lowest rates, if any, currently offered
by the Distributor.
During 1998, 1997 and 1996, the Trust paid commissions to broker-dealers of
$15,227, $0 and $0. During 1998, 1997 and 1996 the Trust paid brokerage
commissions of $7,825, $0 and $0 to the Distributor. For the year ended December
31, 1998, the percentage of total commissions paid to the Distributor was
51.39%. During 1998, the Trust's purchases and sales of securities, exclusive of
United States government securities and short-term notes, amounted to $0 and
$9,280,331, respectively. Of these transactions $0 in purchases and $3,957,894
in sales were effected through the Distributor.
OTHER INFORMATION
Custodian, Transfer Agent and Dividend-Paying Agent
All securities, cash and other assets of the Trust are received, held in custody
and delivered or distributed by the Trust's custodian bank, Investors Bank &
Trust Company, Financial Product Services, 200 Clarendon Street, 16th Floor,
Boston, Massachusetts 0211. In cases where foreign securities must, as a
practical matter, be held abroad, the Trust's custodian bank and the Trust will
make appropriate arrangements so that foreign securities may be legally held
abroad. The Trust's custodian bank does not decide on purchases or sales of
portfolio securities or the making of distributions., As of April 1, 1999,
Cardinal Investment Services, Inc. 579 Pleasant Street, Suite 4, Paxton,
Massachusetts 01612, succeeded Anchor Investment Management Corporation as the
transfer agent and dividend - paying agent for the Trust.
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Independent Public Accountants
For the fiscal year ending December 31, 1998, the Trust employed Livingston &
Haynes, P.C., 40 Grove Street, Wellesley, Massachusetts 02482, to certify its
financial statements and to prepare its federal and state income tax returns.
Registration Statement
This Statement of Additional Information does not contain all the information
set forth in the Registration Statement and the exhibits and schedules relating
thereto, which the Trust has filed with, and which are available at the
Securities and Exchange Commission, Washington, D.C., under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, to
which reference is hereby made.
FINANCIAL STATEMENTS
The financial statements and related report of Livingston & Haynes, P.C.,
independent public accountants, contained in Anchor Capital Accumulation Trust's
Annual Report to shareholders for the year ended December 31, 1998, are hereby
incorporated by reference. A copy of the Trust's Annual Report may be obtained
without charge by writing to Anchor Investment Management Corporation, 579
Pleasant Street, Suite 4, Paxton, Massachusetts 01612, or by calling Anchor
Investment Management Corporation collect at (508) 831-1171.
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PART C. OTHER INFORMATION
Item 23. Exhibits
Exhibit Number Description of Exhibit
(1) Restated Declaration of Trust, as amended.
(Previously filed as Exhibit 1 to Amendment No. 2)
(2) By-Laws of the Registrant, as amended. (Previously
filed as Exhibit 2 to Amendment No. 20)
(3) Not applicable.
(4) Specimen Certificates representing Common Shares
and Class A Common Shares of Beneficial Interest of
the Registrant. (Previously filed as Exhibit 4 to
Amendment No. 3)
(5) p. 61 Investment Advisory Agreement between the
Registrant and Anchor Investment Management
Corporation.
(6) Distributor's Contract between the Registrant and
Meeschaert & Co., Inc. (Previously filed as Exhibit
6 to Amendment No. 8)
(7) Not applicable.
(8) Custodian Agreement between the Registrant and
Investors Bank & Trust Company. (Previously filed
as Exhibit 8 to Amendment No. 7)
(9) p. 64 Transfer Agency and Service Agreement between the
Registrant and Cardinal Investment Services, Inc.
(Previously filed as Exhibit 9 to Amendment No. 7)
(10) Opinion and Consent of Counsel. (Previously filed
as Exhibit 10 to Amendment No. 1)
(11) p. 71 Consent of Independent Public Accountants.
(12) p. 72 Trust's Annual Report to Shareholders, December 31,
1998.
(13) Not applicable.
(14) Not applicable.
(15) Distribution Plan of the Registrant. (Previously
filed as Exhibit 15 to Amendment No. 1)
(16) Not applicable
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(17) p. 88 Power of Attorney, dated March 22, 1999 and
Certified Resolution.
(27) p. 90 Financial Data Schedule
Item 24. Persons Controlled by or Under Common Control with the Trust.
Not applicable.
Item 25. Indemnification.
No amendment. The information was filed in Item 27 of Amendment No. 6.
Item 26. Business and Other Connections of Investment Advisor.
The information in the Statement of Additional Information under the
caption of "Management-Investment Adviser" is hereby incorporated herein
by reference to that section.
Item 27. Principal Underwriters.
(a) The Distributor currently acts as distributor for the following
investment companies:
Anchor Strategic Assets Trust
S.E.C. file # 811-5963
Progressive Capital Accumulation Trust
(formerly Anchor Capital Accumulation Trust)
S.E.C. file # 811-0972
Anchor Resource and Commodity Trust
S.E.C. file # 811-8706
(b)
-------------------------------------------------------------------
Name and Principal Positions and Positions and the
Business Address Officers with Trust Offices
Underwriter
-------------------------------------------------------------------
-------------------------------------------------------------------
David Y. Williams President and President, Secretary
579 Pleasant Street, Director and Director
Suite 4
Paxton, MA 01612
-------------------------------------------------------------------
-------------------------------------------------------------------
Christopher Y. Williams Vice President and Vice President and
579 Pleasant Street, Secretary Assistant Secretary
Suite 4
Paxton, MA 01612
-------------------------------------------------------------------
-------------------------------------------------------------------
Joseph C. Williams Vice President and Vice President and
579 Pleasant Street, Treasurer Assistant Treasurer
Suite 4
Paxton, MA 01612
-------------------------------------------------------------------
(c) Not applicable.
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Item 28. Location of Accounts and Records.
Persons maintaining physical possession of accounts, books, and other
documents required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and rules under that section include the Trust's
Secretary, David Y. Williams; Registrant's Investment Adviser, Anchor
Investment Management Corporation; and Registrant's custodian, Investors
Bank & Trust Company. The address of the Trust's Secretary is 579 Pleasant
Street, Suite 4, Paxton, Massachusetts 01612. The address of the
Investment Adviser and the transfer agent and dividend paying agent is 579
Pleasant St., Suite 4, Paxton, Massachusetts 01612. The address of the
custodian is c/o Financial Product Services, 200 Clarendon St., 16th
Floor, Boston, Massachusetts 02116.
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Trust certifies that it has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
duly authorized, in the City of Paxton and the Commonwealth of Massachusetts on
the 22 day of March, 1999.
ANCHOR INTERNATIONAL BOND TRUST
By: /s/ DAVID Y. WILLIAMS
David Y. Williams, President
Pursuant to the Securities Act of 1933, this Amendment to this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Signature Title Date
/s/DAVID W.C. PUTNAM* Chairman and Trustee March 22, 1999
David W. C. Putnam
/s/J. STEPHEN PUTNAM* Treasurer (Principal March 22, 1999
J. Stephen Putnam Financial Officer)
/s/SPENCER H. LEMENAGER* Trustee March 22, 1999
Spencer H. LeMenager
/s/DAVID Y. WILLIAMS* President, Secretary and March 22, 1999
David Y. Williams Trustee
/s/ ERNIE BUTLER Trustee March 22, 1999
Ernie Butler
*By: PETER K. BLUME March 22, 1999
Peter K. Blume
Attorney-in-Fact
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==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 14 /x/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 /x/
Amendment No. 17 /x/
==============================================================================
ANCHOR INTERNATIONAL BOND TRUST
==============================================================================
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EXHIBITS
INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
(1) Restated Declaration of Trust, as amended.
(Previously filed as Exhibit 1 to Amendment No. 2)
(2) By-Laws of the Registrant, as amended. (Previously
filed as Exhibit 2 to Amendment No. 20)
(3) Not applicable.
(4) Specimen Certificates representing Common Shares
and Class A Common Shares of Beneficial Interest of
the Registrant. (Previously filed as Exhibit 4 to
Amendment No. 3)
(5) p. 61 Investment Advisory Agreement between the
Registrant and Anchor Investment Management
Corporation.
(6) Distributor's Contract between the Registrant and
Meeschaert & Co., Inc. (Previously filed as Exhibit
6 to Amendment No. 8)
(7) Not applicable.
(8) Custodian Agreement between the Registrant and
Investors Bank & Trust Company. (Previously filed
as Exhibit 8 to Amendment No. 7)
(9) p. 64 Transfer Agency and Service Agreement between the
Registrant and Cardinal Investment Services, Inc.
(Previously filed as Exhibit 9 to Amendment No. 7)
(10) Opinion and Consent of Counsel. (Previously filed
as Exhibit 10 to Amendment No. 1)
(11) p. 71 Consent of Independent Public Accountants.
(12) p. 72 Trust's Annual Report to Shareholders, December 31,
1998.
(13) Not applicable.
(14) Not applicable.
(15) Distribution Plan of the Registrant. (Previously
filed as Exhibit 15 to Amendment No. 1)
(16) Not applicable
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(17) p. 88 Power of Attorney, dated March 22, 1999 and
Certified Resolution.
(27) p. 90 Financial Data Schedule
60
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INVESTMENT ADVISORY CONTRACT
AGREEMENT made this 22nd day of June, 1998 by and between ANCHOR
INTERNATIONAL BOND TRUST, a Massachusetts business trust (hereinafter called
the "Trust") and ANCHOR INVESTMENT MANAGEMENT COPR., an Massachusetts
corporation (hereinafter sometimes called the "Advisor").
W I T N E S S E T H :
WHEREAS, the Trust and the Advisor wish to enter into an agreement setting
forth the terms on which the Advisor will perform certain investment advisory
and management services for the Trust;
NOW THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Advisor agree as follows:
l. The Trust hereby employs the Advisor to manage the investment and
reinvestment of the assets of the Trust, subject to the supervision of the Board
of Trustees of the Trust, for the period and on the terms in this agreement set
forth. The Advisor hereby accepts such employment and agrees during such period,
at its own expense, to render the services and to assume the obligations herein
set forth, for the compensation herein provided. The Advisor shall for all
purposes herein be deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed an agent of the Trust.
2. The Advisor, at its own expense, shall furnish or cause to be furnished
to the Trust office space in the offices of the Advisor or in such other place
as may be agreed upon from time to time, and arrange for all necessary office
facilities, equipment and personnel for managing the investments of the Trust,
and shall arrange, if desired by the Trust, for members of the Advisor's
organization to serve without salaries from the Trust as officers or agents of
the Trust. The Advisor assumes and shall pay or reimburse the Trust for: (l) the
compensation (if any) of the Trustees of the Trust who are affiliated persons of
the Advisor and of all officers of the Trust as such and (2) all expenses
incurred by the Advisor or by the Trust in connection with the management of the
investment and reinvestment of the assets of the Trust, other than those
specifically assumed by the Trust herein. Except as otherwise expressly provided
above, the Trust assumes and shall pay, (l) all charges and expenses of any
custodian or depository appointed by the Trust for the safekeeping of its cash,
securities and other property, (2) the charges and expenses of auditors and of
keeping the books of the Trust, (3) the charges and expenses of any transfer
agents and registrars appointed by the Trust, (4) the fees of all Trustees not
affiliated with the Advisor, (5) broader commissions and issue and transfer
taxes chargeable to the Trust in connection with securities transactions to
which the Trust is a party, (6) all taxes and corporate fees payable by the
Trust to federal, state or other governmental agencies, (7) the cost of stock
certificates representing shares of the Trust, (8) fees and expenses involved in
1
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registering and maintaining registrations of the Trust and of its shares with
the Securities and Exchange Commission and qualifying its shares under state or
other securities laws including the preparation and printing of prospectuses for
filing with said Commission and other authorities, (9) all expenses of
shareholders' and trustees' meetings and of preparing and printing reports to
shareholders, (l0) charges and expenses of legal counsel for the Trust in
connection with legal matters relating to the Trust, including without
limitation, legal services rendered in connection with the Trust's corporate
existence, corporate and financial structure and relations with its
shareholders, registrations and qualifications of securities under federal,
state and other laws, issues of securities and expenses which the Trust has
herein assumed, and (11) the charges of the Trust's administrator for providing
and coordinating the foregoing administrative services to the Trust.
The services of the Advisor to the Trust hereunder are not to be deemed
exclusive, and the Advisor shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.
As compensation for the Advisor's services to the Trust, the Trust shall
pay to the Advisor a fee at the rate of 3/4 of 1% per annum of the average of
the daily aggregate net asset values of the Trust computed as of the close of
business of each business day.
Such compensation shall be payable in arrears at such intervals, not more
frequently than monthly and not less frequently than quarterly (except for an
additional fee), as the Board of Trustees of the Trust may from time to time
determine; provided that such compensation shall be paid proportionately for any
period ending with the termination of this agreement.
3. The Trust shall cause its books and accounts to be audited at least
once each year by a reputable, independent public accountant or organization of
public accountants who shall render a report to the Trust.
4. Subject to and in accordance with the Declaration of Trust of the Trust
and of the Advisor respectively, it is understood that the Trustees, officers,
agents and stockholders of the Trust are or may be interested in the Advisor (or
any successor thereof) as directors, officers or stockholders, or otherwise,
that directors, officers, agents and stockholders of the Advisor are or may be
interested in the Trust as Trustees, officers, stockholders or otherwise, that
the Advisor (or any such successor) is or may be interested in the Trust as
stockholder or otherwise and that the effect of any such adverse interests shall
be governed by said Declaration of Trust and the By-Laws.
5. No Trustee or shareholder of the Trust shall be personally liable under
this Agreement, all such liability being limited to the assets of the Trust.
6. The Advisor shall not be liable for any action taken, omitted or
suffered to be taken by it in its reasonable judgment, in good faith and
believed by it to be authorized or within the discretion or rights or powers
conferred upon it by this Agreement, or in accordance with (or in the absence
2
62
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of) specific directions or instructions from the Trust, provided, however, that
such acts or omissions shall not have resulted from the Advisor's willful
misfeasance, bad faith or gross negligence or reckless disregard by it of its
obligations and duties under this Agreement.
7. This Agreement shall continue in effect from the date hereof until
June 21, 2000 and from year to year thereafter (a) if its continuance is
specifically approved on or before said date and at least annually thereafter by
vote of a majority of the outstanding voting securities of the Trust or by the
Board of Trustees of the Trust and (b) if the terms and any renewal of this
Agreement have been approved by the vote of a majority of the Trustees of the
Trust, who are not parties to this Agreement or interested persons, as that term
is defined in the Investment Company Act of 1940, of any such party, cast in
person at a meeting called for the purpose of voting on such approval, provided,
however, that (1) this Agreement may at any time be terminated without the
payment of any penalty either by vote of the Board of Trustees of the Trust or
by vote of a majority of the outstanding voting securities of the Trust, on not
more than sixty days' prior written notice to the Advisor, (2) this Agreement
shall immediately terminate in the event of its assignment (within the meaning
of the Investment Company Act of 1940) by either party to this Agreement, and
(3) this Agreement may be terminated by the Advisor on ninety days' prior
written notice to the Trust. Any notice under this Agreement shall be given in
writing addresses and delivered or mailed postpaid to the other party at any
office of such party.
This agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Trust shall have been
approved by a vote of a majority of the outstanding voting securities of the
Trust. A "majority of the outstanding voting securities of the Trust" shall
have, for all purposes of this Agreement, the meaning provided therefore in said
Investment Company Act.
IN WITNESS WHEREOF, the parties hereto have executed this agreement on the
day and year first above written.
ANCHOR INTERNATIONAL BOND TRUST
By: /s/ DAVID W.C. PUTNAM
Chairman
ANCHOR INVESTMENT MANAGEMENT CORP.
By: /s/ DAVID Y. WILLIAMS
President
3
63
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TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1ST day of April, 1999 by and between ANCHOR GOLD
AND CURRENCY TRUST, ANCHOR INTERNATIONAL BOND TRUST, ANCHOR STRATEGIC ASSETS
TRUST, AND ANCHOR RESOURCE AND COMMODITY TRUST (collectively the Anchor
"Trusts"), Massachusetts business trusts having their principal office and place
of business at 579 Pleasant Street, Suite 4, Paxton, MA 01612, and CARDINAL
INVESTMENT SERVICES, INC., an Illinois corporation having its principal office
and place of business at 579 Pleasant Street, Suite 4, Paxton, MA 01612
("Cardinal"),
W I T N E S S E T H:
WHEREAS, the Trusts desire to appoint Cardinal as transfer agent, dividend
disbursing agent and agent in connection with certain other activities, and
Cardinal desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1. Terms of Appointment; Duties of the Company
1.01 Subject to the terms and conditions set forth in this Agreement, the
Trusts hereby employ and appoint Cardinal to act as, and Cardinal agrees to act
as, transfer agent for each of the Trusts' authorized and issued shares of
beneficial interest without part value ("Shares"), dividend disbursing agent in
connection with any accumulation, open-account or similar plans provided to the
shareholders of the Trusts ("Shareholders") and set out in the prospectus and
statement of additional information of the Trusts corresponding to the date of
this Agreement.
1.02 Cardinal agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Trusts and Cardinal, Cardinal shall:
(i) receive for acceptance and processing, order for the purchase of
Shares, and promptly deliver payment and appropriate documentation therefor to
the custodian of the Trusts' authorized pursuant to the Trusts' governing
documents (the "Custodian");
(ii) pursuant to purchase orders or other appropriate instructions,
issue the appropriate number of Shares and hold such Shares in the appropriate
Shareholder account, and, if requested and properly authorized, issue
appropriate certificates therefor;
(iii) receive for acceptance and processing, redemption requests
and redemption directions, and deliver the appropriate documentation therefor
to the Custodian;
(iv) at the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over or cause to be paid
over in the appropriate manner such monies as instructed by the redeeming
Shareholders;
(v) effect transfer of Shares by the registered owners thereof upon
receipt of appropriate documentation;
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<PAGE>
(vi) prepare and transmit payments for dividends and distributions
declared by the Trusts; and
(vii) maintain records of account for and advise the Trusts and
their Shareholders as to the foregoing.
(b) In addition to and not in lieu of the services set forth in paragraph
(a) above, Cardinal shall perform all of the customary services of a transfer
agent, dividend disbursing agent and, as relevant, agent in connection with
accumulation, open-account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to: (i) maintaining all Shareholder accounts, (ii) preparing Shareholder
meeting lists, (iii) mailing proxies, (iv) receiving and tabulating proxies, (v)
mailing of additional information to current Shareholders, (vi) withholding
taxes on U.S. residents and non-resident alien accounts where applicable, (vii)
preparing and filing U.S. Treasury Department Forms 1099 and other appropriate
forms required with respect to dividends and distributions by federal
authorities for all registered Shareholders, (viii) preparing and mailing
confirmation forms and statements of account to Shareholders for all purchases
and redemptions of Shares and other confirmable transactions in Shareholder
accounts, (ix) preparing and mailing activity statements for Shareholders, and
(x) providing Shareholder account information. The Trusts shall provide Cardinal
with any information required in connection with the furnishing of the foregoing
services.
(c) Additionally, Cardinal shall:
(i) Utilize a system to identify all Share transactions which involve
purchase and redemption orders that are processed at a time other than the time
of the computation of net asset value per Share next computed after receipt of
such orders, and shall compute the net effect upon the Trust of such
transactions so identified on a daily and cumulative basis.
(ii) If on any day the cumulative net effect of such transactions
upon the Trusts are negative and exceeds a dollar amount equivalent to 1/2 of 1
cent per Share, Cardinal shall promptly make a payment to the Trusts in cash or
through the use of a credit, in the manner described in subparagraph (iv) below,
in such amount as may be necessary to reduce the negative cumulative net effect
to less than 1/2 of 1 cent per Share.
(iii) If on the last business day of any month the cumulative net
effect upon the Trusts (adjusted by the amount of all prior payments and credits
by Cardinal and the Trusts) are negative, the Trusts shall be entitled to a
reduction in the fee next payable under this Agreement by an equivalent amount,
except as provided in subparagraph (iv) below. If on the last business day in
any month the cumulative net effect upon the Trusts (adjusted by the amount of
all prior payments and credits by Cardinal and the Trusts) is positive, Cardinal
shall be entitled to recover certain past payments and reductions in fees, and
to credit against all future payments and fee reductions that may be required
under subparagraph (iv) below.
(iv) At the end of each month, any positive cumulative net effect
upon the Trusts shall be deemed to be a credit to Cardinal which shall first be
applied to permit Cardinal to recover any prior cash payments and fee reductions
made by it to the Trusts under subparagraphs (ii) and (iii) above during the
calendar year, by increasing the amount of the monthly fee under this Agreement
next payable in an amount equal to prior payments and fee reductions made by
Cardinal during such calendar year, but not exceeding the sum of that month's
65
<PAGE>
credit and credits arising in prior months during such calendar year to the
extent such prior credits have not previously been utilized as contemplated by
this subparagraph (iv). Any portion of a credit to Cardinal not so used by it
shall remain as a credit to be used as payment against the amount of future
negative cumulative net effect that would otherwise require a cash payment or
fee reduction to be made to the Trusts pursuant to paragraphs (ii) or (iii)
above (regardless of whether or not the credit or any portion thereof arose in
the same calendar year as that in which the negative cumulative net effects or
any portion thereof arose).
(v) Cardinal shall supply to the Trusts from time to time, as
mutually agreed upon, reports summarizing the transactions identified pursuant
to subparagraph (i) above, and the daily and cumulative net effect of such
transactions, and shall advise the Trusts at the end of each month of the net
cumulative effect at such time. Cardinal shall promptly advise the Trusts if at
any time the cumulative net effect exceeds a dollar amount equivalent to 1/2 of
1 cent per Share.
(vi) In the event that this Agreement is terminated for whatever
cause, or this Section 1.02(c) is terminated pursuant to subparagraph (vii)
below, the Trust shall promptly pay to Cardinal an amount in cash equal to the
amount by which the cumulative net effect upon the Trusts is positive or, if the
cumulative net effect upon the Trusts is negative, Cardinal shall promptly pay
to the Trusts an amount in cash equal to the amount of such cumulative net
effect.
(vii) This Section 1.02(c) may be terminated by Cardinal at any time
without cause, effective as of the close of business on the date written notice
(which may be by facsimile) is received by the Trusts.
(d) Procedures applicable to the services provided under this Agreement
may be established from time to time by agreement between the Trusts and
Cardinal.
Article 2. Fees and Expenses
2.01 For performance by Cardinal pursuant to this Agreement, the Trusts
agree to pay Cardinal monthly a fee at the annual rate of $20,000 as Transfer
Agent for the Trusts. Such fees and out-of-pocket expenses and advances
identified under Section 2.02 below may be changed from time to time subject to
mutual written agreement between the Trusts and Cardinal.
2.02 In addition to the fee paid under Section 2.01 above, the Trusts
agree to reimburse Cardinal for all out-of-pocket expenses or advances incurred
by Cardinal in performing its duties as Transfer Agent hereunder. In addition,
any other expenses incurred by Cardinal at the request or with the consent of
the Trusts will be reimbursed by the Trusts.
2.03 The Trusts agree to pay all fees and reimbursable expenses promptly.
Postage and cost of materials for mailing of dividends, proxies, Trust reports
and other mailings to all Shareholder accounts shall be advanced to Cardinal by
the Trusts in immediately available funds prior to the mailing date of such
materials.
Article 3. Representations and Warranties of Cardinal
Cardinal represents and warrants to the Trusts that:
3.01 It is a corporation duly organized and existing and in good standing
under the laws of State of Illinois.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
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<PAGE>
3.03 It is empowered under applicable laws and by its charter and bylaws
to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
Article 4. Representations and Warranties of the Trusts
The Trusts represent and warrant to Cardinal that:
4.01 They are unincorporated business trusts duly organized and existing
and in good standing under the laws of the Commonwealth of Massachusetts.
4.02 They are empowered under applicable laws and by its governing
documents to enter into and perform this Agreement.
4.03 All proceedings required by said governing documents have been taken
to authorize it to enter into and perform this Agreement.
4.04 They are investment companies registered under the Investment Company
Act of 1940.
4.05 A registration statement under the Securities Act of 1933 is
currently effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made with respect to all
Shares of each of the Trusts being offered for sale; information to the contrary
will result in immediate notification to Cardinal.
Article 5. Indemnification
5.01 Cardinal shall not be responsible for, and the Trusts shall indemnify
and hold Cardinal harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liabilities arising out of or
attributable to:
(a) all actions of Cardinal or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct;
(b) the Trusts' refusal or failure to comply with the terms of this
Agreement, or the Trusts' lack of good faith, negligence or willful misconduct,
or the breach of any representation or warranty of the Trusts hereunder;
(c) the reliance on or use by Cardinal or its agents or subcontractors of
information, records or documents which (i) are received by Cardinal or its
agents or subcontractors and furnished to it by or on behalf of the Trusts, and
(ii) have been prepared and/or maintained by the Trusts or any other person or
firm (other than the Company or its agents or subcontractors) on behalf of the
Trusts;
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<PAGE>
(d) the reliance on, or the carrying out by Cardinal or its agents or
subcontractors of, any instructions or requests of the Trusts'
representatives; or
(e) the offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or regulations of
any state that such Shares be registered in such state, or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
5.02 Cardinal shall indemnify and hold the Trusts harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liabilities arising out of or attributable to Cardinal's refusal or
failure to comply with the terms of this Agreement, or Cardinal's lack of good
faith, negligence or willful misconduct, or the breach of any representation or
warranty of Cardinal hereunder.
5.03 At any time Cardinal may apply to any officer of the Trusts for
instructions, and may consult with the Trusts' legal counsel with respect to any
matter arising in connection with the services to be performed by Cardinal under
this Agreement, and Cardinal and its agents or subcontractors shall not be
liable and shall be indemnified by the Trusts for any action taken or omitted by
it in reliance upon such instructions or upon the opinion of such counsel.
Cardinal, its agents and subcontractors shall be protected and indemnified in
acting upon any papers or documents furnished by or on behalf of the Trusts,
reasonably believed to be genuine and to have been signed by the proper person
or persons, or upon any instructions, information, data, records or documents
provided Cardinal or its agents or subcontractors by telephone, in person, or by
machine readable input, facsimile, CRT data entry or other similar means
authorized by the Trusts, and Cardinal, its agents and subcontractors shall not
be held to have notice of any change of authority of any person until receipt of
written notice thereof from the Trusts. Cardinal, its agents and subcontractors
shall also be protected and indemnified in recognizing Share certificates which
are reasonably believed to bear the proper manual or facsimile signatures of the
officers of the Trusts, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations under
this Agreement because of acts of God, strikes, equipment or transmission
failure or damage reasonably beyond its control, or other causes reasonably
beyond its control, such party shall not be liable to the other for any damages
resulting from such failure to perform or otherwise from such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6. Covenants of the Trusts and Cardinal
6.01 The Trust shall promptly furnish to Cardinal the following:
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<PAGE>
(a) a certified copy of the resolution of the Board of Trustees of the
Trusts authorizing the appointment of Cardinal and the execution and delivery of
this Agreement.
(b) A copy of the Declaration of Trust and Bylaws of the Trusts and all
amendments thereto.
6.02 Cardinal hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Trusts for safekeeping of Share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 Cardinal shall keep records relating to the services to be performed
hereunder in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the rules and regulations promulgated thereunder, Cardinal agrees that all such
records prepared or maintained by Cardinal relating to the services to be
performed by Cardinal hereunder are the property of the Trusts and will be
preserved, maintained at the expense of the Trusts and made available in
accordance with such section, rules and regulations, and will be surrendered
promptly to the Trusts at its request.
6.04 Cardinal and the Trusts agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Trusts, Cardinal will endeavor to notify the Trusts
and to secure instructions from an authorized officer of the Trusts as to such
inspection. Cardinal reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person, unless
the Trusts' indemnify Cardinal to its reasonable satisfaction against such
liability.
Article 7. Termination of Agreement
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Trusts exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Trust. Additionally, Cardinal reserves the right to charge for any other
reasonable expenses associated with such termination, but not more than an
amount equivalent to the average of the most recent three (3) months' fees.
Article 8. Assignment
8.01 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
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Article 9. Amendment
9.01 This Agreement may be amended or modified by a written agreement
executed by both parties.
Article 10 Massachusetts Law to Apply
10.01 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
Article 11 Merger of Agreement
11.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written.
Article 12. Limitation of Liability
12.01 A copy of the Declaration of Trust of each of the Trusts is on file
with the Secretary of State of The Commonwealth of Massachusetts and notice is
hereby given that this Agreement is executed on behalf of the Trustees of the
Trusts as trustees and not individually and that the obligations of this
Agreement are not binding upon the Trustees or holders of Shares individually
but are binding only upon the assets or property of the Trusts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
ANCHOR TRUSTS
By:/S/ DAVID Y. WILLIAMS
President
CARDINAL INVESTMENT SERVICES, INC.
By:/S/ CHRISTOHER Y. WILLIAMS
President
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Livingston & Haynes, P.C.
Certified Public Accountants
40 Grove Street
Wellesley, MA 02181
(617) 237-3339
Member AICPA Division for CPA Firms
Private Companies Practice Section
SEC Practice Section
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Anchor
International Bond Trust on the amended Form N-1A our report dated January 19,
1999, appearing in the prospectus, which is part of such Registration Statement,
and to the reference to us under the captions, "Condensed Financial Information
and Selected Per Share Data and Ratios".
LIVINGSTON & HAYNES
Wellesley, Massachusetts
April 30, 1999
71
<PAGE>
ANCHOR
INTERNATIONAL
BOND
TRUST
ANNUAL REPORT
DECEMBER 31, 1998
1
72
<PAGE>
- --------------------------------------------------------------------------------
ANCHOR INTERNATIONAL BOND TRUST
- --------------------------------------------------------------------------------
Comparison of the Change in Value of a $10,000 Investment
in the Anchor International Bond Trust and the Standard & Poor's 500 Index
and the Consumer Price Index
[GRAPHIC OMITTED]
2
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<PAGE>
- --------------------------------------------------------------------------------
ANCHOR INTERNATIONAL BOND TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
Assets:
Investments at quoted market value (cost $5,364,403;
see Schedule of Investments, Notes 1, 2, & 5)................. $5,355,418
Cash ......................................................... 219,568
Interest receivable............................................ 6,609
Other assets................................................... 442
------------
Total assets.............................................. 5,582,037
------------
Liabilities:
Accrued expenses and other liabilities (Note 3 )............... 31,108
------------
Total liabilities......................................... 31,108
------------
Net Assets:
Capital stock (unlimited shares authorized at $1.00 par value,
amount paid in on 729,797 shares outstanding) (Note 1)........ 7,182,145
Accumulated undistributed net investment income (Note 1)....... (42,110)
Accumulated realized loss from security transactions, net (Note 1) (1,580,121)
Net unrealized depreciation in value of investments (Note 2)... (8,985)
------------
Net assets (equivalent to $7.61 per share, based on
729,797 capital shares outstanding)...................... $5,550,929
============
3
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================================================================================
ANCHOR INTERNATIONAL BOND TRUST
================================================================================
STATEMENT OF OPERATIONS
DECEMBER 31, 1998
Income:
Interest...................................................... $ 659,757
------------
Total income.............................................. 659,757
------------
Expenses:
Management fees, net (Note 3)................................. 101,903
Pricing and bookkeeping fees (Note 4)......................... 26,000
Audit and accounting fees..................................... 16,000
Legal fees.................................................... 12,140
Transfer fees (Note 4)........................................ 7,143
Trustees' fees and expenses................................... 3,500
Custodian fees................................................ 457
Other expenses................................................ 10,775
------------
Total expenses............................................ 177,918
------------
Net investment income.......................................... 481,839
------------
Realized and unrealized gain on investments:
Realized loss on investments-net............................. (570,371)
Increase in net unrealized appreciation in investments....... 966,416
------------
Net gain on investments................................... 396,045
------------
Net increase in net assets resulting from operations........... $ 877,884
============
4
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<PAGE>
================================================================================
ANCHOR INTERNATIONAL BOND TRUST
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
December 31, December
1998 31,1997
------------------------------
From operations:
Net investment income........................... $ 481,839 $ 643,227
Realized loss on investments, net............... (570,371) (1,490,229)
Increase (decrease) in net unrealized
appreciation in investments.................... 966,416 (1,665,072)
-------------- ------------
Net increase (decrease) in net assets
resulting from operations............. 877,884 (2,512,074)
-------------- ------------
Distributions to shareholders:
From net investment income ($0.613 per share in (414,019) --
1998)
From net realized gain on investments.......... -- --
-------------- ------------
Total distributions to shareholders......... (414,019) --
-------------- ------------
From capital share transactions:
Number of Shares
1998 1997
---------- -----------
Proceeds from sale of
shares................... -- 108,473 -- 856,741
Shares issued to share-
holders in distributions
reinvested................ 54,399 -- 413,435 --
Cost of shares redeemed....(1,894,102)(675,286) (14,492,078) (5,283,667)
--------- --------- ----------- ------------
Decrease in net assets
resulting from capital
share (1,839,703)(566,813) (14,078,643) (4,426,926)
transactions..............=========== ======== ----------- ------------
Net decrease in net assets....................... (13,614,778) (6,939,000)
Net assets:
Beginning of period............................ 19,165,707 26,104,707
============== ============
End of period (including undistributed net
investment income of $(42,110)
and $(42,776), respectively) $ 5,550,929 $19,165,707
============== ============
5
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================================================================================
ANCHOR INTERNATIONAL BOND TRUST
================================================================================
SELECTED PER SHARE DATA AND RATIOS
(for a share outstanding throughout each period)
Year Ended December 31,
1998 1997 1996 1995 1994
-----------------------------------------------------
Investment income......... $0.78 $0.42 $0.35 $0.89 $0.19
Expenses, net............. 0.21 0.11 0.09 0.17 0.04
-----------------------------------------------------
Net investment income..... 0.57 0.31 0.26 0.72 0.15
Net realized and
unrealized gain (loss) on
investments............... 0.19 (1.17) (0.69) 0.69 0.48
Distributions to
shareholders:
From net investment
income................. (0.61) -- -- (0.73) (0.44)
From net realized gain
on investments........ -- -- -- -- --
----------------------------------------------------
Net increase (decrease)
in net asset value....... 0.15 (0.86) (0.43) 0.68 0.19
Net asset value:
Beginning of period...... 7.46 8.32 8.75 8.07 7.88
====================================================
End of period............ $7.61 $7.46 $8.32 $8.75 $8.07
====================================================
Ratio of expenses to
average net assets....... 1.30% 1.11% 1.06% 1.06% 1.09%
Ratio of net investment
income to average net
assets.................... 3.53% 3.16% 3.19% 4.40% 3.90%
Portfolio turnover........ -- -- -- -- --
Number of shares
outstanding at end of
period.................... 729,797 2,569,500 3,136,313 3,205,516 2,340,990
6
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================================================================================
ANCHOR INTERNATIONAL BOND TRUST
================================================================================
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
Value
Quantity (Note 1)
FOREIGN TIME DEPOSITS -- 96.48%
29,952,000French Franc, maturing 01/04/99,
at 2.875% (cost $5,364,403) ............................$5,355,418
-----------
Total investments (cost $5,364,403)...................... 5,355,418
-----------
CASH & OTHER ASSETS, LESS LIABILITIES -- 3.52%..................... 195,511
-----------
Total Net Assets.........................................$5,550,929
===========
7
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================================================================================
ANCHOR INTERNATIONAL BOND TRUST
================================================================================
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. Significant accounting policies:
Anchor International Bond Trust, a Massachusetts business trust (the
"Trust"), is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end investment management company. The following is a
summary of significant accounting policies followed by the Trust which are in
conformity with those generally accepted in the investment company industry.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A.Investment securities--
Security transactions are recorded on the date
the investments are purchased or sold. Each day, securities traded in the
foreign over-the-counter market are valued at the closing bid price of the
European markets; other investment securities traded on a national
securities exchange are valued at the last sales price as of 12:00 noon,
or, if there has been no sale by noon, at the current bid price. Other
securities for which market quotations are readily available are valued at
the last known sales price, or, if unavailable, the known current bid price
which most nearly represents current market value. Options are valued in
the same manner. Foreign currencies and foreign denominated securities are
translated at current market exchange rates as of noon. Temporary cash
investments are stated at cost, which approximates market value. Interest
income is recorded on the accrual basis. Gains and losses from sales of
investments are calculated using the "identified cost" method for both
financial reporting and federal income tax purposes.
B.Income Taxes-- The Trust has elected to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute each year all of its taxable income to its shareholders. No
provision for federal income taxes is necessary since the Trust intends to
qualify for and elect the special tax treatment afforded a "regulated
investment company" under subchapter M of the Internal Revenue Code. Income
and capital gains distributions are determined in accordance with federal
tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclassified within the capital accounts
based on their federal tax basis treatment; temporary differences do not
require such reclassification. During the current fiscal year, permanent
differences, primarily due to foreign currency losses offset by net
investment income, resulted in a net decrease in undistributed net
investment income and a decrease in accumulated realized loss from security
transactions. This reclassification had no affect on net assets.
8
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================================================================================
ANCHOR INTERNATIONAL BOND TRUST
================================================================================
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Continued)
C.Capital Stock-- The Trust records the sales and redemptions of its
capital stock on trade date.
D.Foreign Currency-- Amounts denominated in or expected to settle in foreign
currencies are translated into United States dollars at rates reported by a
major Boston bank on the following basis:
A. Market value of investment securities, other assets and liabilities
at the 12:00 noon Eastern Time rate of exchange at the balance sheet date.
B. Purchases and sales of investment securities, income and expenses at
the rate of exchange prevailing on the respective dates of such
transactions (or at an average rate if significant rate fluctuations have
not occurred). The Trust does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments
from the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and unrealized
gain or loss from investments. Reported net realized foreign exchange gains
or losses arise from sales and maturities of short term securities, sales
of foreign currencies, currency gains or losses realized between the trade
and settlement dates on securities transactions, the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on
the Trust's books, and the United States dollar equivalent of the amounts
actually received or paid. Net unrealized foreign exchange gains and losses
arise from changes in the value of assets and liabilities other than
investments in securities at fiscal year end, resulting from changes in the
exchange rate.
2. Tax basis of investments:
At December 31, 1998, the total cost of investments for federal income tax
purposes was identical to the total cost on a financial reporting basis.
There was no aggregate gross unrealized appreciation in investments in which
there was an excess of market value over tax cost. Aggregate gross unrealized
depreciation in investments in which there was an excess of tax cost over
market value was $8,985. Net unrealized depreciation in investments at
December 31, 1998 was $8,985.
3. Investment advisory service agreements:
The investment advisory contract with Anchor Investment Management
Corporation (the "investment adviser") provides that the Trust will pay the
adviser a fee for investment advice based on 3/4 of 1% per annum of average
daily net assets. At December 31, 1998, investment advisory fees of $3,331
were due and were included in "Accrued expenses and other liabilities" in the
accompanying Statement of Assets and Liabilities. David Y. Williams, a
Trustee of the Trust, is President and a Director of the Investment Adviser.
9
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================================================================================
ANCHOR INTERNATIONAL BOND TRUST
================================================================================
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Continued)
4. Certain transactions:
Anchor Investment Management Corporation provides transfer agent services for
the Trust. Fees earned by Anchor Investment Management Corporation for
transfer agent services for the year ended December 31, 1998 were $7,143.
Fees earned by Anchor Investment Management Corporation for expenses related
to daily pricing of the Trust shares and for bookkeeping services for the
year ended December 31, 1998 were $26,000. Certain officers and trustees of
the Trust are directors and/or officers of the investment adviser and
distributor. Meeschaert & Co., Inc., the Trust's distributor, received $7,825
in brokerage commissions during the year ended December 31, 1998.
5. Purchases and sales:
Aggregate cost of purchases and the proceeds from sales and maturities on
investments for the year ended December 31, 1998 were:
Cost of securities acquired:
U.S. Government and investments backed by such
securities....................................... $ 14,801,690
Other investments................................ 199,028,254
===============
$ 213,829,944
===============
Proceeds from sales and maturities:
U.S. Government and investments backed by such
securities...................................... $ 14,839,091
Other investments................................ 212,848,861
===============
$ 227,687,952
===============
10
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ANCHOR INTERNATIONAL BOND TRUST
================================================================================
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Trustees of Anchor International Bond Trust:
We have audited the accompanying statement of assets and liabilities of Anchor
International Bond Trust (a Massachusetts business trust), including the
schedule of investments, as of December 31, 1998, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the selected per share data
and ratios for each of the five years in the period then ended. These financial
statements and per share data and ratios are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and per share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and selected per share data and ratios
referred to above present fairly, in all material respects, the financial
position of Anchor International Bond Trust as of December 31, 1998, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the selected per share data
and ratios for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
LIVINGSTON & HAYNES, P.C.
Wellesley, Massachusetts,
January 19, 1999.
11
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ANCHOR INTERNATIONAL BOND TRUST
================================================================================
OFFICERS AND TRUSTEES
ERNIE BUTLER Trustee
President, I.E. Butler Securities
MAURICE A. DONAHUE Trustee
Director and Professor, Institute for Governmental
Services and Walsh-Saltonstall Professor of
Practical Politics, University of Massachusetts
SPENCER H. LE MENAGER Trustee
President, Equity Inc.
DAVID W.C. PUTNAM Chairman
Chairman, Board of Directors, F.L. Putnam and Trustee
Investment Management Corporation
President and Director, F.L. Putnam Securities
Company Incorporated
J. STEPHEN PUTNAM Vice President and
President, Robert Thomas Securities Treasurer
DAVID Y. WILLIAMS President, Secretary
President and Director, Meeschaert & Co., Inc., and Trustee
President and Director, Anchor Investment
Management Corporation
12
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15
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================================================================================
ANCHOR INTERNATIONAL BOND TRUST
================================================================================
INVESTMENT ADVISER, ADMINISTRATOR AND TRANSFER AGENT
Anchor Investment Management Corporation
579 Pleasant St., Suite 4, Paxton, Massachusetts 01612
(508) 831-1171
DISTRIBUTOR
Meeschaert & Co., Inc.
579 Pleasant St., Suite 4, Paxton, Massachusetts 01612
CUSTODIAN
Investors Bank & Trust Company
89 South Street, Boston, Massachusetts 02111
INDEPENDENT PUBLIC ACCOUNTANT
Livingston & Haynes, P.C.
40 Grove St., Wellesley, Massachusetts 02482
LEGAL COUNSEL
Thorp Reed & Armstrong
One Riverfront Center, Pittsburgh, Pennsylvania 15222
This report is not authorized for distribution to prospective investors in the
Trust unless preceded or accompanied by an effective prospectus which includes
information concerning the Trust's record or other pertinent information.
16
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POWER OF ATTORNEY
We, the undersigned officers and Trustees of Anchor International Bond
Trust, hereby severally constitute David W.C. Putnam, David Y. Williams, and
Peter K. Blume, and each of them singly, our true and lawful attorneys, with
full power to them and each of them singly to sign for us, and in our names and
in the capacity mentioned below, any and all Registration Statements and/or
Amendments to the Registration Statements, filed with the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys to any and all amendments to said Registration
Statement, and all additional Registration Statements and Amendments thereto.
Witness our hands and common seal on the dates set forth below*
Signature Title Date
/s/DAVID W.C. PUTNAM
David W. C. Putnam Chairman and Trustee March 22, 1999
/s/J. STEPHEN PUTNAM
J. Stephen Putnam Treasurer (Principle March 22, 1999
Financial Officer)
/s/SPENCER H. LEMENAGER
Spencer H. LeMenager Trustee March 22, 1999
/s/ERNIE BUTLER
I. Ernie Butler Trustee March 22, 1999
/s/DAVID Y. WILLIAMS
David Y. Williams President, Secretary March 22, 1999
and Trustee
* This Power of Attorney may be executed in several counterparts, each of which
shall be regarded as an original and all of which taken together shall
constitute one and the same Power of Attorney, and any of the parties hereto may
execute this Power of Attorney by signing any such counterpart.
88
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CERTIFIED RESOLUTIONS
The undersigned, Christopher Y. Williams, Assistant Secretary of
Anchor International Bond Trust, DOES HEREBY CERTIFY that the following
resolutions were duly adopted by the Trustees of the Trust, and that such
resolutions have not been amended, modified or rescinded and remain in full
force and effect on the date hereof.
RESOLVED: That Peter K. Blume, Esquire, attorney for the
Trust, be and hereby is named and constituted agent
for service with respect to the aforesaid
Registration Statement to receive notices and
communication with respect to the 1993 Act and the
1940 Act, with all power consequent upon such
designation of and under the rules and regulations
of the Commission.
RESOLVED: That the signature of any officer of the Trust required by law to
be affixed to the Registration Statement, or to any amendment
thereof, may be affixed by said officer personally or by an
attorney-in-fact duly constituted in writing by said officer to
sign his name thereto.
IN WITNESS WHEREOF, I have executed this Certificate as of March 22, 1999.
/S/CHRISTOPHER Y. WILLIAMS
Christopher Y. Williams, Asst. Sec.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANCHOR INTERNATIONAL BOND TRUST DECEMBER 31, 1998 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE ANNUAL REPORT.
Item Item Description
Number
1998
3(a) Net asset value:
Beginning of year... $7.46
3(a) Net investment income
(loss)................ 0.57
3(a) Net realized and
unrealized gain
(loss)on investments.. 0.19
3(a) Distributions to
shareholders:
3(a) From net
investment income
(loss)........... (0.61)
3(a) From net realized
gains on
investments...... --
3(a) Net asset value:
End of year.... $7.61
=====
3(a) Ratio of expenses to
average net
assets........... 1.30%
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</TABLE>
