Prospectus February 14, 1996, as revised May 10, 1996
(Morgan Grenfell Logo)
MORGAN GRENFELL INVESTMENT TRUST
NO-LOAD OPEN-END FUNDS
855 Third Avenue
New York, New York 10022
Morgan Grenfell Investment Trust (the "Trust") is an open-end management
investment company consisting of a number of investment portfolios. This
Prospectus offers the following diversified investment portfolios of the Trust:
Morgan Grenfell Fixed Income Fund, Morgan Grenfell Municipal Bond Fund, Morgan
Grenfell Short-Term Fixed Income Fund, Morgan Grenfell Short-Term Municipal Bond
Fund and Morgan Grenfell Smaller Companies Fund (each a "Fund"). Information
concerning investment portfolios of the Trust that focus on international fixed
income investments (the "International Funds") is contained in a separate
prospectus that may be obtained by calling 1-800-550-6426.
The investment objective of Morgan Grenfell Fixed Income Fund and Morgan
Grenfell Short-Term Fixed Income Fund is to seek a high level of income
consistent with the preservation of capital. The investment objective of Morgan
Grenfell Municipal Bond Fund and Morgan Grenfell Short-Term Municipal Bond Fund
is to seek a high level of income exempt from federal income tax, consistent
with the preservation of capital. The primary investment objective of Morgan
Grenfell Smaller Companies Fund is to maximize capital appreciation.
Each Fund's primary investments are summarized below:
Morgan Grenfell Fixed Income Fund invests primarily in U.S. dollar-denominated
debt securities, including U.S. and non-U.S. government securities, corporate
debt securities and debentures, mortgage-backed and asset-backed securities and
taxable municipal debt securities, and repurchase agreements with respect to the
foregoing. The Fund expects to maintain a dollar weighted average portfolio
maturity of between five and ten years.
Morgan Grenfell Municipal Bond Fund invests primarily in municipal debt
securities that pay interest exempt from U.S. federal income tax. The Fund
expects to maintain a dollar weighted average portfolio maturity of between five
and ten years.
Morgan Grenfell Short-Term Fixed Income Fund invests in the same types of
securities as Morgan Grenfell Fixed Income Fund, but maintains a dollar weighted
average portfolio maturity of no longer than three years.
Morgan Grenfell Short-Term Municipal Bond Fund invests in the same types of
securities as Morgan Grenfell Municipal Bond Fund, but maintains a dollar
weighted average portfolio maturity of no longer than three years.
Morgan Grenfell Smaller Companies Fund invests primarily in equity and
equity-related securities of small capitalization U.S. companies.
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(continued on next page)
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(continued)
This Prospectus provides information about the Trust and each of the Funds that
investors should know before investing in the Funds. Investors should carefully
read this Prospectus and retain it for future reference. For investors seeking
more detailed information, the Statement of Additional Information dated
February 14, 1996, as revised May 10, 1996, as amended or supplemented from time
to time, is available upon request without charge by calling 1-800-550-6426 or
by writing to SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087-1658. The Statement of Additional Information, which is
incorporated by reference into this Prospectus, has been filed with the
Securities and Exchange Commission. Not all of the Funds are available in
certain states. Please call 1-800-550-6426 to determine availability in a
particular state.
...............................................................................
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
...............................................................................
TABLE OF CONTENTS
-----------------
Page
----
Expense Information ...................................................... 3
Financial Highlights ..................................................... 4
Introduction to the Funds ................................................ 6
Risk Factors ............................................................. 7
Investment Objectives and Policies ....................................... 7
Description of Securities and Investment Techniques and Related Risks .... 10
Additional Investment Information ........................................ 19
Management of the Funds .................................................. 20
Purchase of Shares ....................................................... 22
Redemption of Shares ..................................................... 24
Net Asset Value .......................................................... 26
Dividends, Distributions and Taxes ....................................... 26
Organization and Shares of the Trust ..................................... 28
Performance Information .................................................. 29
Appendix A (Tax Certification Instructions) .............................. A-1
2
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EXPENSE INFORMATION
<TABLE>
<CAPTION>
Short-Term Short-Term Smaller
Fixed Income Municipal Fixed Income Municipal Companies
Fund Bond Fund Fund Bond Fund Fund
------------ ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases ................... None None None None None
Maximum Sales Charge Imposed on Reinvested Dividends ........ None None None None None
Deferred Sales Charge Imposed on Redemptions* ............... None None None None None
Exchange Fee ................................................ None None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets
after reduction of advisory fee)
Advisory fees .............................................. 0.40% 0.40% 0.40% 0.40% 1.00%
Administration fees ........................................ 0.12% 0.12% 0.46% 0.46% 0.38%
Other Expenses ............................................. 0.11% 0.10% 0.27% 0.27% 0.28%
Reduction of Advisory Fee and Expense Limitation by Adviser** (0.08%) (0.07%) (0.58%) (0.58%) (0.41%)
Net Fund Operating Expenses ................................ 0.55% 0.55% 0.55% 0.55% 1.25%
</TABLE>
- ---------------
* A fee, currently $10, may be imposed on redemptions by wire.
** The Adviser has agreed to reduce its advisory fee and to make
arrangements to limit certain other expenses to the extent necessary to
limit Fund Operating Expenses of each Fund, on an annualized basis, to the
specified percentage of each Fund's assets shown in the above table as Net
Fund Operating Expenses. The above table and the following Example reflect
this voluntary agreement. In its sole discretion, the Adviser may terminate
or modify this voluntary agreement at any time although the Adviser has no
present intention of doing so. The purpose of the voluntary agreement is to
enhance a Fund's total return during the period when, because of its smaller
size, fixed expenses have a more significant impact on total return. If the
Adviser's voluntary agreement was not in effect, the Fund Operating Expenses
for each Fund would be as follows: Fixed Income Fund 0.63%, Municipal Bond
Fund 0.62%, Short-Term Fixed Income Fund 1.13%, Short-Term Municipal Bond
Fund 1.13% and Smaller Companies Fund 1.66%.
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Example:
Investors would pay the following expenses on a $1,000 investment assuming
(1) a 5% annual return and (2) redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Morgan Grenfell Fixed Income Fund .... $6 $18 $31 $69
Morgan Grenfell Municipal Bond ....... $6 $18 $31 $69
1 Year 3 Years
------ -------
Morgan Grenfell Short-Term Fixed Income Fund $ 6 $18
Morgan Grenfell Short-Term Municipal Bond Fund $ 6 $18
Morgan Grenfell Smaller Companies Fund $13 $40
The purpose of the Expense Information Table and Example is to assist
investors in understanding the various direct and indirect costs and expenses
that an investment in a Fund will bear. "Other Expenses" included in the Expense
Information Table and Example for Morgan Grenfell Fixed Income Fund and Morgan
Grenfell Municipal Bond Fund are based on expenses incurred by these two Funds
during the fiscal year ended October 31, 1995. "Other Expenses" for Morgan
Grenfell Smaller Companies Fund, Morgan Grenfell Short-Term Fixed Income Fund
and Morgan Grenfell Short-Term Municipal Bond Fund are based on estimates for
the current fiscal year ending October 31, 1996 (assumes each Fund has average
net assets of $10 million for such year). If the average net assets of any of
these Funds exceeds the assumed dollar amount for such year, then that Fund's
"Other Expenses" (as a percentage of average net assets) will be lower than the
rate shown in the table. Conversely, if any of these Funds' average net assets
are lower than the assumed dollar amount for such year, then that Fund's "Other
Expenses" (as a percentage of net assets) will be higher than the rate shown in
the table.
The Example assumes reinvestment of all dividends and distributions and that
the percentage amounts listed in the Expense Information Table remain the same
each year. If the Adviser were to discontinue its voluntary fee reductions, the
expenses contained in the Example could increase.
The Example is designed for information purposes only, and should not be
considered a representation of future expenses or return for any Fund. Actual
expenses and return vary from year to year and may be higher or lower than those
shown. For further information regarding advisory and administration fees, and
other expenses of the Funds, see "Management of the Funds."
FINANCIAL HIGHLIGHTS
Selected audited data for an outstanding share of each Fund is presented for
periods prior to and ending October 31, 1995. This data, insofar as it relates
to the period ended October 31, 1995, has been audited by Price Waterhouse LLP,
the Funds' independent accountants. The data for periods prior to and ending
October 31, 1994 for Morgan Grenfell Fixed Income Fund and Morgan Grenfell
Municipal Bond Fund has been audited by Arthur Andersen LLP, which previously
served as the independent accountants of these two Funds.
This information should be read in conjunction with the Funds' audited
financial statements as of October 31, 1995 and the notes thereto, which appear
in the Funds' Statement of Additional Information. The Funds' annual report,
which contains additional performance information, and Statement of Additional
Information are available free of charge by calling 1-800-550-6426.
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FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period Ended October 31
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Net
Net Asset Net Realized Distributions Distributions
Value Investment and from Net from Realized Net Asset Net Assets
Beginning Income/ Unrealized Investment Capital Value End Total End of
Year of Period (Loss) Gains/(Losses) Income Gains of Period Return Period (000)
- ---- ---------- --------- -------------- ------------ ------------- --------- ------ ------------
Municipal Bond Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 .......... $10.37 $0.61 $ 0.49 $(0.61) -- $10.86 10.90% $221,058
1994 .......... $11.36 $0.60 $(0.61) $(0.60) $(0.38) $10.37 (0.15)% $165,677
1993 .......... $10.56 $0.67 $ 0.84 $(0.67) $(0.04) $11.36 14.68% $148,022
1992(1) ....... $10.00 $0.60 $ 0.56 $(0.60) -- $10.56 13.42% $ 94,700
Fixed Income Fund
1995 .......... $ 9.93 $0.70 $ 0.69 $(0.70) -- $10.62 14.53% $494,221
1994 .......... $10.95 $0.64 $(0.91) $(0.64) $(0.11) $ 9.93 (2.58)% $239,556
1993 .......... $ 9.92 $0.64 $ 1.03 $(0.64) -- $10.95 17.28% $147,917
1992(2) ....... $10.00 $0.06 $(0.08) $(0.06) -- $ 9.92 (1.61)% $ 25,528
Short-Term Municipal Bond Fund
1995(3) ....... $10.00 $0.30 $ 0.13 $(0.30) -- $10.13 * $ 3,724
Short-Term Fixed Income Fund
1995(4) ....... $10.00 $0.37 $ 0.01 $(0.37) -- $10.01 * $ 4,140
Smaller Companies Fund
1995(5) ....... $10.00 $0.03 $ 0.52 -- -- $10.55 * $ 2,638
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net
Ratio of Investment
Expenses Income (Loss
Ratio of Net to Avereage to Average
Ratio of Investment Net Assets Net Assets
Expenses Income (Loss) (Excluding (Excluding Portfolio
to Average to Average Expense Expense Turnover
Year Net Assets Net Assets Limitations) Limitations) Rate
- ---- ------------ ------------- ------------ -------------- --------
<S> <C> <C> <C> <C> <C>
Municipal Bond Fund
1995 .......... 0.54% 5.75% 0.62% 5.67% 63%
1994 .......... 0.54% 5.60% 0.67% 5.47% 94%
1993 .......... 0.55% 5.94% 0.75% 5.74% 160%
1992(1) ....... 0.55% 6.31% 0.79% 6.07% 143%
Fixed Income Fund
1995 .......... 0.54% 6.81% 0.63% 5.84% 182%
1994 .......... 0.54% 6.22% 0.66% 4.13% 251%
1993 .......... 0.55% 6.01% 0.72% 2.96% 196%
1992(2) ....... 0.55% 5.24% 1.66% 148%
Short-Term Municipal Bond Fund
1995(3) ....... 0.52% 4.60% 2.16% 2.96% 62%
Short-Term Fixed Income Fund
1995(4) ....... 0.52% 5.86% 2.84% 3.54% 90%
Smaller Companies Fund
1995(5) ....... 1.25% 0.94% 2.28% (0.09)% 23%
</TABLE>
(END OF RESTUBBED TABLE)
* Total return for the period indicated has not been annualized.
(1) Municipal Bond Fund commenced operations on 12/13/91. All ratios for the
period have been annualized.
(2) Fixed Income Fund commenced operations on 9/18/92. All ratios for the
period have been annualized.
(3) Short-Term Municipal Bond Fund commenced operations on 3/6/95. All ratios
for the period have been annualized.
(4) Short-Term Fixed Income Fund commenced operations on 3/13/95. All ratios for
the period have been annualized.
(5) Smaller Companies Fund commenced operations on 6/30/95. All ratios for
the period have been annualized.
5
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INTRODUCTION TO THE FUNDS
Morgan Grenfell Investment Trust (the "Trust") offers a number of mutual
funds, each of which is a separate series of the Trust. This Prospectus offers
shares of Morgan Grenfell Fixed Income Fund, Morgan Grenfell Municipal Bond
Fund, Morgan Grenfell Short-Term Fixed Income Fund, Morgan Grenfell Short-Term
Municipal Bond Fund and Morgan Grenfell Smaller Companies Fund (each a "Fund").
Information regarding investment portfolios of the Trust that focus on
international fixed income investments (the "International Funds") is contained
in a separate prospectus that may be obtained by calling 1-800-550-6426.
Morgan Grenfell Capital Management, Inc. (the "Adviser" or "MGCM"), with
offices in Philadelphia and New York City, serves as investment adviser to each
of the Funds. The Adviser is a U.S. investment management subsidiary of
London-based Deutsche Morgan Grenfell Group plc. Together with the Adviser and
its other investment management subsidiaries, Deutsche Morgan Grenfell Group plc
now has over US$95 billion under management.
Morgan Grenfell Smaller Companies Fund, Morgan Grenfell Short-Term Fixed
Income Fund and Morgan Grenfell Short-Term Municipal Bond Fund are newly
organized funds that have limited operating histories. There can be no assurance
that any Fund will be able to achieve its investment objectives.
General Portfolio Management Strategies
Fixed Income Investments. In selecting fixed income investments (including
municipal securities) for Fixed Income Fund, Short-Term Fixed Income Fund,
Municipal Bond Fund and Short-Term Municipal Bond Fund, the Adviser seeks to
achieve these Funds' investment objectives by identifying fixed income
securities which it believes to be undervalued relative to the market rather
than forecasting changes in the interest rate environment. Fixed income
securities may be undervalued for a variety of reasons, such as market
inefficiencies relating to lack of market information about particular features
of such securities, supply and demand shifts and lack of market penetration by
some issues.
Equity Investments. In selecting equity investments for Smaller Companies
Fund, the Adviser looks for companies whose earnings it believes will grow both
faster than inflation and faster than the economy in general. Smaller Companies
Fund may invest in such a company if the Adviser believes that such growth is
not yet fully reflected in the market price of the company's securities. In
managing the Smaller Companies Fund, the Adviser may also consider the
fundamental value of a company, and may invest in a company where it believes
that value is not fully recognized in the marketplace. Fundamental value is
determined by taking into account various factors including earnings per share,
the ratio of book value to market price, and the company's cash flow and
dividend yield.
In selecting equity investments, the Adviser considers a number of
company-specific factors, including quality of management, a leading or dominant
position in a major product line, a sound financial position, and a relatively
high rate of return on invested capital so that future growth can be financed
from internal sources. The Adviser also considers a company's record of dividend
payments and/or the likelihood that the Company will pay dividends in the
future. However, consistent with its investment objectives, Smaller Companies
Fund may purchase securities of companies that are not expected to pay dividends
in the foreseeable future.
6
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RISK FACTORS
An investment in any of the Funds is neither insured nor guaranteed by the
U.S. Government, or any agency thereof or any other entity. The value of each
Fund's portfolio securities, and thus the net asset value of its shares will
fluctuate as a result of market factors, including interest rate and stock
market changes, such that the value of the shares, when redeemed, may be more or
less than their original cost.
In addition, certain of the Funds may employ investment techniques, including
options and futures contracts and other investments that may be considered
derivative investments. These may entail special risks. For example, there is no
limit on the percentage of assets of Smaller Companies Fund that may be at risk
with respect to futures and related options. See "Investment Objectives and
Policies" and "Description of Securities and Investment Techniques and Related
Risks."
INVESTMENT OBJECTIVES AND POLICIES
Fixed Income Fund and Short-Term Fixed Income Fund
The investment objective of the Fixed Income Fund and the Short-Term Fixed
Income Fund (the "Fixed Income Funds") is to seek a high level of income
consistent with the preservation of capital. The Fixed Income Fund expects to
maintain a dollar weighted average remaining portfolio maturity of 5 to 10
years. The Short- Term Fixed Income Fund will maintain a dollar weighted average
remaining portfolio maturity of no more than 3 years. Because of its shorter
portfolio maturity, it is expected that the Short-Term Fixed Income Fund's per
share net asset value will be less volatile in response to changes in interest
rates. However, under normal conditions, it is expected that the Fixed Income
Fund will have a higher yield than the Short-Term Fixed Income Fund.
Each Fixed Income Fund will normally invest at least 80% of its assets in
fixed income securities of all types, including (i) U.S. Treasury obligations;
(ii) obligations issued or guaranteed as to principal and interest by agencies
and instrumentalities of the U.S. Government; (iii) custodial receipts
evidencing separately traded principal and interest components of U.S.
Government obligations; (iv) corporate bonds and debentures; (v) equipment lease
and trust certificates; (vi) mortgage-backed securities and asset-backed
securities; (vii) U.S. dollar denominated securities of the Government of Canada
and its provincial and local governments, U.S. dollar denominated securities
issued or guaranteed by foreign governments, their political subdivisions,
agencies or instrumentalities and U.S. dollar denominated obligations of
supranational entities; (viii) taxable municipal securities, and state,
municipal or private activity bonds; and (ix) repurchase agreements involving
any of the foregoing. Certain of these securities may have floating or variable
rates of interest or include put features providing the Fund the right to sell
the security at face value prior to maturity. The existence in a Fund's
portfolio of floating and variable rate securities and securities with put
features will have the effect of shortening its dollar weighted average
maturity. Each Fixed Income Fund may purchase securities on a when-issued basis.
Neither Fixed Income Fund's investments in U.S. dollar denominated securities of
non-U.S. issuers will exceed 25% of its total assets.
Subject to its portfolio maturity policy, a Fixed Income Fund may purchase
securities with any stated remaining maturity. In determining the maturity of
mortgage-backed securities, the Adviser will use the expected life of such
securities, which is based upon the anticipated prepayment patterns of the
underlying mortgages.
7
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Each Fixed Income Fund invests primarily in fixed income securities that, at
the time of purchase, are either rated in one of the three highest rating
categories assigned by Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Group ("Standard & Poor's"), Duff & Phelps, Inc. ("Duff") or
Fitch Investors Service, Inc. ("Fitch") or unrated securities determined by the
Adviser to be of comparable quality. However, each Fixed Income Fund may also
invest up to 15% of its assets in fixed income securities that are, at the time
of purchase, either rated within the fourth highest rating category assigned by
Moody's, S&P, Duff or Fitch, or unrated but determined by the Adviser to be of
comparable quality. See "Description of Securities and Investment Techniques and
Related Risks--Fixed Income Securities." In the event any security held by a
Fixed Income Fund is downgraded below the rating categories set forth above, the
Adviser will review the security and determine whether to retain or dispose of
that security, provided that neither Fixed Income Fund may hold, at any time,
more than 5% of its net assets in fixed income securities that are not
investment grade. Fixed income securities rated in one of the four highest
ratings categories and unrated securities determined by the Adviser to be of
comparable quality are referred to herein as "investment grade fixed income
securities." Fixed income securities in the lowest investment grade category are
considered medium grade securities. Such securities have speculative
characteristics, involve greater risk of loss than higher quality securities,
and are more sensitive to changes in the issuer's capacity to pay.
Under normal conditions, each Fixed Income Fund may hold up to 20% of its
total assets in cash or money market instruments in order to maintain liquidity,
or in the event that the Adviser determines that securities meeting the Fund's
investment objective and policies are not otherwise readily available for
purchase. For a definition of money market instruments and the Fixed Income
Funds' policies on temporary defensive investments, see "Description of
Securities and Investment Techniques and Related Risks-- Additional Investment
Techniques."
Municipal Bond Fund and Short-Term Municipal Bond Fund
The investment objective of the Municipal Bond Fund and the Short-Term
Municipal Bond Fund (the "Municipal Funds") is to seek a high level of income
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes), consistent with the preservation of capital.
However, there is no restriction on the percentage of either Municipal Fund's
assets that may be invested in obligations the interest on which is a preference
item for purposes of the federal alternative minimum tax. The Municipal Bond
Fund expects to maintain a dollar weighted average remaining portfolio maturity
of 5 to 10 years. The Short-Term Municipal Bond Fund will maintain a dollar
weighted average remaining portfolio maturity of no more than 3 years. Because
of its shorter portfolio maturity, it is expected that the Short-Term Municipal
Bond Fund's per share net asset value will be less volatile in response to
changes in interest rates. However, under normal conditions, it is expected that
the Municipal Bond Fund will have a higher yield than the Short- Term Municipal
Bond Fund.
Under normal market conditions, each Municipal Fund invests at least 80% of
its total assets in municipal securities the interest on which is exempt from
regular federal income tax, and invests at least 65% of its total assets in
municipal bonds. Municipal bonds consist of (i) debt obligations, including
municipal leases, issued by or on behalf of public authorities to obtain funds
to be used for various public facilities, for refunding outstanding obligations,
for general operating expenses and for lending such funds to other public
institutions and facilities, and (ii) certain private activity and industrial
development bonds issued by or on behalf of public authorities to obtain funds
to provide for the construction, equipment, repair or
8
<PAGE>
improvement of privately operated facilities. The issuers of these municipal
securities may be located in all 50 U.S. states, the District of Columbia,
Puerto Rico and other U.S. territories and possessions. Certain of these
securities may have variable and floating rates of interest or include "put"
features providing the Fund the right to sell the securities at face value prior
to maturity. The existence in a Fund's portfolio of variable and floating rate
securities and securities having put features will have the effect of shortening
its average dollar weighted portfolio maturity. The Municipal Funds may purchase
securities on a when- issued basis.
The Municipal Funds' investments in municipal notes may include, but are not
limited to, general obligation notes, tax anticipation notes (notes sold to
finance working capital needs of the issuers in anticipation of receiving taxes
on a future date), revenue anticipation notes (notes sold to provide needed cash
prior to receipt of expected non-tax revenues from a specific source), bond
anticipation notes, certificates of indebtedness, demand notes and construction
loan notes and participation rights therein. Investments in any of the notes
described above will be limited to those obligations that, at the time of
purchase, are rated MIG-1 or V-MIG-1 by Moody's, rated SP-1 by Standard &
Poor's, or are unrated but are determined by the Adviser to be of comparable
quality.
The Municipal Funds' investments in municipal bonds may include, but are not
limited to, general obligation bonds, revenue or special obligation bonds, and
private activity and industrial development bonds. Each Municipal Fund may
invest 25% or more of its total assets in private activity and industrial
development bonds if the interest paid on them is exempt from regular income
tax. See "Description of Securities and Investment Techniques--Fixed Income
Securities."
Except as noted below, municipal bonds in which a Municipal Fund invests must
be rated A or better by Moody's or by Standard & Poor's at the time of
investment or, if unrated, must be determined by the Adviser to be of comparable
quality. Each Municipal Fund may, however, invest up to 15% of its assets in
bonds that, at the time of purchase, are rated Baa by Moody's, rated BBB by
Standard & Poor's, or unrated and determined by the Adviser to be of comparable
quality. Municipal securities in the lowest investment grade category are
considered medium grade securities. Such securities have speculative
characteristics, involve greater risk of loss than higher quality securities,
and are more sensitive to changes in the issuer's capacity to pay.
The Municipal Funds' investments in tax-exempt commercial paper will be
limited to obligations that, at the time of purchase, are rated at least A-1 by
Standard & Poor's or Prime-1 by Moody's, or that are unrated but are determined
by the Adviser to be of comparable quality. The Municipal Funds may purchase
other types of tax-exempt instruments as long as they are of a quality
equivalent to the long-term bond or commercial paper ratings stated above.
In the event any security held by either Municipal Fund is downgraded below
the rating categories set forth above, the Adviser will review the security and
determine whether to retain or dispose of that security, provided that neither
Municipal Fund will hold, at any time, more than 5% of its net assets in
securities that are rated below investment grade.
Under normal circumstances, each Municipal Fund may invest up to 20% of its
total assets in certain taxable securities in order to maintain liquidity. In
addition, for temporary defensive purposes during periods when the Adviser
determines that market conditions warrant, each Municipal Fund may invest
without limit
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in such taxable securities. Such taxable securities include: U.S. Treasury
obligations (including separately traded interest and principal component parts
of U.S. Treasury obligations, transferable through the federal book-entry system
and known as Separately Traded Registered Interest and Principal Securities or
"STRIPS"); other marketable obligations issued or guaranteed as to principal and
interest by agencies or instrumentalities of the U.S. Government whether or not
backed by the full faith and credit of the U.S. Treasury; short- term
instruments of U.S. commercial banks or savings and loan institutions (not
including foreign branches of U.S. banks or U.S. branches of foreign banks) that
are members of the Federal Reserve System or the Federal Deposit Insurance
Corporation and that have total assets of $1 billion or more as shown on their
last published financial statements at the time of investment; repurchase
agreements involving any of the foregoing obligations; and, to the extent
permitted by applicable law, shares of other investment companies investing
solely in the foregoing obligations.
Distributions by a Fund that are derived from income from taxable securities
held by the Fund will generally be taxable to shareholders as ordinary income.
Smaller Companies Fund
The primary investment objective of the Smaller Companies Fund is to maximize
capital appreciation. The Fund seeks current income as its secondary investment
objective. Under normal market conditions, the Fund pursues these objectives by
investing at least 65% of its total assets in equity and equity-related
securities (but not less than 60% directly in stocks) of small capitalization
U.S. companies. Equity securities in which the Fund may invest include common
stocks and preferred stocks, while equity-related securities include warrants,
purchased call options and other rights to acquire stocks. See "Description of
Securities and Investment Techniques and Related Risks."
For purposes of the Fund's investment policies, small capitalization
companies are those ranked (at time of investment) according to market
capitalization in the bottom 20% of the Wilshire 5000 Index. The Adviser
believes that investments in equity and equity-related securities of many small
capitalization companies, although involving greater risk, provide the
opportunity for greater capital growth than investments in larger, better-known
companies. For a description of the risks associated with investing in small
capitalization companies, see "Description of Securities and Investment
Techniques and Related Risks--Small Capitalization Companies."
Up to 35% of the Fund's total assets may be invested in investment grade
fixed income securities (see definition on page 8), cash equivalents and equity
and equity-related securities of medium and large capitalization companies. In
the event any fixed income security held by the Fund is downgraded below
investment grade, the Adviser will review the security and determine whether to
retain or dispose of it. In no event, however, will the Fund hold more than 5%
of its net assets in fixed income securities that are not investment grade. Up
to 5% of the Fund's net assets (measured at time of investment) may be invested
in the securities of non-U.S. issuers of all sizes.
DESCRIPTION OF SECURITIES AND INVESTMENT
TECHNIQUES AND RELATED RISKS
Fixed Income Securities
General. Each Fund may invest in fixed income securities. In periods of
declining interest rates, the yield (income from portfolio investments over a
stated period of time) of a Fund that invests in fixed income securities may
tend to be higher than prevailing market rates, and in periods of rising
interest rates,
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the yield of the Fund may tend to be lower. Also, when interest rates are
falling, the inflow of net new money to such a Fund will likely be invested in
portfolio instruments producing lower yields than the balance of the Fund's
portfolio, thereby reducing the yield of the Fund. In periods of rising interest
rates, the opposite can be true. The net asset value of a Fund investing in
fixed income securities can generally be expected to change as general levels of
interest rates fluctuate. The value of fixed income securities in a Fund's
portfolio generally varies inversely with changes in interest rates. Prices of
fixed income securities with longer effective maturities are more sensitive to
interest rate changes than those with shorter effective maturities.
Private Activity and Industrial Development Bonds. The Fixed Income Funds and
the Municipal Funds may invest in private activity and industrial development
bonds, which are obligations issued by or on behalf of public authorities to
raise money to finance various privately owned or operated facilities for
business and manufacturing, housing, sports and pollution control. These bonds
are also used to finance public facilities such as airports, mass transit
systems, ports, parking or sewage or solid waste disposal facilities, as well as
certain other categories. The payment of the principal and interest on such
bonds is generally dependent solely on the ability of the facility's user to
meet its financial obligations and the pledge, if any, of real and personal
property so financed as security for such payment.
Put Bonds. The Fixed Income Funds and the Municipal Funds may invest in
"put" bonds, which are tax exempt securities (including securities with variable
interest rates) that may be sold back to the issuer of the security at face
value at the option of the holder prior to their stated maturity. The Adviser
intends to purchase only those "put" bonds for which the put option is an
integral part of the security as originally issued. The option to "put" the bond
back to the issuer prior to the stated final maturity can cushion the price
decline of the bond in a rising interest rate environment. However, the premium
paid, if any, for an option to put will have the effect of reducing the yield
otherwise payable on the underlying security. For the purpose of determining the
"maturity" of securities purchased subject to an option to put, and for the
purpose of determining the dollar weighted average maturity of a Fund holding
such securities, the Fund will consider "maturity" to be the first date on which
it has the right to demand payment from the issuer of the put although the final
maturity of the security is later than such date.
Variable or Floating Rate Instruments and Variable Rate Demand Instruments.
The Fixed Income Funds and the Municipal Funds may invest in variable or
floating rate instruments and variable rate demand instruments, including
variable amount master demand notes. These instruments will normally involve
industrial development or revenue bonds that provide that the rate of interest
is set as a specific percentage of a designated base rate (such as the prime
rate) at a major commercial bank. In addition, the interest rate on these
securities may be reset daily, weekly or on some other reset period and may have
a floor or ceiling on interest rate changes. A Fund holding such an instrument
can demand payment of the obligation at all times or at stipulated dates on
short notice (not to exceed 30 days) at par plus accrued interest.
U.S. Government Securities. The Funds may invest in obligations issued or
guaranteed as to both principal and interest by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises ("U.S. Government
securities"). Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, are supported by the full faith and credit of the United
States. Others, such as obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported either by (i) the full faith and
credit of the U.S. Government (such as securities of the Small Business
Administration), (ii) the right of the issuer
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to borrow from the U.S. Treasury (such as securities of the Federal Home Loan
Banks), (iii) the discretionary authority of the U.S. Government to purchase the
agency's obligations (such as securities of the Federal National Mortgage
Association, or (iv) only the credit of the issuer. No assurance can be given
that the U.S. Government will provide financial support to U.S. Government
agencies or instrumentalities in the future.
The Fixed Income Funds and the Municipal Funds may also invest in separately
traded principal and interest components of securities guaranteed or issued by
the U.S. Government or its agencies, instrumentalities or sponsored enterprises
if such components are traded independently under the Separate Trading of
Registered Interest and Principal of Securities program ("STRIPS") or any
similar program sponsored by the U.S. Government. However, no Fund may actively
trade these instruments. STRIPS are sold as zero coupon securities. See "Zero
Coupon Securities."
Custodial Receipts. Custodial receipts are interests in separately traded
interest and principal component parts of U.S. Government securities that are
issued by banks or brokerage firms and are created by depositing U.S. Government
securities into a special account at a custodian bank. The custodian holds the
interest and principal payments for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register.
Custodial receipts include Treasury Receipts ("TRs"), Treasury Investment Growth
Receipts ("TIGRs"), and Certificates of Accrual on Treasury Securities ("CATS").
TIGRs and CATS are interests in private proprietary accounts while TRs and
STRIPS (see "U.S. Government Securities" above) are interests in accounts
sponsored by the U.S. Treasury. Receipts are sold as zero coupon securities; for
more information, see "Zero Coupon Securities."
Zero Coupon Securities. STRIPS and custodial receipts (TRs, TIGRs and CATS)
are sold as zero coupon securities, that is, fixed income securities that have
been stripped of their unmatured interest coupons. Zero coupon securities are
sold at a (usually substantial) discount and redeemed at face value at their
maturity date without interim cash payments of interest or principal. The amount
of this discount is accreted over the life of the security, and the accretion
constitutes the income earned on the security for both accounting and tax
purposes. Because a Fund must distribute the accreted amounts in order to
qualify for favorable tax treatment, it may have to sell portfolio securities to
generate cash to satisfy the applicable distribution requirements. Because of
these features, the market prices of zero coupon securities are generally more
volatile than the market prices of securities that have similar maturity but
that pay interest periodically. Zero coupon securities are likely to respond to
a greater degree to interest rate changes than are non-zero coupon securities
with similar maturity and credit qualities.
Securities of Foreign Issuers
Smaller Companies Fund and each Fixed Income Fund may invest to a limited
extent in securities of foreign issuers and supranational entities. Investments
in the securities of foreign issuers and supranational entities may subject the
Funds to investment risks that differ in some respects from those related to
investments in securities of U.S. issuers. Such risks include future adverse
political and economic developments, possible imposition of withholding taxes on
income, possible seizure, nationalization or expropriation of foreign deposits,
possible establishment of exchange controls or taxation at the source or
fluctuation in value due to changes in currency exchange rates. Foreign issuers
of securities often engage in business
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practices different from those of domestic issuers of similar securities and
there may be less information publicly available about foreign issuers. In
addition, foreign issuers are, generally speaking, subject to less government
supervision and regulation and different accounting treatment than are those in
the United States.
To the extent that it invests in non-U.S. securities, Smaller Companies Fund
may enter into forward currency exchange contracts ("forward contracts") and
currency options to hedge against currency exchange rate fluctuations. Forward
contracts and options may be considered derivative instruments.
Smaller Companies Fund may enter into forward contracts and currency options
to protect against an anticipated rise in the U.S. dollar price of securities
that it intends to purchase. In addition, Smaller Companies Fund may enter into
forward contracts and currency options to protect against the decline in value
of its foreign currency denominated or quoted portfolio securities, or a decline
in the value of anticipated dividends from such securities, due to a decline in
the value of the foreign currency against the U.S. dollar. The forecasting of
currency market movements is extremely difficult and there can be no assurance
that currency hedging strategies will be successful. If the Adviser is incorrect
in its forecast, currency hedging strategies may result in investment
performance worse than if the strategies were not attempted. In addition,
forward contracts and over-the-counter currency options may be illiquid and are
subject to the risk that the counterparty will default on its obligations. For
more information on these instruments, see the Statement of Additional
Information.
Mortgage-Backed and Asset-Backed Securities
The Fixed Income Funds and, to a more limited extent, the Municipal Funds may
invest in mortgage- backed securities, which represent direct or indirect
participations in, or are collateralized by and payable from, mortgage loans
secured by real property. The Fixed Income Funds may also invest in asset-backed
securities, which represent participations in, or are secured by and payable
from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements and other categories of
receivables. Such securities are generally issued by trusts and special purpose
corporations.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying mortgage-backed and
asset-backed securities can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Accordingly,
the market values of such securities will vary with changes in market interest
rates generally and in yield differentials among various kinds of U.S.
Government securities and other mortgage-backed and asset-backed securities.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities because asset-backed securities generally do not have
the benefit of a security interest in collateral that is comparable to mortgage
assets. In addition, there is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities. Many mortgage and asset-backed securities may be considered
derivative instruments. No Fund will invest 25% or more of its total assets in
collateralized mortgage obligations or in asset-backed securities (in each case,
excluding U.S. Government Securities).
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Options
Written Options. Smaller Companies Fund may write (sell) covered put and
call options on equity and fixed income securities and enter into related
closing transactions. The Fund may receive fees (referred to as "premiums") for
granting the rights evidenced by the options. However, in return for the premium
for a written call option, the Fund assumes certain risks. For example, in the
case of a written call option, the Fund forfeits the right to any appreciation
in the underlying security while the option is outstanding. A put option gives
to its purchaser the right to compel the Fund to purchase an underlying security
from the option holder at the specified price at any time during the option
period. In contrast, a call option written by the Fund gives to its purchaser
the right to compel the Fund to sell an underlying security to the option holder
at a specified price at any time during the option period. Upon the exercise of
a put option written by the Fund, the Fund may suffer a loss equal to the
difference between the price at which the Fund is required to purchase the
underlying security and its market value at the time of the option exercise,
less the premium received for writing the option. All options written by the
Fund are covered. In the case of a call option, this means that the Fund will
own the securities subject to the option or an offsetting call option as long as
the written option is outstanding, or will have the absolute and immediate right
to acquire other securities that are the same as those subject to the written
option. In the case of a put option, this means that the Fund will deposit cash
or high grade liquid debt obligations in a segregated account with the custodian
with a value at least equal to the exercise price of the put option.
Purchased Options. Smaller Companies Fund may also purchase put and call
options on securities. A put option entitles the Fund to sell, and a call option
entitles the Fund to buy, a specified security at a specified price during the
term of the option. The advantage to the purchaser of a call option is that it
may hedge against an increase in the price of portfolio securities it ultimately
wishes to buy. The advantage to the purchaser of a put option is that it may
hedge against a decrease in the price of portfolio securities it ultimately
wishes to sell.
Smaller Companies Fund may enter into closing transactions in order to offset
an open option position prior to exercise or expiration by selling an option it
has purchased or by entering into an offsetting option. If the Fund cannot
effect closing transactions, it may have to retain a security in its portfolio
it would otherwise sell, or deliver a security it would otherwise retain.
Smaller Companies Fund may purchase and sell options traded on U.S. exchanges
and, to the extent permitted by law, options traded over-the-counter. The Fund
will treat purchased over-the-counter options as illiquid. There can be no
assurance that a liquid secondary market will exist for any particular option.
Over-the-counter options also involve the risk that a counterparty will fail to
meet its obligation under the option.
Stock Index Options
Smaller Companies Fund may purchase and write exchange-listed put and call
options on stock indices to hedge against risks of market-wide price movements.
A stock index measures the movement of a certain group of stocks by assigning
relative values to the common stocks included in the index. Examples of well-
known stock indices are the Standard & Poor's Index of 500 Common Stocks and the
Wilshire 5000 Index. Options on stock indices are similar to options on
securities. However, because options on stock indices do not involve the
delivery of an underlying security, the option represents the holder's right to
obtain from
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the writer in cash a fixed multiple of the amount by which the exercise price
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the exercise date.
When the Fund writes an option on a stock index, it will cover the option by
depositing cash or high grade liquid debt obligations or a combination of both
in an amount equal to the market value of the option, in a segregated account,
which will be marked to market daily, with the Fund's custodian, and will
maintain the account while the option is open. Alternatively, and only in the
case of a written call option on a stock index, the Fund may cover the written
option by owning an offsetting call option.
Futures Contracts and Options on Futures Contracts
When deemed advisable by the Adviser, Smaller Companies Fund may enter into
futures contracts and purchase and write options on futures contracts to hedge
against changes in interest rates, securities prices or currency exchange rates
or for certain non-hedging purposes. The Fund may purchase and sell financial
futures contracts, including stock index futures, and purchase and write related
options. The Fund may engage in futures and related options transactions for
hedging and non-hedging purposes as defined in regulations of the Commodity
Futures Trading Commission. The Fund will not enter into futures contracts or
options thereon for non-hedging purposes, if immediately thereafter, the
aggregate initial margin and premiums required to establish non-hedging
positions in futures contracts and options on futures will exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. Transactions in futures
contracts and options on futures involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating the Fund to
purchase securities, require the Fund to segregate cash or high grade liquid
debt obligations with a value equal to the amount of the Fund's obligations.
Limitations and Risks Associated With Transactions In Options,
Futures Contracts and Options on Futures Contracts
Smaller Companies Fund's options and futures transactions involve (1)
liquidity risk that contractual positions cannot be easily closed out in the
event of market changes or generally in the absence of a liquid secondary
market, (2) correlation risk that changes in the value of hedging positions may
not match the securities market fluctuations intended to be hedged, and (3)
market risk that an incorrect prediction of securities prices by the Adviser may
cause the Fund to perform worse than if such positions had not been taken. The
ability to terminate over-the-counter options is more limited than with exchange
traded options and may involve the risk that the counterparty to the option will
not fulfill its obligations. In accordance with a position taken by the
Securities and Exchange Commission (the "Commission"), each Fund will limit its
investments in illiquid securities to 15% of the Fund's net assets. Smaller
Companies Fund will treat over-the-counter options and the assets used to cover
such options as illiquid securities subject to this limitation, except that,
with respect to options written with primary dealers in U.S. Government
securities pursuant to an agreement requiring a closing purchase transaction at
a formula price, the amount of the illiquid securities may be calculated with
reference to the formula price.
Options and futures transactions are highly specialized activities which
involve investment techniques and risks that are different from those associated
with ordinary portfolio transactions. Gains and losses on investments in options
and futures depend on the Adviser's ability to predict the direction of stock
prices
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and other economic factors. The loss that may be incurred by Smaller Companies
Fund in entering into futures contracts and written options thereon is
potentially unlimited. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times, render certain
facilities of an options clearing entity or other entity performing the
regulatory and liquidity functions of an options clearing entity inadequate, and
thereby result in the institution by an exchange of special procedures which may
interfere with the timely execution of customers' orders. Most futures exchanges
limit the amount of fluctuation permitted in a futures contract's prices during
a single trading day. Once the limit has been reached no further trades may be
made that day at a price beyond the limit. The price limit will not limit
potential losses, and may in fact prevent the prompt liquidation of futures
positions, ultimately resulting in further losses.
Except as set forth above under "Futures Contracts and Options on Futures
Contracts," there is no limit on the percentage of Smaller Companies Fund's
assets that may be at risk with respect to futures contracts and related
options. Smaller Companies Fund may not invest more than 25% of its total assets
in purchased protective put options nor more than 5% of its total assets in
purchased options other than protective put options. Smaller Companies Fund's
transactions in options, futures contracts and options on futures contracts may
be limited by the requirements for qualification of the Fund as a regulated
investment company for tax purposes. See "Taxes" in the Statement of Additional
Information. Options, futures contracts and options on futures contracts are
derivative instruments.
Small Capitalization Companies
The Smaller Companies Fund invests a significant portion of its assets in
smaller, lesser-known companies which the Adviser believes offer greater growth
potential than larger, more mature, better-known companies. Investing in the
securities of these companies, however, also involves greater risk and the
possibility of greater portfolio price volatility. Among the reasons for the
greater price volatility of these small companies and unseasoned stocks are the
less certain growth prospects of smaller firms, the lower degree of liquidity in
the markets for such stocks and the greater sensitivity of small companies to
changing economic conditions in their geographic region. For example, securities
of these companies involve higher investment risk than that normally associated
with larger firms due to the greater business risks of small size and limited
product lines, markets, distribution channels and financial and managerial
resources.
Convertible Securities and Preferred Stocks
Subject to its investment objectives and policies, Smaller Companies Fund may
invest in convertible securities, which are ordinarily preferred stock or
long-term debt obligations of an issuer convertible at a stated exchange rate
into common stock of the issuer. The market value of convertible securities
tends to decline as interest rates increase and, conversely, to increase as
interest rates decline. Convertible securities generally offer lower interest or
dividend yields than non-convertible securities of similar quality. However,
when the market price of the common stock underlying a convertible security
exceeds the conversion price, the price of the convertible security tends to
reflect the value of the underlying common stock. As the market price of the
underlying common stock declines, the convertible security tends to trade
increasingly on a yield basis, and thus may not depreciate to the same extent as
the underlying common stock. Convertible securities generally rank senior to
common stocks in an issuer's capital structure and are consequently of higher
quality and entail less risk than the issuer's common stock. However, the extent
to which such risk is reduced depends in large measure upon the degree to which
the convertible security sells above its value
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as a fixed income security. In evaluating a convertible security, the Adviser
will give primary emphasis to the attractiveness of the underlying common stock.
The convertible debt securities in which the Fund may invest are subject to the
same rating criteria and downgrade policy as the Fund's investments in fixed
income securities.
Diversification and Concentration of Investments
Each Fund is "diversified" under the 1940 Act and is also subject to issuer
diversification requirements imposed on regulated investment companies by
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). See
"Investment Restrictions" and "Taxes" in the Funds' Statement of Additional
Information. In addition, as a matter of fundamental policy, no Fund may invest
25% or more of its total assets in the securities of one or more issuers
conducting their principal business activities in the same industry (except U.S.
Government securities).
Currently, it is not anticipated that either Municipal Fund will invest 25%
or more of its total assets (at market value at the time of purchase) in: (a)
securities of one or more issuers conducting their principal activities in the
same state; or (b) securities the principal and interest of which is paid from
revenues of projects with similar characteristics, except that 25% or more of
either Municipal Fund's total assets may be invested in single family and
multi-family housing obligations. To the extent a Municipal Fund concentrates
its investments in single family and multi-family housing obligations, the Fund
will be subject to the peculiar risks associated with investments in such
obligations, including prepayment risks and the risks of default on housing
loans, which may be affected by economic conditions and other factors relating
to such obligations.
Additional Investment Techniques
When-Issued Securities and Forward Commitments. Each Fund may purchase
securities on a when-issued, delayed delivery or forward commitment basis. When
these transactions are negotiated, the price of the securities is fixed at the
time of the commitment, but delivery and payment may take place up to 90 days
after the date of the commitment to purchase for equity securities, and up to 45
days after such date for fixed income securities. When-issued securities or
forward commitments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. When a Fund purchases
securities on a forward commitment or when-issued basis, the Fund's custodian
will maintain in a segregated account cash or liquid high grade debt obligations
having a value (determined daily) at least equal to the amount of the Fund's
purchase commitment. Although each Fund will purchase securities on a when-
issued basis only with the intention of actually acquiring securities for its
portfolio, a Fund may dispose of a when-issued security prior to settlement if
the Adviser deems it appropriate to do so.
Repurchase Agreements. Each Fund may enter into repurchase agreements. In a
repurchase agreement, a Fund buys a security subject to the right and obligation
to sell it back to the other party at the same price plus accrued interest. The
Fund's custodian will hold the security as collateral for the repurchase
agreement. Collateral must be maintained at a value at least equal to 102% of
the repurchase price, but repurchase agreements involve some credit risk to a
Fund if the other party defaults on its obligation and the Fund is delayed in or
prevented from liquidating the collateral. A Fund will enter into repurchase
agreements only with financial institutions deemed to present minimal risk of
bankruptcy during the term of the agreement based on guidelines established and
periodically reviewed by the Trust's Board of Trustees.
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Illiquid Securities. Smaller Companies Fund, each Fixed Income Fund and the
Short-Term Municipal Bond Fund will not invest more than 15% of its net assets
in illiquid securities. Municipal Bond Fund will not invest more than 10% of its
total assets in illiquid securities. Illiquid securities include repurchase
agreements and fixed time deposits maturing in more than seven days and
securities that are not readily marketable.
Restricted Securities. Smaller Companies Fund and each Fixed Income Fund may
invest to a limited extent in restricted securities. Restricted securities are
securities that may not be sold freely to the public without prior registration
under federal securities laws or an exemption from registration. Restricted
securities will be considered illiquid unless they are restricted securities
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act of 1933 and the Board of Trustees determines that these
securities are liquid based upon a review of the trading markets for the
specific securities.
Warrants. Smaller Companies Fund may invest in warrants. Warrants generally
entitle the holder to buy a specified number of shares of common stock at a
specified price, which is often higher than the market price at the time of
issuance, for a period of years or in perpetuity. Warrants may be issued in
units with other securities or separately, and may be freely transferrable and
traded on exchanges. While the market value of a warrant tends to be more
volatile than that of the securities underlying the warrant, the market value of
a warrant may not necessarily change with that of the underlying security. A
warrant ceases to have value if it is not exercised prior to any expiration date
to which the warrant is subject.
Lending Securities. For the purpose of realizing income, the Morgan Grenfell
Short-Term Fixed Income Fund, the Morgan Grenfell Short-Term Municipal Bond Fund
and Smaller Companies Fund may lend to broker-dealers portfolio securities
amounting to not more than 33-1/3% of its total assets taken at current value.
These transactions must be fully collateralized by cash, cash equivalents or
U.S. Government securities at all times. They nevertheless involve some credit
risk to a Fund if the other party should default on its obligation and the Fund
is delayed in or prevented from recovering the collateral. Voting rights with
respect to a portfolio security pass to the borrower when the security is loaned
by a Fund, but the Adviser is required to call the loan if necessary to vote on
a material event affecting the Fund's investment in the loaned security.
Other Investment Companies. Each Fund may invest in the aggregate no more
than 10% of its total assets, calculated at the time of purchase, in the
securities of other investment companies. In addition, a Fund may not invest
more than 5% of its total assets in the securities of any one investment company
or acquire more than 3% of the voting securities of any other investment
company. A Fund will indirectly bear its proportionate share of any management
or other fees paid by investment companies in which it invests, in addition to
its own fees.
Temporary Defensive Investments. For temporary defensive purposes during
periods when the Adviser determines that conditions warrant, Smaller Companies
Fund and each Fixed Income Fund may invest up to 100% of its assets in cash and
money market instruments, including securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; certificates of deposit, time
deposits, and bankers' acceptances issued by banks or savings and loans
associations having net assets of at least $500 million as of the end of their
most recent fiscal year; commercial paper rated at the time of purchase at least
A-1 by Standard & Poor's or P-1 by Moody's, or unrated commercial paper
determined by the Adviser
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to be of comparable quality; repurchase agreements involving any of the
foregoing; and, to the extent permitted by applicable law, shares of other
investment companies investing solely in money market instruments. For a
description of the Municipal Funds' policy with respect to temporary defensive
investments, see "Investment Objectives and Policies--Municipal Bond Fund and
Short-Term Municipal Bond Fund."
ADDITIONAL INVESTMENT INFORMATION
Investment Restrictions
Each Fund has adopted certain fundamental investment restrictions which are
described in detail in the Statement of Additional Information. Those investment
restrictions designated as fundamental in the Statement of Additional
Information can be changed only with shareholder approval. Each Fund's
investment objective and all other investment restrictions and policies are
nonfundamental and can be changed by the Board of Trustees of the Trust at any
time without shareholder approval. Each Fund's shareholders will, however, be
given 30 days' advance written notice of any change in a Fund's investment
objective.
Each Fund has fundamental investment restrictions with respect to borrowing,
lending, diversification of investments, senior securities, pledging of assets,
underwriting, real estate investments and commodities. See "Investment
Restrictions" in the Statement of Additional Information.
Portfolio Transactions
The Adviser is responsible for making specific decisions to buy and sell
portfolio securities for the Funds. The Adviser is also responsible for
selecting brokers and dealers to effect these transactions and negotiating, if
possible, brokerage commissions and dealers' charges. Securities traded in the
over-the- counter markets and fixed income securities generally are traded on a
net basis with the dealers acting as principal for their own accounts without a
stated commission.
The primary consideration in selecting broker-dealers to execute portfolio
security transactions is the execution of such portfolio transactions at the
most favorable prices. Consideration may also be given to the broker-dealer's
sale of shares of the Funds. Subject to the most favorable price requirement and
the provisions of Section 28(e) of the Securities Exchange Act of 1934, as
amended, securities may be bought from or sold to broker-dealers who have
furnished statistical, research and other information or services to the
Adviser. Higher commissions may be paid to broker-dealers that provide research
services. See "Portfolio Transactions and Brokerage Commissions" in the
Statement of Additional Information for a more detailed discussion of portfolio
transactions. The Trustees will periodically review each Fund's portfolio
transactions.
Pursuant to procedures established by the Trustees, subject to applicable
regulations and consistent with the above policy of obtaining the most favorable
overall price, the Adviser may place securities transactions with SEI Financial
Services Company, the Funds' distributor (the "Distributor"), and brokers with
whom the Adviser or the Distributor is affiliated. No Fund will effect principal
transactions with an affiliated broker.
Portfolio Turnover
It is estimated that, under normal circumstances, the portfolio turnover rate
of Smaller Companies Fund will not exceed 150%. It is estimated that, under
normal circumstances, the portfolio turnover rate of each of the Fixed Income
Funds and the Municipal Funds will not exceed 175%. The higher portfolio
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turnover rates of the Fixed Income Funds and the Municipal Funds may result from
their respective portfolio management strategies. The Fixed Income Funds and the
Municipal Funds may sell securities held for a short time in order to take
advantage of what the Adviser believes to be temporary disparities in normal
yield relationships between securities. A high rate of portfolio turnover (i.e.,
100% or higher) will result in correspondingly higher transaction costs to a
Fund, particularly if the Fund's primary investments are equity securities. A
high rate of portfolio turnover will also increase the likelihood of short-term
gains (distributions of which are taxable to shareholders as ordinary income)
and, under some circumstances, make it more difficult for a Fund to qualify as a
regulated investment company under the Code (see "Portfolio Transactions" and
"Dividends, Distributions and Taxes"). See "Financial Highlights" for each
Fund's portfolio turnover for the fiscal period ended October 31, 1995.
MANAGEMENT OF THE FUNDS
The Board of Trustees of the Trust is responsible for the overall supervision
and management of the Funds. The day-to-day operations of the Funds, including
investment decisions, have been delegated to the Adviser. The Statement of
Additional Information contains general background information regarding each
Trustee and executive officer of the Trust.
The Adviser
MGCM, 885 Third Avenue, New York, New York, acts as investment adviser to
each Fund pursuant to the terms of two investment advisory contracts between the
Trust, on behalf of the Funds, and MGCM (the "Advisory Contracts"). MGCM is
registered as an investment adviser with the Commission and provides a full
range of investment advisory services to institutional clients. All of the
outstanding voting stock of MGCM is owned by Morgan Grenfell Asset Management,
Ltd. ("MGAM"), which is a wholly-owned subsidiary of Deutsche Morgan Grenfell
Group plc. Deutsche Morgan Grenfell Group plc is an indirect wholly- owned
subsidiary of Deutsche Bank AG, an international commercial and investment
banking group. As of December 31, 1995, MGCM managed approximately $8 billion in
assets.
Under its Advisory Contracts with the Trust, the Adviser manages each Fund's
business and investment affairs. For these services, the Adviser is entitled to
a monthly fee at an annual rate of each Fund's average daily net assets as
follows:
Annual Rate
------------
Morgan Grenfell Fixed Income Fund ............................ 0.40%
Morgan Grenfell Municipal Bond Fund .......................... 0.40%
Morgan Grenfell Short-Term Fixed Income Fund ................. 0.40%
Morgan Grenfell Short-Term Municipal Bond Fund ............... 0.40%
Morgan Grenfell Smaller Companies Fund ....................... 1.00%
The advisory fee to which the Advisor is entitled for Smaller Companies Fund
is higher than the fees paid by most funds but the Adviser believes it is
comparable to the fees paid by funds having similar investment objectives. As
described in "Expense Information," the Adviser has voluntarily agreed to reduce
its advisory fee and to make arrangements to limit certain other expenses to the
extent necessary to limit each Fund's operating expenses to a specified level.
For the fiscal period ended October 31, 1995, this voluntary agreement was in
effect for each Fund. During this period, Morgan Grenfell Fixed Income Fund,
Morgan
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Grenfell Municipal Bond Fund, Morgan Grenfell Short-Term Fixed Income Fund,
Morgan Grenfell Short-Term Municipal Bond Fund and Morgan Grenfell Smaller
Companies Fund paid advisory fees equal to 0.31%, 0.32%, 0.00%, 0.00%, and 0.00%
of their respective average daily net assets.
Each Fixed Income Fund and Municipal Fund is managed by David W. Baldt,
Executive Vice President and Fixed Income Manager of the Adviser. Mr. Baldt has
been in the investment advisory business since 1973 (with the Adviser since
1989) and has managed fixed income investments since 1973.
The Smaller Companies Fund is managed by Robert Kern, Executive Vice
President of the Adviser, and his team which includes two other experienced
portfolio managers, Audrey M.T. Jones and David A. Baratta. Mr. Kern has been in
the investment advisory business since 1965 (with the Adviser since 1986) and
has managed investments in small capitalization companies since 1970. Ms. Jones
has been employed by the Adviser as a portfolio manager since 1986. Prior to
joining the Adviser in 1993, Mr. Baratta worked as a portfolio manager for AIG
Global Investors and Shearson Lehman Asset Management.
The Trust, on behalf of each Fund, is responsible for all of the Fund's
expenses other than those expressly assumed by the Adviser under the terms of
the Advisory Contracts. The expenses borne by each Fund include the Fund's
advisory fee, transfer agent fee and taxes and its proportionate share of
custodian fees, expenses of issuing reports to shareholders, legal fees,
auditing and tax fees, blue sky fees, fees of the Commission, insurance expenses
and disinterested Trustees' fees. The Adviser has temporarily agreed, under
certain circumstances, to reduce or not impose its management fee as described
under "Expense Information." In the event that a Fund's expenses for any fiscal
year exceed the limits established by certain state securities administrators,
the Adviser will reduce its fee payable on behalf of such Fund by the amount of
such excess, but only to the extent of the Fund's advisory fee.
Administrator and Distributor
The Trust has entered into an Administration Agreement with SEI Financial
Management Corporation ("SEI Financial Management" or the "Administrator"), 680
East Swedesford Road, Wayne, Pennsylvania 19087-1658, pursuant to which SEI
Financial Management receives from all series of the Trust (i.e., the Funds and
all other active series of the Trust) an aggregate monthly fee at the following
annual rates of the aggregate average daily net assets ("aggregate assets") of
such series:
0.15% of aggregate assets under $300 million
0.12% of next $200 million of aggregate assets
0.10% of next $500 million of aggregate assets
0.08% ofaggregate assets exceeding $1 billion
Each Fund pays the Administrator a minimum annual fee of $50,000. For the
fiscal period ended October 31, 1995, the Administrator received fees from the
Fixed Income Fund, the Municipal Bond Fund, the Short- Term Fixed Income Fund,
the Short-Term Municipal Bond Fund and the Smaller Companies Fund equal to
0.12%, 0.12%, 0.93%, 0.64% and 0.49% of their respective average daily net
assets.
The Administrator generally assists in all matters relating to the
administration of the Funds, including the coordination and monitoring of any
third parties furnishing services to the Funds, the preparation and maintenance
of financial and accounting records, and the provision of the necessary office
space, equipment and personnel to perform administrative and clerical functions.
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SEI Financial Services Company (the "Distributor"), 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658, serves as the distributor of shares of the
Funds pursuant to a Distribution Agreement with the Trust and assists in the
sale of shares of the Funds.
Custodians and Transfer Agent
The Trust has entered into a Custodian Agreement with CoreStates Bank, N.A.
("CoreStates"), pursuant to which CoreStates serves as custodian of the assets
of Morgan Grenfell Fixed Income Fund and Morgan Grenfell Municipal Bond Fund.
The Trust has entered into a Custodian Agreement with The Northern Trust
Company ("Northern"), pursuant to which Northern serves as custodian of the
assets of Morgan Grenfell Smaller Companies Fund, Morgan Grenfell Short-Term
Fixed Income Fund and Morgan Grenfell Short-Term Municipal Bond Fund.
DST Systems, Inc. (the "Transfer Agent"), 210 W. 10th Street, Kansas City,
Missouri 64105, serves as the transfer agent of the Funds. The Transfer Agent
maintains the records of each record shareholder's account, processes purchases
and redemptions of the Funds' shares, acts as dividend and distribution
disbursing agent and performs other shareholder servicing functions.
Additional information regarding the services performed by the
Administrator, the Distributor, the Custodians and the Transfer Agent is
provided in the Statement of Additional Information.
PURCHASE OF SHARES
In order to make an initial investment in a Fund, an investor must
establish an account with a broker that maintains an account with the Trust for
its customers. Alternatively, an investor may request his or her broker to
establish an account for the investor directly with the Trust. Such investors
will need to complete the Account Application accompanying this prospectus and
submit it to their broker. The broker will be responsible for forwarding the
completed Account Application to the Trust.
Investors may be subject to minimums established by their brokers for
initial and subsequent investments in a Fund. In addition, investors who have
accounts directly with the Trust (as described above) will be subject to a
$250,000 minimum on initial investments. The Funds reserve the right to vary
this initial investment minimum and to establish their own minimums for
subsequent investments at any time. In addition, the Trust may waive the
$250,000 minimum initial investment requirement for any investor. Alternative
purchase, exchange and redemption procedures are available for investors who
invest $250,000 or more in a Fund. To obtain a prospectus describing these
procedures, an investor should call 1-800-550-6426.
Shares of any Fund may be purchased on any Business Day at the net asset
value next determined after receipt of the order in good order by the investor's
broker. A "Business Day" means any day on which the New York Stock Exchange (the
"NYSE") is open. An investor's broker must receive the investor's order before
the close of regular trading on the NYSE (currently 4:00 p.m., Eastern Time),
and must promptly forward such order to the Transfer Agent for the investor to
receive that day's net asset value. The investor's broker is responsible for
promptly forwarding the investor's purchase order to the Transfer Agent.
Shareholders will be entitled to dividends payable with respect to their shares
of a Fund if they are shareholders of the Fund on the record date for such
dividend.
There is no sales charge in connection with purchases of shares.
Shareholders may be subject to transaction and/or account maintenance fees
imposed by their broker (no part of which will be received by the
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Trust or the Adviser). Any such fees will be payable directly by the
shareholder, and not by the Fund. The Trust reserves the right, in its sole
discretion, to reject any purchase offer and to suspend the offering of shares.
The Trust does not issue share certificates.
Purchases of shares may be made by checks drawn on a U.S. bank and Federal
Reserve drafts. Such checks and drafts should be made payable to the broker that
the investor is using to purchase Fund shares, unless the investor has
established an account directly with the Trust. Such investors should make
checks and drafts payable to the Trust. An investor's broker is responsible for
forwarding payment promptly to the Trust.
Shareholders who have accounts directly with the Trust (as described above)
may also purchase Fund shares by sending Federal Funds wires for such purchases
to:
United Missouri Bank of Kansas City, N.A.
ABA No. 10-10-00695
For: Account
Number 98-7052-395-7
Further credit: (appropriate Fund name)
The shareholder's name and account number must be specified in the wire. In
addition, before making an initial investment by wire, an investor must first
telephone 1-800-550-6426 to be assigned a wire account number. If the investor
has not yet completed and submitted an Account Application, then the investor's
address and social security number or other taxpayer identification number must
also be specified in the wire. Investors should be aware that some banks may
charge wire fees.
An investor may make subsequent investments in an existing account in any
Fund at any time by making payment (as described above) and sending to its
broker, (i) a subsequent order form which may be obtained from the broker, or
(ii) a letter stating the amount of the investment, the name of the Fund and the
investor's account number. Investors should indicate the name of the appropriate
Fund and account number on all correspondence.
Reports to Shareholders and Confirmations
Shareholders of each Fund receive an annual report containing audited
financial statements and a semiannual report. All transactions in shares of a
Fund and dividends and distributions paid by a Fund are reflected in
confirmations issued by the shareholder's broker or the Transfer Agent at the
time of the transaction and/or in monthly statements issued by the shareholder's
broker or the Transfer Agent. A year-to-date statement will be provided by the
shareholder's broker or the Transfer Agent. Shareholders should contact their
brokers with shareholder account inquiries and for other information regarding
the Funds. Shareholders who have established accounts directly with the Trust
may also obtain this information by calling Morgan Grenfell Investment Trust at
1-800-550-6426 or by writing to Morgan Grenfell Investment Trust at P.O. Box
419165, Kansas City, MO 64141-6165.
Exchange Privilege
A shareholder may exchange shares of a Fund for shares of another Fund or
shares of an International Fund. The shareholder's broker must receive the
shareholder's exchange request in proper form before the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern Time) and must promptly
forward the
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request to the Transfer Agent for the exchange to be valued at that day's net
asset value. The shareholder's broker is responsible for promptly forwarding an
exchange request to the Transfer Agent. Brokers may impose minimums on exchanges
of Fund shares. In addition, any shareholder that has established an account
directly with the Trust may exchange shares only in amounts of at least $5,000.
Shareholders should contact their brokers to determine if alternative exchange
procedures are available. A shareholder should obtain and read the prospectus
relating to the International Funds and consider the investment objective,
policies and fees of the appropriate International Fund before making an
exchange into an International Fund. Exchanges will be permitted only in those
states in which the relevant fund is available for sale. In addition, the Funds
reserve the right to refuse any exchange request made by a shareholder.
Shareholders who establish an account directly with the Trust may elect the
telephone exchange privilege on the Account Application. A shareholder will be
able to effect the exchange of shares in his or her account in one Fund for
shares in any other Fund or International Fund by telephone, as long as all
accounts are identically registered. A shareholder can exchange shares by
telephone by calling 1-800-550-6426 before 4:00 p.m., Eastern time, on any
Business Day. Neither the Funds nor their agents will be liable for any loss
incurred by a shareholder as a result of following instructions communicated by
telephone that they reasonably believe to be genuine. To confirm that telephone
exchange requests are genuine, the Funds will employ reasonable procedures such
as providing written confirmation of telephone exchange transactions and tape
recording of telephone exchange requests. If a Fund does not employ such
reasonable procedures, it may be liable for any loss incurred by a shareholder
due to a fraudulent or other unauthorized telephone exchange request.
An exchange is treated as a sale of the shares exchanged and, therefore, may
produce a gain or loss to the shareholder that is recognizable for tax purposes.
Investors will receive 60 days written notice prior to any change in a Fund's
exchange procedures.
REDEMPTION OF SHARES
How To Redeem
A shareholder may redeem shares of a Fund without charge upon request on any
Business Day at the net asset value next determined after receipt of the
redemption request by the shareholder's broker. A shareholder's broker must
receive a redemption request in proper form before the close of regular trading
on the NYSE (currently 4:00 p.m., Eastern Time) and must promptly forward such
request to the Transfer Agent for the shareholder to receive that day's net
asset value. The shareholder's broker is responsible for promptly forwarding the
shareholder's redemption request to the Transfer Agent. Shares subject to a
redemption request will earn any dividends for which the record date is the day
the request is received.
A written redemption request must specify the number of shares to be
redeemed, the Fund from which shares are being redeemed, the investor's account
number, payment instructions and the exact registration on the investor's
account. Signatures must be guaranteed in accordance with the procedures set
forth below under "Payment of Redemption Proceeds." A shareholder who has
established an account directly with the Trust may request redemptions by
telephone if the optional telephone redemption privilege is elected on the
Account Application. In order to verify the authenticity of telephone redemption
requests, the Transfer Agent's telephone representatives will request that the
caller provide certain information unique to the account. If the caller is
unable to provide this information, telephone redemption requests will not be
pro-
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cessed and the redemption will have to be completed by mail. As long as the
Transfer Agent's telephone representatives comply with the procedures described
above, neither the Funds nor their agents will be liable for any losses due to
fraudulent or unauthorized transactions. Finally, it may be difficult to
implement telephone redemptions in times of drastic economic or market changes.
Payment of Redemption Proceeds
Redemption proceeds ordinarily will be wired to the redeeming shareholder's
broker or, in the case of a shareholder who has established an account directly
with the Trust, to the bank account designated on the Account Application,
unless payment by check has been requested. For a redemption request received by
the redeeming shareholder's broker before the close of regular trading on the
NYSE (currently 4:00 p.m., Eastern Time) and promptly forwarded to the Transfer
Agent, redemption proceeds ordinarily will be wired the next Business Day.
Normally, redemption proceeds will be wired within seven days after the Transfer
Agent receives the appropriate redemption request documents from the redeeming
investor's broker, including any additional documentation that may be required
in order to establish that a redemption request has been properly authorized. In
addition, the payment of redemption proceeds for shares of a Fund recently
purchased by check will be delayed for up to 15 days until the check has
cleared. After a wire has been initiated by the Transfer Agent, neither the
Transfer Agent nor the Trust assumes any further responsibility for the
performance of intermediaries or the shareholder's bank in the transfer process.
If a problem with such performance arises, the shareholder or his or her broker
should deal directly with such intermediaries or bank.
Shareholders who have accounts directly with the Trust may request that the
Trust make redemption payments by Federal Reserve Wire or Automated Clearing
House (ACH) wire. The Custodian may deduct a wire charge (currently $10.00) from
redemption payments made by Federal Reserve wire. Shareholders cannot redeem
shares of any Fund by Federal Reserve wire on Federal holidays restricting wire
transfers. There is no charge for ACH wire transactions; however, such
transactions will not be posted to a shareholder's bank account until the second
Business Day following the transaction.
A shareholder who has an account directly with the Trust may change the bank
designated to receive redemption proceeds by providing written notice to its
broker which has been signed by the shareholder or its authorized
representative. This signature must be guaranteed by a bank, a securities broker
or dealer, a credit union having authority to issue signature guarantees, a
savings and loan association, a building and loan association, a cooperative
bank, a federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that such
institution satisfies standards established by the Transfer Agent. A
shareholder's broker will be responsible for forwarding such a notice promptly
to the Transfer Agent. The Transfer Agent may also require additional
documentation in connection with a request to change a designated bank.
If the Board of Trustees determines that it is appropriate in order to
protect the best interests of a Fund and its shareholders, the Fund, under the
limited circumstances described below, may satisfy all or part of a redemption
request by delivering portfolio securities to a redeeming investor. However, the
Trust, on behalf of each Fund, has elected, pursuant to Rule 18f-1 under the
1940 Act, to redeem its shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. Only redemptions in excess of this limit may be paid in kind.
In-kind payments
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would not have to constitute a cross-section of a Fund's portfolio. Investors
receiving redemption payment in portfolio securities will not have eliminated
their investment exposure by their redemption as would investors receiving their
redemption payment in cash. Instead these investors will be subject to risks
inherent in owning such securities, including market value and currency
fluctuations, difficulties in selling securities in particular markets and
repatriating the sales proceeds, and the political and other risks described
under "Description of Securities and Investment Techniques and Related
Risks--Foreign Securities." In addition, a shareholder generally will incur
additional expenses, such as brokerage commissions and currency conversion fees
or expenses, on the sale or other disposition of securities received from a
Fund. Any portfolio securities paid or distributed to a redeeming shareholder
would be valued as described under "Net Asset Value."
NET ASSET VALUE
The net asset value per share of each Fund is normally calculated as of the
close of regular trading on the NYSE, currently 4:00 p.m. Eastern time, on each
Business Day. The net asset value of each Fund's shares is determined by adding
the value of all securities, cash and other assets of the Fund, subtracting
liabilities (including accrued expenses and dividends payable) and dividing the
result by the total number of outstanding shares of the Fund.
For purposes of calculating each Fund's net asset value per share, equity
securities traded on a recognized securities exchange are valued at their last
sale price on the principal exchange on which they are traded on the valuation
day or, if no sale occurs, at the bid price. Unlisted equity securities for
which current market quotations are readily available are valued at their most
recent bid price. Debt securities and other fixed-income investments owned by
the Funds are valued at prices supplied by independent pricing agents, which
prices reflect broker-dealer supplied valuations and electronic data processing
techniques. Short-term obligations maturing in sixty days or less may be valued
at amortized cost, which does not take into account unrealized gains or losses
on portfolio securities. Amortized cost valuation involves initially valuing a
security at its cost, and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the security's market value. While this method provides
certainty in valuation, it may result in periods in which the value of the
security, as determined by the amortized cost method, may be higher or lower
than the price a Fund would receive if the Fund sold the security. Other assets
and assets whose market value does not, in the opinion of the Adviser, reflect
fair value are valued at fair value using methods determined in good faith by
the Board of Trustees.
Certain portfolio securities held by Smaller Companies Fund and the Fixed
Income Funds may be listed on foreign exchanges which trade on days when the
NYSE is closed. As a result, the net asset value of each such Fund may be
significantly affected by such trading on days when shareholders have no ability
to redeem shares of the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Smaller Companies Fund declares and pays dividends from net investment
income, if any, and distributes net short-term capital gain, if any, at least
annually. Each Fixed Income Fund and each Municipal Fund distributes
substantially all of its net investment income in the form of dividends declared
daily and paid monthly. Each Fund also distributes at least annually
substantially all of the realized net long-term
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capital gain, if any, which it realizes for each taxable year and may make
distributions at any other times when necessary to satisfy applicable tax
requirements. Capital losses, including any capital loss carryovers from prior
years, are taken into account in determining the amounts of short-term and
long-term capital gains to be distributed.
From time to time, a portion of a Fund's distributions may constitute a
return of capital for tax purposes. Dividends and distributions are made in
additional shares of the same Fund or, at a record shareholder's election, in
cash. A record shareholder's election to reinvest dividends and distributions or
receive them in cash may be changed at any time upon written notice to the
Transfer Agent. If no election is made, all dividends and capital gain
distributions will be reinvested.
Taxes
Each Fund is treated as a separate entity for federal income tax purposes and
has elected to be treated as a regulated investment company under Subchapter M
of the Code. Each Fund intends to qualify for such treatment for each taxable
year. To qualify as a regulated investment company, each Fund must satisfy
certain requirements relating to the sources of its income, diversification of
its assets and distribution of its income to shareholders. As a regulated
investment company, a Fund will not be subject to federal income or excise tax
on any net investment income or net realized capital gain that is distributed to
its shareholders in accordance with certain timing requirements of the Code.
Dividends paid by a Fund from its net investment income (except for
tax-exempt interest earned by the Municipal Funds), certain net realized foreign
exchange gains, the excess of net short-term capital gain over net long-term
capital loss and original issue discount (except for such discount on the
Municipal Funds' tax-exempt obligations) or market discount income will be
taxable to shareholders as ordinary income. Dividends paid by a Fund from any
excess of net long-term capital gain over net short-term capital loss will be
taxable to a shareholder as long-term capital gain regardless of how long the
shareholder has held its shares. These tax consequences will apply regardless of
whether distributions are received in cash or reinvested in shares. A portion of
the dividends paid to corporate shareholders by Smaller Companies Fund from
dividends it receives from U.S. domestic corporations may qualify for the
dividends-received deduction for corporate shareholders, subject to holding
period requirements and debt-financing limitations under the Code. Certain
distributions declared in October, November or December and paid in January of
the following year are taxable to shareholders as if received on December 31 of
the year in which they are declared. Shareholders will be informed annually
about the amount and character of distributions received from a Fund for federal
income tax purposes.
Each Municipal Fund intends to satisfy certain requirements of the Code so
that it may distribute the tax-exempt interest it receives as "exempt-interest
dividends," as defined in the Code. Distributions of a Municipal Fund that are
attributable to interest on tax-exempt obligations and that the Municipal Fund
designates as exempt-interest dividends will be excluded from gross income for
federal income tax purposes, although all or a portion of such a distribution
may increase a shareholder's liability (if any) for the federal alternative
minimum tax and the entire distribution may be includable in the tax base for
determining taxability of social security or railroad retirement benefits.
Distributions by a Municipal Fund from sources other than tax-exempt interest
will generally be taxable as described in the preceding paragraph. Persons who
are "substantial users" (or related persons to such substantial users) of
facilities financed by industrial devel-
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opment or certain private activity bonds should consult their own tax advisers
before purchasing shares of a Municipal Fund. Interest on indebtedness incurred
or continued to purchase or carry shares of a Municipal Fund is not deductible
to the extent attributable to such Fund's distributions that are exempt-interest
dividends.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on dividends (other than
exempt-interest dividends), redemptions and exchanges if they fail to furnish
their correct taxpayer identification number and certain certifications or if
they are otherwise subject to back-up withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to non-resident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts
treated as ordinary dividends from a Fund and, unless a current IRS Form W-8 or
acceptable substitute is on file, to back-up withholding on certain other
payments from a Fund.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the record
date for a distribution will pay a per share price that includes the value of
the anticipated distribution and will be taxed on any taxable distribution even
though the distribution represents a return of a portion of the purchase price.
Redemptions and exchanges of shares are taxable events on which a shareholder
may recognize a gain or loss.
In addition to federal taxes, a shareholder may be subject to state, local or
foreign taxes on dividends, capital gain distributions, or the proceeds of
redemptions or exchanges. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent a Fund's
distributions are derived from interest on (or, in the case of intangibles
taxes, the value of its assets is attributable to) certain U.S. Government
obligations and/or municipal obligations of certain issuers located in the state
or locality imposing the applicable taxes. In some states, such an exemption may
be available only if certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Funds may not satisfy such
requirements in some states or localities. Shareholders should consult their tax
advisors regarding specific questions about federal, state, local or foreign
taxes and special rules that may be applicable to certain classes of investors,
such as retirement plans, financial institutions, tax-exempt entities, insurance
companies and non-U.S. persons.
ORGANIZATION AND SHARES OF THE TRUST
The Trust was formed as a business trust under the laws of the State of
Delaware on September 13, 1993, and commenced investment operations on January
3, 1994. The Board of Trustees of the Trust is responsible for the overall
management and supervision of the affairs of the Trust. The Declaration of Trust
authorizes the Board of Trustees to create separate investment series or
portfolios of shares. As of the date hereof, the Trustees have established the
Funds described in this Prospectus and twelve additional series. Until December
28, 1994, the Fixed Income Fund and the Municipal Bond Fund were series of The
Advisors' Inner Circle Fund, a business trust organized under the laws of The
Commonwealth of Massachusetts on July 18, 1991. The Declaration of Trust further
authorizes the Trust to classify or reclassify any series or portfolio of shares
into one or more classes.
Each share of a Fund represents an equal proportionate interest in the assets
belonging to that Fund. When issued, shares of the Funds are fully paid and
nonassessable. In the event of liquidation, shareholders
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are entitled to share pro rata in the net assets of the applicable Fund
available for distribution to shareholders. Shares of the Funds entitle their
holders to one vote per share, are freely transferable and have no preemptive,
subscription or conversion rights.
Shares of a Fund will be voted separately with respect to matters pertaining
to that Fund except for the election of Trustees and the ratification of
independent accountants. For example, shareholders of each Fund are required to
approve the adoption of any investment advisory agreement relating to such Fund
and any change in the fundamental investment restrictions of such Fund. Approval
by the shareholders of one Fund is effective only as to that Fund. The Trust
does not intend to hold shareholder meetings, except as may be required by the
1940 Act. The Trust's Declaration of Trust provides that special meetings of
shareholders shall be called for any purpose, including the removal of a
Trustee, upon written request of shareholders entitled to vote at least 10% of
the outstanding shares of the Trust, or Fund, as the case may be. In addition,
if ten or more shareholders of record who have held shares for at least six
months and who hold in the aggregate either shares having a net asset value of
$25,000 or 1% of the outstanding shares, whichever is less, seek to call a
meeting for the purpose of removing a Trustee, the Trust has agreed to provide
certain information to such shareholders and generally to assist their efforts.
Certain of the Trustees and officers of the Trust reside outside the United
States, and substantially all the assets of these persons are located outside
the United States. It may not be possible, therefore, for investors to effect
service of process within the United States upon these persons or to enforce
against them, in United States courts or foreign courts, judgments obtained in
United States courts predicated upon the civil liability provisions of the
federal securities laws of the United States or the laws of the State of
Delaware. In addition, it is not certain that a foreign court would enforce, in
original actions or in actions to enforce judgments obtained in the United
States, liabilities against these Trustees and officers predicated solely upon
the federal securities laws. See "Trustees and Officers" in the Statement of
Additional Information.
As of April 25, 1996, the Adviser owned 87.85% of the outstanding shares of
the Smaller Companies Fund.
PERFORMANCE INFORMATION
From time to time, performance information, such as total return and yield
for a Fund, may be quoted in advertisements or in communications to
shareholders. A Fund's total return may be calculated on an annualized and
aggregate basis for various periods (which periods will be stated in the
advertisement). Average annual return reflects the average percentage change per
year in value of an investment in a Fund. Aggregate total return reflects the
total percentage change over the stated period. In calculating total return,
dividends and capital gain distributions made by the Fund during the period are
assumed to be reinvested in the Fund's shares. A Fund's yield reflects a Fund's
overall rate of income on portfolio investments as a percentage of the share
price. Yield is computed by annualizing the result of dividing the net
investment income per share over a 30-day period by the net asset value per
share on the last day of that period.
For the Municipal Funds, tax-equivalent yield may also be quoted.
Tax-equivalent yield is calculated by determining the rate of return that would
have to be achieved on a fully taxable investment to produce the after tax
equivalent of a Municipal Fund's yield, assuming certain tax brackets for a
shareholder.
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To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding the Fund may discuss
performance as reported by various financial publications. The performance of a
Fund may be compared in publications to the performance of various indices and
investments for which reliable performance data is available. In addition, the
performance of a Fund may be compared in publications to averages, performance
rankings or other information prepared by recognized mutual fund statistical
services.
Performance quotations of a Fund represent the Fund's past performance and,
consequently, should not be considered representative of the future performance
of the Fund. The value of Fund shares, when redeemed, may be more or less than
the original cost. Any fees charged by banks or other institutional investors
directly to their customer accounts in connection with investments in shares of
a Fund are not at the direction or within the control of the Funds and will not
be included in the Funds' calculations of total return.
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APPENDIX A
Tax Certification Instructions
Federal law requires that taxable distributions and proceeds of redemptions
and exchanges be reported to the IRS and that 31% be withheld if you fail to
provide your correct Taxpayer Identification Number (TIN) and the certifications
in Section H or you are otherwise subject to backup withholding. Amounts
withheld and forwarded to the IRS can be credited as a payment of tax when
completing your Federal income tax return.
For most individual taxpayers, the TIN is the social security number. Special
rules apply for certain accounts. For example, for an account established under
the Uniform Gift to Minor's Act, the TIN of the minor should be furnished. If
you do not have a TIN, you may apply for one using forms available at local
offices of the Social Security Administration or the IRS.
Recipients exempt from backup withholding, including corporations and certain
other entities, should provide their TIN and write "exempt" after their
signature in section H of the application to avoid possible erroneous
withholding. Non-resident aliens and foreign entities may be subject to
withholding of up to 30% on certain distributions received from the Funds and
must provide certain certifications on IRS Form W-8 to avoid backup withholding
with respect to other payments. For further information, see Internal Revenue
Code Sections 1441, and 1442 and 3406 and/or consult your tax adviser.
A-1
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Morgan Grenfell Investment Trust
885 Third Avenue
New York, New York 10022
Investment Adviser
Morgan Grenfell Capital Management, Inc.
885 Third Avenue
New York, New York 10022
Administrator and Shareholder Servicing Agent
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
Distributor
SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
Custodians
The Northern Trust Company
Fifty South LaSalle Street
Chicago, Illinois 60675
CoreStates Bank, N.A.
P.O. Box 7618 Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
Transfer Agent
DST Systems, Inc.
SEI Division CT-7 Tower
210 W. 10th Street
Kansas City, Missouri 64105
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Legal Counsel
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Service Information
Existing accounts, new accounts, prospectuses,
statements of additional information,
applications, and service forms--1-800-550-6426
Telephone Exchanges--1-800-550-6426
Share Price and Performance
Information--1-800-550-6426
MIT-005-03
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
885 Third Avenue
New York, New York 10022
STATEMENT OF ADDITIONAL INFORMATION
February 14, as revised May 10, 1996
Morgan Grenfell Investment Trust (the "Trust") is an open-end, management
investment company consisting of seventeen investment portfolios, each having
separate and distinct investment objectives and policies. This Statement of
Additional Information provides supplementary information pertaining to the
following investment portfolios of the Trust (each, a "Fund"):
(bullet) Morgan Grenfell Fixed Income Fund
(bullet) Morgan Grenfell Municipal Bond Fund
(bullet) Morgan Grenfell Short-Term Fixed Income Fund
(bullet) Morgan Grenfell Short-Term Municipal Bond Fund
(bullet) Morgan Grenfell Smaller Companies Fund
This Statement of Additional Information is not a prospectus, and should be
read only in conjunction with the Funds' Prospectus dated February 14, as
revised May 10, 1996, as amended or supplemented from time to time (the
"Prospectus"). A copy of the Prospectus may be obtained without charge from an
investor's broker or SEI Financial Services Company, the Trust's Distributor, by
calling 1-800-550-6426 or writing to 680 East Swedesford Road, Wayne,
Pennsylvania 19087-1658.
<PAGE>
TABLE OF CONTENTS
Page
----
Introduction ............................................................ 3
Additional Information on Fund Investments
and Strategies and Related Risks ...................................... 4
Investment Restrictions ................................................. 22
Trustees and Officers ................................................... 27
Investment Advisory and Other Services .................................. 29
Portfolio Transactions .................................................. 33
Net Asset Value ......................................................... 35
Performance Information ................................................. 36
Taxes ................................................................... 38
General Information About the Trust ..................................... 45
Additional Information .................................................. 48
Financial Statements .................................................... 48
Appendix A--Description of Ratings ...................................... A-1
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectus in connection with the offering made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Trust or its Distributor. The Prospectus does not
constitute an offering by the Trust or by the Distributor in any jurisdiction in
which such offering may not lawfully be made. Shares of the Funds are not
available in certain states. Please call 1-800-550-6426 to determine
availability in your state.
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INTRODUCTION
The Trust is an open-end, management investment company that currently
consists of seventeen separate investment portfolios. This Statement of
Additional Information relates to the following five separate investment
portfolios of the Trust (the "Funds"):
Morgan Grenfell Smaller Companies Fund
Morgan Grenfell Fixed Income Fund
Morgan Grenfell Short-Term Fixed Income Fund
(collectively, the Fixed Income Funds")
Morgan Grenfell Municipal Bond Fund
Morgan Grenfell Short-Term Municipal Bond Fund
(collectively, the "Municipal Funds")
The Funds are classified as "diversified" within the meaning of the
Investment Company Act of 1940 (the "1940 Act").
Morgan Grenfell Capital Management, Inc. (the "Adviser" or "MGCM") serves as
investment adviser to the Funds. SEI Financial Services Company (the
"Distributor") serves as the Funds' principal underwriter and distributor. SEI
Financial Management Corporation serves as the Funds' administrator.
The information contained in this Statement of Additional Information
generally supplements the information contained in the Prospectus. No investor
should invest in a Fund without first reading the Prospectus. Capitalized terms
used herein and not otherwise defined have the same meaning ascribed to them in
the Prospectus.
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ADDITIONAL INFORMATION ON FUND INVESTMENTS
AND STRATEGIES AND RELATED RISKS
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of each Fund.
Fixed Income Securities
Variable and Floating Rate Instruments. Debt instruments purchased by a Fund
may be structured to have variable or floating interest rates. These instruments
may include variable amount master demand notes that permit the indebtedness to
vary in addition to providing for periodic adjustments in the interest rates.
The Adviser will consider the earning power, cash flows and other liquidity
ratios of the issuers and guarantors of such instruments and, if the instrument
is subject to a demand feature, will continuously monitor their financial
ability to meet payment on demand. Where necessary to ensure that a variable or
floating rate instrument is equivalent to the quality standards applicable to a
Fund's fixed income investments, the issuer's obligation to pay the principal of
the instrument will be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend. Any bank providing such a bank letter, line of
credit, guarantee or loan commitment will meet the Fund's investment quality
standards relating to investments in bank obligations. A Fund will invest in
variable and floating rate instruments only when the Adviser deems the
investment to involve minimal credit risk. The Adviser will also continuously
monitor the creditworthiness of issuers of such instruments to determine whether
a Fund should continue to hold the investments.
The absence of an active secondary market for certain variable and floating
rate notes could make it difficult to dispose of the instruments, and a Fund
could suffer a loss if the issuer defaults or during periods in which a Fund is
not entitled to exercise its demand rights.
Variable and floating rate instruments held by a Fund will be subject to the
Fund's limitation on investments in illiquid securities when a reliable trading
market for the instruments does not exist and the Fund may not demand payment of
the principal amount of such instruments within seven days.
Yields and Ratings. The yields on certain obligations, including the money
market instruments in which each Fund may invest (such as commercial paper and
bank obligations), are dependent on a variety of factors, including general
money market conditions, conditions in the particular market for the obligation,
the financial condition of the issuer, the size of the offering, the maturity of
the obligation and the ratings of the issue. The ratings of Standard and Poors
Ratings Group ("Standard & Poor's"), Moody's Investor Service, Inc. ("Moody's")
and other recognized rating organizations represent their respective opinions as
to the quality of the obligations they undertake to rate. Ratings, however, are
general and are not absolute standards of quality or value. Consequently,
obligations with the same rating, maturity and interest rate may have different
market prices. See Appendix A for a description of the ratings provided by
Standard & Poor's, Moody's and certain other recognized rating organizations.
Subsequent to its purchase by a Fund, a rated security may cease to be rated
or its rating may be reduced below the minimum rating required for purchase by
the Fund. The Board of Trustees or the Adviser, pursuant to guidelines
established by the Board of Trustees, will consider such an event in determining
whether the Fund should continue to hold the security in accordance with the
interests of the Fund and applicable regulations of the Securities and Exchange
Commission (the "Commission"). In no event, however, will a Fund hold more than
5% of its net assets in fixed income securities that are not investment grade.
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Custodial Receipts. Each of the Fixed Income Funds may acquire U.S.
Government Securities and their unmatured interest coupons that have been
separated ("stripped") by their holder, typically a custodian bank or investment
brokerage firm. Having separated the interest coupons from the underlying
principal of the U.S. Government Securities, the holder will resell the stripped
securities in custodial receipt programs with a number of different names,
including "Treasury Income Growth Receipts" ("TIGRs") and "Certificate of
Accrual on Treasury Securities" ("CATS"). The stripped coupons are sold
separately from the underlying principal, which is usually sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. The underlying U.S. Treasury bonds and notes themselves are
generally held in book-entry form at a Federal Reserve Bank. Counsel to the
underwriters of these certificates or other evidences of ownership of U.S.
Treasury securities have stated that, in their opinion, purchasers of the
stripped securities most likely will be deemed the beneficial holders of the
underlying U.S. Government Securities for federal tax and securities purposes.
In the case of CATS and TIGRS, the Internal Revenue Service ( the "IRS") has
reached this conclusion for the purpose of applying the tax diversification
requirements applicable to regulated investment companies such as the Funds.
CATS and TIGRS are not considered U.S. Government Securities by the staff of the
Commission. Further, the IRS conclusion noted above is contained only in a
general counsel memorandum, which is an internal document of no precedential
value or binding effect, and a private letter ruling, which also may not be
relied upon by the Funds. The Trust is not aware of any binding legislative,
judicial or administrative authority on this issue.
Preferred Stock
Subject to its investment objectives, Smaller Companies Fund may purchase
preferred stock. Preferred stocks are equity securities, but possess certain
attributes of debt securities and are generally considered fixed income
securities. Holders of preferred stocks normally have the right to receive
dividends at a fixed rate when and as declared by the issuer's board of
directors, but do not participate in other amounts available for distribution by
the issuing corporation. Dividends on the preferred stock may be cumulative, and
in such cases all cumulative dividends usually must be paid prior to dividend
payments to common stockholders. Because of this preference, preferred stocks
generally entail less risk than common stocks. Upon liquidation, preferred
stocks are entitled to a specified liquidation preference, which is generally
the same as the par or stated value, and are senior in right of payment to
common stocks. However, preferred stocks are equity securities in that they do
not represent a liability of the issuer and therefore do not offer as great a
degree of protection of capital or assurance of continued income as investments
in corporate debt securities. In addition, preferred stocks are subordinated in
right of payment to all debt obligations and creditors of the issuer, and
convertible preferred stocks may be subordinated to other preferred stock of the
same issuer. See "Convertible Securities and Preferred Stocks" in the Prospectus
for a description of certain characteristics of convertible preferred stock.
Warrants
As stated in the Prospectus, Smaller Companies Fund may purchase warrants,
which are privileges issued by corporations enabling the owners to subscribe to
and purchase a specified number of shares of the corporation at a specified
price during a specified period of time. The purchase of warrants involves a
risk that the Fund could lose the purchase value of a warrant if the right to
subscribe to additional shares is not exercised prior to the warrant's
expiration. Also, the purchase of warrants involves the risk that the
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<PAGE>
effective price paid for the warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.
Smaller Companies Fund will not invest more than 5% of its net assets, taken at
market value, in warrants, or more than 2% of its net assets, taken at market
value, in warrants not listed on a recognized securities exchange. Warrants
acquired by the Fund in units or attached to other securities shall not be
included in determining compliance with these percentage limitations. See
"Investment Restrictions."
Municipal Securities
As stated in the Prospectus, the Municipal Funds and, to a more limited
extent, the Fixed Income Funds may invest in municipal securities. Municipal
securities consist of bonds, notes and other instruments issued by or on behalf
of states, territories and possessions of the United States (including the
District of Columbia) and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from regular federal income
tax (i.e., excluded from gross income for federal income tax purposes but not
necessarily exempt from the federal alternative minimum tax or from state and
local taxes). Municipal securities may also be issued on a taxable basis (i.e.,
the interest on such securities is not exempt from regular federal income tax).
Municipal securities are often issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as bridges, highways, housing, hospitals, mass transportation, schools, streets
and water and sewer works. Other public purposes for which municipal securities
may be issued include refunding outstanding obligations, obtaining funds for
general operating expenses, and obtaining funds to lend to other public
institutions and facilities. Municipal securities also include "private
activity" or industrial development bonds, which are issued by or on behalf of
public authorities to provide financing aid to acquire sites or construct or
equip facilities within a municipality for privately or publicly owned
corporations.
The two principal classifications of municipal securities are "general
obligations" and "revenue obligations." General obligations are secured by the
issuer's pledge of its full faith and credit for the payment of principal and
interest although the characteristics and enforcement of general obligations may
vary according to the law applicable to the particular issuer. Revenue
obligations, which include, but are not limited to, private activity bonds,
resource recovery bonds, certificates of participation and certain municipal
notes, are not backed by the credit and taxing authority of the issuer and are
payable solely from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Nevertheless, the obligations of the issuer may also be
backed by a letter of credit, guarantee or insurance. General obligations and
revenue obligations may be issued in a variety of forms, including commercial
paper, fixed, variable and floating rate securities, tender option bonds,
auction rate bonds and capital appreciation bonds.
In addition to general obligations and revenue obligations, there is a
variety of hybrid and special types of municipal securities. There are also
numerous differences in the credit backing of municipal securities both within
and between these two principal classifications.
For the purpose of applying a Fund's investment restrictions, the
identification of the issuer of a municipal security which is not a general
obligation is made by the Adviser based on the characteristics of the municipal
security, the most important of which is the source of funds for the payment of
principal and interest on such securities.
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An entire issue of municipal securities may be purchased by one or a small
number of institutional investors such as a Fund. Thus, the issue may not be
said to be publicly offered. Unlike some securities that are not publicly
offered, a secondary market exists for many municipal securities that were not
publicly offered initially and such securities can be readily marketable.
The obligations of an issuer to pay the principal of and interest on a
municipal security are subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act, and laws, if any, that may be enacted by Congress or state
legislatures extending the time for payment of principal or interest or imposing
other constraints upon the enforcement of such obligations. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of the issuer to pay when due principal of or interest on a municipal
security may be materially affected.
Municipal Leases, Certificates of Participation and Other Participation
Interests. A municipal lease is an obligation in the form of a lease or
installment purchase contract which is issued by a state or local government to
acquire equipment and facilities. Income from such obligations is generally
exempt from state and local taxes in the state of issuance (as well as regular
Federal income tax). Municipal leases frequently involve special risks not
normally associated with general obligation or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
relieve the governmental issuer of any obligation to make future payments under
the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Thus, a Fund's
investment in municipal leases will be subject to the special risk that the
governmental issuer may not appropriate funds for lease payments.
In addition, such leases or contracts may be subject to the temporary
abatement of payments in the event the issuer is prevented from maintaining
occupancy of the leased premises or utilizing the leased equipment. Although the
obligations may be secured by the leased equipment or facilities, the
disposition of the property in the event of nonappropriation or foreclosure
might prove difficult, time consuming and costly, and result in an
unsatisfactory or delayed recoupment of a Fund's original investment.
Certificates of participation represent undivided interests in municipal
leases, installment purchase contracts or other instruments. The certificates
are typically issued by a trust or other entity which has received an assignment
of the payments to be made by the state or political subdivision under such
leases or installment purchase contracts.
Certain municipal lease obligations and certificates of participation may be
deemed illiquid for the purpose of the Funds' respective limitations on
investments in illiquid securities. Other municipal lease obligations and
certificates of participation acquired by a Fund may be determined by the
Adviser, pursuant to guidelines adopted by the Trustees of the Trust, to be
liquid securities for the purpose of such Fund's limitation on investments in
illiquid securities. In determining the liquidity of municipal lease obligations
and certificates of participation, the Adviser will consider a variety of
factors including: (1) the willingness of dealers to bid for the security; (2)
the number of dealers willing to purchase or sell the obligation and the number
of other potential buyers; (3) the frequency of trades or quotes for the
obligation; and (4) the
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nature of the marketplace trades. In addition, the Adviser will consider factors
unique to particular lease obligations and certificates of participation
affecting the marketability thereof. These include the general creditworthiness
of the issuer, the importance to the issuer of the property covered by the lease
and the likelihood that the marketability of the obligation will be maintained
throughout the time the obligation is held by a Fund. No Fund may invest more
than 5% of its net assets in municipal leases.
Each Municipal Fund and each Fixed Income Fund may purchase participations in
municipal securities held by a commercial bank or other financial institution.
Such participations provide a Fund with the right to a pro rata undivided
interest in the underlying municipal securities. In addition, such
participations generally provide a Fund with the right to demand payment, on not
more than seven days notice, of all or any part of the Fund's participation
interest in the underlying municipal security, plus accrued interest.
Municipal Notes. Municipal securities in the form of notes generally are used
to provide for short- term capital needs, in anticipation of an issuer's receipt
of other revenues or financing, and typically have maturities of up to three
years. Such instruments may include Tax Anticipation Notes, Revenue Anticipation
Notes, Bond Anticipation Notes, Tax and Revenue Anticipation Notes and
Construction Loan Notes. Tax Anticipation Notes are issued to finance the
working capital needs of governments. Generally, they are issued in anticipation
of various tax revenues, such as income, sales, property, use and business
taxes, and are payable from these specific future taxes. Revenue Anticipation
Notes are issued in expectation of receipt of other kinds of revenue, such as
federal revenues available under federal revenue sharing programs. Bond
Anticipation Notes are issued to provide interim financing until long-term bond
financing can be arranged. In most cases, the long-term bonds then provide the
funds needed for repayment of the notes. Tax and Revenue Anticipation Notes
combine the funding sources of both Tax Anticipation Notes and Revenue
Anticipation Notes. Construction Loan Notes are sold to provide construction
financing. These notes are secured by mortgage notes insured by the Federal
Housing Authority; however, the proceeds from the insurance may be less than the
economic equivalent of the payment of principal and interest on the mortgage
note if there has been a default. The obligations of an issuer of municipal
notes are generally secured by the anticipated revenues from taxes, grants or
bond financing. An investment in such instruments, however, presents a risk that
the anticipated revenues will not be received or that such revenues will be
insufficient to satisfy the issuer's payment obligations under the notes or that
refinancing will be otherwise unavailable.
Tax-Exempt Commercial Paper. Issues of tax-exempt commercial paper typically
represent short- term, unsecured, negotiable promissory notes. These obligations
are issued by state and local governments and their agencies to finance working
capital needs of municipalities or to provide interim construction financing and
are paid from general revenues of municipalities or are refinanced with
long-term debt. In most cases, tax-exempt commercial paper is backed by letters
of credit, lending agreements, note repurchase agreements or other credit
facility agreements offered by banks or other institutions.
Pre-Refunded Municipal Securities. The principal of and interest on municipal
securities that have been pre-refunded are no longer paid from the original
revenue source for the securities. Instead, after pre-refunding the source of
such payments is typically an escrow fund consisting of obligations issued or
guaranteed by the U.S. Government. The assets in the escrow fund are derived
from the proceeds of refunding bonds issued by the same issuer as the
pre-refunded municipal securities. Issuers of municipal securities use this
advance refunding technique to obtain more favorable terms with respect to
securities that are not yet subject to call or redemption by the issuer.
For example, advance refunding enables an issuer to
8
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refinance debt at lower market interest rates, restructure debt to improve cash
flow or eliminate restrictive covenants in the indenture or other governing
instrument for the pre-refunded municipal securities. However, except for a
change in the revenue source from which principal and interest payments are
made, the pre- refunded municipal securities remain outstanding on their
original terms until they mature or are redeemed by the issuer. Pre-refunded
municipal securities are usually purchased at a price which represents a premium
over their face value.
Tender Option Bonds. A tender option bond is a municipal security (generally
held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term
tax-exempt rates. The bond is typically issued in conjunction with the agreement
of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which such institution grants the security holders the option, at
periodic intervals, to tender their securities to the institution and receive
the face value thereof.
As consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the bond's fixed coupon rate and
the rate, as determined by a remarketing or similar agent at or near the
commencement of such period, that would cause the securities, coupled with the
tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term tax-exempt rate. However, an
institution will not be obligated to accept tendered bonds in the event of
certain defaults or a significant downgrade in the credit rating assigned to the
issuer of the bond. The liquidity of a tender option bond is a function of the
credit quality of both the bond issuer and the financial institution providing
liquidity. Tender option bonds are deemed to be liquid unless, in the opinion of
the Adviser, the credit quality of the bond issuer and the financial institution
is deemed, in light of the Fund's credit quality requirements, to be inadequate.
Each Municipal Fund intends to invest only in tender option bonds the interest
on which will, in the opinion of bond counsel, counsel for the issuer of
interests therein or counsel selected by the Adviser, be exempt from regular
federal income tax. However, because there can be no assurance that the IRS will
agree with such counsel's opinion in any particular case, there is a risk that a
Municipal Fund will not be considered the owner of such tender option bonds and
thus will not be entitled to treat such interest as exempt from such tax.
Additionally, the federal income tax treatment of certain other aspects of these
investments, including the proper tax treatment of tender option bonds and the
associated fees, in relation to various regulated investment company tax
provisions is unclear. Each Municipal Fund intends to manage its portfolio in a
manner designed to eliminate or minimize any adverse impact from the tax rules
applicable to these investments.
Auction Rate Securities. Auction rate securities consist of auction rate
municipal securities and auction rate preferred securities issued by closed-end
investment companies that invest primarily in municipal securities. Provided
that the auction mechanism is successful, auction rate securities usually permit
the holder to sell the securities in an auction at par value at specified
intervals. The dividend is reset by "Dutch" auction in which bids are made by
broker-dealers and other institutions for a certain amount of securities at a
specified minimum yield. The dividend rate set by the auction is the lowest
interest or dividend rate that covers all securities offered for sale. While
this process is designed to permit auction rate securities to be traded at par
value, there is the risk that an auction will fail due to insufficient demand
for the securities.
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Dividends on auction rate preferred securities issued by a closed-end fund
may be designated as exempt from federal income tax to the extent they are
attributable to exempt income earned by the fund on the securities in its
portfolio and distributed to holders of the preferred securities, provided that
the preferred securities are treated as equity securities for federal income tax
purposes and the closed-end fund complies with certain tests under the Internal
Revenue Code of 1986, as amended (the "Code"). For purposes of complying with
the 20% limitation on each Municipal Fund's investments in taxable investments,
auction rate preferred securities will be treated as taxable investments unless
substantially all of the dividends on such securities are expected to be exempt
from regular federal income taxes.
Each Fund's investments in auction rate preferred securities of closed-end
funds are subject to limitations on investments in other investment companies,
which limitations are prescribed by the 1940 Act and certain state securities
regulations. These limitations include a prohibition against acquiring more than
3% of the voting securities of any other investment company, and investing more
than 5% of the Fund's assets in securities of any one investment company or more
than 10% of its assets in securities of all investment companies. A Fund will
indirectly bear its proportionate share of any management fees paid by such
closed-end funds in addition to the advisory fee payable directly by the Fund.
Private Activity Bonds. Certain types of municipal securities, generally
referred to as industrial development bonds (and referred to under current tax
law as private activity bonds), are issued by or on behalf of public authorities
to obtain funds for privately-operated housing facilities, airport, mass transit
or port facilities, sewage disposal, solid waste disposal or hazardous waste
treatment or disposal facilities and certain local facilities for water supply,
gas or electricity. Other types of industrial development bonds, the proceeds of
which are used for the construction, equipment, repair or improvement of
privately operated industrial or commercial facilities, may constitute municipal
securities, although the current federal tax laws place substantial limitations
on the size of such issues. The interest from certain private activity bonds
owned by a Fund (including a Municipal Fund's distributions attributable to such
interest) may be a preference item for purposes of the alternative minimum tax.
Mortgage-Backed Securities
As stated in the Prospectus, the Fixed Income Funds and the Municipal Funds
may invest in mortgage- backed securities, including derivative instruments.
Mortgage-backed securities represent direct or indirect participations in or
obligations collateralized by and payable from mortgage loans secured by real
property. Each Fixed Income Fund and each Municipal Fund may invest in
mortgage-backed securities issued or guaranteed by U.S. Government agencies or
instrumentalities such as the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith
and credit of the U.S. Government. Obligations of FNMA and FHLMC are not backed
by the full faith and credit of the U.S. Government but are considered to be of
high quality since they are considered to be instrumentalities of the United
States. The market value and yield of these mortgage-backed securities can vary
due to market interest rate fluctuations and early prepayments of underlying
mortgages. These securities represent ownership in a pool of Federally insured
mortgage loans with a maximum maturity of 30 years. The scheduled monthly
interest and principal payments relating to mortgages in the pool will be
"passed through" to investors. Government mortgage-backed securities differ from
conventional bonds in that principal is paid back to the
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certificate holders over the life of the loan rather than at maturity. As a
result, there will be monthly scheduled payments of principal and interest.
Only the Fixed Income Funds may invest in mortgage-backed securities issued
by non-governmental entities including collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs"). CMOs are
securities collateralized by mortgages, mortgage pass-throughs, mortgage
pay-through bonds (bonds representing an interest in a pool of mortgages where
the cash flow generated from the mortgage collateral pool is dedicated to bond
repayment), and mortgage-backed bonds (general obligations of the issuers
payable out of the issuers' general funds and additionally secured by a first
lien on a pool of single family detached properties). Many CMOs are issued with
a number of classes or series which have different maturities and are retired in
sequence. Investors purchasing such CMOs in the shortest maturities receive or
are credited with their pro rata portion of the unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. Government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs are private entities formed for the purpose of holding a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to CMOs in
that they issue multiple classes of securities, including "regular" interests
and "residual" interests. The Funds do not intend to acquire residual interests
in REMICs under current tax law, due to certain disadvantages for regulated
investment companies that acquire such interests.
Mortgage-backed securities are subject to unscheduled principal payments
representing prepayments on the underlying mortgages. Although these securities
may offer yields higher than those available from other types of securities,
mortgage-backed securities may be less effective than other types of securities
as a means of "locking in" attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, the value of these
securities likely will not rise as much as comparable debt securities due to the
prepayment feature. In addition, these prepayments can cause the price of a
mortgage-backed security originally purchased at a premium to decline in price
to its par value, which may result in a loss.
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life. The
Adviser believes that the estimated average life is the most appropriate measure
of the maturity of a mortgage-backed security. Accordingly, in order to
determine whether such security is a permissible investment, it will be deemed
to have a remaining maturity of three years or less if the average life, as
estimated by the Adviser, is three years or less at the time of purchase of the
security by a Fund. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns. The assumption is based upon current
interest rates, current conditions in the relevant housing markets and other
factors. The assumption is necessarily subjective, and thus different market
participants could produce somewhat different average life estimates with regard
to the same security. Although the Adviser will monitor the average life of the
portfolio securities of each Fixed Income Fund and Municipal Fund and make
needed adjustments to comply with the Funds' policy as to average dollar
weighted portfolio maturity,
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there can be no assurance that the average life of portfolio securities as
estimated by the Adviser will be the actual average life of such securities.
As stated in the Prospectus, no Fund will invest 25% or more of its total
assets in CMOs (other than U.S. Government Securities).
Asset-Backed Securities
As stated in the Prospectus, the Fixed Income Funds may invest in
asset-backed securities, which represent participations in, or are secured by
and payable from, pools of assets including company receivables, truck and auto
loans, leases and credit card receivables. The asset pools that back
asset-backed securities are securitized through the use of privately-formed
trusts or special purpose corporations. Payments or distributions of principal
and interest may be guaranteed up to certain amounts and for a certain time
period by a letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the trust or corporation, or other credit
enhancements may be present. Certain asset backed securities may be considered
derivative instruments. As stated in the Prospectus, no Fund will invest 25% or
more of its total assets in asset-backed securities.
Foreign Securities
Subject to their respective investment objectives and policies, Smaller
Companies Fund and the Fixed Income Funds may invest in securities of foreign
issuers. While Smaller Companies Fund's non-U.S. investments may be denominated
in any currency, the Fixed Income Funds' investments in foreign securities may
be denominated only in the U.S. dollar. Foreign securities may offer investment
opportunities not available in the United States, but such investments also
involve significant risks not typically associated with investing in domestic
securities. In many foreign countries, there is less publicly available
information about foreign issuers, and there is less government regulation and
supervision of foreign stock exchanges, brokers and listed companies. Also, in
many foreign countries, companies are not subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic issuers. Security trading practices differ and there may be difficulty
in enforcing legal rights outside the United States. Settlement of transactions
in some foreign markets may be delayed or may be less frequent than in the
United States, which could affect the liquidity of the Funds' portfolios.
Additionally, in some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of
securities, property, or other Fund assets, political or social instability or
diplomatic developments which could affect investments in foreign securities.
To the extent Smaller Companies Fund's investments are denominated in foreign
currencies, the net asset values of such Fund may be affected favorably or
unfavorably by fluctuations in currency exchange rates and by changes in
exchange control regulations. For example, if the Adviser increases the Fund's
exposure to a foreign currency, and that currency's value subsequently falls,
the Adviser's currency management may result in increased losses to the Fund.
Similarly, if the Adviser hedges the Fund's exposure to a foreign currency, and
that currency's value rises, the Fund will lose the opportunity to participate
in the currency's appreciation. Smaller Companies Funds will incur transaction
costs in connection with conversions between currencies.
Foreign Government Securities. The foreign government securities in which the
Fixed Income Funds and Smaller Companies Fund may invest generally consist of
debt obligations issued or guaranteed by national, state or provincial
governments or similar political subdivisions. The Fixed Income Funds and
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Smaller Companies Fund may invest in foreign government securities in the form
of American Depositary Receipts. Foreign government securities also include debt
securities of supranational entities. Currently, each Fixed Income Fund intends
to invest only in obligations issued or guaranteed by the Asian Development
Bank, the Inter-American Development Bank, the International Bank for
Reconstruction and Development (the "World Bank"), the African Development Bank,
the European Coal and Steel Community, the European Economic Community, the
European Investment Bank and the Nordic Investment Bank. Foreign government
securities also include mortgage-related securities issued or guaranteed by
national, state or provincial governmental instrumentalities, including
quasi-governmental agencies.
Forward Foreign Currency Exchange Contracts
Smaller Companies Fund may exchange currencies in the normal course of
managing its investments in foreign securities and may incur costs in doing so
because a foreign exchange dealer will charge a fee for conversion. The Fund may
conduct foreign currency exchange transactions on a "spot" basis (i.e., for
prompt delivery and settlement) at the prevailing spot rate for purchasing or
selling currency in the foreign currency exchange market. Smaller Companies Fund
also may enter into forward foreign currency exchange contracts ("forward
currency contracts") or other contracts to purchase and sell currencies for
settlement at a future date. A foreign exchange dealer, in that situation, will
expect to realize a profit based on the difference between the price at which a
foreign currency is sold to the Fund and the price at which the dealer will
cover the purchase in the foreign currency market. Foreign exchange transactions
are entered into at prices quoted by dealers, which may include a mark-up over
the price that the dealer must pay for the currency.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are generally charged at any stage for trades.
At the maturity of a forward contract, Smaller Companies Fund may either
accept or make delivery of the currency specified in the contract or, at or
prior to maturity, enter into a closing purchase transaction involving the
purchase or sale of an offsetting contract. Closing purchase transactions with
respect to forward contracts are usually effected with the currency trader who
is a party to the original forward contract.
Smaller Companies Fund may enter into forward currency contracts only for the
following hedging purposes. First, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Fund anticipates the receipt in a foreign currency of dividend or interest
payments on such a security which it holds, the Fund may desire to "lock in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such dividend
or interest payment, as the case may be. By entering into a forward contract for
the purchase or sale, for a fixed amount of U.S. dollars, of the amount of
foreign currency involved in the underlying transactions, the Fund will attempt
to protect itself against an adverse change in the relationship between the U.S.
dollar and the subject foreign currency during the period between the date on
which the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.
Additionally, when management of Smaller Companies Fund believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may cause the Fund to enter into a forward contract
to sell, for a fixed amount of U.S. dollars, the amount of foreign currency
approximating the value of
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some or all of the Fund's portfolio securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward currency
contracts in an attempt to protect the value of the Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange which the Fund can achieve at some future point in time. The precise
projection of short-term currency market movements is not possible, and
short-term hedging provides a means of fixing the dollar value of only a portion
of the Fund's foreign assets.
Smaller Companies Fund's custodian will place cash or liquid, high grade debt
securities ("High Grade Debt Securities") (i.e., securities rated in one of the
top three ratings categories by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("Standard & Poor's"), or a comparable rating
agency, or, if unrated, deemed by the Adviser to be of comparable credit
quality) into a segregated account of the Fund in an amount equal to the value
of the Fund's total assets committed to the consummation of forward currency
contracts requiring the Fund to purchase foreign currencies. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with respect to such
contracts. The segregated account will be marked-to-market on a daily basis.
Although forward currency contracts are not presently regulated by the Commodity
Futures Trading Commission (the "CFTC"), the CFTC may in the future assert
authority to regulate these contracts. In such event, the Fund's ability to
utilize forward currency contracts may be restricted. In addition, a particular
forward currency contract and assets used to cover such contract may be
illiquid.
Smaller Companies Fund generally will not enter into a forward currency
contract with a term of greater than one year.
While Smaller Companies Fund will enter into forward currency contracts to
reduce currency exchange rate risks, transactions in such contracts involve
certain other risks. Thus, while Smaller Companies Fund may benefit from
currency transactions, unanticipated changes in currency prices may result in a
poorer overall performance for the Fund than if it had not engaged in any such
transactions. Moreover, there may be an imperfect correlation between the Fund's
portfolio holdings of securities denominated in a particular currency and
forward contracts entered into by the Fund. Such imperfect correlation may cause
the Fund to sustain losses which will prevent the Fund from achieving a complete
hedge or expose the Fund to risk of foreign currency exchange loss. Forward
currency contracts may be considered derivative instruments.
Smaller Companies Fund's activities in forward currency contracts, currency
futures contracts and related options and currency options (see below) may be
limited by the requirements of Subchapter M of the Code for qualification as a
regulated investment company.
Options on Securities, Securities Indices and Foreign Currencies
Smaller Companies Fund may write covered put and call options and purchase
put and call options. Such options may relate to particular securities, to
various stock indices, or to currencies. Smaller Companies Fund may write call
and put options which are issued by the Options Clearing Corporation (the "OCC")
or which are traded on U.S. and non-U.S. exchanges and over-the-counter. These
instruments may be con-
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sidered derivative instruments. See "Description of Securities and Investment
Techniques and Related Risks--Options" in the Prospectus.
A call option on a securities index provides the holder with the right to
receive a cash payment upon exercise of the option if the market value of the
underlying index exceeds the option's exercise price. Conversely, a put option
on a securities index provides the holder with the right to receive a cash
payment upon exercise of the option if the market value of the underlying index
is less than the option's exercise price. The amount of any payment to the
option holder will be equal to the difference between the closing price of the
index at the time of exercise and the exercise price of the option expressed in
U.S. dollars or a foreign currency, times a specified multiple. A put option on
a currency gives its holder the right to sell an amount (specified in units of
the underlying currency) of the underlying currency at the stated exercise price
at any time prior to the option's expiration. Conversely, a call option on a
currency gives its holder the right to purchase an amount (specified in units of
the underlying currency) of the underlying currency at the stated exercise price
at any time prior to the option's expiration.
Smaller Companies Fund will engage in over-the-counter ("OTC") options only
with broker-dealers deemed creditworthy by the Adviser. Closing transactions in
certain options are usually effected directly with the same broker-dealer that
effected the original option transaction. The Fund bears the risk that the
broker-dealer may fail to meet its obligations. There is no assurance that the
Fund will be able to close an unlisted option position. Furthermore, unlisted
options are not subject to the protections afforded purchasers of listed options
by the OCC, which performs the obligations of its members who fail to do so in
connection with the purchase or sale of options. OTC options and the assets used
to cover such options will be deemed illiquid for purposes of Smaller Companies
Fund's 15% limitation on investments in illiquid securities, except that with
respect to options written with primary dealers in U.S. Government securities
pursuant to an agreement requiring a closing purchase transaction at a formula
price, the amount of illiquid securities may be calculated with reference to a
formula approved by the staff of the Commission.
Smaller Companies Fund will write call options only if they are "covered." In
the case of a call option on a security, the option is "covered" if the Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or High Grade Debt Securities in such
amount are held in a segregated account by the Fund's custodian) upon conversion
or exchange of other securities held by it. For a call option on an index, the
option is covered if the Fund maintains with the Fund's custodian cash or cash
equivalents equal to the contract value. A call option on a security or an index
is also covered if the Fund holds a call on the same security or index as the
call written by the Fund where the exercise price of the call held is (i) equal
to or less than the exercise price of the call written, or (ii) greater than the
exercise price of the call written provided the difference is maintained by the
Fund in cash or High Grade Debt Securities in a segregated account with the
Fund's custodian. A call option on currency written by the Fund is covered if
the Fund owns an equal amount of the underlying currency.
When Smaller Companies Fund purchases a put option, the premium paid by it is
recorded as an asset of the Fund. When the Fund writes an option, an amount
equal to the net premium (the premium less the commission paid by the Fund)
received by the Fund is included in the liability section of the Fund's
statement of assets and liabilities as a deferred credit. The amount of this
asset or deferred credit will be marked- to-market on an ongoing basis to
reflect the current value of the option purchased or written. The current
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value of a traded option is the last sale price or, in the absence of a sale,
the average of the closing bid and asked prices. If an option purchased by the
Fund expires unexercised, the Fund realizes a loss equal to the premium paid. If
the Fund enters into a closing sale transaction on an option purchased by it,
the Fund will realize a gain if the premium received by the Fund on the closing
transaction is more than the premium paid to purchase the option, or a loss if
it is less. If an option written by the Fund expires on the stipulated
expiration date or if the Fund enters into a closing purchase transaction, it
will realize a gain (or loss if the cost of a closing purchase transaction
exceeds the net premium received when the option is sold) and the deferred
credit related to such option will be eliminated. If an option written by the
Fund is exercised, the proceeds to the Fund from the exercise will be increased
by the net premium originally received, and the Fund will realize a gain or
loss.
There are several risks associated with transactions in options on
securities, securities indices and currencies. For example, there are
significant differences between the securities markets, currency markets and the
corresponding options markets that could result in imperfect correlations,
causing a given option transaction not to achieve its objectives. In addition, a
liquid secondary market for particular options, whether traded OTC or on a U.S.
or non-U.S. securities exchange may be absent for reasons which include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
securities; unusual or unforeseen circumstances may interrupt normal operations
on an exchange; the facilities of an exchange or the OCC may not at all times be
adequate to handle current trading volume; or one or more exchanges could, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options that had been
issued by the OCC as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
The hours of trading for options may not conform to the hours during which
the underlying securities and currencies are traded. To the extent that the
options markets close before the markets for the underlying securities and
currencies, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the options markets. The purchase
of options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The risks described above also apply to options on futures, which
are discussed below.
Futures Contracts and Related Options
To hedge against changes in interest rates or securities prices and for
certain non-hedging purposes, Smaller Companies Fund may purchase and sell
various kinds of futures contracts, and purchase and write call and put options
on any of such futures contracts. The Fund may also enter into closing purchase
and sale transactions with respect to any of such contracts and options. The
futures contracts may be based on various securities (such as U.S. Government
securities), indices, currencies and other financial instruments. Smaller
Companies Fund will engage in futures and related options transactions only for
bona fide hedging or other non-hedging purposes as defined in regulations
promulgated by the CFTC. All futures contracts entered into by Smaller Companies
Fund are traded on U.S. exchanges or boards of trade that are licensed and
regulated by the CFTC or on foreign exchanges approved by the CFTC.
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Futures Contracts. A futures contract may generally be described as an
agreement between two parties to buy and sell a particular financial instrument
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
Futures contracts obligate the long or short holder to take or make delivery of
a specified quantity of a commodity or financial instrument, such as a security
or the cash value of a securities index, during a specified future period at a
specified price.
When interest rates are rising or securities prices are falling, Smaller
Companies Fund can seek to offset a decline in the value of its current
portfolio securities through the sale of futures contracts. When interest rates
are falling or securities prices are rising, Smaller Companies Fund, through the
purchase of futures contracts, can attempt to secure better rates or prices than
might later be available in the market when it effects anticipated purchases.
Positions taken in the futures markets are not normally held to maturity but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While futures contracts on securities will usually be
liquidated in this manner, Smaller Companies Fund may instead make, or take,
delivery of the underlying securities whenever it appears economically
advantageous to do so. A clearing corporation associated with the exchange on
which futures on securities are traded guarantees that, if still open, the sale
or purchase will be performed on the settlement date.
Hedging Strategies. Hedging, by use of futures contracts, seeks to establish
with more certainty the effective price and rate of return on portfolio
securities and securities that a Fund proposes to acquire. Smaller Companies
Fund may, for example, take a "short" position in the futures market by selling
futures contracts in order to hedge against an anticipated rise in interest
rates or a decline in market prices that would adversely affect the value of the
Fund's portfolio securities. Such futures contracts may include contracts for
the future delivery of securities held by the Fund or securities with
characteristics similar to those of the Fund's portfolio securities. If, in the
opinion of the Adviser, there is a sufficient degree of correlation between
price trends for the Fund's portfolio securities and futures contracts based on
other financial instruments, securities indices or other indices, the Fund may
also enter into such futures contracts as part of its hedging strategy. Although
under some circumstances prices of securities in the Fund's portfolio may be
more or less volatile than prices of such futures contracts, the Adviser will
attempt to estimate the extent of this volatility difference based on historical
patterns and compensate for any such differential by having the Fund enter into
a greater or lesser number of futures contracts or by attempting to achieve only
a partial hedge against price changes affecting a Fund's securities portfolio.
When hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, Smaller Companies Fund may take a "long" position by
purchasing futures contracts. This would be done, for example, when the Fund
anticipates the subsequent purchase of particular securities when it has the
necessary cash, but expects the prices then available in the applicable market
to be less favorable than prices that are currently available.
Options on Futures Contracts. The acquisition of put and call options on
futures contracts will give Smaller Companies Fund the right (but not the
obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an
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option on a futures contract, the Fund obtains the benefit of the futures
position if prices move in a favorable direction but limits its risk of loss in
the event of an unfavorable price movement to the loss of the premium and
transaction costs.
The writing of a call option on a futures contract generates a premium which
may partially offset a decline in the value of the Fund's assets. By writing a
call option, the Fund becomes obligated, in exchange for the premium, to sell a
futures contract (if the option is exercised), which may have a value higher
than the exercise price. Conversely, the writing of a put option on a futures
contract generates a premium which may partially offset an increase in the price
of securities that the Fund intends to purchase. However, the Fund becomes
obligated to purchase a futures contract (if the option is exercised) which may
have a value lower than the exercise price. Thus, the loss incurred by the Fund
in writing options on futures is potentially unlimited and may exceed the amount
of the premium received. The Fund will incur transaction costs in connection
with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series. There
is no guarantee that such closing transactions can be effected. Smaller
Companies Fund's ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid market.
Smaller Companies Fund may use options on futures contracts solely for bona
fide hedging or other non-hedging purposes as described below.
Other Considerations. Smaller Companies Fund will engage in futures and
related options transactions only for bona fide hedging or non-hedging purposes
as permitted by CFTC regulations which permit principals of an investment
company registered under the 1940 Act to engage in such transactions without
registering as commodity pool operators. Smaller Companies Fund will determine
that the price fluctuations in the futures contracts and options on futures used
by it for hedging purposes are substantially related to price fluctuations in
securities or instruments held by the Fund or securities or instruments which it
expects to purchase. Except as stated below, Smaller Companies Fund's futures
transactions will be entered into for traditional hedging purposes--i.e.,
futures contracts will be sold to protect against a decline in the price of
securities (or the currency in which they are denominated) that the Fund owns or
futures contracts will be purchased to protect the Fund against an increase in
the price of securities (or the currency in which they are denominated) that the
Fund intends to purchase. As evidence of this hedging intent, Smaller Companies
Fund expects that, on 75% or more of the occasions on which it takes a long
futures or option position (involving the purchase of futures contracts), the
Fund will have purchased, or will be in the process of purchasing, equivalent
amounts of related securities (or assets denominated in the related currency) in
the cash market at the time when the futures or option position is closed out.
However, in particular cases, when it is economically advantageous for the Fund
to do so, a long futures position may be terminated or an option may expire
without the corresponding purchase of securities or other assets.
As an alternative to compliance with the bona fide hedging definition, a CFTC
regulation now permits Smaller Companies Fund to elect to comply with a
different test under which the aggregate initial margin and premiums required to
establish non-hedging positions in futures contracts and options on futures will
not exceed 5% of the net asset value of the Fund's portfolio, after taking into
account unrealized profits and losses on any such positions and excluding the
amount by which such options were in-the-money at
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the time of purchase. Smaller Companies Fund will engage in transactions in
futures contracts and related options only to the extent such transactions
are consistent with the requirements of the Code for maintaining its
qualification as a regulated investment company for federal income tax
purposes. See "Taxes."
Smaller Companies Fund will be required, in connection with transactions in
futures contracts and the writing of options on futures contracts, to make
margin deposits, which will be held by its custodian for the benefit of the
futures commission merchant through whom the Fund engages in such futures and
option transactions. These transactions involve brokerage costs, require margin
deposits and, in the case of futures contracts and options obligating the Fund
to purchase securities, require the Fund to segregate cash or High Grade Debt
Securities in an account maintained with its custodian to cover such contracts
and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates or securities prices may result in a
poorer overall performance for Smaller Companies Fund than if it had not entered
into any futures contracts or options transactions. The other risks associated
with the use of futures contracts and options thereon are (i) imperfect
correlation between the change in market value of the securities held by the
Fund and the prices of the futures and options and (ii) the possible absence of
a liquid secondary market for a futures contract or option and the resulting
inability to close a futures position prior to its maturity date.
In the event of an imperfect correlation between a futures position and
portfolio position which is intended to be protected, the desired protection may
not be obtained and Smaller Companies Fund may be exposed to risk of loss. The
risk of imperfect correlation may be minimized by investing in contracts whose
price behavior is expected to resemble that of the Fund's underlying securities.
Smaller Companies Fund will attempt to minimize the risk that it will be unable
to close out futures positions by entering into such transactions on a national
exchange with an active and liquid secondary market.
Commercial Paper
Commercial paper is a short-term, unsecured negotiable promissory note of a
U.S or non-U.S issuer. Each of the Funds may purchase commercial paper as
described in the Prospectus. Each Fund may also invest in variable rate master
demand notes which typically are issued by large corporate borrowers and which
provide for variable amounts of principal indebtedness and periodic adjustments
in the interest rate. Demand notes are direct lending arrangements between a
Fund and an issuer, and are not normally traded in a secondary market. A Fund,
however, may demand payment of principal and accrued interest at any time. In
addition, while demand notes generally are not rated, their issuers must satisfy
the same criteria as those that apply to issuers of commercial paper. The
Adviser will consider the earning power, cash flow and other liquidity ratios of
issuers of demand notes and continually will monitor their financial ability to
meet payment on demand. See also "Fixed Income Securities--Variable and Floating
Rate Instruments."
Bank Obligations
As stated in the Prospectus, each Fund's investments in money market
instruments may include certificates of deposit, time deposits and bankers'
acceptances. Certificates of Deposit ("CDs") are short-term negotiable
obligations of commercial banks. Time Deposits ("TDs") are non-negotiable
deposits maintained in banking institutions for specified periods of time at
stated interest rates. Bankers' acceptances are time drafts drawn on commercial
banks by borrowers usually in connection with international transactions.
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U.S. commercial banks organized under federal law are supervised and examined
by the Comptroller of the Currency and are required to be members of the Federal
Reserve System and to be insured by the Federal Deposit Insurance Corporation
(the "FDIC"). U.S. banks organized under state law are supervised and examined
by state banking authorities but are members of the Federal Reserve System only
if they elect to join. Most state banks are insured by the FDIC (although such
insurance may not be of material benefit to a Fund, depending upon the principal
amount of CDs of each bank held by the Fund) and are subject to federal
examination and to a substantial body of federal law and regulation. As a result
of governmental regulations, U.S. branches of U.S. banks, among other things,
generally are required to maintain specified levels of reserves, and are subject
to other supervision and regulation designed to promote financial soundness.
U.S. savings and loan associations, the CDs of which may be purchased by
the Funds, are supervised and subject to examination by the Office of Thrift
Supervision. U.S. savings and loan associations are insured by the Savings
Association Insurance Fund which is administered by the FDIC and backed by
the full faith and credit of the U.S. Government.
Repurchase Agreements
Each of the Funds may enter into repurchase agreements as described in the
Prospectus.
For purposes of the 1940 Act and, generally for tax purposes, a repurchase
agreement is considered to be a loan from the Fund to the seller of the
obligation. For other purposes, it is not clear whether a court would consider
such an obligation as being owned by the Fund or as being collateral for a loan
by the Fund to the seller. In the event of the commencement of bankruptcy or
insolvency proceedings with respect to the seller of the obligation before its
repurchase, under the repurchase agreement, the Fund may encounter delay and
incur costs before being able to sell the security. Such delays may result in a
loss of interest or decline in price of the obligation. If the court
characterizes the transaction as a loan and the Fund has not perfected a
security interest in the obligation, the Fund may be treated as an unsecured
creditor of the seller and required to return the obligation to the seller's
estate. As an unsecured creditor, the Fund would be at risk of losing some or
all of the principal and income involved in the transaction. As with any
unsecured debt instrument purchased for the Funds, the Adviser seeks to minimize
the risk of loss from repurchase agreements by analyzing the creditworthiness of
the obligor, in this case, the seller of the obligation. In addition to the risk
of bankruptcy or insolvency proceedings, there is the risk that the seller may
fail to repurchase the security. However, if the market value of the obligation
falls below an amount equal to 102% of the repurchase price (including accrued
interest), the seller of the obligation will be required to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement equals or exceeds the repurchase price.
"When-Issued" Purchases and Forward Commitments (Delayed Delivery)
These transactions, which involve a commitment by a Fund to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Fund to lock in a price or yield
on a security, regardless of future changes in interest rates. A Fund will
purchase securities on a "when-issued" or forward commitment basis only with the
intention of completing the transaction and actually purchasing the securities.
If deemed appropriate by the Adviser, however, a Fund may dispose of or
renegotiate a commitment after it is entered into, and may sell securities it
has committed to purchase before those securities are delivered to the Fund on
the settlement date. In these cases the Fund may realize a gain or loss, and
distributions attributable to any such gain would be taxable to shareholders.
20
<PAGE>
When a Fund agrees to purchase securities on a "when-issued" or forward
commitment basis, the Fund's custodian will set aside cash or High Grade Liquid
Debt Securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitments. The
market value of a Fund's net assets will generally fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. Because a Fund's liquidity and ability to manage its
portfolio might be affected when it sets aside cash or portfolio securities to
cover such purchase commitments, each Fund expects that its commitments to
purchase when-issued securities and forward commitments will not exceed 33% of
the value of its total assets. When a Fund engages in "when-issued" and forward
commitment transactions, it relies on the other party to the transaction to
consummate the trade. Failure of such party to do so may result in the Fund
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.
The market value of the securities underlying a "when-issued" purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the market value of
a Fund starting on the day the Fund agrees to purchase the securities. The Fund
does not earn interest or dividends on the securities it has committed to
purchase until the settlement date.
Borrowing
Each Fund may borrow for temporary or emergency purposes, although borrowings
by the Fixed Income Fund and the Municipal Bond Fund may not exceed 10% of the
value of their respective net assets. This borrowing may be unsecured. The 1940
Act requires a Fund to maintain continuous asset coverage (that is, total assets
including borrowings, less liabilities exclusive of borrowings) of 300% of the
amount borrowed. If the asset coverage should decline below 300% as a result of
market fluctuations or for other reasons, a Fund will be required to sell some
of its portfolio securities within three days to reduce its borrowings and
restore the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. To limit the potential
leveraging effects of a Fund's borrowings, Smaller Companies Fund, the
Short-Term Fixed Income Fund and the Short-Term Municipal Bond Fund will not
make investments while borrowings are in excess of 5% of total assets. The Fixed
Income Fund and the Municipal Bond Fund may not make additional investments
while they have any borrowings outstanding. Borrowing generally will exaggerate
the effect on net asset value of any increase or decrease in the market value of
the portfolio. Money borrowed will be subject to interest costs which may or may
not be recovered by appreciation of the securities purchased. A Fund also may be
required to maintain minimum average balances in connection with such borrowing
or to pay a commitment or other fee to maintain a line of credit; either of
these requirements would increase the cost of borrowing over the stated interest
rate. See "Investment Restrictions."
Lending Portfolio Securities
Each Fund, other than Fixed Income Fund and Municipal Bond Fund, may lend
portfolio securities to brokers, dealers and other financial organizations.
These loans, if and when made by a Fund, may not exceed 33 1/3% of the value of
the Fund's total assets. A Fund's loans of securities will be collateralized by
cash, cash equivalents or U.S. Government securities. The cash or instruments
collateralizing the Fund's loans
21
<PAGE>
of securities will be maintained at all times in a segregated account with the
Fund's custodian, in an amount at least equal to the current market value of the
loaned securities. From time to time, a Fund may pay a part of the interest
earned from the investment of collateral received for securities loaned to the
borrower and/or a third party that is unaffiliated with the Fund and is acting
as a "placing broker." No fee will be paid to affiliated persons of the Fund.
The Board of Trustees will make a determination that the fee paid to the placing
broker is reasonable.
By lending portfolio securities, a Fund can increase its income by continuing
to receive amounts equal to the interest or dividends on the loaned securities
as well as by either investing the cash collateral in short-term instruments or
obtaining yield in the form of interest paid by the borrower when U.S.
Government securities are used as collateral. A Fund will comply with the
following conditions whenever it loans securities: (i) the Fund must receive at
least 100% cash collateral or equivalent securities from the borrower; (ii) the
borrower must increase the collateral whenever the market value of the
securities loaned rises above the level of the collateral; (iii) the Fund must
be able to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as amounts equal to the dividends, interest or
other distributions on the loaned securities, and any increase in market value;
(v) the Fund may pay only reasonable custodian fees in connection with the loan;
and (vi) voting rights on the loaned securities may pass to the borrower except
that, if a material event will occur affecting the investment in the loaned
securities, the Fund must terminate the loan in time to vote the securities on
such event.
INVESTMENT RESTRICTIONS
The fundamental investment restrictions set forth below may not be changed
with respect to a Fund without the approval of a "majority" (as defined in the
1940 Act) of the outstanding shares of that Fund. For the purposes of the 1940
Act, "majority" means the lesser of (a) 67% or more of the shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy or (b) more than 50% of the
shares of the Fund. Investment restrictions that involve a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by or on behalf of, a
Fund with the exception of borrowings permitted by fundamental investment
restriction (2) listed below for Short Term-Fixed Income Fund, Short-Term
Municipal Bond Fund and Smaller Companies Fund and fundamental investment
restriction (3) listed below for Fixed Income Fund and Municipal Bond Fund.
The nonfundamental investment restrictions set forth below may be changed or
amended by the Trust's Board of Trustees without shareholder approval.
Investment Restrictions That Apply to Short-Term Fixed Income Fund,
Short-Term Municipal Bond Fund and Smaller Companies Fund
Fundamental Investment Restrictions. The Trust may not, on behalf of a Fund:
(1) Issue senior securities, except as permitted by paragraphs (2), (6) and
(7) below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts and options on futures contracts, forward
commitments, forward foreign exchange contracts, repurchase agreements and
reverse repurchase agreements entered into in accordance with the Fund's
investment policy, and the pledge, mortgage or hypothecation of the Fund's
assets within the meaning of paragraph (3) below are not deemed to be senior
securities, if appropriately covered.
22
<PAGE>
(2) Borrow money (i) except from banks as a temporary measure for
extraordinary emergency purposes and (ii) except that the Fund may enter into
reverse repurchase agreements and dollar rolls, if appropriately covered, with
banks, broker-dealers and other parties; provided that, in each case, the Fund
is required to maintain asset coverage of at least 300% for all borrowings. For
the purposes of this investment restriction, short sales, transactions in
currency, forward contracts, swaps, options, futures contracts and options on
futures contracts, and forward commitment transactions shall not constitute
borrowing.
(3) Pledge, mortgage, or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and to the extent related to the
segregation of assets in connection with the writing of covered put and call
options and the purchase of securities or currencies on a forward commitment or
delayed- delivery basis and collateral and initial or variation margin
arrangements with respect to forward contracts, options, futures contracts and
options on futures contracts.
(4) Act as an underwriter, except to the extent that, in connection with the
disposition of Fund securities, the Fund may be deemed to be an underwriter for
purposes of the Securities Act of 1933.
(5) Purchase or sell real estate, or any interest therein, and real estate
mortgage loans, except that the Fund may invest in securities of corporate or
governmental entities secured by real estate or marketable interests therein or
securities issued by companies (other than real estate limited partnerships)
that invest in real estate or interests therein.
(6) Make loans, except that the Fund may lend Fund securities in accordance
with the Fund's investment policies and may purchase or invest in repurchase
agreements, bank certificates of deposit, all or a portion of an issue of bonds,
bank loan participation agreements, bankers' acceptances, debentures or other
securities, whether or not the purchase is made upon the original issuance of
the securities.
(7) Invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except interest rate futures contracts, options on
securities, securities indices, currency and other financial instruments,
futures contracts on securities, securities indices, currency and other
financial instruments and options on such futures contracts, forward foreign
currency exchange contracts, forward commitments, securities index put or call
warrants and repurchase agreements entered into in accordance with the Fund's
investment policies.
(8) Invest 25% or more of the value of the Fund's total assets in the
securities of one or more issuers conducting their principal business activities
in the same industry or group of industries. This restriction does not apply to
investments in obligations of the U.S. Government or any of its agencies or
instrumentalities.
In addition, each Fund will adhere to the following fundamental investment
restriction:
With respect to 75% of its total assets, a Fund may not purchase securities
of an issuer (other than the U.S. Government, or any of its agencies or
instrumentalities, or other investment companies), if
(a) such purchase would cause more than 5% of the Fund's total assets taken
at market value to be invested in the securities of such issuer, or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Fund.
23
<PAGE>
Non-fundamental Investment Restrictions. The Trust may not, on behalf of a
Fund:
(a) Participate on a joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or purchase of marketable Fund
securities with other accounts under the management of the Adviser to save
commissions or to average prices among them is not deemed to result in a
securities trading account.
(b) Purchase securities on margin or make short sales unless by virtue of its
ownership of other securities, the Fund has the right to obtain, without payment
of additional consideration, securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is made upon the same
conditions, except that a Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of securities and in
connection with transactions involving forward foreign currency exchange
transactions, options, futures and options on futures.
(c) Purchase securities of other investment companies, except in the open
market where no commission or profit to a sponsor or dealer results from the
purchase other than the customary broker's commission and as permitted by the
Investment Company Act of 1940 and the rules and regulations thereunder.
(d) Purchase securities of any issuer which, together with any predecessor,
has a record of less than three years' continuous operations prior to the
purchase if such purchase would cause investments of the Fund in all such
issuers to exceed 5% of the value of the total assets of the Fund.
(e) Invest for the purpose of exercising control over or management of any
company.
(f) Purchase warrants of any issuer, if, as a result of such purchases, more
than 2% of the value of the Fund's net assets would be invested in warrants
which are not listed on the New York Stock Exchange or the American Stock
Exchange or more than 5% of the value of the net assets of the Fund would be
invested in warrants generally, whether or not so listed. For these purposes,
warrants are to be valued at the lesser of cost or market, but warrants acquired
by the Fund in units with or attached to debt securities shall be deemed to be
without value.
(g) Purchase or retain securities of an issuer if one or more of the Trustees
or officers of the Trust or directors or officers of the Adviser or any
investment management subsidiary of the Adviser individually owns beneficially
more than 0.5% and together own beneficially more than 5% of the securities of
such issuer.
(h) Purchase interests in oil, gas or other mineral leases or exploration
programs; however, this policy will not prohibit the acquisition of securities
of companies engaged in the production or transmission of oil, gas or other
minerals.
(i) Purchase any security, including any repurchase agreement maturing in
more than seven days, which is illiquid, if more than 15% of the net assets of
the Fund, taken at market value, would be invested in such securities.
(j) Invest more than 5% of its total assets in restricted securities,
excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933; provided, however, that no more than 15% of the
Fund's total assets may be invested in restricted securities including
restricted securities eligible for resale under Rule 144A.
(k) Write covered calls or put options with respect to more than 25% of the
value of its total assets or invest more than 5% of its total assets in puts,
calls, spreads, or straddles, other than protective put options.
24
<PAGE>
The staff of the Commission has taken the position that fixed time deposits
maturing in more than seven days that cannot be traded on a secondary market and
participation interests in loans are illiquid. Until such time (if any) as this
position changes, the Trust, on behalf of each Fund, will include such
investments in determining compliance with the 15% limitation on investments in
illiquid securities. Restricted securities (including commercial paper issued
pursuant to Section 4(2) of the Securities Act of 1933, which the Board of
Trustees has determined are readily marketable will not be deemed to be illiquid
for purposes of such restriction.
"Value" for the purposes of the foregoing investment restrictions shall mean
the market value used in determining each Fund's net asset value.
Investment Restrictions That Apply to the Fixed Income Fund And the Municipal
Bond Fund
Fundamental Investment Restrictions. The Trust may not, on behalf of the
Fixed Income Fund or the Municipal Bond Fund:
(1) Acquire more than 10% of the voting securities of any one issuer.
(2) Invest in companies for the purpose of exercising control.
(3) Borrow money except for temporary or emergency purposes and then only in
an amount not exceeding 10% of the value of its total assets. Any borrowing will
be done from a bank and to the extent that such borrowing exceeds 5% of the
value of a Fund's assets, asset coverage of at least 300% is required. In the
event that such asset coverage shall at any time fall below 300%, a Fund shall,
within three days thereafter or such longer period as the Securities and
Exchange Commission may prescribe by rules and regulations, reduce the amount of
its borrowings to such an extent that the asset coverage of such borrowings
shall be at least 300%. This borrowing provision is included for temporary
liquidity or emergency purposes. All borrowings will be repaid before making
investments and any interest paid on such borrowings will reduce income.
(4) Make loans, except that a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies, and a Fund may enter into
repurchase agreements.
(5) Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10% of
total assets taken at current value at the time of the incurrence of such loan.
(6) Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodities contracts and interests in a pool
of securities that are secured by interests in real estate. However, subject to
the permitted investments of the Fund, a Fund may invest in municipal securities
or other obligations secured by real estate or interests therein.
(7) Make short sales of securities, maintain a short position or purchase
securities on margin, except that a Fund may obtain short-term credits as
necessary for the clearance of security transactions.
(8) Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
25
<PAGE>
(9) Purchase securities of other investment companies except as permitted by
the Investment Company Act of 1940 and the rules and regulations thereunder.
(10) Issue senior securities (as defined in the Investment Company Act of
1940) except in connection with permitted borrowings as described above or as
permitted by rule, regulation or order of the Securities and Exchange
Commission.
(11) Purchase or retain securities of an issuer if an officer, trustee,
partner or director of the Fund or any investment adviser of the Fund owns
beneficially more than 1/2 of 1% of the shares or securities of such issuer and
all such officers, trustees, partners and directors owning more than 1/2 of 1%
of such shares or securities together own more than 5% of such shares or
securities.
(12) Invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
(13) Write or purchase puts, calls, options or combinations thereof or invest
in warrants, except that a Fund may purchase "put" bonds as described in the
Prospectus.
Non-fundamental Investment Restrictions.
(1) A Fund may not invest in illiquid securities in an amount exceeding, in
the aggregate, 10% of the Municipal Bond Fund's total assets and 15% of the
Fixed Income Fund's net assets. An illiquid security is a security that cannot
be disposed of promptly (within seven days) and in the usual course of business
without a loss, and includes repurchase agreements maturing in excess of seven
days, time deposits with a withdrawal penalty, non-negotiable instruments and
instruments for which no market exists.
(2) A Fund may not purchase securities of any issuer which, together with any
predecessor, has a record of less than three years' continuous operations prior
to the purchase if such purchase would cause investments of the Fund in all such
issuers to exceed 15% of the value of the total assets of the Fund and the Fund
may not invest more than 5% of its total assets in restricted securities,
excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933; provided, however, that no more than 15% of the
Fund's total assets may be invested in restricted securities including
restricted securities eligible for resale under Rule 144A.
(3) A Fund may not purchase securities of other investment companies except
in the open market where no commission or profit to a sponsor or dealer results
from the purchase other than the customary broker's commission and as permitted
by the Investment Company Act of 1940 and the rules and regulations thereunder.
26
<PAGE>
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and officers of the Trust is set forth
below. An asterisk (*) indicates those Trustees deemed to be "interested
persons" of the Trust for purposes of the 1940 Act.
<TABLE>
<CAPTION>
Positions Principal Occupation
Name and Address With Trust During Past Five Years
- ------------------------ ---------- ----------------------
<S> <C> <C>
James E. Minnick (1)* President, Chief President, Secretary and Treasurer, MGCM
885 Third Avenue Executive Officer, and (since 1990).
New York, NY 10022 Trustee
Patrick W.W. Disney (1)* Senior Vice President Director, Morgan Grenfell Investment Services
20 Finsbury Circus and Trustee Limited ("MGIS") (since 1988).
London EC2M 1NB
ENGLAND
Paul K. Freeman (2) Trustee Chief Executive Officer, The Eric Group, Inc.
3941 South Bellaire (environmental insurance) (since 1986).
Englewood, CO 80110
Graham E. Jones (2) Trustee Senior Vice President, BGK Realty Inc. (since
330 Garfield Street 1995); Financial Manager, Practice Management
Santa Fe, NM 87501 Systems (medical information services) (1988- 95);
Director, 12 closed-end funds managed by
Morgan Stanley Asset Management; Trustee,
10 open-end mutual funds managed by
Weiss, Peck & Greer.
William N. Searcy (2) Trustee Pension & Savings Trust Officer, Sprint
5100 Foxridge Drive #2011 Corporation (telecommunications) (since
Mission, KS 60202 1989).
Hugh G. Lynch Trustee Director, International Investments,
767 Fifth Avenue General Motors Investment Management
New York, NY 10153 Corporation (since September 1990).
Edward T. Tokar* Trustee Vice President-Investments, Allied Signal Inc.
101 Columbia Road (advanced technology and manufacturer)
Morristown, NJ 07962 (since 1985).
Jeffrey A. Cohen Treasurer, Principal Controller, Mutual Fund Accounting, SEI
80 East Swedesford Road Accounting Officer, Corporation (since May 1994); Director Mutual
Wayne, PA 19087-1658 Chief Financial Officer Fund Accounting, SEI Corporation(1991-1994);
Audit Manager, Price Waterhouse (1989-1991).
Neil P. Jenkins (3) Vice President Director, MGCM (since 1991), Morgan Grenfell
885 Third Avenue International Funds Management, (since 10022
New York, NY 1995), and Morgan Grenfell & Co., Ltd. (since 1985).
David W. Baldt Vice President Executive Vice President and Director of
1435 Walnut Street Fixed Income Investments, MGCM (since 1989).
Philadelphia, PA 19102
Ian D. Kelson Vice President Director, MGIS (since 1988); Chief Investment
20 Finsbury Circus Officer, Fixed Income, MGIS(since 1989).
London EC2M 1NB
England
Mark G. Arthus Secretary and Director, Compliance and Financial Control,
885 Third Avenue Compliance Officer MGCM (since 1992); Vice President, Senior
New York, NY 10022 Compliance Officer and other positions,
Citibank, N.A. (to 1992)
</TABLE>
- ---------------
1 Member of the Trust's Valuation and Dividend Committees.
2 Member of the Trust's Audit Committee.
3 Member of the Trust's Dividend Committee.
27
<PAGE>
Certain of the Trustees and officers of the Trust reside outside the United
States, and substantially all the assets of these persons are located outside
the United States. It may not be possible, therefore, for investors to effect
service of process within the United States upon these persons or to enforce
against them, in United States courts or foreign courts, judgments obtained in
United States courts predicated upon the civil liability provisions of the
federal securities laws of the United States or the laws of the State of
Delaware. In addition, it is not certain that a foreign court would enforce, in
original actions or in actions to enforce judgments obtained in the United
States, liabilities against these Trustees and officers predicated solely upon
the federal securities laws.
Messrs. Jones, Freeman and Searcy are members of the Audit Committee of the
Board of Trustees. The Audit Committee's functions include making
recommendations to the Trustees regarding the selection of independent
accountants, and reviewing with such accountants and the Treasurer of the Trust
matters relating to accounting and auditing practices and procedures, accounting
records, internal accounting controls and the functions performed by the Trust's
custodian, administrator and transfer agent.
As of April 25, 1996, the Trustees and officers of the Trust owned, as a
group, less than one percent of the outstanding shares of each Fund other than
Morgan Grenfell Short-Term Municipal Bond Fund. On such date, the Trustees and
officers of the Trust owned, as a group, 25.10% of the outstanding shares of
Morgan Grenfell Short-Term Municipal Bond Fund.
Compensation of Trustees
The Trust pays each Trustee who is not affiliated with the Adviser an annual
fee of $15,000 provided that they attend each regular Board meeting during the
year. Members of the Audit Committee also receive $1,000 for each Audit
Committee meeting attended. The Chairman of the Audit Committee receives an
additional $1,000 per year. The Trustees are also reimbursed for out-of-pocket
expenses incurred by them in connection with their duties as Trustees.
The following table sets forth the compensation paid by the Trust to the
Trustees for the fiscal year of the Trust ended October 31, 1995:
Pension or
Retirement Aggregate
Benefits Accrued Compensation from
as Part of Fund the Trust /
Name of Trustees Expenses Complex*
- ---------------- ---------------- -----------------
James E. Minnick $ 0 $ 0
Patrick W. Disney $ 0 $ 0
Paul K. Freeman $ 0 $ 14,500
Graham E. Jones $ 0 $ 14,500
William N. Searcy $ 0 $ 15,500
Hugh G. Lynch $ 0 $ 13,500
Edward T. Tokar $ 0 $ 0
- ---------------
* The Trustees listed above do not serve on the Board of any other investment
company that may be considered to belong to the same complex as the Trust.
The above figures reflect the Board of Trustees' adoption of a new Trustee
compensation schedule, effective as of May 20, 1995, as well as the old
compensation schedule, which was in effect prior to May 20, 1995. Trustees'
28
<PAGE>
compensation figures for fiscal years after October 31, 1995 will be higher than
these figures because Trustee compensation during such years will be paid solely
in accordance with the new schedule.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser
MGCM, 885 Third Avenue, New York, New York, acts as the investment adviser to
the Funds pursuant to the terms of two Management Contracts, each dated December
28, 1994 (the "Management Contracts"). One Management Contract is between MGCM
and the Trust, on behalf of the Fixed Income Fund and Municipal Bond Fund. The
other Management Contract is between MGCM and the Trust, on behalf of Smaller
Companies Fund and Short-Term Fixed Income Fund and Short-Term Municipal Bond
Fund. Pursuant to the Management Contracts, the Adviser supervises and assists
in the management of the assets of each Fund and furnishes each Fund with
research, statistical, advisory and managerial services. The Adviser pays the
ordinary office expenses of the Trust and the compensation, if any, of all
officers and employees of the Trust and all Trustees who are "interested
persons" (as defined in the 1940 Act) of the Adviser.
Under the Management Contracts, the Trust, on behalf of each Fund is
obligated to pay the Adviser a monthly fee at an annual rate of each Fund's
average daily net assets as follows:
Annual Rate
------------
Morgan Grenfell Smaller Companies Fund 1.00%
Morgan Grenfell Fixed Income Fund 0.40%
Morgan Grenfell Short-Term Fixed Income Fund 0.40%
Morgan Grenfell Municipal Bond Fund 0.40%
Morgan Grenfell Short-Term Municipal Bond Fund 0.40%
Each Fund's advisory fees are paid monthly and will be prorated if the
Adviser shall not have acted as the Fund's investment adviser during the entire
monthly period. The Adviser has temporarily agreed, under certain circumstances,
to reduce or not impose its management fee and to make arrangements to limit
certain other expenses as described in the Prospectus under "Expense
Information." In the event that a Fund's expenses for any fiscal year exceed the
limits established by certain state securities administrators, the Adviser will
reduce its fee payable on behalf of such Fund by the amount of such excess, but
only to the extent of the Fund's advisory fee.
For the fiscal years ended October 31, 1995, 1994 and 1993, Morgan Grenfell
Fixed Income Fund paid the Adviser net advisory fees of $1,150,707, $532,189 and
$159,535, respectively. For the same years, Morgan Grenfell Municipal Bond Fund
paid the Adviser net advisory fees of $595,795, $444,910, and $307,859,
respectively. For the fiscal period ended October 31, 1995, Morgan Grenfell
Short-Term Fixed Income Fund, Morgan Grenfell Short-Term Municipal Bond Fund and
Morgan Grenfell Smaller Companies Fund paid no advisory fees to the Adviser. The
foregoing advisory fee payments and non-payments reflect expense limitations
that were in effect during the indicated periods.
The Management Contract between MGCM and the Trust, on behalf of Smaller
Companies Fund, the Short-Term Fixed Income Fund and the Short-Term Municipal
Bond Fund, was most recently approved on November 17, 1995 by a vote of the
Trust's Board of Trustees, including a majority of those Trustees who
29
<PAGE>
were not parties to such Management Contract or "interested persons" of any such
parties. The Management Contract between MGCM and the Trust, on behalf of the
Fixed Income Fund and the Municipal Bond Fund, was approved on November 17, 1995
by a vote of the Trust's Board of Trustees, including a majority of those
Trustees who were not parties to such Management Contract or "interested
persons" of any such parties.
The Management Contracts will remain in effect until November 30, 1996, and
will continue in effect thereafter, with respect to each Fund, only if such
continuance is specifically approved annually by the Trustees, including a
majority of the Trustees who are not parties to the Management Contracts or
"interested persons" of any such parties, or by a vote of a majority of the
outstanding shares of each Fund. The Management Contracts are terminable by vote
of the Board of Trustees, or, with respect to a Fund, by the holders of a
majority of the outstanding shares of the Fund, at any time without penalty on
60 days' written notice to the Adviser. Termination of a Management Contract
with respect to a Fund will not terminate or otherwise invalidate any provision
of either Management Contract with respect to any other Fund. The Adviser may
terminate either Management Contract at any time without penalty on 60 days'
written notice to the Trust. Each Management Contract terminates automatically
in the event of its "assignment" (as such term is defined in the 1940 Act).
Each Management Contract provides that the Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust or
any Fund in connection with the performance of the Adviser's obligations under
the Management Contract with the Trust, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its duties or from reckless disregard of its duties and
obligations thereunder.
In the management of the Funds and its other accounts, the Adviser allocates
investment opportunities to all accounts for which they are appropriate subject
to the availability of cash in any particular account and the final decision of
the individual or individuals in charge of such accounts. Where market supply is
inadequate for a distribution to all such accounts, securities are allocated
based on a Fund's pro rata portion of the amount ordered. In some cases this
procedure may have an adverse effect on the price or volume of the security as
far as a Fund is concerned. However, it is the judgment of the Board that the
desirability of continuing the Trust's advisory arrangements with the Adviser
outweighs any disadvantages that may result from contemporaneous transactions.
See "Portfolio Brokerage."
MGCM is registered with the Commission as an investment adviser and provides
a full range of investment advisory services to institutional clients. MGCM is a
direct wholly-owned subsidiary of Morgan Grenfell Asset Management, Ltd., which
is a wholly-owned subsidiary of Deutsche Morgan Grenfell Group plc. Deutsche
Morgan Grenfell Group plc is an indirect wholly-owned subsidiary of Deutsche
Bank AG, an international commercial and investment banking group. As of
December 31, 1995, MGCM managed approximately $8.0 billion in assets for various
individual and institutional accounts, including the Morgan Grenfell SMALLCap
Fund, Inc., a registered, closed-end investment company for which it acts as
investment adviser.
Portfolio Turnover
Each Fund's portfolio turnover rate is calculated by dividing the lesser of
the dollar amount of sales or purchases of portfolio securities by the average
monthly value of a Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. For the fiscal periods
ended October
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31, 1995 and 1994, the portfolio turnover rates for Morgan Grenfell Fixed Income
Fund were 182% and 251%, respectively. For the same periods, the portfolio
turnover rates for Morgan Grenfell Municipal Bond Fund were 63% and 94%,
respectively. The significant difference between Morgan Grenfell Fixed Income
Fund's turnover rates for these two periods was attributable to the fact that
abnormal bond market events in 1994 caused the Fund to readjust the composition
of its investment portfolio more than it would have in a normal year. For the
fiscal period ended October 31, 1995, the portfolio turnover rates for Morgan
Grenfell Short-Term Fixed Income Fund, Morgan Grenfell Short-Term Municipal Bond
Fund and Morgan Grenfell Smaller Companies Fund were 90%, 62% and 23%,
respectively.
The Administrator
As described in the Prospectus, SEI Financial Management Corporation (the
"Administrator") serves as the Trust's administrator pursuant to an
administration agreement between the Administrator and the Trust, on behalf of
the Funds (the "Administration Agreement"). Pursuant to the Administration
Agreement, the Administrator has agreed to furnish statistical and research
data, clerical services, and stationery and office supplies; prepare and file
various reports with the appropriate regulatory agencies including the
Commission and state securities commissions; and provide accounting and
bookkeeping services for the Funds, including the computation of each Fund's net
asset value, net investment income and net realized capital gains, if any.
For its services under the Administration Agreement, the Administrator
receives from all series of the Trust an aggregate monthly fee at the following
annual rates of the aggregate average daily net assets ("aggregate assets") of
such series:
0.15% of aggregate assets under $300 million
0.12% of next $200 million of aggregate assets
0.10% of next $500 million of aggregate assets
0.08% of aggregate assets exceeding $1 billion
For the fiscal years ended October 31, 1995, 1994 and 1993, Morgan Grenfell
Fixed Income Fund paid the Administrator administration fees of $455,614,
$259,094 and $104,526, respectively. For the same years, Morgan Grenfell
Municipal Bond Fund paid the Administrator administration fees of $227,872,
$231,957 and $217,109, respectively. The administration fee paid by Morgan
Grenfell Municipal Bond Fund for the year ended October 31, 1993 reflects an
expense limitation that was in effect during that year. For the fiscal period
ended October 31, 1995, Morgan Grenfell Short-Term Fixed Income Fund, Morgan
Grenfell Short-Term Municipal Bond Fund and Morgan Grenfell Smaller Companies
Fund paid the Administrator administration fees of $12,500, $12,500 and $4,167,
respectively.
The Administration Agreement provides that the Administrator shall not be
liable under the Administration Agreement except for bad faith or gross
negligence in the performance of its duties or from the reckless disregard by it
of its duties and obligations thereunder.
Expenses of the Trust
The Trust pays: (i) fees and expenses of any investment adviser and any
administrator of the Funds; (ii) fees and expenses incurred by the Funds in
connection with membership in investment company organizations; (iii) brokers'
commissions; (iv) payment for portfolio pricing services to a pricing agent, if
any;
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(v) legal expenses (including an allocable portion of the cost of its employees
rendering legal services to the Funds); (vi) interest, insurance premiums, taxes
or governmental fees; (vii) the fees and expenses of the transfer agent of the
Funds; (viii) clerical expenses of issue, redemption or repurchase of shares of
the Funds; (ix) the expenses of and fees for registering or qualifying shares of
the Funds for sale and of maintaining the registration of the Funds and
registering the Funds as a broker or a dealer; (x) the fees and expenses of
Trustees who are not affiliated with the Adviser; (xi) the cost of preparing and
distributing reports and notices to shareholders, the Commission and other
regulatory authorities; (xii) the fees or disbursements of custodians of the
Fund's assets, including expenses incurred in the performance of any obligations
enumerated by the Declaration of Trust or By-Laws of the Trust insofar as they
govern agreements with any such custodian; (xiii) costs in connection with
annual or special meetings of shareholders, including proxy material
preparation, printing and mailing; (xiv) charges and expenses of the Trust's
auditor; (xv) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Trust's business; and (xvi)
expenses of an extraordinary and nonrecurring nature.
Transfer Agent
DST Systems, Inc., 210 W. 10th Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer and dividend disbursing agent for the
Funds pursuant to a transfer agency agreement (the "Transfer Agency Agreement"),
under which the Transfer Agent (i) maintains shareholder accounts, and (ii)
makes periodic reports to the Trust's Board of Trustees concerning the
operations of each Fund.
The Distributor
The Trust, on behalf of the Funds, has entered into a distribution agreement
(the "Distribution Agreement") pursuant to which SEI Financial Services Company,
680 East Swedesford Road, Wayne, Pennsylvania 19087 (the "Distributor"), as
agent, serves as principal underwriter for the continuous offering of shares of
each Fund. The Distributor has agreed to use its best efforts to solicit orders
for the purchase of shares of each Fund, although it is not obligated to sell
any particular amount of shares. Shares of the Funds are not subject to sales
loads or distribution fees. The Adviser, and not the Trust, is responsible for
payment of any expenses or fees incurred in the marketing and distribution of
shares of the Funds.
The Distribution Agreement will remain in effect for one year from its
effective date and will continue in effect thereafter only if such continuance
is specifically approved annually by the Trustees, including a majority of the
Trustees who are not parties to the Distribution Agreement or "interested
persons" of such parties. The Distribution Agreement was approved by the initial
shareholder of each Fund on December 28, 1994. The Distribution Agreement was
most recently approved on November 17, 1995 by a vote of the Trust's Board of
Trustees, including a majority of those Trustees who were not parties to the
Distribution Agreement or "interested persons" of any such parties. The
Distribution Agreement is terminable, as to a Fund, by vote of the Board of
Trustees, or by the holders of a majority of the outstanding shares of the Fund,
at any time without penalty on 60 days' written notice to the Trust and Adviser.
The Distributor may terminate the Distribution Agreement at any time without
penalty on 90 days' written notice to the Trust.
Custodian
As described in the Prospectus, CoreStates Bank, N.A. ("CoreStates"), whose
principal business address is Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, PA 19101 maintains custody of the assets of Morgan Grenfell Fixed
Income Fund and Morgan Grenfell Municipal Bond Fund. As described in the Pro-
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spectus, The Northern Trust Company ("Northern"), whose principal business
address is Fifty South LaSalle Street, Chicago, Illinois 60675, maintains
custody of the assets of the other Funds.
Under their custody agreements with the Trust, CoreStates and Northern (i)
maintain separate accounts in the name of each Fund, (ii) hold and transfer
portfolio securities on account of each Fund, (iii) accept receipts and make
disbursements of money on behalf of each Fund, (iv) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities and (v) make periodic reports to the Trust's Board of Trustees
concerning each Fund's operations. CoreStates and Northern are authorized to
select one or more foreign or domestic banks or companies to serve as
sub-custodian on behalf of the Funds.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Trustees, the Adviser
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities for the Funds. In executing portfolio transactions, the
Adviser seeks to obtain the best net results for the Funds, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), size of the order, difficulty of execution and operational facilities
of the firm involved. Commission rates, being a component of price, are
considered together with such factors. Where transactions are effected on a
foreign securities exchange, the Funds employ brokers, generally at fixed
commission rates. Commissions on transactions on U.S. securities exchanges are
subject to negotiation. Where transactions are effected in the over-the-counter
market or third market, the Funds deal with the primary market makers unless a
more favorable result is obtainable elsewhere. Fixed income securities purchased
or sold on behalf of the Funds normally will be traded in the over-the-counter
market on a net basis (i.e. without a commission) through dealers acting for
their own account and not as brokers or otherwise through transactions directly
with the issuer of the instrument. Some fixed income securities are purchased
and sold on an exchange or in over-the-counter transactions conducted on an
agency basis involving a commission.
Pursuant to the Advisory Agreements, the Adviser agrees to select
broker-dealers in accordance with guidelines established by the Trust's Board of
Trustees from time to time and in accordance with Section 28(e) of the
Securities Exchange Act of 1934, as amended. In assessing the terms available
for any transaction, the Adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. In addition, the Advisory Agreements authorize the
Adviser, subject to the periodic review of the Trust's Board of Trustees, to
cause a Fund to pay a broker-dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another
broker-dealer for effecting the same transaction, provided that the Adviser
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker-dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of the Adviser to the Fund. Such brokerage and research
services may consist of pricing information, reports and statistics on specific
companies or industries, general summaries of groups of bonds and their
comparative earnings and yields, or broad overviews of the securities markets
and the economy.
Supplemental research information utilized by the Adviser is in addition to,
and not in lieu of, services required to be performed by the Adviser and does
not reduce the advisory fees payable to the Adviser. The
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Trustees will periodically review the commissions paid by the Funds to consider
whether the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Funds. It is possible that
certain of the supplemental research or other services received will primarily
benefit one or more other investment companies or other accounts of the Adviser
for which investment discretion is exercised. Conversely, a Fund may be the
primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other account or investment company.
During the fiscal period ended October 31, 1995, the Adviser did not, pursuant
to any agreement or understanding with a broker or otherwise through an internal
allocation procedure, direct any Fund's brokerage transactions to a broker
because of research services provided by such broker.
Investment decisions for each Fund and for other investment accounts managed
by the Adviser are made independently of each other in the light of differing
conditions. However, the same investment decision may be made for two or more of
such accounts. In such cases, simultaneous transactions are inevitable.
Purchases or sales are then averaged as to price and allocated as to amount in a
manner deemed equitable to each such account. While in some cases this practice
could have a detrimental effect on the price or value of the security as far as
a Fund is concerned, in other cases it is believed to be beneficial to a Fund.
To the extent permitted by law, the Adviser may aggregate the securities to be
sold or purchased for a Fund with those to be sold or purchased for other
investment companies or accounts in executing transactions.
Pursuant to procedures determined by the Trustees and subject to the general
policies of the Funds and Section 17(e) of the 1940 Act, the Adviser may place
securities transactions with brokers with whom it is affiliated ("Affiliated
Brokers").
Section 17(e) of the 1940 Act limits to "the usual and customary broker's
commission" the amount which can be paid by the Funds to an Affiliated Broker
acting as broker in connection with transactions effected on a securities
exchange. The Board, including a majority of the Trustees who are not
"interested persons" of the Trust or the Adviser, has adopted procedures
designed to comply with the requirements of Section 17(e) of the 1940 Act and
Rule 17e-1 promulgated thereunder to ensure that the broker's commission is
"reasonable and fair compared to the commission, fee or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time...."
A transaction would not be placed with an Affiliated Broker if a Fund would
have to pay a commission rate less favorable than their contemporaneous charges
for comparable transactions for their other most favored, but unaffiliated,
customers except for accounts for which they act as a clearing broker, and any
of their customers determined, by a majority of the Trustees who are not
"interested persons" of the Fund or the Adviser, not to be comparable to the
Fund. With regard to comparable customers, in isolated situations, subject to
the approval of a majority of the Trustees who are not "interested persons" of
the Trust or the Adviser, exceptions may be made. Since the Adviser, as
investment adviser to the Funds, has the obligation to provide management, which
includes elements of research and related skills, such research and related
skills will not be used by them as a basis for negotiating commissions at a rate
higher than that determined in accordance with the above criteria. The Funds
will not engage in principal transactions with Affiliated Brokers. When
appropriate, however, orders for the account of the Funds placed by Affiliated
Brokers are combined with orders of their respective clients, in order to obtain
a more favorable commission rate. When the same security is purchased for two or
more funds or customers on the same day, each fund
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or customer pays the average price and commissions paid are allocated in direct
proportion to the number of shares purchased.
Affiliated Brokers furnish to the Trust at least annually a statement setting
forth the total amount of all compensation retained by them or any associated
person of them in connection with effecting transactions for the account of the
Funds, and the Board reviews and approves all the Funds' portfolio transactions
on a quarterly basis and the compensation received by Affiliated Brokers in
connection therewith. During the fiscal years ended October 31, 1993, 1994 and
1995, neither the Fixed Income Fund nor the Municipal Bond Fund paid any
brokerage commissions to any Affiliated Broker. During the fiscal period ended
October 31, 1995, neither Short-Term Fixed Income Fund, Short-Term Municipal
Bond Fund nor Smaller Companies Fund paid any brokerage commissions to any
affiliated broker.
Affiliated Brokers do not knowingly participate in commissions paid by the
Funds to other brokers or dealers and do not seek or knowingly receive any
reciprocal business as the result of the payment of such commissions. In the
event that an Affiliated Broker learns at any time that it has knowingly
received reciprocal business, it will so inform the Board.
For the fiscal years ended October 31, 1995, 1994 and 1993, Morgan Grenfell
Fixed Income Fund and Morgan Grenfell Municipal Bond Fund paid no brokerage
commissions. For fiscal year ended October 31, 1995, Morgan Grenfell Short-Term
Fixed Income Fund and Morgan Grenfell Short-Term Municipal Bond Fund paid no
brokerage commissions. For the fiscal period ended October 31, 1995, Morgan
Grenfell Smaller Companies Fund paid aggregate brokerage commissions of $3,778.
NET ASSET VALUE
Under the 1940 Act, the Board of Trustees of the Trust is responsible for
determining in good faith the fair value of the securities of each Fund. In
accordance with procedures adopted by the Board of Trustees, the net asset value
per share of each Fund is calculated by determining the net worth of the Fund
(assets, including securities at value, minus liabilities) divided by the number
of shares outstanding. Each Fund computes its net asset value at the close of
such regular trading, which is normally 4:00 p.m. Eastern time, on each day on
which the New York Stock Exchange ("NYSE") is open (a "Business Day"). The NYSE
is closed on Saturdays and Sundays as well as the following holidays: New Year's
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
For purposes of calculating each Fund's net asset value per share, equity
securities traded on a recognized U.S. or foreign securities exchange or the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
are valued at their last sale price on the principal exchange on which they are
traded or NASDAQ (if NASDAQ is the principal market for such securities) on the
valuation day or, if no sale occurs, at the bid price. Unlisted equity
securities for which market quotations are readily available are valued at the
most recent bid price.
Debt securities and other fixed income investments of the Funds are valued at
prices supplied by independent pricing agents, which prices reflect
broker-dealer supplied valuations and electronic data processing techniques.
Short-term obligations maturing in sixty days or less may be valued at amortized
cost, which method does not take into account unrealized gains or losses on such
portfolio securities. Amortized cost valuation involves initially valuing a
security at its cost, and thereafter, assuming a constant amortization
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<PAGE>
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security. While this method provides
certainty in valuation, it may result in periods in which the value of the
security, as determined by amortized cost, may be higher or lower than the price
the Fund would receive if the Fund sold the security.
Other assets and assets in which market quotations are not readily available
are valued at fair value using methods determined in good faith by the Board of
Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the 4:00 P.M.
(Eastern Time) close of business on each Business Day. In addition, European or
Far Eastern securities trading generally or in a particular country or countries
may not take place on all Business Days. Furthermore, trading takes place in
Japanese markets on certain Saturdays and in various foreign markets on days
which are not Business Days and on which the Funds' net asset values are not
calculated. Such calculation may not take place contemporaneously with the
determination of the prices of certain portfolio securities used in such
calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of the regular
trading on the NYSE will not be reflected in the Funds' calculation of net asset
values unless the Adviser deems that the particular event would materially
affect net asset value, in which case an adjustment will be made.
PERFORMANCE INFORMATION
Yield
From time to time, each Fixed Income Fund and each Municipal Fund may
advertise its yield and (in the case of the Municipal Funds) its tax-equivalent
yield. The yield of a Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the income generated by the investment during that period is
generated for each like period over one year and is shown as a percentage of the
investment. In particular, yield will be calculated according to the following
formula:
YIELD = 2 [(a - b +1)(6) - 1]
-----
cd
Where: a = dividends and interest earned by the Fund during the period;
b = net expenses accrued for the period;
c = average daily number of shares outstanding during the period
entitled to receive dividends; and
d = maximum offering price per share on the last day
of the period.
Tax-equivalent yield is computed by dividing the portion of the yield that is
tax exempt by one minus a stated income tax rate and adding the product to that
portion, if any, of the yield that is not tax exempt.
Actual yields will depend on such variables as asset quality, average asset
maturity, the type of instruments a Fund invests in, changes in interest rates
on money market instruments, changes in the expenses of the Fund and other
factors.
Yields are one basis upon which investors may compare the Funds with other
mutual funds; however, yields of other mutual funds and other investment
vehicles may not be comparable because of the factors set forth above and
differences in the methods used in valuing portfolio instruments.
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For the 30-day period ended October 31, 1995, the yields of the Fixed Income
Fund, the Municipal Bond Fund, the Short-Term Fixed Income Fund and the
Short-Term Municipal Bond Fund were 6.32%, 5.40%, 5.73% and 4.84%, respectively.
If the expense limitations described in the Prospectus for these Funds had not
been in effect during this period, the yields of these Funds would have been
6.24%, 5.33%, 3.44% and 3.23%, respectively. For the same period, the
tax-equivalent yields of the Municipal Bond Fund and the Short-Term Municipal
Bond Fund were 8.94% and 8.01%, respectively, assuming the highest Federal
Income Tax bracket for individuals (39.6%). If the expense limitations described
in the Prospectus for these Funds had not been in effect during this period, the
tax-equivalent yields of these Funds would have been 8.82% and 5.35%,
respectively, assuming the same Federal Income Tax bracket.
Total Return
Each Fund that advertises its "average annual total return" computes such
return by determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
ERV
T = [(-----) (1/n)-1]
P
Where: T = average annual total return,
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such returns
by determining the aggregate compounded rates of return during specified periods
that likewise equate the initial amount invested to the ending redeemable value
of such investment. The formula for calculating aggregate total return is as
follows:
ERV
Aggregate Total Return = [(-----) - 1]
P
The above calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. For the fiscal year ended October 31, 1995 and for the period
from December 13, 1991 (commencement of the Municipal Bond Fund's operations)
through October 31, 1995, the total return for such Fund was 10.90% and 9.46%,
respectively. For their respective periods from commencement of operations to
October 31, 1995, the average annual total returns of Morgan Grenfell Short-Term
Fixed Income Fund, Morgan Grenfell Short-Term Municipal Bond Fund and Morgan
Grenfell Smaller Companies Fund were 3.82%, 4.39% and 5.50%, respectively. For
the fiscal year ended October 31, 1995 and for the period from September
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18, 1992 (commencement of the Fixed Income Fund's operations) through October
31, 1995, the total return for such Fund was 14.53% and 8.94%, respectively. If
the expense limitations described in the Prospectus for the above Funds had not
been in effect during the indicated periods, the total returns of these Funds
for such periods would have been lower than the total return figures shown in
this paragraph.
The Funds may from time to time advertise comparative performance as measured
by various independent sources, including, but not limited to, Barron's, The
Wall Street Journal, Weisenberger Investment Companies Service, Business Week,
Changing Times, Financial World, Forbes, Fortune and Money. In addition, the
Funds may from time to time advertise their performance relative to certain
indices and benchmark investments, including: (a) the Lipper Analytical
Services, Inc. Mutual Fund Performance Analysis, Fixed Income Analysis and
Mutual Fund Indices (which measure total return and average current yield for
the mutual fund industry and rank mutual fund performance); (b) the CDA Mutual
Fund Report published by CDA Investment Technologies, Inc. (which analyzes
price, risk and various measures of return for the mutual fund industry); (c)
the Consumer Price Index published by the U.S. Bureau of Labor Statistics (which
measures changes in the price of goods and services); (d) Stocks, Bonds, Bills
and Inflation published by Ibbotson Associates (which provides historical
performance figures for stocks, government securities and inflation); (e) the
Shearson Lehman Brothers Aggregate Bond Index or its component indices (the
Aggregate Bond Index measures the performance of Treasury, U.S. Government
agency, corporate, mortgage and Yankee bonds); (f) the Standard & Poor's Bond
Indices (which measure yield and price of corporate, municipal and U.S.
Government bonds); and (g) historical investment data supplied by the research
departments of Goldman Sachs, Shearson Lehman Hutton, First Boston Corporation,
Morgan Stanley, Salomon Brothers, Merrill Lynch, Donaldson Lufkin and Jenrette
or other providers of such data. The composition of the investments in such
indices and the characteristics of such benchmark investments are not identical
to, and in some cases are very different from, those of the Fund's portfolio.
These indices and averages are generally unmanaged and the items included in the
calculations of such indices and averages may not be identical to the formulas
used by the Funds to calculate their performance figures.
TAXES
The following is a summary of the principal U.S. federal income, and certain
state and local, tax considerations regarding the purchase, ownership and
disposition of shares in the Funds. This summary does not address special tax
rules applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Each prospective shareholder is
urged to consult his own tax adviser with respect to the specific federal,
state, local and foreign tax consequences of investing in the Funds. The summary
is based on the laws in effect on the date of this Statement of Additional
Information, which are subject to change.
General
Each Fund is a separate taxable entity. Each Fund has elected to be treated,
and intends to qualify for each taxable year, as a regulated investment company
under Subchapter M of the Code.
Qualification of any Fund as a regulated investment company under the Code
requires, among other things, that (a) the Fund derive at least 90% of its
annual gross income (including tax-exempt interest) from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stocks or securities or foreign currencies, or other income
(including but not limited to gains from options,
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futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "90% gross income test");
(b) the Fund derive less than 30% of its annual gross income from the sale or
other disposition of any of the following which was held for less than three
months: (i) stock or securities; (ii) options, futures or forward contracts
(other than options, futures or forward contracts on foreign currencies); and
(iii) foreign currencies and foreign currency options, futures and forward
contracts that are not directly related to the Fund's principal business of
investing in stock or securities or options and futures with respect to stocks
or securities (the "short-short test"); and (c) the Fund diversify its holdings
so that, at the close of each quarter of its taxable year, (i) at least 50% of
the market value of its total (gross) assets is comprised of cash, cash items,
United States Government securities, securities of other regulated investment
companies and other securities limited in respect of any one issuer to an amount
not greater in value than 5% of the value of the Fund's total assets and to not
more than 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than United States Government securities and securities of
other regulated investment companies) or two or more issuers controlled by the
Fund and engaged in the same, similar or related trades or businesses. Gains
from the sale or other disposition of foreign currencies (or options, futures or
forward contracts on foreign currencies) that are not directly related to a
Fund's principal business of investing in stock or securities or options and
futures with respect to stock or securities will be treated as gains from the
disposition of investments held for less than three months under the short-short
test (even though characterized as ordinary income for some purposes) if such
currencies or instruments were held for less than three months. In addition,
future Treasury regulations could provide that qualifying income under the 90%
gross income test will not include gains from foreign currency transactions that
are not directly related to a Fund's principal business of investing in stock or
securities or options and futures with respect to stock or securities. Using
foreign currency positions or entering into foreign currency options, futures or
forward contracts for purposes other than hedging currency risk with respect to
securities in a Fund's portfolio or anticipated to be acquired may not qualify
as "directly-related" under these tests.
If a Fund complies with such provisions, then in any taxable year in which
the Fund distributes at least 90% of the sum of (i) its "investment company
taxable income" (which includes dividends, taxable interest, taxable accrued
original issue discount, accrued, realized market discount, income from
securities lending, any net short-term capital gain in excess of net long-term
capital loss and certain net realized foreign exchange gains and is reduced by
deductible expenses) and (ii) the excess of its gross tax-exempt interest, if
any, over certain disallowed deductions ("net tax-exempt interest"), the Fund
(but not its shareholders) will be relieved of federal income tax on any income
of the Fund, including long-term capital gains, distributed to shareholders.
However, if a Fund retains any investment company taxable income or net capital
gain (the excess of net long-term capital gain over net short-term capital
loss), it will be subject to a tax at regular corporate rates on the amount
retained.
If a Fund retains any net capital gain, the Fund may designate the retained
amount as undistributed capital gains in a notice to its shareholders who, if
subject to U.S. federal income tax on long-term capital gains, (i) will be
required to include in income for federal income tax purposes, as long-term
capital gain, their shares of such undistributed amount, and (ii) will be
entitled to credit their proportionate shares of the tax paid by the Fund
against their U.S. federal income tax liabilities, if any, and to claim refunds
to the extent the credit exceeds such liabilities.
39
<PAGE>
For U.S. federal income tax purposes, the tax basis of shares owned by a
shareholder of a Fund will be increased by an amount equal under current law to
65% of the amount of undistributed net capital gains included in the
shareholder's gross income. Each Fund intends to distribute at least annually to
its shareholders all or substantially all of its investment company taxable
income, net tax-exempt interest, and net capital gain. If for any taxable year a
Fund does not qualify as a regulated investment company, it will be taxed on all
of its investment company taxable income and net capital gain at corporate
rates, and any net tax-exempt interest may be subject to alternative minimum
tax.
In order to avoid a 4% federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed in such year and on which no federal income tax was
paid by the Fund. For federal income tax purposes, dividends declared by a Fund
in October, November or December to shareholders of record on a specified date
in such a month and paid during January of the following year are treated as
distributed by the Fund and are taxable to such shareholders as if received on
December 31 of the year declared.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) entered into
by Smaller Companies Fund will generally be treated as capital gains and losses.
Certain of the futures contracts, forward contracts and options held by the Fund
will be required to be "marked-to-market" for federal income tax purposes, that
is, treated as having been sold at their fair market value on the last day of
the Fund's taxable year. Any gain or loss recognized on actual or deemed sales
of these futures contracts, forward contracts, or options (except for certain
foreign currency options, forward contracts, and futures contracts) will be
treated as 60% long-term capital gain or loss and 40% short-short capital gain
or loss. As a result of certain hedging transactions entered into by the Smaller
Companies Fund, such Fund may be required to defer the recognition of losses on
futures or forward contracts and options or underlying securities or foreign
currencies to the extent of any unrecognized gains on related positions and the
characterization of gains or losses as long-term or short-term may be changed.
The tax provisions described above applicable to options, futures and forward
contracts may affect the amount, timing and character of the Fund's
distributions to shareholders. The short-short test described above may limit
the Fund's ability to use options, futures and forward transactions as well as
its ability to engage in short sales. Certain tax elections may be available to
the Fund to mitigate some of the unfavorable consequences described in this
paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by Smaller Companies Fund.
Under these rules, foreign exchange gain or loss realized with respect to
foreign currencies and certain futures and options thereon, foreign
currency-denominated debt instruments, foreign currency forward contracts, and
foreign currency-denominated payables and receivables will generally be treated
as ordinary income or loss although in some cases elections may be available
that would alter this treatment.
40
<PAGE>
If Smaller Companies Fund or a Fixed Income Fund acquires stock in certain
non-U.S. corporations that receive at least 75% of their annual gross income
from passive sources (such as interest, dividends, rents, royalties or capital
gain) or hold at least 50% of their assets in investments producing such passive
income ("passive foreign investment companies"), the Fund could be subject to
federal income tax and additional interest charges on "excess distributions"
received from such companies or gain from the sale of stock in such companies,
even if all income or gain actually received by the Fund is timely distributed
to its shareholders. The Fund would not be able to pass through to its
shareholders any credit or deduction for such a tax. Certain elections may, if
available, ameliorate these adverse tax consequences, but any such election
could require the Fund to recognize taxable income or gain without the
concurrent receipt of cash. The applicable Funds may limit and/or manage their
holdings in passive foreign investment companies to minimize their tax liability
or maximize their return from these investments.
A Fund that invests in foreign securities may be subject to foreign
withholding or other foreign taxes on certain income (possibly including, in
some cases, capital gains) from such securities. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. The Funds will not be
entitled to pass through such foreign taxes to their shareholders, who
consequently will not be entitled to any U.S. tax credits or deductions for such
taxes.
Each Fund's investments in zero coupon securities or other securities bearing
original issue discount or, if the Fund elects to include market discount in
income currently, market discount will generally cause it to realize income
prior to the receipt of cash payments with respect to these securities. Options,
futures or forward contracts subject to the mark to market rules described above
may have the same result if recognized mark to market gains exceed recognized
mark to market losses. In order to obtain cash to distribute this income or
gain, maintain its qualification as a regulated investment company, and avoid
federal income or excise taxes, a Fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold.
Each Municipal Fund purchases tax-exempt municipal securities which are
generally accompanied by an opinion of bond counsel to the effect that interest
on such securities is not included in gross income for federal income tax
purposes. It is not economically feasible to, and the Municipal Funds therefore
do not, make any additional independent inquiry into whether such securities are
in fact tax-exempt. Bond counsels' opinions will generally be based in part upon
covenants by the issuers and related parties regarding continuing compliance
with federal tax requirements. Tax laws, especially those enacted during the
last decade, not only had the effect of limiting the purposes for which
tax-exempt bonds could be issued and reducing the supply of such bonds, but also
increased the number and complexity of requirements that must be satisfied on a
continuing basis in order for bonds to be and remain tax-exempt. If the issuer
of a bond or a user of a bond-financed facility fails to comply with such
requirements at any time, interest on the bond could become taxable, retroactive
to the date the obligation was issued. In that event, a portion of a Municipal
Fund's distributions attributable to interest such Fund received on such bond
for the current year and for prior years could be characterized or
recharacterized as taxable income.
Each Fixed Income Fund and each Municipal Fund may purchase municipal
securities together with the right to resell the securities to the seller at an
agreed upon price or yield within a specified period prior to the maturity date
of the securities. Such a right to resell is commonly known as a "put" and is
also referred to as a "standby commitment." A Fund may pay for a standby
commitment either separately,
41
<PAGE>
in cash, or in the form of a higher price for the securities which are acquired
subject to the standby commitment, thus increasing the cost of securities and
reducing the yield otherwise available. Additionally, a Fund may purchase
beneficial interests in municipal securities held by trusts, custodial
arrangements or partnerships and/or combined with third-party puts or other
types of features such as interest rate swaps; those investments may require the
Fund to pay "tender fees" or other fees for the various features provided.
The IRS has issued a revenue ruling to the effect that, under specified
circumstances, a registered investment company will be the owner of tax-exempt
municipal obligations acquired subject to a put option. The IRS has also issued
private letter rulings to certain taxpayers (which do not serve as precedent for
other taxpayers) to the effect that tax-exempt interest received by a regulated
investment company with respect to such obligations will be tax-exempt in the
hands of the company and may be distributed to its shareholders as
exempt-interest dividends. The IRS has subsequently announced that it will not
ordinarily issue advance ruling letters as to the identity of the true owner of
property in cases involving the sale of securities or participation interests
therein if the purchaser has the right to cause the security, or the
participation interest therein, to be purchased by either the seller or a third
party. Each Fund intends to take the position that it is the owner of any
municipal obligations acquired subject to a standby commitment or other third
party put and that tax-exempt interest earned with respect to such municipal
obligations will be tax-exempt in its hands. There is no assurance that the IRS
will agree with such position in any particular case. Additionally, the federal
income tax treatment of certain other aspects of these investments, including
the treatment of tender fees paid by the Fund, in relation to various regulated
investment company tax provisions is unclear. However, the Adviser intends to
manage each Fund's portfolio in a manner designed to minimize any adverse impact
from the tax rules applicable to these investments.
For federal income tax purposes, each Fund is permitted to carry forward a
net capital loss in any year to offset its own capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent years'
capital gains are offset by such losses, they would not result in federal income
tax liability to the applicable Fund and, accordingly, would generally not be
distributed to shareholders. At October 31, 1995, Municipal Bond Fund had
capital loss carryforwards of approximately $1,556,000 and Smaller Companies
Fund had capital loss carryforwards of approximately $6,000, in each case
expiring (if not previously used) in the fiscal year ended October 31, 2003.
U.S. Shareholders--Distributions
A Municipal Fund's distributions from the tax-exempt interest it receives
will generally be exempt from federal income tax, provided that such Fund
qualifies as a regulated investment company, at least 50% of the value of the
Fund's total assets at the close of each quarter of its taxable year consists of
obligations that pay interest excluded from gross income under Section 103(a) of
the Code, and the Fund properly designates such distributions as
"exempt-interest dividends." The portions of such exempt-interest dividends, if
any, derived from interest on certain private activity bonds will constitute tax
preference items and may give rise to, or increase liability under, the federal
alternative minimum tax for particular shareholders. In addition, all
exempt-interest dividends may increase a corporate shareholder's liability, if
any, for the corporate alternative minimum tax and will be taken into account in
determining the portion, if any, of a shareholder's social security benefits or
certain railroad retirement benefits that is subject to tax.
For U.S. federal income tax purposes, distributions by the Funds other than
the Municipal Funds, whether reinvested in additional shares or paid in cash,
generally will be taxable to shareholders who are
42
<PAGE>
subject to tax. Shareholders receiving a distribution in the form of newly
issued shares will be treated for U.S. federal income tax purposes as receiving
a distribution in an amount equal to the amount of cash they would have received
had they elected to receive cash and will have a cost basis in each share
received equal to such amount divided by the number of shares received.
Distributions from investment company taxable income of any Fund, including the
Municipal Funds, for the year will be taxable as ordinary income. Investment
company taxable income includes, among other things, income from repurchase
agreements and securities loans; accrued, recognized market discount; a portion
of the discount on certain stripped tax- exempt obligations and their coupons;
and net short-term capital gain (in excess of net long-term capital loss) from
the sale of investments or options or futures transactions or the disposition of
rights to when- issued securities prior to issuance. Distributions to corporate
shareholders designated as derived from dividend income received by a Fund, if
any, that would be eligible for the dividends received deduction if the Fund
were not a regulated investment company will be eligible, subject to certain
holding period and debt- financing restrictions, for the 70% dividends received
deduction for corporations. Because eligible dividends are limited to those
received by a Fund from U.S. domestic corporations all dividends paid by the
Municipal Funds, and all or a substantial portion of the dividends paid by the
Fixed Income Funds, will generally not qualify for the dividends received
deduction. The entire dividend, including the deducted amount, is considered in
determining the excess, if any, of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
liability for the federal alternative minimum tax, and the dividend may, if it
is treated as an "extraordinary dividend" under the Code, reduce such
shareholder's tax basis in its shares of a Fund. Capital gain dividends (i.e.,
dividends from net capital gain) paid by any Fund, including the Municipal
Funds, if designated as such in a written notice to shareholders mailed not
later than 60 days after a Fund's taxable year closes, will be taxed to
shareholders as long-term capital gain regardless of how long shares have been
held by shareholders, but are not eligible for the dividends received deduction
for corporations.
Interest on indebtedness incurred directly or indirectly to purchase or carry
shares of a Municipal Fund will not be deductible to the extent it is deemed
related to exempt-interest dividends paid by such Fund.
A Municipal Fund may not be an appropriate investment for persons who are, or
are related to, substantial users of facilities financed by industrial
development or private activity bonds.
Shareholders are required to report tax-exempt income, including
exempt-interest dividends, on their federal income tax returns. Each Municipal
Fund will inform shareholders of the federal income tax status of its
distributions after the end of each calendar year, including the amounts that
qualify as exempt-interest dividends and any portions of such amounts that
constitute tax preference items under the federal alternative minimum tax.
Shareholders who have not held shares of a Municipal Fund for a full taxable
year may have designated as tax-exempt or as a tax preference item a percentage
of their distributions which is not exactly equal to a proportionate share of
the amount of tax-exempt interest or tax preference income earned during the
period of their investment in the Fund.
Different tax treatment, including penalties on certain excess contributions
and deferrals, certain pre- retirement and post-retirement distributions, and
certain prohibited transactions is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
43
<PAGE>
U.S. Shareholders--Sale of Shares
When a shareholder's shares are sold, redeemed or otherwise disposed of, the
shareholder will generally recognize gain or loss equal to the difference
between the shareholder's adjusted tax basis in the shares and the cash, or fair
market value of any property, received. Assuming the shareholder holds the
shares as a capital asset at the time of such sale or other disposition, such
gain or loss should be capital in character, and long-term if the shareholder
has held the shares for more than one year, otherwise short-term. However, any
loss realized on the sale, redemption or other disposition of shares with a tax
holding period of six months or less will be treated as a long-term capital loss
to the extent of any capital gain dividend received with respect to such shares
and will be disallowed to the extent of any exempt-interest dividends received
with respect to such shares. Additionally, any loss realized on a sale,
redemption or other disposition of shares of a Fund will be disallowed to the
extent the shares disposed of are replaced with shares of the same Fund within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to a dividend reinvestment in shares of the
Fund. If disallowed, the loss will be reflected in an adjustment to the basis of
the shares acquired.
The Funds may be required to withhold, as "backup withholding," federal
income tax at a rate of 31% from taxable dividends (including distributions from
a Fund's net long-term capital gains) and share redemption and exchange proceeds
to individuals and other non-exempt shareholders who fail to furnish the Funds
with a correct taxpayer identification number ("TIN") certified under penalties
of perjury, or if the Internal Revenue Service or a broker notifies the Funds
that the payee has failed to properly report interest or dividend income to the
Internal Revenue Service or that the TIN furnished by the payee to the Funds is
incorrect, or if (when required to do so) the payee fails to certify under
penalties of perjury that it is not subject to backup withholding. Any amounts
withheld may be credited against a shareholder's United States federal income
tax liability. Distributions by a Municipal Fund will not be subject to backup
withholding, however, for any year such Fund reasonably estimates that at least
95% of its dividends will be exempt-interest dividends.
Non-U.S. Shareholders
Shareholders who, as to the United States, are nonresident aliens, foreign
corporations, fiduciaries of foreign trusts or estates, foreign partnerships or
other non-U.S. investors generally will be subject to U.S. withholding tax at
the rate of 30% on distributions treated as ordinary income unless the tax is
reduced or eliminated pursuant to a tax treaty or the dividends are effectively
connected with a U.S. trade or business of the shareholder. In the latter case
the dividends will be subject to tax on a net income basis at the graduated
rates applicable to U.S. individuals or domestic corporations. Distributions of
net capital gain, including amounts retained by a Fund which are designated as
undistributed capital gains, to a non-U.S. shareholder will not be subject to
U.S. income or withholding tax unless the distributions are effectively
connected with the shareholder's trade or business in the United States or, in
the case of a shareholder who is a nonresident alien individual, the shareholder
is present in the United States for 183 days or more during the taxable year and
certain other conditions are met.
Any gain realized by a non-U.S. shareholder upon a sale or redemption of
shares of a Fund will not be subject to U.S. federal income or withholding tax
unless the gain is effectively connected with the shareholder's trade or
business in the United States, or in the case of a shareholder who is a
nonresident alien
44
<PAGE>
individual, the shareholder is present in the United States for 183 days or
more during the taxable year and certain other conditions are met. Non-U.S.
investors should consult their tax advisers about the applicability of U.S.
federal income or withholding taxes to certain distributions received by
them.
State and Local
The Funds may be subject to state or local taxes in jurisdictions in which
the Funds may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of a Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in the Fund may have tax consequences for
shareholders different from those of a direct investment in the Fund's portfolio
securities. Shareholders should consult their own tax advisers concerning these
matters.
GENERAL INFORMATION ABOUT THE TRUST
General
The Trust is an open-end investment company organized as a Delaware business
trust on September 13, 1993. The Trust commenced operations on January 3, 1994.
Until December 30, 1994, the Fixed Income Fund and the Municipal Bond Fund were
series of The Advisors' Inner Circle Fund, a Massachusetts business trust
organized under the laws of the Commonwealth of Massachusetts on July 18, 1991.
In the event of a liquidation or dissolution of the Trust or an individual
Fund, shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund. Shareholders of a Fund are
entitled to participate in the net distributable assets of the particular Fund
involved on liquidation, based on the number of shares of the Fund that are held
by each shareholder.
Shares entitle their holders to one vote per share; however, separate votes
will be taken by each Fund on matters affecting an individual Fund. Shares are
freely transferable and have no preemptive, subscription or conversion rights.
The Trust does not expect to hold shareholder meetings except as required by the
1940 Act or the Agreement and Declaration of Trust (the "Declaration of Trust").
See "Organization and Shares of the Trust" in the Prospectus.
As of April 25, 1996, the following shareholders owned the following
respective percentages of the outstanding shares of the Fixed Income Fund, the
Municipal Bond Fund, The Short-Term Municipal Bond Fund, the Short-Term Fixed
Income Fund and The Smaller Companies Fund:
Fixed Income Fund:
- ------------------
SEI Trust Company 16.26%
680 E. Swedesford
Road Wayne, PA 19087
BATRUS & Co. 7.83%
c/o Bankers Trust Company
PO Box 9005
Church Street Station
New York, NY 10006
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The Bank of New York TTEE 5.12%
FBO Niagara Mohawk Power Corp.
Repersented Health VEBA
One Wall Street
New York, NY 10286
Municipal Bond Fund:
- --------------------
SEI Trust Company 10.27%
680 E. Swedesford
Road Wayne, PA 19087
Batrus & Co., (New York Corporation) 46.73%
c/o Bankers Trust Co.
PO Box 706 Church Street Station
New York, NY 10008
INFID & Co. 7.86%
c/o Bankers Trust Co.
PO Box 9005 Church Street Station
New York, NY 10008
Short-Term Municipal Bond Fund:
- -------------------------------
SEI Trust Company 25.28%
680 E. Swedesford Road
Wayne, PA 19087
James E. Minnick & Nancy Minnick JTTEN 11.42%
3421 St. Davids Road
Newtown Square, PA 19073
Phyllis Kingsbury 10.30%
27 Inverness Ct.
Short Hills, NJ 07078
Emily Kingsbury 11.90%
610 New Albany Road
Moorestown, NJ 08057
John W. Kingsbury Trust B 5.15%
27 Inverness Ct.
Short Hills, NJ 07078
Neil Patrick Jenkins 5.59%
420 E. 81st Street
New York, NY 10028
Wilmington Trust Company 8.09%
FBO David Baldt
1100 N. Market Street
Wilmington, DE 19890
Short-Term Fixed Income Fund:
- -----------------------------
BATRUS & Co. (New York Corporation) 30.21%
c/o Bankers Trust PO Box 9005 Church Street
Station New York, NY 10006
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<PAGE>
SEI Trust Company 13.98%
680 E. Swedesford
Road Wayne, PA 19087
Infid & Co. 6.43%
c/o Bankers Trust Co.
PO Box 706 Church Street Station
New York, NY 10008
Margaret J. Rogers, Philip Jonsson 45.03%
& Kenneth Jonsson for the
Estate of John E. Jonsson
5600 W. Lovers Lane #323
Dallas, TX 75209
Smaller Companies Fund:
- -----------------------
Morgan Grenfell Capital Management, Inc. 85.87%
(Delaware Corporation)
885 Third Avenue Suite 3200
New York, NY 10022
Deutsche Morgan Grenfell 12.75%
CJ Lawrence
1290 Avenue of the Americas
New York, NY 10104
Shareholder and Trustee Liability
The Trust is organized as a Delaware business trust and, under Delaware law,
the shareholders of a business trust are not generally subject to liability for
the debts or obligations of the trust. Similarly, Delaware law provides that
none of the Funds will be liable for the debts or obligations of any other Fund.
However, no similar statutory or other authority limiting business trust
shareholder liability exists in other states. As a result, to the extent that a
Delaware business trust or a shareholder is subject to the jurisdiction of the
courts in such other states, the courts may not apply Delaware law and may
thereby subject the Delaware business trust shareholders to liability. To guard
against this risk, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. Notice of such
disclaimer will normally be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
provides for indemnification by the relevant Fund for any loss suffered by a
shareholder as a result of an obligation of the Fund. The Declaration of Trust
also provides that the Trust shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the Trust and
satisfy any judgment thereon. The Trustees believe that, in view of the above,
the risk of personal liability of shareholders is remote.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
Consideration for Purchases of Shares
The Trust generally will not issue shares of the Funds for consideration
other than cash. At the Trust's sole discretion, however, it may issue Fund
shares for consideration other than cash in connection with an acquisition of
portfolio securities (other than municipal debt securities issued by state
political subdi-
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visions or their agencies or instrumentalities) or pursuant to a bona fide
purchase of assets, merger or other reorganization, provided (i) the securities
meet the investment objectives and policies of the Fund; (ii) the securities are
acquired by the Fund for investment and not for resale; (iii) the securities are
not restricted as to transfer either by law or liquidity of market; and (iv) the
securities have a value which is readily ascertainable (and not established only
by valuation procedures) as evidenced by a listing on the American Stock
Exchange or the New York Stock Exchange or by quotation on the NASD Automated
Quotation System. An exchange of securities for Fund shares will generally be a
taxable transaction to the shareholder.
ADDITIONAL INFORMATION
Independent Accountants
Price Waterhouse LLP serves as the Funds' independent accountants, providing
audit services, including review and consultation in connection with various
filings by the Trust with the Commission and tax authorities.
Registration Statement
The Trust has filed with the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, a Registration Statement under the Securities Act of 1933, as
amended, with respect to the securities of the Funds and certain other series of
the Trust. If further information is desired with respect to the Trust, the
Funds or such other series, reference is made to the Registration Statement and
the exhibits filed as a part thereof.
FINANCIAL STATEMENTS
The Trust's audited financial statements for the period ended October 31,
1995 are included in this Statement of Additional Information in reliance upon
the report of Price Waterhouse LLP, the Trust's independent accountants, as
experts in accounting and auditing.
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SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Municipal Bond Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Municipal Bonds (98.7%)
Alabama (2.6%)
Mobile, Certificate of Participation,
Affordable Housing
6.000%, 02/01/98 $ 275 $ 273
6.200%, 02/01/99 350 346
6.300%, 02/01/00 400 394
6.750%, 02/01/04 4,950 4,819
--------
5,832
--------
Alaska (0.3%)
Anchorage, Certificate of
Participation, series B
(Asset Guaranty)
5.100%, 04/01/96 710 713
--------
Arizona (0.3%)
Maricopa County, Hospital RB,
Samaritan Health Service (ETM)
7.625%, 01/01/08 550 641
--------
Arkansas (4.0%)
Drew County, Public Facilities Board,
Single Family Mortgage RB,
series A-2 (FNMA)
7.900%, 08/01/11 488 528
Fayetteville, Public Facilities Board,
Single Family Mortgage RB
7.250%, 04/01/11 1,590 1,763
Little Rock, Capital Improvement,
series 1995A
5.950%, 02/01/12 700 712
Lonoke County,
Residential Housing RB, Single Family
Mortgage, series 1993 B
7.375%, 04/01/11 392 407
Mississippi County, Public Facilities
Board, Mortgage RB, series 1
7.200%, 07/15/10 1,000 1,110
North Little Rock,
Residential Housing Facilities RB,
series 1991-1
12/01/10 (C) 7,765 2,796
Saline County, Residential Housing
Facilities, Single Family Mortgage RB
7.875%, 03/01/11 1,035 1,114
Stuttgart, Public Facilities Board,
Single Family Mortgage RB, series B
7.750%, 09/01/11 353 372
--------
8,802
--------
California (2.7%)
Los Angeles, Multi-Family Housing RB,
Earthquake Rehabilitation Projects,
series B, Mandatory Put 12/01/07 @
100 (FNMA)
5.850%, 12/01/26 (B) $ 480 $ 477
Napa, Housing Facility RB, Napa Park
Apartments, series A (GNMA)
7.500%, 06/20/00 601 596
Pleasant Hill, Multi-Family Housing
RB, Ellinwood Apartments Project,
series A, Mandatory Put 10/01/05 @
100 (FNMA)
5.300%, 10/01/20 3,165 3,184
Sacramento County, Multi-Family
Housing RB, Fairway II Apartments,
Mandatory Put 08/01/05 @ 100 (FNMA)
5.350%, 08/01/25 1,000 1,005
Santa Clara, Housing Authority RB
(GNMA)
7.500%, 06/20/00 749 749
--------
6,011
--------
<PAGE>
Colorado (1.7%)
Boulder County, Refunding and
Improvement RB, National Center
Atmosphere
6.900%, 12/01/07 1,200 1,279
Commerce City, Single Family Mortgage
RB, series A
6.875%, 03/01/12 750 782
Logan County, Single Family Mortgage
RB, series A
8.500%, 11/01/11 385 412
State Housing Finance Authority,
Single Family Mortgage RB, series A
5.000%, 06/01/04 295 286
Vail, Single Family Mortgage RB,
series 1992 A
8.125%, 06/01/10 610 645
Westminster,
Multi-Family Housing RB, Semper
Village Apartments, Mandatory Put
09/01/06 @ 100 (AXA Reinsurance)
5.950%, 09/01/15 500 500
--------
3,904
--------
16
<PAGE>
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Delaware (3.6%)
New Castle County, Single Family
Mortgage RB
110.250%, 11/01/05 $ 360 $ 388
State Economic Development Authority
RB, Wilmington Friends School Project
6.300%, 07/01/96 40 40
6.300%, 07/01/97 45 45
6.300%, 07/01/98 45 45
6.300%, 07/01/99 50 50
6.300%, 07/01/00 50 50
6.300%, 07/01/01 55 55
6.300%, 07/01/02 60 60
6.300%, 07/01/03 60 61
6.300%, 07/01/04 65 66
6.300%, 07/01/05 70 71
6.300%, 07/01/06 75 76
6.300%, 07/01/07 80 81
6.300%, 07/01/08 85 86
6.300%, 07/01/09 90 91
6.300%, 07/01/10 95 96
6.300%, 07/01/11 100 101
6.300%, 07/01/12 110 111
6.300%, 07/01/13 115 116
State Health Facilities Authority RB,
Medical Center of Delaware, series B,
Mandatory Put 10/01/06 @ 101 (MBIA)
6.500%, 10/01/13 3,750 4,261
State Housing Authority Residential
Mortgage RB, series A
8.750%, 06/01/17 830 848
Sussex County, Economic Development
RB, Gateway Partnership VI Project A,
Mandatory Put 05/01/97 @ 100
7.850%, 12/01/16 (A) 500 500
Wilmington, Special Obligation Bonds,
Wilmington Trust Center
8.500%, 04/01/04 655 671
--------
7,969
--------
Florida (3.8%)
Dunedin, Health Facility Authority RB,
Mease Hospital Incorporated (ETM)
7.600%, 10/01/08 165 190
Fernando Apartments, Elderly Housing
RB, Section 8 Assistance
9.750%, 10/01/11 790 844
Miami Beach, Housing Authority,
Elderly Housing RB, First Mortgage
Section 8 1995
6.625%, 01/15/09 1,200 1,239
Miramar, Water Improvement Assessment
RB (FGIC)
5.125%, 10/01/20 $6,020 $6,073
State Housing Finance Authority RB,
Home Ownership Mortgage
1987 G2 (GNMA)
8.595%, 11/01/18 (B) 90 92
--------
8,438
--------
Georgia (3.3%)
Augusta, Housing Rehabilitation Agency
RB,
Bon Air Project, series C
7.000%, 09/01/05 1,000 1,083
Dekalb County, Housing
Authority RB, Macon Apartments
6.400%, 05/01/05 785 806
Fulton County, Housing AuthoritySingle
Family Mortgage RB (GNMA)
6.200%, 03/01/13 (B) 2,180 2,212
Marietta, Housing Authority
Multi-Family RB, Ridge Pointe
Apartments, series A, Mandatory Put
06/01/05 @ 100 (FNMA)
5.700%, 06/01/25 1,000 1,016
Marietta, Housing Authority
Multi-Family RB, series A, Mandatory
Put 06/01/01 @ 100 (New England
Mutual Life Guaranty)
6.000%, 06/01/07 1,000 1,025
Saint Mary's, Housing Authority
Multi-Family RB, Cumberland
Oaks Apartments, series A (FNMA)
7.250%, 09/01/05 695 738
Saint Mary's, Housing Authority
Multi-Family RB, Pines Apartments,
series C (FNMA)
7.250%, 10/01/05 305 323
State Residential Finance Housing RB,
series A
6.750%, 06/01/16 (B) 250 258
--------
7,461
--------
Hawaii (0.2%)
Honolulu, Housing Authority
Multi-Family RB, Waipahu Towers
Project, series A (GNMA)
6.900%, 06/20/05 (B) 410 429
--------
17
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Idaho (0.4%)
State Housing Agency,Single Family
Mortgage RB, series F
5.800%, 07/01/07 (B) $ 1,000 $ 1,011
--------
Illinois (9.5%)
Alsip, Multi-Family Housing RB,
Mandatory Put 11/01/03 @ 100
5.125%, 11/01/15 (A) 500 492
Alton, Hospital Facilities RB, Alton
Memorial Hospital Project (ETM)
7.000%, 07/01/05 255 281
Bolingbrook, Hospital Authority RB,
Hinsdale & Sanitarium Hospital
Project (ETM)
7.250%, 08/01/08 950 1,077
Bolingbrook, Mortgage RB, Capital
Appreciation series 1
01/01/11 (C) 12,960 4,503
Countryside, Multi-Family Housing RB,
Countryside Partners Ltd, series A,
Mandatory Put 07/01/03 @ 100
5.250%, 07/01/23 (A) 250 243
Des Plains, Hospital Facilities RB,
Holy Family Hospital (ETM)(FGIC)
7.000%, 01/01/07 235 262
Development Finance Authority RB
6.050%, 11/15/99 325 336
6.875%, 11/15/05 875 933
Development Finance Authority, Fund
for Child Care Facilities Project,
series A
7.400%, 09/01/04 2,800 3,094
Health Facilities Authority, Lutheran
Social Services RB
6.125%, 08/15/10 1,100 997
6.125%, 08/15/20 1,350 1,169
Health Facilities Authority, Mercy
Health Center RB (ETM)
7.100%, 06/01/09 535 601
7.500%, 09/01/09 135 154
Health Facilities Authority, Mercy
Hospital & Medical Center RB (ETM)
10.000%, 01/01/15 1,070 1,462
Health Facilities Authority, Morris
Hospital RB
6.125%, 12/01/23 1,000 926
Quincy, Single Family Mortgage RB
6.875%, 03/01/10 850 886
Village of Buffalo Grove, Economic
Development Project RB, Country Line
Partners
5.450%, 08/15/02 $ 1,940 $ 1,959
Village of Graylake, Multi-Family
Housing RB, Country Squire Village
Apartments, series A (FHA)
6.000%, 06/01/05 1,475 1,501
Western Illinois University RB (ETM)
7.400%, 04/01/09 130 148
--------
21,024
--------
Indiana (1.3%)
Indianapolis, Economic Development RB,
Knob in the Woods Project, Mandatory
Put 10/01/04 @ 100 (FNMA)
6.375%, 12/01/24 (B) 2,635 2,889
--------
Iowa (2.5%)
Davenport, Hospital Facility RB (ETM)
7.200%, 07/01/09 100 111
Finance Authority, Small Business
Development RB, Terrance Center
Association, L.P. Project (Guaranty
Agreement with Central Life
Assurance)
7.500%, 03/01/22 1,550 1,740
Henry County, Health Center Project RB
6.750%, 06/01/17 3,795 3,619
--------
5,470
--------
Kansas (0.7%)
Johnson County, Single Family Mortgage
RB
5.625%, 05/01/02 245 250
Labette And Cowley Counties, Single
Family Mortgage RB, series A
9.500%, 04/01/13 210 227
Reno County, Single Family Mortgage
Revenue Refunding Bonds, series B
8.700%, 09/01/11 480 519
Wichita, Hospital RB (ETM)
7.000%, 03/01/06 160 177
Wichita, Single Family Mortgage RB,
series A
7.100%, 09/01/09 395 412
--------
1,585
--------
18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Kentucky (0.9%)
Nelson County, Industrial Building RB,
Mabex Universal Corporation Project
6.500%, 04/01/05 (A) (B) $ 2,000 $2,143
--------
Louisiana (4.4%)
Housing Finance Agency, Collateralized
Single Family Housing RB (GNMA)
8.050%, 11/01/14 (B) 490 510
Iberia, Single Family Mortgage RB
7.375%, 01/01/11 1,005 1,080
Public Facilities Authority, Hospital
RB, Southern Baptist Hospital (ETM)
8.000%, 05/15/12 175 210
Public Facilities Authority,
Multi-Family Housing RB, Beau Terre
Project, Mandatory Put 06/01/05 @ 100
(FNMA)
5.800%, 06/01/25 400 407
Public Facilities Authority,
Multi-Family Housing RB, Carlyle
Apartments, Mandatory Put 06/15/05 @
100 (AXA Reinsurance)
5.950%, 06/15/19 1,440 1,501
Public Facilities Authority,
Multi-Family Housing RB, Oakleigh
Apartment Project (AXA Reinsurance)
5.750%, 03/15/03 295 306
5.850%, 03/15/04 315 326
5.950%, 03/15/05 330 342
Public Facilities Authority, Single
Family Mortgage RB, series A
7.375%, 10/01/12 755 768
Public Facilities Authority, Single
Family Mortgage RB, series C
8.450%, 12/01/12 968 1,038
Public Facilities Authority, Single
Family Mortgage RB, series C (GNMA)
8.800%, 04/01/13 995 1,045
Public Facilities Authority,
Student Loan RB, Senior series A-2 RB
6.750%, 09/01/06 (B) 2,000 2,121
--------
9,654
--------
Maine (0.2%)
State Housing Authority RB,
series B
8.400%, 11/15/07 (B) $ 300 $ 311
--------
Maryland (4.0%)
Baltimore, Industrial Development
Authority RB,
Gay Street Project (AMBAC)
10.350%, 12/01/13 4,605 4,717
Cecil County, Economic Development RB,
Northeast Plaza Association, series A
6.875%, 08/23/08 1,760 1,901
Cecil County, Economic Development RB,
Northeast Plaza Association, series B
6.875%, 12/01/10 525 566
Frederick County, Economic Development
RB, Mortgage
Revenue Refunding, series A (FHA)
5.900%, 02/01/05 400 403
Prince George's County,
Emerson House Project RB, series A
6.400%, 10/15/05 1,200 1,248
--------
8,835
--------
Michigan (0.9%)
Petoskey, Hospital Finance
Authority RB (ETM)
6.700%, 03/01/07 235 257
State Hospital Finance Authority RB,
St. Joseph Mercy Hospital
Project (ETM)
7.000%, 07/01/05 175 193
State Hospital Finance
Authority RB, St. Lawrence
Hospital Project (ETM)
7.500%, 05/01/07 515 589
Wayne County, Building Authority,
Capital Improvement Bonds,
series 1992 A, Limited Tax GO,
Pre-Refunded 03/01/02 @ 102
8.000%, 03/01/17 750 897
--------
1,936
--------
Mississippi (2.8%)
Mississippi Home Corporation, Residual
RB, Capital Appreciation, series
1992-I
09/15/16 (C) 21,100 4,906
19
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Mississippi Home Corporation,
Single Family RB, Mortgage Access
Program, series 1994 A (GNMA)
4.500%, 06/01/99 (B) $ 530 $ 521
5.000%, 06/01/04 (B) 850 850
--------
6,277
--------
Missouri (1.7%)
Kansas City, Industrial Development
Authority, Multi-FamilyHousing RB,
Coves North Duplexes, Mandatory Put
09/01/05 @ 100 (FNMA)
5.600%, 08/01/25 2,780 2,804
Saint Louis County, Convention And
Sports Center RB, series B
16.500%, 08/15/01 775 838
--------
3,642
--------
Montana (0.8%)
Missoula County,
Missoula Community Hospital RB
(ETM)(AMBAC)
7.125%, 06/01/07 435 488
State Higher Education Student Loan
Program RB, Senior series A
5.750%, 12/01/12 (B) 1,350 1,308
--------
1,796
--------
Nebraska (0.9%)
Hall County,
Hospital Authority RB (ETM)
8.000%, 01/01/07 205 240
State Higher Education Student
Loan Program RB, Senior series A
5.250%, 06/01/02 (B) 1,695 1,685
--------
1,925
--------
Nevada (0.4%)
Single Family Housing Authority RB,
series B
6.450%, 10/01/07 (B) 910 918
--------
New Jersey (4.3%)
Economic Development Authority,
Economic Growth RB, series H-2
5.000%, 10/01/05 (A) (B) 860 851
Education Facilities Authority RB,
Caldwell College, series A
7.250%, 07/01/25 1,200 1,215
Jersey City, Redevelopment
Authority RB, Dixon Mill
Apartments Project, Mandatory
Put 05/01/00 @ 100 (FNMA)
6.100%, 05/01/12 $1,150 $1,192
Mansfield Township, Board of
Education Certificate of
Participation (MBIA)
5.500%, 03/01/07 1,840 1,921
State Housing Finance Authority RB,
series A, Section 8 Assistance
6.700%, 11/01/04 3,000 3,145
Woodbury, Bond Anticipation Notes
5.700%, 03/01/96 1,209 1,217
--------
9,541
--------
New Mexico (1.1%)
Albuquerque, Municipal Collateralized
Mortgage Obligation, Class B-2 (FGIC)
05/15/11 (C) 1,562 506
Sandoval County, Gross Receipts Tax RB
(Intel Guaranty)
6.100%, 11/01/99 115 117
6.200%, 11/01/00 120 123
6.250%, 11/01/01 130 134
6.350%, 11/01/02 140 144
6.400%, 11/01/03 145 150
6.450%, 11/01/04 155 161
7.150%, 11/01/10 705 754
Santa Fe, Single Family Mortgage
Authority RB, series 1991
8.450%, 12/01/11 236 254
--------
2,343
--------
New York (3.8%)
Mechanicville, Multi-Family Housing
RB, Elderly Housing (FHA)
6.900%, 08/01/22 2,500 2,600
Rochester, Housing Authority Mortgage
RB, Section 8 Assistance, Crossroads
Apartments
7.300%, 07/01/05 3,565 3,792
UFA Development Corporation, Mortgage
RB, Loretto Utica Project (FHA)
5.150%, 07/01/03 2,000 1,970
--------
8,362
--------
20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
North Carolina (0.1%)
Asheville, Housing Development
Corporation RB, Section 8 Assistance,
Asheville Gardens, Pre-Refunded
11/01/09 @ 100
10.500%, 05/01/11 $ 155 $ 212
--------
Ohio (2.9%)
Housing Finance Authority, Single
Family Mortgage RB, series A (GNMA)
8.400%, 02/01/20 (B) 800 850
Ohio Capital for Housing Mortgage RB,
Section 8 Assistance, Project E
(MBIA) (FHA)
5.700%, 01/01/05 510 515
Student Loan Funding
Corporation, series A (GTD)
5.500%, 12/01/01 (B) 4,960 5,041
--------
6,406
--------
Oklahoma (1.1%)
Bryan County, Single Family
Mortgage RB, series A
8.600%, 07/01/10 335 354
Cleveland County, Home Loan
Authority, Single Family Mortgage RB,
series 1992
8.375%, 08/01/12 1,290 1,364
Payne County, Housing Finance
Authority, Single Family Mortgage RB,
series A
5.625%, 09/01/02 70 71
8.625%, 03/01/11 500 528
-------
2,317
-------
Pennsylvania (10.4%)
Allegheny County,
Hospital Development Authority RB,
South Side Hospital
8.500%, 06/01/01 490 508
8.750%, 06/01/10 2,890 3,002
Allegheny County,
Industrial Development Authority RB
6.000%, 10/01/04 (A) (B) 1,000 1,008
Allegheny County, Residential
Finance Authority Mortgage
RB (GNMA)
6.500%, 11/01/14 645 660
Allentown, Hospital Authority RB,
Sacred Heart Hospital of
Allentown, series A
6.200%, 11/15/03 $ 700 $ 726
6.500%, 11/15/08 3,400 3,464
Borough of Tarentum,
Guaranteed Electric RB, series A
5.500%, 09/01/08 645 605
Bucks County, Industrial
Development Authority RB, Women's
Humane Society
7.100%, 12/01/09 600 604
Dauphin County, General
Authority RB, WW15 Term, Mandatory
Tender 06/01/09 @ 100
6.850%, 06/01/26 700 750
Falls Township, Hospital Authority
RB, Delaware Valley Medical Center
(FHA)
6.900%, 08/01/11 3,685 4,040
Lehigh County, General Purpose
Authority RB, Muhlenberg
Continuing Care, Mandatory
Put 03/15/02 @ 100
7.800%, 03/15/20 (A) 1,920 2,076
Montgomery County,
Higher Education & Health Authority
RB, Northwestern Corporation
6.250%, 06/01/99 680 703
Montgomery County, Industrial
Development Authority RB, BMHR
Associate Project
6.750%, 11/15/04 (A) 250 260
Montgomery County,
Industrial Development Authority
RB,Emergency
Care Research Institute Project
6.400%, 06/01/03 465 478
Philadelphia, Hospital And Higher
Education Authority RB,
Northwestern Corporation
6.250%, 06/01/99 765 791
Philadelphia, Hospital And Higher
Education Facilities RB,
Jeanes Health System Project
6.200%, 07/01/00 1,360 1,399
Philadelphia, Industrial
Development Authority RB, National
Board of Medical Examiners Project
6.750%, 05/01/12 1,500 1,613
21
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Municipal Bond Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
State Housing Authority,
Single Family Mortgage RB,
series 1991-31A
7.000%, 10/01/05 (B) $ 230 $ 245
--------
22,932
--------
Rhode Island (0.2%)
State Industrial Facilities RB,
Crystal Thermoplastics Project,
series A (IRBA Guaranty)
6.900%, 08/01/14 (B) 380 394
--------
South Carolina (2.8%)
Housing Finance & Development
Authority, Multi-Family RB,
Bryton Point Apartments Project,
Mandatory Put
06/01/05 @ 100 (FNMA)
5.700%, 06/01/25 6,050 6,126
--------
South Dakota (0.5%)
Student Loan Assistance RB,
series A (GTD)
7.600%, 08/01/04 (B) 510 545
7.700%, 08/01/07 (B) 500 534
--------
1,079
--------
Tennessee (0.1%)
Greeneville, Health & Education
Facility Board RB, Southern
Advent Hospital (ETM)
8.700%, 10/01/09 240 300
--------
Texas (10.0%)
Bexar County, Housing Finance
Corporation Residual Bonds,
Capital Appreciation
03/01/15 (C) 1,765 499
Brazos, Higher Education
Authority RB
6.500%, 06/01/04 (B) 500 527
Collin County, Housing Finance
Corporation, Multi-Family
Mortgage RB, Preston Bend
Apartments Project, Mandatory Put
09/01/03 @ 100 (AXA Reinsurance)
6.500%, 09/01/22 500 523
Denison, Hospital Authority RB,
Texoma Medical Center (ETM)
7.125%, 07/01/08 100 112
Duncanville, Hospital Development
Authority RB, Methodist Hospital
Dallas Project (ETM)
9.000%, 01/01/10 555 693
Fort Worth, Housing Finance
Corporation RB
8.500%, 10/01/11 $ 495 $ 535
Grand Prairie, Multi-Family
Mortgage RB, Windsor Housing
Foundation, Project A,
Sugar Creek Apartments
6.000%, 02/01/05 760 760
Northeast Hospital Authority
RB (ETM)
8.000%, 07/01/08 275 326
Odessa, Housing Authority,
Multi-Family Mortgage RB,
Section 8 Assist Project, series A
5.875%, 10/01/03 900 882
Odessa, Housing Authority,
Multi-Family Mortgage RB,
Section 8 Assist Project, series B
5.875%, 10/01/03 1,720 1,686
6.375%, 10/01/11 2,735 2,615
Odessa, Single Family Mortgage RB,
series A (FNMA)
8.450%, 11/01/11 382 403
South Plains, Regional Housing
Authority RB, Section 8 Assistance
Project, series A (HUD Section 8)
6.000%, 08/01/00 75 76
6.500%, 08/01/05 325 330
6.900%, 08/01/09 500 509
Southeast Hospital Financing
Agency RB, Memorial Hospital System
Project (ETM)
8.500%, 12/01/08 220 266
7.500%, 12/01/09 365 422
State Department of Housing &
Community RB,
Capital Appreciation
03/01/15 (C) 40,530 10,739
State Housing Authority RB,
series A (GNMA)
7.350%, 01/01/11 70 73
Thomason, Health Facilities
Development Corporation,
El Paso County Hospital
District GO (MBIA)
7.200%, 08/15/98 65 66
--------
22,042
--------
Utah (1.9%)
Brigham City, Special Assessment
Improvement District Number 22
9.000%, 08/01/04 270 287
Hilldale, General Obligation
Electric Bonds
7.500%, 12/15/03 (B) 545 576
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
State Finance Agency, Single Family
Mortgage RB, Issue F-1 (AMBAC)
5.850%, 07/01/07 $ 1,000 $ 1,026
State Housing Finance Agency,
Single Family Mortgage RB,
series B-2
7.600%, 01/01/22 (B) 255 267
State Municipal Finance Corporation,
Local Government RB
7.300%, 12/01/03 500 531
Weber County, Municipal Building
Authority RB, series 1994
(Asset Guaranty)
6.750%, 12/15/04 1,275 1,396
--------
4,083
--------
Washington (3.6%)
Clark County, GO, Pre-Refunded
12/01/95 @ 100
7.200%, 12/01/98 100 100
Seattle, Low Income Housing
Assistance Authority RB,
Kin On Project, series A (GNMA)
7.400%, 11/20/36 1,300 1,401
State Housing Finance
Commission RB, series A (FNMA)
7.000%, 07/01/99 220 226
State Housing Finance
Commission RB, series B
(GNMA) (FNMA)
6.900%, 07/16/16 6,030 6,316
--------
8,043
--------
West Virginia (1.1%)
Harrison County, Municipal
Collateralized Mortgage Obligation
Bonds, series B (AMBAC)
10/20/10 (C) 2,822 953
Marshall County, Capital
Appreciation RB (MBIA)
05/01/14 (C) 3,000 761
Raleigh Fayette & Nicholas
Counties, Municipal
Collateralized Mortgage
Obligation Bonds, series B
(AMBAC)
06/20/10 (C) 2,167 723
--------
2,437
--------
Wisconsin (0.4%)
State Housing And Economic
Development Authority RB,
series B
6.625%, 09/01/20 (B) 600 609
Whitewater, Waterworks System RB
7.500%, 07/01/16 $ 250 $ 283
--------
892
--------
Wyoming (0.5%)
City of Cheyenne, Federal Mineral
Royalty RB, Second Lien
6.200%, 06/01/09 1,000 1,000
--------
Total Municipal Bonds
(Cost $212,352,632) 218,125
--------
Total Investments (98.7% of Net Assets)
(Cost $212,352,632) $218,125
========
(A) Securities are held in connection with a letter of
credit issued by a major commercial bank.
(B) Income on bond may be subject to Alternative
Minimum Tax.
(C) Zero Coupon Bond.
ETM Escrowed to Maturity.
GO General Obligation Bond.
RB Revenue Bond.
The following organizations have provided underlying
credit support for the securities as defined in the
Schedule of Investments:
AMBAC American Municipal Bond Assurance Corporation.
AXA Reinsurance
FGIC Federal Guaranty Insurance Corporation.
FHA Federal Housing Association.
FNMA Federal National Mortgage Association.
GNMA Government National Mortgage Association.
GTD Guaranteed Student Loans.
HUD Housing & Urban Development
MBIA Municipal Bond Insurance Association.
The accompanying notes are an integral part of the
financial statements.
Fixed Income Fund
Corporate Obligations (16.9%)
Aegon NV
8.000%, 08/15/06 $ 4,000 $ 4,360
Associated Estates Realty
8.375%, 04/15/00 17,000 17,848
Bear Stearns
6.625%, 01/15/04 1,430 1,407
Fairfax Financial Holdings
8.250%, 10/01/15 7,615 7,701
Kemper
9.000%, 03/02/98 MTN 2,000 2,103
6.875%, 09/15/03 6,275 6,204
Lehman Brothers
8.875%, 11/01/98 900 955
23
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Fixed Income Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
7.125%, 07/15/02 $ 4,160 $ 4,212
11.625%, 05/15/05 2,485 3,237
Navistar Financial Corporation
Owner Trust series 1995-B,
class A2
5.940%, 10/15/98 1,000 999
Paine Webber
9.250%, 12/15/01 3,900 4,329
8.390%, 07/24/02 MTN 1,000 1,064
7.875%, 02/15/03 3,000 3,143
6.900%, 08/15/03 MTN 1,250 1,217
Prudential Funding
6.750%, 09/15/23 2,000 1,808
Prudential Insurance America
6.875%, 04/15/03 10,000 9,825
Swiss Bank Corporation
7.000%, 10/15/15 500 494
The Equitable
7.300%, 12/01/03 4,500 4,573
Vesta Insurance Group
8.750%, 07/15/25 7,750 8,128
--------
Total Corporate Obligations
(Cost $80,774,507) 83,607
--------
Asset Backed Securities (3.4%)
Autobond Receivables Corporate
series 1993-k
6.350%, 02/15/99 1,809 1,791
Carco Auto Loan Master Trust
series 1995-3, class A (C)
6.030%, 05/15/00 3,150 3,149
Caterpillar Financial Asset Trust
series 1995-A, class A2
6.100%, 08/25/01 6,350 6,360
National Collegiate Trust Gate
Receivable 1995-S1
8.830%, 09/20/11 2,925 3,232
Standard Credit Card Master Trust
series 1995-5, class A (C)
6.070%, 05/07/00 2,000 2,002
--------
Total Asset Backed Securities
(Cost $16,238,894) 16,534
--------
Mortgage Backed Securities (6.4%)
Countrywide Mortgage Backed
Securities 1994-C A8
6.500%, 03/25/24 1,265 1,092
General Electric Capital Mortgage
Services series 1993-14 A7
6.500%, 11/25/23 1,065 935
General Electric Capital Mortgage
Services series 1994-18 A2
7.000%, 08/25/24 $ 1,157 $ 1,154
Housing Securities Incorporated
series 1994-1, class A5
5.500%, 08/25/03 3,790 3,754
Prudential Home Mortgage
series 1988-5A (C)
10.524%, 08/25/18 854 788
Prudential Home Mortgage
series 1993-1 A1
7.500%, 02/25/23 7,845 7,856
Prudential Home Mortgage
series 1993-61 A1
6.500%, 12/25/08 3,400 3,390
Prudential Home Mortgage
series 1994-12 A7
6.050%, 04/25/24 3,999 3,261
Prudential Home Mortgage
series 1994-17 A5
6.250%, 04/25/24 5,700 4,929
Sears Mortgage Securities
series 1992-3, class T8
7.000%, 07/25/20 1,085 1,083
Vanderbilt Mortgage Finance
series 1994-A, class A1
7.000%, 07/10/19 3,315 3,357
--------
Total Mortgage Backed Securities
(Cost $31,071,492) 31,599
--------
U.S. Government Agency Obligations (17.7%)
Federal Home Loan Mortgage
Corporation REMIC series 1360, class
PK
10.000%, 12/15/20 2,200 2,470
Federal Home Loan Mortgage
Corporation REMIC series 1577, class
PG
5.500%, 03/15/21 400 382
Federal Home Loan Mortgage
Corporation REMIC series 1622,
class G
6.250%, 11/15/22 10,000 8,970
Federal Home Loan Mortgage
Corporation REMIC series 1625,
class BA
5.000%, 11/15/00 1,000 992
Federal Home Loan Mortgage
Corporation REMIC series 1712,
class PC
5.500%, 02/15/03 2,500 2,470
Federal Home Loan Mortgage
Corporation REMIC series 1773,
class E
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
8.500%, 04/15/23 $ 2,910 $ 3,035
Federal Home Loan Mortgage
Corporation REMIC
series 33, class C
8.000%, 09/15/18 6,755 6,801
Federal Home Loan Mortgage
Corporation REMIC series 70,
class C
9.000%, 09/15/20 1,004 1,055
Federal National Mortgage
Association REMIC
series 1989-74J
9.800%, 10/25/19 2,500 2,745
Federal National Mortgage
Association REMIC
series 1989-79D
9.000%, 11/25/19 1,350 1,463
Federal National Mortgage
Association REMIC
series 1991-137, class E
8.050%, 01/25/20 5,248 5,300
Federal National Mortgage
Association REMIC
series 1992-100, class M
8.500%, 06/25/05 8,000 8,351
Federal National Mortgage
Association REMIC
series 1993-174EA
6.150%, 10/25/07 4,000 3,939
Federal National Mortgage
Association REMIC
series 1994-33, class C
5.000%, 10/25/03 1,000 978
Federal National Mortgage
Association REMIC
series 1995-2, class H
8.500%, 06/25/10 18,200 19,424
Federal National Mortgage
Association REMIC
series G92-22, class Z
7.500%, 06/25/18 6,496 6,487
Federal National Mortgage
Association REMIC
series G92-42, class C
7.000%, 09/25/19 4,814 4,821
Federal National Mortgage
Association REMIC
series X-19C, class G
7.500%, 08/25/21 720 714
Government National Mortgage
Association Pool #413221
8.250%, 05/15/10 2,144 2,253
Guaranteed Export Certificates
series 1994-F
8.187%, 12/15/04 4,705 5,032
--------
Total U.S. Government Agency
Obligations (Cost $85,752,590) $87,682
--------
Taxable Municipal Bonds (29.3%)
Alabama (0.1%)
Chattahoochee Valley Water Supply
RB (Asset Guaranty)
8.600%, 10/01/07 $ 200 227
--------
Arizona (0.2%)
Pima And Maricopa Counties
Industrial Development Authority,
Multi-Family Housing RB,
Bulk Sale Program (FNMA)
6. 500%, 01/01/06 770 774
--------
California (6.7%)
Compton Community
Redevelopment Agency RB,
Series 1995B (CGIC)
5.950%, 08/01/96 1,785 1,785
Compton Community
Redevelopment Agency RB,
Series 1995B (CGIC)
6.150%, 08/01/97 2,310 2,313
Desert Hospital Corporation
Gross RB, series A
8.400%, 07/01/03 2,655 2,509
Desert Hospital Corporation
Gross RB, series A
9.000%, 07/01/13 5,945 5,878
Los Angeles County Pension
Obligation Bonds, series A (FSA)
8.570%, 06/30/05 4,275 4,767
Los Angeles County Pension
Obligation Bond,
series A (AMBAC)
8.620%, 06/30/06 200 225
San Diego County Pension
Obligation RB, Series A (FSA)
6.240%, 08/15/02 2,000 1,928
San Francisco City and County
Redevelopment Agency,
Section 8 Housing RB,
series B (MBIA) (FHA)
7.500%, 07/01/24 3,860 3,879
State Housing Finance Agency,
Single Family Mortgage RB,
series 1995 (AMBAC)
7.900%, 08/01/07 9,000 9,777
--------
33,061
--------
25
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Fixed Income Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Colorado (0.0%)
Adams County Single Family
Mortgage RB, series A-1 (FSA)
8.700%, 12/01/08 $ 95 $ 99
--------
Connecticut (0.9%)
State Health And Educational RB,
Nursing Home Program,
AHF/Hartford Project
8.450%, 11/01/99 1,000 1,051
State Health And Educational RB,
Sheridan Woods Center Project
7.950%, 11/01/05 1,755 1,878
State Health and Educational RB,
Sheridan Woods Center Project
8.730%, 11/01/17 1,150 1,366
--------
4,295
--------
Florida (0.3%)
Sarasota Water and Sewer
Utility RB, series A (FGIC)
4.450%, 10/01/96 1,665 1,643
--------
Georgia (0.8%)
Atlanta Urban Residential
Finance Authority RB,
Series 1994 (FNMA) (A)
10.000%, 10/01/16 21,000 4,016
--------
Hawaii (0.6%)
Honolulu City and County
Mortgage RB, Hale
Pauahi Project,
series A (MBIA) (FHA)
7.250%, 07/01/28 3,000 3,128
--------
Idaho (0.7%)
Sand Creek Partnership
Multi-Family Housing RB
8.250%, 12/01/18 3,675 3,275
--------
Kansas (0.2%)
Olathe Labette County Single
Family Mortgage RB,
series 1993A (A)
10.000%, 02/01/16 2,985 745
--------
Maryland (0.8%)
Baltimore GO, series B (FGIC)
8.100%, 10/15/10 1,775 2,004
Baltimore GO, series B (FGIC)
8.700%, 10/15/15 1,875 2,149
--------
4,153
--------
Massachusetts (1.8%)
Plymouth County Correctional
Facility
10.400%, 04/01/22 $ 5,100 $5,877
State Housing Finance
Agency RB, series C (FHA)
10.900%, 08/01/20 2,630 2,821
--------
8,698
--------
Michigan (1.2%)
Beaumont Properties RB,
Prerefunded 01/01/99 @ 101
(Escrow State and Local
Government Securities)
10.500%, 01/01/19 3,000 3,408
Muskegon County Unlimited Tax
General Obligation Notes
6.750%, 12/01/95 1,050 1,051
7.000%, 06/01/96 1,000 1,005
7.250%, 12/01/96 650 657
--------
6,121
--------
Missouri (0.8%)
St Louis Housing Finance
Corporation, Section 8
Housing RB, Kendelwood
Project, series A
8.000%, 08/15/15 1,845 1,845
8.100%, 08/15/22 2,210 2,209
--------
4,054
--------
New Jersey (0.8%)
State Economic Development
Authority RB, series R2 (B)
6.800%, 12/01/02 1,525 1,536
State Economic Development
Authority RB, State Contract
7.100%, 09/15/02 2,500 2,522
--------
4,058
--------
New York (2.7%)
Erie County Industrial
Development Agency RB,
Journeys End Project, series A,
Mandatory Tender
01/01/00 @ 100
9.750%, 01/01/15 1,875 1,961
Haverstraw Stony Point
Central School District Bond
Anticipation Notes
7.280%, 02/14/96 2,520 2,526
26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Monroe County Industrial
Development Agency RB,
Nationwide Precision
Products (B) (C)
6.300%, 12/01/04 $2,275 $ 2,275
Montgomery County Industrial
Development Authority,
Central National Bank
Project RB (B) (C)
5.900%, 05/01/25 3,750 3,750
New York City Industrial
Development Agency RB,
series B (MBIA)
8.100%, 09/01/06 1,975 2,197
Port Authority RB,
Ninetieth series
5.950%, 10/01/02 700 667
--------
13,376
--------
Oklahoma (0.9%)
Oklahoma City Airport Trust RB,
Federal Bureau Prisons Project
9.800%, 11/01/14 2,250 2,568
Oklahoma City Airport Trust RB,
Senior 16
9.875%, 07/01/12 1,005 1,107
Oklahoma County Home Finance
Capital Appreciation RB (A)
10.000%, 07/01/12 3,450 901
--------
4,576
--------
Pennsylvania (2.6%)
Allegheny County Sanitary
Authority Sewer RB,
series A (MBIA)
6.600%, 06/01/97 975 987
Allegheny County Sanitary
Authority Sewer RB,
series A (MBIA)
6.800%, 12/01/97 3,795 3,871
Dauphin County General
Authority Health Center,
Tressler Project, series B, Optional
Put 09/01/96 @ 100
7.000%, 09/01/10 1,375 1,376
Harrisburg Authority Resource
Recovery RB, series B (Municipal
Government Guaranteed)
6.000%, 09/01/98 315 309
6.875%, 09/01/03 515 495
7.750%, 09/01/13 3,145 3,173
Harrisburg Higher Education
Assistance Authority
10.500%, 12/01/17 $2,100 $ 2,384
--------
12,595
--------
Rhode Island (0.3%)
Port Authority Economic
Development Corporation RB,
Central Falls Detention Center,
series A
8.200%, 01/15/08 1,269 1,401
--------
Tennessee (1.8%)
LaFollette Properties,
Multi-Family Housing Physical Bonds,
LaFollette Garden Apartments Project
9.600%, 12/01/08 1,000 1,100
Memphis-Shelby County
Industrial Development
Board RB, Cleo Project B (B)
9.100%, 02/01/04 2,200 2,273
Shelby County Collateralized
Mortgage Obligation,
series 1991A, class A-1 (FGIC)
8.140%, 10/15/04 1,818 1,870
Shelby County Collateralized
Mortgage Obligation,
series 1991A, class A-2 (FGIC)
8.900%, 04/15/05 3,600 3,731
--------
8,974
--------
Texas (4.3%)
Cameron County Housing
Finance Corporation, Single Family
Mortgage RB,
series 1990 A (CMO) (FGIC)
10.210%, 09/0 1/10 2,385 2,564
Cameron County Housing
Finance Corporation, Single Family
Mortgage RB, series A
(CMO) (FGIC)
10.450%, 09/01/11 945 1,094
Dallas County Housing Finance
Corporation RB
6.750%, 12/01/03 285 281
State Department of Housing &
Community Affairs RB,
series B
9.500%, 03/01/16 15,270 16,378
27
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Fixed Income Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Tarrant County Housing Finance
Corporation, Single Family Mortgage
RB (MBIA)
6.650%, 07/15/16 $ 750 $ 761
--------
21,078
--------
Utah (0.0%)
State Housing Finance Agency,
Single Family Mortgage RB,
series D-1
9.850%, 07/01/10 300 330
--------
West Virginia (0.8%)
Huntingdon RB (CMO)
9.050%, 01/15/12 1,541 1,703
Kanawha and Putnam Counties
Charleston and Huntington West
Virginia (AMBAC) (A)
0.000%, 12/01/16 9,835 2,348
--------
4,051
--------
Total Taxable Municipal Bonds
(Cost $139,913,811) 144,728
--------
Tax-Exempt Municipal Bonds (11.0%)
Alabama (0.1%)
Mobile GO (ETM)
10.875%, 11/01/07 205 291
--------
California (2.9%)
Los Angeles Multi-Family RB,
Earthquake Rehabilitation Project,
series A, Mandatory Put
12/01/05 @ 100 (FNMA)
5.650%, 12/01/25 5,000 4,994
Los Angeles Multi-Family RB,
Earthquake Rehabilitation Project,
series B, Mandatory Put 12/01/07 @
100 (FNMA)
5 .850%, 12/01/26 3,770 3,746
Sacramento County Multi-Family
Housing Fairway RB, Fairway II
Apartments, Series 1995A, Mandatory
Put 08/01/05 @ 100
(FNMA)
5.350%, 08/01/25 920 925
San Diego Multi-Family
Housing RB, Orange Glen
Apartments, issue A (FHLMC)
5.500%, 08/01/05 760 756
Santa Clara Multi-Family Housing
Authority RB, Elena Gardens
Apartment Project,
series A (GNMA)
5.600%, 06/20/05 $ 240 $ 240
Vista Multi-Family Housing
Authority RB, Pepperwood
Apartment Project, series 1995A,
Mandatory Put 06/01/05 @ 100 (FNMA)
5.700%, 06/01/25 3,500 3,570
--------
14,231
--------
Colorado (0.5%)
Boulder County National Center
Atmosphere RB
6.900%, 12/01/07 380 405
Westminster Multi-Family
Housing RB, Semper Village
Apartments, Mandatory Put 09/01/06 @
100 (AXA Reinsurance)
5.950%, 09/01/15 1,925 1,925
--------
2,330
--------
Delaware (0.7%)
State Health Facility Authority RB,
Beebe Medical Center Project
6.800%, 06/01/24 3,545 3,607
--------
District of Columbia (0.9%)
GO, series A (AMBAC)
5.875%, 06/01/05 3,885 4,045
National Rehabilitation Hospital
RB, Medlantic Project,
series A (MBIA)
7.125%, 11/01/04 500 552
--------
4,597
--------
Florida (0.0%)
Dade County Governmental
Leasing Company, Certificate
of Participation
8.500%, 04/01/07 45 49
--------
Georgia (0.3%)
State Residential Finance
Authority,Home Ownership
Mortgage RB, series A (D)
6.750%, 06/01/16 1,275 1,318
--------
28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Illinois (0.4%)
State Health Facilities
Authority RB, Lutheran Social
Services
6.125%, 08/15/20 $ 2,150 $ 1,862
State Health Facilities Authority
RB, Sydney R Forkosh
Memorial Hospital Project,
Pre-Refunded 07/01/02 @ 100
7.000%, 07/01/07 145 160
--------
2,022
--------
Kentucky (0.3%)
Greater Kentucky Housing
Assistance Corporation, Section 8
Housing RB, series A (MBIA) (FHA)
6.250%, 01/01/05 1,505 1,569
--------
Louisiana (1.6%)
Iberia Home Mortgage Authority,
Single Family Mortgage RB
7.375%, 01/01/11 170 183
State Public Facilities Authority,
Multi-Family Housing RB,
Beau Terre Project, Mandatory
Put 06/01/05 @ 100 (FNMA)
5.800%, 06/01/25 350 356
State Public Facilities Authority,
Multi-Family Housing RB,
Edgewood Apartments,
Mandatory Put 06/01/05 @ 100 (FNMA)
5.800%, 06/01/25 6,530 6,627
State Public Facilities Authority,
Multi-Family Housing RB,
Oakleigh Apartments, series A,
Mandatory Put 03/15/05 @ 100 (AXA
Reinsurance)
5.950%, 03/15/19 915 953
--------
8,119
--------
New York (0.7%)
State Dormitory Authority,
Long Island University RB (Asset
Guaranty)
6.000%, 09/01/08 3,500 3,754
--------
Pennsylvania (0.5%)
Borough of Tarentum Electric RB,
series 1993 A
5.875%, 09/01/18 745 702
Borough of Tarentum Water RB,
series 1993 B
5.875%, 09/01/18 $ 450 $ 424
Philadelphia Water and Sewer
Authority RB, series 10 (ETM)
7.350%, 09/01/04 1,000 1,165
--------
2,291
--------
Utah (1.9%)
Salt Lake City Housing Authority
Multi-Family RB, Housing Development
Project, series A
6.000%, 04/01/25 2,500 2,428
6.125%, 04/01/30 3,750 3,679
Salt Lake County Multi-Family
Housing Authority RB, James
Pointe Apartment Project,
series B2, Mandatory Put
10 /01/05 @ 100
(Asset Guaranty)
5.500%, 10/01/25 1,100 1,110
Salt Lake County Multi-Family
Housing Authority RB, Stillwater
Apartment Project, series A2,
Mandatory Put 10/0 1/05 @ 100 (Asset
Guaranty)
5.500%, 10/01/25 2,160 2,179
--------
9,396
--------
Washington (0.2%)
King County Housing Authority,
Multi-Family Mortgage RB,
Section 8 Elderly Housing,
series A
7.000%, 08/01/03 750 817
--------
Total Tax-Exempt Municipal Bonds
(Cost $53,390,307) 54,391
--------
U. S. Treasury Obligations (13.5%)
United States Treasury Note
6.875%, 02/28/97 3,300 3,352
7.875%, 01/15/98 10,025 10,478
4.750%, 08/31/98 49,000 47,794
7.875%, 11/15/04 4,375 4,928
--------
Total U. S. Treasury Obligations
(Cost $66,010,713) 66,552
--------
29
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Fixed Income Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Cash Equivalents (0.1%)
SEI Daily Income Trust
Government II Portfolio
5.500%, 11/07/95 $ 597 $ 597
--------
Total Cash Equivalents
(Cost $597,345) 597
--------
Repurchase Agreement (2.0%)
J.P. Morgan Securities 5.81%, dated
10/31/95, matures 11/01/95,
repurchase price $9,993,096
(collateralized by U.S. Treasury
Note, par value $10,000,000, 6.125%,
due 07/31/96, market value
$10,192,289) 9,991 9,991
--------
Total Repurchase Agreement
(Cost $9,991,483) 9,991
--------
Total Investments (100.3% of Net Assets)
(Cost $483,741,142) $495,681
========
(A) Zero Coupon Bond
(B) Securities are held in connection with a letter of credit issued by a
major commercial bank.
(C) Variable Rate Security-The rate reflected on the Schedule of
Investments is the rate in effect at October 31, 1995.
(D) Income on bond may be subject to Alternative Minimum Tax.
CMO Collateralized Mortgage Obligation
ETM Escrowed to Maturity
GO General Obligation
MTN Medium Term Note
REMIC Real Estate Mortgage Investment Conduit
RB Revenue Bond
The following organizations have provided underlying credit support for
certain securities as defined in the Schedule of Investments:
AMBAC American Municipal Bond Assurance Company AXA Reinsurance
CGIC Capital Guaranty Insurance Company
FGIC Financial Guaranty Insurance Corporation
FHA Federal Housing Authority
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FSA Financial Security Assurance
GNMA Government National Mortgage Association
MBIA Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
Short-Term
Municipal Bond Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Municipal Bonds (98.9%)
Alabama (5.0%)
Pell City, Industrial Development
Board RB, Shelby Steel Fabricators,
series A
7.700%, 09/01/01 (A) (B) $ 180 $185
--------
Alaska (1.1%)
Anchorage, Certificate of
Participation, series B (Asset
Guaranty)
5.100%, 04/01/96 40 40
--------
California (2.7%)
Port Hueneme, Redevelopment Agency RB,
Century Community
Redevelopment Project, series A,
Pre-Refunded 05/01/96 @ 102 (AMBAC)
7.000%, 05/01/10 15 16
Sacramento, Municipal Utility District
Electric RB, series S, Pre-Refunded
02/01/97 @ 102 (FGIC)
6.625%, 02/01/17 10 11
San Diego Housing Authority,
Multi-Family Mortgage RB, Hillside
Gardens Apartments, series A (FNMA)
4.900%, 05/01/96 75 74
--------
101
--------
Colorado (10.9%)
El Paso County, Residual RB,
Capital Appreciation, series C
07/10/14 (B) (C) 1,000 242
State Housing Finance Authority,
Single Family Mortgage RB, series E
6.250%, 12/01/09 (B) 90 91
Student Obligation Board Authority,
Student Loan RB, series B (GTD)
5.400%, 12/01/95 (B) 75 75
--------
408
--------
Connecticut (2.0%)
Stratford, GO (ETM)
6.250%, 03/01/96 75 76
--------
Florida (1.3%)
Miami, Parking Facility RB, series A
5.500%, 10/01/96 50 51
--------
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Kansas (0.4%)
Johnson County, Single Family
Mortgage RB
5.625%, 05/01/02 $ 15 $ 15
--------
Kentucky (1.7%)
University of Kentucky, Hospital RB,
series A, Pre-Refunded 08/01/96 @ 103
7.500%, 08/01/97 60 63
--------
Massachusetts (11.8%)
Boston, series A, GO (MBIA)
5.900%, 07/01/96 50 51
State Health & Educational Facilities
Authority RB, Williams College,
series C (ETM)
6.250%, 07/01/96 25 25
State Housing Finance Authority,
Single Family Mortgage RB, series 8
7.000%, 06/01/99 205 216
State Industrial Finance RB, Brandeis
University, series C (MBIA)
6.400%, 10/01/96 55 56
State Water Resource Authority RB,
series A
5.600%, 07/15/96 50 51
State Water Resource Authority RB,
Series A (ETM)
5.750%, 12/01/96 40 41
--------
440
--------
Mississippi (4.9%)
Business Finance Corporation,
Industrial Development RB, The Taylor
Group Incorporated Project
5.000%, 05/01/96 (A) (B) 90 90
5.200%, 05/01/97 (A) (B) 95 95
--------
185
--------
Nebraska (3.8%)
Investment Financial Authority,
Multi-Family Mortgage RB, Park Drive
Apartments Project, Mandatory Put
06/01/97 @ 100
4.750%, 06/01/05 (A) 140 140
--------
New Hampshire (2.0%)
State Housing Finance Authority,
Single Family Mortgage RB,
Exchangeable yearly on 07/01
6.125%, 01/01/18 (A) (B) 75 75
--------
New Mexico (9.4%)
Albuquerque, Municipal
Collateralized Mortgage Obligation,
Class B-2 (FGIC) 05/15/11 (C) $539 $174
Albuquerque, Municipal
Collateralized Mortgage Obligation,
Single Family Mortgage, Class B-1
(FSA)
7.650%, 08/15/07 64 68
Sandoval County,
Gross Receipts Tax RB
6.000%, 11/01/98 105 107
--------
349
--------
New York (1.2%)
State Medical Care Facilities,
Hospital & Nursing Home Insured
Mortgage, series A (FHA)
6.700%, 08/15/01 40 44
--------
Oklahoma (3.1%)
Housing Finance Agency,
Single Family Mortgage RB, Class A
(GNMA)
7.997%, 08/01/18 (B) 110 114
--------
Pennsylvania (13.4%)
Butler County, Hospital Authority RB,
Butler Memorial Hospital
7.500%, 07/01/96 50 51
Dauphin County, General
Authority RB, RR1 Term,
Mandatory Put 12/01/95 @ 100
6.000%, 06/01/26 80 80
Philadelphia, Industrial Development
Authority RB, Huff Paper
Company Project
6.100%, 12/15/97 (B) 40 40
State Certificate of Participation
6.200%, 06/01/96 100 100
State Housing Finance Agency,
Single Family Mortgage RB, series K
6.000%, 10/01/96 200 202
Western Westmoreland,
Municipal Authority RB (MGG)
6.150%, 10/15/97 25 25
--------
498
--------
31
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Short-Term Municipal Bond Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Puerto Rico (2.7%)
Commonwealth Public
Improvement, GO
6.000%, 07/01/96 (A) $ 50 $ 50
Electric Power Authority RB,
series M (BIG)
6.700%, 07/01/96 50 51
--------
101
--------
South Dakota (3.0%)
State Housing Development
Authority RB
6.125%, 05/01/08 110 111
--------
Texas (14.7%)
South Plains, Regional Housing
Authority Mortgage RB, Section 8
Assisted Project, series 8 (HUD)
6.000%, 08/01/00 170 171
Southeast Housing Finance Corp
Residual RB, Capital Appreciation,
series B
12/01/16 (C) 1,100 229
Tarrant County, Housing Finance
Corporation, Multi-Family Housing
RB, Summit Lake Project (FNMA),
Mandatory Put 10/01/97 @ 100
7.375%, 10/01/07 140 145
--------
545
--------
Utah (1.1%)
Salt Lake City, Industrial
Development RB, Hermes
Association Project
5.900%, 09/01/96 (A) 40 41
--------
Washington (1.4%)
State Public Power Supply RB,
System Nuclear Project-No. 3,
series B
6.900%, 07/01/96 50 51
--------
Wisconsin (1.3%)
Wisconsin State GO, series 4
3.000%, 11/01/95 50 50
--------
Total Municipal Bonds
(Cost $3,658,324) 3,683
--------
Cash Equivalents (0.5%)
SEI Institutional Tax Free Portfolio 19 19
--------
Total Cash Equivalents
(Cost $18,566) $ 19
--------
Total Investments (99.4% of Net Assets)
(Cost $3,676,890) $3,702
========
(A) Securities are held in connection with a letter of credit issued by a
major commercial bank.
(B) Income on bond may be subject to Alternative Minimum Tax.
(C) Zero Coupon Bond
ETM Escrowed to Maturity
GO General Obligation Bond
RB Revenue Bond
The following organizations have provided underlying credit support for the
securities as defined in the Schedule of Investments:
AMBAC American Municipal Bond Assurance Corporation
BIG Bond Investors Guaranty Insurance Company
FGIC Federal Guaranty Insurance Company
FHA Federal Housing Association
FNMA Federal National Mortgage Association
FSA Financial Security Assurance
GNMA Government National Mortgage Association
GTD Guaranteed Student Loans
HUD Housing & Urban Development Section B
MBIA Municipal Bond Insurance Association
MGG Municipal Government Guaranteed
The accompanying notes are an integral part of the financial statements.
Short-Term
Fixed Income Fund
Asset Backed Securities (18.8%)
Carco Auto Loan Master Trust
series 1995-3, class A (A)
16.030%, 05/15/00 $ 50 $ 50
Caterpillar Financial Asset Trust
series 1995-A, class A2
16.100%, 08/25/01 150 150
Ford Credit Auto Lease Trust
series 1995-1, class A2
16.350%, 10/15/98 150 152
Navistar Financial Corporation
Owner Trust series 1995-B, class A2
15.940%, 10/15/98 150 150
Premier Auto Trust series 1993-5,
class A2
14.220%, 03/02/99 72 71
Sears Credit Account Trust
series 1991-C, class A
18.650%, 07/15/98 100 102
32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Standard Credit Card Master Trust
series 1991-1, class A
8.500%, 08/07/97 $100 $102
--------
Total Asset Backed Securities
(Cost $774,979) 777
--------
Mortgage Backed Securities (11.9%)
Green Tree Financial Corporation
series 1993-1A1
4.900%, 04/15/18 52 51
Green Tree Financial Corporation
series 1994-1A1
5.600%, 04/15/19 91 91
Green Tree Financial Corporation
series 1995-1A1
7.250%, 06/15/25 51 52
Green Tree Financial Corporation
series 1995-4A1
6.050%, 07/15/25 60 60
Housing Securities Incorporated
series 1994-1, class A5
5.500%, 08/25/03 100 99
Vanderbilt Mortgage Finance
series 1994-A, class A1
7.000%, 07/10/19 138 140
--------
Total Mortgage Backed Securities
(Cost $491,134) 493
--------
Corporate Obligations (2.5%)
Lehman Brothers
7.000%, 05/15/97 100 101
--------
Total Corporate Obligations
(Cost $100,428) 101
--------
U.S. Government Agency Obligations (22.0%)
Federal Home Loan Mortgage
Corporation REMIC series 1101KA
7.250%, 09/15/18 76 76
Federal Home Loan Mortgage
Corporation REMIC series 1190F
7.500%, 09/15/18 59 59
Federal Home Loan Mortgage
Corporation REMIC series 1215E
6.750%, 02/15/04 123 122
Federal Home Loan Mortgage
Corporation REMIC series 1306G
7.800%, 05/15/12 91 92
Federal Home Loan Mortgage
Corporation REMIC series 1332D
6.000%, 02/15/13 52 52
Federal National Mortgage
Association REMIC series 1989-85D
7.600%, 05/25/18 $ 66 $ 66
Federal National Mortgage
Association REMIC series 1990-87G
7.500%, 05/25/12 103 103
Federal National Mortgage
Association REMIC series 1991-137E
8.050%, 01/25/20 66 67
Federal National Mortgage
Association REMIC series 1992-161A
6.500%, 12/25/13 59 58
Federal National Mortgage
Association REMIC series G92-35A
7.000%, 10/25/15 98 98
Federal National Mortgage
Association REMIC series G92-42C
7.000%, 09/25/19 52 52
Federal National Mortgage Association
REMIC series 1991-165H
7.500%, 04/25/20 65 66
--------
Total U.S. Government Agency
Obligations (Cost $910,413) 911
--------
Taxable Municipal Bonds (39.3%)
Dallas County, Texas Housing Finance
Corporation
6.625%, 12/01/13 200 193
Dauphin County, Pennsylvania
General Authority Health Center,
Tressler Lutheran, series B, Optional
Put 09/01/96 @ 100
7.000%, 09/01/10 270 269
Gainesville, Florida Utility
Systems Revenue Bonds
4.875%, 04/01/96 170 169
Hillard, Ohio Housing
Development Corporation,
Sturbridge Green, series B (FHA)
7.750%, 01/01/97 75 75
North Washington, Colorado Fire
Protection District General
Obligation, Series A
6.300%, 11/01/95 115 115
Ohio Capital Corporation Housing
Revenue Bonds, series 1995N
(FHA) (MBIA)
6.875%, 07/01/97 90 90
Plainfield, Indiana Quaker School
Building Corporation
6.100%, 07/01/96 135 135
33
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Short-Term Fixed Income Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Rome, New York Housing Development
Revenue Bonds,
Section 8 Housing, series B (MBIA)
(FHA) 7.750%, 07/01/01 $ 70 $ 71
San Francisco, California
Redevelopment Agency, Section 8
Housing, series C (MBIA) (FHA)
6.375%, 01/01/00 180 181
Snake River, Colorado Water District
General Obligation (Asset Guaranty)
6.250%, 12/15/96 180 180
Utah School District Finance
Cooperative, series A, Mandatory
Put 02/15/96 @ 100 15.400%, 02/15/10 150 150
------
Total Taxable Municipal Bonds
(Cost $1,626,422) 1,628
------
Cash Equivalents (4.9%)
SEI Daily Income Trust
Government II Portfolio 204 204
------
Total Cash Equivalents
(Cost $203,902) 204
------
Repurchase Agreement (5.3%)
Lehman Brothers Securities 5.53%,
dated 10/31/95, matures 11/01/95,
repurchase price $218,629
(collateralized by U.S. Treasury
Note, par value $214,224, 7.875%,
due 04/15/98, market value
$225,438) 219 219
------
Total Repurchase Agreement
(Cost $218,596) 219
------
Total Investments
(104.7% of Net Assets) (Cost
$4,325,874) $4,333
======
(A) Variable rate security - The rate reflected on the Schedule of
Investments is the rate in effect at October 31, 1995.
REMIC Real Estate Mortgage Investment Conduit
The following organizations have provided underlying credit support for the
securities as defined in the Schedule of Investments:
FHA Federal Housing Authority Insured
MBIA Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
Smaller Companies Fund
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Common Stocks (84.9%)
Agriculture (3.6%)
Barefoot 1,500 $ 18
Delta & Pine Land 2,000 78
--------
96
--------
Air Transportation (1.0%)
Atlantic Southeast Airlines 1,000 25
--------
Apparel/Textiles (0.9%)
Mohawk Industries* 1,500 23
--------
Banks (7.7%)
Baybanks 1,000 81
Dime Bancorp* 5,000 53
First Bell Bancorp* 1,000 13
Glendale Federal Savings Bank* 2,000 32
Long Island Bancorp 1,000 23
--------
202
--------
Building & Construction (2.6%)
Lennar 3,000 69
--------
Communications Equipment (4.1%)
American Radio Systems* 1,000 23
Dionex* 1,000 53
Mercury Interactive* 1,500 31
--------
107
--------
Computers & Services (1.7%)
Ceridian* 600 26
Micros Systems* 500 19
--------
45
--------
Consumer Products (1.5%)
Nine West Group* 900 40
--------
Electrical Technology (0.5%)
Komag* 250 14
--------
Financial Services (1.3%)
Credit Acceptance* 1,400 33
--------
Food, Beverage & Tobacco (0.5%)
Robert Mondavi, Class A* 500 14
--------
Healthcare (1.7%)
Gensia Pharmaceutical* 3,000 13
Gilead Sciences* 500 10
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Immulogic Pharmaceutical* 700 $ 8
Uromed* 1,300 14
--------
45
--------
Household Furniture & Fixtures (0.9%)
Leggett and Platt 1,000 24
--------
Lumber & Wood Products (0.6%)
Triangle Pacific* 1,000 16
--------
Machinery (3.0%)
Camco International 1,000 23
PRI Automation* 1,500 55
--------
78
--------
Manufacturing (1.0%)
West Marine* 900 27
--------
Measuring Devices (2.0%)
CEM* 4,000 53
--------
Medical Products & Services (1.7%)
American Oncology Resources* 1,300 46
--------
Miscellaneous Business Services (2.6%)
Adobe Systems 400 23
Platinum Technology* 1,100 20
Rational Software* 700 11
The Bisys Group* 500 14
--------
68
--------
Miscellaneous Manufacturing (3.0%)
Blyth Industries* 500 25
Department 56* 1,200 55
--------
80
--------
Paper & Paper Products (3.3%)
Bowater 1,000 44
Potlatch 1,000 42
--------
86
--------
Petroleum & Fuel Products (6.7%)
Benton Oil & Gas* 750 9
BJ Services* 1,500 35
Coda Energy* 2,500 19
Devon Energy 2,000 43
Diamond Shamrock R&M 1,000 26
Parker & Parsley Petroleum 1,000 19
United Meridian* 1,500 25
--------
176
--------
Printing & Publishing (2.5%)
New England Business Service 3,500 $ 67
--------
Retail (9.5%)
Big B 400 6
Boston Chicken* 1,000 33
Creative Computers* 1,100 32
Daka International* 600 18
Damark International* 2,200 13
DF&R Restaurants* 900 27
Family Dollar Stores 1,750 27
Garden Ridge* 900 32
Global Directmail* 300 8
Petsmart* 700 23
Sonic* 1,500 33
--------
252
--------
Semi-Conductors/Instruments (5.8%)
Integrated Process Equipment* 1,100 41
MEMC Electronic Materials* 2,500 80
Oak Technology* 600 33
--------
154
--------
Telephones & Telecommunication (7.2%)
Cascade Communications* 800 57
Highwaymaster Communications* 1,000 8
Paging Network* 3,000 69
Pairgain Technologies* 600 26
Vanguard Cellular System, Class A* 1,300 29
--------
189
--------
Towing & Tugboat Service (2.5%)
Tidewater 2,500 66
--------
Trucking (2.2%)
American Freightways* 1,000 13
TNT Freightways 2,500 45
--------
58
--------
Wholesale (3.3%)
Computervision* 2,700 32
Daisytek International* 1,000 28
FTP Software* 1,000 27
--------
87
--------
Total Common Stocks
(Cost $2,103,640) 2,240
--------
Commercial Paper (16.2%)
Associates
5.801%, 11/01/95 428 428
--------
35
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 995
Smaller Companies Fund
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Total Commercial Paper
(Cost $428,000) $ 428
------
Total Investments (101.1% of Net Assets)
(Cost $2,531,640) $2,668
======
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
International Equity Fund
Foreign Common Stocks (95.0%)
Australia (2.4%)
Mim Holdings 31,000 $ 41
Western Mining 4,000 26
------
67
------
Finland (1.3%)
Valmet 'A' 1,300 36
------
France (6.9%)
Castorama 467 76
Christian Dior 850 84
Cie de Saint Gobain 12 1
Sanofi 450 29
------
190
------
Germany (2.7%)
Veba 1,800 74
------
Hong Kong (5.4%)
Cheung Kong 5,000 28
Hutchison Whampoa 22,000 121
------
149
------
Italy (1.4%)
Telecom Italia Mobile SPA* 22,000 37
------
Japan (33.3%)
Autobac Seven 100 9
Canon 4,000 68
DDI 8 65
Hitachi 7,000 72
Ito Yokado 1,000 55
Mitsubishi 5,000 55
Mitsubishi Estate 6,000 64
Mitsubishi Heavy Industries 10,000 77
Nishimatsu Construction 6,000 67
NKK* 23,000 56
Nomura Securities 4,000 73
Sankyo 3,000 $ 66
Shin Etsu Chemical 3,000 61
Teijin 13,000 60
Tokio Marine & Fire Insurance 6,000 62
------
910
------
Malaysia (2.4%)
Genting Berhad 4,000 35
United Engineers 5,000 31
------
66
------
Netherlands (5.7%)
Aegon 879 33
Elsevier 6,200 81
Polygram 660 41
------
155
------
Singapore (4.1%)
Jardine Matheson Holdings 6,800 41
Overseas Chinese Banking Foreign 6,000 71
------
112
------
Spain (1.8%)
Centros Comerciales Pryca 1,100 23
Empresa Nacional de Electricidad 520 26
------
49
------
Sweden (6.6%)
Astra AB, series A 2,400 88
Ericsson 4,400 94
------
182
------
Switzerland (3.1%)
BBC Brown Boveri Bearer 35 41
Roche Holding 6 43
------
84
------
United Kingdom (17.9%)
British Telecommunications 9,400 56
Dixons Group 24,300 147
General Electric 18,100 90
Glaxo Wellcome 8,200 111
Williams Holdings 17,400 86
------
490
------
Total Foreign Common Stocks
(Cost $2,462,698) 2,601
------
Foreign Preferred Stock (1.5%)
Germany (1.5%)
Sap 275 42
------
36
<PAGE>
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Total Foreign Preferred Stock
(Cost $44,914) $ 42
------
Total Investments (96.5% of Net Assets)
(Cost $2,507,612) $2,643
======
* Non-Income producing security.
The accompanying notes are an integral part of the financial statements.
International Small
Cap Equity Fund
Foreign Common Stocks (85.6%)
Australia (1.9%)
Adelaide Bank 195,000 $ 525
Biota Holdings 180,000 233
Burswood Property Trust 400,000 515
Gasgoyne Gold Mine 1,659 2
Savage Resources 231,000 167
Shomega 200,000 244
------
1,686
------
Austria (0.8%)
Austria Mikro Systeme International 1,100 204
Wolford 3,690 496
------
700
------
Belgium (0.3%)
Quick Restaurants 2,500 229
------
Denmark (1.2%)
Martin Gruppen 6,650 359
Martin Gruppen New* 2,260 122
Oticon Holding AS, series A 6,040 613
------
1,094
------
Finland (0.1%)
Benefon Oy 2,500 70
------
France (3.5%)
Airfeu SA 2,824 109
Assystem* 3,370 224
Bertrand Faure 2,500 79
Brioche Pasquier 1,628 214
But SA 1,338 341
CIPE France SA 3,600 211
Deveaux SA 2,483 184
Filipacchi Medias 16 2
Grand Optical-Photoservice 3,408 365
Guilbert SA 3,447 $ 414
Hermes International 1,482 261
MGI Coutier 2,084 124
NRJ SA 10 1
Sidel 689 239
Sylea 3,300 248
Union Financiere de France
Banque SA 1,742 133
------
3,149
------
Germany (2.8%)
Ahlers (Adolf) 620 132
Boss (Hugo) 379 317
CeWe Color Holding 1,393 406
Jil Sander 662 555
Kiekert* 11,600 730
Marschollek Lauten 308 207
Stohr & Company 1,500 199
------
2,546
------
Hong Kong (1.7%)
ASM Pacific Technology 95,000 90
Chen Hsong 230,000 134
China Resources Development 200,000 89
East Asiatic Company 320,000 43
Four Seas Mercantile 250,000 73
Gold Peak 310,000 150
Grand Hotel Holdings A 200,000 73
Harbour Centre 161,000 179
Hon Kwok Land Investment 402,000 122
Hong Kong Aircraft Engineering 44,800 115
Liu Chong Hing Bank 140,000 172
Regal Hotels International 800,000 150
TVE Holdings 250,000 76
Wing Hang Bank 16,000 52
Winsor Industrial 73,000 66
------
1,584
------
Indonesia (1.0%)
Bukaka Teknik Utama* 50,000 74
Clipan Finance 67,500 157
Fastfood Indonesia 31,000 27
PT Aneka Kimia Ray* 45,000 127
PT Bank Niaga 25,000 89
Sari Husada 30,000 149
Tigaraksa Satria 40,000 141
Trias Sentosa 60,000 132
------
896
------
Italy (4.0%)
De Rigo Spa ADR* 13,500 278
Gewiss 69,750 875
37
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 995
International Small
Cap Equity Fund
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Industria Machine* 62,300 $ 435
Industrie Natuzzi Spa ADR 36,012 1,441
Saes Getters 18,120 346
Saes Getters Di Risp 27,580 234
------
3,609
------
Japan (38.4%)
Aichi 47,000 372
Aiwa 18,000 391
Alpine Electronics 37,000 514
Arcland Sakamoto 20,000 258
Belluna 12,000 224
Beltecno 10,000 139
Bridgestone 55,000 597
Cesar 50,000 356
Chubu Sekiwa Real Estate 30,000 396
Chudenko 8,000 292
Chuo Warehouse 20,000 215
Circle K* 15,000 572
Daishowa Paper 60,000 441
Daiwabo Information Systems 16,000 458
Enix 11,000 398
Fast Retailing 9,200 449
Fuji Machine Manufacturing 14,000 527
Fujitsu Business Systems 20,000 504
Fuso Lexel 23,000 169
H.I.S. 12,100 467
Higashi Nihon House 15,000 201
Hitachi Medical 30,000 381
Honma Golf* 16,000 396
Hosoda 10,000 67
Ichiken 40,000 358
IO Data Device 6,000 428
Itoki Crebio 52,000 388
Izumi 21,000 398
Japan Digital Lab 20,000 401
Japan Industry Land 14,000 523
Juken Sangyo 33,000 381
Kaneshita Construction 31,000 391
Kansai Sekiwa 31,000 515
Kanto Seino Transportation 8,000 227
Kawasumi Labs 20,000 272
Maezawa Kaisei 10,000 391
Mars Engineering 5,000 364
Maruco 12,400 710
Ministop 23,000 558
Misumi 20,000 700
Mitsuba Electric 37,000 376
Mitsui High Tech 25,000 677
Mitsui Home 25,000 354
Mitsumi Electric 37,000 897
Nichiha 25,000 416
Nichii Gakkan* 11,000 480
Nihon Dempa Kogyo 12,000 307
Nippon Kanzai 12,000 $ 340
Nippon Thompson 68,000 555
Nissin 11,000 538
Nitto Electric Works 31,000 424
OSG 57,000 401
Paramount Bed 6,000 432
Paris Miki 18,000 570
Plenus 6,000 283
PS 25,000 420
Ricoh Elemex 25,000 320
Ryohin Keikaku 7,000 460
Ryoyo Electro 16,000 374
Sansei Yusoki 22,000 217
Santen Pharmaceutical 20,500 485
Sanyo Shinpan 8,000 571
Satori Electric 10,000 464
Seijo 16,500 516
Seikagaku Engineering 10,000 257
Sekiwa Real Estate 40,000 293
Senshukai 200 4
Shimachu 19,000 502
Shinki* 13,000 447
Shinko Electric 11,000 479
Sintokogio 56,000 416
SK Kaken 9,000 202
Stamina Foods 27,000 343
Takada Kiko Steel 43,000 414
Tanseisha 25,000 236
TKC 20,100 440
Tohoku Misawa Home 31,000 355
Tokin 30,000 463
Towa Pharmaceutical 7,000 329
Trusco Nakayama 22,800 430
Wakita & Company 31,000 403
Xebio 16,000 594
Yagi 8,000 94
Yamae Hisano 25,000 284
Yonkyu 10,000 259
Yoshinoya D&C 40 634
Yukiguni Maitake 18,000 345
------
34,889
------
Malaysia (1.5%)
Cycle And Carr Bin 60,000 248
George Kent 59,500 112
Hock Hua Bank 40,000 118
IOI Properties 60,000 126
Muhibbah Engineering 40,000 145
Nylex Berhad 80,000 235
Public Finance 95,000 179
RJ Reynolds Berhad 50,000 102
Shah Alam Properties 50,000 123
------
1,388
------
38
<PAGE>
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Netherlands (2.4%)
Aalberts Industries 3,800 $ 223
Gucci* 24,500 696
IHC Caland 10,548 300
OPG Apoth Coop 9,400 228
Otra 1,057 218
Randstad Holdings 6,590 297
Sphinx Kon Gustavsberg 9,188 255
------
2,217
------
Norway (4.0%)
Awilco AS, series B 27,200 269
Industri Investor 78,000 198
Multisoft AS 6,750 163
Nera AS 14,830 531
Sensonor AS* 54,000 460
Storli AS, series A 10,000 162
Sysdeco Group AS* 21,700 484
System Etiketterin 26,349 508
Tandberg AS* 7,500 78
Tandberg New* 7,700 80
Tomra Systems 75,740 478
Transocean 15,386 235
------
3,646
------
Philippines (0.2%)
Bacnotan Cement 50,000 48
Belle Resources* 200,000 30
First Philippine Holdings 32,111 68
Union Bank of Philippines* 12,000 14
------
160
------
Portugal (0.3%)
TVI-Televisao Industries* 54,000 253
------
Singapore (1.6%)
Amtek Engineering 80,000 164
Comfort Group 37,000 31
Courts Singapore 135,000 212
Flextech Holdings 100,000 55
Jurong Engineering 50,000 294
Seksun Precision Engineering 100,000 71
Sembawang Maritime 25,000 85
Singap Ship & Engine 75,000 192
ST Capital 100,000 120
Tiger Medicals 35,000 54
Venture Manufacturing 70,000 214
------
1,492
------
South Korea (0.3%)
Daesung Industrial 1,000 83
Halla Engineering &
Construction Rights* 768 --
Halla Engineering & Construction* 3,200 $ 160
Korean Express EDR 2,600 56
------
299
------
Spain (0.7%)
Cortefiel 12,000 354
Empresas Nacional de Cellulosa* 7,600 139
Energia E Ind Aragonesas* 30,500 156
------
649
------
Sweden (2.8%)
Allgon AB, series B 5,000 76
Assa Abloy, series B* 23,747 157
Elekta Instrument AB, series B 5,400 224
Hoganas AB, series B* 21,160 570
Kalmar 31,500 513
Kanthal, series B 11,900 197
Sintercast* 15,860 826
------
2,563
------
Switzerland (1.9%)
Bossard Holding 108 193
Edipresse SA 1,348 376
Fust 1,170 294
Kardex PC 1,155 327
Sarna Kunst Holdings 95 108
Swiss Log Holdings 1,160 347
Zehnder Holdings 208 112
------
1,757
------
Thailand (0.4%)
KCE Electronics 50,000 143
Muramoto Electronics 16,800 55
Serm Suk* 6,040 77
Srithai Superware 12,000 82
------
357
------
United Kingdom (13.8%)
Albright & Wilson 60,000 151
Allders 15,500 43
Allied Colloids 40,000 84
Alumasc Group 50,909 356
Amersham International 13,000 198
Argos 50,000 405
Avon Rubber 15,000 124
Baynes (Charles) 140,000 228
BBA Group 85,000 361
Blick 17,000 133
BM Group 225,000 133
39
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 995
International Small
Cap Equity Fund
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
BMG Charles Sydney 96,459 $ 137
Bunzl 100,000 318
Business Post Group 75,000 420
Charter 17,500 230
Compass Group 40,000 272
Courtaulds Textile 32,500 211
Cowie Group 20,000 94
Crabtree Group 25,000 146
CRT Group 73,333 139
Daily Mail & General Trust A 15,000 257
Dalgety 50,000 336
Devro International 35,000 135
Diploma 15,000 103
Domino Printing 12,500 94
Fairey Group 24,150 194
Firstbus 81,550 178
Forth Ports 37,500 365
Glynwed International 55,000 292
Great Portland Estates 38,000 97
Halma 40,000 108
Henlys 35,000 283
Hepworth 60,000 274
Ibstock 210,000 212
Ideal Hardware 44,000 322
Isa International 100,000 232
Laird Group 25,000 165
London Clubs International 44,500 288
MAI 40,000 208
Marston Thompson 50,000 240
Menvier-Swain 49,500 220
MFI Furniture 105,000 236
Misys 23,076 218
Moorfield Estates 253,705 106
Morrison(W) Supermarket 25,000 59
My Holdings 264,032 292
Perkins Food 55,000 63
Pizza Express 100,000 305
Protean 46,945 185
Rugby Group 120,000 203
Sanderson Holding 25,000 77
Security Services 12,500 186
Sheffield Insulation 38,500 125
Smith (David S.) Holding 27,500 251
Spirax-Sarco Engineering 40,000 382
Stakis 150,000 184
Stat-Plus Group 40,000 131
Staveley Industries 60,000 202
Sunleigh 1,700,000 60
Tibbett & Britten Group 8,000 56
Trafford Park Estates 120,000 178
Ulster Television 20,000 302
------
12,587
------
Total Foreign Common Stocks
(Cost $76,409,819) $77,820
------
Foreign Preferred Stocks (3.2%)
Germany (3.2%)
Berentzen-Gruppe 9,370 263
Fielmann 9,200 504
Hach 575 296
Mobel Walther 918 405
Puma 1,686 467
Rhoen Klinikum 3,900 324
Rhoen Klinikum Rights 3,900 75
Sto Vorzug 494 265
Villeroy & Boch 1,704 322
------
2,921
------
Total Foreign Preferred Stocks
(Cost $2,661,161) 2,921
------
Common Stock (0.0%)
United States (0.0%)
Pixtech 1,860 19
------
Total Common Stock
(Cost $18,693) 19
------
Total Investments (88.8% of Net Assets)
(Cost $79,089,673) $80,760
======
* Non-income producing security.
ADR American Depository Receipts.
EDR European Depository Receipts.
PC Participating Certificates.
The accompanying notes are an integral part of the financial statements.
European Small
Cap Equity Funds
Foreign Common Stocks (85.1%)
Austria (3.0%)
Austria Mikro Systeme International 724 $ 134
Wolford 1,099 148
------
282
------
Belgium (0.7%)
Quick Restaurants 722 66
------
Denmark (2.8%)
Martin Gruppen* 1,200 65
Oticon Holding AS, series A 1,952 198
------
263
------
40
<PAGE>
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Finland (0.4%)
Benefon Oy 1,300 $ 36
------
France (7.9%)
Airfeu SA 967 37
Assystem* 910 60
Bertrand Faure 730 23
Brioche Pasquier 481 63
But SA 250 64
CIPE France SA 1,069 63
Deveaux SA 500 37
Filipacchi Medias 3 --
Grand Optical-Photoservice 625 67
Guilbert SA 819 99
Hermes International 415 73
MGI Coutier 580 34
Sidel 186 65
Sylea 300 23
Union Financiere de France Banque SA 423 32
------
740
------
Germany (6.3%)
Boss (Hugo) 60 50
CeWe Color Holding 398 116
Jil Sander 156 131
Kiekert* 2,700 170
Marschollek Lauten 72 48
Stohr & Company 528 70
------
585
------
Italy (6.9%)
De Rigo Adr 3,000 62
Gewiss 11,836 147
Industria Machine* 17,000 119
Industrie Natuzzi Spa ADR 3,564 143
Saes Getters 6,350 121
Saes Getters Di Risp 4,000 34
Saes Getters Priv 1,500 16
------
642
------
Netherlands (6.2%)
Aalberts Industries 1,896 111
Gucci* 5,350 152
OPG Apoth Coop 2,826 69
Otra 375 77
Randstad Holdings 2,028 92
Sphinx Kon Gustavsberg 2,790 77
------
578
------
Norway (9.8%)
Awilco AS, series B 7,210 71
Multisoft AS 2,000 48
Nera AS 4,260 $ 154
Sensonor AS* 15,181 129
Storli AS, series A 2,800 45
Sysdeco Group AS* 5,750 128
System Etiketterin 6,551 126
Tandberg AS* 2,000 21
Tandberg New* 2,100 22
Tomra Systems 15,966 101
Transocean 4,768 73
------
918
------
Spain (2.0%)
Cortefiel 1,885 56
Empresas Nacional de Cellulosa* 1,949 36
Energia E Ind Aragonesas* 7,454 38
Uralita* 5,387 54
------
184
------
Sweden (7.6%)
Allgon AB, series B 2,500 38
Assa Abloy, series B* 6,638 44
Elekta Instrument AB, series B 800 33
Hoganas AB, series B 6,187 167
Kalmar 7,590 123
Kanthal, series B 5,200 86
Sintercast* 4,090 217
------
708
------
Switzerland (2.2%)
Edipresse SA 164 46
Fust 142 36
Kardex PC 274 77
Sarna Kunst Holdings 1 1
Zehnder Holdings 90 48
------
208
------
United Kingdom (29.3%)
Albright & Wilson 15,000 38
Allied Colloids 25,000 53
Amersham International 3,000 46
Argos 22,000 177
BBA Group 32,000 136
Bradford Property Trust 8,000 23
Capital Shopping Centers 12,500 40
Charter 5,000 66
Compass Group 11,000 75
Courtaulds Textile 7,500 49
Daily Mail & General Trust A 4,800 82
Dalgety 20,000 134
Devro International 22,000 85
Diploma 16,000 110
Fairey Group 7,500 60
Glynwed International 22,000 117
41
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 995
European Small Cap
Equity Fund
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Great Portland Estates 18,000 $ 46
Halma 33,333 90
Hepworth 25,000 114
Ibstock 65,000 66
Laird Group 19,200 127
London Clubs International* 9,750 63
MAI 15,000 78
MFI Furniture 55,000 123
Monument Oil & Gas 55,000 51
Morrison(W) Supermarket 12,000 28
Rugby Group 40,000 68
Scapa Group 10,000 37
Security Services 7,500 111
Smith (David S.) Holding 9,700 89
Spirax-Sarco Engineering 15,000 143
Stakis 35,000 43
Staveley Industries 14,000 47
Tibbett & Britten Group 8,000 56
Wilson Holdings 25,000 57
------
2,728
------
Total Foreign Common Stocks
(Cost $6,988,891) 7,938
------
Foreign Preferred Stocks (10.7%)
Germany (10.7%)
Berentzen-Gruppe 4,380 123
Fielmann 2,100 115
Hach 135 69
Mobel Walther 323 142
Puma 600 166
Rhoen Klinikum 1,810 151
Rhoen Klinikum Rights* 1,810 35
Sto Vorzug 196 105
Villeroy & Boch 512 97
------
1,003
------
Total Foreign Preferred Stocks
(Cost $873,035) 1,003
------
Common Stock (0.0%)
United States (0.0%)
Pixtech 400 4
------
Total Common Stock
(Cost $4,020) 4
------
Total Investments (95.8% of Net Assets)
(Cost $7,865,946) $8,945
======
* Non-income producing security.
ADR American Depository Receipts
PC Participating Certificates
The accompanying notes are an integral part of the financial statements.
Emerging Markets
Equity Fund
Foreign Common Stocks (84.8%)
Argentina (3.3%)
Astra Cia Argentina, series B 600,000 $ 887
Nobleza Piccardo, series B 220,000 847
Quilmes Industrial SA ADR 33,000 578
YPF SA ADR 45,000 771
------
3,083
------
Brazil (4.6%)
Casa Anglo Bras SA 2,260,000 141
Cemig Rights* 1,185,147 25
Centrais Eletrica* 712,000 482
Cia Energetica de Minas 24,820,000 532
Eletrobras 1,500,000 426
Makro Atacadista GDR* 65,000 585
Moihno Santista* 100,000 74
Souza Cruz 110,000 787
Telebras ADR* 20,000 805
Telepar Tel Parana 1,500,000 468
------
4,325
------
Chile (1.0%)
Cia Telecomunicacion Chile ADR 4,000 288
Laboratorio Chile ADR 25,000 300
Maderas Y Sintecticos ADR 20,000 358
------
946
------
Colombia (1.6%)
Banco de Bogota 109,776 509
Cadenalco ADR 25,000 325
Suramericana 38,386 677
------
1,511
------
Greece (1.5%)
Aluminum of Greece 4,000 198
Ergo Bank 12,450 537
Hellenic Bottling 9,825 314
Hellenic Sugar 900 11
Lavipharm* 9,920 86
Papastratos Cig 7,500 233
------
1,379
------
Hungary (0.2%)
Gedeon Richter GIC 12,000 180
------
India (3.9%)
Asok Leyland GDR 31,000 310
Bajaj Auto* 28,750 679
East India Hotels* 50,000 759
Grasim Industries 18,000 319
India Rayon GDR 26,000 311
42
<PAGE>
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Indian Aluminum GDR 24,000 $ 143
Indian Hotels ADR* 16,200 300
Larsen & Toubro 50,000 399
Mahangar Telephone* 70,000 324
Usha Beltron GDR 23,000 69
------
3,613
Indonesia (5.8%)
Astra International 284,000 569
Bimantara Citra* 410,000 316
Bk Danamon 280,000 407
Bunas Finance 50,000 26
Duta Pertiwi Nusan 100,000 119
Gudang Garam 50,000 435
Indofood 133,000 615
Indosat 25,000 85
Panin Bank 197,000 217
Pt Aneka Kimia Ray 57,000 161
Pt Darya Vaia Laboratoria 320,000 539
Pt Enseval Putera 76,000 57
Pt Indah Kiat Pulp & Paper 489,984 480
Pt Tempo Scan Pacific 90,000 484
Semen Gresik 56,000 146
Tigaraksa Satria 104,000 367
Tjiwi Kimia 114,000 211
Trias Sentosa 85,000 187
------
5,421
------
Malaysia (15.8%)
Arab Malaysian Finance 56,666 199
Berjaya Sports 500,000 1,043
Commerce Asset Holdings 80,000 394
DCB Holdings 250,000 709
Edaran Otomobil 90,000 709
Genting Berhad 100,000 862
Land and General 255,000 592
Leader Universal 250,000 674
Malayan Banking 150,000 1,210
Malaysian Indl Development 200,000 390
Nylex Berhad 200,000 586
Petronas Gas* 200,000 677
Renong Berhad 300,000 458
Resorts World Berhad 240,000 1,171
RJ Reynolds Berhad* 380,000 778
Sime Darby Malaysia 250,000 625
Telekom Malaysia 190,000 1,363
Tenaga Nasional Berhad 200,000 756
UMW Holdings Berhad 200,000 476
United Engineers 180,000 1,119
------
14,791
------
Mexico (9.0%)
Apasco 100,000 $ 370
Bufete Industrial ADR* 24,000 336
Cifra SA ADR 790,000 845
Corporacion Geo SA ADR* 8,750 94
Corporacion Geo SA GDS* 11,250 118
Empaques Ponderosa ADS* 47,000 399
Empresas Ica Sociedad
Controladora ADR 145,000 1,450
Grupo Financiero Banamex,
series B* 150,000 259
Grupo Financiero Banamex,
series L* 7,500 12
Grupo Financiero Bancomer,
series B* 1,365,000 356
Grupo Financiero Bancomer,
series L* 50,555 12
Grupo Herdez, series A* 800,000 201
Grupo Industria Bimbo, series A 105,000 404
Grupo Industria Saltillo, series A 40,000 533
Grupo Televisa ADR 16,000 276
Interceramica* 130,000 151
Kimberly Clark, series A 40,000 527
Nacional de Drogas, series B 10,000 34
Nacional de Drogas, series L 255,000 813
Sigma Alimentos, series B 60,000 416
Telefonos de Mexico ADR,
series L 16,000 440
Transport Marititime de Mexico,
series L* 51,000 375
------
8,421
------
Pakistan (0.4%)
Engro Chemicals* 75,000 298
Pakistan Telecom* 699 65
------
363
------
Peru (1.7%)
Cervecer Back&John T* 127,000 228
Cia Embotelladora Pacfico* 380,000 196
Cpt Telefonica Del Peru, series B 347,685 622
Explosivos, series C* 54,351 146
Explosivos, series T* 54,351 81
Seguros Fenix 25,408 287
------
1,560
------
Philippines (1.8%)
Aboitiz Equity Ventures* 1,628,600 310
Bacnotan Consolidated 46,000 301
Belle Resources* 2,100,000 319
C & P Homes* 282,000 182
Filinvest Land* 62,500 17
43
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Emerging Markets
Equity Fund
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
First Philippene Holdings 83,200 $ 176
Manila Electric 8,000 60
Philippine Long Distance 2,000 112
Philippine Long Distance ADR 3,300 185
------
1,662
------
Poland (0.2%)
Bank Przemsl* 3,100 96
Debica* 8,000 111
------
207
------
Portugal (1.6%)
Banco Portugal de Invest 340 5
Barbosa E Almeida 4,444 135
Cimentos de Portugal 25,890 422
Jeronimo Martins 6,000 319
Portugal Telecom* 18,000 341
Semapa* 12,000 115
TVI-Televisao Industries* 31,680 148
------
1,485
------
South Africa (11.9%)
Anglo American Gold Investment 11,900 961
Anglovaal, series N 24,700 940
Cadbury Schweps SA 34,500 530
C.G. Smith Foods 38,250 750
Debeers Centenary Linked Units 34,500 953
JCI 118,000 947
Malbak 152,500 1,014
Metro Cash & Carry 135,000 481
Metropolitan Life 40,500 489
Rembrandt Group 109,000 994
Reunert 195,000 1,149
South African Brewery 27,500 903
Southern Life 104,000 984
------
11,095
------
South Korea (4.9%)
Daewoo* 168 2
Dong-Ah Construction 4,836 194
Dong-Ah Construction ADR* 12,000 291
Hanil Bank* 9,700 117
Hyundai Engineering 12,446 657
Hyundai Motor GDR* 19,000 333
Hyundai Motor GDS* 2,000 35
Korea Electric Power 7,500 309
Korean Air* 5,000 176
Lg Chemical 21,000 318
Pohang Iron & Steel 850 74
Pohang Iron & Steel ADR 11,000 281
Samsung Electronics GDR* 323 37
Samsung Electronics GDS* 17,902 1,145
Samsung Electronics GDS New* 254 $ 27
Samsung New 1/2 Non-Voting* 2,354 121
Samsung New 1/2 Voting* 63 7
Shinhan Bank 18,000 372
Shinhan Bank New* 1,836 37
------
4,533
------
Taiwan (1.5%)
Advanced Semiconductor
Engineering GDR* 30,000 382
GVC GDR* 13,730 119
Hocheng GDR 33,129 273
President Enterprise GDS* 32,069 361
Siliconware Precision GDR* 14,804 234
------
1,369
------
Thailand (8.1%)
Advanced Info Service 66,000 1,049
Electricity Generating* 288,000 984
Finance One 105,000 647
Italian-Thai Development 30,000 339
Krung Thai Bank 350,000 1,392
PTT Exploration 89,500 811
Siam Cement 8,000 436
Srithai Superware 50,000 342
Thai Carbon Black 4,875 22
Thai Farmers Bank 40,000 331
Thai Military Bank 300,000 1,180
------
7,533
------
Turkey (1.6%)
Arcelik 1,050,000 174
Borusan Borv 705,000 223
Bossa* 871,000 82
Kartonsan Karton 340,000 131
Mardin Cimento 1,000,000 234
Netas 410,380 142
T Sise Cam* 1,100,000 195
Tire Kutsan* 750,000 136
Trakya Cam 1,338,748 193
------
1,510
------
United Kingdom (0.6%)
Antofagasta Holdings 125,000 593
------
United States (1.6%)
Five Arrow Chile Fund 75,000 221
Genisis Chile Fund 6,600 252
Mauritius Fund* 64,000 703
Oryx Fund* 35,000 298
------
1,474
------
44
<PAGE>
- --------------------------------------------------------------------------------
Shares/ Market
Description Face Amount (000(1)) Value (000)
- --------------------------------------------------------------------------------
Venezuela (2.2%)
Mavesa SA ADR 259,166 $ 1,069
Sider ADR* 500,000 977
------
2,046
------
Total Foreign Common Stocks
(Cost $82,584,469) 79,100
------
Foreign Preferred Stocks (7.3%)
Brazil (7.1%)
Banco Bradesco 63,522,315 581
Bardella SA 2,000 291
Brahma 1,971,951 756
Brasmotor 1,000,000 234
Cesp Cia Energetica ADR* 40,000 380
Confab Industries 404,200 214
Eletrobras* 1,500,000 427
Ind Bebidas Antartica 4,920 476
Ind Villares 1,000,000 229
Inepar Ind Construction 250,000,000 234
Iochpe-Maxion 1,000,000 312
Marcopolo SA* 1,600,000 280
Metalurgica Schulz 9,600,000 344
Petrobras 3,466,666 299
Refripar 314,714,330 743
Sade Videsa* 16,200,000 219
Sadia Concordia 262,500 207
Weg 860,000 429
------
6,655
------
Portugal (0.1%)
Barbosa E Almeida* 2,222 67
------
South Korea (0.1%)
Jinro* 7,270 108
------
Total Foreign Preferred Stocks
(Cost $6,322,919) 6,830
------
Foreign Convertible Bonds (2.5%)
Indonesia (0.0%)
Modernland Realty
6.000%, 01/06/03 20 21
------
South Korea (0.4%)
Large Electronics
3.250%, 12/31/06 $300 374
------
Taiwan (2.1%)
Acer
4.000%, 06/10/01 $380 1,188
Formosa Chemical & Fibre
1.750%, 07/19/01 $280 $ 267
Tung Ho Steel
4.000%, 07/26/01 $300 355
U-Ming Marine
1.500%, 02/07/01 $140 139
------
1,949
------
Total Foreign Convertible Bonds
(Cost $2,196,117) 2,344
------
Total Investments
(94.6% of Net Assets)
(Cost $91,103,505) $88,274
======
* Non-income producing security.
ADR American Depository Receipt.
ADS American Depository Shares.
GDR Global Depository Receipt.
GDS Global Depository Shares.
GIC Global Investment Certificate.
(1) In local currency unless otherwise indicated.
The accompanying notes are an integral part of the financial statements.
Global Fixed
Income Fund
Foreign Bonds (57.3%)
Canada (5.2%)
Government of Canada
6.500%, 06/01/04 4,600 $ 3,205
9.000%, 12/01/04 4,950 4,034
------
7,239
------
Denmark (7.1%)
Kingdom of Denmark
9.000%, 11/15/00 28,000 5,552
7.000%, 12/15/04 24,800 4,301
------
9,853
------
France (7.1%)
Government of France
6.000%, 10/25/25 14,000 2,233
Government of France OAT
8.500%, 11/25/02 15,000 3,331
6.750%, 10/25/03 21,600 4,331
------
9,895
------
45
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Global Fixed
Income Fund
- --------------------------------------------------------------------------------
Face Amount Market
Description (000(1)) Value (000)
- --------------------------------------------------------------------------------
Germany (21.9%)
Bundesobligation
6.375%, 05/20/98 5,700 $ 4,214
Deutschland Republic
5.250%, 10/20/98 6,800 4,904
8.750%, 07/20/00 3,200 2,569
8.875%, 12/20/00 3,600 2,916
8.250%, 09/20/01 2,600 2,060
LKB Baden Wurttenberg
6.000%, 05/10/99 3,000 2,200
Republic of Austria
8.000%, 06/17/02 4,900 3,793
Westdeutsche Landesbank
6.375%, 07/15/03 3,000 2,108
6.250%, 09/15/03 3,000 2,085
World Bank
7.125%, 04/12/05 5,000 3,665
-------
30,514
-------
Japan (11.3%)
Government of Japan
6.700%, 06/20/00 259,000 3,079
6.000%, 12/20/01 89,000 5,756
4.500%, 06/20/03 278,000 3,033
4.700%, 12/20/04 355,000 3,935
-------
15,803
-------
United Kingdom (4.7%)
Republic of Finland
8.000%, 04/07/03 1,380 2,139
United Kingdom Treasury
9.750%, 08/27/02 850 1,484
9.500%, 10/25/04 1,670 2,901
-------
6,524
-------
Total Foreign Bonds
(Cost $77,098,194) 79,828
-------
Foreign Currency Option (0.5%)
United States (0.5%)
Japanese Yen Put*
01/10/96 5,500 749
-------
Total Foreign Currency Option
(Cost $131,450) 749
-------
Corporate Obligations (3.2%)
United States (3.2%)
General Electric Capital
8.125%, 02/23/07 4,000 4,440
-------
Total Corporate Obligations
(Cost $4,278,549) $ 4,440
-------
U. S. Treasury Obligations (27.0%)
United States (27.0%)
U.S. Treasury Bond
5.750%, 10/31/00 3,200 3,175
11.625%, 11/15/04 1,420 1,965
9.875%, 11/15/15 1,236 1,697
U.S. Treasury Note
6.875%, 04/30/97 3,250 3,290
5.125%, 03/31/98 4,000 3,930
5.125%, 12/31/98 (2) 3,200 3,146
7.875%, 08/15/01 (2) 5,300 5,790
7.500%, 11/15/01 5,000 5,406
6.375%, 08/15/02 (2) 3,700 3,777
6.250%, 02/15/03 1,100 1,112
7.250%, 08/15/04 (2) 4,000 4,329
-------
37,617
-------
Total U. S. Treasury Obligations
(Cost $36,513,888) 37,617
-------
Total Investments (88.0% of Net Assets)
(Cost $118,022,081) $122,634
=======
* Non-income producing security.
(1) In local currency unless otherwise indicated.
(2) Securities segregated to collateralize forward exchange contracts with an
aggregate market value of approximately $17,040,705.
The accompanying notes are an integral part of the financial statements.
International
Fixed Income Fund
Foreign Bonds (92.5%)
Austria (3.2%)
Government of Austria
5.000%, 01/22/01 JY 80,000 $ 892
-------
Canada (10.1%)
Government of British Columbia
9.000%, 06/21/04 905 718
Government of Canada
8.500%, 04/01/02 1,500 1,183
Government of Ontario
7.750%, 12/08/03 1,200 876
-------
2,777
-------
46
<PAGE>
- --------------------------------------------------------------------------------
Face Amount Market
Description (000(1)) Value (000)
- --------------------------------------------------------------------------------
Denmark (9.4%)
Kingdom of Denmark
9.000%, 11/15/00 6,300 $ 1,249
7.000%, 12/15/04 (2) 7,800 1,353
-------
2,602
-------
Finland (4.1%)
Republic of Finland
7.500%, 01/27/00 1,500 1,138
-------
France (13.6%)
France Telecom
9.000%, 07/27/01 5,400 1,210
Government of France
8.500%, 04/25/03 3,500 776
5.500%, 04/25/04 2,900 532
6.000%, 10/25/25 3,200 510
Government of France OAT
6.750%, 10/25/03 3,600 722
-------
3,750
-------
Germany (26.6%)
African Development Bank
7.250%, 10/21/99 500 378
Bayer Landesbank
6.000%, 02/16/04 1,500 1,021
Bundesobligation
6.375%, 05/20/98 590 436
Deutschland Republic
6.375%, 08/14/98 1,250 925
8.750%, 07/20/00 1,800 1,446
KFW International Finance
7.250%, 12/03/97 1,050 784
LKB Baden Wurttenberg
6.625%, 08/20/03 1,100 792
Norddeutsche Landesbank
6.000%, 01/05/04 1,500 1,017
Treuhandanstalt
7.750%, 10/01/02 700 541
-------
7,340
-------
Japan (14.6%)
Government of Japan
6.700%, 06/20/00 77,000 916
6.000%, 12/20/01 40,000 471
4.500%, 06/20/03 85,000 927
4.700%, 12/20/04 110,000 1,219
Japanese Development Bank
5.000%, 10/01/99 45,000 499
-------
4,032
-------
United Kingdom (7.8%)
Abbey National
8.000%, 04/02/03 340 525
Halifax
7.750%, 12/03/98 300 477
United Kingdom Treasury
8.500%, 07/16/07 710 1,154
-------
2,156
-------
United States (3.1%)
Federal National Mortgage Association
6.000%, 08/23/00 DM 1,200 867
-------
Total Foreign Bonds
(Cost $24,479,159) 25,554
-------
Foreign Currency Option (0.7%)
Japan (0.7%)
Japanese Yen Put*
01/10/96 $ 1,350 184
-------
Total Foreign Currency Option
(Cost $32,265) 184
-------
Total Investments (93.2% of Net Assets)
(Cost $24,511,424) $25,738
=======
* Non-income producing security.
DM German Mark.
JY Japanese Yen.
(1) In local currency unless otherwise indicated.
(2) Securities segregated to collateralize forward exchange contracts with
an aggregate market value of approximately $1,352,885.
The accompanying notes are an integral part of the financial statements.
Emerging Markets
Debt Fund
Foreign Bonds (78.0%)
Argentina (10.9%)
Argentina BOCON
5.906%, 04/01/01 $ 5,260 $ 3,487
Government of Argentina FRN
6.813%, 03/31/05 4,050 2,395
5.000%, 03/31/23 3,500 1,667
6.875%, 03/31/23 3,000 1,688
-------
9,237
-------
47
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Emerging Markets
Debt Fund
- --------------------------------------------------------------------------------
Face Amount Market
Description (000(1)) Value (000)
- --------------------------------------------------------------------------------
Brazil (26.3%)
Government of Brazil
8.000%, 04/15/14 $ 11,037 $ 5,586
4.250%, 04/15/24 3,010 1,452
Government of Brazil FRN
6.688%, 01/01/01 5,178 4,414
6.812%, 04/15/06 7,600 5,026
6.875%, 04/15/12 5,000 2,738
Petroleo Brazil FRN
10.213%, 06/08/98 3,000 3,053
-------
22,269
-------
Bulgaria (3.8%)
Government of Bulgaria FRN
6.750%, 07/28/11 6,000 2,640
6.750%, 07/28/24 1,050 529
-------
3,169
-------
Ecuador (3.1%)
Government of Ecuador PDI
6.812%, 02/27/15 7,915 2,611
-------
Mexico (17.0%)
Cemex SA
8.875%, 06/10/98 4,000 3,693
Government of Mexico FRN
6.250%, 12/31/19 2,800 1,645
Government of Mexico FRN, series A
6.766%, 12/31/19 4,500 3,009
Government of Mexico FRN, series B
6.250%, 12/31/19 5,500 3,231
Government of Mexico FRN, series C
6.969%, 12/31/19 1,250 836
Government of Mexico FRN, series D
6.875%, 12/31/19 2,850 1,906
-------
14,320
-------
Panama (4.3%)
Government of Panama FRN
7.250%, 05/10/02 4,500 3,668
-------
Philippines (3.7%)
Government of Philippines FRN,
series B
5.000%, 06/01/08 4,050 3,088
-------
Poland (4.4%)
Government of Poland
2.750%, 10/27/24 $ 750 $ 348
Government of Poland FRN
3.750%, 10/27/14 5,250 3,367
-------
3,715
-------
Venezuela (4.5%)
Government of Venezuela
6.750%, 03/31/20 500 258
Government of Venezuela FRN
6.813%, 12/18/07 7,250 3,570
-------
3,828
-------
Total Foreign Bonds
(Cost $66,067,744) 65,905
-------
Loan Participations (7.1%)
Germany (2.9%)
Russian Loan Agreement (2)
(Participation: J.P. Morgan) (3) DM 10,000 2,452
-------
Morocco (4.2%)
Morocco R&C Loan (2)
(Participation: J.P. Morgan) (3)
01/01/09 $ 6,000 3,570
-------
Total Loan Participations
(Cost $6,111,672) 6,022
-------
U. S. Treasury Obligations (2.1%)
United States (2.1%)
U.S. Treasury Strip Principal Only
02/15/20 8,600 1,735
-------
Total U. S. Treasury Obligations
(Cost $1,605,653) 1,735
-------
Total Investments (87.2% of Net Assets)
(Cost $73,785,069) $73,662
=======
FRN Floating Rate Note
DM Deutsche Marks
(1) In U.S. Dollars unless otherwise indicated.
(2) Non-income producing security. Security is in default.
(3) Participations were acquired through the financial institutions
indicated parenthetically. See Note 6.
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (000)
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
<TABLE>
<CAPTION>
------------ ------------ ------------ ------------
Short-Term Short-Term
Municipal Fixed Municipal Fixed
Bond Income Bond Income
Fund Fund Fund Fund
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Investment securities (Cost $212,353,
$483,741, $3,677 and $4,326,
respectively) $218,125 $495,681 $ 3,702 $ 4,333
Cash 81 72 -- --
Dividend and interest receivable 3,685 6,772 56 43
Investment securities sold -- 4,876 -- 100
Capital shares sold 1,019 88 -- --
Other assets 2 2 -- --
-------- -------- -------- --------
Total assets 222,912 507,491 3,758 4,476
-------- -------- -------- --------
Liabilities:
Income distribution payable 1,024 2,609 16 19
Investment securitiespurchased 385 10,218 -- 300
Investment advisory fees payable 66 126 1 1
Administration fees payable 21 47 2 2
Accrued expenses and other liabilities 358 270 15 14
-------- -------- -------- --------
Total liabilities 1,854 13,270 34 336
-------- -------- -------- --------
Net Assets:
Capital shares (unlimited
authorization - $0.001 par value) 216,849 479,195 3,684 4,133
Accumulated net realized gain (loss)
on investments (1,564) 3,085 15 --
Net unrealized appreciation
(depreciation) on investments 5,772 11,940 25 7
Undistributed net investment
income (loss) 1 1 -- --
-------- -------- -------- --------
Net assets $221,058 $494,221 $ 3,724 $ 4,140
======== ======== ======== ========
Outstanding shares of beneficial
interest 20,346 46,521 367 413
Net asset value, offering price and
redemption price per share $ 10.86 $ 10.62 $ 10.13 $ 10.01
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (000)
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
<TABLE>
<CAPTION>
------------- ------------- ------------- -------------
International European
Smaller International Small Cap Small Cap
Companies Equity Equity Equity
Fund Fund Fund Fund
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Assets:
Investment securities (Cost $2,532,
$2,508, $79,090, $7,866, $91,104, $118,022
$24,511, and $73,785, respectively) $2,668 $2,643 $80,760 $8,945
Cash -- 57 8,622 434
Foreign currency (Cost $87, $1,798,
$44, $577, $1,403, and $175, respectively) -- 87 1,791 44
Dividend and interest receivable 1 3 117 17
Investment securities sold 35 -- 883 135
Capital shares sold -- -- -- --
Other assets -- 12 245 11
------ ------ ------ ------
Total assets 2,704 2,802 92,418 9,586
------ ------ ------ ------
Liabilities:
Investment securities purchased 61 53 1,372 208
Investment advisory fees payable -- -- 63 3
Administration fees payable 1 3 9 6
Accrued expenses and other liabilities 4 8 57 33
------ ------ ------ ------
Total liabilities 66 64 1,501 250
------ ------ ------ ------
Net Assets:
Capital shares (unlimited
authorization - $0.001 par value) 2,500 2,502 91,504 8,131
Accumulated net realized gain (loss)
on investments (6) (6) (2,681) 30
Net unrealized appreciation
(depreciation) on forward foreign
currency contracts, foreign currency,
and translation of other assets and
liabilities in foreign currency -- 9 170 (21)
Net unrealized appreciation (depreciation)
on investments 136 135 1,670 1,079
Undistributed net investment income (loss) 8 98 254 117
------ ------ ------ ------
Net assets $2,638 $2,738 $90,917 $9,336
====== ====== ====== ======
Outstanding shares of beneficial
interest 250 250 9,672 809
Net asset value, offering price and
redemption price per share $10.55 $10.95 $ 9.40 $11.55
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
- --------------------------------------------------------------------------------
------------- ------------- ------------- -------------
Emerging Global International Emerging
Markets Fixed Fixed Markets
Equity Income Income Debt
Fund Fund Fund Fund
------------- ------------- ------------- -------------
$ 88,274 $122,634 $ 25,738 $ 73,662
7,615 4,036 867 7,621
574 1,385 175 --
80 3,245 791 1,529
308 -- -- 5,132
-- 9,922 12 1
2 -- 51 --
-------- -------- -------- --------
96,853 141,222 27,634 87,945
-------- -------- -------- --------
3,136 1,276 -- 3,363
71 46 6 74
8 12 6 8
350 551 19 62
-------- -------- -------- --------
3,565 1,885 31 3,507
-------- -------- -------- --------
95,072 130,056 24,778 81,013
947 808 255 (1,686)
(15) (462) 52 (62)
(2,830) 4,612 1,227 (123)
114 4,323 1,291 5,296
-------- -------- -------- --------
$ 93,288 $139,337 $ 27,603 $ 84,438
======== ======== ======== ========
11,499 12,675 2,434 8,006
$ 8.11 $ 10.99 $ 11.34 $ 10.55
======== ======== ======== ========
51
<PAGE>
STATEMENT OF OPERATIONS (000)
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- For the period ended October 31, 1995
<TABLE>
<CAPTION>
---------- ---------- ---------- ---------- ----------
Short-Term Short-Term
Municipal Fixed Municipal Fixed Smaller
Bond Income Bond Income Companies
Fund Fund Fund (1) Fund (2) Fund (3)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest $11,762 $27,656 $ 101 $ 86 $ 15
Dividends -- -- -- -- 4
Less: Foreign taxes withheld -- -- -- -- --
------- ------- ------ ------ ------
Total Investment Income 11,762 27,656 101 86 19
------- ------- ------ ------ ------
Expenses:
Investment advisory fees 748 1,506 8 5 9)
Investment advisory fee reduction (152) (355) (8) (5) (9)
Administration fees 228 456 13 13 4
Custodian fees 17 40 5 5 2
Transfer agent fees 11 12 8 8 3
Professional fees 63 148 2 1 1
Registration & filing fees 38 109 4 4 1
Printing fees 6 20 1 1 --
Trustee fees 15 30 1 1 --
Pricing fees 9 14 -- -- --
Other fees 31 41 1 -- --
------- ------- ------ ------ ------
Total expenses 1,014 2,021 35 33 11
Less: Reimbursement from Advisor -- -- (24) (26) --
------- ------- ------ ------ ------
Total Net expenses 1,014 2,021 11 7 11
------- ------- ------ ------ ------
Net Investment Income/(Loss) 10,748 25,635 90 79 8
------- ------- ------ ------ ------
Net Realized and Unrealized Gain
(Loss) on Investments and Foreign
Currency Transactions:
Net realized gain (loss) on investments:
Security transactions (1,331) 8,122 15 -- (6)
Option transactions -- -- -- -- --
Net realized gain (loss) on forward
foreign currency contracts and
foreign currency transactions -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on forward foreign
currency contracts, foreign currency,
and translation of other assets and
liabilities in foreign currency -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on investments 9,806 18,803 25 7 136
------- ------- ------ ------ ------
Net Increase (Decrease) in Net Assets
from Operations $19,223 $52,560 $ 130 $ 86 $ 138
======= ======= ====== ====== ======
</TABLE>
(1) Short-Term Municipal Bond Fund commenced operations on 3/6/95.
(2) Short-Term Fixed Income Fund commenced operations on 3/13/95.
(3) Smaller Companies Fund commenced operations on 6/30/95.
(4) International Equity Fund commenced operations on 5/15/95.
(5) European Small Cap Equity Fund commenced operations on 11/1/94.
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------- ------------- ------------- ---------- ---------- ------------- ------------
International European Emerging Global International Emerging
International Small Cap Small Cap Markets Fixed Fixed Markets
Equity Equity Equity Equity Income Income Debt
Fund (4) Fund Fund (5) Fund Fund Fund Fund
------------- ------------- ------------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 4 $ 149 $ 37 $ 57 $ 5,590 $ 1,407 $ 6,518
28 1,109 187 1,191 -- -- --
(2) (169) (26) (134) (21) (11) --
------- ------- ------- ------- ------- ------- -------
30 1,089 198 1,114 5,569 1,396 6,518
------- ------- ------- ------- ------- ------- -------
8 657 79 658 463 118 811
(8) (151) (78) (200) (78) (81) (129)
11 98 50 94 105 69 69
5 125 20 172 79 32 80
5 12 10 12 12 11 11
1 15 3 19 38 9 28
1 26 4 33 40 8 30
-- 2 -- 3 5 1 3
-- 6 1 6 8 2 5
2 26 9 20 3 3 3
-- 5 1 5 6 2 5
------- ------- ------- ------- ------- ------- -------
25 821 99 822 681 174 916
(14) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
11 821 99 822 681 174 916
------- ------- ------- ------- ------- ------- -------
19 268 99 292 4,888 1,222 5,602
------- ------- ------- ------- ------- ------- -------
(6) (2,508) 30) 974 1,456) 455 (1,684)
-- (158) -- -- (76) (21) --
79 1 28 (86) (112) 48 (75)
9 160 (21) (17 ) (207) 312 (42)
135 (1,776) 1,079 (14,288) 4,323 861 (35)
------- ------- ------- ------- ------- ------- -------
$ 236 ($4,013) $ 1,215 ($13,125) $10,272 $ 2,877 $ 3,766
======= ======= ======= ======= ======= ======= =======
</TABLE>
53
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- For the periods ended October 31,
<TABLE>
<CAPTION>
----------------------- ---------------------- ---------- ---------- ----------
Short- Short-
Term Term
Municipal Fixed Municipal Fixed Smaller
Bond Income Bond Income Companies
Fund Fund Fund (1) Fund (2) Fund (3)
----------------------- ---------------------- ---------- ---------- ----------
1995 1994 1995 1994 1995 1995 1995
----------------------- ---------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 10,748 $ 8,832 $ 25,635 $ 11,691 $ 90 $ 79 $ 8
Net realized gain (loss) from
security transactions (1,331) (225) 8,122 (5,035) 15 -- (6)
Net realized gain (loss) on forward
foreign currency contracts
and foreign currency transactions -- -- -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on forward foreign
currency contracts, foreign currency,
and translation of other assets and
liabilities in foreign currency -- -- -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on investments 9,806 (9,060) 18,803 (11,071) 25 7 136
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease) in net assets
from operations 19,223 (453) 52,560 (4,415) 130 86 138
-------- -------- -------- -------- -------- -------- --------
Distributions to Shareholders:
Net investment income (10,750) (8,833) (25,636) (11,687) (90) (79) --
Net realized gains -- (4,818) (31) (1,476) -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Distributions (10,750) (13,651) (25,667) (13,163) (90) (79) --
-------- -------- -------- -------- -------- -------- --------
Capital Share Transactions (1):
Proceeds from shares issued 92,766 55,419 301,939 121,986 5,282 4,206 2,500
Shares issued in lieu of cash
distributions 7,570 11,224 20,565 11,406 74 54 --
Cost of shares repurchased (53,428) (34,884) (94,732) (24,175) (1,672) (127) --
-------- -------- -------- -------- -------- -------- --------
Increase in Net Assets from
Capital Share Transactions 46,908 31,759 227,772 109,217 3,684 4,133 2,500
-------- -------- -------- -------- -------- -------- --------
Net increase in net assets 55,381 17,655 254,665 91,639 3,724 4,140 2,638
-------- -------- -------- -------- -------- -------- --------
Net Assets:
Beginning of period 165,677 148,022 239,556 147,917 -- -- --
-------- -------- -------- -------- -------- -------- --------
End of period $221,058 $165,677 $494,221 $239,556 $ 3,724 $ 4,140 $ 2,638
======== ======== ======== ======== ======== ======== ========
(1) Capital Share Transactions:
Shares issued 8,743 5,160 29,571 11,895 526 421 250
Shares issued in lieu of cash
distributions 714 1,042 2,007 1,113 7 5 --
Shares repurchased (5,094) (3,248) (9,177) (2,397) (166) (13) --
-------- -------- -------- -------- -------- -------- --------
Net increase in capital shares 4,363 2,954 22,401 10,611 367 413 250
======== ======== ======== ======== ======== ======== ========
</TABLE>
(1) Short-Term Municipal Bond Fund commenced operations on 3/6/95.
(2) Short-Term Fixed Income Fund commenced operations on 3/13/95.
(3) Smaller Companies Fund commenced operations on 6/30/95.
(4) International Equity Fund commenced operations on 5/15/95.
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------- ------------------ ------------- ------------------- ----------------------
International European Emerging Global
International Small Cap Small Cap Markets Fixed
Equity Equity Equity Equity Income
Fund (4) Fund (5) Fund (6) Fund (7) Fund (8)
------------- ------------------ ------------- ------------------- ----------------------
1995 1995 1994 1995 1995 1994 1995 1994
------------- ------------------ ------------- ------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 19 $ 268 $ 156 $ 99 $ 292 $ (38) $ 4,888 $ 1,345
(6) (2,666) 1,405) 30 974 3,140 1,380 (572)
79 1 99 28 (86) 65 (112) (576)
9 160 10 (21) (17) 2 (207) (255)
135 (1,776) (2,588) 1,079 (14,288) 2,848* 4,323 289
------- ------- ------- ------- ------- ------- ------- -------
236 (4,013) (918) 1,215 (13,125) 6,017 10,272 231
------- ------- ------- ------- ------- ------- ------- -------
-- (270) -- (10) (119) -- (1,222) --
-- (1,420) -- -- (3,167) -- -- --
------- ------- ------- ------- ------- ------- ------- -------
-- (1,690) -- (10) (3,286) -- (1,222) --
------- ------- ------- ------- ------- ------- ------- -------
2,502 33,284 78,979 8,121 61,891 59,099 82,695 65,332
-- 1,671 -- 10 3,286 -- 902 --
(1) (7,133) (9,264) (1) (12,370) (8,225) (7,225) (11,649)
------- ------- ------- ------- ------- ------- ------- -------
2,501 27,822 69,715 8,130 52,807 50,874 76,372 53,683
------- ------- ------- ------- ------- ------- ------- -------
2,737 22,119 68,797 9,335 36,396 56,891 85,422 53,914
------- ------- ------- ------- ------- ------- ------- -------
1 68,798 1 1 56,892 1 53,915 1
------- ------- ------- ------- ------- ------- ------- -------
$ 2,738 $90,917 $68,798 $ 9,336 $93,288 $56,892 $139,337 $53,915
======= ======= ======= ======= ======= ======= ======= =======
250 3,585 7,527 808 7,411 5,966 7,804 6,657
-- 178 -- 1 365 -- 94 --
-- (738) (880) -- (1,451) (792) (694) (1,186)
------- ------- ------- ------- ------- ------- ------- -------
250 3,025 6,647 809 6,325 5,174 7,204 5,471
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(5) International Small Cap Equity Fund commenced operations on 1/3/94.
(6) European Small Cap Equity Fund commenced operations on 11/1/94.
(7) Emerging Markets Equity Fund commenced operations on 2/2/94.
(8) Global Fixed Income Fund commenced operations on 1/3/94.
* Net of $112,000 change in accrued foreign withholding taxes.
55
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- For the periods ended October 31,
------------------- ------------------
International Emerging
Fixed Markets
Income Debt
Fund (9) Fund (10)
------------------- ------------------
1995 1994 1995 1994
-------- -------- ------------------
Operations:
Net investment income (loss) $ 1,222 $ 440 $ 5,602 $ 209
Net realized gain (loss) from
security transactions 434 (179) (1,684) 39
Net realized gain (loss) on forward
foreign currency contracts
and foreign currency transactions 48 (343) (75) 7
Net change in unrealized appreciation
(depreciation) on forward foreign
currency contracts, foreign currency,
and translation of other assets and
liabilities in foreign currency 312 (260) (42) (20)
Net change in unrealized appreciation
(depreciation) on investments 861 366 (35) (88)
------- ------- ------- -------
Net increase (decrease) in net assets
from operations 2,877 24 3,766 147
------- ------- ------- -------
Distributions to Shareholders:
Net investment income (76) -- (447) --
Net realized gains -- -- (41) --
------- ------- ------- -------
Total Distributions (76) -- (488) --
------- ------- ------- -------
Capital Share Transactions (1):
Proceeds from shares issued 10,597 15,124 64,746 16,100
Shares issued in lieu of cash
distributions 60 -- 488 --
Cost of shares repurchased (1,093) -- (322) --
------- ------- ------- -------
Increase in Net Assets from
Capital Share Transactions 9,564 15,124 64,912 16,100
------- ------- ------- -------
Net increase in net assets 12,365 15,148 68,190 16,247
------- ------- ------- -------
Net Assets:
Beginning of period 15,238 90 16,248 1
------- ------- ------- -------
End of period $27,603 $15,238 $84,438 $16,248
======= ======= ======= =======
(1) Capital Share Transactions:
Shares issued 996 1,523 6,391 1,595
Shares issued in lieu of cash
distributions 6 -- 51 --
Shares repurchased (100) -- (31) --
------- ------- ------- -------
Net increase in capital shares 902 1,523 6,411 1,595
======= ======= ======= =======
(9) International Fixed Income Fund commenced operations on 3/15/94.
(10) Emerging Markets Debt Fund commenced operations on 8/4/94.
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- For the periods ended October 31,
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Net Distributions
Net Asset Net Realized Distributions from
Value Investment and from Net Realized Net Assets
Beginning Income/ Unrealized Investment Capital Value End
of Period (Loss) Gains (Losses) Income Gains of Period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------
Municipal Bond Fund:
- --------------------
1995 $10.37 $ 0.61 $ 0.49 $(0.61) $ -- $10.86
1994 11.36 0.60 (0.61) (0.60) (0.38) 10.37
1993 10.56 0.67 0.84 (0.67) (0.04) 11.36
1992(1) 10.00 0.60 0.56 (0.60) -- 10.56
- ------------------
Fixed Income Fund:
- ------------------
1995 $ 9.93 $ 0.70 $ 0.69 $(0.70) $ -- $10.62
1994 10.95 0.64 (0.91) (0.64) (0.11) 9.93
1993 9.92 0.64 1.03 (0.64) -- 10.95
1992(2) 10.00 0.06 (0.08) (0.06) -- 9.92
- -------------------------------
Short-Term Municipal Bond Fund:
- -------------------------------
1995(3) $10.00 $ 0.30 $ 0.13 $(0.30) $ -- $10.13
- -----------------------------
Short-Term Fixed Income Fund:
- -----------------------------
1995(4) $10.00 $ 0.37 $ 0.01 $(0.37) $ -- $10.01
- -----------------------
Smaller Companies Fund:
- -----------------------
1995(5) $10.00 $ 0.03 $ 0.52 $ -- $ -- $10.55
- --------------------------
International Equity Fund:
- --------------------------
1995(6) $10.00 $ 0.08 $ 0.87 $ -- $ -- $10.95
- ------------------------------------
International Small Cap Equity Fund:
- ------------------------------------
1995 $10.35 $ 0.03 $(0.72) $(0.04) $(0.22) $ 9.40
1994(7) 10.00 0.02 0.33 -- -- 10.35
- -------------------------------
European Small Cap Equity Fund:
- -------------------------------
1995(8) $10.00 $ 0.12 $ 1.44 $(0.01) $ -- $11.55
- -----------------------------
Emerging Markets Equity Fund:
- -----------------------------
1995 $11.00 $ 0.04 $(2.29) $(0.02) $(0.62) $ 8.11
1994(9) 10.00 (0.01) 1.01 -- -- 11.00
- -------------------------
Global Fixed Income Fund:
- -------------------------
1995 $ 9.85 $ 0.35 $ 0.99 $(0.20) $ -- $10.99
1994(10) 10.00 0.25 (0.40) -- $ -- 9.85
- --------------------------------
International Fixed Income Fund:
- --------------------------------
1995 $ 9.94 $ 0.42 $ 1.03 $(0.05) $ -- $11.34
1994(11) 10.00 0.29 (0.35) -- -- 9.94
- -----------------------------------
Emerging Markets Fixed Income Fund:
- -----------------------------------
1995 $10.19 $ 0.65 $(0.17) $(0.11) $(0.01) $10.55
1994(12) 10.00 0.13 0.06 -- -- 10.19
<CAPTION>
(continued)
Ratio of
Ratio of Ratio of Net Investment
Net Expenses Income/(Loss)
Ratio of Investement to Average to Average
Net Assets Expenses Income/(Loss) Net Assets Net Assets Portfolio
Total End of to Average to Average (Excluding (Excluding Turnover
Return Period (000) Net Assets Net Assets Waivers) Waivers) Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------
Municipal Bond Fund:
- --------------------
10.90% $221,058 0.54% 5.75% 0.62% 5.67% 63%
(0.15) 165,677 0.54 5.60 0.67 5.47 94
14.68 148,022 0.55 5.94 0.75 5.74 160
13.42+ 94,700 0.55 6.31 0.79 6.07 143
- ------------------
Fixed Income Fund:
- ------------------
14.53% $494,221 0.54% 6.81% 0.63% 6.72% 182%
(2.58) 239,556 0.54 6.22 0.66 6.10 251
17.28 147,917 0.55 6.01 0.72 5.84 196
(1.61)+ 25,528 0.55 5.24 1.66 4.13 148
- -------------------------------
Short-Term Municipal Bond Fund:
- -------------------------------
4.39%+ $ 3,724 0.52% 4.60% 2.16% 2.96% 62%
- -----------------------------
Short-Term Fixed Income Fund:
- -----------------------------
3.82%+ $ 4,140 0.52% 5.86% 2.84% 3.54% 90%
- -----------------------
Smaller Companies Fund:
- -----------------------
5.50%+ $ 2,638 1.25% 0.94% 2.28% (0.09%) 23%
- --------------------------
International Equity Fund:
- --------------------------
9.50%+ $ 2,738 0.90% 1.55% 2.73% (0.28%) 19%
- ------------------------------------
International Small Cap Equity Fund:
- ------------------------------------
(6.67%) $ 90,917 1.25% 0.41% 1.48% 0.18% 62%
3.50+ 68,798 1.25 0.34 1.67 (0.08) 41
- -------------------------------
European Small Cap Equity Fund:
- -------------------------------
15.66%+ $ 9,336 1.25% 1.25% 2.24% 0.26% 34%
- -----------------------------
Emerging Markets Equity Fund:
- -----------------------------
(21.00%) $ 93,288 1.25% 0.44% 1.55% 0.14% 49%
10.00+ 56,892 1.36 (0.12)% 1.79 (0.55) 45
- -------------------------
Global Fixed Income Fund:
- -------------------------
13.88% $139,337 0.78% 5.61%+ 0.87% 5.52% 79%
(1.50)+ 53,915 0.85 5.71 1.28 5.28 173
- --------------------------------
International Fixed Income Fund:
- --------------------------------
14.66% $ 27,603 0.78% 5.51%+ 1.15% 5.14% 103%
(0.60)+ 15,238 0.85 5.66 1.42 5.09 130
- -----------------------------------
Emerging Markets Fixed Income Fund:
- -----------------------------------
4.85% $ 84,438 1.79% 10.97% 2.05% 10.71% 266%
1.90+ 16,248 1.90 7.04 2.60 6.34 52
</TABLE>
+ Returns are for the period indicated and have not been annualized.
(1) Municipal Bond Fund commenced operations on 12/13/91. All ratios for
the period have been annualized.
(2) Fixed Income Fund commenced operations on 9/18/92. All ratios for the
period have been annualized.
(3) Short-Term Municipal Bond Fund commenced operations on 3/6/95. All
ratios for the period have been annualized.
(4) Short-Term Fixed Income Fund commenced operations on 3/13/95. All
ratios for the period have been annualized.
(5) Smaller Companies Fund commenced operations on 6/30/95. All ratios for
the period have been annualized.
(6) International Equity Fund commenced operations on 5/15/95. All ratios
for the period have been annualized.
(7) International Small Cap Equity Fund commenced operations on 1/3/94. All
ratios for the period have been annualized.
(8) European Small Cap Equity Fund commenced operations on 11/1/94. All
ratios for the period have been annualized. The accompanying notes are
an integral part of the financial statements.
(9) Emerging Markets Equity Fund commenced operations on 2/2/94. All ratios
for the period have been annualized.
(10) Global Fixed Income Fund commenced operations on 1/3/94. All ratios for
the period have been annualized.
(11) International Fixed Income Fund commenced operations on 3/15/94. All
ratios for the period have been annualized.
(12) Emerging Markets Debt Fund commenced operations on 8/4/94. All ratios
for the period have been annualized.
The accompanying notes are an integral part of the financial statements.
57 & 58
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
1. Organization
Morgan Grenfell Investment Trust (the "Trust") was organized as a Delaware
business trust on September 13, 1993. The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company consisting of seventeen investment portfolios (Municipal
Bond Fund, Fixed Income Fund, Short-Term Municipal Bond Fund, Short-Term
Fixed Income Fund, Large Cap Growth Fund, and Smaller Companies Fund
(collectively the "Domestic Funds"); International Equity Fund, Global Equity
Fund, European Equity Fund, Pacific Basin Equity Fund, International Small
Cap Equity Fund, European Small Cap Equity Fund, Japanese Small Cap Equity
Fund, Emerging Markets Equity Fund, Global Fixed Income Fund, International
Fixed Income Fund and Emerging Markets Debt Fund (formerly Emerging Markets
Fixed Income Fund) (collectively the "International Funds"). The Domestic
Funds and International Funds are hereafter referred to collectively as the
"Funds". At October 31, 1995, the Large Cap Growth Fund, Global Equity Fund,
European Equity Fund, Pacific Basin Equity Fund and Japanese Small Cap Equity
Fund had not yet commenced operations.
On December 28, 1994, pursuant to plans of reorganization approved by the
Municipal Bond Fund and the Fixed Income Fund shareholders on December 5,
1994, all of the assets of the Morgan Grenfell Municipal Bond Fund and the
Morgan Grenfell Fixed Income Fund (formerly part of The Advisors' Inner
Circle Fund) were transferred to the Municipal Bond Fund and Fixed Income
Fund (the "Portfolios"), newly formed portfolios of the Trust, in exchange
for shares of the Portfolios and assumption of stated liabilities of the two
funds. The Municipal Bond Fund reorganization was accomplished by a tax-free
exchange of the Municipal Bond Fund's net assets (valued at $149,509,966) for
14,567,909 shares of the corresponding Portfolio. The Fixed Income Fund
reorganization was accomplished by a tax-free exchange of the Fixed Income
Fund's net assets (valued at $273,285,174) for 27,846,079 shares of the
corresponding Portfolio.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Funds.
Security Valuation--Securities listed on a securities exchange for which
market quotations are readily available are valued at the last quoted sales
price on the principal exchange on which they are traded on the valuation
date or, if there is no such reported sale on the valuation date, at the most
recent quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price. Certain
debt and fixed income investments owned by the Funds are valued at prices
supplied by independent pricing agents selected by Morgan Grenfell Capital
Management, Inc. and Morgan Grenfell Investment Services Limited (the
"Advisors"), which prices reflect broker-dealer supplied valuations and
electronic data processing techniques. Short-term investments are valued at
amortized cost which approximates market value. Other securities for which
market value is not readily available or securities whose market value does
not, in the opinion of the applicable Advisor, reflect fair value are valued
at fair value using methods determined in good faith by the valuation
committee of the Board of Trustees.
Income Taxes--It is the intention of each Fund to continue to qualify as a
regulated investment company and to distribute all of its taxable income.
Accordingly, no provision for Federal income taxes is considered necessary.
The International Funds may be subject to taxes imposed by countries in
which they invest with respect to their investments in issuers existing or
operating in such countries. Such taxes are generally based on either income
earned or repatriated. The International Funds accrue such taxes when the
related income is earned.
Net Asset Value Per Share--The net asset value per share is calculated on a
daily basis by dividing the assets of each Fund, less its liabilities, by the
number of outstanding shares of the Fund.
Repurchase Agreements--Securities pledged as collateral for repurchase
agreements are held by the custodian banks until maturity of the repurchase
agreements. Provisions of the repurchase agree-
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
ments and procedures adopted by the Trust require that the market value of
the collateral, including accrued interest thereon, is sufficient in the
event of default by the counterparty.
The Funds may also invest in tri-party repurchase agreements. Securities
held as collateral for tri-party repurchase agreements are maintained in a
segregated account by the broker's custodian bank until maturity of the
repurchase agreement. Provisions of the agreements require that the market
value of the collateral, including accrued interest thereon, is sufficient in
the event of default.
If the counterparty defaults and the value of the collateral declines or
if the counterparty enters an insolvency proceeding, realization of the
collateral by the Funds may be delayed or limited.
Foreign Currency Translation--The books and records of the International
Funds are maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on the following basis: (I) market value of investment
securities, other assets and liabilities at the current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at the
relevant rates of exchange prevailing on the respective dates of such
transactions.
The International Funds do not isolate that portion of gains and losses on
investments in securities which is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
The International Funds do isolate the effect of fluctuations in foreign
currency rates when determining the gain or loss upon sale or maturity of
foreign currency denominated debt obligations pursuant to the Federal income
tax regulations. Such amounts are caterized as foreign currency gain or loss
for both financial reporting and income tax reporting purposes.
The International Funds report gains and losses on foreign currency
related transactions as realized and unrealized gains and losses for
financial reporting purposes, whereas such gains and losses, to the extent
realized, are treated as ordinary income or loss for Federal income tax
purposes.
Forward Foreign Currency Contracts--The International Funds enter into
forward foreign currency contracts as hedges against portfolio positions as
well as for non-hedging purposes. The aggregate principal amounts of the
contracts are not recorded as the Funds do not intend to hold the contracts
to maturity. All commitments are "marked-to-market" daily at the applicable
foreign exchange rate and any resulting unrealized gains or losses are
recorded currently. The Funds realize gains or losses at the time forward
contracts are extinguished, except that gains or losses on certain open
contracts are required to be recognized for U.S. Federal income tax purposes
at the close of the Fund's taxable year and are generally treated as ordinary
income for such purposes.
Foreign Currency Options--The premium paid by a Fund for the purchase of an
option is included in the Fund's Schedule of Investments as an investment and
subsequently marked to market to reflect the current market value of the
option. For an option held by a Fund on the stipulated expiration date, the
Fund realizes a loss. If the Fund enters into a closing sale transaction, it
realizes a gain or loss, depending on whether the proceeds from the sale are
greater or less than the cost of the purchased option. If the Fund exercises
a purchased put option, it realizes a gain or loss from the sale of the
underlying investment and proceeds from such sale will be decreased by the
premium originally paid. If the Fund exercises a purchased call option, the
cost of the underlying investment which the Fund purchases upon exercise will
be increased by the premium originally paid. Certain foreign currency options
may be required to be marked to market for Federal income tax purposes at the
close of a Fund's taxable year, giving rise to a gain or loss that may,
depending upon whether certain elections are made, be capital or ordinary in
character.
Distributions--Distributions from net investment income and net realized
capital gains are determined in accordance with U.S. Federal income tax
regulations, which may differ from those amounts determined under generally
accepted accounting principles. These book/tax differences are either
temporary or permanent in nature. To the extent these differences are
permanent, they are charged or credited to paid in capital in the period that
the difference arises.
Accordingly, the following permanent differences primarily attributable to
realized foreign exchange gains and losses, have been reclassified from
accumulated net realized gain (loss) on foreign currency transactions to
undistributed net investment income:
60
<PAGE>
(000)
-----
International Equity Fund $ 79
International Small Cap Equity Fund (1)
European Small Cap Equity Fund 28
Emerging Markets Equity Fund (86)
Global Fixed Income Fund (112)
International Fixed Income Fund 48
Emerging Markets Debt Fund (75)
These reclassifications have no effect on net assets or net asset values per
share.
Expenses--Expenses that are directly related to one of the Funds are
charged directly to that Fund. Other operating expenses of the Trust are
prorated to the Funds on the basis of relative net assets. Morgan Grenfell
Capital Management, Inc. absorbed all expenses of organizing the Trust.
All organizational costs incurred with the start of the Municipal Bond
Fund and the Fixed Income Fund are being amortized on a straight line basis
over a period of sixty months.
Other--Security transactions are accounted for on the date the security is
purchased or sold (trade date). Costs used in determining net realized
capital gains and losses on the sale of investment securities are those of
the specific securities sold adjusted for the accretion and amortization of
original issue discounts and purchase premiums during the respective holding
period. Original issue discounts and purchase premiums on securities held by
the Funds are accreted and amortized ratably to maturity using the effective
interest method. Dividend income is recognized on the ex-dividend date and
interest income is recognized using the accrual method.
3. Administration, Investment Advisory, and Distribution Agreements
The Trust has entered into an administration agreement with SEI Financial
Management Corporation (the "Administrator"), pursuant to which the
Administrator receives an annual fee based on the aggregate average daily net
assets of all the Funds as follows: 0.15% up to $300,000,000; 0.12% from
$300,000,000 up to $500,000,000; 0.10% from $500,000,000 up to
$1,000,000,000; and 0.08% in excess of $1,000,000,000. Each Fund pays the
Administrator a minimum annual fee that equals (after a one-year phase in
period) the following: $50,000 for the Municipal Bond Fund, Fixed Income
Fund, Short- Term Municipal Bond Fund, Short-Term Fixed Income Fund and
Smaller Companies Fund; $75,000 for the International Equity Fund, Global
Fixed Income Fund and International Fixed Income Fund; and $100,000 for the
International Small Cap Equity Fund, European Small Cap Equity Fund, Emerging
Markets Equity Fund, and Emerging Markets Debt Fund.
The Administrator generally assists in all matters relating to the
administration of the Funds, including the coordination and monitoring of any
third parties furnishing services to the Funds, preparation and maintenance
of financial accounting records, and the provision of necessary office space,
equipment and personnel to perform administrative and clerical functions.
Under advisory agreements with the Trust, Morgan Grenfell Capital
Management, Inc. serves as the Advisor for the Domestic Funds and Morgan
Grenfell Investment Services Limited serves as the Advisor for the
International Funds. For these services, the Advisors are entitled to a
monthly fee at an annual rate of each Fund's average daily net assets as
follows:
Municipal Bond Fund 0.40%
Fixed Income Fund 0.40%
Short-Term Municipal Bond Fund 0.40%
Short-Term Fixed Income Fund 0.40%
Smaller Companies Fund 1.00%
International Equity Fund 0.70%
International Small Cap Equity Fund 1.00%
European Small Cap Equity Fund 1.00%
Emerging Markets Equity Fund 1.00%
Global Fixed Income Fund 0.50%*
International Fixed Income Fund 0.50%*
Emerging Markets Debt Fund 1.50%**
*0.60% prior to April 3, 1995
**1.60% prior to September 6, 1995
The Advisors have voluntarily agreed to reduce their advisory fees and/or
reimburse each Fund to the extent necessary to limit the Fund's operating
expenses to a specified percentage of its average net assets as follows:
61
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Municipal Bond Fund 0.55%
Fixed Income Fund 0.55%
Short-Term Municipal Bond Fund 0.55%
Short-Term Fixed Income Fund 0.55%
Smaller Companies Fund 1.25%
International Equity Fund 0.90%
International Small Cap Equity Fund 1.25%
European Small Cap Equity Fund 1.25%
Emerging Markets Equity Fund 1.25%
Global Fixed Income Fund 0.75%*
International Fixed Income Fund 0.75%*
Emerging Markets Debt Fund 1.50%**
*0.85% prior to April 3, 1995
**1.90% prior to September 6, 1995
Certain officers and/or Trustees of the Trust are affiliated with the
Administrator or Advisors.
SEI Financial Services Company (the "Distributor") serves as the
distributor of shares of the Funds pursuant to a distribution agreement with
the Trust and assists in the sale of shares of the Funds. The Advisors, and
not the Trust, are responsible for payment of any expenses or fees incurred
in the marketing and distribution of shares of the Trust.
4. Forward Foreign Currency Contracts
The International Funds enter into forward foreign currency exchange
contracts as hedges against portfolio positions as well as for non-hedging
purposes. Such contracts, which protect the value of the Fund's investment
securities against a decline in the value of the hedged currency, do not
eliminate fluctuations in the underlying prices of the securities. They
simply establish an exchange rate at a future date. Also, although such
contracts tend to minimize the risk of loss due to a decline in the value of
a hedged currency, at the same time they tend to limit any potential gain
that might be realized should the value of such foreign currency increase.
The following forward foreign currency contracts were outstanding at October
31, 1995:
<TABLE>
<CAPTION>
In Unrealized
Currency to Exchange Appreciation
Maturity (Deliver)/Receive For (Depreciation)
Date (000) (000) (000)
------------------------ ----------------- -------- -------------
<S> <C> <C> <C> <C>
International Equity Fund:
- -------------------------
Foreign Currency Sales:
12/27/95 JY (29,500) $ 300 $ 9
=====
International Small Cap Equity Fund:
- -----------------------------------
Foreign Currency Sales:
01/05/96 FF (11,400) $ 2,319 $ (11)
01/18/96 JY (1,040) 10,483 188
-----
$ 177
=====
European Small Cap Equity Fund:
- ------------------------------
Foreign Currency Sales:
11/22/95 FF (2,750) $ 541 $ (22)
=====
Global Fixed Income Fund:
- ------------------------
Foreign Currency Sales:
01/25/96 CA (5,000) $ 3,734 $ 2
11/20/95-01/25/96 DM (16,330) 11,332 (293)
12/15/95-02/20/96 DK (57,500) 10,333 (197)
11/20/95-01/25/96 FF (32,200) 6,555 (28)
-----
$(516)
-----
Foreign Currency Purchases:
11/20/95-01/25/96 DM 16,250 $11,333 $ 246
01/25/96 IL 12,110,000 7,440 77
11/20/95-01/25/96 JY 1,066,000 10,910 (362)
-----
$ (39)
-----
$(555)
=====
International Fixed Income Fund:
- -------------------------------
Foreign Currency Sales:
11/20/95-02/20/96 CA (3,040) $ 2,237 $ (32)
11/20/95-01/25/96 DM (11,755) 8,291 (74)
11/20/95-01/25/96 DK (15,180) 2,708 (71)
11/20/95-01/25/96 FF (13,800) 2,798 (22)
11/20/95-12/15/95 UK (713) 1,127 1
11/20/95-12/15/95 JY (192,750) 2,033 140
-----
$ (58)
-----
Foreign Currency Purchases:
11/20/95-01/25/96 DM 4,515 $ 3,117 $ 100
11/20/95 JY 109,500 1,102 (28)
1/25/96 IL 2,190 1,340 19
-----
$ 91
-----
$ 33
=====
</TABLE>
62
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In Unrealized
Currency to Exchange Appreciation
Maturity (Deliver)/Receive For (Depreciation)
Date (000) (000) (000)
<S> <C> <C> <C> <C>
Emerging Markets Fixed Income Fund:
- ----------------------------------
Foreign Currency Sales:
11/07/95 CH (580) $ 505 $(6)
11/07/95-11/20/95 DM (2,770) 1,971 2
---
$(4)
---
Foreign Currency Purchases:
11/20/95 DM 570 $ 407 $(2)
$(6)
===
</TABLE>
Currency Legend
CA Canadian Dollar FF French Franc
CH Swiss Franc IL Italian Lira
DM German Mark JY Japanese Yen
DK Danish Kroner UK British Pound Sterling
At October 31, 1995, the Global Fixed Income Fund and International Fixed
Income Fund had unrealized gains on closed but unsettled forward foreign
currency contracts of $74,391 and $17,383, respectively, scheduled to settle
between November 20, 1995 and January 25, 1996.
5. Investment Transactions
The cost of security purchases and the proceeds from the sale of securities,
other than short-term investments and U.S. Government securities, during the
period ended October 31, 1995, were as follows:
Purchases Sales
(000) (000)
--------- -----
Municipal Bond Fund $164,644 $115,462
Fixed Income Fund 362,412 188,171
Short-Term Municipal
Bond Fund 4,652 1,640
Short-Term Fixed Income Fund 1,777 221
Smaller Companies Fund 2,492 382
International Equity Fund 2,974 489
International Small Cap
Equity Fund 62,325 38,751
European Small Cap
Equity Fund 10,234 2,478
Emerging Markets
Equity Fund 75,556 30,462
Global Fixed Income Fund 144,774 102,095
International Fixed
Income Fund 47,251 38,244
Emerging Markets
Debt Fund 175,680 113,062
The cost of U.S. Government security purchases and the proceeds from the sale
of U.S. Government securities, during the period ended October 31, 1995, were
as follows:
Purchases Sales
(000) (000)
--------- -----
Fixed Income Fund $499,593 $433,441
Short-Term Fixed Income Fund 671 240
Global Fixed Income Fund 34,835 12,887
For Federal income tax purposes, the cost of securities owned at October
31, 1995 and the net realized gains or losses on securities sold for the
period then ended was not materially different from the amounts reported for
financial reporting purposes. The aggregate gross unrealized appreciation and
depreciation at October 31, 1995, for each Fund is as follows:
Net
Unrealized
Appreciated Depreciated Appreciation/
Securities Securities (Depreciation)
(000) (000) (000)
------------ ----------- --------------
Municipal Bond Fund $ 6,357 $ (585) $ 5,772
Fixed Income Fund 12,716 (776) 11,940
Short-Term Municipal
Bond Fund 28 (3) 25
Short-Term Fixed Income Fund 8 (1) 7
Smaller Companies Fund 187 (51) 136
International Equity Fund 213 (78) 135
International Small Cap
Equity Fund 9,173 (7,503) 1,670
European Small Cap
Equity Fund 1,444 (365) 1,079
Emerging Markets
Equity Fund 7,021 (9,851) (2,830)
Global Fixed Income Fund 5,433 (821) 4,612
International Fixed
Income Fund 1,426 (199) 1,227
Emerging Markets
Debt Fund 1,282 (1,405) (123)
At October 31, 1995 the following Funds had available realized capital losses
to offset future net capital gains through the fiscal year ended 2003:
(000)
-------
Municipal Bond Fund $1,556
Smaller Companies Fund 6
International Equity Fund 6
International Small Cap Fund 2,367
Emerging Markets Debt Fund 526
63
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Concluded)
- -------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
6. Loan Participations/Assignments
The Emerging Markets Debt Fund (the "Fund") invests in U.S.
dollar-denominated fixed and floating rate loans ("Loans") arranged through
private negotiations between a foreign sovereign entity and one or more
financial institutions ("Lenders"). The Fund invests in such Loans in the
form of participations in Loans ("Participations") or assignments of all or a
portion of loans from third parties ("Assignments"). Participations typically
result in the Fund having a contractual relationship only with the Lender,
not with the sovereign borrower. The Fund has the right to receive payments
of principal, interest and any fees to which it is entitled only from the
Lender selling the Participation and only upon receipt by the Lender of the
payments from the borrower. In connection with purchasing Participations, the
Fund generally has no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the borrower, and the Fund will not benefit directly from any
collateral supporting the Loan in which it has purchased the Participation.
As a result, the Fund assumes the credit risk of both the borrower and the
Lender that is selling the Participation. The Fund may have difficulty
disposing of Participations and Assignments because the market for such
instruments is not highly liquid.
7. Concentration of Risks
The Municipal Bond Fund and Short-Term Municipal Bond Fund invest primarily
in a diversified portfolio of municipal securities, including municipal bonds
and debentures, rated Baa or better by Moody's Investors Service, Inc.
("Moody's") or BBB or better by Standard & Poor's Ratings Group ("S&P"), or,
if not rated, determined by the Advisor to be of comparable quality. Although
the Municipal Bond Fund and Short-Term Municipal Bond Fund maintain
diversified portfolios, the municipal bond issuers' abilities to meet their
obligations may be affected by economic developments in a specific state or
region.
The Fixed Income Fund and Short-Term Fixed Income Fund invest primarily in
fixed income securities rated Baa or better by Moody's or BBB or better by
S&P or, if not rated, determined by the Advisor to be of comparable quality.
Although the Fixed Income Fund and Short-Term Fixed Income Fund maintain
diversified portfolios, the ability of the issuers of the Fund's portfolio
securities to meet their obligations may be affected by changing business and
economic conditions.
Each International Fund invests in securities of foreign issuers in
various countries. These investments may involve certain considerations and
risks not typically associated with investments in the United States, as a
result of, among other factors, the possibility of future political and
economic developments and the level of governmental supervision and
regulation of securities markets in the respective countries. Global Fixed
Income, International Fixed Income and Emerging Markets Debt Fund invest in
debt securities, the market value of which may change in response to interest
rate changes. Also, the ability of the issuers of debt securities held by the
Funds to meet their obligations may be affected by economic and political
developments in a specific country, industry, or region.
64
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Morgan Grenfell Investment Trust
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Short-Term
Municipal Bond Fund, Short-Term Fixed Income Fund, Smaller Companies Fund,
International Equity Fund, International Small Cap Equity Fund, European
Small Cap Equity Fund, Emerging Markets Equity Fund, Global Fixed Income
Fund, International Fixed Income Fund, and Emerging Markets Debt Fund series
of Morgan Grenfell Investment Trust, (the "Trust") at October 31, 1995, the
results of each of their operations, the changes in each of their net assets
and the financial highlights for each of the periods indicated, and the
financial position of the Municipal Bond Fund and Fixed Income Fund series of
the Trust at October 31, 1995, and the results of each of their operations,
the changes in each of their net assets and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1995 by correspondence with the
custodians and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable
basis for the opinion expressed above. The statements of changes in net
assets for the year ended October 31, 1994 and the financial statements and
financial highlights for the years ended October 31, 1994 and October 31,
1993, and the period ended October 31, 1992 of the Municipal Bond Fund and
Fixed Income Fund were audited by other independent accountants whose
reported dated December 14, 1994 expressed an unqualified opinion on those
financial statements.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
December 11, 1995
65
<PAGE>
SHAREHOLDERS VOTING RESULTS (Unaudited)
- -------------------------------------------------------------------------------
On December 5, 1994, special meetings of the shareholders of Morgan Grenfell
Fixed Income Fund and Morgan Grenfell Municipal Bond Fund were held to act
upon proposals to reorganize these Funds as series of the Trust. At this
time, these Funds were series of The Advisors' Inner Circle Fund, a
Massachusetts business trust. Shareholders approved both reorganizations as
follows:
Morgan Grenfell Morgan Grenfell
Fixed Income Municipal Bond
Fund Fund
-------------- ---------------
Votes For 12,843,562.044 10,915,446.078
Votes Against 237,684.000 745.254
Abstentions -- --
Broker Non-Votes -- --
Votes Withheld 9,029,063.254 5,065,022.904
At the special meetings held on December 5, 1994, the shareholders of Morgan
Grenfell Fixed Income Fund and Morgan Grenfell Municipal Bond Fund also
ratified the Trustees' selection of Price Waterhouse LLP as the independent
public accountants of the series of the Trust into which these Funds were
reorganized (for the fiscal year ended October 31, 1995). Shareholders
ratified these selections as follows:
Morgan Grenfell Morgan Grenfell
Fixed Income Municipal Bond
Fund Fund
-------------- ---------------
Votes For 13,081,246.044 10,910,395.720
Votes Against -- 5,050.358
Abstentions -- 745.254
Broker Non-Votes -- --
Votes Withheld 9,029,063.254 5,065,022.904
66
<PAGE>
NOTICE TO SHAREHOLDERS (Unaudited)
- -------------------------------------------------------------------------------
Morgan Grenfell Investment Trust--For the period ended October 31, 1995
Taxpayers filing on a calendar year basis will receive tax information for
the 1995 calendar year after year end.
Dear Morgan Grenfell Shareholders:
For the fiscal year ended October 31, 1995, each portfolio is designating
by this notice long-term capital gains, qualifying dividends and exempt
income with regard to distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A)
Long Term (B) (C) (E) (F)
Capital Gains Income Total (D) Tax Foreign
Distributions Distributions Distributions Qualifying Exempt Tax
Fund (Tax Basis)+ (Tax Basis)+ (Tax Basis)+ Dividends (1) Interest Credit (2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Municipal Bond Fund 0.00% 100.00% 100.00% 0.00% 100.00% 0.00%
Fixed Income Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
Short-Term Municipal Bond Fund 0.00% 100.00% 100.00% 0.00% 100.00% 0.00%
Short-Term Fixed Income Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
Smaller Companies Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
International Equity Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
International Small Cap Equity Fund 50.91% 49.09% 100.00% 0.00% 0.00% 59.52%
European Small Cap Equity Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
Emerging Markets Equity Fund 14.55% 85.45% 100.00% 0.00% 0.00% 105.15%
Global Fixed Income Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
International Fixed Income Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
Emerging Markets Debt Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
</TABLE>
+ As determined for Federal tax purposes.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction
(2) See attached notice which details the per share amount of foreign taxes
paid by country and the per share amount of each dividend that
represents income derived from sources within each country.
* Items (A) and (B) are based on a percentage of the Fund's total
distributions.
** Items (D), (E) and (F) are based on a percentage of income distributions
of the Fund.
Please consult your tax adviser for proper treatment of this information.
67
<PAGE>
NOTICE TO SHAREHOLDERS (Unaudited)
- -------------------------------------------------------------------------------
Morgan Grenfell International Small Cap Equity Fund
Morgan Grenfell Emerging Markets Equity Fund
Taxpayers filing on a calendar year basis will receive tax information for
the 1995 calendar year after year end.
The Morgan Grenfell International Small Cap Equity Fund and Morgan Grenfell
Emerging Markets Equity Fund have made an election under Section 853 of the
Internal Revenue Code (the"Code") to provide a foreign tax deduction or
credit to their shareholders for the fiscal year ended October 31, 1995. The
information provided below is pertinent to taxpayers who meet the following
two criteria: 1) file a U.S. Federal Income Tax Return and 2) held shares of
the Fund on the dividend record date of December 30, 1994 and satisfy the
applicable requirements of the code.
The amount per share of income from and foreign taxes paid to each country is
listed in the following schedule:
<TABLE>
<CAPTION>
Morgan Grenfell International Morgan Grenfell Emerging
Small Cap Equity Fund Markets Equity Fund
Country Gross Dividend Foreign Taxes Paid Country Gross Dividend Foreign Taxes Paid
- ------- -------------- ------------------ ------ -------------- ------------------
<S> <C> <C> <C> <C> <C>
Australia 0.0044 0.0020 Argentina 0.0013 0.0000
Austria 0.0003 0.0001 Brazil 0.0183 0.0129
Belgium 0.0002 0.0001 Chile 0.0007 0.0002
Finland 0.0004 0.0002 Columbia 0.0006 0.0000
France 0.0033 0.0000 Greece 0.0008 0.0000
Germany 0.0085 0.0054 Hungary 0.0001 0.0000
Hong Kong 0.0016 0.0000 India 0.0001 0.0000
Indonesia 0.0013 0.0006 Indonesia 0.0007 0.0002
Italy 0.0008 0.0003 Malaysia 0.0096 0.0073
Japan 0.0103 0.0040 Mexico 0.0019 0.0000
Malaysia 0.0021 0.0012 Peru 0.0006 0.0001
Netherlands 0.0025 0.0010 Philippines 0.0002 0.0001
Norway 0.0008 0.0003 Portugal 0.0008 0.0005
Philippines 0.0000 0.0000 South Africa 0.0023 0.0010
Singapore 0.0008 0.0004 South Korea 0.0009 0.0002
South Korea 0.0001 0.0000 Switzerland 0.0001 0.0000
Spain 0.0010 0.0003 Taiwan 0.0009 0.0002
Sweden 0.0003 0.0001 Thailand 0.0037 0.0017
Switzerland 0.0033 0.0013 Turkey 0.0013 0.0000
Thailand 0.0007 0.0000 Venezuela 0.0001 0.0000
United Kingdom 0.0183 0.0074 United Kingdom 0.0002 0.0001
United States 0.0052 0.0000 United States 0.0026 0.0000
------ ------ ------ ------
0.0662 0.0247 0.0478 0.0245
</TABLE>
68
<PAGE>
Appendix A
DESCRIPTION OF BOND RATINGS
The rating descriptions set forth below are believed to be the most recent
rating descriptions available from Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("Standard & Poor's), Duff &
Phelps, Inc. ("Duff") and Fitch Investors Service ("Fitch") at the date of
this Statement of Additional Information for the securities listed. Ratings
are generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which will be given to these securities on the date of a Fund's
fiscal year end.
I. Long-Term Debt Ratings
Moody's Investors Service, Inc.
Description of four highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1,2 and 3) in each rating category to indicate
the security's ranking within the category):
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to prinicpal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Standard & Poor's Ratings Group (1)
Description of the four highest long-term debt ratings by Standard &
Poor's (Standard & Poor's may apply a plus (+) or minus (-) to a particular
rating classification to show relative standing within the classification):
AAA: Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
A-1
<PAGE>
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher
rated categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
(1) Rates all governmental bodies having $1,000,000 or more of debt
outstanding, unless adequate information is not available.
Duff & Phelps, Inc.
Description of the four highest long-term debt ratings by Duff (Duff may
apply a plus or minus to show relative standing within a rating category):
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A: Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB: Investment grade. Below average protection factors but still
considered sufficient for prudent investment. Considerable variability in
risk during economic cycles.
Fitch Investores Service
Description of the four highest long-term ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and to repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and to repay principal is
considered to be adequate. Adverse changes in economic conditions
A-2
<PAGE>
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
II. Short-Term Debt Ratings
Short-term debt ratings may be assigned, for example, to commercial paper,
master demand notes, bank instruments and letters of credit.
Moody's description of its highest short-term debt rating:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have superior
capacity for repayment of senior short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by many of the following
characteristics:
-- Lending market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternative liquidity.
Standard & Poor's description of its highest short-term debt rating:
A-1 This designation indicated that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).
III. Short-Term Loan / Municipal Note Ratings
Moody's description of its two highest short-term loan / municipal note
ratings:
MIG-1/VMIG-1 This description denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceeding group.
Standard & Poor's description of its two highest municipal note ratings:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
A-3
<PAGE>
(LOGO) Account Application Form
MORGAN GRENFELL INVESTMENT TRUST
DOMESTIC MUTUAL FUNDS
<TABLE>
<CAPTION>
<S> <C>
A| REGISTRATION (Please Print All Items Except Signatures)
- - (Complete One)
Corporations, 1. _________________________________________________________________________ ______________________________
Partnerships, Name of Corporation or Entity. If a trust, include Name(s) of Trustee(s) Tax I.D. Number
Trusts & Others _ _
Lines 1 & 2 2. Type of Registration |_| Individual |_| Joint Account
_ _
|_| Trust |_| Individual Retirement Account ("IRA")
INDIVIDUAL
Use Line 3 3. Individual ______________________________________________________ ______________________________
First Name Initial Last Name Social Security Number
_ _
U.S. Citizen? Yes |_| No |_|
JOINT ACCOUNT 4. Joint Names ______________________________________________________ ______________________________
Lines 3 & 4 First Name Initial Last Name Social Security Number
_ _
U.S. Citizen? Yes |_| No |_|
GIFT/TRANSFER 5. Uniform Gift/Transfer to Minor _________________________ as custodian for
TO MINOR ______________________________
Lines 5, 6 & 7 6. _________________________________________________________ under the Minor's Social Security Number
Minor's Name
7. _________________________________Uniform Gift/Transfer to Minors Act
State
___________________________________________________________________________________________________________________________________
B| MAILING Street or P.O. Box
- - ADDRESS _______________________________________________________________________________________________________________
City | State | Zip Code | Home Telephone | Daytime Telephone
_________________________|_______________|__________________|_______________________|__________________________
Duplicate Street or P.O. Box
Confirmation/ _______________________________________________________________________________________________________________
Statement sent to: City | State | Zip Code | Home Telephone | Daytime Telephone
_____________________________________________|_______________|__________________|_______________________|__________________________
C| FUND For each Fund in which you wish to invest, please enter the amount of your investment and check the
- - SELECTION corresponding line.
INITIAL MINIMUM INVESTMENT: $250,000 PER FUND. AMOUNT
INVESTMENT -------
_
(361) |_| Morgan Grenfell Fixed Income Fund $______
_
(360) |_| Morgan Grenfell Municipal Bond Fund $______
_
(358) |_| Morgan Grenfell Short-Term Fixed Income Fund $______
_
(359) |_| Morgan Grenfell Short-Term Municipal Bond Fund $______
_
(362) |_| Morgan Grenfell Smaller Companies Fund $______
Total $
=======
_
|_| Enclosed is my check (payable to the appropriate Fund name)
_
|_| In order to obtain wiring instructions - (Please call 1-800-550-MGAM prior to sending)*
* An account number is necessary prior to wiring money and must be included in instructions and below.
Account Number: _______________
___________________________________________________________________________________________________________________________________
_
D| FED WIRE Check one only, |_| All redemption proceeds will be sent by Fed wire net of wire charges unless Morgan Grenfell
- - & AUTOMATED if none are Investment Trust, P.O. Box 419165, Kansas City, MO 64141-6165 is notified in writing to
CLEARING HOUSE checked all execute redemptions by ACH transaction.
("ACH) redemptions
INFORMATION will be sent by an
ACH transaction.
_
|_| All redemption proceeds will be executed by an ACH transaction unless FED wire is requested
by either calling 1-800-500-MGAM or by notifying Morgan Grenfell Investment Trust, P.O.
Box 419165, Kansas City, MO 64141-6165 in writing. There is no charge for ACH
transactions.
___________________________________________________________________________________________________________________________________
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
D| (continued) Automated Clearing House (ACH) redemptions must be executed by telephone authorization by calling
- - FED WIRE 1-800-550-MGAM. Generally the proceeds of redemptions will be deposited in your bank account within three
& AUTOMATED business days after your call.
CLEARING HOUSE
("ACH") Shareholders purchasing shares of the Portfolio(s) by Fed wire must request their bank to transmit the
INFORMATION funds to: United Missouri Bank of Kansas City, N.A.; ABA #10-10-00695; For Account Number 98-7052-395-7;
Further Credit [appropriate Fund name]. The shareholder's name and account number must be specified in the wire.
All Fed wire and ACH transactions will be sent as indicated below. There will be no charge for ACH redemptions.
Fed wire redemptions will be sent net of wire charges. Any changes in Fed wire or ACH transactions must be made
in writing to Morgan Grenfell Investment Trust, P.O. Box 419165, Kansas City, MO 64141-6165.
Please allow one month for ACH instructions to be effective. All activity prior to ACH instructions being
effective will be done by Fed wire.
(Notify your bank of your intent to establish this option on your bank account.)
___________________________________________________________________________________________________________________
Bank Name |Branch Office (if applicable)
Voided Personal ____________________________________________________|____________________________________________________________
Check Must Be Bank Address (Do not use P.O. Box) | City | State |Zip Code
Attached ______________________________________________|_____________________________|____________________|_______________
Bank Wire Routing Number | Name(s) on Your Bank Account| Your Bank Account Number
________________________________________________________________|_____________________________|____________________________________
_
E| DIVIDENDS Check one only; if none are checked all |_| All dividend income and capital gains reinvested
- - AND dividend income and capital gains, _
CAPITAL GAINS if any, will be reinvested. |_| All dividend income and capital gains paid by ACH transaction
DISTRIBUTIONS _
|_| Capital gains paid by ACH transaction and dividend income reinvested
_
|_| Dividend income paid by ACH transaction and capital gains reinvested
___________________________________________________________________________________________________________________________________
F| TELEPHONE I (We) authorize DST Systems, Inc. to act upon instructions received by telephone from me (us) to redeem shares
- - PRIVILEGE or to exchange for shares of other available series of Morgan Grenfell Investment Trust. I (We) understand an
Redemptions; exchange is made by redeeming shares of one Fund and using the proceeds to buy shares of another fund. If there
Exchanges is an exchange, the account registration for the other Fund automatically will be the same as set forth above.
Between Redemptions proceeds will be sent via ACH transaction, unless I (we) have elected the Fed wire redemption
Portfolios privilege (Item D).
___________________________________________________________________________________________________________________________________
G| SHAREHOLDER 1. I (We) have full right, power, authority and legal capacity, and am (are) of legal age in my (our) state of
- - AGREEMENT residence to purchase shares of the Fund. I (We) affirm that I (we) have received and read the current
prospectus of the fund and agree to its terms. I (We) understand the investment objectives and program, and have
determined that the Fund is a suitable investment, based upon my (our) investment needs and financial situation.
I (We) agree that DST Systems, Inc. or any of their affiliate officers, directors or employees will not be liable
for any loss, expense or cost for acting upon any instructions or inquires believed genuine.
2. I (We) understand that the authorization(s), with respect to Wire Redemptions are subject to the conditions
and limitations set forth in the current prospectus. I (We) ratify any instructions given, pursuant to the above
authorization(s) and agree that DST Systems, Inc. or any of their affiliate officers, directors or employees will
not be liable for any loss liability, cost or expense for acting upon instructions believed to be genuine.
3. I (We) understand and acknowledge that a return on the Morgan Grenfell Investment Trust Portfolio(s) is(are)
not guaranteed.
4. This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
5. Morgan Grenfell Capital Management has full authority to purchase and redeem shares of the mutual fund
portfolios if full investment discretion has been provided to Morgan Grenfell by a separate agreement.
_
|_| Check this box if full investment discretion has been provided to Morgan Grenfell by a separate agreement.
___________________________________________________________________________________________________________________________________
H| SIGNATURES Taxpayer Identification Number Certification (Please See Appendices to Prospectus for Instructions).
- - Under the penalties of perjury, I (we) certify the following:
And Back-up 1. I (We) certify that the number shown on this form in my (our) correct taxpayer identification number.
Withholding 2. I (We) am not (are not) exempt from back-up withholding or as a result of receiving notice from the Internal
Certification Revenue Service (IRS) that such withholding applies due to a failure to report all interest and dividends, or
the IRS has notified me (us) that I (we) am (are) no longer subject to back-up withholding.
The Internal Revenue Service does not require your consent to any provision of this document other than the
certifications required to avoid backup withholding.
__________________________________________ ________ _______________________________________
Individual (or Custodian) Date Joint Registration, if any
__________________________________________ ________ _______________________________________
Corporate Officer, Partner, Trustee, etc. Date Title
* You must cross out item 2 above if you have been notified by the IRS that you are currently subject to back-up
withholding.
___________________________________________________________________________________________________________________________________
BROKER USE ONLY: DEALER NAME:_______________________________ DEALER NUMBER:_______________
DEALER ADDRESS:____________________________________
____________________________________
REPRESENTATIVE NAME:____________________ REPRESENTATIVE BRANCH:_______
REPRESENTATIVE SIGNATURE:________________________________________
___________________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
MAIL COMPLETED APPLICATION FORM TO: FOR ASSISTANCE CALL:
Morgan Grenfell Investment Trust 1-800-500-MGAM
P.O. BOX 419165 Before Investing, Please Read Prospectus Carefully
Kansas City, MO 64141-6165
</TABLE>
<PAGE>
Prospectus February 14, 1996, as revised May 10, 1996
(Morgan Grenfell Logo)
MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
855 Third Avenue New York, New York 10022
Morgan Grenfell Investment Trust (the "Trust") is an open-end management
investment company that includes the following three distinct investment
portfolios that focus on international fixed income investing: Morgan Grenfell
Global Fixed Income Fund, Morgan Grenfell International Fixed Income Fund and
Morgan Grenfell Emerging Markets Debt Fund (the "Funds"). The investment
objective of Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund
is to maximize total return. Morgan Grenfell Investment Services Limited (the
"Adviser" or "MGIS"), based in London England, serves as investment adviser to
the Funds. The Funds are designed for long-term investors seeking to participate
in foreign fixed income markets.
...............................................................................
This Prospectus provides information about the Trust and each of the Funds that
investors should know before investing in the Funds. Investors should carefully
read this Prospectus and retain it for future reference. For investors seeking
more detailed information, the Statement of Additional Information dated
February 14, 1996, as revised May 10, 1996 as amended or supplemented from time
to time, is available upon request without charge by calling the applicable
telephone number listed on the back cover or by writing SEI Financial Services
Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658. The Statement
of Additional Information, which is incorporated by reference into this
Prospectus, has been filed with the Securities and Exchange Commission. Not all
of the Funds are available in certain states. Please call 1- 800-550-6426 to
determine availability in a particular state.
...............................................................................
INVESTMENTS IN EMERGING MARKETS CAN INVOLVE SIGNIFICANT RISKS, AND MORGAN
GRENFELL EMERGING MARKETS DEBT FUND IS DESIGNED FOR AGGRESSIVE INVESTORS. IN
ADDITION, MORGAN GRENFELL EMERGING MARKETS DEBT FUND INVESTS IN LOWER-QUALITY
DEBT SECURITIES (JUNK BONDS), WHICH PRESENT HIGHER RISKS OF UNTIMELY INTEREST
AND PRINCIPAL PAYMENTS, DEFAULT, AND PRICE VOLATILITY THAN HIGHER-QUALITY
SECURITIES, AND MAY PRESENT LIQUIDITY AND VALUATION PROBLEMS.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
===============================================================================
(continued on next page)
<PAGE>
(continued)
Information concerning investment portfolios of the Trust that focus on U.S.
investments (the "Domestic Funds") is contained in a separate prospectus that
may be obtained by calling 1-800-550-6426.
Each Fund's primary investments are summarized below:
MORGAN GRENFELL GLOBAL FIXED INCOME FUND invests primarily in fixed income
securities of issuers throughout the world.
MORGAN GRENFELL INTERNATIONAL FIXED INCOME FUND invests primarily in fixed
income securities of issuers in countries other than the United States.
MORGAN GRENFELL EMERGING MARKETS DEBT FUND invests primarily in fixed income
securities of issuers in countries with emerging securities markets.
TABLE OF CONTENTS
Page
-----
Expense Information ....................................................... 3
Financial Highlights ...................................................... 5
Introduction to the Funds ................................................. 6
Investment Objectives and Polices ......................................... 8
Description of Securities and Investment Techniques and Related Risks ..... 10
Additional Investment Information ......................................... 24
Management of the Funds ................................................... 25
Purchase of Shares ........................................................ 27
Redemption of Shares ...................................................... 29
Net Asset Value ........................................................... 31
Dividends, Distributions and Taxes ........................................ 31
Organization and Shares of the Trust ...................................... 33
Performance Information ................................................... 34
Appendix A ................................................................ A-1
Appendix B ................................................................ B-1
Appendix C ................................................................ C-1
2
<PAGE>
EXPENSE INFORMATION
<TABLE>
<CAPTION>
GLOBAL FIXED INTERNATIONAL EMERGING MARKETS
FUND NAME INCOME FUND FIXED INCOME FUND DEBT FUND
- -------------------------------------------------- ------------ ------------------ ------------------
<S> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases ............. None None None
Maximum Sales Charge Imposed on Reinvested
Dividends ........................................... None None None
Deferred Sales Charge Imposed on Redemptions None None None
Exchange Fee .......................................... None None None
Annual Fund Operating Expenses
(as a percentage of average net assets after
reduction of advisory fee)
Advisory fees ......................................... 0.50%* 0.50%* 1.50%*
Administration fees ................................... 0.12% 0.31% 0.14%
Other Expenses ........................................ 0.22% 0.31% 0.32%
Reduction of Advisory Fee and Expense Limitation
by Adviser** ........................................ (0.09)% (0.37)% (0.46)%
Net Fund Operating Expenses ........................... 0.75% 0.75% 1.50%
</TABLE>
- ---------------
* Prior to April 3, 1995, the advisory fee rate for both Global Fixed Income
Fund and International Fixed Income Fund was 0.60% of average daily net
assets. Prior to September 6, 1995, the advisory fee rate for the Emerging
Markets Debt Fund was 1.60% of average daily net assets.
** The Adviser has agreed to reduce its advisory fee and to make arrangements
to limit certain other expenses to the extent necessary to limit Fund
Operating Expenses of each Fund, on an annual basis, to the specified
percentage of each Fund's assets shown in the above table as Net Fund
Operating Expenses. The above table and the following Example reflect this
voluntary agreement. In it sole discretion, the Adviser may terminate or
modify this voluntary agreement at any time although the Adviser has no
present intention of doing so. The purpose of this voluntary agreement is
to enhance a Fund's total return during the period when, because of its
smaller size, fixed expenses have a more significant impact on total
return. If the Adviser's voluntary agreement were not in effect, the Fund
Operating Expenses for each Fund would be as follows: Global Fixed Income
Fund, 0.84%; International Fixed Income Fund, 1.12% and Emerging Markets
Debt Fund, 1.96%.
3
<PAGE>
Example: Investors would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 3 5
Year Years Years 10 Years
----- ------ ------ ---------
<S> <C> <C> <C> <C>
Morgan Grenfell Global Fixed Income Fund.......... $ 8 $24 $42 $ 93
Morgan Grenfell International Fixed Income Fund... $ 8 $24 $42 $ 93
Morgan Grenfell Emerging Markets Debt Fund........ $ 15 $47 $82 $179
</TABLE>
The purpose of the Expense Information Table and Example is to assist
investors in understanding the various direct and indirect costs and expenses
that an investment in a Fund will bear. "Other Expenses" included in the
Expense Information Table and Example are estimates for the fiscal year
ending October 31, 1996 that are based on actual expenses incurred during the
fiscal period ended October 31, 1995, except that the figures shown assume
that the Funds' current advisory fee rates were in effect throughout the year
ended October 31, 1995. The Example assumes reinvestment of all dividends and
distributions and that the percentage amounts listed in the Expense
Information Table remain the same each year. If the Adviser were to
discontinue its voluntary fee reductions, the expenses contained in the
Example could increase.
The Example is designed for information purposes only, and should not be
considered a representation of future expenses or return for any Fund. Actual
expenses and return vary from year to year and may be higher or lower than
those shown. For further information regarding advisory and administration
fees, and other expenses of the Funds, see "Management of the Funds."
4
<PAGE>
FINANCIAL HIGHLIGHTS
Set forth below are selected data for an outstanding share of Morgan
Grenfell Global Fixed Income Fund, Morgan Grenfell International Fixed Income
Fund and Morgan Grenfell Emerging Markets Debt Fund for the year ended
October 31, 1995. Selected data for an outstanding share of each of the above
Funds during the period from its inception to October 31, 1994 are also set
forth below. The data set forth below has been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified.
The information set forth below should be read in conjunction with the
financial statements and notes thereto which appear in the Statement of
Additional Information. The Statement of Additional Information and the
Trust's annual report for the year ended October 31, 1995 which contains
further information about the Fund's performance, are available free of
charge by calling 1-800-550-6426.
For a Share Outstanding Throughout Each Period Ended October 31
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Net Net
Asset Net Distributions Distributions Asset
Value Net Realized from Net from Value
Beginning Investment and Investment Realized End
of Income/ Unrealized Income Capital of
Year Period (Loss) Gains/(Losses) (4) Gains Period
- ---- ---------- ------- -------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Global Fixed Income Fund
1995 ..... $ 9.85 $0.35 $ 0.99 $(0.20) -- $10.99
1994(1)* . $10.00 $0.25 $(0.40) -- -- $ 9.85
International Fixed Income Fund
1995 ..... $ 9.94 $0.42 $ 1.03 $(0.05) -- $11.34
1994(2)* . $10.00 $0.29 $(0.35) -- -- $ 9.94
Emerging Markets Debt Fund
1995 .... $10.19 $0.65 $(0.17) $(0.11) $(0.01) $10.55
1994(3)*. $10.00 $0.13 $ 0.06 -- -- $10.19
</TABLE>
<TABLE>
<CAPTION>
Ratio of
Net
Investment
Ratio of Ratio of Income
Net Expenses (Loss)
Ratio Investment to to
of Income Average Average
Net Expenses (Loss) Net Net
Assets to to Assets Assets
End of Average Average (Excluding (Excluding Portfolio
Total Period Net Net Expense Expense Turnover
Year Return (000) Assets Assets Limitations) Limitations) Rate
- -------- ------ ------- ------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Global Fixed Income Fund
1995 .... 13.88% $139,337 0.78% 5.61% 0.87% 5.52% 147%
1994(1)*. (1.50)% $ 53,915 0.85% 5.71% 1.28% 5.28% 173%
International Fixed Income Fund
1995 .... 14.66% $ 27,603 0.78% 5.51% 1.15% 5.14% 187%
1994(2)*. (0.60)% $ 15,238 0.85% 5.66% 1.42% 5.09% 130%
Emerging Markets Debt Fund
1995 .... 4.85% $ 84,438 1.79% 10.97% 2.05% 10.71% 266%
1994(3)*. 1.90% $ 16,248 1.90% 7.04% 2.60% 6.34% 52%
</TABLE>
(END OF RESTUBBED TABLE)
- ---------------
(1) Global Fixed Income Fund commenced operations on 1/3/94.
(2) International Fixed Income Fund commenced operations on 3/15/94.
(3) Emerging Markets Debt Fund commenced operations on 8/4/94.
(4) Distributions from net investment income include distributions of certain
foreign currency gains and losses.
* All ratios, excluding total return and portfolio turnover rate for the
period, are annualized.
5
<PAGE>
INTRODUCTION TO THE FUNDS
Morgan Grenfell Investment Trust (the "Trust") offers a number of mutual
funds, each of which is a separate series of the Trust. This Prospectus relates
solely to shares of the Funds. Information regarding investment portfolios of
the Trust that focus on U.S. investments (the "Domestic Funds") is contained in
a separate prospectus that may be obtained by calling 1-800-550-6426.
Under normal market conditions, the Funds will invest primarily in foreign
fixed income securities. Investing primarily in foreign fixed income securities
and across international borders presents growth opportunities and potentially
higher returns than could be achieved by investing solely in the United States.
International investing permits participation in the economies of countries with
business cycles and stock and bond market performance often different from that
in the United States and, with more than one-half of the world's stock and bond
market value outside the United States, it can help broaden the investments of a
portfolio otherwise solely invested in domestic securities. International
investments also involve certain risks not normally associated with domestic
investments. The Funds are designed for long-term investors comfortable with the
special risk and return characteristics of investing internationally. See
"Description of Securities and Investment Techniques and Related Risks."
MGIS, a subsidiary of the London-based Morgan Grenfell Asset Management,
which is a fully owned subsidiary of Deutsche Morgan Grenfell Group, serves as
the investment adviser to each of the Funds. Morgan Grenfell Asset Management
has been managing international investments for over thirty years and, together
with MGIS and its other subsidiaries, now has over US $95 billion of assets
under management. Within the Deutsche Morgan Grenfell Group, MGIS has
specialized in delivering international investment management services to U.S.
investors in both fixed income and equity markets.
Investment Focus and Non-Diversification
Emerging Markets Debt Fund seeks to attain its objective by focusing on what
are, in the Adviser's view, the most promising markets and companies in the
world's rapidly developing countries. While emerging markets are highly volatile
and subject to change with political or economic developments, they offer the
opportunity for substantial growth. In contrast to Emerging Markets Debt Fund,
Global Fixed Income Fund and International Fixed Income Fund may spread their
investments across world markets.
Each of the Funds is non-diversified under the Investment Company Act of 1940
(the "1940 Act") and, therefore, may be more susceptible than a more diversified
mutual fund to developments affecting any single issuer of portfolio securities.
See "Description of Securities and Investment Techniques and Related Risks--
Diversification." There can be no assurance that a Fund will achieve its
investment objective.
Selection of Portfolio Securities
Fixed income securities in which the Funds may invest include U.S. and
foreign government securities and corporate fixed income securities. See
"Description of Securities and Investment Techniques and Related Risks--Fixed
Income Securities." In managing the Funds, the Adviser uses a top-down approach
which gives primary emphasis to the relative attractiveness of bond markets and
currencies. Markets are selected after consideration is given to their risk and
return outlook under various economic scenarios. Currencies are evaluated
separately, and the underlying currency mix of each Fund's position in fixed
income securities generally is designed to enhance returns during periods of
relative U.S. dollar weakness and to protect return
6
<PAGE>
during periods of relative U.S. dollar strength. These investment decisions
require consideration of macro- economic factors such as inflation, interest
rates, monetary and fiscal policies, taxation and political climate. The
Adviser also considers the characteristics of individual securities and
issuers.
The fixed income securities in which each Fund may invest may have stated
maturities ranging from overnight to forty years. Each Fund's weighted
average maturity will vary based upon the Adviser's assessment of economic
and market conditions.
Investment Techniques and Related Risks
Foreign Securities. Investing in the securities of foreign issuers and of
companies whose securities are principally traded outside the United States
involves considerations and potential risks not typically associated with
investing in the securities of U.S. issuers whose securities are principally
traded in the United States. For example, in many foreign countries, securities
markets are less liquid, more volatile and less subject to governmental
regulation than U.S. securities markets. Also, in many foreign countries, there
is less publicly available information about foreign issuers. Moreover, the
value of the securities of foreign issuers held in a Fund's portfolio will be
affected by changes in currency exchange rates, which may be incurred due to
either changes in securities prices expressed in local currencies or due to
movements in exchange rates, or both. See "Description of Securities and
Investment Techniques and Related Risks-- Foreign Securities."
Foreign Currency Transactions. To attempt to manage exposure to fluctuations
in currency exchange rates and, in some circumstances, to seek to profit from
exchange rate fluctuations, each Fund may employ certain currency management
techniques, including forward foreign currency exchange contracts, options and
futures on currencies and currency swaps. These transactions are considered
speculative when entered into for non-hedging purposes. In addition, each Fund
may also employ a variety of active investment management techniques, including
entering into options, futures, options on futures, interest rate swaps and
when-issued and forward commitment transactions in order to hedge its positions
against potential adverse changes in future foreign currency exchange rates and
for non-hedging purposes. Engaging in these transactions entails special risks.
See "Description of Securities and Investment Techniques and Related
Risks--Currency Management Techniques."
Fixed Income Securities. The net asset value of the shares of the Funds will
change in response to fluctuations in interest rates and in currency exchange
rates. When interest rates decline, the value of fixed income securities
generally can be expected to rise. Conversely, when interest rates rise, the
value of fixed income securities generally can be expected to decline. The
performance of investments in fixed income securities denominated in a foreign
currency generally can be expected to increase when the value of the foreign
currency appreciates. A rise in foreign interest rates or a decline in the value
of foreign currencies relative to the U.S. dollar generally can be expected to
depress the value of a Fund's investments in securities denominated in a foreign
currency. See "Description of Securities and Investment Techniques and Related
Risks--Fixed Income Securities."
Lower Quality Fixed Income Securities. The Emerging Markets Debt Fund may
invest in fixed income securities which are unrated or rated in the lowest
rating categories by Standard & Poor's Ratings Group ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's") (i.e., ratings of BB or lower by
Standard & Poor's or Ba or lower by Moody's). Securities rated BB or Ba or below
(or comparable unrated
7
<PAGE>
securities) are considered speculative, and payments of principal and
interest thereon may be questionable. In some cases, these securities may be
highly speculative, have poor prospects for reaching investment grade
standing and be in default. See "Description of Securities and Investment
Techniques and Related Risks--Fixed Income Securities." A chart showing the
distribution of Emerging Markets Debt Fund's assets across the various
ratings categories is set forth in Appendix A.
Temporary Defensive Investments. When market conditions warrant, in the
judgment of the Adviser, each Fund may, for temporary defensive purposes, invest
up to 100% of its total assets in U.S. or, subject to tax requirements, Canadian
dollars, U.S. Government securities maturing within one year (including
repurchase agreements collateralized by such securities) and commercial paper of
U.S. or foreign issuers, cash equivalents and certain high grade fixed income
securities. See "Description of Securities and Investment Techniques and Related
Risks--Temporary Defensive Investments."
INVESTMENT OBJECTIVES AND POLICIES
Global Fixed Income Fund
The investment objective of the Global Fixed Income Fund is to maximize total
return, emphasizing current income and, to a lesser extent, providing
opportunities for capital growth consistent with reasonable investment risk.
Under normal circumstances, the Fund pursues this objective by investing at
least 65% of its total assets in fixed income securities of issuers in at least
three countries, which may include: Austria, Belgium, Denmark, Finland, France,
Germany, Holland, Ireland, Italy, Luxembourg, Norway, Portugal, Spain, Sweden,
Switzerland, the United Kingdom, the United States, Canada, Japan, Australia and
New Zealand. At the discretion of the Adviser, the Fund may invest in fixed
income securities of issuers located in other countries.
The fixed income securities in which the Fund invests consist primarily of
high grade debt obligations of foreign governments or their agencies,
instrumentalities, political subdivisions and authorities; debt obligations
issued or guaranteed by international or supranational entities; U.S. Government
securities and high grade fixed income securities of U.S. and foreign corporate
issuers. High grade securities include securities rated within the three highest
grades by Moody's (Aaa, Aa and A), Standard & Poor's (AAA, AA and A) or
comparable rating agency or, if unrated, determined to be of comparable quality
by the Adviser. The Fund may invest up to 10% of its total assets in
governmental and corporate fixed income securities that are rated in the fourth
highest grade by Moody's (Baa), Standard & Poor's (BBB) or comparable rating
agency or, if unrated, determined to be of comparable quality by the Adviser.
Securities rated in the fourth highest grade by any of the major rating agencies
have speculative characteristics. See "Description of Securities and Investment
Techniques and Related Risks--Fixed Income Securities" for a description of
these risks and Appendix A to this Prospectus for a description of the various
ratings categories.
The Fund may invest more than 25% of its total assets in each of Japan, the
United States, Germany and the United Kingdom. The concentration of the Fund's
investments in these countries will cause the Fund to be particularly
susceptible to the effects of political and economic developments in these
countries, See "Description of Securities and Investment Techniques and Related
Risks--Country Concentration."
Up to 35% of the Fund's total assets may be invested in cash equivalents.
8
<PAGE>
International Fixed Income Fund
The investment objective of the International Fixed Income Fund is to
maximize total return, emphasizing current income and, to a lesser extent,
providing opportunities for capital growth consistent with reasonable investment
risk. Under normal circumstances, the Fund pursues this objective by investing
at least 65% of its total assets in fixed income securities of issuers in at
least three countries other than the United States, including Austria, Belgium,
Denmark, Finland, France, Germany, Holland, Ireland, Italy, Luxembourg, Norway,
Portugal, Spain, Sweden, Switzerland, the United Kingdom, Canada, Japan,
Australia, and New Zealand. At the discretion of the Adviser, the Fund may
invest in fixed income securities of issuers located in other foreign countries.
The fixed income securities in which the Fund invests consist primarily of
high grade debt obligations of foreign governments or their agencies,
instrumentalities, political subdivisions and authorities; debt obligations
issued or guaranteed by international or supranational entities and high
grade fixed income securities of foreign corporate issuers. High grade
securities include securities rated within the three highest grades by
Moody's (Aaa, Aa and A), Standard & Poor's (AAA, AA and A) or comparable
rating agency or, if unrated, determined to be of comparable quality by the
Adviser. The Fund may invest up to 10% of its total assets in governmental
and corporate fixed income securities that are rated in the fourth highest
grade by Moody's (Baa), Standard & Poor's (BBB) or comparable rating agency
or, if unrated, determined to be of comparable quality by the Adviser.
Securities rated in the fourth highest grade by any of the major rating
agencies have speculative characteristics. See "Description of Securities and
Investment Techniques and Related Risks--Fixed Income Securities" for a
description of these risks and Appendix A attached to this Prospectus for a
description of the various ratings categories.
The Fund may invest more than 25% of its total assets in each of Germany,
France, Japan, Italy and the United Kingdom. The concentration of the Fund's
investments in these countries will cause the Fund to be particularly
susceptible to the effects of political and economic developments in these
countries. See "Description of Securities and Investment Techniques and
Related Risks--Country Concentration."
Up to 35% of the Fund's total assets may be invested in fixed income
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
Emerging Markets Debt Fund
The investment objective of the Emerging Markets Debt Fund is to maximize
total return. Under normal circumstances, the Fund pursues this objective by
investing at least 65% of its total assets in fixed income securities of issuers
located in countries with emerging securities markets, including Algeria,
Argentina, Bangladesh, Brazil, Bulgaria, Chile, China, Colombia, Costa Rica,
Cyprus, Czech Republic, Ecuador, Egypt, Greece, Hungary, India, Indonesia,
Jordan, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Thailand, Turkey, Uruguay, Venezuela and Vietnam. At the
discretion of the Adviser, the Fund may invest in fixed income securities of
issuers in other countries that have emerging securities markets. Investments in
emerging securities markets may offer greater opportunities for total return
than investments in securities traded in developed markets. However, investing
in emerging securities markets also involves risks that are not present in
developed markets. See "Description of Securities and Investment Techniques and
Related Risks--Foreign Securities."
9
<PAGE>
Under normal market conditions, the Fund's investments in emerging securities
markets will consist principally of (i) loans, debt instruments and fixed income
securities issued or guaranteed by sovereign governments or their agencies and
instrumentalities, (ii) sub-participations in such loans, debt instruments and
fixed income securities and (iii) financial instruments, such as call options,
the value of which are dependent on the prices of such loans, debt instruments
and fixed income securities. The loans and debt instruments in which the Fund
may invest may be denominated in a major currency, such as the U.S. dollar or
the German Deutschemark, or in the local currency. The price of loans and debt
instruments denominated in a local currency may be linked to the value of a
major currency. The Fund's investments may include so-called "Brady Bonds,"
which recently have been issued by the governments of Argentina, Brazil,
Bulgaria, Costa Rica, Dominican Republic, Equador, Jordan, Mexico, Nigeria,
Poland, Philippines, Uruguay and Venezuela, as well as non-performing or
semi-performing instruments with potential to be converted into securities under
a Brady plan or otherwise to appreciate in value as debt servicing prospects
improve. See "Description of Securities and Investment Techniques and Related
Risks--Fixed Income Securities." The Fund's investments in emerging securities
markets may also include fixed income securities of companies located in
countries with emerging securities markets.
Fixed income securities in which the Fund may invest may be of any credit
quality, including securities not paying interest currently, zero coupon bonds,
securities that pay interest in the form of other securities (i.e., "pay in
kind" or PIK securities) and securities in default. Fixed income securities
having low credit quality involve greater price volatility and risk of loss of
principal and income. For a description of these and other risks of investing in
lower quality fixed income securities, see "Description of Securities and
Investment Techniques and Related Risks--Fixed Income Securities." See Appendix
A to this Prospectus for a description of the various ratings categories of
Moody's and Standard & Poor's and a chart showing the distribution of the Fund's
assets across the various ratings categories.
The Fund may invest more than 25% of its total assets in each of Mexico and
Brazil. The concentration of the Fund's investments in these countries will
cause the Fund to be particularly susceptible to the effects of political and
economic developments in these countries. See "Description of Securities and
Investment Techniques and Related Risks--Country Concentration."
Up to 35% of the Fund's total assets may be invested in fixed income
securities issued or guaranteed by the U.S. Government.
DESCRIPTION OF SECURITIES AND INVESTMENT
TECHNIQUES AND RELATED RISKS
Foreign Securities
General. Subject to their respective investment objectives and policies, the
Funds may invest in U.S. dollar-denominated and non-dollar denominated foreign
fixed income securities and in certificates of deposit issued by foreign banks
and foreign branches of U.S. banks. While investments in securities of foreign
issuers and non-U.S. dollar denominated securities may offer investment
opportunities not available in the United States, such investments also involve
significant risks not typically associated with investing in domestic
securities. In many foreign countries, there is less publicly available
information about foreign issuers, and there is less government regulation and
supervision of foreign stock exchanges, brokers and listed companies. Also in
many foreign countries, companies are not subject to uniform accounting,
auditing,
10
<PAGE>
and financial reporting standards comparable to those applicable to domestic
issuers. Security trading practices and custody arrangements abroad may offer
less protection to the Funds' investments and there may be difficulty in
enforcing legal rights outside the United States. Settlement of transactions
in some foreign markets may be delayed or may be less frequent than in the
United States which could affect the liquidity of the Funds' portfolios.
Additionally, in some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of
securities, property, or other Fund assets, political or social instability
or diplomatic developments which could affect investments in foreign
securities.
To the extent the Funds' investments are denominated in foreign currencies,
the Funds' net asset values may be affected favorably or unfavorably by
fluctuations in currency exchange rates and by changes in exchange control
regulations. For example, if the Adviser increases a Fund's exposure to a
foreign currency, and that currency's value subsequently falls, the Adviser's
currency management may result in increased losses to the Fund. Similarly, if
the Adviser hedges a Fund's exposure to a foreign currency, and that currency's
value rises, the Fund will lose the opportunity to participate in the currency's
appreciation. The Funds will incur transaction costs in connection with
conversions between currencies.
Investments in Emerging Markets. Each of the Funds may invest to varying
degrees in one or more countries with emerging securities markets. These
countries are generally located in Latin America, Europe, the Middle East,
Africa and Asia. Political and economic structures in many of these countries
may be undergoing significant evolution and rapid development, and these
countries may lack the social, political and economic stability characteristic
of more developed countries. Certain of these countries may have in the past
failed to recognize private property rights and, at times, may have nationalized
or expropriated the assets of private companies. As a result, these risks,
including the risk of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the value of a Fund's investments in these countries, as well as the
availability of additional investments in these countries. The small size and
inexperience of the securities markets in certain of these countries and the
limited volume of trading in securities in these countries may make the Funds'
investments in these countries illiquid and more volatile than investments in
most Western European countries, and the Funds may be required to establish
special custodial or other arrangements before making certain investments in
some of these countries. There may be little financial or accounting information
available with respect to issuers located in certain of these countries, and it
may be difficult as a result to assess the value or prospects of an investment
in these countries. The laws of some foreign countries may limit the Funds'
ability to invest in securities of certain issuers located in those countries.
Country Concentration. Each Fund may concentrate its investments in one or
more foreign countries. Concentration of a Fund's investments in a particular
country will subject the Fund, to a greater extent than if its investments in
such country were more limited, to the risks of adverse securities markets,
exchange rates and social, political or economic developments which may occur in
that country.
Currency Management Techniques
General. The performance of foreign currencies relative to that of the U.S.
dollar is an important factor in each Fund's performance and the Adviser may
manage the Fund's exposure to various currencies to seek to take advantage of
the yield, risk and return characteristics that different currencies can
provide. Currency exchange rates may fluctuate significantly over short periods
of time causing, together with other
11
<PAGE>
factors, a Fund's net asset value to fluctuate as well, notwithstanding the
performance of a Fund's underlying assets. Currency exchange rates generally are
determined by the forces of supply and demand in the foreign exchange markets
and the relative merits of investments in different countries, actual or
anticipated changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected by
intervention, or failure to intervene, by U.S. or foreign governments or central
banks, or by currency controls or political developments in the United States or
abroad. To the extent that a substantial portion of a Fund's total assets,
adjusted to reflect the Fund's net position after giving effect to currency
transactions, is denominated in the currency of a foreign country, the Fund will
be more susceptible to the risk of adverse economic and political developments
in that country.
In an attempt to manage exposure to currency exchange rate fluctuations, the
Funds may enter into forward foreign currency exchange contracts or currency
swap agreements, purchase securities indexed to foreign currencies, and buy and
sell options and futures contracts relating to foreign currencies and options on
such futures contracts. See "Forward Foreign Currency Transactions," "Interest
Rate and Currency Swaps," "Options" and "Futures and Options on Futures" below.
The Funds may use currency hedging techniques in the normal course of business
to lock in an exchange rate in connection with purchases and sales of securities
denominated in foreign currencies. Other currency management strategies allow
the Adviser to hedge portfolio securities, to shift investment exposure from one
currency to another, or to attempt to profit from anticipated declines in the
value of a foreign currency relative to the U.S. dollar. There is no overall
limitation on the amount of assets that any of the Funds may commit to currency
management strategies. Although the Adviser may attempt to manage currency
exchange rate risks, there is no assurance that the Adviser will do so, or do so
at an appropriate time or that the Adviser will be able to predict exchange
rates accurately.
Securities held by a Fund are generally denominated in the currency of the
foreign market in which the investment is made. However, securities held by a
Fund may be denominated in the currency of a country other than the country in
which the security's issuer is located. For example, Emerging Markets Debt Fund
often purchases foreign securities that are denominated in U.S. dollars. The
Funds may also invest in securities denominated in the European Currency Unit
("ECU"), which is a "basket" consisting of specified amounts of the currencies
of certain member countries of the European Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community from time to time to reflect changes in their relative
values. In addition, the Funds may invest in securities denominated in other
currency "baskets."
Forward Foreign Currency Transactions. Each of the Funds may conduct foreign
currency exchange transactions on a spot (i.e., cash) basis at the rate
prevailing in the foreign currency exchange market or by entering into forward
currency exchange contracts ("forward currency contracts") to purchase or sell
foreign currencies. A Fund may purchase or sell forward currency contracts for
hedging purposes and also for non-hedging purposes when the Adviser anticipates
that the foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in a Fund's portfolio. When purchased or sold for
non-hedging purposes, forward currency contracts are speculative.
Each Fund may enter into forward currency contracts to purchase foreign
currency to protect against an anticipated rise in the U.S. dollar price of
securities that it intends to purchase. A Fund may enter into
12
<PAGE>
contracts to sell foreign currency to protect against the decline in value of
its foreign currency denominated or quoted portfolio securities, or a decline in
the value of anticipated dividends from such securities, due to a decline in the
value of the foreign currency against the U.S. dollar. Contracts to sell foreign
currency could limit any potential gain which might be realized by a Fund if the
value of the hedged currency increased.
A Fund may sell U.S. dollars and buy foreign currency forward in order to
gain exposure to a currency which is expected to appreciate against the U.S.
dollar. This speculative strategy allows a Fund to benefit from currency
appreciation potential without requiring it to purchase a local fixed income
instrument, for which prospects may be relatively unattractive. It is the
Adviser's intention that each Fund's net U.S. dollar currency exposure generally
will not fall below zero (i.e., that net short positions in the U.S. dollar
generally will not be taken).
If a Fund enters into a forward currency contract to sell foreign currency
for non-hedging purposes or to buy foreign currency for any purpose, the forward
currency contract generally will not have a term greater than one year. The
forecasting of short-term currency market movements is extremely difficult and
there can be no assurance that short-term hedging strategies will be successful.
When a Fund enters into a forward currency contract to sell foreign currency
for non-hedging purposes or to buy foreign currency for any purpose, the Fund
will be required to place cash, U.S. Government securities or liquid, high grade
debt securities in a segregated account, which will be marked to market daily,
in an amount equal to the value of the total assets committed to the
consummation of the forward currency contract. If the value of the securities
placed in the segregated account declines, additional cash or securities will be
placed in the account so that the value of the account will equal the amount of
the Fund's commitment with respect to the contract.
Forward currency contracts are subject to the risk that the counterparty to
such contract will default on its obligations. Since a forward currency contract
is not guaranteed by an exchange or clearinghouse, a default on the contract
would deprive a Fund of unrealized profits, transaction costs or the benefits of
a currency hedge or force a Fund to cover its purchase or sale commitments, if
any, at the current market price. The Funds will not enter into forward currency
contracts unless the credit quality of the unsecured senior debt or the
claims-paying ability of the counterparty is determined to be investment grade
by the Adviser. The Adviser will monitor the claims-paying ability of the
counterparty on an ongoing basis.
A Fund may also utilize forward foreign currency contracts to establish a
synthetic investment position designed to change the currency characteristics of
a particular security without the need to sell such security. For example, a
Fund wishing to acquire a particular security that is denominated in French
Francs, but wishing to seek exposure to a second currency and not the Franc, may
simultaneously enter into a forward contract to sell an equivalent value of
Francs in exchange for such foreign currency. Synthetic investment positions
will typically involve the purchase of U.S. dollar-denominated securities
together with a forward contract to purchase the currency to which the Fund
seeks exposure and to sell U.S. dollars. This may be done because the range of
highly liquid short-term instruments available in the U.S. may provide greater
liquidity to a Fund than actual purchases of foreign currency-denominated
securities in addition to providing superior returns in some cases. Depending on
(a) each Fund's liquidity needs, (b) the relative yields of securities
denominated in different currencies and (c) spot and forward currency rates, a
significant portion of a Fund's assets may be invested in synthetic investment
positions, subject to compliance with the tax requirements for qualification as
a regulated investment company. See "Taxes."
13
<PAGE>
There is a risk in adopting a synthetic investment position. It is impossible
to forecast with absolute precision what the market value of a particular
security will be at any given time. If the value of the U.S. dollar-denominated
security is not exactly matched with a Fund's obligation under a forward
currency contract on the date of maturity, the Fund may be exposed to some risk
of loss from fluctuations in the value of the U.S. dollar. Although the Adviser
will attempt to hold such mismatching to a minimum, there can be no assurance
that the Adviser will be able to do so.
Cross-Hedging. At the discretion of the Adviser, each of the Funds may employ
the currency hedging strategy known as "cross-hedging" by using forward currency
contracts, currency options or a combination of both. When engaging in
cross-hedging, a Fund seeks to protect against a decline in the value of a
foreign currency in which certain of its portfolio securities are denominated by
selling that currency forward into a different foreign currency for the purpose
of diversifying the Fund's total currency exposure or gaining exposure to a
foreign currency that is expected to appreciate.
For a description of the Funds' transactions in currency options, futures and
swaps, see "Options-- Currency Options," "Futures Contracts and Options on
Futures Contracts" and "Interest Rate and Currency Swaps."
Options
Written Options. Each Fund may write (sell) covered put and call options on
fixed income securities and enter into related closing transactions. A Fund may
receive fees (referred to as "premiums") for granting the rights evidenced by
the options. However, in return for the premium, the Fund assumes certain risks.
For example, in the case of a written call option, the Fund forfeits the right
to any appreciation in the underlying security while the option is outstanding.
A put option gives to its purchaser the right to compel the Fund to purchase an
underlying security from the option holder at the specified price at any time
during the option period. In contrast, a call option written by the Fund gives
to its purchaser the right to compel the Fund to sell an underlying security to
the option holder at a specified price at any time during the option period.
Upon the exercise of a put option written by a Fund, the Fund may suffer a loss
equal to the difference between the price at which the Fund is required to
purchase the underlying security and its market value at the time of the option
exercise, less the premium received for writing the option. All options written
by a Fund are covered. In the case of a call option, this means that the Fund
will own the securities subject to the option or an offsetting call option as
long as the written option is outstanding, or will have the absolute and
immediate right to acquire the securities that are subject to the written
option. In the case of a put option, this means that the Fund will deposit cash
or cash equivalents or a combination of both in a segregated account with the
custodian with a value at least equal to the exercise price of the put option.
Purchased Options. The Funds may also purchase put and call options on
securities. The advantage to the purchaser of a call option is that it may hedge
against an increase in the price of portfolio securities it ultimately wishes to
buy. The advantage to the purchaser of a put option is that it may hedge against
a decrease in the price of portfolio securities it ultimately wishes to sell.
Each Fund may enter into closing transactions in order to offset an open
option position prior to exercise or expiration by selling an option it has
purchased or by entering into an offsetting option. If a Fund cannot effect
closing transactions, it may have to retain a security in its portfolio it would
otherwise sell or deliver a security it would otherwise retain. The Funds may
purchase and sell options traded on recognized foreign
14
<PAGE>
exchanges. The Funds may also purchase and sell options traded on U.S. exchanges
and, to the extent permitted by law, options traded over-the-counter.
Yield Curve Options. The Funds may enter into options on the yield spread, or
yield differential between two securities. These options are referred to as
yield curve options. In contrast to other types of options, a yield curve option
is based on the difference between the yields of designated securities, rather
than the prices of the individual securities, and is settled through cash
payments. Accordingly, a yield curve option is profitable to the holder if this
differential widens (in the case of a call) or narrows (in the case of a put),
regardless of whether the yields of the underlying securities increase or
decrease.
Currency Options. The Funds may purchase and write put and call options on
foreign currencies (traded on U.S. and foreign exchanges or over-the-counter) to
manage portfolio exposure to changes in U.S. dollar exchange rates. Call options
on foreign currency written by a Fund will be covered, which means that the Fund
will own an equal amount of the underlying foreign currency. With respect to put
options on foreign currency written by a Fund, the Fund will deposit cash or
cash equivalents or a combination of both in a segregated account with the
custodian in an amount equal to the amount the Fund would be required to pay
upon exercise of the put option.
Futures Contracts and Options on Futures Contracts
When deemed advisable by the Adviser, each of the Funds may enter into
futures contracts and purchase and write options on futures contracts to hedge
against changes in interest rates, securities prices or currency exchange rates
or for certain non-hedging purposes. The Funds may purchase and sell financial
futures contracts and purchase and write related options. A Fund may engage in
futures and related options transactions for hedging and non-hedging purposes as
defined in regulations of the Commodity Futures Trading Commission. A Fund will
not enter into futures contracts or options thereon for non-hedging purposes, if
immediately thereafter, the aggregate initial margin and premiums required to
establish non-hedging positions in futures contracts and options on futures will
exceed 5% of the net asset value of the Fund's portfolio, after taking into
account unrealized profits and losses on any such positions and excluding the
amount by which such options were in-the-money at the time of purchase.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Funds to purchase securities or currencies, require the Funds to
segregate assets with a value equal to the amount of the Fund's obligations.
Limitations and Risks Associated With Transactions In Forward Foreign
Currency Exchange Contracts, Options, Futures Contracts and Options on
Futures Contracts
Each of the Funds' active management techniques involves (1) liquidity risk
that contractual positions cannot be easily closed out in the event of market
changes or generally in the absence of a liquid secondary market, (2)
correlation risk that changes in the value of hedging positions may not match
the securities market and foreign currency fluctuations intended to be hedged,
and (3) market risk that an incorrect prediction of securities prices or
exchange rates by the Adviser may cause a Fund to perform worse than if such
positions had not been taken. The ability to terminate over-the-counter options
is more limited than with exchange traded options and may involve the risk that
the counterparty to the option will not fulfill its obligations. In accordance
with a position taken by the Securities and Exchange Commission (the "Com-
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mission"), each Fund will limit its investments in illiquid securities to 15% of
the Fund's net assets and treat over-the-counter options as illiquid securities
subject to this limitation. With respect to options written with primary dealers
in U.S. Government securities pursuant to an agreement requiring a closing
purchase transaction at a formula price, the amount of the illiquid securities
may be calculated with reference to the formula price.
The use of options, futures and forward currency contracts is a highly
specialized activity which involves investment techniques and risks that are
different from those associated with ordinary portfolio transactions. Gains and
losses on investments in options and futures depend on the Adviser's ability to
predict the direction of stock prices, interest rates, currency movements and
other economic factors. The loss that may be incurred by a Fund in entering into
futures contracts and written options thereon and forward currency contracts is
potentially unlimited. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times, render certain
facilities of an options clearing entity or other entity performing the
regulatory and liquidity functions of an options clearing entity inadequate, and
thereby result in the institution by an exchange of special procedures which may
interfere with the timely execution of customers' orders. Options and futures
traded on foreign exchanges generally are not regulated by U.S. authorities, and
may offer less liquidity and less protection to a Fund in the event of default
by the other party to the contract.
Except as set forth above under "Futures Contracts and Options on Futures
Contracts" there is no limit on the percentage of a Fund's assets that may be
invested in futures contracts and related options or forward currency contracts.
A Fund may not invest more than 25% of its total assets in purchased protective
put options nor more than 5% of its total assets in purchased options other than
protective put options. A Fund's transactions in options, forward currency
contracts, futures contracts and options on futures contracts may be limited by
the requirements for qualification of the Fund as a regulated investment company
for tax purposes. See "Taxes" in the Statement of Additional Information.
Fixed Income Securities
General. In order to achieve their respective investment objectives, the
Funds may invest in a broad range of U.S. and non-U.S. fixed income securities.
In periods of declining interest rates, a Fund's yield (its income from
portfolio investments over a stated period of time) may tend to be higher than
prevailing market rates, and in periods of rising interest rates, the yield of
the Fund may tend to be lower. Also, when interest rates are falling, the inflow
of net new money to each Fund from the continuous sale of its shares will likely
be invested in portfolio instruments producing lower yields than the balance of
the Fund's portfolio, thereby reducing the yield of the Fund. In periods of
rising interest rates, the opposite can be true. To the extent a Fund invests in
fixed income securities, its net asset value can generally be expected to change
as general levels of interest rates fluctuate. The value of fixed income
securities in a Fund's portfolio generally varies inversely with changes in
interest rates. Prices of fixed income securities with longer effective
maturities are more sensitive to interest rate changes than those with shorter
effective maturities. The Funds may invest up to 5% of their net assets in
inverse floating rate securities, which have greater volatility risk than
ordinary fixed income securities.
Risk Factors of Lower Quality Securities. The Emerging Markets Debt Fund may
invest in U.S. and foreign fixed income securities receiving a Standard & Poor's
rating of BBB or lower, a Moody's rating of Baa or lower, or an equivalent
rating. These securities are considered speculative and, while generally
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providing greater income than investments in higher quality securities, involve
greater risk of loss of principal and income, including the possibility of
default or bankruptcy of the issuers of such securities, and have greater price
volatility, especially during periods of economic uncertainty or change.
Securities rated D by Standard & Poor's, Moody's or comparable rating agency are
in default. These lower quality fixed income securities tend to be affected by
economic changes and short-term corporate and industry developments to a greater
extent than higher quality securities, which react primarily to fluctuations in
the general level of interest rates. To the extent the Fund invests in such
lower quality securities, the achievement of its investment objective may be
more dependent on the Adviser's own credit analysis. The market prices of zero
coupon and payment-in-kind bonds are affected to a greater extent by interest
rate changes, and therefore tend to be more volatile than securities which pay
interest periodically and in cash. Increasing rate note securities are typically
refinanced by the issuers within a short period of time. See "Taxes" in the
Statement of Additional Information for special tax considerations associated
with investing in high yield bonds structured as zero coupon, payment-in-kind,
or increasing rate securities.
Lower quality fixed income securities will also be affected by the market's
perception of their credit quality, especially during times of adverse
publicity, and the outlook for economic growth. In the past, economic downturns
or an increase in interest rates have, under certain circumstances, caused a
higher incidence of default by the issuers of these securities and may do so in
the future, especially in the case of highly leveraged issuers. The market for
these lower quality fixed income securities is generally less liquid than the
market for investment grade fixed income securities. Therefore, the Adviser's
judgment may at times play a greater role in valuing these securities than in
the case of investment grade fixed income securities, and it also may be more
difficult under certain adverse market conditions to sell these lower rated
securities to meet redemption requests, to respond to changes in the market, or
to determine accurately a Fund's net asset value.
If a fixed income security, that at the time of purchase satisfied a Fund's
minimum rating criteria, is subsequently downgraded, the Fund will not be
required to dispose of the security. If such a downgrading occurs, however, the
Adviser will consider what action, including the sale of the security, is in the
best interest of the Fund. No Fund, other than the Emerging Markets Debt Fund,
will continue to hold fixed income securities that have been downgraded below
investment grade if more than 5% of that Fund's net assets would consist of such
securities.
Foreign Government Securities. The foreign government securities in which the
Funds may invest generally consist of debt obligations issued or guaranteed by
national, state or provincial governments or similar political subdivisions.
Foreign government securities also include debt obligations of supranational or
quasi-governmental entities. Quasi-governmental and supranational entities
include international organizations designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
Japanese Development Bank, the Asian Development Bank and the InterAmerican
Development Bank. Foreign government securities also include mortgage-related
securities issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies. For a description of
the risks associated with all investments in foreign securities, see "Foreign
Securities" above.
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The Emerging Markets Debt Fund may also invest in so-called "Brady Bonds."
The Fund may invest in Brady Bonds and other sovereign debt securities of
countries that have restructured or are in the process of restructuring
sovereign debt pursuant to the Brady Plan. Brady Bonds are debt securities
issued under the framework of the Brady Plan, an initiative announced by U.S.
Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations
to restructure their outstanding external indebtedness (generally, commercial
bank debt). In restructuring its external debt under the Brady Plan framework, a
debtor nation negotiates with its existing bank lenders as well as multilateral
institutions such as the World Bank and the International Monetary Fund (the
"IMF"). The Brady Plan framework, as it has developed, contemplates the exchange
of commercial bank debt for newly issued bonds (Brady Bonds). The World Bank
and/or the IMF support the restructuring by providing funds pursuant to loan
agreements or other arrangements which enable the debtor nation to collateralize
the new Brady Bonds or to repurchase outstanding bank debt at a discount. Under
these arrangements with the World Bank and/or the IMF, debtor nations have been
required to agree to the implementation of certain domestic monetary and fiscal
reforms. Such reforms have included the liberalization of trade and foreign
investment, the privatization of state-owned enterprises and the setting of
targets for public spending and borrowing. These policies and programs seek to
promote the debtor country's ability to service its external obligations and
promote its economic growth and development. Investors should recognize that the
Brady Plan only sets forth general guiding principles for economic reform and
debt reduction, emphasizing that solutions must be negotiated on a case-by-case
basis between debtor nations and their creditors. The Adviser believes that
economic reforms undertaken by countries in connection with the issuance of
Brady Bonds make the debt of countries which have issued or have announced plans
to issue Brady Bonds an attractive opportunity for investment.
Brady Bonds have recently been issued by Argentina, Brazil, Bulgaria, Costa
Rica, Dominican Republic, Equador, Jordan, Mexico, Nigeria, Poland, the
Philippines, Uruguay and Venezuela and may be issued by other countries. Over
$130 billion in principal amount of Brady Bonds have been issued to date, the
largest proportion having been issued by Argentina and Brazil. Brady Bonds may
involve a high degree of risk, may be in default or present the risk of default.
As of January 1, 1996, the Fund is not aware of the occurrence of any payment
defaults on Brady Bonds. Investors should recognize however, that Brady Bonds
have been issued only recently, and, accordingly, they do not have a long
payment history. Agreements implemented under the Brady Plan to date are
designed to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, the financial
packages offered by each country differ. The types of options have included the
exchange of outstanding commercial bank debt for bonds issued at 100% of face
value of such debt, bonds issued at a discount of face value of such debt, bonds
bearing an interest rate which increases over time and bonds issued in exchange
for the advancement of new money by existing lenders. Certain Brady Bonds have
been collateralized as to principal due at maturity by U.S. Treasury zero coupon
bonds with a maturity equal to the final maturity of such Brady Bonds, although
the collateral is not available to investors until the final maturity of the
Brady Bonds. Collateral purchases are financed by the IMF, the World Bank and
the debtor nations' reserves. In addition, the first two or three interest
payments on certain types of Brady Bonds may be collateralized by cash or
securities agreed upon by creditors. Although Brady Bonds may be collateralized
by U.S. Government securities, repayment of principal and interest is not
guaranteed by the U.S. Government.
Registered Loans. The Emerging Markets Debt Fund may invest in loan
obligations issued or guaranteed by sovereign governments or their agencies and
instrumentalities. The ownership of these loans
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is registered in the books of an agent bank and/or the borrower and transfers of
ownership are effected by assignment agreements. Documentation for these
assignments includes a signed notice of assignment, which is sent to the agent
and/or borrower for registration shortly after the execution of the assignment
agreement. Prior to the notice of assignment being registered with the agent
and/or borrower, the borrower or its agent will make any payments of principal
and interest to the last registered owner.
Given the volume of secondary market trading in registered loans, the agent
and/or borrower's books may be out of date, making it difficult for the Fund to
establish independently whether the seller of a registered loan is the owner of
the loan. For this reason, the Fund will require a contractual warranty from the
seller to this effect. In addition, to assure the Fund's ability to receive
principal and interest owed to it but paid to a prior holder because of delays
in registration, the Fund will purchase registered loans only from parties that
agree to pay the amount of such principal and interest to the Fund upon demand
after the borrower's payment of such principal and interest to any prior holder
has been established.
Generally, registered loans trade in the secondary market with interest
(i.e., the right to accrued but unpaid interest is transferred to purchasers).
Occasionally, however, the Fund may sell a registered loan and retain the right
to such interest ("sell a loan without interest"). To assure the Fund's ability
to receive such interest, the Fund will make such sales only to parties that
agree to pay the amount of such interest to the Fund upon demand after the
borrower's payment of such interest to any subsequent holder of the loan has
been established. In this rare situation, the Fund's ability to receive such
interest (and, therefore, the value of shareholders' investments in the Fund
attributable to such interest) will depend on the creditworthiness of both the
borrower and the party who purchased the loan from the Fund.
To further assure the Fund's ability to receive interest and principal on
registered loans, the Fund will only purchase registered loans from, and sell
loans without interest to, parties determined to be creditworthy by the Adviser.
For purposes of the Fund's diversification and industry concentration policies,
the Fund will treat the underlying borrower of a registered loan as an issuer of
that loan. Where the Fund sells a loan without interest, it will treat both the
borrower and the purchaser of the loan as issuers for purposes of this policy.
U.S. Government Securities. The Funds may invest in obligations issued or
guaranteed as to both principal and interest by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises ("U.S. Government
securities"). Some U.S. Government securities, such as U.S. Treasury bills,
notes and bonds, are supported by the full faith and credit of the United
States. Others, such as obligations issued or guaranteed by U.S. Government
agencies or instrumentalities are supported either by (i) the full faith and
credit of the U.S. Government (such as securities of the Small Business
Administration), (ii) the right of the issuer to borrow from the U.S. Treasury
(such as securities of the Federal Home Loan Banks), (iii) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association ("FNMA")), or (iv) only
the credit of the issuer. No assurance can be given that the U.S. Government
will provide financial support to U.S. Government agencies or instrumentalities
in the future.
The Funds may also invest in separately traded principal and interest
components of U. S. Government securities if such components are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS") or any similar program sponsored by the U.S.
Government.
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Custodial Receipts.Each Fund may acquire custodial receipts which are
typically issued by a custodian bank or investment brokerage firm. These
receipts represent unmatured interest coupons that have been separated
("stripped") by a custodian bank or investment brokerage firm, and evidence
ownership of future interest payments, principal payments or both on certain
notes or bonds issued by the U.S. Government or its agencies or
instrumentalities. For certain securities law purposes, custodial receipts are
not considered U.S. Government securities.
Mortgage-Backed and Asset-Backed Securities
The Funds may invest in mortgage-backed securities, which represent direct or
indirect participations in, or are collateralized by and payable from, mortgage
loans secured by real property. These include collateralized mortgage
obligations ("CMOs") and various "stripped" mortgage-backed securities ("SMBS").
CMOs are issued in multiple classes, each with a specified fixed or adjustable
interest rate and final maturity date. Principal payments may be made to the
various classes in either a sequential order or simultaneously. SMBS typically
are issued in two classes, with one receiving only interest payments from a pool
of mortgage loans ("IOs") and the other receiving only principal payments
("POs"). The Funds may also invest in asset- backed securities, which represent
participations in, or are secured by and payable from, assets such as motor
vehicle installment sales, installment loan contracts, leases of various types
of real and personal property and receivables from revolving credit (credit
card) agreements and other categories of receivables. Such securities are
generally issued by trusts and special purpose corporations.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying mortgage- backed and
asset-backed securities can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Accordingly,
the market values of such securities will vary with changes in market interest
rates generally and in yield differentials among various kinds of U.S.
Government securities and other mortgage-backed and asset-backed securities.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities because asset-backed securities generally do not have
the benefit of a security interest in collateral that is comparable to mortgage
assets. In addition, there is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.
Interest Rate, Mortgage and Currency Swaps and Interest Rate Caps and Floors
The Funds may enter into interest rate, mortgage and currency swaps for
hedging and non-hedging purposes. The Funds may also enter into other types of
interest rate swap arrangements such as caps and floors. A Fund will typically
use interest rate swaps to adjust the effective duration of its portfolio, to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities the Fund
anticipates purchasing at a future date. Interest rate swaps involve the
exchange by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed rate payments for floating rate
payments. Mortgage swaps are similar to interest rate swaps in that they
represent commitments to pay and receive interest. The principal amount,
however, is tied to a reference pool or pools of mortgages. Currency swaps
involve the exchange of rights to make or receive payments in specified
currencies. In a typical cap or floor arrangement, one party agrees to make
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payments only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specified interest rate
exceeds an agreed upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate falls
below an agreed upon level. Since interest rate and currency swaps and interest
rate caps and floors are individually negotiated, the Funds would enter into
such arrangements in the expectation of achieving an acceptable degree of
correlation between their hedged portfolio investments and their interest rate
and currency swap positions.
The Funds will enter into interest rate and mortgage swaps only on a net
basis, which means that the two payment streams are netted out, with a Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate and mortgage swaps do not involve the delivery of
securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate and mortgage swaps is limited to the net amount of
interest payments that a Fund is contractually obligated to make. If the other
party to an interest rate or mortgage swap defaults, a Fund's risk of loss
consists of the net amount of interest payments that the Fund is contractually
entitled to receive. The net amount of the excess, if any, of a Fund's
obligations over its entitlements with respect to each interest rate swap,
mortgage swap, and interest rate caps and floors, will be accrued on a daily
basis, and an amount of cash or high grade debt securities having an aggregate
net asset value at least equal to such accrued excess will be maintained in a
segregated account, which will be marked to market daily, by the Fund's
custodian. In contrast, currency swaps usually involve the delivery of the
entire principal amount of one designated currency in exchange for the other
designated currency. Therefore, the entire principal value of a currency swap is
subject to the risk that the other party to the swap will default on its
contractual delivery obligations. The Funds will segregate, in an account
maintained by the Funds' custodian, an amount of cash or high grade debt
securities having an aggregate net asset value equal to the entire amount of the
Fund's obligation in a currency swap.
The use of interest rate, mortgage and currency swaps and interest rate caps
and floors is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. If the Adviser is incorrect in its forecasts of market values,
interest rates or currency exchange rates, the investment performance of a Fund
may be less favorable than it would have been if these investment techniques
were not used.
Convertible Securities and Preferred Stocks
Subject to their investment policies, the Funds may invest in convertible
securities, which may include corporate notes or preferred stock but are
ordinarily long-term debt obligations of the issuer convertible at a stated
exchange rate into common stock of the issuer. As with all fixed income
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
Convertible securities generally offer lower interest or dividend yields than
non- convertible securities of similar quality. However, when the market price
of the common stock underlying a convertible security exceeds the conversion
price, the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
Convertible securities generally rank senior to common stocks in an issuer's
capital structure and are consequently of higher quality and entail less risk
than the issuer's common stock. However, the extent to which such risk is
reduced depends in large measure upon the degree
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to which the convertible security sells above its value as a fixed income
security. In evaluating a convertible security, the Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which each Fund may invest are subject to the same rating
criteria as the Fund's investments in non-convertible securities.
Diversification
Each of the Funds is "non-diversified" under the 1940 Act. Accordingly, they
are subject only to certain federal tax diversification requirements and to the
policies adopted by the Adviser. With respect to 50% of its total assets, each
Fund may invest up to 25% of its total assets in the securities of any one
issuer (except that this limitation does not apply to U.S. Government
securities). With respect to the remaining 50% of its total assets, a Fund may
not invest more than 5% of its total assets in the securities of any one issuer
(except U.S. Government securities) nor acquire more than 10% of the outstanding
voting securities of any issuer. These federal tax diversification requirements
apply only at taxable quarter-ends and are subject to certain qualifications and
exceptions. To the extent that a Fund does not meet standards for being
"diversified" under the 1940 Act, it will be more susceptible to developments
affecting any single issuer of portfolio securities.
Temporary Defensive Investments
For temporary defensive purposes, each of the Funds may invest all or part of
its portfolio in U.S. or, subject to tax requirements, Canadian currencies, U.S.
Government securities maturing within one year (including repurchase agreements
collateralized by such securities), commercial paper of U.S. or foreign issuers,
and cash equivalents.
Commercial paper represents short-term unsecured promissory notes issued in
bearer form by U.S. or foreign corporations and finance companies. The
commercial paper purchased by the Funds consists of U.S. dollar-denominated
obligations of domestic or foreign issuers. Each Fund may also invest in
commercial paper which at the date of investment is rated at least A-2 by
Standard & Poor's or P-2 by Moody's, or their equivalent ratings, or, if not
rated, is issued or guaranteed as to payment of principal and interest by
companies which are rated, at the time of purchase, A or better by Standard &
Poor's or Moody's, or their equivalents, and other debt instruments, including
unrated instruments, not specifically described if such instruments are deemed
by the Adviser to be of comparable quality.
Cash equivalents include obligations of banks which at the date of investment
have capital, surplus and undivided profits (as of the date of their most
recently published financial statements) in excess of US$ 100 million. Bank
obligations in which the Funds may invest include certificates of deposit,
bankers' acceptances and fixed time deposits. Bank obligations also include U.S.
dollar-denominated obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks, all of the same type as domestic bank obligations. A
Fund will invest in the obligations of foreign branches of U.S. banks or of U.S.
branches of foreign banks only when the Adviser determines that the credit risk
with respect to the instrument is minimal.
Additional Investment Techniques
Mortgage Dollar Rolls. The Funds may enter into mortgage "dollar rolls" in
which a Fund sells securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, a
Fund forgoes
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principal and interest paid on the securities. A Fund is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") or fee income as well as by
the interest earned on the cash proceeds of the initial sale. A "covered roll"
is a specific type of dollar roll for which there is an offsetting cash position
or a cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction. The Funds may enter into both
covered and uncovered rolls. For financial reporting and tax purposes, each Fund
treats mortgage dollar rolls as two separate transactions: one involving the
purchase of a security and a separate transaction involving a sale. The Funds do
not currently intend to enter into mortgage dollar rolls that are accounted for
as a financing.
When-Issued Securities and Forward Commitments. Each Fund may purchase
securities on a when-issued, delayed delivery or forward commitment basis. When
these transactions are negotiated, the price of the securities is fixed at the
time of the commitment, but delivery and payment may take place up to 90 days
after the date of the commitment to purchase. When-issued securities or forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date. When a Fund purchases securities on a
forward commitment or when-issued basis, the Fund's custodian will maintain in a
segregated account liquid, high grade debt securities having a value (determined
daily) at least equal to the amount of the Fund's purchase commitment.
Repurchase Agreements. Each Fund may enter into repurchase agreements. In a
repurchase agreement, a Fund buys a security subject to the right and obligation
to sell it back to the other party at the same price plus accrued interest.
These transactions must be fully collateralized at all times, but they involve
some credit risk to a Fund if the other party defaults on its obligations and
the Fund is delayed in or prevented from liquidating the collateral. A Fund will
enter into repurchase agreements only with U.S. or foreign banks having total
assets of at least US$ 100 million (or its foreign currency equivalent).
Reverse Repurchase Agreements. Each Fund may enter into reverse repurchase
agreements with banks and domestic broker-dealers. Reverse repurchase agreements
involve sales by a Fund of portfolio securities concurrently with an agreement
by the Fund to repurchase the same securities at a later date at a fixed price.
During the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Each Fund will deposit cash
or cash equivalents or a combination of both in a segregated account, which will
be marked to market daily, with its custodian equal in value to its obligations
with respect to reverse repurchase agreements. Reverse repurchase agreements are
considered borrowings, and as such are subject to the limitations on borrowings
by the Funds.
Restricted and Illiquid Securities. Each Fund will not invest more than 15%
of its net assets in illiquid securities, which include repurchase agreements
and fixed time deposits maturing in more than seven days and securities that are
not readily marketable. In addition, each Fund will not invest more than 5% of
its net assets in securities that are subject to restrictions on resale because
they are not registered in reliance on the exemption for non-public offerings
("restricted securities") under the Securities Act of 1933 (the "1933 Act").
However, this restriction does not apply to restricted securities offered and
sold to "qualified institutional buyers" under Rule 144A under the 1933 Act or
to securities purchased in accordance with Regulation S under the 1933 Act.
Lending Securities. For the purpose of realizing income, each Fund may lend
to broker-dealers portfolio securities amounting to not more than 33-1/3% of its
total assets taken at current value. These trans-
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actions must be fully collateralized at all times but involve some credit risk
to a Fund if the other party should default on its obligation and the Fund is
delayed in or prevented from recovering the collateral. Voting rights with
respect to a portfolio security pass to the borrower when the security is loaned
by a Fund, but the Trustees (or the Adviser) are required to call the loan if
necessary to vote on a material event affecting the Fund's investment in the
loaned security.
Other Investment Companies. Each Fund may invest up to 10% of its total
assets, calculated at the time of purchase, in the securities of other
investment companies. A Fund may not invest more than 5% of its total assets in
the securities of any one investment company or acquire more than 3% of the
voting securities of any other investment company. A Fund will indirectly bear
its proportionate share of any management or other fees paid by investment
companies in which it invests, in addition to its own fees.
ADDITIONAL INVESTMENT INFORMATION
Investment Restrictions
Each Fund has adopted certain fundamental investment restrictions which are
described in detail in the Statement of Additional Information. Those investment
restrictions designated as fundamental in the Statement of Additional
Information can be changed only with shareholder approval. Each Fund's
investment objective and all other investment restrictions and policies are
nonfundamental and can be changed by the Board of Trustees of the Trust at any
time without shareholder approval.
Each Fund has fundamental investment restrictions with respect to borrowing,
lending, diversification of investments, senior securities, pledging of assets,
underwriting, real estate investments and commodities. See "Investment
Restrictions" in the Statement of Additional Information.
Portfolio Transactions
The Adviser is responsible for making specific decisions to buy and sell
portfolio securities for the Funds. The Adviser is also responsible for
selecting brokers and dealers to effect these transactions and negotiating, if
possible, brokerage commissions and dealers' charges. The Funds generally
purchase and sell foreign securities in foreign countries, since the best
available market for foreign securities is often on foreign markets. In
transactions on foreign markets, brokerage commissions generally are fixed and
are often higher than in the United States where commissions are negotiated. In
the over-the-counter markets, securities generally are traded on a net basis
with the dealers acting as principal for their own accounts without a stated
commission.
The primary consideration in selecting broker-dealers to execute portfolio
security transactions is the execution of such portfolio transactions at the
most favorable prices. Consideration may also be given to the broker-dealer's
sale of shares of the Funds. Subject to this requirement and the provisions
of Section 28(e) of the Securities Exchange Act of 1934, as amended,
securities may be bought from or sold to broker- dealers who have furnished
statistical, research and other information or services to the Adviser.
Higher commissions may be paid to broker-dealers that provide research
services. See "Portfolio Transactions and Brokerage Commissions" in the
Statement of Additional Information for a more detailed discussion of
portfolio transactions. The Trustees will periodically review each Fund's
portfolio transactions.
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Pursuant to procedures established by the Trustees, subject to applicable
regulations, and consistent with the above policy of obtaining the most
favorable overall price, the Adviser may place securities transactions with
brokers with whom it is affiliated. No Fund will effect principal transactions
with an affiliated broker or dealer.
Portfolio Turnover
It is estimated that, under normal circumstances, the portfolio turnover rate
of each of the Funds will be approximately 200% or higher. A high rate of
portfolio turnover (i.e., 100% or higher) will result in correspondingly higher
transaction costs to a Fund. However, these costs generally are lower for funds
that invest in fixed income securities than for funds that invest in equity
securities. A high rate of portfolio turnover also may, under some
circumstances, make it more difficult for a Fund to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended. See
"Financial Highlights" for each Fund's portfolio turnover for the fiscal period
ended October 31, 1995.
MANAGEMENT OF THE FUNDS
The Board of Trustees of the Trust is responsible for the overall supervision
and management of the Funds. The day-to-day operations of the Funds, including
investment decisions, have been delegated to the Adviser. The Statement of
Additional Information contains general background information regarding each
Trustee and executive officer of the Trust.
The Adviser
MGIS, located at 20 Finsbury Circus, London, England, acts as investment
adviser to each Fund pursuant to the terms of an investment advisory contract
between the Trust, on behalf of each Fund, and MGIS (the "Advisory Contract").
MGIS is registered as an investment adviser with the Commission and provides a
full range of international investment advisory services to institutional
clients. All of the outstanding voting stock of MGIS is owned by Morgan Grenfell
Asset Management, Ltd. ("MGAM"), which is a wholly-owned subsidiary of Deutsche
Morgan Grenfell Group plc. Deutsche Morgan Grenfell Group plc is an indirect
wholly- owned subsidiary of Deutsche Bank AG, an international commercial and
investment banking group. As of December 31, 1995, MGIS managed approximately
$12.7 billion in assets.
Under its Advisory Agreement with the Trust, the Adviser manages each Fund's
business and investment affairs. For these services, the Adviser is entitled to
a monthly fee at an annual rate of each Fund's average daily net assets as
follows:
Annual Rate
-----------
Morgan Grenfell Global Fixed Income Fund ........................ 0.50%
Morgan Grenfell International Fixed Income Fund ................. 0.50%
Morgan Grenfell Emerging Markets Debt Fund ...................... 1.50%
As further described in "Expense Information," the Adviser has voluntarily
agreed to reduce its advisory fee and to make arrangements to limit certain
other expenses of each Fund to the extent necessary to limit the Fund's
operating expenses to a specified percentage of its average net assets. For the
fiscal period ended October 31, 1995, this voluntary agreement was in effect,
and Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell International
Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund
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paid advisory fees equal to 0.44%, 0.17% and 1.33% of their respective average
daily net assets during such period. The advisory fee to which the Adviser is
entitled for Emerging Markets Debt Fund is higher than those for most mutual
funds, but the Trustees believe that this fee is warranted by the resources
needed to evaluate and invest in the particular markets on which this Fund
focuses.
Global Fixed Income Fund and International Fixed Income Fund are each
managed by a team of MGIS investment professionals with expertise in the
region(s) and types of investments in which the Fund invests. Mr. Simon
Treacher, a MGIS portfolio manager, manages Emerging Markets Debt Fund. For a
description of the business experience and other credentials of each investment
professional involved in managing the Funds' portfolios, see Appendix B to this
Prospectus.
The Trust, on behalf of each Fund, is responsible for all of the Fund's
expenses other than those expressly assumed by the Adviser under the terms of
the Advisory Agreement. The expenses borne by each Fund include the Fund's
advisory fee, transfer agent fee and taxes and its proportionate share of
custodian fees, expenses of issuing reports to shareholders, legal fees,
auditing and tax fees, blue sky fees, fees of the Commission, insurance expenses
and disinterested Trustees' fees. The Adviser has temporarily agreed, under
certain circumstances, to reduce or not impose its advisory fee as described
under "Expense Information." In the event that a Fund's expenses for any fiscal
year exceed the limits established by certain state securities administrators,
the Adviser will reduce its fee payable on behalf of such Fund by the amount of
such excess, but only to the extent of the Fund's advisory fee.
Administrator and Distributor
The Trust has entered into an Administration Agreement with SEI Financial
Management Corporation ("SEI Financial Management" or the "Administrator"), 680
East Swedesford Road, Wayne, Pennsylvania 19087-1658. The Administrator
generally assists in all matters relating to the administration of the Funds,
including the coordination and monitoring of any third parties furnishing
services to the Funds, the preparation and maintenance of financial and
accounting records, and the provision of the necessary office space, equipment
and personnel to perform administrative and clerical functions.
Pursuant to the Administration Agreement, SEI Financial Management receives
from all series of the Trust (i.e., the Funds and all other active series of the
Trust) an aggregate monthly fee at the following annual rates of the aggregate
average daily net assets ("aggregate assets") of such series:
0.15% of aggregate assets under $300 million
0.12% of next $200 million of aggregate assets
0.10% of next $500 million of aggregate assets
0.08% of aggregate assets exceeding $1 billion
Each Fund pays the Administrator a minimum annual fee that equals (after a
one-year phase-in period) $75,000 ($100,000 in the case of Morgan Grenfell
Emerging Markets Debt Fund).
For the fiscal period ended October 31, 1995, the Administrator received fees
from Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell International
Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund equal to 0.12%,
0.31% and 0.14% of their respective average daily net assets.
SEI Financial Services Company (the "Distributor"), 680 East Swedesford Road,
Wayne, Pennsylvania 19087-1658, serves as the distributor of shares of the Funds
pursuant to a Distribution Agreement with the Trust and assists in the sale of
shares of the Funds.
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Custodian and Transfer Agent
The Trust has entered into a Custodian Agreement with The Northern Trust
Company ("Northern Trust" or the "Custodian"), pursuant to which Northern Trust
serves as custodian of the Funds' assets. The Custodian is located at Fifty
South LaSalle Street, Chicago, Illinois 60675.
DST Systems, Inc. (the "Transfer Agent"), 210 W. 10th Street, Kansas City ,
Missouri 64105, serves as the transfer agent of the Funds. The Transfer Agent
maintains the records of each record shareholder's account, processes purchases
and redemptions of the Funds' shares, acts as dividend and distribution
disbursing agent and performs other shareholder servicing functions.
Additional information regarding the services performed by the Administrator,
Distributor, Custodian and Transfer Agent is provided in the Statement of
Additional Information.
PURCHASE OF SHARES
In order to make an initial investment in a Fund, an investor must establish
an account with a broker that maintains an account with the Trust for its
customers. Alternatively, an investor may request his or her broker to establish
an account for the investor directly with the Trust. Such investors will need to
complete the Account Application accompanying this prospectus and submit it to
their broker. The broker will be responsible for forwarding the completed
Account Application to the Trust.
Investors may be subject to minimums established by their brokers for initial
and subsequent investments in a Fund. In addition, investors who have accounts
directly with the Trust (as described above) will be subject to a $250,000
minimum on initial investments. The Funds reserve the right to vary this initial
investment minimum and to establish their own minimums for subsequent
investments at any time. In addition, the Trust may waive the $250,000 minimum
initial investment requirement for any investor. Alternative purchase, exchange
and redemption procedures are available for investors who invest $250,000 or
more in a Fund. To obtain a prospectus describing these procedures, an investor
should call 1-800-550-6426.
Shares of any Fund may be purchased on any Business Day at the net asset
value next determined after receipt of the order in good order by the investor's
broker. A "Business Day" means any day on which the New York Stock Exchange (the
"NYSE") is open. An investor's broker must receive the investor's order before
the close of regular trading on the NYSE (currently 4:00 p.m., Eastern Time),
and must promptly forward such order to the Transfer Agent for the investor to
receive that day's net asset value. The investor's broker is responsible for
promptly forwarding the investor's purchase order to the Transfer Agent.
Shareholders will be entitled to dividends payable with respect to their shares
of a Fund if they are shareholders of the Fund on the record date for such
dividend.
There is no sales charge in connection with purchases of shares. Shareholders
may be subject to transaction and/or account maintenance fees imposed by their
broker (no part of which will be received by the Trust or the Adviser). Any such
fees will be payable directly by the shareholder, and not by the Fund. The Trust
reserves the right, in its sole discretion, to reject any purchase offer and to
suspend the offering of shares. The Trust does not issue share certificates.
Purchases of shares may be made by checks drawn on a U.S. bank and Federal
Reserve drafts. Such checks and drafts should be made payable to the broker that
the investor is using to purchase Fund shares, unless the investor has
established an account directly with the Trust. Such investors should make
checks
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and drafts payable to the Trust. An investor's broker is responsible for
forwarding payment promptly to the Trust.
Shareholders who have accounts directly with the Trust (as described above)
may also purchase Fund shares by sending Federal Funds wires for such purchases
to:
United Missouri Bank of Kansas City, N.A.
ABA No. 10-10-00695
For: Account Number 98-7052-395-7
Further credit: (appropriate Fund name)
The shareholder's name and account number must be specified in the wire. In
addition, before making an initial investment by wire, an investor must first
telephone 1-800-550-6426 to be assigned a wire account number. If the investor
has not yet completed and submitted an Account Application, then the investor's
address and social security number or other taxpayer identification number must
also be specified in the wire. Investors should be aware that some banks may
charge wire fees.
An investor may make subsequent investments in an existing account in any
Fund at any time by making payment (as described above) and sending to its
broker, (i) a subsequent order form which may be obtained from the broker, or
(ii) a letter stating the amount of the investment, the name of the Fund and
the investor's account number. Investors should indicate the name of the
appropriate Fund and account number on all correspondence.
Reports to Shareholders and Confirmations
Shareholders of each Fund receive an annual report containing audited
financial statements and a semiannual report. All transactions in shares of a
Fund and dividends and distributions paid by a Fund are reflected in
confirmations issued by the shareholder's broker or the Transfer Agent at the
time of the transaction and/or in monthly statements issued by the shareholder's
broker or the Transfer Agent. A year-to- date statement will be provided by the
shareholder's broker or the Transfer Agent. Shareholders should contact their
brokers with shareholder account inquiries and for other information regarding
the Funds. Shareholders who have established accounts directly with the Trust
may also obtain this information by calling Morgan Grenfell Investment Trust at
1-800-550-6426 or by writing to Morgan Grenfell Investment Trust at P.O. Box
419165, Kansas City, MO 64141-6165.
Exchange Privilege
A shareholder may exchange shares of a Fund for shares of another Fund or
shares of a Domestic Fund. The shareholder's broker must receive the
shareholder's exchange request in proper form before the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern Time) and must promptly
forward the request to the Transfer Agent for the exchange to be valued at that
day's net asset value. The shareholder's broker is responsible for promptly
forwarding an exchange request to the Transfer Agent. Brokers may impose
minimums on exchanges of Fund shares. In addition, any shareholder that has
established an account directly with the Trust may exchange shares only in
amounts of at least $5,000. Shareholders should contact their brokers to
determine if alternative exchange procedures are available. A shareholder should
obtain and read the prospectus relating to a Domestic Fund and consider the
investment objective, policies and fees of the appropriate Domestic Fund before
making an exchange into the Domestic Fund. Exchanges
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will be permitted only in those states in which the relevant fund is
available for sale. The Funds reserve the right to refuse any exchange
request made by any shareholder.
Shareholders who establish an account directly with the Trust may elect the
telephone exchange privilege on the Account Application. A shareholder will be
able to effect the exchange of shares in his or her account in one Fund for
shares in any other Fund or Domestic Fund by telephone, as long as all accounts
are identically registered. A shareholder can exchange shares by telephone by
calling 1-800-550-6426 before 4:00 p.m., Eastern time, on any Business Day.
Neither the Funds nor their agents will be liable for any loss incurred by a
shareholder as a result of following instructions communicated by telephone that
they reasonably believe to be genuine. To confirm that telephone exchange
requests are genuine, the Funds will employ reasonable procedures such as
providing written confirmation of telephone exchange transactions and tape
recording of telephone exchange requests. If a Fund does not employ such
reasonable procedures, it may be liable for any loss incurred by a shareholder
due to a fraudulent or other unauthorized telephone exchange request.
An exchange is treated as a sale of the shares exchanged and, therefore, may
produce a gain or loss to the shareholder that is recognizable for tax purposes.
Investors will receive 60 days written notice prior to any change in a Fund's
exchange procedures.
REDEMPTION OF SHARES
How To Redeem
A shareholder may redeem shares of a Fund without charge upon request on any
Business Day at the net asset value next determined after receipt of the
redemption request by the shareholder's broker. A shareholder's broker must
receive redemption requests in proper form before the close of regular trading
on the NYSE (currently 4:00 p.m., Eastern Time) and must promptly forward such
request to the Transfer Agent for the shareholder to receive that day's net
asset value. The shareholder's broker is responsible for promptly forwarding the
shareholder's redemption request to the Transfer Agent. Shares subject to a
redemption request will earn any dividends for which the record date is the day
the request is received.
A written redemption request must specify the number of shares to be
redeemed, the Fund from which shares are being redeemed, the investor's account
number, payment instructions and the exact registration on the investor's
account. Signatures must be guaranteed in accordance with the procedures set
forth below under "Payment of Redemption Proceeds." A shareholder who has
established an account directly with the Trust may request redemptions by
telephone if the optional telephone redemption privilege is elected on the
Account Application. In order to verify the authenticity of telephone redemption
requests, the Transfer Agent's telephone representatives will request that the
caller provide certain information unique to the account. If the caller is
unable to provide this information, telephone redemption requests will not be
processed and the redemption will have to be completed by mail. As long as the
Transfer Agent's telephone representatives comply with the procedures described
above, neither the Funds nor their agents will be liable for any losses due to
fraudulent or unauthorized transactions. Finally, it may be difficult to
implement telephone redemptions in times of drastic economic or market changes.
Payment of Redemption Proceeds
Redemption proceeds ordinarily will be wired to the redeeming shareholder's
broker or, in the case of a shareholder who has established an account directly
with the Trust, to the bank account designated
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on the Account Application, unless payment by check has been requested. For a
redemption request received by the redeeming shareholder's broker before the
close of regular trading on the NYSE (currently 4:00 p.m., Eastern Time) and
promptly forwarded to the Transfer Agent, redemption proceeds often will be
wired the next Business Day. Normally, redemption proceeds will be wired within
seven days after the Transfer Agent receives the appropriate redemption request
documents from the redeeming investor's broker, including any additional
documentation that may be required in order to establish that a redemption
request has been properly authorized. In addition, the payment of redemption
proceeds for shares of a Fund recently purchased by check will be delayed for up
to 15 days until the check has cleared. After a wire has been initiated by the
Transfer Agent, neither the Transfer Agent nor the Trust assumes any further
responsibility for the performance of intermediaries or the shareholder's bank
in the transfer process. If a problem with such performance arises, the
shareholder or his or her broker should deal directly with such intermediaries
or bank.
Shareholders who have accounts directly with the Trust may request that the
Trust make redemption payments by Federal Reserve Wire or Automated Clearing
House (ACH) wire. The Custodian may deduct a wire charge (currently $10.00) from
redemption payments made by Federal Reserve wire. Shareholders cannot redeem
shares of any Fund by Federal Reserve wire on Federal holidays restricting wire
transfers. There is no charge for ACH wire transactions; however, such
transactions will not be posted to a shareholder's bank account until the second
Business Day following the transaction.
A shareholder who has an account directly with the Trust may change the bank
designated to receive redemption proceeds by providing written notice to its
broker which has been signed by the shareholder or its authorized
representative. This signature must be guaranteed by a bank, a securities broker
or dealer, a credit union having authority to issue signature guarantees, a
savings and loan association, a building and loan association, a cooperative
bank, a federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that such
institution satisfies standards established by the Transfer Agent. A
shareholder's broker will be responsible for forwarding such a notice promptly
to the Transfer Agent. The Transfer Agent may also require additional
documentation in connection with a request to change a designated bank.
If the Board of Trustees determines that it is appropriate in order to
protect the best interests of a Fund and its shareholders, the Fund, under the
limited circumstances described below, may satisfy all or part of a redemption
request by delivering portfolio securities to a redeeming investor. However, the
Trust, on behalf of each Fund, has elected, pursuant to Rule 18f-1 under the
1940 Act, to redeem its shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. Only redemptions in excess of this limit may be paid in kind.
In-kind payments would not have to constitute a cross-section of a Fund's
portfolio. Investors receiving redemption payment in portfolio securities will
not have eliminated their investment exposure by their redemption as would
investors receiving their redemption payment in cash. Instead these investors
will be subject to risks inherent in owning such securities, including market
value and currency fluctuations, difficulties in selling securities in
particular markets and repatriating the sales proceeds, and the political and
other risks described under "Description of Securities and Investment Techniques
and Related Risks--Foreign Securities." In addition, a shareholder generally
will incur additional expenses, such as brokerage commissions and currency
conversion fees or expenses, on the sale or other disposition of securities
received from a Fund. Any portfolio securities paid or distributed to a
redeeming shareholder would be valued as described under "Net Asset Value."
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NET ASSET VALUE
The net asset value per share of each Fund is normally calculated as of the
close of regular trading on the NYSE, currently 4:00p.m. Eastern time, on each
Business Day. The net asset value of each Fund's shares is determined by adding
the value of all securities, cash and other assets of the Fund, subtracting
liabilities (including accrued expenses and dividends payable) and dividing the
result by the total number of outstanding shares of the Fund.
For purposes of calculating each Fund's net asset value per share, debt
securities and other fixed- income investments owned by the Funds are valued at
prices supplied by independent pricing agents, which prices reflect
broker-dealer supplied valuations and electronic data processing techniques.
Short-term obligations maturing in sixty days or less may be valued at amortized
cost, which does not take into account unrealized gains or losses on portfolio
securities. Amortized cost valuation involves initially valuing a security at
its cost, and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the security's market value. While this method provides certainty in valuation,
it may result in periods in which the value of the security, as determined by
the amortized cost method, may be higher or lower than the price a Fund would
receive if the Fund sold the security. Other assets and assets whose market
value does not, in the opinion of the Adviser, reflect fair value are valued at
fair value using methods determined in good faith by the Board of Trustees.
Certain portfolio securities held by each Fund are listed on foreign
exchanges which trade at times and on days when the NYSE is closed. As a result,
the net asset value of each Fund may be significantly affected by such trading
at times and on days when shareholders have no ability to redeem shares of the
Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund declares and pays dividends from net investment income, if any, and
distributes net short-term capital gain, if any, at least annually. Each Fund
also distributes at least annually substantially all of the realized net
long-term capital gain, if any, which it realizes for each taxable year and may
make distributions at any other times when necessary to satisfy applicable tax
requirements. Capital losses, including any capital loss carryovers from prior
years, are taken into account in determining the amounts of short-term and
long-term capital gains to be distributed. From time to time, a portion of a
Fund's distributions may constitute a return of capital for tax purposes.
Dividends and distributions are made in additional shares of the same Fund or,
at a record shareholder's election, in cash. A record shareholder's election to
reinvest dividends and distributions or receive them in cash may be changed at
any time upon written notice to the Transfer Agent. If no election is made, all
dividends and capital gain distributions will be reinvested.
Taxes
Each Fund is treated as a separate entity for federal income tax purposes and
has elected to be treated as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), and to qualify
for such treatment for each taxable year. To qualify as a regulated investment
company, each Fund must satisfy certain requirements relating to the sources of
its income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, a Fund will not be subject to
federal income or excise tax on any net investment income or net realized
capital gain that is distributed to its shareholders in accordance with certain
timing requirements of the Code.
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Dividends paid by a Fund from its net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. Dividends paid by a Fund
from any excess of net long-term capital gain over net short-term capital loss
will be taxable to a shareholder as long-term capital gain regardless of how
long the shareholder has held its shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. Certain distributions declared in October, November or December and paid
in January of the following year are taxable to shareholders as if received on
December 31 of the year in which they are declared. Shareholders will be
informed annually about the amount and character of distributions received from
a Fund for federal income tax purposes and foreign taxes, if any, passed through
to shareholders, as described below.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on dividends, redemptions and exchanges
if they fail to furnish their correct taxpayer identification number and certain
certifications or if they are otherwise subject to backup withholding.
Individuals, corporations and other shareholders that are not U.S. persons under
the Code are subject to different tax rules and may be subject to non-resident
alien withholding at the rate of 30% (or a lower rate provided by an applicable
tax treaty) on amounts treated as ordinary dividends from a Fund and, unless a
current IRS Form W-8 or acceptable substitute is on file, to backup withholding
on certain other payments from a Fund.
Because each Fund invests in foreign securities, it may be subject to foreign
withholding or other foreign taxes on income earned on such securities (possibly
including, in some cases, capital gains). In any year in which any of the Funds
qualifies, it may make an election that would generally permit its shareholders
to take a credit or a deduction for their proportionate shares of qualified
foreign income taxes paid by such Fund, subject to applicable restrictions or
limitations under the Code. Each such shareholder would then treat as additional
income (in addition to actual distributions) his or her proportionate share of
the amount of qualified foreign income taxes paid by such Fund. For some years,
a Fund may be unable or may not elect to pass such taxes and foreign tax credits
and deductions with respect to such taxes through to its shareholders.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the record
date for a distribution will pay a per share price that includes the value of
the anticipated distribution and will be taxed on any taxable distribution even
though the distribution represents a return of a portion of the purchase price.
Redemptions and exchanges of shares are taxable events on which a shareholder
may recognize a gain or loss.
In addition to federal taxes, a shareholder may be subject to state, local or
foreign taxes on dividends, capital gain distributions, or the proceeds of
redemptions or exchanges. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent
distributions of a Fund are derived from interest on (or, in the case of
intangibles taxes, the value of its assets is attributable to) certain U.S.
Government Securities provided in some states that certain thresholds for
holdings of U.S. Government Securities and/or reporting requirements are
satisfied. The Funds may not satisfy such requirements in some states or
localities. Shareholders should consult their tax advisors regarding specific
questions about
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federal, state, local or foreign taxes and special rules that may be applicable
to certain classes of investors, such as retirement plans, financial
institutions, tax-exempt entities, insurance companies and non-U.S. persons.
ORGANIZATION AND SHARES OF THE TRUST
The Trust was formed as a business trust under the laws of the State of
Delaware on September 13, 1993, and commenced investment operations on January
3, 1994. The Board of Trustees of the Trust is responsible for the overall
management and supervision of the affairs of the Trust. The Declaration of Trust
authorizes the Board of Trustees to create separate investment series or
portfolios of shares. As of the date hereof, the Trustees have established the
three Funds described in this Prospectus and fourteen additional series. The
Declaration of Trust further authorizes the Trust to classify or reclassify any
series or portfolio of shares into one or more classes.
As of April 25, 1996, the Archdiocese of Detroit owned beneficially 41.48% of
the outstanding shares of the International Fixed Income Fund.
Each share of a Fund represents an equal proportionate interest in the assets
belonging to that Fund. When issued, shares of the Funds are fully paid and
nonassessable. In the event of liquidation, shareholders are entitled to share
pro rata in the net assets of the applicable Fund available for distribution to
shareholders. Shares of the Funds entitle their holders to one vote per share,
are freely transferable and have no preemptive, subscription or conversion
rights.
Shares of a Fund will be voted separately with respect to matters pertaining
to that Fund except for the election of Trustees and the ratification of
independent accountants. For example, shareholders of each Fund are required to
approve the adoption of any investment advisory agreement relating to such Fund
and any change in the fundamental investment restrictions of such Fund. Approval
by the shareholders of one Fund is effective only as to that Fund. The Trust
does not intend to hold shareholder meetings, except as may be required by the
1940 Act. The Trust's Declaration of Trust provides that special meetings of
shareholders shall be called for any purpose, including the removal of a
Trustee, upon written request of shareholders entitled to vote at least 10% of
the outstanding shares of the Trust, or Fund, as the case may be. In addition,
if ten or more shareholders of record who have held shares for at least six
months and who hold in the aggregate either shares having a net asset value of
$25,000 or 1% of the outstanding shares, whichever is less, seek to call a
meeting for the purpose of removing a Trustee, the Trust has agreed to provide
certain information to such shareholders and generally to assist their efforts.
Certain of the Trustees and officers of the Trust reside outside the United
States, and substantially all the assets of these persons are located outside
the United States. It may not be possible, therefore, for investors to effect
service of process within the United States upon these persons or to enforce
against them, in United States courts or foreign courts, judgments obtained in
United States courts predicated upon the civil liability provisions of the
federal securities laws of the United States or the laws of the State of
Delaware. In addition, it is not certain that a foreign court would enforce, in
original actions or in actions to enforce judgments obtained in the United
States, liabilities against these Trustees and officers predicated solely upon
the federal securities laws. See "Trustees and Officers" in the Statement of
Additional Information.
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PERFORMANCE INFORMATION
From time to time, performance information, such as total return and yield
for a Fund, may be quoted in advertisements or in communications to
shareholders. A Fund's total return may be calculated on an annualized and
aggregate basis for various periods (which periods will be stated in the
advertisement). Average annual return reflects the average percentage change per
year in value of an investment in a Fund. Aggregate total return reflects the
total percentage change over the stated period. In calculating total return,
dividends and capital gain distributions made by the Fund during the period are
assumed to be reinvested in the Fund's shares. A Fund's yield reflects a Fund's
overall rate of income on portfolio investments as a percentage of the share
price. Yield is computed by annualizing the result of dividing the net
investment income per share over a 30-day period by the net asset value per
share on the last day of that period.
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding the Fund may discuss
performance as reported by various financial publications. The performance of a
Fund may be compared in publications to the performance of various indices and
investments for which reliable performance data is available. In addition, the
performance of a Fund may be compared in publications to averages, performance
rankings or other information prepared by recognized mutual fund statistical
services.
Performance quotations of a Fund represent the Fund's past performance and,
consequently, should not be considered representative of the future performance
of the Fund. The value of Fund shares, when redeemed, may be more or less than
the original cost. Any fees charged by banks or other institutional investors
directly to their customer accounts in connection with investments in shares of
a Fund are not at the direction or within the control of the Funds and will not
be included in the Funds' calculations of total return.
34
<PAGE>
APPENDIX A
Description of Ratings Categories
of Moody's Investors Service, Inc. and
Standard & Poor's Ratings Group
Moody's Investors Service, Inc. ("Moody's") describes classifications of
fixed income securities (not including commercial paper) as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
A-1
<PAGE>
Standard & Poor's Ratings Group ("Standard & Poor's") describes
classifications of fixed income securities (not including commercial paper) as
follows:
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from the AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Debt rated BB, B, CCC or CC is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Quality Distribution for Emerging Markets Debt Fund
During the fiscal year ended October 31, 1995, the percentages of Morgan
Grenfell Emerging Market Debt Fund's assets invested in unrated debt
securities and securities rated in particular rating categories by Standard &
Poor's were, on a weighted average basis, as follows*:
Percentage of Total
Standard & Poor's (Moody's) Ratings Investments
- ---------------------------------------- --------------------
Not Rated ............................................. 22%**
Rated by Standard & Poor's (Moody's):
BB+, BB, BB-, (Ba) .................................... 41%
B+, B, B- (B) ......................................... 25%
Total Investments in Debt Securities .................. 88%
--
- ---------------
* Based on the average of month-end portfolio holdings during the fiscal
year ended October 31, 1995. Asset composition does not represent actual
holdings on October 31, 1995; nor does it imply that the overall quality
of portfolio holdings is fixed.
** Of this amount, the following percentages of the Fund's assets represent
quality standards attributed by the Adviser to such unrated securities at
the time of purchase: 14%, B+, B, B- (B); and 8%, CCC+, CCC, CCC- (Caa).
A-2
<PAGE>
APPENDIX B
PORTFOLIO MANAGER INFORMATION
Funds Portfolio Managers
- ------ ------------------
Morgan Grenfell Global Fixed Income Fund .............. Ian Kelson
Martin Hall
Morgan Grenfell International Fixed Income Fund ....... Ian Kelson
Martin Hall
Morgan Grenfell Emerging Markets Debt Fund ............ Simon Treacher
<TABLE>
<CAPTION>
Portfolio Manager Expertise Professional Experience
- ----------------- --------- -----------------------------------
<S> <C> <C>
Martin Hall European Bond Markets MGIS, Fixed Income Team (since
1988); Bank of England (UK monetary
policy) (1982-88).
Ian Kelson Fixed Income Markets Director, MGIS (since 1988); Chief
Investment Officer, MGIS Fixed
Income (since 1989); Portfolio
Manager, Bank of America (multi-
currency accounts) (1981-85).
Simon Treacher Emerging Markets MGIS (since 1994); Portfolio
Manager, Prudential Portfolio
Managers (1992-1993); Portfolio
Manager, Worldinvest Ltd. (1978-
1992); Portfolio Manager, Bankers
Trust Co. (1984-1987); National
Westminster Bank (1980-1984).
</TABLE>
B-1
<PAGE>
APPENDIX C
TAX CERTIFICATION INSTRUCTIONS
Federal law requires that taxable distributions and proceeds of redemptions
and exchanges be reported to the IRS and that 31% be withheld if you fail to
provide your correct Taxpayer Identification Number (TIN) and the certifications
in Section H or you are otherwise subject to backup withholding. Amounts
withheld and forwarded to the IRS can be credited as a payment of tax when
completing your Federal income tax return.
For most individual taxpayers, the TIN is the social security number. Special
rules apply for certain accounts. For example, for an account established under
the Uniform Gift to Minor's Act, the TIN of the minor should be furnished. If
you do not have a TIN, you may apply for one using forms available at local
offices of the Social Security Administration or the IRS.
Recipients exempt from backup withholding, including corporations and certain
other entities, should provide their TIN and write "exempt" after their
signature in section H of the application to avoid possible erroneous
withholding. Non-resident aliens and foreign entities may be subject to
withholding of up to 30% on certain distributions received from the Funds and
must provide certain certifications on IRS Form W-8 to avoid backup withholding
with respect to other payments. For further information, see Internal Revenue
Code Sections 1441, and 1442 and 3406 and/or consult your tax adviser.
C-1
<PAGE>
Morgan Grenfell Investment Trust
885 Third Avenue
New York, New York 10022
Investment Adviser
Morgan Grenfell Investment Services Limited
20 Finsbury Circus London,
England EC2M 1NB
Administrator and Shareholder Servicing Agent
SEI Financial Management Corporation
680 East Swedesford Road Wayne,
Pennsylvania 19087-1658
Distributor
SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
Custodian
The Northern Trust Company
Fifty South LaSalle Street
Chicago, Illinois 60675
Transfer Agent
DST Systems, Inc. SEI Division CT-7 Tower
210 W. 10th Street
Kansas City, Missouri 64105
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Legal Counsel
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Service Information
Existing accounts, new accounts, prospectuses,
Statements of Additional Information
applications, and service forms--1-800-550-6426
Telephone Exchanges--1-800-550-6426
Share Price and Performance
Information--1-800-550-6426
MIT-F-010-03
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
885 Third Avenue
New York, New York 10022
STATEMENT OF ADDITIONAL INFORMATION
February 14, as revised May 10, 1996
Morgan Grenfell Investment Trust (the "Trust") is an open-end, management
investment company consisting of seventeen investment portfolios, each having
separate and distinct investment objectives and policies. This Statement of
Additional Information provides supplementary information pertaining to the
following three separate investment portfolios of the Trust (the "Funds"):
(bullet) Morgan Grenfell Global Fixed Income Fund
(bullet) Morgan Grenfell International Fixed Income Fund
(bullet) Morgan Grenfell Emerging Markets Debt Fund
This Statement of Additional Information is not a prospectus, and should be
read only in conjunction with the Funds' Prospectus dated February 14, as
revised May 10, 1996 (the "Prospectus"). A copy of the Prospectus may be
obtained without charge from an investor's broker, or from SEI Financial
Services Company, the Trust's Distributor, by calling 1-800-550-6426 or writing
to 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Introduction ................................................................ 3
Additional Information on Fund Investments and Strategies and Related Risks . 4
Investment Restrictions ..................................................... 19
Trustees and Officers ....................................................... 23
Investment Advisory and Other Services ...................................... 25
Portfolio Transactions ...................................................... 29
Net Asset Value ............................................................. 31
Performance Information ..................................................... 32
Taxes ....................................................................... 35
General Information About the Trust ......................................... 40
Additional Information ...................................................... 42
Financial Statements ........................................................ 42
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectus in connection with the offering made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Trust or its Distributor. The Prospectus does not
constitute an offering by the Trust or by the Distributor in any jurisdiction in
which such offering may not lawfully be made. Shares of the Funds are not
available in certain states. Please call 1-800-550-6426 to determine
availability in your state.
2
<PAGE>
INTRODUCTION
The Trust is an open-end, management investment company currently offering
shares in seventeen separate investment series, including the following three
series:
Morgan Grenfell Global Fixed Income Fund
Morgan Grenfell International Fixed Income Fund
Morgan Grenfell Emerging Markets Debt Fund
(collectively, the "Funds").
Each Fund is "non-diversified" within the meaning of the Investment Company
Act of 1940, as amended (the "1940 Act").
Morgan Grenfell Investment Services Limited (the "Adviser" or "MGIS") serves
as investment adviser to the Funds. SEI Financial Services Company (the
"Distributor") serves as the Funds' principal underwriter and distributor.
The information contained in this Statement of Additional Information
generally supplements the information contained in the Funds' Prospectus. No
investor should invest in a Fund without first reading the Prospectus.
Capitalized terms used herein and not otherwise defined have the same meaning
ascribed to them in the Prospectus.
3
<PAGE>
ADDITIONAL INFORMATION ON FUND INVESTMENTS
AND STRATEGIES AND RELATED RISKS
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of each Fund.
Foreign Currency Exchange Contracts
Each of the Funds will exchange currencies in the normal course of managing
its investments and may incur costs in doing so because a foreign exchange
dealer will charge a fee for conversion. A Fund may conduct foreign currency
exchange transactions on a "spot" basis (i.e., for prompt delivery and
settlement) at the prevailing spot rate for purchasing or selling currency in
the foreign currency exchange market. A Fund also may enter into forward
currency exchange contracts ("forward currency contracts") or other contracts to
purchase and sell currencies for settlement at a future date. A foreign exchange
dealer, in that situation, will expect to realize a profit based on the
difference between the price at which a foreign currency is sold to the Fund and
the price at which the dealer will cover the purchase in the foreign currency
market. Foreign exchange transactions are entered into at prices quoted by
dealers, which may include a mark-up over the price that the dealer must pay for
the currency.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are generally charged at any stage for trades.
At the maturity of a forward contract a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing purchase transaction involving the purchase or sale of an
offsetting contract. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract.
The Funds may enter into forward currency contracts in several circumstances
for both hedging and non-hedging purposes. First, when a Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, or when a Fund anticipates the receipt in a foreign currency of
dividend or interest payments on such a security which it holds, the Fund may
desire to "lock in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such dividend or interest payment, as the case may be. By entering
into a forward contract for the purchase or sale, for a fixed amount of dollars,
of the amount of foreign currency involved in the underlying transactions, a
Fund will attempt to protect itself against an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received.
4
<PAGE>
Additionally, when management of a Fund believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward currency
contracts in an attempt to protect the value of a Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange which a Fund can achieve at some future point in time. The precise
projection of short-term currency market movements is not possible, and
short-term hedging provides a means of fixing the dollar value of only a portion
of a Fund's foreign assets.
A Fund's custodian will place cash or liquid, high grade debt securities
("High Grade Debt Securities") (i.e., securities rated in one of the top three
ratings categories by Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Group ("Standard & Poor's"), or a comparable rating agency, or,
if unrated, deemed by the Adviser to be of comparable credit quality) into a
segregated account of the Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of forward currency contracts
requiring the Fund to purchase foreign currencies or forward contracts entered
into for non- hedging purposes. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of a Fund's commitments with respect to such contracts. The segregated account
will be marked- to-market on a daily basis. Although the contracts are not
presently regulated by the Commodity Futures Trading Commission (the "CFTC"),
the CFTC may in the future assert authority to regulate these contracts. In such
event, the Funds' ability to utilize forward currency contracts may be
restricted.
The Funds generally will not enter into a forward currency contract with a
term of greater than one year.
While the Funds may enter into forward currency contracts in an attempt to
reduce currency exchange rate risks, transactions in currency contracts involve
certain other risks. Thus, while the Funds may benefit from currency
transactions, unanticipated changes in currency prices may result in a poorer
overall performance for a Fund than if it had not engaged in any such
transactions. Moreover, there may be an imperfect correlation between a Fund's
portfolio holdings of securities denominated in a particular currency and
forward contracts entered into by the Fund. Such imperfect correlation may cause
a Fund to sustain losses which will prevent the Fund from achieving a complete
hedge or expose the Fund to risk of foreign exchange loss.
Each Fund, in addition, may combine forward currency exchange contracts with
investments in securities denominated in other currencies in an attempt to
create a combined investment position, the overall performance of which will be
similar to that of a security denominated in the required foreign currency.
5
<PAGE>
A Fund could purchase a U.S. dollar-denominated security and at the same time
enter into a forward currency contract to sell U.S. dollars for the required
foreign currency at a future date. By matching the amount of U.S. dollars to be
exchanged with the anticipated value of the U.S. dollar-denominated security, a
Fund may be able to "lock in" the foreign currency value of the security and
adopt a synthetic investment position whereby the Fund's overall investment
return from the combined position is similar to or greater than the return from
purchasing a foreign currency-denominated instrument.
A Fund's activities in forward currency exchange contracts, currency futures
contracts and related options and currency options (see below) may be limited by
the requirements of subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a registered investment company.
Options on Securities and Foreign Currencies
Each of the Funds may write covered put and call options and purchase put and
call options. Such options may relate to particular U.S. or non-U.S. securities,
or to U.S. or non-U.S. currencies. The Funds may write put and call options
which are issued by the Options Clearing Corporation (the "OCC") or which are
traded on U.S. and non-U.S. exchanges and over-the-counter. See "Description of
Securities and Investment Techniques and Related Risks--Options" in the
Prospectus.
A put option on a currency gives its holder the right to sell an amount
(specified in units of the underlying currency) of the underlying currency at
the stated exercise price at any time prior to the option's expiration.
Conversely, a call option on a currency gives its holder the right to purchase
an amount (specified in units of the underlying currency) of the underlying
currency at the stated exercise price at any time prior to the option's
expiration.
The Funds will engage in over-the-counter ("OTC") options only with
broker-dealers deemed creditworthy by the Adviser. Closing transactions in
certain options are usually effected directly with the same broker-dealer that
effected the original option transaction. A Fund bears the risk that the
broker-dealer may fail to meet its obligations. There is no assurance that a
Fund will be able to close an unlisted option position. Furthermore, unlisted
options are not subject to the protections afforded purchasers of listed options
by the OCC, which performs the obligations of its members who fail to do so in
connection with the purchase or sale of options. OTC options will be deemed
illiquid for purposes of a Fund's 15% limitation on investments in illiquid
securities, except that with respect to options written with primary dealers in
U.S. Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to a formula approved by the staff of the Securities
and Exchange Commission (the "Commission").
A Fund will write call options only if they are "covered." In the case of a
call option on a security, the option is "covered" if a portfolio owns the
security underlying the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or, if additional cash
consideration is required, cash or High Grade Debt Securities in such amount as
are held in a segregated account by the Fund's custodian) upon conversion or
exchange of other securities held by it. A call option on a security is also
covered if the Fund holds a call on the same security as the call written by the
Fund where the exercise price of the call held is (i) equal to or less than the
exercise price of the call written, or (ii) greater than the exercise price of
the call written provided the difference is maintained by the Fund in cash or
cash equivalents in a segregated account with the Fund's custodian. A call
option on currency written by a Fund is covered if the Fund owns an equal amount
of the underlying currency.
6
<PAGE>
When a Fund purchases a put option, the premium paid by it is recorded as an
asset of the Fund. When the Fund writes an option, an amount equal to the net
premium (the premium less the commission paid by the Fund) received by the Fund
is included in the liability section of the Fund's statement of assets and
liabilities as a deferred credit. The amount of this asset or deferred credit
will be marked-to-market on an ongoing basis to reflect the current value of the
option purchased or written. The current value of a traded option is the last
sale price or, in the absence of a sale, the average of the closing bid and
asked prices. If an option purchased by the Fund expires unexercised, the Fund
realizes a loss equal to the premium paid. If the Fund enters into a closing
sale transaction on an option purchased by it, the Fund will realize a gain if
the premium received by the Fund on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less. If an option
written by the Fund expires on the stipulated expiration date or if the Fund
enters into a closing purchase transaction, it will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the net premium received when
the option is sold) and the deferred credit related to such option will be
eliminated. If an option written by the Fund is exercised, the proceeds to the
Fund from the exercise will be increased by the net premium originally received,
and the Fund will realize a gain or loss.
There are several risks associated with transactions in options on securities
and currencies. For example, there are significant differences between the
securities markets, currency markets and the corresponding options markets that
could result in imperfect correlations, causing a given option transaction not
to achieve its objectives. In addition, a liquid secondary market for particular
options, whether traded OTC or on a U.S. or non-U.S. securities exchange may be
absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or the OCC may not at all times be adequate to handle current
trading volume; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by the OCC as a result
of trades on that exchange would continue to be exercisable in accordance with
their terms.
The hours of trading for options may not conform to the hours during which
the underlying securities and currencies are traded. To the extent that the
options markets close before the markets for the underlying securities and
currencies, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the options markets. The purchase
of options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The risks described above also apply to options on futures, which
are discussed below.
Futures Contracts and Related Options
To hedge against changes in interest rates or securities prices and for
certain non-hedging purposes, the Funds may purchase and sell various kinds of
futures contracts, and purchase and write call and put options on any of such
futures contracts. The Funds may also enter into closing purchase and sale
transactions with respect to any of such contracts and options. The futures
contracts may be based on various
7
<PAGE>
securities (such as U.S. Government securities), securities indices, currencies
and other financial instruments, currencies and indices. The Funds will engage
in futures and related options transactions only for bona fide hedging or other
non-hedging purposes as defined in regulations promulgated by the CFTC. All
futures contracts entered into by the Funds are traded on U.S. exchanges or
boards of trade that are licensed and regulated by the CFTC or on foreign
exchanges approved by the CFTC.
Futures Contracts. A futures contract may generally be described as an
agreement between two parties to buy and sell a particular financial instrument
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
Futures contracts obligate the long or short holder to take or make delivery of
a specified quantity of a commodity or financial instrument, such as a security
or the cash value of a securities index, during a specified future period at a
specified price.
When interest rates are rising or securities prices are falling, a Fund can
seek to offset a decline in the value of its current portfolio securities
through the sale of futures contracts. When interest rates are falling or
securities prices are rising, a Fund, through the purchase of futures contracts,
can attempt to secure better rates or prices than might later be available in
the market when it effects anticipated purchases.
Positions taken in the futures markets are not normally held to maturity but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While futures contracts on securities will usually be
liquidated in this manner, the Funds may instead make, or take, delivery of the
underlying securities whenever it appears economically advantageous to do so. A
clearing corporation associated with the exchange on which futures on securities
are traded guarantees that, if still open, the sale or purchase will be
performed on the settlement date.
Hedging Strategies. Hedging, by use of futures contracts, seeks to establish
with more certainty the effective price and rate of return on portfolio
securities and securities that a Fund proposes to acquire. The Funds may, for
example, take a "short" position in the futures market by selling futures
contracts in order to hedge against an anticipated rise in interest rates or a
decline in market prices that would adversely affect the value of a Fund's
portfolio securities. Such futures contracts may include contracts for the
future delivery of securities held by the Fund or securities with
characteristics similar to those of the Fund's portfolio securities. If, in the
opinion of the Adviser, there is a sufficient degree of correlation between
price trends for a Fund's portfolio securities and futures contracts based on
other financial instruments, securities indices or other indices, the Fund may
also enter into such futures contracts as part of its hedging strategy. Although
under some circumstances prices of securities in a Fund's portfolio may be more
or less volatile than prices of such futures contracts, the Adviser will attempt
to estimate the extent of this volatility difference based on historical
patterns and compensate for any such differential by having the Fund enter into
a greater or lesser number of futures contracts or by attempting to achieve only
a partial hedge against price changes affecting a Fund's securities portfolio.
When hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of a Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Funds may take a "long" position by purchasing
futures contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it
8
<PAGE>
has the necessary cash, but expects the prices then available in the applicable
market to be less favorable than prices that are currently available.
Options on Futures Contracts. The acquisition of put and call options on
futures contracts will give the Funds the right (but not the obligation) for a
specified price to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which
may partially offset a decline in the value of a Fund's assets. By writing a
call option, a Fund becomes obligated, in exchange for the premium, to sell a
futures contract (if the option is exercised), which may have a value higher
than the exercise price. Conversely, the writing of a put option on a futures
contract generates a premium which may partially offset an increase in the price
of securities that a Fund intends to purchase. However, a Fund becomes obligated
to purchase a futures contract (if the option is exercised), which may have a
value lower than the exercise price. Thus, the loss incurred by a Fund in
writing options on futures is potentially unlimited and may exceed the amount of
the premium received. The Funds will incur transaction costs in connection with
the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series. There
is no guarantee that such closing transactions can be effected. The Funds'
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
The Funds may use options on futures contracts solely for hedging or other
non-hedging purposes as described below.
Other Considerations. The Funds will engage in futures and related options
transactions only for hedging or non-hedging purposes as permitted by CFTC
regulations which permit principals of an investment company registered under
the 1940 Act to engage in such transactions without registering as commodity
pool operators. A Fund will determine that the price fluctuations in the futures
contracts and options on futures used for hedging purposes are substantially
related to price fluctuations in securities or instruments held by the Fund or
securities or instruments which they expect to purchase. Except as stated below,
the Funds' futures transactions will be entered into for traditional hedging
purposes--i.e., futures contracts will be sold to protect against a decline in
the price of securities (or the currency in which they are denominated) that a
Fund owns or futures contracts will be purchased to protect a Fund against an
increase in the price of securities (or the currency in which they are
denominated) that a Fund intends to purchase. As evidence of this hedging
intent, each Fund expects that, on 75% or more of the occasions on which it
takes a long futures or option position (involving the purchase of futures
contracts), the Fund will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities (or assets denominated in
the related currency) in the cash market at the time when the futures or option
position is closed out. However, in particular cases, when it is economically
advantageous for a Fund to do so, a long futures position may be terminated or
an option may expire without the corresponding purchase of securities or other
assets.
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As an alternative to compliance with the hedging definition, a CFTC
regulation now permits a Fund to elect to comply with a different test under
which the aggregate initial margin and premiums required to establish
non-hedging positions in futures contracts and options on futures will not
exceed 5% of the net asset value of a Fund's portfolio, after taking into
account unrealized profits and losses on any such positions and excluding the
amount by which such options were in-the-money at the time of purchase. A Fund
will engage in transactions in futures contracts and related options only to the
extent such transactions are consistent with the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), for maintaining its qualification
as a regulated investment company for federal income tax purposes. See "Taxes."
A Fund will be required, in connection with transactions in futures contracts
and the writing of options on futures contracts, to make margin deposits, which
will be held by the Trust's custodian for the benefit of the futures commission
merchant through whom the Fund engages in such futures contracts and option
transactions. These transactions involve brokerage costs, require margin
deposits and, in the case of futures contracts and options obligating a Fund to
purchase securities, require a Fund to segregate cash or High Grade Debt
Securities in an account maintained with the Trust's custodian to cover such
contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates or securities prices may result in a
poorer overall performance for a Fund than if it had not entered into any
futures contracts or options transactions. The other risks associated with the
use of futures contracts and options thereon are (i) imperfect correlation
between the change in market value of the securities held by a Fund and the
prices of the futures and options and (ii) the possible absence of a liquid
secondary market for a futures contract or option and the resulting inability to
close a futures or option position prior to its maturity or expiration date.
In the event of an imperfect correlation between a futures or options
position and the portfolio position which is intended to be protected, the
desired protection may not be obtained and the Fund may be exposed to risk of
loss. The risk of imperfect correlation may be minimized by investing in
contracts whose price behavior is expected to resemble that of a Fund's
underlying securities. The risk that the Funds will be unable to close out a
futures or related options position will be minimized by entering into such
transactions on a national exchange with an active and liquid secondary market.
Fixed Income Securities
Variable and Floating Rate Instruments. Debt instruments purchased by a Fund
may be structured to have variable or floating interest rates. These instruments
may include variable amount master demand notes that permit the indebtedness to
vary in addition to providing for periodic adjustments in the interest rates.
The Adviser will consider the earning power, cash flows and other liquidity
ratios of the issuers and guarantors of such instruments and, if the instrument
is subject to a demand feature, will continuously monitor their financial
ability to meet payment on demand. Where necessary to ensure that a variable or
floating rate instrument is equivalent to the quality standards applicable to a
Fund's fixed income investments, the issuer's obligation to pay the principal of
the instrument will be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend. Any bank providing such a bank letter, line
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of credit, guarantee or loan commitment will meet the Fund's investment quality
standards relating to investments in bank obligations. A Fund will invest in
variable and floating rate instruments only when the Adviser deems the
investment to involve minimal credit risk. The Adviser will also continuously
monitor the creditworthiness of issuers of such instruments to determine whether
a Fund should continue to hold the investments.
The absence of an active secondary market for certain variable and floating
rate notes could make it difficult to dispose of the instruments, and a Fund
could suffer a loss if the issuer defaults or during periods in which a Fund is
not entitled to exercise its demand rights.
Variable and floating rate instruments held by a Fund will be subject to the
Fund's 15% limitation on investments in illiquid securities when a reliable
trading market for the instruments does not exist and the Fund may not demand
payment of the principal amount of such instruments within seven days.
Yields and Ratings. The yields on certain obligations, including the money
market instruments in which each Fund may invest (such as commercial paper and
bank obligations), are dependent on a variety of factors, including general
money market conditions, conditions in the particular market for the obligation,
the financial condition of the issuer, the size of the offering, the maturity of
the obligation and the ratings of the issue. The ratings of Standard and Poor's,
Moody's and other nationally and internationally recognized rating organizations
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality or value. Consequently, obligations with the same rating, maturity
and interest rate may have different market prices. See Appendix A in the
Prospectus for a description of the ratings provided by recognized statistical
ratings organizations.
Subsequent to its purchase by a Fund, a rated security may cease to be rated
or its rating may be reduced below the minimum rating required for purchase by
the Fund. The Board of Trustees or the Adviser, pursuant to guidelines
established by the Board of Trustees, will consider such an event in determining
whether the Fund should continue to hold the security in accordance with the
interests of the Fund and applicable regulations of the Commission.
Interest Rate, Mortgage and Currency Swaps and Interest Rate Caps and Floors.
The Funds may enter into interest rate, mortgage and currency swaps and interest
rate caps and floors for hedging purposes and non-hedging purposes. Inasmuch as
these transactions are entered into for good faith hedging purposes or are
offset by a segregated account as described in the Prospectus, the Funds and the
Adviser believe that such obligations do not constitute senior securities as
defined in the 1940 Act and, accordingly, will not treat them as being subject
to the Funds' borrowing restrictions.
A Fund will not enter into any interest rate, mortgage, or currency swap or
interest rate cap or floor transaction unless the unsecured commercial paper,
senior debt or the claims-paying ability of the other party thereto is
considered to be investment grade by the Adviser. If there is a default by the
other party to such a transaction, a Fund will have contractual remedies
pursuant to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid in
comparison with the markets for other similar instruments which are traded in
the interbank market. However, the staff of the Commission takes the position
that swaps, caps and floors are illiquid investments that are subject to the
Funds' 15% limitation on such investments.
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The federal income tax rules applicable to mortgage dollar rolls (see
prospectus), interest rate, mortgage and currency swaps and interest rate caps
and floors are unclear in certain respects, and a Fund may be required to
account for these instruments under tax rules in a manner that, under certain
circumstances, may limit its transactions in these instruments.
Inverse Floating Rate Securities. The Funds may invest up to 5% of their net
assets in inverse floating rate securities. The interest rate on an inverse
floater resets in the opposite direction from the market rate of interest to
which the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
degree of leverage inherent in inverse floaters is associated with greater
volatility in their market values.
Foreign Government Securities. The Emerging Markets Debt Fund may invest in
so-called "Brady Bonds," which have recently been issued by Argentina, Brazil,
Bulgaria, Costa Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, the
Philippines, Poland, Uruguay and Venezuela and which may be issued by other
countries. Brady Bonds are issued as part of a debt restructuring in which the
bonds are issued in exchange for cash and certain of the country's outstanding
commercial bank loans. Brady Bonds may be collateralized or uncollateralized,
are issued in various currencies (primarily the U.S. dollar) and are actively
traded in the over-the-counter secondary market. U.S. dollar denominated,
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discount bonds, are collateralized in full as to principal by U.S. Treasury zero
coupon bonds that have the same maturity as the stated bonds. Interest payments
on such bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of rolling
interest payments or, in the case of floating rate bonds, initially is equal to
at least one year's rolling interest payments based on the applicable interest
rate at the time and is adjusted at regular intervals thereafter.
Zero Coupon and Deferred Interest Bonds. The Funds may invest in zero coupon
bonds and deferred interest bonds. Zero coupon and deferred interest bonds are
debt obligations which are issued at a significant discount from face value. The
original discount approximates the total amount of interest the bonds will
accrue and compound over the period until maturity or the first interest accrual
date at a rate of interest reflecting the market rate of the security at the
time of issuance. While zero coupon bonds do not require the periodic payment of
interest, deferred interest bonds generally provide for a period of delay before
the regular payment of interest begins. Although this period of delay is
different for each deferred interest bond, a typical period is approximately
one-third of the bond's term to maturity. Such investments benefit the issuer by
mitigating its initial need for cash to meet debt service, but some also provide
a higher rate of return to attract investors who are willing to defer receipt of
such cash. Zero coupon and deferred interest bonds are more volatile than
instruments that pay interest regularly. The Funds will accrue income on such
investments for tax and accounting purposes, as required, which is distributable
to shareholders and which, because no cash is received at the time of accrual,
may require the liquidation of other portfolio securities to satisfy the Funds'
distribution obligations. See "Taxes" below.
Lower Rated High Yield "High Risk" Debt Obligations. As discussed in the
Prospectus, the Emerging Markets Debt Fund seeks high current income and may
invest in high yielding, fixed income securities rated Baa or lower by Moody's,
BBB or lower by Standard & Poor's, or an equivalent rating. The Emerging Markets
Debt Fund may also invest in unrated fixed income securities of comparable
quality. Ratings
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are based largely on the historical financial condition of the issuer.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate.
The values of lower rated securities generally fluctuate more than those of
higher rated securities. In addition, the lower rating reflects a greater
possibility of an adverse change in financial condition affecting the ability of
the issuer to make payments of interest and principal. The Adviser seeks to
minimize these risks through diversification, investment analysis and attention
to current developments in interest rates and economic conditions. Where the
Emerging Markets Debt Fund invests in securities in lower rated categories, the
achievement of the Fund's goals may be more dependent on the Adviser's ability
than would be the case if the Fund were investing in securities in the higher
rated categories.
As noted in the Prospectus, the Emerging Markets Debt Fund may invest in
pay-in-kind (PIK) securities, which pay interest in either cash or additional
securities, at the issuer's option, for a specified period. The Fund may also
invest in zero coupon bonds. Both types of bonds may be more speculative and
subject to greater fluctuations in value than securities which pay interest
periodically and in cash, due to changes in interest rates. The Fund will accrue
income on such investments for tax and accounting purposes, as required, which
is distributable to shareholders and which, because no cash is received at the
time of accrual, may require the liquidation of other portfolio securities to
satisfy the Fund's distribution obligations. See "Taxes" below.
The market value of debt securities which carry no equity participation
usually reflects yields generally available on securities of similar quality and
type. When such yields decline, the market value of a portfolio already invested
at higher yields can be expected to rise if such securities are protected
against early call. In general, in selecting securities for its portfolio, the
Emerging Markets Debt Fund intends to seek protection against early call.
Similarly, when such yields increase, the market value of a portfolio already
invested at lower yields can be expected to decline. The Fund's portfolio may
include debt securities which sell at substantial discounts from par. These
securities are low coupon bonds which, during periods of high interest rates,
because of their lower acquisition cost tend to sell on a yield basis
approximating current interest rates.
Preferred Stock
Each of the Funds, subject to its investment objectives, may purchase
preferred stock. Preferred stocks are equity securities, but possess certain
attributes of debt securities and are generally considered fixed income
securities. Holders of preferred stocks normally have the right to receive
dividends at a fixed rate when and as declared by the issuer's board of
directors, but do not participate in other amounts available for distribution by
the issuing corporation. Dividends on the preferred stock may be cumulative, and
in such cases all cumulative dividends usually must be paid prior to dividend
payments to common stockholders. Because of this preference, preferred stocks
generally entail less risk than common stocks. Upon liquidation, preferred
stocks are entitled to a specified liquidation preference, which is generally
the same as the par or stated value, and are senior in right of payment to
common stocks. However, preferred stocks are equity securities in that they do
not represent a liability of the issuer and therefore do not offer as great a
degree of protection of capital or assurance of continued income as investments
in corporate debt securities. In addition, preferred stocks are subordinated in
right of payment to all debt obligations and creditors of the
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issuer, and convertible preferred stocks may be subordinated to other preferred
stock of the same issuer. See "Convertible Securities and Preferred Stocks" in
the Prospectus for a description of certain characteristics of convertible
preferred stock.
Mortgage-Backed Securities
The Funds may invest in mortgage-backed securities. Mortgage-backed
securities represent direct or indirect participations in or obligations
collateralized by and payable from mortgage loans secured by real property. Each
mortgage pool underlying mortgage-backed securities will consist of mortgage
loans evidenced by promissory notes secured by first mortgages or first deeds of
trust or other similar security instruments creating a first lien on owner and
non-owner occupied one-unit to four-unit residential properties, multifamily
residential properties, agricultural properties, commercial properties and mixed
use properties.
Agency Mortgage Securities. The Funds may invest in mortgage backed
securities issued or guaranteed by the U.S. Government, foreign governments or
any of their agencies, instrumentalities or sponsored enterprises. Agencies,
instrumentalities or sponsored enterprises of the U.S. Government include but
are not limited to the Government National Mortgage Association, ("Ginnie Mae"),
Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan
Mortgage Corporation ("Freddie Mac"). Ginnie Mae securities are backed by the
full faith and credit of the U.S. Government, which means that the U.S.
Government guarantees that the interest and principal will be paid when due.
Fannie Mae securities and Freddie Mac securities are not backed by the full
faith and credit of the U.S. Government; however, these enterprises have the
ability to obtain financing from the U.S. Treasury. There are several types of
agency mortgage securities currently available, including, but not limited to,
guaranteed mortgage pass-through certificates and multiple class securities.
Privately Issued Mortgage-Backed Securities. The Funds may also invest in
mortgage-backed securities issued by trusts or other entities formed or
sponsored by private originators of and institutional investors in mortgage
loans and other foreign or domestic non-governmental entities (or representing
custodial arrangements administered by such institutions). These private
originators and institutions include domestic and foreign savings and loan
associations, mortgage bankers, commercial banks, insurance companies,
investment banks and special purpose subsidiaries of the foregoing. Privately
issued mortgage- backed securities are generally backed by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. Since such
mortgage-backed securities are not guaranteed by an entity having the credit
standing of Ginnie Mae, Fannie Mae or Freddie Mac, in order to receive a high
quality rating, they normally are structured with one or more types of "credit
enhancement." Such credit enhancements fall generally into two categories; (1)
liquidity protection and (2) protection against losses resulting after default
by a borrower and liquidation of the collateral. Liquidity protection refers to
the providing of cash advances to holders of mortgage-backed securities when a
borrower on an underlying mortgage fails to make its monthly payment on time.
Protection against losses resulting after default and liquidation is designed to
cover losses resulting when, for example, the proceeds of a foreclosure sale are
insufficient to cover the outstanding amount on the mortgage. Such protection
may be provided through guarantees, insurance policies or letters of credit,
though various means of structuring the transaction or through a combination of
such approaches.
Mortgage Pass-Through Securities. The Funds may invest in mortgage
pass-through securities, which are fixed or adjustable rate mortgage-backed
securities that provide for monthly payments that are
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a "pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees or other amounts paid to any guarantor, administrator and/or
servicers of the underlying mortgage loans.
Multiple Class Mortgage-Backed Securities and Collateralized Mortgage
Obligations. The Funds may invest in collateralized mortgage obligations
("CMOs"), which are multiple class mortgage- backed securities. CMOs provide an
investor with a specified interest in the cash flow from a pool of underlying
mortgages or of other mortgage-backed securities. CMOs are issued in multiple
classes, each with a specified fixed or adjustable interest rate and a final
distribution date. In most cases, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no principal
payments will be made on a CMO class until all other classes having an earlier
stated maturity date are paid in full. Sometimes, however, CMO classes are
"parallel pay" (i.e., payments of principal are made to two or more classes
concurrently).
Stripped Mortgage-Backed Securities. The Funds may also invest in stripped
mortgage-backed securities ("SMBS"), which are derivative multiple class
mortgage-backed securities. SMBS are usually structured with two classes that
receive different proportions of the interest and principal distributions from a
pool of mortgage loans. If the underlying mortgage loans experience greater than
anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities.
A common type of SMBS will have one class receiving all of the interest from
a pool of mortgage loans ("IOs"), while the other class will receive all of the
principal ("POs"). The market value of POs generally is unusually volatile in
response to changes in interest rates. The yields on IOs are generally higher
than prevailing market yields on other mortgage-backed securities because the
cash flow patterns of IOs are more volatile and there is a greater risk that the
initial investment will not be fully recouped. Because an investment in an IO
consists entirely of a right to an interest income stream and prepayments of
mortgage loan principal amounts can reduce or eliminate such income stream, the
value of IO's can be severely adversely affected by significant prepayments of
underlying mortgage loans. In accordance with a requirement imposed by the staff
of the Commission, the Adviser will consider privately-issued fixed rate IOs and
POs to be illiquid securities for purposes of the Funds' limitation on
investments in illiquid securities. Unless the Adviser, acting pursuant to
guidelines and standards established by the Board of Trustees, determines that a
particular government-issued fixed rate IO or PO is liquid, it will also
consider these IOs and POs to be illiquid.
Asset-Backed Securities
The Funds may invest in asset-backed securities, which represent
participations in, or are secured by and payable from, pools of assets such as
motor vehicle installment sale contracts, installment loan contracts, leases or
various types of real and personal property, receivables from revolving credit
(credit card) agreements and other categories of receivables. Such asset pools
are securitized through the use of privately-formed trusts or special purpose
corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.
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Custodial Receipts
Each of the Funds may acquire U.S. Government Securities and their unmatured
interest coupons that have been separated ("stripped") by their holder,
typically a custodian bank or investment brokerage firm. Having separated the
interest coupons from the underlying principal of the U.S. Government
Securities, the holder will resell the stripped securities in custodial receipt
programs with a number of different names, including "Treasury Income Growth
Receipts" ("TIGRs") and "Certificate of Accrual on Treasury Securities"
("CATS"). The stripped coupons are sold separately from the underlying
principal, which is usually sold at a deep discount because the buyer receives
only the right to receive a future fixed payment on the security and does not
receive any rights to periodic interest (cash) payments. The underlying U.S.
Treasury bonds and notes themselves are generally held in book-entry form at a
Federal Reserve Bank. Counsel to the underwriters of these certificates or other
evidences of ownership of U.S. Treasury securities have stated that, in their
opinion, purchasers of the stripped securities most likely will be deemed the
beneficial holders of the underlying U.S. government securities for federal tax
and securities purposes. In the case of CATS and TIGRS, the Internal Revenue
Service ("IRS") has reached this conclusion for the purpose of applying the tax
diversification requirements applicable to regulated investment companies such
as the Funds. CATS and TIGRS are not considered U.S. Government securities by
the Staff of the Commission, however. Further, the IRS conclusion is contained
only in a general counsel memorandum, which is an internal document of no
precedential value or binding effect, and a private letter ruling, which also
may not be relied upon by the Funds. The Trust is not aware of any binding
legislative, judicial or administrative authority on this issue.
Commercial Paper
Commercial paper is a short-term, unsecured negotiable promissory note of a
U.S or non-U.S issuer. Each of the Funds may purchase commercial paper for
temporary defensive purposes as described in the Prospectus. A Fund may also
invest in variable rate master demand notes which typically are issued by large
corporate borrowers providing for variable amounts of principal indebtedness and
periodic adjustments in the interest rate according to the terms of the
instrument. Demand notes are direct lending arrangements between a Fund and an
issuer, and are not normally traded in a secondary market. A Fund, however, may
demand payment of principal and accrued interest at any time. In addition, while
demand notes generally are not rated, their issuers must satisfy the same
criteria as those set forth above for issuers of commercial paper. The Adviser
will consider the earning power, cash flow and other liquidity ratios of issuers
of demand notes and continually will monitor their financial ability to meet
payment on demand. See also "Fixed Income Securities--Variable and Floating Rate
Instruments."
Bank Obligations
Certificates of Deposit ("CDs") are short-term negotiable obligations of
commercial banks. Time Deposits ("TDs") are non-negotiable deposits maintained
in banking institutions for specified periods of time at stated interest rates.
Bankers' acceptances are time drafts drawn on commercial banks by borrowers
usually in connection with international transactions.
U.S. commercial banks organized under federal law are supervised and examined
by the Comptroller of the Currency and are required to be members of the Federal
Reserve System and to be insured by the Federal Deposit Insurance Corporation
(the "FDIC"). U.S. banks organized under state law are supervised and examined
by state banking authorities but are members of the Federal Reserve System only
if they
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elect to join. Most state banks are insured by the FDIC (although such insurance
may not be of material benefit to a Fund, depending upon the principal amount of
CDs of each bank held by the Fund) and are subject to federal examination and to
a substantial body of federal law and regulation. As a result of governmental
regulations, U.S. branches of U.S. banks, among other things, generally are
required to maintain specified levels of reserves, and are subject to other
supervision and regulation designed to promote financial soundness.
U.S. savings and loan associations, the CDs of which may be purchased by the
Funds, are supervised and subject to examination by the Office of Thrift
Supervision. U.S. savings and loan associations are insured by the Savings
Association Insurance Fund which is administered by the FDIC and backed by the
full faith and credit of the U.S. Government.
Non-U.S. bank obligations include Eurodollar Certificates of Deposit
("ECDs"), which are U.S. dollar- denominated certificates of deposit issued by
offices of non-U.S. and U.S. banks located outside the United States; Eurodollar
Time Deposits ("ETDs"), which are U.S. dollar-denominated deposits in a non-U.S.
branch of a U.S. bank or a non-U.S. bank; Canadian Time Deposits ("CTDs"), which
are essentially the same as ETDs except they are issued by Canadian offices of
major Canadian banks; Yankee Certificates of Deposit ("Yankee CDs"), which are
U.S. dollar-denominated certificates of deposit issued by a U.S. branch of a
non- U.S. bank and held in the United States; and Yankee Bankers' Acceptances
("Yankee BAs"), which are U.S. dollar-denominated bankers' acceptances issued by
a U.S. branch of a non-U.S. bank and held in the United States.
Repurchase Agreements
Each of the Funds may enter into repurchase agreements as described in the
Prospectus.
For purposes of the 1940 Act, a repurchase agreement is considered to be a
loan from the Fund to the seller of the obligation. For certain other purposes,
it is not clear whether a court would consider such an obligation as being owned
by the Fund or as being collateral for a loan by the Fund to the seller. In the
event of the commencement of bankruptcy or insolvency proceedings with respect
to the seller of the obligation before its repurchase, under the repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Such delays may result in a loss of interest or decline in
price of the obligation. If the court characterizes the transaction as a loan
and the Fund has not perfected a security interest in the obligation, the Fund
may be treated as an unsecured creditor of the seller and required to return the
obligation to the seller's estate. As an unsecured creditor, the Fund would be
at risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Funds, the
Adviser seeks to minimize the risk of loss from repurchase agreements by
analyzing the creditworthiness of the obligor, in this case, the seller of the
obligation. In addition to the risk of bankruptcy or insolvency proceedings,
there is the risk that the seller may fail to repurchase the security. However,
if the market value of the obligation falls below the repurchase price
(including accrued interest), the seller of the obligation will be required to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement equals or exceeds the repurchase price.
"When-Issued" Purchases and Forward Commitments (Delayed Delivery)
These transactions, which involve a commitment by a Fund to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Fund
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to lock in a price or yield on a security, regardless of future changes in
interest rates. A Fund will purchase securities on a "when-issued" or forward
commitment basis only with the intention of completing the transaction and
actually purchasing the securities. If deemed appropriate by the Adviser,
however, a Fund may dispose of or renegotiate a commitment after it is entered
into, and may sell securities it has committed to purchase before those
securities are delivered to the Fund on the settlement date. In these cases the
Fund may realize a gain or loss.
When a Fund agrees to purchase securities on a "when-issued" or forward
commitment basis, the Fund's custodian will set aside cash or High Grade Debt
Securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitments. The
market value of a Fund's net assets may fluctuate to a greater degree when it
sets aside portfolio securities to cover such purchase commitments then when it
sets aside cash. Because a Fund's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, each Fund expects that its commitments to purchase
when-issued securities and forward commitments will not exceed 33% of the value
of its total assets absent unusual market conditions. When a Fund engages in
"when-issued" and forward commitment transactions, it relies on the other party
to the transaction to consummate the trade. Failure of such party to do so may
result in the Fund incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the market value of
a Fund starting on the day the Fund agrees to purchase the securities.
The Fund does not earn interest or dividends on the securities it has
committed to purchase until the settlement date.
Reverse Repurchase Agreements and Other Borrowings
Each Fund may borrow for temporary or emergency purposes. This borrowing may
be unsecured. Among the forms of borrowing in which each Fund may engage is
entering into reverse repurchase agreements. A reverse repurchase agreement
involves the sale of a portfolio security by the Fund, coupled with its
agreement to repurchase the security at a specified time and price. Each Fund
will maintain a segregated account with the Trust's custodian consisting of cash
or cash equivalents equal (on a daily mark-to-market basis) to its obligations
under reverse repurchase agreements with banks and domestic broker-dealers.
Reverse repurchase agreements involve the risk that the market value of the
securities subject to the reverse repurchase agreement may decline below the
repurchase price at which the Fund is required to repurchase such securities.
The 1940 Act requires a Fund to maintain continuous asset coverage (that is,
total assets including borrowings, less liabilities exclusive of borrowings) of
300% of the amount borrowed. If the asset coverage should decline below 300% as
a result of market fluctuations or for other reasons, a Fund is required to sell
some of its portfolio securities within three days to reduce its borrowings and
restore the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time. To avoid the potential
leveraging effects of a Fund's borrowings, investments will not be made while
18
<PAGE>
borrowings (including reverse repurchase agreements and dollar rolls) are in
excess of 5% of a Fund's total assets. Borrowing may exaggerate the effect on
net asset value of any increase or decrease in the market value of the
portfolio. Money borrowed will be subject to interest costs which may or may not
be recovered by appreciation of the securities purchased. A Fund also may be
required to maintain minimum average balances in connection with such borrowing
or to pay a commitment or other fee to maintain a line of credit; either of
these requirements would increase the cost of borrowing over the stated interest
rate. See "Investment Restrictions."
Lending Portfolio Securities
Each Fund may lend portfolio securities to brokers, dealers and other
financial organizations. These loans, if and when made, may not exceed 33-1/3%
of the value of the Fund's total assets. A Fund's loans of securities will be
collateralized by cash, cash equivalents or U.S. Government securities. The cash
or instruments collateralizing the Fund's loans of securities will be maintained
at all times in a segregated account with the Trust's custodian, in an amount at
least equal to the current market value of the loaned securities. From time to
time, a Fund may pay a part of the interest earned from the investment of
collateral received for securities loaned to the borrower and/or a third party
that is unaffiliated with the Fund and is acting as a "placing broker." No fee
will be paid to affiliated persons of the Fund. The Board of Trustees will make
a determination that the fee paid to the placing broker is reasonable.
By lending portfolio securities, a Fund can increase its income by continuing
to receive amounts equal to the interest or dividends on the loaned securities
as well as by either investing the cash collateral in short-term instruments or
obtaining yield in the form of interest paid by the borrower when U.S.
Government securities are used as collateral. A Fund will comply with the
following conditions whenever it loans securities: (i) the Fund must receive at
least 100% cash collateral or equivalent securities from the borrower; (ii) the
borrower must increase the collateral whenever the market value of the
securities loaned rises above the level of the collateral; (iii) the Fund must
be able to terminate the loan at any time; (iv) the Fund must receive reasonable
interest on the loan, as well as amounts equal to the dividends, interest or
other distributions on the loaned securities, and any increase in market value;
(v) the Fund may pay only reasonable custodian fees in connection with the loan;
and (vi) voting rights on the loaned securities may pass to the borrower except
that, if a material event will occur affecting the investment in the loaned
securities, the Fund must terminate the loan in time to vote the securities on
such event.
INVESTMENT RESTRICTIONS
The following investment restrictions may not be changed with respect to any
Fund without the approval of a "majority" (as defined in the 1940 Act) of the
outstanding shares of such Fund. For the purposes of the 1940 Act, "majority"
means the lesser of (a) 67% or more of the shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy or (b) more than 50% of the shares of the
Fund. Investment restrictions that involve a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings by or on behalf of, a Fund
with the exception of borrowings permitted by fundamental investment restriction
(2) listed below.
Accordingly, the Trust may not, on behalf of a Fund:
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<PAGE>
(1) Issue senior securities, except as permitted by paragraphs (2), (6) and
(7) below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts and options on futures contracts, forward
commitments, forward foreign exchange contracts, repurchase agreements and
reverse repurchase agreements entered into in accordance with the Fund's
investment policy, and the pledge, mortgage or hypothecation of the Fund's
assets within the meaning of paragraph (3) below are not deemed to be senior
securities.
(2) Borrow money (i) except from banks as a temporary measure for
extraordinary emergency purposes and (ii) except that the Fund may enter into
reverse repurchase agreements and dollar rolls with banks, broker-dealers and
other parties; provided that, in each case, the Fund is required to maintain
asset coverage of at least 300% for all borrowings. For the purposes of this
investment restriction, short sales, transactions in currency, forward
contracts, swaps, options, futures contracts and options on futures contracts,
and forward commitment transactions shall not constitute borrowing.
(3) Pledge, mortgage, or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and to the extent related to the
segregation of assets in connection with the writing of covered put and call
options and the purchase of securities or currencies on a forward commitment or
delayed- delivery basis and collateral and initial or variation margin
arrangements with respect to forward contracts, options, futures contracts and
options on futures contracts.
(4) Act as an underwriter, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed to be an underwriter
for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate, or any interest therein, and real estate
mortgage loans, except that the Fund may invest in securities of corporate or
governmental entities secured by real estate or marketable interests therein or
securities issued by companies (other than real estate limited partnerships)
that invest in real estate or interests therein.
(6) Make loans, except that the Fund may lend portfolio securities in
accordance with the Fund's investment policies and may purchase or invest in
repurchase agreements, bank certificates of deposit, all or a portion of an
issue of bonds, bank loan participation agreements, bankers' acceptances,
debentures or other securities, whether or not the purchase is made upon the
original issuance of the securities.
(7) Invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except interest rate futures contracts, options on
securities, securities indices, currency and other financial instruments,
futures contracts on securities, securities indices, currency and other
financial instruments and options on such futures contracts, forward foreign
currency exchange contracts, forward commitments, securities index put or call
warrants and repurchase agreements entered into in accordance with the Fund's
investment policies.
(8) Invest 25% or more of the value of the Fund's total assets in the
securities of one or more issuers conducting their principal business activities
in the same industry or group of industries. This restriction does not apply to
investments in obligations of the U.S. Government or any of its agencies or
instrumentalities.
In addition to the fundamental policies mentioned above, the Board of
Trustees of the Trust has adopted the following nonfundamental policies that may
be changed or amended by action of the Board of Trustees without shareholder
approval.
20
<PAGE>
Accordingly, the Trust may not, on behalf of a Fund:
(a) Participate on a joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or purchase of marketable
portfolio securities with other accounts under the management of the Adviser to
save commissions or to average prices among them is not deemed to result in a
securities trading account.
(b) Purchase securities on margin or make short sales unless by virtue of its
ownership of other securities, the Fund has the right to obtain, without payment
of additional consideration, securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is made upon the same
conditions, except that a Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of securities and in
connection with transactions involving forward foreign currency exchange
transactions, options, futures and options on futures.
(c) Purchase securities of other investment companies, except in the open
market where no commission or profit to a sponsor or dealer results from the
purchase other than the customary broker's commission and as permitted by the
Investment Company Act of 1940 and the rules and regulations thereunder.
(d) Purchase securities of any issuer which, together with any predecessor,
has a record of less than three years' continuous operations prior to the
purchase if such purchase would cause investments of the Fund in all such
issuers to exceed 5% of the value of the total assets of the Fund.
(e) Invest for the purpose of exercising control over or management of any
company.
(f) Purchase warrants of any issuer, if, as a result of such purchases, more
than 2% of the value of the Fund's net assets would be invested in warrants
which are not listed on the New York Stock Exchange or the American Stock
Exchange or more than 5% of the value of the net assets of the Fund would be
invested in warrants generally, whether or not so listed. For these purposes,
warrants are to be valued at the lesser of cost or market, but warrants acquired
by the Fund in units with or attached to debt securities shall be deemed to be
without value.
(g) Knowingly purchase or retain securities of an issuer if one or more of
the Trustees or officers of the Trust or directors or officers of the Adviser or
any investment management subsidiary of the Adviser individually owns
beneficially more than 0.5% and together own beneficially more than 5% of the
securities of such issuer.
(h) Purchase interests in oil, gas or other mineral leases or exploration
programs; however, this policy will not prohibit the acquisition of securities
of companies engaged in the production or transmission of oil, gas or other
minerals.
(i) Purchase any security, including any repurchase agreement maturing in
more than seven days, which is illiquid, if more than 15% of the net assets of
the Fund, taken at market value, would be invested in such securities.
(j) Invest more than 5% of its total assets in restricted securities,
excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933; provided, however, that no more than 15% of the
Fund's total assets may be invested in restricted securities including
restricted securities eligible for resale under Rule 144A.
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<PAGE>
(k) Write covered calls or put options with respect to more than 25% of the
value of its total assets or invest more than 5% of its total assets in puts,
calls, spreads, or straddles, other than protective put options.
The staff of the Commission has taken the position that fixed time deposits
maturing in more than seven days that cannot be traded on a secondary market and
participation interests in loans are illiquid. Until such time (if any) as this
position changes, the Trust, on behalf of each Fund, will include such
investments in determining compliance with the 15% limitation on investments in
illiquid securities. Restricted securities (including commercial paper issued
pursuant to Section 4(2) of the Securities Act of 1933) which the Board of
Trustees has determined are readily marketable will not be deemed to be illiquid
for purposes of such restriction.
"Value" for the purposes of all investment restrictions shall mean the market
value used in determining each Fund's net asset value.
22
<PAGE>
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and officers of the Trust is set forth
below. An asterisk (*) indicates those Trustees deemed to be "interested
persons" of the Trust for purposes of the 1940 Act.
<TABLE>
<CAPTION>
Positions Principal Occupation
Name and Address With Trust During Past Five Years
- ---------------- ---------- ----------------------
<S> <C> <C>
James E. Minnick (1)* President, Chief President, Secretary and Treasurer, Morgan
885 Third Avenue Executive Officer, Grenfell Capital Management, Inc. ("MGCM")
New York, NY 10022 and Trustee (since 1990).
Patrick W. W. Disney (1)* Senior Vice Director, MGIS (since 1988).
20 Finsbury Circus President and
London EC2M INB Trustee
ENGLAND
Paul K. Freeman (2) Trustee Chief Executive Officer, The Eric Group, Inc.
3941 South Bellaire (environmental insurance) (since 1986).
Englewood, CO 80110
Graham E. Jones (2) Trustee Senior Vice President, BGK Realty, Inc. (since
330 Garfield Street 1995); Financial Manager, Practice Management
Santa Fe, NM 87501 Systems (medical information services) (1988 -
1995); Director, 12 closed-end funds managed by
Morgan Stanley Asset Management; Trustee, 10
open-end mutual funds managed by Weiss, Peck &
Greer.
William N. Searcy (2) Trustee Pension & Savings Trust Officer, Sprint
5100 Foxridge Drive #2011 Corporation (telecommunications) (since 1989).
Mission, KS 66202
Hugh G. Lynch Trustee Director, International Investments, General
767 5th Avenue Motors Investment Management Corporation (since
New York, NY 10153 September 1990).
Edward T. Tokar* Trustee Vice President--Investments, AlliedSignal Inc.
101 Columbia Road (advanced technology and manufacturer) (since
Morristown, NJ 07962 1985).
Jeffrey A. Cohen Treasurer, Controller, Mutual Fund Accounting, SEI
680 East Swedesford Road Principal Corporation (since May 1994); Director, Mutual
Wayne, PA 19087-1658 Accounting Officer, Fund Accounting, SEI Corporation (1991-1994);
Chief Financial Audit Manager, Price Waterhouse (1989-1991).
Officer
23
<PAGE>
Positions Principal Occupation
Name and Address With Trust During Past Five Years
- ---------------- ---------- ----------------------
Neil P. Jenkins (3) Vice President Director, MGCM (since 1991); Morgan Grenfell &
885 Third Avenue Co. Ltd. (since 1985); Morgan Grenfell
New York, NY 10022 International Funds Management (since 1995).
David W. Baldt Vice President Executive Vice President and Director of Fixed
1435 Walnut Street Income Investments, MGCM (since 1989).
Philadelphia, PA 19102
Ian D. Kelson Vice President Director, MGIS (since 1988); Chief Investment
20 Finsbury Circus Officer, Fixed Income, MGIS (since 1989).
London EC2M 1NB
Mark G. Arthus Secretary and Director, Compliance and Financial Control, MGCM
885 Third Avenue Compliance Officer (since 1992); Vice President, Senior Compliance
New York, NY 10022 Officer and other positions, Citibank, N.A. (to
1992).
1 Member of the Trust's Valuation and Dividend Committees.
2 Member of the Trust's Audit Committee.
3 Member of the Trust's Dividend Committee.
</TABLE>
Certain of the Trustees and officers of the Trust reside outside the United
States, and substantially all the assets of these persons are located outside
the United States. It may not be possible, therefore, for investors to effect
service of process within the United States upon these persons or to enforce
against them, in United States courts or foreign courts, judgments obtained in
United States courts predicated upon the civil liability provisions of the
federal securities laws of the United States or the laws of the State of
Delaware. In addition, it is not certain that a foreign court would enforce, in
original actions or in actions to enforce judgments obtained in the United
States, liabilities against these Trustees and officers predicated solely upon
the federal securities laws.
Messrs. Jones, Freeman, and Searcy are members of the Audit Committee of the
Board of Trustees. The Audit Committee's functions include making
recommendations to the Trustees regarding the selection of independent
accountants, and reviewing with such accountants and the Treasurer of the Trust
matters relating to accounting and auditing practices and procedures, accounting
records, internal accounting controls and the functions performed by the Trust's
custodian, administrator and transfer agent.
As of April 10, 1996, the Trustees and officers of the Trust owned, as a
group, less than one percent of the outstanding shares of each Fund.
Compensation of Trustees
The Trust pays each Trustee who is not affiliated with the Adviser an annual
fee of $15,000 provided that they attend each regular Board meeting during the
year. Members of the Audit Committee also receive $1,000 for each Audit
Committee meeting attended. The Chairman of the Audit Committee receives an
additional $1,000 per year. The Trustees are also reimbursed for out-of-pocket
expenses incurred by them in connection with their duties as Trustees.
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<PAGE>
The following table sets forth the compensation paid by the Trust to the
Trustees for the fiscal year of the Trust ended October 31, 1995:
Pension of
Retirement Benefits Aggregate
Accrued as Part of Compensation from
Name of Trustee Fund Expenses the Trust/Complex*
- -------------------- ------------------- -------------------
James E. Minnick $ 0 $ 0
Patrick W. Disney $ 0 $ 0
Paul K. Freeman $ 0 $ 14,500
Graham E. Jones $ 0 $ 14,500
William N. Searcy $ 0 $ 15,500
Hugh G. Lynch $ 0 $ 13,500
Edward T. Tokar $ 0 $ 0
* The Trustees listed above do not serve on the Board of any other investment
company that may be considered to belong to the same complex as the Trust.
The above figures reflect the Board of Trustees' adoption of a new Trustee
compensation schedule, effective May 20, 1995, as well as the old compensation
schedule, which was in effect prior to May 20, 1995. Trustees' compensation
figures for fiscal years after October 31, 1995 will be higher than these
figures because Trustee compensation during such years will be paid solely in
accordance with the new schedule.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser
MGIS of London, England acts as investment adviser to each Fund pursuant to
the terms of a Management Contract, dated January 3, 1993, between the Trust, on
behalf of each Fund, and MGIS (the "Management Contract"). Pursuant to the
Management Contract, the Adviser supervises and assists in the management of the
assets of each Fund and furnishes each Fund with research, statistical, advisory
and managerial services. The Adviser determines on a continuous basis, the
allocation of each Fund's investments among countries. The Adviser is
responsible for the ordinary expenses of offices, if any, for the Trust and the
compensation, if any, of all officers and employees of the Trust and all
Trustees who are "interested persons" (as defined in the 1940 Act) of the
Adviser.
Under the Management Contract, the Trust, on behalf of each Fund is obligated
to pay the Adviser a monthly fee at an annual rate of each Fund's average daily
net assets as follows:
Annual Rate
------------
Morgan Grenfell Global Fixed Income Fund ................. 0.50%
Morgan Grenfell International Fixed Income Fund .......... 0.50%
Morgan Grenfell Emerging Markets Debt Fund ............... 1.50%
The advisory fees are paid monthly and will be prorated if the Adviser shall
not have acted as a Fund's investment adviser during the entire monthly period.
The Adviser has temporarily agreed, under certain circumstances, to reduce or
not impose its management fee and to make arrangements to limit certain other
expenses as described in the Prospectus under "Expense Information." In the
event that a Fund's expenses for any fiscal year exceed the limits established
by certain state securities administrators, the Adviser will
25
<PAGE>
reduce its fee payable on behalf of such Fund by the amount of such excess, but
only to the extent of the Fund's advisory fee.
For the fiscal period ended October 31, 1994, Morgan Grenfell Global Fixed
Income Fund, Morgan Grenfell International Fixed Income Fund and Morgan Grenfell
Emerging Markets Debt Fund paid net advisory fees of approximately $41,189,
$2,777, and $25,848, respectively. For the fiscal period ended October 31, 1995,
Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell International Fixed
Income Fund and Morgan Grenfell Emerging Markets Debt Fund paid net advisory
fees of approximately $384,235, $36,927 and $682,004, respectively. The
foregoing advisory fee payments reflect expense limitations that were in effect
during the indicated periods.
The Management Contract was last approved on November 17, 1995 by a vote of
the Trust's Board of Trustees, including a majority of those Trustees who were
not parties to the Management Contract or "interested persons" of such parties.
The Management Contract was approved by the Trust's initial shareholder, SEI
Financial Management, on January 3, 1994. The Management Contract will continue
in effect with respect to each Fund only if such continuance is specifically
approved annually by the Trustees, including a majority of the Trustees who are
not parties to the Management Contract or "interested persons" (as such term is
defined in the 1940 Act) of such parties, or by a vote of a majority of the
outstanding shares of each Fund. The Management Contract is terminable by vote
of the Board of Trustees, or, with respect to a Fund, by the holders of a
majority of the outstanding shares of the affected Fund, at any time without
penalty on 60 days' written notice to the Adviser. Termination of the Management
Contract with respect to a Fund will not terminate or otherwise invalidate any
provision of the Management Contract between the Adviser and any other Fund. The
Adviser may terminate the Management Contract at any time without penalty on 60
days' written notice to the Trust. The Management Contract terminates
automatically in the event of its assignment (as such term is defined in the
1940 Act).
The Management Contract provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust or any
Fund in connection with the performance of the Adviser's obligations under the
Management Contract with the Trust, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its duties or from reckless disregard of its duties and
obligations thereunder.
In the management of the Funds and its other accounts, the Adviser and its
subsidiaries allocate investment opportunities to all accounts for which they
are appropriate subject to the availability of cash in any particular account
and the final decision of the individual or individuals in charge of such
accounts. Where market supply is inadequate for a distribution to all such
accounts, securities are allocated based on a Fund's pro rata portion of the
amount ordered. In some cases their procedure may have an adverse effect on the
price or volume of the security as far as a Fund is concerned. However, it is
the judgment of the Board that the desirability of continuing the Trust's
advisory arrangement with the Adviser outweighs any disadvantages that may
result from contemporaneous transactions. See "Portfolio Brokerage."
MGIS is registered with the Commission as an investment adviser and provides
a full range of international investment advisory services to individual and
institutional clients. MGIS is a direct wholly-owned subsidiary of Morgan
Grenfell Asset Management, Ltd., which is a wholly-owned subsidiary of Deutsche
Morgan Grenfell Group plc. Deutsche Morgan Grenfell Group plc is an indirect
wholly-owned subsidiary
26
<PAGE>
of Deutsche Bank AG, an international commercial and investment banking group.
As of December 31, 1995, MGIS managed approximately $12.7 billion in assets for
various individual and institutional accounts, including the following
registered investment companies to which it acts as a subadviser: Dean Witter
Worldwide Fund, Compass International Fixed Income Fund, RSI International
Equity Fund, SEI European Equity Fund, Dean Witter Pacific Growth Fund, Dean
Witter European Growth Fund, Dean Witter International Small Cap Fund and Dean
Witter Global Asset Allocation Fund, and Pacific Growth Portfolio and European
Growth Portfolio (each a series of Dean Witter Variable Investment Series); and
the following other series of the Trust for which it acts as investment adviser:
Morgan Grenfell International Equity Fund, Morgan Grenfell International Small
Cap Equity Fund, Morgan Grenfell European Small Cap Equity Fund and Morgan
Grenfell Emerging Markets Equity Fund.
Portfolio Turnover
The Funds do not expect to trade in securities for short-term gain. Each
Fund's portfolio turnover rate is calculated by dividing the lesser of the
dollar amount of sales or purchases of portfolio securities by the average
monthly value of a Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. For the fiscal periods
ended October 31, 1994, the unannualized portfolio turnover rates for Morgan
Grenfell Global Fixed Income Fund, Morgan Grenfell International Fixed Income
Fund and Morgan Grenfell Emerging Markets Debt Fund were 173%, 130% and 52%,
respectively. For the fiscal period ended October 31, 1995, the portfolio
turnover rates for Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund
were 147%, 187% and 266%, respectively. The significant difference between
Emerging Markets Debt Fund's turnover rates for these periods was attributable
to the fact that this Fund was in operation for less than three months during
the fiscal year ended October 31, 1994.
The Administrator
As described in the Prospectus, SEI Financial Management Corporation (the
"Administrator") serves as the Trust's administrator pursuant to an
administration agreement (the "Administration Agreement") dated January 3, 1994.
Pursuant to the Administration Agreement, the Administrator has agreed to
furnish statistical and research data, clerical services, and stationery and
office supplies; prepare and file various reports with the appropriate
regulatory agencies including the Commission and state securities commissions;
and provide accounting and bookkeeping services for the Funds, including the
computation of each Fund's net asset value, net investment income and realized
capital gains, if any.
27
<PAGE>
For its services under the Administration Agreement, the Administrator
receives from all series of the Trust an aggregate monthly fee at the following
annual rates of the aggregate average daily net assets ("aggregate assets") of
such series:
0.15% of the aggregate assets under $300 million
0.12% of the next $200 million of aggregate assets
0.10% of the next $500 million of aggregate assets
0.08% of the aggregate assets exceeding $1 billion
Each Fund pays the Administrator a minimum annual fee that equals (after a
one-year phase-in period) $75,000 ($100,000 in the case of Morgan Grenfell
Emerging Markets Debt Fund).
For the fiscal period ended October 31, 1994, Morgan Grenfell Global Fixed
Income Fund, Morgan Grenfell International Fixed Income Fund and Morgan Grenfell
Emerging Markets Debt Fund paid the Administrator administration fees of
$33,625, $19,556, and $5,947, respectively. For the fiscal period ended October
31, 1995, Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund
paid the Administrator administration fees of $105,406, $68,750 and $ 69,115,
respectively.
The Administration Agreement provides that the Administrator shall not be
liable under the Administration Agreement except for bad faith or gross
negligence in the performance of its duties or from the reckless disregard by it
of its duties and obligations thereunder.
Expenses of the Trust
The Trust pays: (i) fees and expenses of any investment adviser and any
administrator of the Funds; (ii) fees and expenses incurred by the Funds in
connection with membership in investment company organizations; (iii) brokers'
commissions; (iv) payment for portfolio pricing services to a pricing agent, if
any; (v) legal expenses (including an allocable portion of the cost of its
employees rendering legal services to the Funds); (vi) interest, insurance
premiums, taxes or governmental fees; (vii) the fees and expenses of the
transfer agent of the Funds; (viii) clerical expenses of issue, redemption or
repurchase of shares of the Funds; (ix) the expenses of and fees for registering
or qualifying shares of the Funds for sale and of maintaining the registration
of the Funds and registering the Funds as a broker or a dealer; (x) the fees and
expenses of Trustees who are not affiliated with the Adviser; (xi) the cost of
preparing and distributing reports and notices to shareholders, the Commission
and other regulatory authorities; (xii) the fees or disbursements of custodians
of the Fund's assets, including expenses incurred in the performance of any
obligations enumerated by the Declaration of Trust or By-Laws of the Trust
insofar as they govern agreements with any such custodian; (xiii) costs in
connection with annual or special meetings of shareholders, including proxy
material preparation printing and mailing; (xiv) charges and expenses of the
Trust's auditor; (xv) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business; and (xvi) expenses of an extraordinary and nonrecurring nature.
Transfer Agent
DST Systems, Inc., 210 W. 10th Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer and dividend disbursing agent for the
Funds pursuant to a transfer agency agreement (the "Transfer Agency Agreement"),
under which the Transfer Agent (i) maintains shareholder accounts, and (ii)
makes periodic reports to the Trust's Board of Trustees concerning the
operations of each Fund.
28
<PAGE>
The Distributor
The Trust has entered into a distribution agreement (the "Distribution
Agreement") pursuant to which SEI Financial Services Company (the
"Distributor"), as agent, serves as principal underwriter for the continuous
offering of shares of each Fund. The Distributor has agreed to use best efforts
to solicit orders for the purchase of shares of each Fund, although it is not
obligated to sell any particular amount of shares. Shares of the Trust are not
subject to sales loads or distribution fees. The Adviser, and not the Trust, is
responsible for payment of any expenses or fees incurred in the marketing and
distribution of shares of the Trust.
The Distribution Agreement will remain in effect for one year from its
effective date and will continue in effect thereafter only if such continuance
is specifically approved annually by the Trustees, including a majority of the
Trustees who are not parties to the Distribution Agreement or "interested
persons" (as such term is defined in the 1940 Act) of such parties. The
Distribution Agreement was most recently approved on November 17, 1995 by a vote
of the Trust's Board of Trustees, including a majority of those Trustees who
were not parties to the Distribution Agreement or "interested persons" of such
parties. The Distribution Agreement is terminable, as to a Fund, by vote of the
Board of Trustees, or by the holders of a majority of the outstanding shares of
the Fund, at any time without penalty on 60 days' written notice to the Trust
and Adviser. The Distributor may terminate the Distribution Agreement at any
time without penalty on 90 days' written notice to the Trust.
Custodian
As described in the Prospectus, The Northern Trust Company (the "Custodian"),
whose principal business address is Fifty South LaSalle Street, Chicago,
Illinois 60675, maintains custody of each Fund's assets pursuant to a custodian
agreement (the "Custodian Agreement"). Under the Custodian Agreement, the
Custodian (i) maintains a separate account in the name of each Fund, (ii) holds
and transfers portfolio securities on account of each Fund, (iii) accepts
receipts and makes disbursements of money on behalf of each Fund, (iv) collects
and receives all income and other payments and distributions on account of each
Fund's portfolio securities and (v) makes periodic reports to the Trust's Board
of Trustees concerning each Fund's operations. The Custodian is authorized to
select one or more foreign or domestic banks or companies to serve as sub-
custodian on behalf of the Trust.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Trustees, the Adviser
makes decisions with respect to and places orders for all purchases and sales of
portfolio securities for the Funds. In executing portfolio transactions, the
Adviser seeks to obtain the best net results for the Funds, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), size of the order, difficulty of execution and operational facilities
of the firm involved. Commission rates, being a component of price, are
considered together with such factors. Where transactions are effected on a
foreign securities exchange, the Funds employ brokers, generally at fixed
commission rates. Commissions on transactions on U.S. securities exchanges are
subject to negotiation. Where transactions are effected in the over-the-counter
market or third market, the Funds deal with the primary market makers unless a
more favorable result is obtainable elsewhere. Fixed income securities purchased
or sold on behalf of the Funds normally will be traded in the over-the-counter
market on a net basis (i.e. without a commission) through dealers acting for
their own
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account and not as brokers or otherwise through transactions directly with the
issuer of the instrument. Some fixed income securities are purchased and sold on
an exchange or in over-the-counter transactions conducted on an agency basis
involving a commission.
Pursuant to the Advisory Agreement, the Adviser agrees to select
broker-dealers in accordance with guidelines established by the Trust's Board of
Trustees from time to time and in accordance with Section 28(e) of the
Securities Exchange Act of 1934, as amended. In assessing the terms available
for any transaction, the Adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. Consideration may also be given to the broker-dealer's
sale of shares of the Funds and the other series of the Trust. In addition, the
Advisory Agreement authorizes the Adviser, subject to the periodic review of the
Trust's Board of Trustees, to cause a Fund to pay a broker-dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker-dealer for effecting the same transaction,
provided that the Adviser determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either the particular
transaction or the overall responsibilities of the Adviser to the Fund. Such
brokerage and research services may consist of pricing information, reports and
statistics on specific companies or industries, general summaries of groups of
bonds and their comparative earnings and yields, or broad overviews of the
securities markets and the economy.
Supplemental research information utilized by the Adviser is in addition to,
and not in lieu of, services required to be performed by the Adviser and does
not reduce the advisory fees payable to the Adviser. The Trustees will
periodically review the commissions paid by the Funds to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Funds. It is possible that certain of
the supplemental research or other services received will primarily benefit one
or more other investment companies or other accounts of the Adviser for which
investment discretion is exercised. Conversely, a Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company. During the
fiscal period ended October 31, 1995, the Adviser did not, pursuant to any
agreement or understanding with a broker or otherwise through an internal
allocation procedure, direct any Fund's brokerage transactions to a broker
because of research services provided by such broker.
Investment decisions for each Fund and for other investment accounts managed
by the Adviser are made independently of each other in the light of differing
conditions. However, the same investment decision may be made for two or more of
such accounts. In such cases, simultaneous transactions are inevitable.
Purchases or sales are then averaged as to price and allocated as to amount in a
manner deemed equitable to each such account. While in some cases this practice
could have a detrimental effect on the price or value of the security as far as
a Fund is concerned, in other cases it is believed to be beneficial to a Fund.
To the extent permitted by law, the Adviser may aggregate the securities to be
sold or purchased for a Fund with those to be sold or purchased for other
investment companies or accounts in executing transactions.
Pursuant to procedures determined by the Trustees and subject to the general
policies of the Funds and Section 17(e) of the 1940 Act, the Adviser may place
securities transactions with brokers with whom
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it is affiliated. (Affiliated Brokers"). These brokers may include but are not
limited to Morgan Grenfell Asia and Morgan Grenfell Debt Arbitrage Trading.
Section 17(e) of the 1940 Act limits to "the usual and customary broker's
commission" the amount which can be paid by the Funds to an Affiliated Broker
acting as broker in connection with transactions effected on a securities
exchange. The Board, including a majority of the Trustees who are not
"interested persons" of the Trust or the Adviser, has adopted procedures
designed to comply with the requirements of Section 17(e) of the 1940 Act and
Rule 17e-1 promulgated thereunder to ensure that the broker's commission is
"reasonable and fair compared to the commission, fee or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. . . ."
A transaction would not be placed with Affiliated Brokers if a Fund would
have to pay a commission rate less favorable than their contemporaneous charges
for comparable transactions for their other most favored, but unaffiliated,
customers except for accounts for which they act as a clearing broker, and any
of their customers determined, by a majority of the Trustees who are not
"interested persons" of the Fund or the Adviser, not to be comparable to the
Fund. With regard to comparable customers, in isolated situations, subject to
the approval of a majority of the Trustees who are not "interested persons" of
the Trust or the Adviser, exceptions may be made. Since the Adviser, as
investment adviser to the Funds, has the obligation to provide management, which
includes elements of research and related skills, such research and related
skills will not be used by them as a basis for negotiating commissions at a rate
higher than that determined in accordance with the above criteria. The Funds
will not engage in principal transactions with Affiliated Brokers. When
appropriate, however, orders for the account of the Funds placed by Affiliated
Brokers are combined with orders of their respective clients, in order to obtain
a more favorable commission rate. When the same security is purchased for two or
more funds or customers on the same day, each fund or customer pays the average
price and commissions paid are allocated in direct proportion to the number of
shares purchased.
Affiliated Brokers furnish to the Trust at least annually a statement setting
forth the total amount of all compensation retained by them or any associated
person of them in connection with effecting transactions for the account of the
Funds, and the Board reviews and approves all the Funds' portfolio transactions
on a quarterly basis and the compensation received by Affiliated Brokers in
connection therewith. During the fiscal periods ended October 31, 1994 and
October 31, 1995 no Fund paid any brokerage commissions to any Affiliated
Broker.
Affiliated Brokers do not knowingly participate in commissions paid by the
Funds to other brokers or dealers and do not seek or knowingly receive any
reciprocal business as the result of the payment of such commissions. In the
event that an Affiliated Broker learns at any time that it has knowingly
received reciprocal business, it will so inform the Board.
For the fiscal period ended October 31, 1994 and for the fiscal year ended
October 31, 1995, each of Morgan Grenfell Global Fixed Income Fund, Morgan
Grenfell International Fixed Income Fund and Morgan Grenfell Emerging Markets
Debt Fund paid no brokerage commissions.
NET ASSET VALUE
Under the 1940 Act, the Board of Trustees of the Trust is responsible for
determining in good faith the fair value of the securities of each Fund. In
accordance with procedures adopted by the Board of Trustees,
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the net asset value per share of each Fund is calculated by determining the net
worth of the Fund (assets, including securities at value, minus liabilities)
divided by the number of shares outstanding. Each Fund computes its net asset
value at the close of such regular trading, which is normally 4:00 p.m. Eastern
time, on each day on which the New York Stock Exchange ("NYSE") is open (a
"Business Day"). The NYSE is closed on Saturdays and Sundays as well as the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
For purposes of calculating each Fund's net asset value per share, equity
securities traded on a recognized U.S. or foreign securities exchange or the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
are valued at their last sale price on the principal exchange on which they are
traded or NASDAQ (if NASDAQ is the principal market for such securities) prior
to the time of valuation on the valuation day or, if no sale occurs, at the bid
price. Unlisted equity securities for which market quotations are readily
available are valued at the most recent bid price prior to the time of
valuation.
Debt securities and other fixed income investments of the Funds are valued at
prices supplied by independent pricing agents, which prices reflect
broker-dealer supplied valuations and electronic data processing techniques.
Short-term obligations maturing in sixty days or less may be valued at amortized
cost, which method does not take into account unrealized gains or losses on such
portfolio securities. Amortized cost valuation involves initially valuing a
security at its cost, and thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security. While this method provides
certainty in valuation, it may result in periods in which the value of the
security, as determined by amortized cost, may be higher or lower than the price
the Fund would receive if the Fund sold the security.
Other assets and assets for which market quotations are not readily available
are valued at fair value using methods determined in good faith by the Board of
Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the 4:00 P.M.
(Eastern Time) close of business on each Business Day. In addition, European or
Far Eastern securities trading generally or in a particular country or countries
may not take place on all Business Days. Furthermore, trading takes place in
Japanese markets on certain Saturdays and in various foreign markets on days
which are not Business Days in New York and on which a Funds' net asset values
are not calculated. Such calculation does not take place contemporaneously with
the determination of the prices of the majority of the portfolio securities used
in such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of the regular
trading on the NYSE will not be reflected in the Funds' calculation of net asset
values unless the Adviser deems that the particular event would materially
affect net asset value, in which case an adjustment will be made.
PERFORMANCE INFORMATION
Yield
From time to time, each Fund may advertise its yield. The yield of a Fund
refers to the annualized income generated by an investment in the Fund over a
specified 30-day period. The yield is calculated by assuming that the income
generated by the investment during that period is generated for each like period
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over one year and is shown as a percentage of the investment. In particular,
yield will be calculated according to the following formula:
YIELD = 2 [(a-b+1)(6)-1]
---
cd
Where: a = dividends and interest earned by the Fund
during the period;
b = net expenses accured for the period;
c = average daily number of shares outstanding
during the period, entitled to receive
dividends; and
d = maximum offering price per share on the last
day of the period.
Actual yields will depend on such variables as asset quality, average asset
maturity, the type of instruments a Fund invests in, changes in interest rates
on money market instruments, changes in the expenses of the Fund and other
factors.
Yields are one basis upon which investors may compare the Funds with other
mutual funds; however, yields of other mutual funds and other investment
vehicles may not be comparable because of the factors set forth above and
differences in the methods used in valuing portfolio instruments.
For the 30-day period ended October 31, 1995, the yields of Morgan Grenfell
Global Fixed Income Fund, Morgan Grenfell International Fixed Income Fund and
Morgan Grenfell Emerging Markets Debt Fund were 4.98 %, 4.97 % and 10.27 %,
respectively. If the expense limitations described in the Prospectus for these
Funds had not been in effect during this period, the yields of Morgan Grenfell
Global Fixed Income Fund, Morgan Grenfell International Fixed Income Fund and
Morgan Grenfell Emerging Markets Debt Fund would have been 4.89%, 4.60% and
9.81%, respectively.
Total Return
Each Fund that advertises its "average annual total return" computes such
return by determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
ERV
T = [(-----)(1/n)-1]
P
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
(or other) periods at the end of the applicable
period (or a fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such returns
by determining the aggregate compounded rates of return during specified periods
that likewise equate the initial amount invested
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to the ending redeemable value of such investment. The formula for calculating
aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----)-1]
P
The above calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
For the fiscal period ended October 31, 1995, the average annual total
returns of Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund
were 13.88%, 14.66% and 4.85%, respectively. For their respective periods from
commencement of operations to October 31, 1994, the average annual total returns
of Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell International Fixed
Income Fund and Morgan Grenfell Emerging Markets Debt Fund were 6.51%, 8.35% and
5.48%, respectively. If the expense limitations described in the Prospectus for
the above Funds had not been in effect during the indicated periods, the total
returns of these Funds for such periods would have been lower than the total
return figures shown in this paragraph.
The Funds may from time to time advertise comparative performance as measured
by various independent sources, including, but not limited to, Barron's, The
Wall Street Journal, Weisenberger Investment Companies Service, Business Week,
Changing Times, Financial World, Forbes, Fortune and Money. In addition, a Fund
may from time to time advertise its performance relative to certain indices and
benchmark investments, including: (a) the Lipper Analytical Services, Inc.
Mutual Fund Performance Analysis, Fixed Income Analysis and Mutual Fund Indices
(which measure total return and average current yield for the mutual fund
industry and rank mutual fund performance); (b) the CDA Mutual Fund Report
published by CDA Investment Technologies, Inc. (which analyzes price, risk and
various measures of return for the mutual fund industry); (c) the Consumer Price
Index published by the U.S. Bureau of Labor Statistics (which measures changes
in the price of goods and services); (d) Stocks, Bonds, Bills and Inflation
published by Ibbotson Associates (which provides historical performance figures
for stocks, government securities and inflation); (e) the Shearson Lehman
Brothers Aggregate Bond Index or its component indices (the Aggregate Bond Index
measures the performance of Treasury, U.S. Government agency, corporate,
mortgage and Yankee bonds); (f) the Standard & Poor's Bond Indices (which
measure yield and price of corporate, municipal and U.S. Government bonds); and
(g) historical investment data supplied by the research departments of Goldman
Sachs, Shearson Lehman Hutton, First Boston Corporation, Morgan Stanley, Salomon
Brothers, Merrill Lynch, Donaldson Lufkin and Jenrette or other providers of
such data. The composition of the investments in such indices and the
characteristics of such benchmark investments are not identical to, and in some
cases are very different from, those of any Fund's portfolio. These indices and
averages are generally unmanaged and the items included in the calculations of
such indices and averages may not be identical to the formulas used by a Fund to
calculate its performance figures.
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TAXES
The following is a summary of the principal U.S. federal income, and certain
state and local, tax considerations regarding the purchase, ownership and
disposition of shares in the Funds. This summary does not address special tax
rules applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Prospective shareholders are
urged to consult their own tax advisers with respect to the specific federal,
state, local and foreign tax consequences of investing in the Funds. The summary
is based on the laws in effect on the date of this Additional Statement, which
are subject to change.
General
Each Fund is a separate taxable entity and has elected to be treated, and
intends to qualify for each taxable year, as a regulated investment company
under Subchapter M of the Code.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) the Fund derive at least 90% of its annual gross
income from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of stocks or securities or foreign
currencies, or other income (including but not limited to gains from options,
futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "90% gross income test");
(b) the Fund derive less than 30% of its annual gross income from the sale or
other disposition of any of the following which was held for less than three
months: (i) stock or securities; (ii) options, futures or forward contracts
(other than options, futures or forward contracts on foreign currencies); and
(iii) foreign currencies and foreign currency options, futures and forward
contracts that are not directly related to the Fund's principal business of
investing in stock or securities or options and futures with respect to stocks
or securities (the "short-short test"); and (c) the Fund diversify its holdings
so that, at the close of each quarter of its taxable year, (i) at least 50% of
the market value of its total (gross) assets is comprised of cash, cash items,
United States Government securities, securities of other regulated investment
companies and other securities limited in respect of any one issuer to an amount
not greater in value than 5% of the value of the Fund's total assets and to not
more than 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than United States Government securities and securities of
other regulated investment companies) or two or more issuers controlled by the
Fund and engaged in the same, similar or related trades or businesses. Gains
from the sale or other disposition of foreign currencies (or options, futures or
forward contracts on foreign currencies) that are not directly related to a
Fund's principal business of investing in stock or securities or options and
futures with respect to stock or securities will be treated as gains from the
sale of investments held for less than three months under the short-short test
(even though characterized as ordinary income for some purposes) if such
currencies or instruments were held for less than three months. In addition,
future Treasury regulations could provide that qualifying income under the 90%
gross income test will not include gains from foreign currency transactions that
are not directly related to a Fund's principal business of investing in stock or
securities or options and futures with respect to stock or securities. Using
foreign currency positions or entering into foreign currency options, futures or
forward contracts for purposes other than hedging currency risk with respect to
securities in a Fund's portfolio or anticipated to be acquired may not qualify
as "directly-related" under these tests.
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<PAGE>
If a Fund complies with such provisions, then in any taxable year in which
the Fund distributes at least 90% of its "investment company taxable income"
(which includes dividends, interest, accrued original issue discount and market
discount income, income from securities lending, any net short-term capital gain
in excess of net long-term capital loss and certain net realized foreign
exchange gains and is reduced by deductible expenses), the Fund (but not its
shareholders) will be relieved of federal income tax on any income of the Fund,
including long-term capital gains, distributed to shareholders. However, if a
Fund retains any investment company taxable income or net capital gain (the
excess of net long-term capital gain over net short-term capital loss), it will
be subject to a tax at regular corporate rates on the amount retained. If a Fund
retains any net capital gain, the Fund may designate the retained amount as
undistributed capital gains in a notice to its shareholders who, if subject to
U.S. federal income tax on long-term capital gains, (i) will be required to
include in income for federal income tax purposes, as long-term capital gain,
their shares of such undistributed amount, and (ii) will be entitled to credit
their proportionate shares of the tax paid by the Fund against their U.S.
federal income tax liabilities, if any, and to claim refunds to the extent the
credit exceeds such liabilities. For U.S. federal income tax purposes, the tax
basis of shares owned by a shareholder of a Fund will be increased by an amount
equal under current law to 65% of the amount of undistributed net capital gains
included in the shareholder's gross income. Each Fund intends to distribute at
least annually to its shareholders all or substantially all of its investment
company taxable income and net capital gain. If for any taxable year a Fund does
not qualify as a regulated investment company, it will be taxed on all of its
investment company taxable income and net capital gain at corporate rates.
In order to avoid a 4% federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed in such year and on which no federal income tax was
paid by the Fund. For federal income tax purposes, dividends declared by a Fund
in October, November or December to shareholders of record on a specified date
in such a month and paid during January of the following year are treated as
distributed by the Fund and are taxable to such shareholders as if received on
December 31 of the year declared.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain futures contracts,
forward contracts and options held by the Funds will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Funds' taxable year.
Any gain or loss recognized on actual or deemed sales of these futures
contracts, forward contracts, or options (not including certain foreign currency
options, forward contracts, and futures contracts) will be treated as 60%
long-term capital gain or loss and 40% short-short capital gain or loss. As a
result of certain hedging transactions entered into by the Funds, the Funds may
be required to defer the recognition of losses on futures or forward contracts
and options or underlying securities or foreign currencies to the extent of any
unrecognized gains on related positions and the characterization of gains or
losses as long-term or short- term may be changed. The tax provisions described
above applicable to options, futures and forward contracts may affect the
amount, timing and character of a Fund's distributions to shareholders. The
short-short test described above may limit a Fund's ability to use options,
futures and forward transactions as well
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<PAGE>
as its ability to engage in short sales. Certain tax elections may be available
to the Funds to mitigate some of the unfavorable consequences described in this
paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by the Funds. Under these
rules, foreign exchange gain or loss realized with respect to foreign currencies
and certain futures and options thereon, foreign currency-denominated debt
instruments, foreign currency forward contracts, and foreign currency-
denominated payables and receivables will generally be treated as ordinary
income or loss, although in some cases elections may be available that would
alter this treatment. If a net foreign exchange loss treated as ordinary loss
under Section 988 of the Code were to exceed a Fund's investment company taxable
income (computed without regard to such loss) for a taxable year, the resulting
loss would not be deductible by the Fund or its shareholders in future years.
Net loss, if any, from certain foreign currency transactions or instruments
could exceed net investment income otherwise calculated for accounting purposes
with the result that either no dividends are paid or a portion of the Fund's
dividends is treated as a return of capital, which is nontaxable to the extent
of a shareholder's tax basis in his shares and, once such basis is exhausted,
generally gives rise to capital gains.
Each Fund's investments in zero coupon securities, deferred interest
securities, pay-in-kind securities or other securities bearing original issue
discount or, if the Fund elects to include market discount in income currently,
market discount will generally cause it to realize income prior to the receipt
of cash payments with respect to these securities. Options, futures or forward
contracts subject to the mark to market rules described above may have the same
result if recognized mark to market gains exceed recognized mark to market
losses. In order to obtain cash to distribute this income or gain, maintain its
qualification as a regulated investment company, and avoid federal income or
excise taxes, a Fund may be required to liquidate portfolio securities that it
might otherwise have continued to hold.
The Funds anticipate that they will be subject to foreign taxes on certain
income they derive from foreign securities, possibly including, in some cases,
capital gains from the sale of such securities. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. If more than 50% of a
Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, a Fund may file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund will be
required to (i) include in ordinary gross income (in addition to taxable
dividends and distributions they actually receive) their pro rata shares of
qualified foreign taxes paid by the Fund even though not actually received, and
(ii) treat such respective pro rata portions as foreign taxes paid by them. If a
Fund makes this election, shareholders may then deduct such pro rata portions of
foreign income taxes in computing their taxable incomes, or, alternatively, use
them as foreign tax credits, subject to applicable limitations, against their
U.S. federal income taxes. Shareholders who do not itemize deductions for
federal income tax purposes will not, however, be able to deduct their pro rata
portion of qualified foreign taxes paid by a Fund, although such shareholders
will be required to include their shares of such taxes in gross income.
Shareholders who claim a foreign tax credit for such foreign taxes may be
required to treat a portion of dividends received from a Fund as a separate
category of income for purposes of computing the limitations on the foreign tax
credit. Tax-exempt shareholders will ordinarily not benefit from this election.
Each year that a Fund files the election described above, its shareholders will
be notified of the amount of (i) each shareholder's pro rata share of qualified
foreign taxes paid by the Fund and (ii) the portion of Fund dividends
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<PAGE>
which represents income from each foreign country. If a Fund does not make this
election, it may deduct such taxes in computing its investment company taxable
income.
If a Fund acquires stock in certain non-U.S. corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income("passive foreign investment
companies"), the Fund could be subject to federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election could require the Fund to recognize taxable
income or gain without the concurrent receipt of cash. Each Fund may limit
and/or manage its holdings in passive foreign investment companies to minimize
its tax liability or maximize its return from these investments.
The federal income tax rules applicable to currency and interest rate swaps,
mortgage dollar rolls, and interest rate floors and caps are unclear in certain
respects, and the Funds may be required to account for those instruments under
tax rules in a manner that may affect the amount, timing and character of
income, gain or loss from such instruments and that may, under certain
circumstances, limit their transactions in these instruments.
The Emerging Markets Debt Fund may invest in debt obligations that are in the
lowest rating categories or are unrated, including debt obligations of issuers
not currently paying interest as well as issuers who are in default. Investments
in debt obligations that are at risk of or in default present special tax issues
for the Funds. Tax rules are not entirely clear about issues such as when a Fund
may cease to accrue interest, original issue discount, or market discount, when
and to what extent deductions may be taken for bad debts or worthless
securities, how payments received on obligations in default should be allocated
between principal and income, and whether exchanges of debt obligations in a
workout context are taxable. These and other issues will be addressed by the
Funds, in the event they invest in such securities, in order to reduce the risk
of their distributing insufficient income to preserve their status as regulated
investment companies and avoid becoming subject to federal income or excise tax.
For federal income tax purposes, each Fund is permitted to carry forward a
net capital loss in any year to offset its own capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent years'
capital gains are offset by such losses, they would not result in federal income
tax liability to the applicable Fund and, accordingly, would generally not be
distributed to shareholders. At October 31, 1995, Emerging Markets Debt Fund had
capital loss carryforwards of approximately and $526,000, expiring (if not
previously used) in the fiscal year ended October 31, 2003.
U.S. Shareholders--Distributions
For U.S. federal income tax purposes, distributions by the Funds, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided
38
<PAGE>
by the number of shares received. Distributions from investment company taxable
income for the year will be taxable as ordinary income. Distributions to
corporate shareholders designated as derived from a Fund's dividend income, if
any, that would be eligible for the dividends received deduction if the Fund
were not a regulated investment company will be eligible, subject to certain
holding period and debt-financing restrictions, for the 70% dividends received
deduction for corporations. Because eligible dividends are limited to those
received by a Fund from U.S. domestic corporations, it is unlikely that any
significant portion of any Fund's distributions will qualify for the dividends
received deduction. The entire dividend, including the deducted amount, is
considered in determining the excess, if any, of a corporate shareholder's
adjusted current earnings over its alternative minimum taxable income, which may
increase its liability for the federal alternative minimum tax, and the dividend
may, if it is treated as an "extraordinary dividend" under the Code, reduce such
shareholder's tax basis in its shares of a Fund. Capital gain dividends (i.e.,
dividends from net capital gain), if designated as such in a written notice to
shareholders mailed not later than 60 days after a Fund's taxable year closes,
will be taxed to shareholders as long-term capital gain regardless of how long
shares have been held by shareholders, but are not eligible for the dividends
received deduction for corporations.
Different tax treatment, including penalties on certain excess contributions
and deferrals, certain pre- retirement and post-retirement distributions, and
certain prohibited transactions is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
U.S. Shareholders--Sale of Shares
When a shareholder's shares are sold, redeemed or otherwise disposed of, the
shareholder will generally recognize gain or loss equal to the difference
between the shareholder's adjusted tax basis in the shares and the cash, or fair
market value of any property, received. Assuming the shareholder holds the
shares as a capital asset at the time of such sale or other disposition, such
gain or loss should be capital in character, and long-term if the shareholder
has held the shares for more than one year, otherwise short- term. If, however,
a shareholder receives a capital gain dividend with respect to shares and such
shares have a tax holding period of six months or less at the time they are
sold, redeemed or otherwise disposed of, then any loss the shareholder realizes
on the disposition will be treated as a long-term capital loss to the extent of
such capital gain dividend. Additionally, any loss realized on a sale,
redemption or other disposition of shares of a Fund will be disallowed to the
extent the shares disposed of are replaced with shares of the same Fund within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to a dividend reinvestment in shares of the
Fund.
The Funds may be required to withhold, as "backup withholding," federal
income tax at a rate of 31% from dividends (including distributions from a
Fund's net long-term capital gains) and share redemption and exchange proceeds
to individuals and other non-exempt shareholders who fail to furnish the Funds
with a correct taxpayer identification number ("TIN") certified under penalties
of perjury, or if the Internal Revenue Service or a broker notifies the Funds
that the payee has failed to properly report interest or dividend income to the
Internal Revenue Service or that the TIN furnished by the payee to the Funds is
incorrect, or if (when required to do so) the payee fails to certify under
penalties of perjury that it is not subject to backup withholding. Any amounts
withheld may be credited against a shareholder's U.S. federal income tax
liability.
39
<PAGE>
Non-U.S. Shareholders
Shareholders who, as to the United States, are nonresident aliens, foreign
corporations, fiduciaries of foreign trusts or estates, foreign partnerships or
other non-U.S. investors generally will be subject to U.S. withholding tax at
the rate of 30% on distributions treated as ordinary income unless the tax is
reduced or eliminated pursuant to a tax treaty or the dividends are effectively
connected with a U.S. trade or business of the shareholder. In the latter case
the dividends will be subject to tax on a net income basis at the graduated
rates applicable to U.S. individuals or domestic corporations. Distributions of
net capital gain, including amounts retained by a Fund which are designated as
undistributed capital gains, to a non-U.S. shareholder will not be subject to
U.S. income or withholding tax unless the distributions are effectively
connected with the shareholder's trade or business in the United States or, in
the case of a shareholder who is a nonresident alien individual, the shareholder
is present in the United States for 183 days or more during the taxable year and
certain other conditions are met.
Any gain realized by a non-U.S. shareholder upon a sale or redemption of
shares of a Fund will not be subject to U.S. federal income or withholding tax
unless the gain is effectively connected with the shareholder's trade or
business in the United States, or in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
met. Non-U.S. investors should consult their tax advisers about the
applicability of U.S. federal income or withholding taxes to certain
distributions received by them.
State and Local
The Funds may be subject to state or local taxes in jurisdictions in which
the Funds may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of a Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in the Fund may have tax consequences for
shareholders different from those of a direct investment in the Fund's portfolio
securities. Shareholders should consult their own tax advisers concerning these
matters.
GENERAL INFORMATION ABOUT THE TRUST
General
The Trust is an open-end investment company organized as a Delaware business
trust on September 13, 1993. The Trust commenced operations on January 3, 1994.
In the event of a liquidation or dissolution of the Trust or an individual
Fund, shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund. Shareholders of a Fund are
entitled to participate in the net distributable assets of the particular Fund
involved on liquidation, based on the number of shares of the Fund that are held
by each shareholder.
Shares entitle their holders to one vote per share; however, separate votes
will be taken by each Fund on matters affecting an individual Fund. Shares are
freely transferable and have no preemptive, subscription or conversion rights.
The Trust does not expect to hold shareholder meetings except as required by the
1940 Act or the Agreement and Declaration of Trust (the "Declaration of Trust").
See "Organization and Shares of the Trust" in the Prospectus.
40
<PAGE>
As of April 25, 1996, the following shareholders owned the following
respective percentages of the outstanding shares of the indicated Funds:
Global Fixed Income Fund:
-------------------------
Capital Region Health Care Corporation Endowment, 250 Pleasant Street,
Concord, NH 03301 (5.53%)
The American University in Cairo, 866 United Nations Plaza, Suite 517,
New York, NY 10017 (8.89%)
Macquarie Global Bond Fund, L13, 2D Bond Street, Sydney, NSW 2000 (11.98%)
New Hampshire Charitable Foundation, 37 Pleasant Street,
Concord, NH 03301 (6.12%)
Toldeo Hospital c/o National City Bank Northwest Cust, PO Box 94777,
Cleveland, OH 44101 (8.62%)
Trustees of Clark University, 950 Main Street,
Worcester, MA 01610-1400 (12.43%)
International Fixed Income Fund:
--------------------------------
Gilman School Inc., 5407 Roland Avenue, Baltimore, MD 21210 (9.88%)
Harvey Wagner TTEE, FBO Wagner Family Trust, P.O. Box 7370,
Incline Village, NV 89452 (21.17%)
Archdiocese of Detroit, 1234 Washington Blvd., Detroit, MI 48226 (41.48%)
NBD Bank Custodian Graphic Communications Union #2, PO Box 771072,
Detroit, MI 48277 (8.95%)
Holland Hospital Endowment Fund, One Financial Center,
Holland, MI 49423 (13.11%)
Emerging Markets Debt Fund:
--------------------------
IBM Retirement Plan Trust, c/o Chase Manhattan Bank, 3 Chase
Metrotech Center, Brooklyn, NY 11245 (22.96%)
TRW Master Trust, c/o Boston Safe Deposit & Trust Company, One Cabot Road,
Medford, MA 02155 (5.95%)
Hewlett Packard Deferred Profit Sharing Plan & Retirement Fund, 3000
Hanover Street, Palo Alto, CA 94304 (7.99%)
Iowa Public Employees Retirement System, 600 E. Court Avenue,
Des Moines, IA 50309 (19.27%)
Dallas Police & Fire Pension System, 2777 Stemmons Freeway,
Dallas, TX 75207 (7.39%)
Municipal Fire & Police Retirement System of Iowa, 950 Office Park Road
Suite 321, Des Moines, IA 50265 (10.66%)
Owen J. Newlin, Managing Trustee, 2700 Westown Parkway, Suite 220,
West Des Moines, IA 50266 (6.14%)
MLR&R, 116 Buffalo Street, Canandaigua, NY 14424 (6.24%)
Shareholder and Trustee Liability
The Trust is organized as a Delaware business trust and, under Delaware law,
the shareholders of a business trust are not generally subject to liability for
the debts or obligations of the trust. Similarly, Delaware law provides that
none of the Funds will be liable for the debts or obligations of any other Fund.
How-
41
<PAGE>
ever, no similar statutory or other authority limiting business trust
shareholder liability exists in other states. As a result, to the extent that a
Delaware business trust or a shareholder is subject to the jurisdiction of the
courts in such other states, the courts may not apply Delaware law and may
thereby subject the Delaware business trust shareholders to liability. To guard
against this risk, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. Notice of such
disclaimer will normally be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
provides for indemnification by the relevant Fund for any loss suffered by a
shareholder as a result of an obligation of the Fund. The Declaration of Trust
also provides that the Trust shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the Trust and
satisfy any judgment thereon. The Trustees believe that, in view of the above,
the risk of personal liability of shareholders is remote.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
Consideration for Purchases of Shares
The Trust generally will not issue shares of the Funds for consideration
other than cash. At the Trust's sole discretion, however, it may issue Fund
shares for consideration other than cash in connection with an acquisition of
portfolio securities (other than municipal debt securities issued by state
political subdivisions or their agencies or instrumentalities) or pursuant to a
bona fide purchase of assets, merger or other reorganization, provided (i) the
securities meet the investment objectives and policies of the Fund; (ii) the
securities are acquired by the Fund for investment and not for resale; (iii) the
securities are not restricted as to transfer either by law or liquidity of
market; and (iv) the securities have a value which is readily ascertainable (
and not established only by valuation procedures) as evidenced by a listing on
the American Stock Exchange or the New York Stock Exchange or by quotation on
the NASD Automated Quotation System. An exchange of securities for Fund shares
will generally be a taxable transaction to the shareholder.
ADDITIONAL INFORMATION
Independent Accountants
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036,
serves as the Trust's independent accountants, providing audit services,
including review and consultation in connection with various filings by the
Trust with the Commission and tax authorities.
Registration Statement
The Trust has filed with the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, a Registration Statement under the Securities Act of 1933, as
amended, with respect to the securities of the Funds and certain other series of
the Trust. If further information is desired with respect to the Trust, the
Funds or such other series, reference is made to the Registration Statement and
the exhibits filed as a part thereof.
FINANCIAL STATEMENTS
The Trust's audited financial statements for the period ended October 31,
1995 are included in, and incorporated by reference into, this Statement of
Additional Information in reliance upon the report of Price Waterhouse LLP, the
Trust's independent accountants, as experts in accounting and auditing.
42
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Municipal Bond Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Municipal Bonds (98.7%)
Alabama (2.6%)
Mobile, Certificate of Participation,
Affordable Housing
6.000%, 02/01/98 $ 275 $ 273
6.200%, 02/01/99 350 346
6.300%, 02/01/00 400 394
6.750%, 02/01/04 4,950 4,819
--------
5,832
--------
Alaska (0.3%)
Anchorage, Certificate of
Participation, series B
(Asset Guaranty)
5.100%, 04/01/96 710 713
--------
Arizona (0.3%)
Maricopa County, Hospital RB,
Samaritan Health Service (ETM)
7.625%, 01/01/08 550 641
--------
Arkansas (4.0%)
Drew County, Public Facilities Board,
Single Family Mortgage RB,
series A-2 (FNMA)
7.900%, 08/01/11 488 528
Fayetteville, Public Facilities Board,
Single Family Mortgage RB
7.250%, 04/01/11 1,590 1,763
Little Rock, Capital Improvement,
series 1995A
5.950%, 02/01/12 700 712
Lonoke County,
Residential Housing RB, Single Family
Mortgage, series 1993 B
7.375%, 04/01/11 392 407
Mississippi County, Public Facilities
Board, Mortgage RB, series 1
7.200%, 07/15/10 1,000 1,110
North Little Rock,
Residential Housing Facilities RB,
series 1991-1
12/01/10 (C) 7,765 2,796
Saline County, Residential Housing
Facilities, Single Family Mortgage RB
7.875%, 03/01/11 1,035 1,114
Stuttgart, Public Facilities Board,
Single Family Mortgage RB, series B
7.750%, 09/01/11 353 372
--------
8,802
--------
California (2.7%)
Los Angeles, Multi-Family Housing RB,
Earthquake Rehabilitation Projects,
series B, Mandatory Put 12/01/07 @
100 (FNMA)
5.850%, 12/01/26 (B) $ 480 $ 477
Napa, Housing Facility RB, Napa Park
Apartments, series A (GNMA)
7.500%, 06/20/00 601 596
Pleasant Hill, Multi-Family Housing
RB, Ellinwood Apartments Project,
series A, Mandatory Put 10/01/05 @
100 (FNMA)
5.300%, 10/01/20 3,165 3,184
Sacramento County, Multi-Family
Housing RB, Fairway II Apartments,
Mandatory Put 08/01/05 @ 100 (FNMA)
5.350%, 08/01/25 1,000 1,005
Santa Clara, Housing Authority RB
(GNMA)
7.500%, 06/20/00 749 749
--------
6,011
--------
Colorado (1.7%)
Boulder County, Refunding and
Improvement RB, National Center
Atmosphere
6.900%, 12/01/07 1,200 1,279
Commerce City, Single Family Mortgage
RB, series A
6.875%, 03/01/12 750 782
Logan County, Single Family Mortgage
RB, series A
8.500%, 11/01/11 385 412
State Housing Finance Authority,
Single Family Mortgage RB, series A
5.000%, 06/01/04 295 286
Vail, Single Family Mortgage RB,
series 1992 A
8.125%, 06/01/10 610 645
Westminster,
Multi-Family Housing RB, Semper
Village Apartments, Mandatory Put
09/01/06 @ 100 (AXA Reinsurance)
5.950%, 09/01/15 500 500
--------
3,904
--------
16
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- -------------------------------------------------------------------------------
Delaware (3.6%)
New Castle County, Single Family
Mortgage RB
110.250%, 11/01/05 $ 360 $ 388
State Economic Development Authority
RB, Wilmington Friends School Project
6.300%, 07/01/96 40 40
6.300%, 07/01/97 45 45
6.300%, 07/01/98 45 45
6.300%, 07/01/99 50 50
6.300%, 07/01/00 50 50
6.300%, 07/01/01 55 55
6.300%, 07/01/02 60 60
6.300%, 07/01/03 60 61
6.300%, 07/01/04 65 66
6.300%, 07/01/05 70 71
6.300%, 07/01/06 75 76
6.300%, 07/01/07 80 81
6.300%, 07/01/08 85 86
6.300%, 07/01/09 90 91
6.300%, 07/01/10 95 96
6.300%, 07/01/11 100 101
6.300%, 07/01/12 110 111
6.300%, 07/01/13 115 116
State Health Facilities Authority RB,
Medical Center of Delaware, series B,
Mandatory Put 10/01/06 @ 101 (MBIA)
6.500%, 10/01/13 3,750 4,261
State Housing Authority Residential
Mortgage RB, series A
8.750%, 06/01/17 830 848
Sussex County, Economic Development
RB, Gateway Partnership VI Project A,
Mandatory Put 05/01/97 @ 100
7.850%, 12/01/16 (A) 500 500
Wilmington, Special Obligation Bonds,
Wilmington Trust Center
8.500%, 04/01/04 655 671
--------
7,969
--------
Florida (3.8%)
Dunedin, Health Facility Authority RB,
Mease Hospital Incorporated (ETM)
7.600%, 10/01/08 165 190
Fernando Apartments, Elderly Housing
RB, Section 8 Assistance
9.750%, 10/01/11 790 844
Miami Beach, Housing Authority,
Elderly Housing RB, First Mortgage
Section 8 1995
6.625%, 01/15/09 1,200 1,239
Miramar, Water Improvement Assessment
RB (FGIC)
5.125%, 10/01/20 $6,020 $6,073
State Housing Finance Authority RB,
Home Ownership Mortgage
1987 G2 (GNMA)
8.595%, 11/01/18 (B) 90 92
--------
8,438
--------
Georgia (3.3%)
Augusta, Housing Rehabilitation Agency
RB,
Bon Air Project, series C
7.000%, 09/01/05 1,000 1,083
Dekalb County, Housing
Authority RB, Macon Apartments
6.400%, 05/01/05 785 806
Fulton County, Housing AuthoritySingle
Family Mortgage RB (GNMA)
6.200%, 03/01/13 (B) 2,180 2,212
Marietta, Housing Authority
Multi-Family RB, Ridge Pointe
Apartments, series A, Mandatory Put
06/01/05 @ 100 (FNMA)
5.700%, 06/01/25 1,000 1,016
Marietta, Housing Authority
Multi-Family RB, series A, Mandatory
Put 06/01/01 @ 100 (New England
Mutual Life Guaranty)
6.000%, 06/01/07 1,000 1,025
Saint Mary's, Housing Authority
Multi-Family RB, Cumberland
Oaks Apartments, series A (FNMA)
7.250%, 09/01/05 695 738
Saint Mary's, Housing Authority
Multi-Family RB, Pines Apartments,
series C (FNMA)
7.250%, 10/01/05 305 323
State Residential Finance Housing RB,
series A
6.750%, 06/01/16 (B) 250 258
--------
7,461
--------
Hawaii (0.2%)
Honolulu, Housing Authority
Multi-Family RB, Waipahu Towers
Project, series A (GNMA)
6.900%, 06/20/05 (B) 410 429
--------
17
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Idaho (0.4%)
State Housing Agency,Single Family
Mortgage RB, series F
5.800%, 07/01/07 (B) $ 1,000 $ 1,011
--------
Illinois (9.5%)
Alsip, Multi-Family Housing RB,
Mandatory Put 11/01/03 @ 100
5.125%, 11/01/15 (A) 500 492
Alton, Hospital Facilities RB, Alton
Memorial Hospital Project (ETM)
7.000%, 07/01/05 255 281
Bolingbrook, Hospital Authority RB,
Hinsdale & Sanitarium Hospital
Project (ETM)
7.250%, 08/01/08 950 1,077
Bolingbrook, Mortgage RB, Capital
Appreciation series 1
01/01/11 (C) 12,960 4,503
Countryside, Multi-Family Housing RB,
Countryside Partners Ltd, series A,
Mandatory Put 07/01/03 @ 100
5.250%, 07/01/23 (A) 250 243
Des Plains, Hospital Facilities RB,
Holy Family Hospital (ETM)(FGIC)
7.000%, 01/01/07 235 262
Development Finance Authority RB
6.050%, 11/15/99 325 336
6.875%, 11/15/05 875 933
Development Finance Authority, Fund
for Child Care Facilities Project,
series A
7.400%, 09/01/04 2,800 3,094
Health Facilities Authority, Lutheran
Social Services RB
6.125%, 08/15/10 1,100 997
6.125%, 08/15/20 1,350 1,169
Health Facilities Authority, Mercy
Health Center RB (ETM)
7.100%, 06/01/09 535 601
7.500%, 09/01/09 135 154
Health Facilities Authority, Mercy
Hospital & Medical Center RB (ETM)
10.000%, 01/01/15 1,070 1,462
Health Facilities Authority, Morris
Hospital RB
6.125%, 12/01/23 1,000 926
Quincy, Single Family Mortgage RB
6.875%, 03/01/10 850 886
Village of Buffalo Grove, Economic
Development Project RB, Country Line
Partners
5.450%, 08/15/02 $ 1,940 $ 1,959
Village of Graylake, Multi-Family
Housing RB, Country Squire Village
Apartments, series A (FHA)
6.000%, 06/01/05 1,475 1,501
Western Illinois University RB (ETM)
7.400%, 04/01/09 130 148
--------
21,024
--------
Indiana (1.3%)
Indianapolis, Economic Development RB,
Knob in the Woods Project, Mandatory
Put 10/01/04 @ 100 (FNMA)
6.375%, 12/01/24 (B) 2,635 2,889
--------
Iowa (2.5%)
Davenport, Hospital Facility RB (ETM)
7.200%, 07/01/09 100 111
Finance Authority, Small Business
Development RB, Terrance Center
Association, L.P. Project (Guaranty
Agreement with Central Life
Assurance)
7.500%, 03/01/22 1,550 1,740
Henry County, Health Center Project RB
6.750%, 06/01/17 3,795 3,619
--------
5,470
--------
Kansas (0.7%)
Johnson County, Single Family Mortgage
RB
5.625%, 05/01/02 245 250
Labette And Cowley Counties, Single
Family Mortgage RB, series A
9.500%, 04/01/13 210 227
Reno County, Single Family Mortgage
Revenue Refunding Bonds, series B
8.700%, 09/01/11 480 519
Wichita, Hospital RB (ETM)
7.000%, 03/01/06 160 177
Wichita, Single Family Mortgage RB,
series A
7.100%, 09/01/09 395 412
--------
1,585
--------
18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Kentucky (0.9%)
Nelson County, Industrial Building RB,
Mabex Universal Corporation Project
6.500%, 04/01/05 (A) (B) $ 2,000 $2,143
--------
Louisiana (4.4%)
Housing Finance Agency, Collateralized
Single Family Housing RB (GNMA)
8.050%, 11/01/14 (B) 490 510
Iberia, Single Family Mortgage RB
7.375%, 01/01/11 1,005 1,080
Public Facilities Authority, Hospital
RB, Southern Baptist Hospital (ETM)
8.000%, 05/15/12 175 210
Public Facilities Authority,
Multi-Family Housing RB, Beau Terre
Project, Mandatory Put 06/01/05 @ 100
(FNMA)
5.800%, 06/01/25 400 407
Public Facilities Authority,
Multi-Family Housing RB, Carlyle
Apartments, Mandatory Put 06/15/05 @
100 (AXA Reinsurance)
5.950%, 06/15/19 1,440 1,501
Public Facilities Authority,
Multi-Family Housing RB, Oakleigh
Apartment Project (AXA Reinsurance)
5.750%, 03/15/03 295 306
5.850%, 03/15/04 315 326
5.950%, 03/15/05 330 342
Public Facilities Authority, Single
Family Mortgage RB, series A
7.375%, 10/01/12 755 768
Public Facilities Authority, Single
Family Mortgage RB, series C
8.450%, 12/01/12 968 1,038
Public Facilities Authority, Single
Family Mortgage RB, series C (GNMA)
8.800%, 04/01/13 995 1,045
Public Facilities Authority,
Student Loan RB, Senior series A-2 RB
6.750%, 09/01/06 (B) 2,000 2,121
--------
9,654
--------
Maine (0.2%)
State Housing Authority RB,
series B
8.400%, 11/15/07 (B) $ 300 $ 311
--------
Maryland (4.0%)
Baltimore, Industrial Development
Authority RB,
Gay Street Project (AMBAC)
10.350%, 12/01/13 4,605 4,717
Cecil County, Economic Development RB,
Northeast Plaza Association, series A
6.875%, 08/23/08 1,760 1,901
Cecil County, Economic Development RB,
Northeast Plaza Association, series B
6.875%, 12/01/10 525 566
Frederick County, Economic Development
RB, Mortgage
Revenue Refunding, series A (FHA)
5.900%, 02/01/05 400 403
Prince George's County,
Emerson House Project RB, series A
6.400%, 10/15/05 1,200 1,248
--------
8,835
--------
Michigan (0.9%)
Petoskey, Hospital Finance
Authority RB (ETM)
6.700%, 03/01/07 235 257
State Hospital Finance Authority RB,
St. Joseph Mercy Hospital
Project (ETM)
7.000%, 07/01/05 175 193
State Hospital Finance
Authority RB, St. Lawrence
Hospital Project (ETM)
7.500%, 05/01/07 515 589
Wayne County, Building Authority,
Capital Improvement Bonds,
series 1992 A, Limited Tax GO,
Pre-Refunded 03/01/02 @ 102
8.000%, 03/01/17 750 897
--------
1,936
--------
Mississippi (2.8%)
Mississippi Home Corporation, Residual
RB, Capital Appreciation, series
1992-I
09/15/16 (C) 21,100 4,906
19
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Mississippi Home Corporation,
Single Family RB, Mortgage Access
Program, series 1994 A (GNMA)
4.500%, 06/01/99 (B) $ 530 $ 521
5.000%, 06/01/04 (B) 850 850
--------
6,277
--------
Missouri (1.7%)
Kansas City, Industrial Development
Authority, Multi-FamilyHousing RB,
Coves North Duplexes, Mandatory Put
09/01/05 @ 100 (FNMA)
5.600%, 08/01/25 2,780 2,804
Saint Louis County, Convention And
Sports Center RB, series B
16.500%, 08/15/01 775 838
--------
3,642
--------
Montana (0.8%)
Missoula County,
Missoula Community Hospital RB
(ETM)(AMBAC)
7.125%, 06/01/07 435 488
State Higher Education Student Loan
Program RB, Senior series A
5.750%, 12/01/12 (B) 1,350 1,308
--------
1,796
--------
Nebraska (0.9%)
Hall County,
Hospital Authority RB (ETM)
8.000%, 01/01/07 205 240
State Higher Education Student
Loan Program RB, Senior series A
5.250%, 06/01/02 (B) 1,695 1,685
--------
1,925
--------
Nevada (0.4%)
Single Family Housing Authority RB,
series B
6.450%, 10/01/07 (B) 910 918
--------
New Jersey (4.3%)
Economic Development Authority,
Economic Growth RB, series H-2
5.000%, 10/01/05 (A) (B) 860 851
Education Facilities Authority RB,
Caldwell College, series A
7.250%, 07/01/25 1,200 1,215
Jersey City, Redevelopment
Authority RB, Dixon Mill
Apartments Project, Mandatory
Put 05/01/00 @ 100 (FNMA)
6.100%, 05/01/12 $1,150 $1,192
Mansfield Township, Board of
Education Certificate of
Participation (MBIA)
5.500%, 03/01/07 1,840 1,921
State Housing Finance Authority RB,
series A, Section 8 Assistance
6.700%, 11/01/04 3,000 3,145
Woodbury, Bond Anticipation Notes
5.700%, 03/01/96 1,209 1,217
--------
9,541
--------
New Mexico (1.1%)
Albuquerque, Municipal Collateralized
Mortgage Obligation, Class B-2 (FGIC)
05/15/11 (C) 1,562 506
Sandoval County, Gross Receipts Tax RB
(Intel Guaranty)
6.100%, 11/01/99 115 117
6.200%, 11/01/00 120 123
6.250%, 11/01/01 130 134
6.350%, 11/01/02 140 144
6.400%, 11/01/03 145 150
6.450%, 11/01/04 155 161
7.150%, 11/01/10 705 754
Santa Fe, Single Family Mortgage
Authority RB, series 1991
8.450%, 12/01/11 236 254
--------
2,343
--------
New York (3.8%)
Mechanicville, Multi-Family Housing
RB, Elderly Housing (FHA)
6.900%, 08/01/22 2,500 2,600
Rochester, Housing Authority Mortgage
RB, Section 8 Assistance, Crossroads
Apartments
7.300%, 07/01/05 3,565 3,792
UFA Development Corporation, Mortgage
RB, Loretto Utica Project (FHA)
5.150%, 07/01/03 2,000 1,970
--------
8,362
--------
20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
North Carolina (0.1%)
Asheville, Housing Development
Corporation RB, Section 8 Assistance,
Asheville Gardens, Pre-Refunded
11/01/09 @ 100
10.500%, 05/01/11 $ 155 $ 212
--------
Ohio (2.9%)
Housing Finance Authority, Single
Family Mortgage RB, series A (GNMA)
8.400%, 02/01/20 (B) 800 850
Ohio Capital for Housing Mortgage RB,
Section 8 Assistance, Project E
(MBIA) (FHA)
5.700%, 01/01/05 510 515
Student Loan Funding
Corporation, series A (GTD)
5.500%, 12/01/01 (B) 4,960 5,041
--------
6,406
--------
Oklahoma (1.1%)
Bryan County, Single Family
Mortgage RB, series A
8.600%, 07/01/10 335 354
Cleveland County, Home Loan
Authority, Single Family Mortgage RB,
series 1992
8.375%, 08/01/12 1,290 1,364
Payne County, Housing Finance
Authority, Single Family Mortgage RB,
series A
5.625%, 09/01/02 70 71
8.625%, 03/01/11 500 528
-------
2,317
-------
Pennsylvania (10.4%)
Allegheny County,
Hospital Development Authority RB,
South Side Hospital
8.500%, 06/01/01 490 508
8.750%, 06/01/10 2,890 3,002
Allegheny County,
Industrial Development Authority RB
6.000%, 10/01/04 (A) (B) 1,000 1,008
Allegheny County, Residential
Finance Authority Mortgage
RB (GNMA)
6.500%, 11/01/14 645 660
Allentown, Hospital Authority RB,
Sacred Heart Hospital of
Allentown, series A
6.200%, 11/15/03 $ 700 $ 726
6.500%, 11/15/08 3,400 3,464
Borough of Tarentum,
Guaranteed Electric RB, series A
5.500%, 09/01/08 645 605
Bucks County, Industrial
Development Authority RB, Women's
Humane Society
7.100%, 12/01/09 600 604
Dauphin County, General
Authority RB, WW15 Term, Mandatory
Tender 06/01/09 @ 100
6.850%, 06/01/26 700 750
Falls Township, Hospital Authority
RB, Delaware Valley Medical Center
(FHA)
6.900%, 08/01/11 3,685 4,040
Lehigh County, General Purpose
Authority RB, Muhlenberg
Continuing Care, Mandatory
Put 03/15/02 @ 100
7.800%, 03/15/20 (A) 1,920 2,076
Montgomery County,
Higher Education & Health Authority
RB, Northwestern Corporation
6.250%, 06/01/99 680 703
Montgomery County, Industrial
Development Authority RB, BMHR
Associate Project
6.750%, 11/15/04 (A) 250 260
Montgomery County,
Industrial Development Authority
RB,Emergency
Care Research Institute Project
6.400%, 06/01/03 465 478
Philadelphia, Hospital And Higher
Education Authority RB,
Northwestern Corporation
6.250%, 06/01/99 765 791
Philadelphia, Hospital And Higher
Education Facilities RB,
Jeanes Health System Project
6.200%, 07/01/00 1,360 1,399
Philadelphia, Industrial
Development Authority RB, National
Board of Medical Examiners Project
6.750%, 05/01/12 1,500 1,613
21
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Municipal Bond Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
State Housing Authority,
Single Family Mortgage RB,
series 1991-31A
7.000%, 10/01/05 (B) $ 230 $ 245
--------
22,932
--------
Rhode Island (0.2%)
State Industrial Facilities RB,
Crystal Thermoplastics Project,
series A (IRBA Guaranty)
6.900%, 08/01/14 (B) 380 394
--------
South Carolina (2.8%)
Housing Finance & Development
Authority, Multi-Family RB,
Bryton Point Apartments Project,
Mandatory Put
06/01/05 @ 100 (FNMA)
5.700%, 06/01/25 6,050 6,126
--------
South Dakota (0.5%)
Student Loan Assistance RB,
series A (GTD)
7.600%, 08/01/04 (B) 510 545
7.700%, 08/01/07 (B) 500 534
--------
1,079
--------
Tennessee (0.1%)
Greeneville, Health & Education
Facility Board RB, Southern
Advent Hospital (ETM)
8.700%, 10/01/09 240 300
--------
Texas (10.0%)
Bexar County, Housing Finance
Corporation Residual Bonds,
Capital Appreciation
03/01/15 (C) 1,765 499
Brazos, Higher Education
Authority RB
6.500%, 06/01/04 (B) 500 527
Collin County, Housing Finance
Corporation, Multi-Family
Mortgage RB, Preston Bend
Apartments Project, Mandatory Put
09/01/03 @ 100 (AXA Reinsurance)
6.500%, 09/01/22 500 523
Denison, Hospital Authority RB,
Texoma Medical Center (ETM)
7.125%, 07/01/08 100 112
Duncanville, Hospital Development
Authority RB, Methodist Hospital
Dallas Project (ETM)
9.000%, 01/01/10 555 693
Fort Worth, Housing Finance
Corporation RB
8.500%, 10/01/11 $ 495 $ 535
Grand Prairie, Multi-Family
Mortgage RB, Windsor Housing
Foundation, Project A,
Sugar Creek Apartments
6.000%, 02/01/05 760 760
Northeast Hospital Authority
RB (ETM)
8.000%, 07/01/08 275 326
Odessa, Housing Authority,
Multi-Family Mortgage RB,
Section 8 Assist Project, series A
5.875%, 10/01/03 900 882
Odessa, Housing Authority,
Multi-Family Mortgage RB,
Section 8 Assist Project, series B
5.875%, 10/01/03 1,720 1,686
6.375%, 10/01/11 2,735 2,615
Odessa, Single Family Mortgage RB,
series A (FNMA)
8.450%, 11/01/11 382 403
South Plains, Regional Housing
Authority RB, Section 8 Assistance
Project, series A (HUD Section 8)
6.000%, 08/01/00 75 76
6.500%, 08/01/05 325 330
6.900%, 08/01/09 500 509
Southeast Hospital Financing
Agency RB, Memorial Hospital System
Project (ETM)
8.500%, 12/01/08 220 266
7.500%, 12/01/09 365 422
State Department of Housing &
Community RB,
Capital Appreciation
03/01/15 (C) 40,530 10,739
State Housing Authority RB,
series A (GNMA)
7.350%, 01/01/11 70 73
Thomason, Health Facilities
Development Corporation,
El Paso County Hospital
District GO (MBIA)
7.200%, 08/15/98 65 66
--------
22,042
--------
Utah (1.9%)
Brigham City, Special Assessment
Improvement District Number 22
9.000%, 08/01/04 270 287
Hilldale, General Obligation
Electric Bonds
7.500%, 12/15/03 (B) 545 576
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
State Finance Agency, Single Family
Mortgage RB, Issue F-1 (AMBAC)
5.850%, 07/01/07 $ 1,000 $ 1,026
State Housing Finance Agency,
Single Family Mortgage RB,
series B-2
7.600%, 01/01/22 (B) 255 267
State Municipal Finance Corporation,
Local Government RB
7.300%, 12/01/03 500 531
Weber County, Municipal Building
Authority RB, series 1994
(Asset Guaranty)
6.750%, 12/15/04 1,275 1,396
--------
4,083
--------
Washington (3.6%)
Clark County, GO, Pre-Refunded
12/01/95 @ 100
7.200%, 12/01/98 100 100
Seattle, Low Income Housing
Assistance Authority RB,
Kin On Project, series A (GNMA)
7.400%, 11/20/36 1,300 1,401
State Housing Finance
Commission RB, series A (FNMA)
7.000%, 07/01/99 220 226
State Housing Finance
Commission RB, series B
(GNMA) (FNMA)
6.900%, 07/16/16 6,030 6,316
--------
8,043
--------
West Virginia (1.1%)
Harrison County, Municipal
Collateralized Mortgage Obligation
Bonds, series B (AMBAC)
10/20/10 (C) 2,822 953
Marshall County, Capital
Appreciation RB (MBIA)
05/01/14 (C) 3,000 761
Raleigh Fayette & Nicholas
Counties, Municipal
Collateralized Mortgage
Obligation Bonds, series B
(AMBAC)
06/20/10 (C) 2,167 723
--------
2,437
--------
Wisconsin (0.4%)
State Housing And Economic
Development Authority RB,
series B
6.625%, 09/01/20 (B) 600 609
Whitewater, Waterworks System RB
7.500%, 07/01/16 $ 250 $ 283
--------
892
--------
Wyoming (0.5%)
City of Cheyenne, Federal Mineral
Royalty RB, Second Lien
6.200%, 06/01/09 1,000 1,000
--------
Total Municipal Bonds
(Cost $212,352,632) 218,125
--------
Total Investments (98.7% of Net Assets)
(Cost $212,352,632) $218,125
========
(A) Securities are held in connection with a letter of
credit issued by a major commercial bank.
(B) Income on bond may be subject to Alternative
Minimum Tax.
(C) Zero Coupon Bond.
ETM Escrowed to Maturity.
GO General Obligation Bond.
RB Revenue Bond.
The following organizations have provided underlying
credit support for the securities as defined in the
Schedule of Investments:
AMBAC American Municipal Bond Assurance Corporation.
AXA Reinsurance
FGIC Federal Guaranty Insurance Corporation.
FHA Federal Housing Association.
FNMA Federal National Mortgage Association.
GNMA Government National Mortgage Association.
GTD Guaranteed Student Loans.
HUD Housing & Urban Development
MBIA Municipal Bond Insurance Association.
The accompanying notes are an integral part of the
financial statements.
Fixed Income Fund
Corporate Obligations (16.9%)
Aegon NV
8.000%, 08/15/06 $ 4,000 $ 4,360
Associated Estates Realty
8.375%, 04/15/00 17,000 17,848
Bear Stearns
6.625%, 01/15/04 1,430 1,407
Fairfax Financial Holdings
8.250%, 10/01/15 7,615 7,701
Kemper
9.000%, 03/02/98 MTN 2,000 2,103
6.875%, 09/15/03 6,275 6,204
Lehman Brothers
8.875%, 11/01/98 900 955
23
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Fixed Income Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
7.125%, 07/15/02 $ 4,160 $ 4,212
11.625%, 05/15/05 2,485 3,237
Navistar Financial Corporation
Owner Trust series 1995-B,
class A2
5.940%, 10/15/98 1,000 999
Paine Webber
9.250%, 12/15/01 3,900 4,329
8.390%, 07/24/02 MTN 1,000 1,064
7.875%, 02/15/03 3,000 3,143
6.900%, 08/15/03 MTN 1,250 1,217
Prudential Funding
6.750%, 09/15/23 2,000 1,808
Prudential Insurance America
6.875%, 04/15/03 10,000 9,825
Swiss Bank Corporation
7.000%, 10/15/15 500 494
The Equitable
7.300%, 12/01/03 4,500 4,573
Vesta Insurance Group
8.750%, 07/15/25 7,750 8,128
--------
Total Corporate Obligations
(Cost $80,774,507) 83,607
--------
Asset Backed Securities (3.4%)
Autobond Receivables Corporate
series 1993-k
6.350%, 02/15/99 1,809 1,791
Carco Auto Loan Master Trust
series 1995-3, class A (C)
6.030%, 05/15/00 3,150 3,149
Caterpillar Financial Asset Trust
series 1995-A, class A2
6.100%, 08/25/01 6,350 6,360
National Collegiate Trust Gate
Receivable 1995-S1
8.830%, 09/20/11 2,925 3,232
Standard Credit Card Master Trust
series 1995-5, class A (C)
6.070%, 05/07/00 2,000 2,002
--------
Total Asset Backed Securities
(Cost $16,238,894) 16,534
--------
Mortgage Backed Securities (6.4%)
Countrywide Mortgage Backed
Securities 1994-C A8
6.500%, 03/25/24 1,265 1,092
General Electric Capital Mortgage
Services series 1993-14 A7
6.500%, 11/25/23 1,065 935
General Electric Capital Mortgage
Services series 1994-18 A2
7.000%, 08/25/24 $ 1,157 $ 1,154
Housing Securities Incorporated
series 1994-1, class A5
5.500%, 08/25/03 3,790 3,754
Prudential Home Mortgage
series 1988-5A (C)
10.524%, 08/25/18 854 788
Prudential Home Mortgage
series 1993-1 A1
7.500%, 02/25/23 7,845 7,856
Prudential Home Mortgage
series 1993-61 A1
6.500%, 12/25/08 3,400 3,390
Prudential Home Mortgage
series 1994-12 A7
6.050%, 04/25/24 3,999 3,261
Prudential Home Mortgage
series 1994-17 A5
6.250%, 04/25/24 5,700 4,929
Sears Mortgage Securities
series 1992-3, class T8
7.000%, 07/25/20 1,085 1,083
Vanderbilt Mortgage Finance
series 1994-A, class A1
7.000%, 07/10/19 3,315 3,357
--------
Total Mortgage Backed Securities
(Cost $31,071,492) 31,599
--------
U.S. Government Agency Obligations (17.7%)
Federal Home Loan Mortgage
Corporation REMIC series 1360, class
PK
10.000%, 12/15/20 2,200 2,470
Federal Home Loan Mortgage
Corporation REMIC series 1577, class
PG
5.500%, 03/15/21 400 382
Federal Home Loan Mortgage
Corporation REMIC series 1622,
class G
6.250%, 11/15/22 10,000 8,970
Federal Home Loan Mortgage
Corporation REMIC series 1625,
class BA
5.000%, 11/15/00 1,000 992
Federal Home Loan Mortgage
Corporation REMIC series 1712,
class PC
5.500%, 02/15/03 2,500 2,470
Federal Home Loan Mortgage
Corporation REMIC series 1773,
class E
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
8.500%, 04/15/23 $ 2,910 $ 3,035
Federal Home Loan Mortgage
Corporation REMIC
series 33, class C
8.000%, 09/15/18 6,755 6,801
Federal Home Loan Mortgage
Corporation REMIC series 70,
class C
9.000%, 09/15/20 1,004 1,055
Federal National Mortgage
Association REMIC
series 1989-74J
9.800%, 10/25/19 2,500 2,745
Federal National Mortgage
Association REMIC
series 1989-79D
9.000%, 11/25/19 1,350 1,463
Federal National Mortgage
Association REMIC
series 1991-137, class E
8.050%, 01/25/20 5,248 5,300
Federal National Mortgage
Association REMIC
series 1992-100, class M
8.500%, 06/25/05 8,000 8,351
Federal National Mortgage
Association REMIC
series 1993-174EA
6.150%, 10/25/07 4,000 3,939
Federal National Mortgage
Association REMIC
series 1994-33, class C
5.000%, 10/25/03 1,000 978
Federal National Mortgage
Association REMIC
series 1995-2, class H
8.500%, 06/25/10 18,200 19,424
Federal National Mortgage
Association REMIC
series G92-22, class Z
7.500%, 06/25/18 6,496 6,487
Federal National Mortgage
Association REMIC
series G92-42, class C
7.000%, 09/25/19 4,814 4,821
Federal National Mortgage
Association REMIC
series X-19C, class G
7.500%, 08/25/21 720 714
Government National Mortgage
Association Pool #413221
8.250%, 05/15/10 2,144 2,253
Guaranteed Export Certificates
series 1994-F
8.187%, 12/15/04 4,705 5,032
--------
Total U.S. Government Agency
Obligations (Cost $85,752,590) $87,682
--------
Taxable Municipal Bonds (29.3%)
Alabama (0.1%)
Chattahoochee Valley Water Supply
RB (Asset Guaranty)
8.600%, 10/01/07 $ 200 227
--------
Arizona (0.2%)
Pima And Maricopa Counties
Industrial Development Authority,
Multi-Family Housing RB,
Bulk Sale Program (FNMA)
6. 500%, 01/01/06 770 774
--------
California (6.7%)
Compton Community
Redevelopment Agency RB,
Series 1995B (CGIC)
5.950%, 08/01/96 1,785 1,785
Compton Community
Redevelopment Agency RB,
Series 1995B (CGIC)
6.150%, 08/01/97 2,310 2,313
Desert Hospital Corporation
Gross RB, series A
8.400%, 07/01/03 2,655 2,509
Desert Hospital Corporation
Gross RB, series A
9.000%, 07/01/13 5,945 5,878
Los Angeles County Pension
Obligation Bonds, series A (FSA)
8.570%, 06/30/05 4,275 4,767
Los Angeles County Pension
Obligation Bond,
series A (AMBAC)
8.620%, 06/30/06 200 225
San Diego County Pension
Obligation RB, Series A (FSA)
6.240%, 08/15/02 2,000 1,928
San Francisco City and County
Redevelopment Agency,
Section 8 Housing RB,
series B (MBIA) (FHA)
7.500%, 07/01/24 3,860 3,879
State Housing Finance Agency,
Single Family Mortgage RB,
series 1995 (AMBAC)
7.900%, 08/01/07 9,000 9,777
--------
33,061
--------
25
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Fixed Income Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Colorado (0.0%)
Adams County Single Family
Mortgage RB, series A-1 (FSA)
8.700%, 12/01/08 $ 95 $ 99
--------
Connecticut (0.9%)
State Health And Educational RB,
Nursing Home Program,
AHF/Hartford Project
8.450%, 11/01/99 1,000 1,051
State Health And Educational RB,
Sheridan Woods Center Project
7.950%, 11/01/05 1,755 1,878
State Health and Educational RB,
Sheridan Woods Center Project
8.730%, 11/01/17 1,150 1,366
--------
4,295
--------
Florida (0.3%)
Sarasota Water and Sewer
Utility RB, series A (FGIC)
4.450%, 10/01/96 1,665 1,643
--------
Georgia (0.8%)
Atlanta Urban Residential
Finance Authority RB,
Series 1994 (FNMA) (A)
10.000%, 10/01/16 21,000 4,016
--------
Hawaii (0.6%)
Honolulu City and County
Mortgage RB, Hale
Pauahi Project,
series A (MBIA) (FHA)
7.250%, 07/01/28 3,000 3,128
--------
Idaho (0.7%)
Sand Creek Partnership
Multi-Family Housing RB
8.250%, 12/01/18 3,675 3,275
--------
Kansas (0.2%)
Olathe Labette County Single
Family Mortgage RB,
series 1993A (A)
10.000%, 02/01/16 2,985 745
--------
Maryland (0.8%)
Baltimore GO, series B (FGIC)
8.100%, 10/15/10 1,775 2,004
Baltimore GO, series B (FGIC)
8.700%, 10/15/15 1,875 2,149
--------
4,153
--------
Massachusetts (1.8%)
Plymouth County Correctional
Facility
10.400%, 04/01/22 $ 5,100 $5,877
State Housing Finance
Agency RB, series C (FHA)
10.900%, 08/01/20 2,630 2,821
--------
8,698
--------
Michigan (1.2%)
Beaumont Properties RB,
Prerefunded 01/01/99 @ 101
(Escrow State and Local
Government Securities)
10.500%, 01/01/19 3,000 3,408
Muskegon County Unlimited Tax
General Obligation Notes
6.750%, 12/01/95 1,050 1,051
7.000%, 06/01/96 1,000 1,005
7.250%, 12/01/96 650 657
--------
6,121
--------
Missouri (0.8%)
St Louis Housing Finance
Corporation, Section 8
Housing RB, Kendelwood
Project, series A
8.000%, 08/15/15 1,845 1,845
8.100%, 08/15/22 2,210 2,209
--------
4,054
--------
New Jersey (0.8%)
State Economic Development
Authority RB, series R2 (B)
6.800%, 12/01/02 1,525 1,536
State Economic Development
Authority RB, State Contract
7.100%, 09/15/02 2,500 2,522
--------
4,058
--------
New York (2.7%)
Erie County Industrial
Development Agency RB,
Journeys End Project, series A,
Mandatory Tender
01/01/00 @ 100
9.750%, 01/01/15 1,875 1,961
Haverstraw Stony Point
Central School District Bond
Anticipation Notes
7.280%, 02/14/96 2,520 2,526
26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Monroe County Industrial
Development Agency RB,
Nationwide Precision
Products (B) (C)
6.300%, 12/01/04 $2,275 $ 2,275
Montgomery County Industrial
Development Authority,
Central National Bank
Project RB (B) (C)
5.900%, 05/01/25 3,750 3,750
New York City Industrial
Development Agency RB,
series B (MBIA)
8.100%, 09/01/06 1,975 2,197
Port Authority RB,
Ninetieth series
5.950%, 10/01/02 700 667
--------
13,376
--------
Oklahoma (0.9%)
Oklahoma City Airport Trust RB,
Federal Bureau Prisons Project
9.800%, 11/01/14 2,250 2,568
Oklahoma City Airport Trust RB,
Senior 16
9.875%, 07/01/12 1,005 1,107
Oklahoma County Home Finance
Capital Appreciation RB (A)
10.000%, 07/01/12 3,450 901
--------
4,576
--------
Pennsylvania (2.6%)
Allegheny County Sanitary
Authority Sewer RB,
series A (MBIA)
6.600%, 06/01/97 975 987
Allegheny County Sanitary
Authority Sewer RB,
series A (MBIA)
6.800%, 12/01/97 3,795 3,871
Dauphin County General
Authority Health Center,
Tressler Project, series B, Optional
Put 09/01/96 @ 100
7.000%, 09/01/10 1,375 1,376
Harrisburg Authority Resource
Recovery RB, series B (Municipal
Government Guaranteed)
6.000%, 09/01/98 315 309
6.875%, 09/01/03 515 495
7.750%, 09/01/13 3,145 3,173
Harrisburg Higher Education
Assistance Authority
10.500%, 12/01/17 $2,100 $ 2,384
--------
12,595
--------
Rhode Island (0.3%)
Port Authority Economic
Development Corporation RB,
Central Falls Detention Center,
series A
8.200%, 01/15/08 1,269 1,401
--------
Tennessee (1.8%)
LaFollette Properties,
Multi-Family Housing Physical Bonds,
LaFollette Garden Apartments Project
9.600%, 12/01/08 1,000 1,100
Memphis-Shelby County
Industrial Development
Board RB, Cleo Project B (B)
9.100%, 02/01/04 2,200 2,273
Shelby County Collateralized
Mortgage Obligation,
series 1991A, class A-1 (FGIC)
8.140%, 10/15/04 1,818 1,870
Shelby County Collateralized
Mortgage Obligation,
series 1991A, class A-2 (FGIC)
8.900%, 04/15/05 3,600 3,731
--------
8,974
--------
Texas (4.3%)
Cameron County Housing
Finance Corporation, Single Family
Mortgage RB,
series 1990 A (CMO) (FGIC)
10.210%, 09/0 1/10 2,385 2,564
Cameron County Housing
Finance Corporation, Single Family
Mortgage RB, series A
(CMO) (FGIC)
10.450%, 09/01/11 945 1,094
Dallas County Housing Finance
Corporation RB
6.750%, 12/01/03 285 281
State Department of Housing &
Community Affairs RB,
series B
9.500%, 03/01/16 15,270 16,378
27
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Fixed Income Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Tarrant County Housing Finance
Corporation, Single Family Mortgage
RB (MBIA)
6.650%, 07/15/16 $ 750 $ 761
--------
21,078
--------
Utah (0.0%)
State Housing Finance Agency,
Single Family Mortgage RB,
series D-1
9.850%, 07/01/10 300 330
--------
West Virginia (0.8%)
Huntingdon RB (CMO)
9.050%, 01/15/12 1,541 1,703
Kanawha and Putnam Counties
Charleston and Huntington West
Virginia (AMBAC) (A)
0.000%, 12/01/16 9,835 2,348
--------
4,051
--------
Total Taxable Municipal Bonds
(Cost $139,913,811) 144,728
--------
Tax-Exempt Municipal Bonds (11.0%)
Alabama (0.1%)
Mobile GO (ETM)
10.875%, 11/01/07 205 291
--------
California (2.9%)
Los Angeles Multi-Family RB,
Earthquake Rehabilitation Project,
series A, Mandatory Put
12/01/05 @ 100 (FNMA)
5.650%, 12/01/25 5,000 4,994
Los Angeles Multi-Family RB,
Earthquake Rehabilitation Project,
series B, Mandatory Put 12/01/07 @
100 (FNMA)
5 .850%, 12/01/26 3,770 3,746
Sacramento County Multi-Family
Housing Fairway RB, Fairway II
Apartments, Series 1995A, Mandatory
Put 08/01/05 @ 100
(FNMA)
5.350%, 08/01/25 920 925
San Diego Multi-Family
Housing RB, Orange Glen
Apartments, issue A (FHLMC)
5.500%, 08/01/05 760 756
Santa Clara Multi-Family Housing
Authority RB, Elena Gardens
Apartment Project,
series A (GNMA)
5.600%, 06/20/05 $ 240 $ 240
Vista Multi-Family Housing
Authority RB, Pepperwood
Apartment Project, series 1995A,
Mandatory Put 06/01/05 @ 100 (FNMA)
5.700%, 06/01/25 3,500 3,570
--------
14,231
--------
Colorado (0.5%)
Boulder County National Center
Atmosphere RB
6.900%, 12/01/07 380 405
Westminster Multi-Family
Housing RB, Semper Village
Apartments, Mandatory Put 09/01/06 @
100 (AXA Reinsurance)
5.950%, 09/01/15 1,925 1,925
--------
2,330
--------
Delaware (0.7%)
State Health Facility Authority RB,
Beebe Medical Center Project
6.800%, 06/01/24 3,545 3,607
--------
District of Columbia (0.9%)
GO, series A (AMBAC)
5.875%, 06/01/05 3,885 4,045
National Rehabilitation Hospital
RB, Medlantic Project,
series A (MBIA)
7.125%, 11/01/04 500 552
--------
4,597
--------
Florida (0.0%)
Dade County Governmental
Leasing Company, Certificate
of Participation
8.500%, 04/01/07 45 49
--------
Georgia (0.3%)
State Residential Finance
Authority,Home Ownership
Mortgage RB, series A (D)
6.750%, 06/01/16 1,275 1,318
--------
28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Illinois (0.4%)
State Health Facilities
Authority RB, Lutheran Social
Services
6.125%, 08/15/20 $ 2,150 $ 1,862
State Health Facilities Authority
RB, Sydney R Forkosh
Memorial Hospital Project,
Pre-Refunded 07/01/02 @ 100
7.000%, 07/01/07 145 160
--------
2,022
--------
Kentucky (0.3%)
Greater Kentucky Housing
Assistance Corporation, Section 8
Housing RB, series A (MBIA) (FHA)
6.250%, 01/01/05 1,505 1,569
--------
Louisiana (1.6%)
Iberia Home Mortgage Authority,
Single Family Mortgage RB
7.375%, 01/01/11 170 183
State Public Facilities Authority,
Multi-Family Housing RB,
Beau Terre Project, Mandatory
Put 06/01/05 @ 100 (FNMA)
5.800%, 06/01/25 350 356
State Public Facilities Authority,
Multi-Family Housing RB,
Edgewood Apartments,
Mandatory Put 06/01/05 @ 100 (FNMA)
5.800%, 06/01/25 6,530 6,627
State Public Facilities Authority,
Multi-Family Housing RB,
Oakleigh Apartments, series A,
Mandatory Put 03/15/05 @ 100 (AXA
Reinsurance)
5.950%, 03/15/19 915 953
--------
8,119
--------
New York (0.7%)
State Dormitory Authority,
Long Island University RB (Asset
Guaranty)
6.000%, 09/01/08 3,500 3,754
--------
Pennsylvania (0.5%)
Borough of Tarentum Electric RB,
series 1993 A
5.875%, 09/01/18 745 702
Borough of Tarentum Water RB,
series 1993 B
5.875%, 09/01/18 $ 450 $ 424
Philadelphia Water and Sewer
Authority RB, series 10 (ETM)
7.350%, 09/01/04 1,000 1,165
--------
2,291
--------
Utah (1.9%)
Salt Lake City Housing Authority
Multi-Family RB, Housing Development
Project, series A
6.000%, 04/01/25 2,500 2,428
6.125%, 04/01/30 3,750 3,679
Salt Lake County Multi-Family
Housing Authority RB, James
Pointe Apartment Project,
series B2, Mandatory Put
10 /01/05 @ 100
(Asset Guaranty)
5.500%, 10/01/25 1,100 1,110
Salt Lake County Multi-Family
Housing Authority RB, Stillwater
Apartment Project, series A2,
Mandatory Put 10/0 1/05 @ 100 (Asset
Guaranty)
5.500%, 10/01/25 2,160 2,179
--------
9,396
--------
Washington (0.2%)
King County Housing Authority,
Multi-Family Mortgage RB,
Section 8 Elderly Housing,
series A
7.000%, 08/01/03 750 817
--------
Total Tax-Exempt Municipal Bonds
(Cost $53,390,307) 54,391
--------
U. S. Treasury Obligations (13.5%)
United States Treasury Note
6.875%, 02/28/97 3,300 3,352
7.875%, 01/15/98 10,025 10,478
4.750%, 08/31/98 49,000 47,794
7.875%, 11/15/04 4,375 4,928
--------
Total U. S. Treasury Obligations
(Cost $66,010,713) 66,552
--------
29
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Fixed Income Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Cash Equivalents (0.1%)
SEI Daily Income Trust
Government II Portfolio
5.500%, 11/07/95 $ 597 $ 597
--------
Total Cash Equivalents
(Cost $597,345) 597
--------
Repurchase Agreement (2.0%)
J.P. Morgan Securities 5.81%, dated
10/31/95, matures 11/01/95,
repurchase price $9,993,096
(collateralized by U.S. Treasury
Note, par value $10,000,000, 6.125%,
due 07/31/96, market value
$10,192,289) 9,991 9,991
--------
Total Repurchase Agreement
(Cost $9,991,483) 9,991
--------
Total Investments (100.3% of Net Assets)
(Cost $483,741,142) $495,681
========
(A) Zero Coupon Bond
(B) Securities are held in connection with a letter of credit issued by a
major commercial bank.
(C) Variable Rate Security-The rate reflected on the Schedule of
Investments is the rate in effect at October 31, 1995.
(D) Income on bond may be subject to Alternative Minimum Tax.
CMO Collateralized Mortgage Obligation
ETM Escrowed to Maturity
GO General Obligation
MTN Medium Term Note
REMIC Real Estate Mortgage Investment Conduit
RB Revenue Bond
The following organizations have provided underlying credit support for
certain securities as defined in the Schedule of Investments:
AMBAC American Municipal Bond Assurance Company AXA Reinsurance
CGIC Capital Guaranty Insurance Company
FGIC Financial Guaranty Insurance Corporation
FHA Federal Housing Authority
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FSA Financial Security Assurance
GNMA Government National Mortgage Association
MBIA Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
Short-Term
Municipal Bond Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Municipal Bonds (98.9%)
Alabama (5.0%)
Pell City, Industrial Development
Board RB, Shelby Steel Fabricators,
series A
7.700%, 09/01/01 (A) (B) $ 180 $185
--------
Alaska (1.1%)
Anchorage, Certificate of
Participation, series B (Asset
Guaranty)
5.100%, 04/01/96 40 40
--------
California (2.7%)
Port Hueneme, Redevelopment Agency RB,
Century Community
Redevelopment Project, series A,
Pre-Refunded 05/01/96 @ 102 (AMBAC)
7.000%, 05/01/10 15 16
Sacramento, Municipal Utility District
Electric RB, series S, Pre-Refunded
02/01/97 @ 102 (FGIC)
6.625%, 02/01/17 10 11
San Diego Housing Authority,
Multi-Family Mortgage RB, Hillside
Gardens Apartments, series A (FNMA)
4.900%, 05/01/96 75 74
--------
101
--------
Colorado (10.9%)
El Paso County, Residual RB,
Capital Appreciation, series C
07/10/14 (B) (C) 1,000 242
State Housing Finance Authority,
Single Family Mortgage RB, series E
6.250%, 12/01/09 (B) 90 91
Student Obligation Board Authority,
Student Loan RB, series B (GTD)
5.400%, 12/01/95 (B) 75 75
--------
408
--------
Connecticut (2.0%)
Stratford, GO (ETM)
6.250%, 03/01/96 75 76
--------
Florida (1.3%)
Miami, Parking Facility RB, series A
5.500%, 10/01/96 50 51
--------
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Kansas (0.4%)
Johnson County, Single Family
Mortgage RB
5.625%, 05/01/02 $ 15 $ 15
--------
Kentucky (1.7%)
University of Kentucky, Hospital RB,
series A, Pre-Refunded 08/01/96 @ 103
7.500%, 08/01/97 60 63
--------
Massachusetts (11.8%)
Boston, series A, GO (MBIA)
5.900%, 07/01/96 50 51
State Health & Educational Facilities
Authority RB, Williams College,
series C (ETM)
6.250%, 07/01/96 25 25
State Housing Finance Authority,
Single Family Mortgage RB, series 8
7.000%, 06/01/99 205 216
State Industrial Finance RB, Brandeis
University, series C (MBIA)
6.400%, 10/01/96 55 56
State Water Resource Authority RB,
series A
5.600%, 07/15/96 50 51
State Water Resource Authority RB,
Series A (ETM)
5.750%, 12/01/96 40 41
--------
440
--------
Mississippi (4.9%)
Business Finance Corporation,
Industrial Development RB, The Taylor
Group Incorporated Project
5.000%, 05/01/96 (A) (B) 90 90
5.200%, 05/01/97 (A) (B) 95 95
--------
185
--------
Nebraska (3.8%)
Investment Financial Authority,
Multi-Family Mortgage RB, Park Drive
Apartments Project, Mandatory Put
06/01/97 @ 100
4.750%, 06/01/05 (A) 140 140
--------
New Hampshire (2.0%)
State Housing Finance Authority,
Single Family Mortgage RB,
Exchangeable yearly on 07/01
6.125%, 01/01/18 (A) (B) 75 75
--------
New Mexico (9.4%)
Albuquerque, Municipal
Collateralized Mortgage Obligation,
Class B-2 (FGIC) 05/15/11 (C) $539 $174
Albuquerque, Municipal
Collateralized Mortgage Obligation,
Single Family Mortgage, Class B-1
(FSA)
7.650%, 08/15/07 64 68
Sandoval County,
Gross Receipts Tax RB
6.000%, 11/01/98 105 107
--------
349
--------
New York (1.2%)
State Medical Care Facilities,
Hospital & Nursing Home Insured
Mortgage, series A (FHA)
6.700%, 08/15/01 40 44
--------
Oklahoma (3.1%)
Housing Finance Agency,
Single Family Mortgage RB, Class A
(GNMA)
7.997%, 08/01/18 (B) 110 114
--------
Pennsylvania (13.4%)
Butler County, Hospital Authority RB,
Butler Memorial Hospital
7.500%, 07/01/96 50 51
Dauphin County, General
Authority RB, RR1 Term,
Mandatory Put 12/01/95 @ 100
6.000%, 06/01/26 80 80
Philadelphia, Industrial Development
Authority RB, Huff Paper
Company Project
6.100%, 12/15/97 (B) 40 40
State Certificate of Participation
6.200%, 06/01/96 100 100
State Housing Finance Agency,
Single Family Mortgage RB, series K
6.000%, 10/01/96 200 202
Western Westmoreland,
Municipal Authority RB (MGG)
6.150%, 10/15/97 25 25
--------
498
--------
31
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Short-Term Municipal Bond Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Puerto Rico (2.7%)
Commonwealth Public
Improvement, GO
6.000%, 07/01/96 (A) $ 50 $ 50
Electric Power Authority RB,
series M (BIG)
6.700%, 07/01/96 50 51
--------
101
--------
South Dakota (3.0%)
State Housing Development
Authority RB
6.125%, 05/01/08 110 111
--------
Texas (14.7%)
South Plains, Regional Housing
Authority Mortgage RB, Section 8
Assisted Project, series 8 (HUD)
6.000%, 08/01/00 170 171
Southeast Housing Finance Corp
Residual RB, Capital Appreciation,
series B
12/01/16 (C) 1,100 229
Tarrant County, Housing Finance
Corporation, Multi-Family Housing
RB, Summit Lake Project (FNMA),
Mandatory Put 10/01/97 @ 100
7.375%, 10/01/07 140 145
--------
545
--------
Utah (1.1%)
Salt Lake City, Industrial
Development RB, Hermes
Association Project
5.900%, 09/01/96 (A) 40 41
--------
Washington (1.4%)
State Public Power Supply RB,
System Nuclear Project-No. 3,
series B
6.900%, 07/01/96 50 51
--------
Wisconsin (1.3%)
Wisconsin State GO, series 4
3.000%, 11/01/95 50 50
--------
Total Municipal Bonds
(Cost $3,658,324) 3,683
--------
Cash Equivalents (0.5%)
SEI Institutional Tax Free Portfolio 19 19
--------
Total Cash Equivalents
(Cost $18,566) $ 19
--------
Total Investments (99.4% of Net Assets)
(Cost $3,676,890) $3,702
========
(A) Securities are held in connection with a letter of credit issued by a
major commercial bank.
(B) Income on bond may be subject to Alternative Minimum Tax.
(C) Zero Coupon Bond
ETM Escrowed to Maturity
GO General Obligation Bond
RB Revenue Bond
The following organizations have provided underlying credit support for the
securities as defined in the Schedule of Investments:
AMBAC American Municipal Bond Assurance Corporation
BIG Bond Investors Guaranty Insurance Company
FGIC Federal Guaranty Insurance Company
FHA Federal Housing Association
FNMA Federal National Mortgage Association
FSA Financial Security Assurance
GNMA Government National Mortgage Association
GTD Guaranteed Student Loans
HUD Housing & Urban Development Section B
MBIA Municipal Bond Insurance Association
MGG Municipal Government Guaranteed
The accompanying notes are an integral part of the financial statements.
Short-Term
Fixed Income Fund
Asset Backed Securities (18.8%)
Carco Auto Loan Master Trust
series 1995-3, class A (A)
16.030%, 05/15/00 $ 50 $ 50
Caterpillar Financial Asset Trust
series 1995-A, class A2
16.100%, 08/25/01 150 150
Ford Credit Auto Lease Trust
series 1995-1, class A2
16.350%, 10/15/98 150 152
Navistar Financial Corporation
Owner Trust series 1995-B, class A2
15.940%, 10/15/98 150 150
Premier Auto Trust series 1993-5,
class A2
14.220%, 03/02/99 72 71
Sears Credit Account Trust
series 1991-C, class A
18.650%, 07/15/98 100 102
32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Standard Credit Card Master Trust
series 1991-1, class A
8.500%, 08/07/97 $100 $102
--------
Total Asset Backed Securities
(Cost $774,979) 777
--------
Mortgage Backed Securities (11.9%)
Green Tree Financial Corporation
series 1993-1A1
4.900%, 04/15/18 52 51
Green Tree Financial Corporation
series 1994-1A1
5.600%, 04/15/19 91 91
Green Tree Financial Corporation
series 1995-1A1
7.250%, 06/15/25 51 52
Green Tree Financial Corporation
series 1995-4A1
6.050%, 07/15/25 60 60
Housing Securities Incorporated
series 1994-1, class A5
5.500%, 08/25/03 100 99
Vanderbilt Mortgage Finance
series 1994-A, class A1
7.000%, 07/10/19 138 140
--------
Total Mortgage Backed Securities
(Cost $491,134) 493
--------
Corporate Obligations (2.5%)
Lehman Brothers
7.000%, 05/15/97 100 101
--------
Total Corporate Obligations
(Cost $100,428) 101
--------
U.S. Government Agency Obligations (22.0%)
Federal Home Loan Mortgage
Corporation REMIC series 1101KA
7.250%, 09/15/18 76 76
Federal Home Loan Mortgage
Corporation REMIC series 1190F
7.500%, 09/15/18 59 59
Federal Home Loan Mortgage
Corporation REMIC series 1215E
6.750%, 02/15/04 123 122
Federal Home Loan Mortgage
Corporation REMIC series 1306G
7.800%, 05/15/12 91 92
Federal Home Loan Mortgage
Corporation REMIC series 1332D
6.000%, 02/15/13 52 52
Federal National Mortgage
Association REMIC series 1989-85D
7.600%, 05/25/18 $ 66 $ 66
Federal National Mortgage
Association REMIC series 1990-87G
7.500%, 05/25/12 103 103
Federal National Mortgage
Association REMIC series 1991-137E
8.050%, 01/25/20 66 67
Federal National Mortgage
Association REMIC series 1992-161A
6.500%, 12/25/13 59 58
Federal National Mortgage
Association REMIC series G92-35A
7.000%, 10/25/15 98 98
Federal National Mortgage
Association REMIC series G92-42C
7.000%, 09/25/19 52 52
Federal National Mortgage Association
REMIC series 1991-165H
7.500%, 04/25/20 65 66
--------
Total U.S. Government Agency
Obligations (Cost $910,413) 911
--------
Taxable Municipal Bonds (39.3%)
Dallas County, Texas Housing Finance
Corporation
6.625%, 12/01/13 200 193
Dauphin County, Pennsylvania
General Authority Health Center,
Tressler Lutheran, series B, Optional
Put 09/01/96 @ 100
7.000%, 09/01/10 270 269
Gainesville, Florida Utility
Systems Revenue Bonds
4.875%, 04/01/96 170 169
Hillard, Ohio Housing
Development Corporation,
Sturbridge Green, series B (FHA)
7.750%, 01/01/97 75 75
North Washington, Colorado Fire
Protection District General
Obligation, Series A
6.300%, 11/01/95 115 115
Ohio Capital Corporation Housing
Revenue Bonds, series 1995N
(FHA) (MBIA)
6.875%, 07/01/97 90 90
Plainfield, Indiana Quaker School
Building Corporation
6.100%, 07/01/96 135 135
33
<PAGE>
SCHEDULE OF INVESTEMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Short-Term Fixed Income Fund
- --------------------------------------------------------------------------------
Face Amount Market Value
Description (000) (000)
- --------------------------------------------------------------------------------
Rome, New York Housing Development
Revenue Bonds,
Section 8 Housing, series B (MBIA)
(FHA) 7.750%, 07/01/01 $ 70 $ 71
San Francisco, California
Redevelopment Agency, Section 8
Housing, series C (MBIA) (FHA)
6.375%, 01/01/00 180 181
Snake River, Colorado Water District
General Obligation (Asset Guaranty)
6.250%, 12/15/96 180 180
Utah School District Finance
Cooperative, series A, Mandatory
Put 02/15/96 @ 100 15.400%, 02/15/10 150 150
------
Total Taxable Municipal Bonds
(Cost $1,626,422) 1,628
------
Cash Equivalents (4.9%)
SEI Daily Income Trust
Government II Portfolio 204 204
------
Total Cash Equivalents
(Cost $203,902) 204
------
Repurchase Agreement (5.3%)
Lehman Brothers Securities 5.53%,
dated 10/31/95, matures 11/01/95,
repurchase price $218,629
(collateralized by U.S. Treasury
Note, par value $214,224, 7.875%,
due 04/15/98, market value
$225,438) 219 219
------
Total Repurchase Agreement
(Cost $218,596) 219
------
Total Investments
(104.7% of Net Assets) (Cost
$4,325,874) $4,333
======
(A) Variable rate security - The rate reflected on the Schedule of
Investments is the rate in effect at October 31, 1995.
REMIC Real Estate Mortgage Investment Conduit
The following organizations have provided underlying credit support for the
securities as defined in the Schedule of Investments:
FHA Federal Housing Authority Insured
MBIA Municipal Bond Insurance Association
The accompanying notes are an integral part of the financial statements.
Smaller Companies Fund
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Common Stocks (84.9%)
Agriculture (3.6%)
Barefoot 1,500 $ 18
Delta & Pine Land 2,000 78
--------
96
--------
Air Transportation (1.0%)
Atlantic Southeast Airlines 1,000 25
--------
Apparel/Textiles (0.9%)
Mohawk Industries* 1,500 23
--------
Banks (7.7%)
Baybanks 1,000 81
Dime Bancorp* 5,000 53
First Bell Bancorp* 1,000 13
Glendale Federal Savings Bank* 2,000 32
Long Island Bancorp 1,000 23
--------
202
--------
Building & Construction (2.6%)
Lennar 3,000 69
--------
Communications Equipment (4.1%)
American Radio Systems* 1,000 23
Dionex* 1,000 53
Mercury Interactive* 1,500 31
--------
107
--------
Computers & Services (1.7%)
Ceridian* 600 26
Micros Systems* 500 19
--------
45
--------
Consumer Products (1.5%)
Nine West Group* 900 40
--------
Electrical Technology (0.5%)
Komag* 250 14
--------
Financial Services (1.3%)
Credit Acceptance* 1,400 33
--------
Food, Beverage & Tobacco (0.5%)
Robert Mondavi, Class A* 500 14
--------
Healthcare (1.7%)
Gensia Pharmaceutical* 3,000 13
Gilead Sciences* 500 10
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Immulogic Pharmaceutical* 700 $ 8
Uromed* 1,300 14
--------
45
--------
Household Furniture & Fixtures (0.9%)
Leggett and Platt 1,000 24
--------
Lumber & Wood Products (0.6%)
Triangle Pacific* 1,000 16
--------
Machinery (3.0%)
Camco International 1,000 23
PRI Automation* 1,500 55
--------
78
--------
Manufacturing (1.0%)
West Marine* 900 27
--------
Measuring Devices (2.0%)
CEM* 4,000 53
--------
Medical Products & Services (1.7%)
American Oncology Resources* 1,300 46
--------
Miscellaneous Business Services (2.6%)
Adobe Systems 400 23
Platinum Technology* 1,100 20
Rational Software* 700 11
The Bisys Group* 500 14
--------
68
--------
Miscellaneous Manufacturing (3.0%)
Blyth Industries* 500 25
Department 56* 1,200 55
--------
80
--------
Paper & Paper Products (3.3%)
Bowater 1,000 44
Potlatch 1,000 42
--------
86
--------
Petroleum & Fuel Products (6.7%)
Benton Oil & Gas* 750 9
BJ Services* 1,500 35
Coda Energy* 2,500 19
Devon Energy 2,000 43
Diamond Shamrock R&M 1,000 26
Parker & Parsley Petroleum 1,000 19
United Meridian* 1,500 25
--------
176
--------
Printing & Publishing (2.5%)
New England Business Service 3,500 $ 67
--------
Retail (9.5%)
Big B 400 6
Boston Chicken* 1,000 33
Creative Computers* 1,100 32
Daka International* 600 18
Damark International* 2,200 13
DF&R Restaurants* 900 27
Family Dollar Stores 1,750 27
Garden Ridge* 900 32
Global Directmail* 300 8
Petsmart* 700 23
Sonic* 1,500 33
--------
252
--------
Semi-Conductors/Instruments (5.8%)
Integrated Process Equipment* 1,100 41
MEMC Electronic Materials* 2,500 80
Oak Technology* 600 33
--------
154
--------
Telephones & Telecommunication (7.2%)
Cascade Communications* 800 57
Highwaymaster Communications* 1,000 8
Paging Network* 3,000 69
Pairgain Technologies* 600 26
Vanguard Cellular System, Class A* 1,300 29
--------
189
--------
Towing & Tugboat Service (2.5%)
Tidewater 2,500 66
--------
Trucking (2.2%)
American Freightways* 1,000 13
TNT Freightways 2,500 45
--------
58
--------
Wholesale (3.3%)
Computervision* 2,700 32
Daisytek International* 1,000 28
FTP Software* 1,000 27
--------
87
--------
Total Common Stocks
(Cost $2,103,640) 2,240
--------
Commercial Paper (16.2%)
Associates
5.801%, 11/01/95 428 428
--------
35
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 995
Smaller Companies Fund
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Total Commercial Paper
(Cost $428,000) $ 428
------
Total Investments (101.1% of Net Assets)
(Cost $2,531,640) $2,668
======
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
International Equity Fund
Foreign Common Stocks (95.0%)
Australia (2.4%)
Mim Holdings 31,000 $ 41
Western Mining 4,000 26
------
67
------
Finland (1.3%)
Valmet 'A' 1,300 36
------
France (6.9%)
Castorama 467 76
Christian Dior 850 84
Cie de Saint Gobain 12 1
Sanofi 450 29
------
190
------
Germany (2.7%)
Veba 1,800 74
------
Hong Kong (5.4%)
Cheung Kong 5,000 28
Hutchison Whampoa 22,000 121
------
149
------
Italy (1.4%)
Telecom Italia Mobile SPA* 22,000 37
------
Japan (33.3%)
Autobac Seven 100 9
Canon 4,000 68
DDI 8 65
Hitachi 7,000 72
Ito Yokado 1,000 55
Mitsubishi 5,000 55
Mitsubishi Estate 6,000 64
Mitsubishi Heavy Industries 10,000 77
Nishimatsu Construction 6,000 67
NKK* 23,000 56
Nomura Securities 4,000 73
Sankyo 3,000 $ 66
Shin Etsu Chemical 3,000 61
Teijin 13,000 60
Tokio Marine & Fire Insurance 6,000 62
------
910
------
Malaysia (2.4%)
Genting Berhad 4,000 35
United Engineers 5,000 31
------
66
------
Netherlands (5.7%)
Aegon 879 33
Elsevier 6,200 81
Polygram 660 41
------
155
------
Singapore (4.1%)
Jardine Matheson Holdings 6,800 41
Overseas Chinese Banking Foreign 6,000 71
------
112
------
Spain (1.8%)
Centros Comerciales Pryca 1,100 23
Empresa Nacional de Electricidad 520 26
------
49
------
Sweden (6.6%)
Astra AB, series A 2,400 88
Ericsson 4,400 94
------
182
------
Switzerland (3.1%)
BBC Brown Boveri Bearer 35 41
Roche Holding 6 43
------
84
------
United Kingdom (17.9%)
British Telecommunications 9,400 56
Dixons Group 24,300 147
General Electric 18,100 90
Glaxo Wellcome 8,200 111
Williams Holdings 17,400 86
------
490
------
Total Foreign Common Stocks
(Cost $2,462,698) 2,601
------
Foreign Preferred Stock (1.5%)
Germany (1.5%)
Sap 275 42
------
36
<PAGE>
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Total Foreign Preferred Stock
(Cost $44,914) $ 42
------
Total Investments (96.5% of Net Assets)
(Cost $2,507,612) $2,643
======
* Non-Income producing security.
The accompanying notes are an integral part of the financial statements.
International Small
Cap Equity Fund
Foreign Common Stocks (85.6%)
Australia (1.9%)
Adelaide Bank 195,000 $ 525
Biota Holdings 180,000 233
Burswood Property Trust 400,000 515
Gasgoyne Gold Mine 1,659 2
Savage Resources 231,000 167
Shomega 200,000 244
------
1,686
------
Austria (0.8%)
Austria Mikro Systeme International 1,100 204
Wolford 3,690 496
------
700
------
Belgium (0.3%)
Quick Restaurants 2,500 229
------
Denmark (1.2%)
Martin Gruppen 6,650 359
Martin Gruppen New* 2,260 122
Oticon Holding AS, series A 6,040 613
------
1,094
------
Finland (0.1%)
Benefon Oy 2,500 70
------
France (3.5%)
Airfeu SA 2,824 109
Assystem* 3,370 224
Bertrand Faure 2,500 79
Brioche Pasquier 1,628 214
But SA 1,338 341
CIPE France SA 3,600 211
Deveaux SA 2,483 184
Filipacchi Medias 16 2
Grand Optical-Photoservice 3,408 365
Guilbert SA 3,447 $ 414
Hermes International 1,482 261
MGI Coutier 2,084 124
NRJ SA 10 1
Sidel 689 239
Sylea 3,300 248
Union Financiere de France
Banque SA 1,742 133
------
3,149
------
Germany (2.8%)
Ahlers (Adolf) 620 132
Boss (Hugo) 379 317
CeWe Color Holding 1,393 406
Jil Sander 662 555
Kiekert* 11,600 730
Marschollek Lauten 308 207
Stohr & Company 1,500 199
------
2,546
------
Hong Kong (1.7%)
ASM Pacific Technology 95,000 90
Chen Hsong 230,000 134
China Resources Development 200,000 89
East Asiatic Company 320,000 43
Four Seas Mercantile 250,000 73
Gold Peak 310,000 150
Grand Hotel Holdings A 200,000 73
Harbour Centre 161,000 179
Hon Kwok Land Investment 402,000 122
Hong Kong Aircraft Engineering 44,800 115
Liu Chong Hing Bank 140,000 172
Regal Hotels International 800,000 150
TVE Holdings 250,000 76
Wing Hang Bank 16,000 52
Winsor Industrial 73,000 66
------
1,584
------
Indonesia (1.0%)
Bukaka Teknik Utama* 50,000 74
Clipan Finance 67,500 157
Fastfood Indonesia 31,000 27
PT Aneka Kimia Ray* 45,000 127
PT Bank Niaga 25,000 89
Sari Husada 30,000 149
Tigaraksa Satria 40,000 141
Trias Sentosa 60,000 132
------
896
------
Italy (4.0%)
De Rigo Spa ADR* 13,500 278
Gewiss 69,750 875
37
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 995
International Small
Cap Equity Fund
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Industria Machine* 62,300 $ 435
Industrie Natuzzi Spa ADR 36,012 1,441
Saes Getters 18,120 346
Saes Getters Di Risp 27,580 234
------
3,609
------
Japan (38.4%)
Aichi 47,000 372
Aiwa 18,000 391
Alpine Electronics 37,000 514
Arcland Sakamoto 20,000 258
Belluna 12,000 224
Beltecno 10,000 139
Bridgestone 55,000 597
Cesar 50,000 356
Chubu Sekiwa Real Estate 30,000 396
Chudenko 8,000 292
Chuo Warehouse 20,000 215
Circle K* 15,000 572
Daishowa Paper 60,000 441
Daiwabo Information Systems 16,000 458
Enix 11,000 398
Fast Retailing 9,200 449
Fuji Machine Manufacturing 14,000 527
Fujitsu Business Systems 20,000 504
Fuso Lexel 23,000 169
H.I.S. 12,100 467
Higashi Nihon House 15,000 201
Hitachi Medical 30,000 381
Honma Golf* 16,000 396
Hosoda 10,000 67
Ichiken 40,000 358
IO Data Device 6,000 428
Itoki Crebio 52,000 388
Izumi 21,000 398
Japan Digital Lab 20,000 401
Japan Industry Land 14,000 523
Juken Sangyo 33,000 381
Kaneshita Construction 31,000 391
Kansai Sekiwa 31,000 515
Kanto Seino Transportation 8,000 227
Kawasumi Labs 20,000 272
Maezawa Kaisei 10,000 391
Mars Engineering 5,000 364
Maruco 12,400 710
Ministop 23,000 558
Misumi 20,000 700
Mitsuba Electric 37,000 376
Mitsui High Tech 25,000 677
Mitsui Home 25,000 354
Mitsumi Electric 37,000 897
Nichiha 25,000 416
Nichii Gakkan* 11,000 480
Nihon Dempa Kogyo 12,000 307
Nippon Kanzai 12,000 $ 340
Nippon Thompson 68,000 555
Nissin 11,000 538
Nitto Electric Works 31,000 424
OSG 57,000 401
Paramount Bed 6,000 432
Paris Miki 18,000 570
Plenus 6,000 283
PS 25,000 420
Ricoh Elemex 25,000 320
Ryohin Keikaku 7,000 460
Ryoyo Electro 16,000 374
Sansei Yusoki 22,000 217
Santen Pharmaceutical 20,500 485
Sanyo Shinpan 8,000 571
Satori Electric 10,000 464
Seijo 16,500 516
Seikagaku Engineering 10,000 257
Sekiwa Real Estate 40,000 293
Senshukai 200 4
Shimachu 19,000 502
Shinki* 13,000 447
Shinko Electric 11,000 479
Sintokogio 56,000 416
SK Kaken 9,000 202
Stamina Foods 27,000 343
Takada Kiko Steel 43,000 414
Tanseisha 25,000 236
TKC 20,100 440
Tohoku Misawa Home 31,000 355
Tokin 30,000 463
Towa Pharmaceutical 7,000 329
Trusco Nakayama 22,800 430
Wakita & Company 31,000 403
Xebio 16,000 594
Yagi 8,000 94
Yamae Hisano 25,000 284
Yonkyu 10,000 259
Yoshinoya D&C 40 634
Yukiguni Maitake 18,000 345
------
34,889
------
Malaysia (1.5%)
Cycle And Carr Bin 60,000 248
George Kent 59,500 112
Hock Hua Bank 40,000 118
IOI Properties 60,000 126
Muhibbah Engineering 40,000 145
Nylex Berhad 80,000 235
Public Finance 95,000 179
RJ Reynolds Berhad 50,000 102
Shah Alam Properties 50,000 123
------
1,388
------
38
<PAGE>
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Netherlands (2.4%)
Aalberts Industries 3,800 $ 223
Gucci* 24,500 696
IHC Caland 10,548 300
OPG Apoth Coop 9,400 228
Otra 1,057 218
Randstad Holdings 6,590 297
Sphinx Kon Gustavsberg 9,188 255
------
2,217
------
Norway (4.0%)
Awilco AS, series B 27,200 269
Industri Investor 78,000 198
Multisoft AS 6,750 163
Nera AS 14,830 531
Sensonor AS* 54,000 460
Storli AS, series A 10,000 162
Sysdeco Group AS* 21,700 484
System Etiketterin 26,349 508
Tandberg AS* 7,500 78
Tandberg New* 7,700 80
Tomra Systems 75,740 478
Transocean 15,386 235
------
3,646
------
Philippines (0.2%)
Bacnotan Cement 50,000 48
Belle Resources* 200,000 30
First Philippine Holdings 32,111 68
Union Bank of Philippines* 12,000 14
------
160
------
Portugal (0.3%)
TVI-Televisao Industries* 54,000 253
------
Singapore (1.6%)
Amtek Engineering 80,000 164
Comfort Group 37,000 31
Courts Singapore 135,000 212
Flextech Holdings 100,000 55
Jurong Engineering 50,000 294
Seksun Precision Engineering 100,000 71
Sembawang Maritime 25,000 85
Singap Ship & Engine 75,000 192
ST Capital 100,000 120
Tiger Medicals 35,000 54
Venture Manufacturing 70,000 214
------
1,492
------
South Korea (0.3%)
Daesung Industrial 1,000 83
Halla Engineering &
Construction Rights* 768 --
Halla Engineering & Construction* 3,200 $ 160
Korean Express EDR 2,600 56
------
299
------
Spain (0.7%)
Cortefiel 12,000 354
Empresas Nacional de Cellulosa* 7,600 139
Energia E Ind Aragonesas* 30,500 156
------
649
------
Sweden (2.8%)
Allgon AB, series B 5,000 76
Assa Abloy, series B* 23,747 157
Elekta Instrument AB, series B 5,400 224
Hoganas AB, series B* 21,160 570
Kalmar 31,500 513
Kanthal, series B 11,900 197
Sintercast* 15,860 826
------
2,563
------
Switzerland (1.9%)
Bossard Holding 108 193
Edipresse SA 1,348 376
Fust 1,170 294
Kardex PC 1,155 327
Sarna Kunst Holdings 95 108
Swiss Log Holdings 1,160 347
Zehnder Holdings 208 112
------
1,757
------
Thailand (0.4%)
KCE Electronics 50,000 143
Muramoto Electronics 16,800 55
Serm Suk* 6,040 77
Srithai Superware 12,000 82
------
357
------
United Kingdom (13.8%)
Albright & Wilson 60,000 151
Allders 15,500 43
Allied Colloids 40,000 84
Alumasc Group 50,909 356
Amersham International 13,000 198
Argos 50,000 405
Avon Rubber 15,000 124
Baynes (Charles) 140,000 228
BBA Group 85,000 361
Blick 17,000 133
BM Group 225,000 133
39
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 995
International Small
Cap Equity Fund
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
BMG Charles Sydney 96,459 $ 137
Bunzl 100,000 318
Business Post Group 75,000 420
Charter 17,500 230
Compass Group 40,000 272
Courtaulds Textile 32,500 211
Cowie Group 20,000 94
Crabtree Group 25,000 146
CRT Group 73,333 139
Daily Mail & General Trust A 15,000 257
Dalgety 50,000 336
Devro International 35,000 135
Diploma 15,000 103
Domino Printing 12,500 94
Fairey Group 24,150 194
Firstbus 81,550 178
Forth Ports 37,500 365
Glynwed International 55,000 292
Great Portland Estates 38,000 97
Halma 40,000 108
Henlys 35,000 283
Hepworth 60,000 274
Ibstock 210,000 212
Ideal Hardware 44,000 322
Isa International 100,000 232
Laird Group 25,000 165
London Clubs International 44,500 288
MAI 40,000 208
Marston Thompson 50,000 240
Menvier-Swain 49,500 220
MFI Furniture 105,000 236
Misys 23,076 218
Moorfield Estates 253,705 106
Morrison(W) Supermarket 25,000 59
My Holdings 264,032 292
Perkins Food 55,000 63
Pizza Express 100,000 305
Protean 46,945 185
Rugby Group 120,000 203
Sanderson Holding 25,000 77
Security Services 12,500 186
Sheffield Insulation 38,500 125
Smith (David S.) Holding 27,500 251
Spirax-Sarco Engineering 40,000 382
Stakis 150,000 184
Stat-Plus Group 40,000 131
Staveley Industries 60,000 202
Sunleigh 1,700,000 60
Tibbett & Britten Group 8,000 56
Trafford Park Estates 120,000 178
Ulster Television 20,000 302
------
12,587
------
Total Foreign Common Stocks
(Cost $76,409,819) $77,820
------
Foreign Preferred Stocks (3.2%)
Germany (3.2%)
Berentzen-Gruppe 9,370 263
Fielmann 9,200 504
Hach 575 296
Mobel Walther 918 405
Puma 1,686 467
Rhoen Klinikum 3,900 324
Rhoen Klinikum Rights 3,900 75
Sto Vorzug 494 265
Villeroy & Boch 1,704 322
------
2,921
------
Total Foreign Preferred Stocks
(Cost $2,661,161) 2,921
------
Common Stock (0.0%)
United States (0.0%)
Pixtech 1,860 19
------
Total Common Stock
(Cost $18,693) 19
------
Total Investments (88.8% of Net Assets)
(Cost $79,089,673) $80,760
======
* Non-income producing security.
ADR American Depository Receipts.
EDR European Depository Receipts.
PC Participating Certificates.
The accompanying notes are an integral part of the financial statements.
European Small
Cap Equity Funds
Foreign Common Stocks (85.1%)
Austria (3.0%)
Austria Mikro Systeme International 724 $ 134
Wolford 1,099 148
------
282
------
Belgium (0.7%)
Quick Restaurants 722 66
------
Denmark (2.8%)
Martin Gruppen* 1,200 65
Oticon Holding AS, series A 1,952 198
------
263
------
40
<PAGE>
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Finland (0.4%)
Benefon Oy 1,300 $ 36
------
France (7.9%)
Airfeu SA 967 37
Assystem* 910 60
Bertrand Faure 730 23
Brioche Pasquier 481 63
But SA 250 64
CIPE France SA 1,069 63
Deveaux SA 500 37
Filipacchi Medias 3 --
Grand Optical-Photoservice 625 67
Guilbert SA 819 99
Hermes International 415 73
MGI Coutier 580 34
Sidel 186 65
Sylea 300 23
Union Financiere de France Banque SA 423 32
------
740
------
Germany (6.3%)
Boss (Hugo) 60 50
CeWe Color Holding 398 116
Jil Sander 156 131
Kiekert* 2,700 170
Marschollek Lauten 72 48
Stohr & Company 528 70
------
585
------
Italy (6.9%)
De Rigo Adr 3,000 62
Gewiss 11,836 147
Industria Machine* 17,000 119
Industrie Natuzzi Spa ADR 3,564 143
Saes Getters 6,350 121
Saes Getters Di Risp 4,000 34
Saes Getters Priv 1,500 16
------
642
------
Netherlands (6.2%)
Aalberts Industries 1,896 111
Gucci* 5,350 152
OPG Apoth Coop 2,826 69
Otra 375 77
Randstad Holdings 2,028 92
Sphinx Kon Gustavsberg 2,790 77
------
578
------
Norway (9.8%)
Awilco AS, series B 7,210 71
Multisoft AS 2,000 48
Nera AS 4,260 $ 154
Sensonor AS* 15,181 129
Storli AS, series A 2,800 45
Sysdeco Group AS* 5,750 128
System Etiketterin 6,551 126
Tandberg AS* 2,000 21
Tandberg New* 2,100 22
Tomra Systems 15,966 101
Transocean 4,768 73
------
918
------
Spain (2.0%)
Cortefiel 1,885 56
Empresas Nacional de Cellulosa* 1,949 36
Energia E Ind Aragonesas* 7,454 38
Uralita* 5,387 54
------
184
------
Sweden (7.6%)
Allgon AB, series B 2,500 38
Assa Abloy, series B* 6,638 44
Elekta Instrument AB, series B 800 33
Hoganas AB, series B 6,187 167
Kalmar 7,590 123
Kanthal, series B 5,200 86
Sintercast* 4,090 217
------
708
------
Switzerland (2.2%)
Edipresse SA 164 46
Fust 142 36
Kardex PC 274 77
Sarna Kunst Holdings 1 1
Zehnder Holdings 90 48
------
208
------
United Kingdom (29.3%)
Albright & Wilson 15,000 38
Allied Colloids 25,000 53
Amersham International 3,000 46
Argos 22,000 177
BBA Group 32,000 136
Bradford Property Trust 8,000 23
Capital Shopping Centers 12,500 40
Charter 5,000 66
Compass Group 11,000 75
Courtaulds Textile 7,500 49
Daily Mail & General Trust A 4,800 82
Dalgety 20,000 134
Devro International 22,000 85
Diploma 16,000 110
Fairey Group 7,500 60
Glynwed International 22,000 117
41
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 995
European Small Cap
Equity Fund
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Great Portland Estates 18,000 $ 46
Halma 33,333 90
Hepworth 25,000 114
Ibstock 65,000 66
Laird Group 19,200 127
London Clubs International* 9,750 63
MAI 15,000 78
MFI Furniture 55,000 123
Monument Oil & Gas 55,000 51
Morrison(W) Supermarket 12,000 28
Rugby Group 40,000 68
Scapa Group 10,000 37
Security Services 7,500 111
Smith (David S.) Holding 9,700 89
Spirax-Sarco Engineering 15,000 143
Stakis 35,000 43
Staveley Industries 14,000 47
Tibbett & Britten Group 8,000 56
Wilson Holdings 25,000 57
------
2,728
------
Total Foreign Common Stocks
(Cost $6,988,891) 7,938
------
Foreign Preferred Stocks (10.7%)
Germany (10.7%)
Berentzen-Gruppe 4,380 123
Fielmann 2,100 115
Hach 135 69
Mobel Walther 323 142
Puma 600 166
Rhoen Klinikum 1,810 151
Rhoen Klinikum Rights* 1,810 35
Sto Vorzug 196 105
Villeroy & Boch 512 97
------
1,003
------
Total Foreign Preferred Stocks
(Cost $873,035) 1,003
------
Common Stock (0.0%)
United States (0.0%)
Pixtech 400 4
------
Total Common Stock
(Cost $4,020) 4
------
Total Investments (95.8% of Net Assets)
(Cost $7,865,946) $8,945
======
* Non-income producing security.
ADR American Depository Receipts
PC Participating Certificates
The accompanying notes are an integral part of the financial statements.
Emerging Markets
Equity Fund
Foreign Common Stocks (84.8%)
Argentina (3.3%)
Astra Cia Argentina, series B 600,000 $ 887
Nobleza Piccardo, series B 220,000 847
Quilmes Industrial SA ADR 33,000 578
YPF SA ADR 45,000 771
------
3,083
------
Brazil (4.6%)
Casa Anglo Bras SA 2,260,000 141
Cemig Rights* 1,185,147 25
Centrais Eletrica* 712,000 482
Cia Energetica de Minas 24,820,000 532
Eletrobras 1,500,000 426
Makro Atacadista GDR* 65,000 585
Moihno Santista* 100,000 74
Souza Cruz 110,000 787
Telebras ADR* 20,000 805
Telepar Tel Parana 1,500,000 468
------
4,325
------
Chile (1.0%)
Cia Telecomunicacion Chile ADR 4,000 288
Laboratorio Chile ADR 25,000 300
Maderas Y Sintecticos ADR 20,000 358
------
946
------
Colombia (1.6%)
Banco de Bogota 109,776 509
Cadenalco ADR 25,000 325
Suramericana 38,386 677
------
1,511
------
Greece (1.5%)
Aluminum of Greece 4,000 198
Ergo Bank 12,450 537
Hellenic Bottling 9,825 314
Hellenic Sugar 900 11
Lavipharm* 9,920 86
Papastratos Cig 7,500 233
------
1,379
------
Hungary (0.2%)
Gedeon Richter GIC 12,000 180
------
India (3.9%)
Asok Leyland GDR 31,000 310
Bajaj Auto* 28,750 679
East India Hotels* 50,000 759
Grasim Industries 18,000 319
India Rayon GDR 26,000 311
42
<PAGE>
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
Indian Aluminum GDR 24,000 $ 143
Indian Hotels ADR* 16,200 300
Larsen & Toubro 50,000 399
Mahangar Telephone* 70,000 324
Usha Beltron GDR 23,000 69
------
3,613
Indonesia (5.8%)
Astra International 284,000 569
Bimantara Citra* 410,000 316
Bk Danamon 280,000 407
Bunas Finance 50,000 26
Duta Pertiwi Nusan 100,000 119
Gudang Garam 50,000 435
Indofood 133,000 615
Indosat 25,000 85
Panin Bank 197,000 217
Pt Aneka Kimia Ray 57,000 161
Pt Darya Vaia Laboratoria 320,000 539
Pt Enseval Putera 76,000 57
Pt Indah Kiat Pulp & Paper 489,984 480
Pt Tempo Scan Pacific 90,000 484
Semen Gresik 56,000 146
Tigaraksa Satria 104,000 367
Tjiwi Kimia 114,000 211
Trias Sentosa 85,000 187
------
5,421
------
Malaysia (15.8%)
Arab Malaysian Finance 56,666 199
Berjaya Sports 500,000 1,043
Commerce Asset Holdings 80,000 394
DCB Holdings 250,000 709
Edaran Otomobil 90,000 709
Genting Berhad 100,000 862
Land and General 255,000 592
Leader Universal 250,000 674
Malayan Banking 150,000 1,210
Malaysian Indl Development 200,000 390
Nylex Berhad 200,000 586
Petronas Gas* 200,000 677
Renong Berhad 300,000 458
Resorts World Berhad 240,000 1,171
RJ Reynolds Berhad* 380,000 778
Sime Darby Malaysia 250,000 625
Telekom Malaysia 190,000 1,363
Tenaga Nasional Berhad 200,000 756
UMW Holdings Berhad 200,000 476
United Engineers 180,000 1,119
------
14,791
------
Mexico (9.0%)
Apasco 100,000 $ 370
Bufete Industrial ADR* 24,000 336
Cifra SA ADR 790,000 845
Corporacion Geo SA ADR* 8,750 94
Corporacion Geo SA GDS* 11,250 118
Empaques Ponderosa ADS* 47,000 399
Empresas Ica Sociedad
Controladora ADR 145,000 1,450
Grupo Financiero Banamex,
series B* 150,000 259
Grupo Financiero Banamex,
series L* 7,500 12
Grupo Financiero Bancomer,
series B* 1,365,000 356
Grupo Financiero Bancomer,
series L* 50,555 12
Grupo Herdez, series A* 800,000 201
Grupo Industria Bimbo, series A 105,000 404
Grupo Industria Saltillo, series A 40,000 533
Grupo Televisa ADR 16,000 276
Interceramica* 130,000 151
Kimberly Clark, series A 40,000 527
Nacional de Drogas, series B 10,000 34
Nacional de Drogas, series L 255,000 813
Sigma Alimentos, series B 60,000 416
Telefonos de Mexico ADR,
series L 16,000 440
Transport Marititime de Mexico,
series L* 51,000 375
------
8,421
------
Pakistan (0.4%)
Engro Chemicals* 75,000 298
Pakistan Telecom* 699 65
------
363
------
Peru (1.7%)
Cervecer Back&John T* 127,000 228
Cia Embotelladora Pacfico* 380,000 196
Cpt Telefonica Del Peru, series B 347,685 622
Explosivos, series C* 54,351 146
Explosivos, series T* 54,351 81
Seguros Fenix 25,408 287
------
1,560
------
Philippines (1.8%)
Aboitiz Equity Ventures* 1,628,600 310
Bacnotan Consolidated 46,000 301
Belle Resources* 2,100,000 319
C & P Homes* 282,000 182
Filinvest Land* 62,500 17
43
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Emerging Markets
Equity Fund
- --------------------------------------------------------------------------------
Market Value
Description Shares (000)
- --------------------------------------------------------------------------------
First Philippene Holdings 83,200 $ 176
Manila Electric 8,000 60
Philippine Long Distance 2,000 112
Philippine Long Distance ADR 3,300 185
------
1,662
------
Poland (0.2%)
Bank Przemsl* 3,100 96
Debica* 8,000 111
------
207
------
Portugal (1.6%)
Banco Portugal de Invest 340 5
Barbosa E Almeida 4,444 135
Cimentos de Portugal 25,890 422
Jeronimo Martins 6,000 319
Portugal Telecom* 18,000 341
Semapa* 12,000 115
TVI-Televisao Industries* 31,680 148
------
1,485
------
South Africa (11.9%)
Anglo American Gold Investment 11,900 961
Anglovaal, series N 24,700 940
Cadbury Schweps SA 34,500 530
C.G. Smith Foods 38,250 750
Debeers Centenary Linked Units 34,500 953
JCI 118,000 947
Malbak 152,500 1,014
Metro Cash & Carry 135,000 481
Metropolitan Life 40,500 489
Rembrandt Group 109,000 994
Reunert 195,000 1,149
South African Brewery 27,500 903
Southern Life 104,000 984
------
11,095
------
South Korea (4.9%)
Daewoo* 168 2
Dong-Ah Construction 4,836 194
Dong-Ah Construction ADR* 12,000 291
Hanil Bank* 9,700 117
Hyundai Engineering 12,446 657
Hyundai Motor GDR* 19,000 333
Hyundai Motor GDS* 2,000 35
Korea Electric Power 7,500 309
Korean Air* 5,000 176
Lg Chemical 21,000 318
Pohang Iron & Steel 850 74
Pohang Iron & Steel ADR 11,000 281
Samsung Electronics GDR* 323 37
Samsung Electronics GDS* 17,902 1,145
Samsung Electronics GDS New* 254 $ 27
Samsung New 1/2 Non-Voting* 2,354 121
Samsung New 1/2 Voting* 63 7
Shinhan Bank 18,000 372
Shinhan Bank New* 1,836 37
------
4,533
------
Taiwan (1.5%)
Advanced Semiconductor
Engineering GDR* 30,000 382
GVC GDR* 13,730 119
Hocheng GDR 33,129 273
President Enterprise GDS* 32,069 361
Siliconware Precision GDR* 14,804 234
------
1,369
------
Thailand (8.1%)
Advanced Info Service 66,000 1,049
Electricity Generating* 288,000 984
Finance One 105,000 647
Italian-Thai Development 30,000 339
Krung Thai Bank 350,000 1,392
PTT Exploration 89,500 811
Siam Cement 8,000 436
Srithai Superware 50,000 342
Thai Carbon Black 4,875 22
Thai Farmers Bank 40,000 331
Thai Military Bank 300,000 1,180
------
7,533
------
Turkey (1.6%)
Arcelik 1,050,000 174
Borusan Borv 705,000 223
Bossa* 871,000 82
Kartonsan Karton 340,000 131
Mardin Cimento 1,000,000 234
Netas 410,380 142
T Sise Cam* 1,100,000 195
Tire Kutsan* 750,000 136
Trakya Cam 1,338,748 193
------
1,510
------
United Kingdom (0.6%)
Antofagasta Holdings 125,000 593
------
United States (1.6%)
Five Arrow Chile Fund 75,000 221
Genisis Chile Fund 6,600 252
Mauritius Fund* 64,000 703
Oryx Fund* 35,000 298
------
1,474
------
44
<PAGE>
- --------------------------------------------------------------------------------
Shares/ Market
Description Face Amount (000(1)) Value (000)
- --------------------------------------------------------------------------------
Venezuela (2.2%)
Mavesa SA ADR 259,166 $ 1,069
Sider ADR* 500,000 977
------
2,046
------
Total Foreign Common Stocks
(Cost $82,584,469) 79,100
------
Foreign Preferred Stocks (7.3%)
Brazil (7.1%)
Banco Bradesco 63,522,315 581
Bardella SA 2,000 291
Brahma 1,971,951 756
Brasmotor 1,000,000 234
Cesp Cia Energetica ADR* 40,000 380
Confab Industries 404,200 214
Eletrobras* 1,500,000 427
Ind Bebidas Antartica 4,920 476
Ind Villares 1,000,000 229
Inepar Ind Construction 250,000,000 234
Iochpe-Maxion 1,000,000 312
Marcopolo SA* 1,600,000 280
Metalurgica Schulz 9,600,000 344
Petrobras 3,466,666 299
Refripar 314,714,330 743
Sade Videsa* 16,200,000 219
Sadia Concordia 262,500 207
Weg 860,000 429
------
6,655
------
Portugal (0.1%)
Barbosa E Almeida* 2,222 67
------
South Korea (0.1%)
Jinro* 7,270 108
------
Total Foreign Preferred Stocks
(Cost $6,322,919) 6,830
------
Foreign Convertible Bonds (2.5%)
Indonesia (0.0%)
Modernland Realty
6.000%, 01/06/03 20 21
------
South Korea (0.4%)
Large Electronics
3.250%, 12/31/06 $300 374
------
Taiwan (2.1%)
Acer
4.000%, 06/10/01 $380 1,188
Formosa Chemical & Fibre
1.750%, 07/19/01 $280 $ 267
Tung Ho Steel
4.000%, 07/26/01 $300 355
U-Ming Marine
1.500%, 02/07/01 $140 139
------
1,949
------
Total Foreign Convertible Bonds
(Cost $2,196,117) 2,344
------
Total Investments
(94.6% of Net Assets)
(Cost $91,103,505) $88,274
======
* Non-income producing security.
ADR American Depository Receipt.
ADS American Depository Shares.
GDR Global Depository Receipt.
GDS Global Depository Shares.
GIC Global Investment Certificate.
(1) In local currency unless otherwise indicated.
The accompanying notes are an integral part of the financial statements.
Global Fixed
Income Fund
Foreign Bonds (57.3%)
Canada (5.2%)
Government of Canada
6.500%, 06/01/04 4,600 $ 3,205
9.000%, 12/01/04 4,950 4,034
------
7,239
------
Denmark (7.1%)
Kingdom of Denmark
9.000%, 11/15/00 28,000 5,552
7.000%, 12/15/04 24,800 4,301
------
9,853
------
France (7.1%)
Government of France
6.000%, 10/25/25 14,000 2,233
Government of France OAT
8.500%, 11/25/02 15,000 3,331
6.750%, 10/25/03 21,600 4,331
------
9,895
------
45
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Global Fixed
Income Fund
- --------------------------------------------------------------------------------
Face Amount Market
Description (000(1)) Value (000)
- --------------------------------------------------------------------------------
Germany (21.9%)
Bundesobligation
6.375%, 05/20/98 5,700 $ 4,214
Deutschland Republic
5.250%, 10/20/98 6,800 4,904
8.750%, 07/20/00 3,200 2,569
8.875%, 12/20/00 3,600 2,916
8.250%, 09/20/01 2,600 2,060
LKB Baden Wurttenberg
6.000%, 05/10/99 3,000 2,200
Republic of Austria
8.000%, 06/17/02 4,900 3,793
Westdeutsche Landesbank
6.375%, 07/15/03 3,000 2,108
6.250%, 09/15/03 3,000 2,085
World Bank
7.125%, 04/12/05 5,000 3,665
-------
30,514
-------
Japan (11.3%)
Government of Japan
6.700%, 06/20/00 259,000 3,079
6.000%, 12/20/01 89,000 5,756
4.500%, 06/20/03 278,000 3,033
4.700%, 12/20/04 355,000 3,935
-------
15,803
-------
United Kingdom (4.7%)
Republic of Finland
8.000%, 04/07/03 1,380 2,139
United Kingdom Treasury
9.750%, 08/27/02 850 1,484
9.500%, 10/25/04 1,670 2,901
-------
6,524
-------
Total Foreign Bonds
(Cost $77,098,194) 79,828
-------
Foreign Currency Option (0.5%)
United States (0.5%)
Japanese Yen Put*
01/10/96 5,500 749
-------
Total Foreign Currency Option
(Cost $131,450) 749
-------
Corporate Obligations (3.2%)
United States (3.2%)
General Electric Capital
8.125%, 02/23/07 4,000 4,440
-------
Total Corporate Obligations
(Cost $4,278,549) $ 4,440
-------
U. S. Treasury Obligations (27.0%)
United States (27.0%)
U.S. Treasury Bond
5.750%, 10/31/00 3,200 3,175
11.625%, 11/15/04 1,420 1,965
9.875%, 11/15/15 1,236 1,697
U.S. Treasury Note
6.875%, 04/30/97 3,250 3,290
5.125%, 03/31/98 4,000 3,930
5.125%, 12/31/98 (2) 3,200 3,146
7.875%, 08/15/01 (2) 5,300 5,790
7.500%, 11/15/01 5,000 5,406
6.375%, 08/15/02 (2) 3,700 3,777
6.250%, 02/15/03 1,100 1,112
7.250%, 08/15/04 (2) 4,000 4,329
-------
37,617
-------
Total U. S. Treasury Obligations
(Cost $36,513,888) 37,617
-------
Total Investments (88.0% of Net Assets)
(Cost $118,022,081) $122,634
=======
* Non-income producing security.
(1) In local currency unless otherwise indicated.
(2) Securities segregated to collateralize forward exchange contracts with an
aggregate market value of approximately $17,040,705.
The accompanying notes are an integral part of the financial statements.
International
Fixed Income Fund
Foreign Bonds (92.5%)
Austria (3.2%)
Government of Austria
5.000%, 01/22/01 JY 80,000 $ 892
-------
Canada (10.1%)
Government of British Columbia
9.000%, 06/21/04 905 718
Government of Canada
8.500%, 04/01/02 1,500 1,183
Government of Ontario
7.750%, 12/08/03 1,200 876
-------
2,777
-------
46
<PAGE>
- --------------------------------------------------------------------------------
Face Amount Market
Description (000(1)) Value (000)
- --------------------------------------------------------------------------------
Denmark (9.4%)
Kingdom of Denmark
9.000%, 11/15/00 6,300 $ 1,249
7.000%, 12/15/04 (2) 7,800 1,353
-------
2,602
-------
Finland (4.1%)
Republic of Finland
7.500%, 01/27/00 1,500 1,138
-------
France (13.6%)
France Telecom
9.000%, 07/27/01 5,400 1,210
Government of France
8.500%, 04/25/03 3,500 776
5.500%, 04/25/04 2,900 532
6.000%, 10/25/25 3,200 510
Government of France OAT
6.750%, 10/25/03 3,600 722
-------
3,750
-------
Germany (26.6%)
African Development Bank
7.250%, 10/21/99 500 378
Bayer Landesbank
6.000%, 02/16/04 1,500 1,021
Bundesobligation
6.375%, 05/20/98 590 436
Deutschland Republic
6.375%, 08/14/98 1,250 925
8.750%, 07/20/00 1,800 1,446
KFW International Finance
7.250%, 12/03/97 1,050 784
LKB Baden Wurttenberg
6.625%, 08/20/03 1,100 792
Norddeutsche Landesbank
6.000%, 01/05/04 1,500 1,017
Treuhandanstalt
7.750%, 10/01/02 700 541
-------
7,340
-------
Japan (14.6%)
Government of Japan
6.700%, 06/20/00 77,000 916
6.000%, 12/20/01 40,000 471
4.500%, 06/20/03 85,000 927
4.700%, 12/20/04 110,000 1,219
Japanese Development Bank
5.000%, 10/01/99 45,000 499
-------
4,032
-------
United Kingdom (7.8%)
Abbey National
8.000%, 04/02/03 340 525
Halifax
7.750%, 12/03/98 300 477
United Kingdom Treasury
8.500%, 07/16/07 710 1,154
-------
2,156
-------
United States (3.1%)
Federal National Mortgage Association
6.000%, 08/23/00 DM 1,200 867
-------
Total Foreign Bonds
(Cost $24,479,159) 25,554
-------
Foreign Currency Option (0.7%)
Japan (0.7%)
Japanese Yen Put*
01/10/96 $ 1,350 184
-------
Total Foreign Currency Option
(Cost $32,265) 184
-------
Total Investments (93.2% of Net Assets)
(Cost $24,511,424) $25,738
=======
* Non-income producing security.
DM German Mark.
JY Japanese Yen.
(1) In local currency unless otherwise indicated.
(2) Securities segregated to collateralize forward exchange contracts with
an aggregate market value of approximately $1,352,885.
The accompanying notes are an integral part of the financial statements.
Emerging Markets
Debt Fund
Foreign Bonds (78.0%)
Argentina (10.9%)
Argentina BOCON
5.906%, 04/01/01 $ 5,260 $ 3,487
Government of Argentina FRN
6.813%, 03/31/05 4,050 2,395
5.000%, 03/31/23 3,500 1,667
6.875%, 03/31/23 3,000 1,688
-------
9,237
-------
47
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
Emerging Markets
Debt Fund
- --------------------------------------------------------------------------------
Face Amount Market
Description (000(1)) Value (000)
- --------------------------------------------------------------------------------
Brazil (26.3%)
Government of Brazil
8.000%, 04/15/14 $ 11,037 $ 5,586
4.250%, 04/15/24 3,010 1,452
Government of Brazil FRN
6.688%, 01/01/01 5,178 4,414
6.812%, 04/15/06 7,600 5,026
6.875%, 04/15/12 5,000 2,738
Petroleo Brazil FRN
10.213%, 06/08/98 3,000 3,053
-------
22,269
-------
Bulgaria (3.8%)
Government of Bulgaria FRN
6.750%, 07/28/11 6,000 2,640
6.750%, 07/28/24 1,050 529
-------
3,169
-------
Ecuador (3.1%)
Government of Ecuador PDI
6.812%, 02/27/15 7,915 2,611
-------
Mexico (17.0%)
Cemex SA
8.875%, 06/10/98 4,000 3,693
Government of Mexico FRN
6.250%, 12/31/19 2,800 1,645
Government of Mexico FRN, series A
6.766%, 12/31/19 4,500 3,009
Government of Mexico FRN, series B
6.250%, 12/31/19 5,500 3,231
Government of Mexico FRN, series C
6.969%, 12/31/19 1,250 836
Government of Mexico FRN, series D
6.875%, 12/31/19 2,850 1,906
-------
14,320
-------
Panama (4.3%)
Government of Panama FRN
7.250%, 05/10/02 4,500 3,668
-------
Philippines (3.7%)
Government of Philippines FRN,
series B
5.000%, 06/01/08 4,050 3,088
-------
Poland (4.4%)
Government of Poland
2.750%, 10/27/24 $ 750 $ 348
Government of Poland FRN
3.750%, 10/27/14 5,250 3,367
-------
3,715
-------
Venezuela (4.5%)
Government of Venezuela
6.750%, 03/31/20 500 258
Government of Venezuela FRN
6.813%, 12/18/07 7,250 3,570
-------
3,828
-------
Total Foreign Bonds
(Cost $66,067,744) 65,905
-------
Loan Participations (7.1%)
Germany (2.9%)
Russian Loan Agreement (2)
(Participation: J.P. Morgan) (3) DM 10,000 2,452
-------
Morocco (4.2%)
Morocco R&C Loan (2)
(Participation: J.P. Morgan) (3)
01/01/09 $ 6,000 3,570
-------
Total Loan Participations
(Cost $6,111,672) 6,022
-------
U. S. Treasury Obligations (2.1%)
United States (2.1%)
U.S. Treasury Strip Principal Only
02/15/20 8,600 1,735
-------
Total U. S. Treasury Obligations
(Cost $1,605,653) 1,735
-------
Total Investments (87.2% of Net Assets)
(Cost $73,785,069) $73,662
=======
FRN Floating Rate Note
DM Deutsche Marks
(1) In U.S. Dollars unless otherwise indicated.
(2) Non-income producing security. Security is in default.
(3) Participations were acquired through the financial institutions
indicated parenthetically. See Note 6.
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (000)
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
<TABLE>
<CAPTION>
------------ ------------ ------------ ------------
Short-Term Short-Term
Municipal Fixed Municipal Fixed
Bond Income Bond Income
Fund Fund Fund Fund
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Investment securities (Cost $212,353,
$483,741, $3,677 and $4,326,
respectively) $218,125 $495,681 $ 3,702 $ 4,333
Cash 81 72 -- --
Dividend and interest receivable 3,685 6,772 56 43
Investment securities sold -- 4,876 -- 100
Capital shares sold 1,019 88 -- --
Other assets 2 2 -- --
-------- -------- -------- --------
Total assets 222,912 507,491 3,758 4,476
-------- -------- -------- --------
Liabilities:
Income distribution payable 1,024 2,609 16 19
Investment securitiespurchased 385 10,218 -- 300
Investment advisory fees payable 66 126 1 1
Administration fees payable 21 47 2 2
Accrued expenses and other liabilities 358 270 15 14
-------- -------- -------- --------
Total liabilities 1,854 13,270 34 336
-------- -------- -------- --------
Net Assets:
Capital shares (unlimited
authorization - $0.001 par value) 216,849 479,195 3,684 4,133
Accumulated net realized gain (loss)
on investments (1,564) 3,085 15 --
Net unrealized appreciation
(depreciation) on investments 5,772 11,940 25 7
Undistributed net investment
income (loss) 1 1 -- --
-------- -------- -------- --------
Net assets $221,058 $494,221 $ 3,724 $ 4,140
======== ======== ======== ========
Outstanding shares of beneficial
interest 20,346 46,521 367 413
Net asset value, offering price and
redemption price per share $ 10.86 $ 10.62 $ 10.13 $ 10.01
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (000)
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- October 31, 1995
<TABLE>
<CAPTION>
------------- ------------- ------------- -------------
International European
Smaller International Small Cap Small Cap
Companies Equity Equity Equity
Fund Fund Fund Fund
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Assets:
Investment securities (Cost $2,532,
$2,508, $79,090, $7,866, $91,104, $118,022
$24,511, and $73,785, respectively) $2,668 $2,643 $80,760 $8,945
Cash -- 57 8,622 434
Foreign currency (Cost $87, $1,798,
$44, $577, $1,403, and $175, respectively) -- 87 1,791 44
Dividend and interest receivable 1 3 117 17
Investment securities sold 35 -- 883 135
Capital shares sold -- -- -- --
Other assets -- 12 245 11
------ ------ ------ ------
Total assets 2,704 2,802 92,418 9,586
------ ------ ------ ------
Liabilities:
Investment securities purchased 61 53 1,372 208
Investment advisory fees payable -- -- 63 3
Administration fees payable 1 3 9 6
Accrued expenses and other liabilities 4 8 57 33
------ ------ ------ ------
Total liabilities 66 64 1,501 250
------ ------ ------ ------
Net Assets:
Capital shares (unlimited
authorization - $0.001 par value) 2,500 2,502 91,504 8,131
Accumulated net realized gain (loss)
on investments (6) (6) (2,681) 30
Net unrealized appreciation
(depreciation) on forward foreign
currency contracts, foreign currency,
and translation of other assets and
liabilities in foreign currency -- 9 170 (21)
Net unrealized appreciation (depreciation)
on investments 136 135 1,670 1,079
Undistributed net investment income (loss) 8 98 254 117
------ ------ ------ ------
Net assets $2,638 $2,738 $90,917 $9,336
====== ====== ====== ======
Outstanding shares of beneficial
interest 250 250 9,672 809
Net asset value, offering price and
redemption price per share $10.55 $10.95 $ 9.40 $11.55
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------- ------------- ------------- -------------
Emerging Global International Emerging
Markets Fixed Fixed Markets
Equity Income Income Debt
Fund Fund Fund Fund
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
$ 88,274 $122,634 $ 25,738 $ 73,662
7,615 4,036 867 7,621
574 1,385 175 --
80 3,245 791 1,529
308 -- -- 5,132
-- 9,922 12 1
2 -- 51 --
-------- -------- -------- --------
96,853 141,222 27,634 87,945
-------- -------- -------- --------
3,136 1,276 -- 3,363
71 46 6 74
8 12 6 8
350 551 19 62
-------- -------- -------- --------
3,565 1,885 31 3,507
-------- -------- -------- --------
95,072 130,056 24,778 81,013
947 808 255 (1,686)
(15) (462) 52 (62)
(2,830) 4,612 1,227 (123)
114 4,323 1,291 5,296
-------- -------- -------- --------
$ 93,288 $139,337 $ 27,603 $ 84,438
======== ======== ======== ========
11,499 12,675 2,434 8,006
$ 8.11 $ 10.99 $ 11.34 $ 10.55
======== ======== ======== ========
</TABLE>
51
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (000)
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- For the period ended October 31, 1995
<TABLE>
<CAPTION>
---------- ---------- ---------- ---------- ----------
Short-Term Short-Term
Municipal Fixed Municipal Fixed Smaller
Bond Income Bond Income Companies
Fund Fund Fund (1) Fund (2) Fund (3)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest $11,762 $27,656 $ 101 $ 86 $ 15
Dividends -- -- -- -- 4
Less: Foreign taxes withheld -- -- -- -- --
------- ------- ------ ------ ------
Total Investment Income 11,762 27,656 101 86 19
------- ------- ------ ------ ------
Expenses:
Investment advisory fees 748 1,506 8 5 9)
Investment advisory fee reduction (152) (355) (8) (5) (9)
Administration fees 228 456 13 13 4
Custodian fees 17 40 5 5 2
Transfer agent fees 11 12 8 8 3
Professional fees 63 148 2 1 1
Registration & filing fees 38 109 4 4 1
Printing fees 6 20 1 1 --
Trustee fees 15 30 1 1 --
Pricing fees 9 14 -- -- --
Other fees 31 41 1 -- --
------- ------- ------ ------ ------
Total expenses 1,014 2,021 35 33 11
Less: Reimbursement from Advisor -- -- (24) (26) --
------- ------- ------ ------ ------
Total Net expenses 1,014 2,021 11 7 11
------- ------- ------ ------ ------
Net Investment Income/(Loss) 10,748 25,635 90 79 8
------- ------- ------ ------ ------
Net Realized and Unrealized Gain
(Loss) on Investments and Foreign
Currency Transactions:
Net realized gain (loss) on investments:
Security transactions (1,331) 8,122 15 -- (6)
Option transactions -- -- -- -- --
Net realized gain (loss) on forward
foreign currency contracts and
foreign currency transactions -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on forward foreign
currency contracts, foreign currency,
and translation of other assets and
liabilities in foreign currency -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on investments 9,806 18,803 25 7 136
------- ------- ------ ------ ------
Net Increase (Decrease) in Net Assets
from Operations $19,223 $52,560 $ 130 $ 86 $ 138
======= ======= ====== ====== ======
</TABLE>
(1) Short-Term Municipal Bond Fund commenced operations on 3/6/95.
(2) Short-Term Fixed Income Fund commenced operations on 3/13/95.
(3) Smaller Companies Fund commenced operations on 6/30/95.
(4) International Equity Fund commenced operations on 5/15/95.
(5) European Small Cap Equity Fund commenced operations on 11/1/94.
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------- ------------- ------------- ---------- ---------- ------------- ------------
International European Emerging Global International Emerging
International Small Cap Small Cap Markets Fixed Fixed Markets
Equity Equity Equity Equity Income Income Debt
Fund (4) Fund Fund (5) Fund Fund Fund Fund
------------- ------------- ------------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 4 $ 149 $ 37 $ 57 $ 5,590 $ 1,407 $ 6,518
28 1,109 187 1,191 -- -- --
(2) (169) (26) (134) (21) (11) --
------- ------- ------- ------- ------- ------- -------
30 1,089 198 1,114 5,569 1,396 6,518
------- ------- ------- ------- ------- ------- -------
8 657 79 658 463 118 811
(8) (151) (78) (200) (78) (81) (129)
11 98 50 94 105 69 69
5 125 20 172 79 32 80
5 12 10 12 12 11 11
1 15 3 19 38 9 28
1 26 4 33 40 8 30
-- 2 -- 3 5 1 3
-- 6 1 6 8 2 5
2 26 9 20 3 3 3
-- 5 1 5 6 2 5
------- ------- ------- ------- ------- ------- -------
25 821 99 822 681 174 916
(14) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
11 821 99 822 681 174 916
------- ------- ------- ------- ------- ------- -------
19 268 99 292 4,888 1,222 5,602
------- ------- ------- ------- ------- ------- -------
(6) (2,508) 30) 974 1,456) 455 (1,684)
-- (158) -- -- (76) (21) --
79 1 28 (86) (112) 48 (75)
9 160 (21) (17 ) (207) 312 (42)
135 (1,776) 1,079 (14,288) 4,323 861 (35)
------- ------- ------- ------- ------- ------- -------
$ 236 ($4,013) $ 1,215 ($13,125) $10,272 $ 2,877 $ 3,766
======= ======= ======= ======= ======= ======= =======
</TABLE>
53
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (000)
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- For the periods ended October 31,
<TABLE>
<CAPTION>
----------------------- ---------------------- ---------- ---------- ----------
Short- Short-
Term Term
Municipal Fixed Municipal Fixed Smaller
Bond Income Bond Income Companies
Fund Fund Fund (1) Fund (2) Fund (3)
----------------------- ---------------------- ---------- ---------- ----------
1995 1994 1995 1994 1995 1995 1995
----------------------- ---------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 10,748 $ 8,832 $ 25,635 $ 11,691 $ 90 $ 79 $ 8
Net realized gain (loss) from
security transactions (1,331) (225) 8,122 (5,035) 15 -- (6)
Net realized gain (loss) on forward
foreign currency contracts
and foreign currency transactions -- -- -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on forward foreign
currency contracts, foreign currency,
and translation of other assets and
liabilities in foreign currency -- -- -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on investments 9,806 (9,060) 18,803 (11,071) 25 7 136
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease) in net assets
from operations 19,223 (453) 52,560 (4,415) 130 86 138
-------- -------- -------- -------- -------- -------- --------
Distributions to Shareholders:
Net investment income (10,750) (8,833) (25,636) (11,687) (90) (79) --
Net realized gains -- (4,818) (31) (1,476) -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Distributions (10,750) (13,651) (25,667) (13,163) (90) (79) --
-------- -------- -------- -------- -------- -------- --------
Capital Share Transactions (1):
Proceeds from shares issued 92,766 55,419 301,939 121,986 5,282 4,206 2,500
Shares issued in lieu of cash
distributions 7,570 11,224 20,565 11,406 74 54 --
Cost of shares repurchased (53,428) (34,884) (94,732) (24,175) (1,672) (127) --
-------- -------- -------- -------- -------- -------- --------
Increase in Net Assets from
Capital Share Transactions 46,908 31,759 227,772 109,217 3,684 4,133 2,500
-------- -------- -------- -------- -------- -------- --------
Net increase in net assets 55,381 17,655 254,665 91,639 3,724 4,140 2,638
-------- -------- -------- -------- -------- -------- --------
Net Assets:
Beginning of period 165,677 148,022 239,556 147,917 -- -- --
-------- -------- -------- -------- -------- -------- --------
End of period $221,058 $165,677 $494,221 $239,556 $ 3,724 $ 4,140 $ 2,638
======== ======== ======== ======== ======== ======== ========
(1) Capital Share Transactions:
Shares issued 8,743 5,160 29,571 11,895 526 421 250
Shares issued in lieu of cash
distributions 714 1,042 2,007 1,113 7 5 --
Shares repurchased (5,094) (3,248) (9,177) (2,397) (166) (13) --
-------- -------- -------- -------- -------- -------- --------
Net increase in capital shares 4,363 2,954 22,401 10,611 367 413 250
======== ======== ======== ======== ======== ======== ========
</TABLE>
(1) Short-Term Municipal Bond Fund commenced operations on 3/6/95.
(2) Short-Term Fixed Income Fund commenced operations on 3/13/95.
(3) Smaller Companies Fund commenced operations on 6/30/95.
(4) International Equity Fund commenced operations on 5/15/95.
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------- ------------------ ------------- ------------------- ----------------------
International European Emerging Global
International Small Cap Small Cap Markets Fixed
Equity Equity Equity Equity Income
Fund (4) Fund (5) Fund (6) Fund (7) Fund (8)
------------- ------------------ ------------- ------------------- ----------------------
1995 1995 1994 1995 1995 1994 1995 1994
------------- ------------------ ------------- ------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 19 $ 268 $ 156 $ 99 $ 292 $ (38) $ 4,888 $ 1,345
(6) (2,666) 1,405) 30 974 3,140 1,380 (572)
79 1 99 28 (86) 65 (112) (576)
9 160 10 (21) (17) 2 (207) (255)
135 (1,776) (2,588) 1,079 (14,288) 2,848* 4,323 289
------- ------- ------- ------- ------- ------- ------- -------
236 (4,013) (918) 1,215 (13,125) 6,017 10,272 231
------- ------- ------- ------- ------- ------- ------- -------
-- (270) -- (10) (119) -- (1,222) --
-- (1,420) -- -- (3,167) -- -- --
------- ------- ------- ------- ------- ------- ------- -------
-- (1,690) -- (10) (3,286) -- (1,222) --
------- ------- ------- ------- ------- ------- ------- -------
2,502 33,284 78,979 8,121 61,891 59,099 82,695 65,332
-- 1,671 -- 10 3,286 -- 902 --
(1) (7,133) (9,264) (1) (12,370) (8,225) (7,225) (11,649)
------- ------- ------- ------- ------- ------- ------- -------
2,501 27,822 69,715 8,130 52,807 50,874 76,372 53,683
------- ------- ------- ------- ------- ------- ------- -------
2,737 22,119 68,797 9,335 36,396 56,891 85,422 53,914
------- ------- ------- ------- ------- ------- ------- -------
1 68,798 1 1 56,892 1 53,915 1
------- ------- ------- ------- ------- ------- ------- -------
$ 2,738 $90,917 $68,798 $ 9,336 $93,288 $56,892 $139,337 $53,915
======= ======= ======= ======= ======= ======= ======= =======
250 3,585 7,527 808 7,411 5,966 7,804 6,657
-- 178 -- 1 365 -- 94 --
-- (738) (880) -- (1,451) (792) (694) (1,186)
------- ------- ------- ------- ------- ------- ------- -------
250 3,025 6,647 809 6,325 5,174 7,204 5,471
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(5) International Small Cap Equity Fund commenced operations on 1/3/94.
(6) European Small Cap Equity Fund commenced operations on 11/1/94.
(7) Emerging Markets Equity Fund commenced operations on 2/2/94.
(8) Global Fixed Income Fund commenced operations on 1/3/94.
* Net of $112,000 change in accrued foreign withholding taxes.
55
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- For the periods ended October 31,
<TABLE>
<CAPTION>
------------------- -------------------
International Emerging
Fixed Markets
Income Debt
Fund (9) Fund (10)
------------------- -------------------
1995 1994 1995 1994
-------- -------- -------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 1,222 $ 440 $ 5,602 $ 209
Net realized gain (loss) from
security transactions 434 (179) (1,684) 39
Net realized gain (loss) on forward
foreign currency contracts
and foreign currency transactions 48 (343) (75) 7
Net change in unrealized appreciation
(depreciation) on forward foreign
currency contracts, foreign currency,
and translation of other assets and
liabilities in foreign currency 312 (260) (42) (20)
Net change in unrealized appreciation
(depreciation) on investments 861 366 (35) (88)
------- ------- ------- -------
Net increase (decrease) in net assets
from operations 2,877 24 3,766 147
------- ------- ------- -------
Distributions to Shareholders:
Net investment income (76) -- (447) --
Net realized gains -- -- (41) --
------- ------- ------- -------
Total Distributions (76) -- (488) --
------- ------- ------- -------
Capital Share Transactions (1):
Proceeds from shares issued 10,597 15,124 64,746 16,100
Shares issued in lieu of cash
distributions 60 -- 488 --
Cost of shares repurchased (1,093) -- (322) --
------- ------- ------- -------
Increase in Net Assets from
Capital Share Transactions 9,564 15,124 64,912 16,100
------- ------- ------- -------
Net increase in net assets 12,365 15,148 68,190 16,247
------- ------- ------- -------
Net Assets:
Beginning of period 15,238 90 16,248 1
------- ------- ------- -------
End of period $27,603 $15,238 $84,438 $16,248
======= ======= ======= =======
(1) Capital Share Transactions:
Shares issued 996 1,523 6,391 1,595
Shares issued in lieu of cash
distributions 6 -- 51 --
Shares repurchased (100) -- (31) --
------- ------- ------- -------
Net increase in capital shares 902 1,523 6,411 1,595
======= ======= ======= =======
</TABLE>
(9) International Fixed Income Fund commenced operations on 3/15/94.
(10) Emerging Markets Debt Fund commenced operations on 8/4/94.
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Morgan Grenfell Investment Trust -- For the periods ended October 31,
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Net Distributions
Net Asset Net Realized Distributions from
Value Investment and from Net Realized Net Assets
Beginning Income/ Unrealized Investment Capital Value End
of Period (Loss) Gains (Losses) Income Gains of Period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------
Municipal Bond Fund:
- --------------------
1995 $10.37 $ 0.61 $ 0.49 $(0.61) $ -- $10.86
1994 11.36 0.60 (0.61) (0.60) (0.38) 10.37
1993 10.56 0.67 0.84 (0.67) (0.04) 11.36
1992(1) 10.00 0.60 0.56 (0.60) -- 10.56
- ------------------
Fixed Income Fund:
- ------------------
1995 $ 9.93 $ 0.70 $ 0.69 $(0.70) $ -- $10.62
1994 10.95 0.64 (0.91) (0.64) (0.11) 9.93
1993 9.92 0.64 1.03 (0.64) -- 10.95
1992(2) 10.00 0.06 (0.08) (0.06) -- 9.92
- -------------------------------
Short-Term Municipal Bond Fund:
- -------------------------------
1995(3) $10.00 $ 0.30 $ 0.13 $(0.30) $ -- $10.13
- -----------------------------
Short-Term Fixed Income Fund:
- -----------------------------
1995(4) $10.00 $ 0.37 $ 0.01 $(0.37) $ -- $10.01
- -----------------------
Smaller Companies Fund:
- -----------------------
1995(5) $10.00 $ 0.03 $ 0.52 $ -- $ -- $10.55
- --------------------------
International Equity Fund:
- --------------------------
1995(6) $10.00 $ 0.08 $ 0.87 $ -- $ -- $10.95
- ------------------------------------
International Small Cap Equity Fund:
- ------------------------------------
1995 $10.35 $ 0.03 $(0.72) $(0.04) $(0.22) $ 9.40
1994(7) 10.00 0.02 0.33 -- -- 10.35
- -------------------------------
European Small Cap Equity Fund:
- -------------------------------
1995(8) $10.00 $ 0.12 $ 1.44 $(0.01) $ -- $11.55
- -----------------------------
Emerging Markets Equity Fund:
- -----------------------------
1995 $11.00 $ 0.04 $(2.29) $(0.02) $(0.62) $ 8.11
1994(9) 10.00 (0.01) 1.01 -- -- 11.00
- -------------------------
Global Fixed Income Fund:
- -------------------------
1995 $ 9.85 $ 0.35 $ 0.99 $(0.20) $ -- $10.99
1994(10) 10.00 0.25 (0.40) -- $ -- 9.85
- --------------------------------
International Fixed Income Fund:
- --------------------------------
1995 $ 9.94 $ 0.42 $ 1.03 $(0.05) $ -- $11.34
1994(11) 10.00 0.29 (0.35) -- -- 9.94
- -----------------------------------
Emerging Markets Fixed Income Fund:
- -----------------------------------
1995 $10.19 $ 0.65 $(0.17) $(0.11) $(0.01) $10.55
1994(12) 10.00 0.13 0.06 -- -- 10.19
<CAPTION>
(continued)
Ratio of
Ratio of Ratio of Net Investment
Net Expenses Income/(Loss)
Ratio of Investement to Average to Average
Net Assets Expenses Income/(Loss) Net Assets Net Assets Portfolio
Total End of to Average to Average (Excluding (Excluding Turnover
Return Period (000) Net Assets Net Assets Waivers) Waivers) Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------
Municipal Bond Fund:
- --------------------
10.90% $221,058 0.54% 5.75% 0.62% 5.67% 63%
(0.15) 165,677 0.54 5.60 0.67 5.47 94
14.68 148,022 0.55 5.94 0.75 5.74 160
13.42+ 94,700 0.55 6.31 0.79 6.07 143
- ------------------
Fixed Income Fund:
- ------------------
14.53% $494,221 0.54% 6.81% 0.63% 6.72% 182%
(2.58) 239,556 0.54 6.22 0.66 6.10 251
17.28 147,917 0.55 6.01 0.72 5.84 196
(1.61)+ 25,528 0.55 5.24 1.66 4.13 148
- -------------------------------
Short-Term Municipal Bond Fund:
- -------------------------------
4.39%+ $ 3,724 0.52% 4.60% 2.16% 2.96% 62%
- -----------------------------
Short-Term Fixed Income Fund:
- -----------------------------
3.82%+ $ 4,140 0.52% 5.86% 2.84% 3.54% 90%
- -----------------------
Smaller Companies Fund:
- -----------------------
5.50%+ $ 2,638 1.25% 0.94% 2.28% (0.09%) 23%
- --------------------------
International Equity Fund:
- --------------------------
9.50%+ $ 2,738 0.90% 1.55% 2.73% (0.28%) 19%
- ------------------------------------
International Small Cap Equity Fund:
- ------------------------------------
(6.67%) $ 90,917 1.25% 0.41% 1.48% 0.18% 62%
3.50+ 68,798 1.25 0.34 1.67 (0.08) 41
- -------------------------------
European Small Cap Equity Fund:
- -------------------------------
15.66%+ $ 9,336 1.25% 1.25% 2.24% 0.26% 34%
- -----------------------------
Emerging Markets Equity Fund:
- -----------------------------
(21.00%) $ 93,288 1.25% 0.44% 1.55% 0.14% 49%
10.00+ 56,892 1.36 (0.12)% 1.79 (0.55) 45
- -------------------------
Global Fixed Income Fund:
- -------------------------
13.88% $139,337 0.78% 5.61%+ 0.87% 5.52% 79%
(1.50)+ 53,915 0.85 5.71 1.28 5.28 173
- --------------------------------
International Fixed Income Fund:
- --------------------------------
14.66% $ 27,603 0.78% 5.51%+ 1.15% 5.14% 103%
(0.60)+ 15,238 0.85 5.66 1.42 5.09 130
- -----------------------------------
Emerging Markets Fixed Income Fund:
- -----------------------------------
4.85% $ 84,438 1.79% 10.97% 2.05% 10.71% 266%
1.90+ 16,248 1.90 7.04 2.60 6.34 52
</TABLE>
+ Returns are for the period indicated and have not been annualized.
(1) Municipal Bond Fund commenced operations on 12/13/91. All ratios for
the period have been annualized.
(2) Fixed Income Fund commenced operations on 9/18/92. All ratios for the
period have been annualized.
(3) Short-Term Municipal Bond Fund commenced operations on 3/6/95. All
ratios for the period have been annualized.
(4) Short-Term Fixed Income Fund commenced operations on 3/13/95. All
ratios for the period have been annualized.
(5) Smaller Companies Fund commenced operations on 6/30/95. All ratios for
the period have been annualized.
(6) International Equity Fund commenced operations on 5/15/95. All ratios
for the period have been annualized.
(7) International Small Cap Equity Fund commenced operations on 1/3/94. All
ratios for the period have been annualized.
(8) European Small Cap Equity Fund commenced operations on 11/1/94. All
ratios for the period have been annualized. The accompanying notes are
an integral part of the financial statements.
(9) Emerging Markets Equity Fund commenced operations on 2/2/94. All ratios
for the period have been annualized.
(10) Global Fixed Income Fund commenced operations on 1/3/94. All ratios for
the period have been annualized.
(11) International Fixed Income Fund commenced operations on 3/15/94. All
ratios for the period have been annualized.
(12) Emerging Markets Debt Fund commenced operations on 8/4/94. All ratios
for the period have been annualized.
The accompanying notes are an integral part of the financial statements.
57 & 58
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Morgan Grenfell Investment Trust
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Short-Term
Municipal Bond Fund, Short-Term Fixed Income Fund, Smaller Companies Fund,
International Equity Fund, International Small Cap Equity Fund, European
Small Cap Equity Fund, Emerging Markets Equity Fund, Global Fixed Income
Fund, International Fixed Income Fund, and Emerging Markets Debt Fund series
of Morgan Grenfell Investment Trust, (the "Trust") at October 31, 1995, the
results of each of their operations, the changes in each of their net assets
and the financial highlights for each of the periods indicated, and the
financial position of the Municipal Bond Fund and Fixed Income Fund series of
the Trust at October 31, 1995, and the results of each of their operations,
the changes in each of their net assets and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1995 by correspondence with the
custodians and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable
basis for the opinion expressed above. The statements of changes in net
assets for the year ended October 31, 1994 and the financial statements and
financial highlights for the years ended October 31, 1994 and October 31,
1993, and the period ended October 31, 1992 of the Municipal Bond Fund and
Fixed Income Fund were audited by other independent accountants whose
reported dated December 14, 1994 expressed an unqualified opinion on those
financial statements.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
December 11, 1995
59
<PAGE>
SHAREHOLDERS VOTING RESULTS (Unaudited)
- -------------------------------------------------------------------------------
On December 5, 1994, special meetings of the shareholders of Morgan Grenfell
Fixed Income Fund and Morgan Grenfell Municipal Bond Fund were held to act
upon proposals to reorganize these Funds as series of the Trust. At this
time, these Funds were series of The Advisors' Inner Circle Fund, a
Massachusetts business trust. Shareholders approved both reorganizations as
follows:
<TABLE>
<CAPTION>
Morgan Grenfell Morgan Grenfell
Fixed Income Municipal Bond
Fund Fund
-------------- ---------------
<S> <C> <C>
Votes For 12,843,562.044 10,915,446.078
Votes Against 237,684.000 745.254
Abstentions -- --
Broker Non-Votes -- --
Votes Withheld 9,029,063.254 5,065,022.904
</TABLE>
At the special meetings held on December 5, 1994, the shareholders of Morgan
Grenfell Fixed Income Fund and Morgan Grenfell Municipal Bond Fund also
ratified the Trustees' selection of Price Waterhouse LLP as the independent
public accountants of the series of the Trust into which these Funds were
reorganized (for the fiscal year ended October 31, 1995). Shareholders
ratified these selections as follows:
<TABLE>
<CAPTION>
Morgan Grenfell Morgan Grenfell
Fixed Income Municipal Bond
Fund Fund
-------------- ---------------
<S> <C> <C>
Votes For 13,081,246.044 10,910,395.720
Votes Against -- 5,050.358
Abstentions -- 745.254
Broker Non-Votes -- --
Votes Withheld 9,029,063.254 5,065,022.904
</TABLE>
60
<PAGE>
NOTICE TO SHAREHOLDERS (Unaudited)
- -------------------------------------------------------------------------------
Morgan Grenfell Investment Trust--For the period ended October 31, 1995
Taxpayers filing on a calendar year basis will receive tax information for
the 1995 calendar year after year end.
Dear Morgan Grenfell Shareholders:
For the fiscal year ended October 31, 1995, each portfolio is designating
by this notice long-term capital gains, qualifying dividends and exempt
income with regard to distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A)
Long Term (B) (C) (E) (F)
Capital Gains Income Total (D) Tax Foreign
Distributions Distributions Distributions Qualifying Exempt Tax
Fund (Tax Basis)+ (Tax Basis)+ (Tax Basis)+ Dividends (1) Interest Credit (2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Municipal Bond Fund 0.00% 100.00% 100.00% 0.00% 100.00% 0.00%
Fixed Income Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
Short-Term Municipal Bond Fund 0.00% 100.00% 100.00% 0.00% 100.00% 0.00%
Short-Term Fixed Income Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
Smaller Companies Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
International Equity Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
International Small Cap Equity Fund 50.91% 49.09% 100.00% 0.00% 0.00% 59.52%
European Small Cap Equity Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
Emerging Markets Equity Fund 14.55% 85.45% 100.00% 0.00% 0.00% 105.15%
Global Fixed Income Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
International Fixed Income Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
Emerging Markets Debt Fund 0.00% 100.00% 100.00% 0.00% 0.00% 0.00%
</TABLE>
+ As determined for Federal tax purposes.
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction
(2) See attached notice which details the per share amount of foreign taxes
paid by country and the per share amount of each dividend that
represents income derived from sources within each country.
* Items (A) and (B) are based on a percentage of the Fund's total
distributions.
** Items (D), (E) and (F) are based on a percentage of income distributions
of the Fund.
Please consult your tax adviser for proper treatment of this information.
61
<PAGE>
NOTICE TO SHAREHOLDERS (Unaudited)
- -------------------------------------------------------------------------------
Morgan Grenfell International Small Cap Equity Fund
Morgan Grenfell Emerging Markets Equity Fund
Taxpayers filing on a calendar year basis will receive tax information for
the 1995 calendar year after year end.
The Morgan Grenfell International Small Cap Equity Fund and Morgan Grenfell
Emerging Markets Equity Fund have made an election under Section 853 of the
Internal Revenue Code (the"Code") to provide a foreign tax deduction or
credit to their shareholders for the fiscal year ended October 31, 1995. The
information provided below is pertinent to taxpayers who meet the following
two criteria: 1) file a U.S. Federal Income Tax Return and 2) held shares of
the Fund on the dividend record date of December 30, 1994 and satisfy the
applicable requirements of the code.
The amount per share of income from and foreign taxes paid to each country is
listed in the following schedule:
<TABLE>
<CAPTION>
Morgan Grenfell International Morgan Grenfell Emerging
Small Cap Equity Fund Markets Equity Fund
Country Gross Dividend Foreign Taxes Paid Country Gross Dividend Foreign Taxes Paid
- ------- -------------- ------------------ ------ -------------- ------------------
<S> <C> <C> <C> <C> <C>
Australia 0.0044 0.0020 Argentina 0.0013 0.0000
Austria 0.0003 0.0001 Brazil 0.0183 0.0129
Belgium 0.0002 0.0001 Chile 0.0007 0.0002
Finland 0.0004 0.0002 Columbia 0.0006 0.0000
France 0.0033 0.0000 Greece 0.0008 0.0000
Germany 0.0085 0.0054 Hungary 0.0001 0.0000
Hong Kong 0.0016 0.0000 India 0.0001 0.0000
Indonesia 0.0013 0.0006 Indonesia 0.0007 0.0002
Italy 0.0008 0.0003 Malaysia 0.0096 0.0073
Japan 0.0103 0.0040 Mexico 0.0019 0.0000
Malaysia 0.0021 0.0012 Peru 0.0006 0.0001
Netherlands 0.0025 0.0010 Philippines 0.0002 0.0001
Norway 0.0008 0.0003 Portugal 0.0008 0.0005
Philippines 0.0000 0.0000 South Africa 0.0023 0.0010
Singapore 0.0008 0.0004 South Korea 0.0009 0.0002
South Korea 0.0001 0.0000 Switzerland 0.0001 0.0000
Spain 0.0010 0.0003 Taiwan 0.0009 0.0002
Sweden 0.0003 0.0001 Thailand 0.0037 0.0017
Switzerland 0.0033 0.0013 Turkey 0.0013 0.0000
Thailand 0.0007 0.0000 Venezuela 0.0001 0.0000
United Kingdom 0.0183 0.0074 United Kingdom 0.0002 0.0001
United States 0.0052 0.0000 United States 0.0026 0.0000
------ ------ ------ ------
0.0662 0.0247 0.0478 0.0245
</TABLE>
62
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Morgan Grenfell Investment Trust--October 31, 1995
1. Organization
Morgan Grenfell Investment Trust (the "Trust") was organized as a Delaware
business trust on September 13, 1993. The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company consisting of seventeen investment portfolios (Municipal Bond Fund,
Fixed Income Fund, Short-Term Municipal Bond Fund, Short-Term Fixed Income Fund,
Large Cap Growth Fund, and Smaller Companies Fund (collectively the "Domestic
Funds"); International Equity Fund, Global Equity Fund, European Equity Fund,
Pacific Basin Equity Fund, International Small Cap Equity Fund, European Small
Cap Equity Fund, Japanese Small Cap Equity Fund, Emerging Markets Equity Fund,
Global Fixed Income Fund, International Fixed Income Fund and Emerging Markets
Debt Fund (formerly Emerging Markets Fixed Income Fund) (collectively the
"International Funds"). The Domestic Funds and International Funds are hereafter
referred to collectively as the "Funds". At October 31, 1995, the Large Cap
Growth Fund, Global Equity Fund, European Equity Fund, Pacific Basin Equity Fund
and Japanese Small Cap Equity Fund had not yet commenced operations.
On December 28, 1994, pursuant to plans of reorganization approved by the
Municipal Bond Fund and the Fixed Income Fund shareholders on December 5, 1994,
all of the assets of the Morgan Grenfell Municipal Bond Fund and the Morgan
Grenfell Fixed Income Fund (formerly part of The Advisors' Inner Circle Fund)
were transferred to the Municipal Bond Fund and Fixed Income Fund (the
"Portfolios"), newly formed portfolios of the Trust, in exchange for shares of
the Portfolios and assumption of stated liabilities of the two funds. The
Municipal Bond Fund reorganization was accomplished by a tax-free exchange of
the Municipal Bond Fund's net assets (valued at $149,509,966) for 14,567,909
shares of the corresponding Portfolio. The Fixed Income Fund reorganization was
accomplished by a tax-free exchange of the Fixed Income Fund's net assets
(valued at $273,285,174) for 27,846,079 shares of the corresponding Portfolio.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Funds.
Security Valuation--Securities listed on a securities exchange for which
market quotations are readily available are valued at the last quoted sales
price on the principal exchange on which they are traded on the valuation date
or, if there is no such reported sale on the valuation date, at the most recent
quoted bid price. Unlisted securities for which market quotations are readily
available are valued at the most recent quoted bid price. Certain debt and fixed
income investments owned by the Funds are valued at prices supplied by
independent pricing agents selected by Morgan Grenfell Capital Management, Inc.
and Morgan Grenfell Investment Services Limited (the "Advisors"), which prices
reflect broker-dealer supplied valuations and electronic data processing
techniques. Short-term investments are valued at amortized cost which
approximates market value. Other securities for which market value is not
readily available or securities whose market value does not, in the opinion of
the applicable Advisor, reflect fair value are valued at fair value using
methods determined in good faith by the valuation committee of the Board of
Trustees.
Income Taxes--It is the intention of each Fund to continue to qualify as a
regulated investment company and to distribute all of its taxable income.
Accordingly, no provision for Federal income taxes is considered necessary.
63
<PAGE>
The International Funds may be subject to taxes imposed by countries in which
they invest with respect to their investments in issuers existing or operating
in such countries. Such taxes are generally based on either income earned or
repatriated. The International Funds accrue such taxes when the related income
is earned.
Net Asset Value Per Share--The net asset value per share is calculated on a
daily basis by dividing the assets of each Fund, less its liabilities, by the
number of outstanding shares of the Fund.
Repurchase Agreements--Securities pledged as collateral for repurchase
agreements are held by the custodian banks until maturity of the repurchase
agreements. Provisions of the repurchase agreements and procedures adopted by
the Trust require that the market value of the collateral, including accrued
interest thereon, is sufficient in the event of default by the counterparty.
The Funds may also invest in tri-party repurchase agreements. Securities held
as collateral for tri-party repurchase agreements are maintained in a segregated
account by the broker's custodian bank until maturity of the repurchase
agreement. Provisions of the agreements require that the market value of the
collateral, including accrued interest thereon, is sufficient in the event of
default.
If the counterparty defaults and the value of the collateral declines or if
the counterparty enters an insolvency proceeding, realization of the collateral
by the Funds may be delayed or limited.
Foreign Currency Translation--The books and records of the International
Funds are maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on the following basis: (I) market value of investment
securities, other assets and liabilities at the current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at the
relevant rates of exchange prevailing on the respective dates of such
transactions.
The International Funds do not isolate that portion of gains and losses on
investments in securities which is due to changes in the foreign exchange rates
from that which is due to changes in market prices of such securities. The
International Funds do isolate the effect of fluctuations in foreign currency
rates when determining the gain or loss upon sale or maturity of foreign
currency denominated debt obligations pursuant to the Federal income tax
regulations. Such amounts are caterized as foreign currency gain or loss for
both financial reporting and income tax reporting purposes.
The International Funds report gains and losses on foreign currency related
transactions as realized and unrealized gains and losses for financial reporting
purposes, whereas such gains and losses, to the extent realized, are treated as
ordinary income or loss for Federal income tax purposes.
Forward Foreign Currency Contracts--The International Funds enter into
forward foreign currency contracts as hedges against portfolio positions as well
as for non-hedging purposes. The aggregate principal amounts of the contracts
are not recorded as the Funds do not intend to hold the contracts to maturity.
All commitments are "marked-to-market" daily at the applicable foreign exchange
rate and any resulting unrealized gains or losses are recorded currently. The
Funds realize gains or losses at the time forward contracts are extinguished,
except that gains or losses on certain open contracts are required to be
recognized for U.S. Federal income tax purposes at the close of the Fund's
taxable year and are generally treated as ordinary income for such purposes.
Foreign Currency Options--The premium paid by a Fund for the purchase of an
option is included in the Fund's Schedule of Investments as an investment and
subsequently marked to market to reflect the
64
<PAGE>
current market value of the option. For an option held by a Fund on the
stipulated expiration date, the Fund realizes a loss. If the Fund enters into a
closing sale transaction, it realizes a gain or loss, depending on whether the
proceeds from the sale are greater or less than the cost of the purchased
option. If the Fund exercises a purchased put option, it realizes a gain or loss
from the sale of the underlying investment and proceeds from such sale will be
decreased by the premium originally paid. If the Fund exercises a purchased call
option, the cost of the underlying investment which the Fund purchases upon
exercise will be increased by the premium originally paid. Certain foreign
currency options may be required to be marked to market for Federal income tax
purposes at the close of a Fund's taxable year, giving rise to a gain or loss
that may, depending upon whether certain elections are made, be capital or
ordinary in character.
Distributions--Distributions from net investment income and net realized
capital gains are determined in accordance with U.S. Federal income tax
regulations, which may differ from those amounts determined under generally
accepted accounting principles. These book/tax differences are either temporary
or permanent in nature. To the extent these differences are permanent, they are
charged or credited to paid in capital in the period that the difference arises.
Accordingly, the following permanent differences primarily attributable to
realized foreign exchange gains and losses, have been reclassified from
accumulated net realized gain (loss) on foreign currency transactions to
undistributed net investment income:
(000)
----
International Equity Fund $ 79
International Small Cap Equity Fund (1)
European Small Cap Equity Fund 28
Emerging Markets Equity Fund (86)
Global Fixed Income Fund (112)
International Fixed Income Fund 48
Emerging Markets Debt Fund (75)
These reclassifications have no effect on net assets or net asset values
per share.
Expenses--Expenses that are directly related to one of the Funds are
charged directly to that Fund. Other operating expenses of the Trust are
prorated to the Funds on the basis of relative net assets. Morgan Grenfell
Capital Management, Inc. absorbed all expenses of organizing the Trust.
All organizational costs incurred with the start of the Municipal Bond Fund
and the Fixed Income Fund are being amortized on a straight line basis over a
period of sixty months.
Other--Security transactions are accounted for on the date the security is
purchased or sold (trade date). Costs used in determining net realized capital
gains and losses on the sale of investment securities are those of the specific
securities sold adjusted for the accretion and amortization of original issue
discounts and purchase premiums during the respective holding period. Original
issue discounts and purchase premiums on securities held by the Funds are
accreted and amortized ratably to maturity using the effective interest method.
Dividend income is recognized on the ex-dividend date and interest income is
recognized using the accrual method.
65
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3. Administration, Investment Advisory, and Distribution Agreements
The Trust has entered into an administration agreement with SEI Financial
Management Corporation (the "Administrator"), pursuant to which the
Administrator receives an annual fee based on the aggregate average daily net
assets of all the Funds as follows: 0.15% up to $300,000,000; 0.12% from
$300,000,000 up to $500,000,000; 0.10% from $500,000,000 up to $1,000,000,000;
and 0.08% in excess of $1,000,000,000. Each Fund pays the Administrator a
minimum annual fee that equals (after a one-year phase in period) the following:
$50,000 for the Municipal Bond Fund, Fixed Income Fund, Short-Term Municipal
Bond Fund, Short-Term Fixed Income Fund and Smaller Companies Fund; $75,000 for
the International Equity Fund, Global Fixed Income Fund and International Fixed
Income Fund; and $100,000 for the International Small Cap Equity Fund, European
Small Cap Equity Fund, Emerging Markets Equity Fund, and Emerging Markets Debt
Fund.
The Administrator generally assists in all matters relating to the
administration of the Funds, including the coordination and monitoring of any
third parties furnishing services to the Funds, preparation and maintenance of
financial accounting records, and the provision of necessary office space,
equipment and personnel to perform administrative and clerical functions.
Under advisory agreements with the Trust, Morgan Grenfell Capital Management,
Inc. serves as the Advisor for the Domestic Funds and Morgan Grenfell Investment
Services Limited serves as the Advisor for the International Funds. For these
services, the Advisors are entitled to a monthly fee at an annual rate of each
Fund's average daily net assets as follows:
Municipal Bond Fund 0.40%
Fixed Income Fund 0.40%
Short-Term Municipal Bond Fund 0.40%
Short-Term Fixed Income Fund 0.40%
Smaller Companies Fund 1.00%
International Equity Fund 0.70%
International Small Cap Equity
Fund 1.00%
European Small Cap Equity Fund 1.00%
Emerging Markets Equity Fund 1.00%
Global Fixed Income Fund 0.50%*
International Fixed Income Fund 0.50%*
Emerging Markets Debt Fund 1.50%**
- -------------
*0.60% prior to April 3, 1995
**1.60% prior to September 6, 1995
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The Advisors have voluntarily agreed to reduce their advisory fees and/or
reimburse each Fund to the extent necessary to limit the Fund's operating
expenses to a specified percentage of its average net assets as follows:
Municipal Bond Fund 0.55%
Fixed Income Fund 0.55%
Short-Term Municipal Bond Fund 0.55%
Short-Term Fixed Income Fund 0.55%
Smaller Companies Fund 1.25%
International Equity Fund 0.90%
International Small Cap Equity Fund 1.25%
European Small Cap Equity Fund 1.25%
Emerging Markets Equity Fund 1.25%
Global Fixed Income Fund 0.75%*
International Fixed Income Fund 0.75%*
Emerging Markets Debt Fund 1.50%**
- --------------
*0.85% prior to April 3, 1995
**1.90% prior to September 6, 1995
Certain officers and/or Trustees of the Trust are affiliated with the
Administrator or Advisors.
SEI Financial Services Company (the "Distributor") serves as the distributor
of shares of the Funds pursuant to a distribution agreement with the Trust and
assists in the sale of shares of the Funds. The Advisors, and not the Trust, are
responsible for payment of any expenses or fees incurred in the marketing and
distribution of shares of the Trust.
4. Forward Foreign Currency Contracts
The International Funds enter into forward foreign currency exchange
contracts as hedges against portfolio positions as well as for non-hedging
purposes. Such contracts, which protect the value of the Fund's investment
securities against a decline in the value of the hedged currency, do not
eliminate fluctuations in the underlying prices of the securities. They simply
establish an exchange rate at a future date. Also, although such contracts tend
to minimize the risk of loss due to a decline in the value of a hedged currency,
at the same time they tend to limit any potential gain that might be realized
should the value of such foreign currency increase.
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The following forward foreign currency contracts were outstanding at October
31, 1995:
In Unrealized
Currency to Exchange Appreciation
Maturity (Deliver)/Receive For (Depreciation)
Date (000) (000) (000)
- ----------------------------------- ---------------- -------- -------------
International Equity Fund:
Foreign Currency Sales:
12/27/95 JY (29,500) $ 300 $ 9
========
International Small Cap Equity Fund:
Foreign Currency Sales:
01/05/96 FF (11,400) $ 2,319 $ (11)
01/18/96 JY (1,040) 10,483 188
--------
$ 177
========
European Small Cap Equity Fund:
Foreign Currency Sales:
11/22/95 FF (2,750) $ 541 $ 22
========
Global Fixed Income Fund:
Foreign Currency Sales:
01/25/96 CA (5,000) $ 3,734 $ 2
11/20/95-01/25/96 DM (16,330) 11,332 (293)
12/15/95-02/20/96 DK (57,500) 10,333 (197)
11/20/95-01/25/96 FF (32,200) 6,555 28
--------
$(516)
========
Foreign Currency Purchases:
11/20/95-01/25/96 DM 16,250 $11,333 $ 246
01/25/96 IL 12,110,000 7,440 77
11/20/95-01/25/96 JY 1,066,000 10,910 (362)
--------
$ (39)
--------
$(555)
========
International Fixed Income Fund:
Foreign Currency Sales:
11/20/95-02/20/96 CA (3,040) $ 2,237 $ (32)
11/20/95-01/25/96 DM (11,755) 8,291 (74)
11/20/95-01/25/96 DK (15,180) 2,708 (71)
11/20/95-01/25/96 FF (13,800) 2,798 (22)
11/20/95-12/15/95 UK (713) 1,127 1
11/20/95-12/15/95 JY (192,750) 2,033 140
--------
$ (58)
========
Foreign Currency Purchases:
11/20/95-01/25/96 DM 4,515 $ 3,117 $ 100
11/20/95 JY 109,500 1,102 (28)
1/25/96 IL 2,190 1,340 19
--------
$ 91
--------
$ 33
========
Emerging Markets Fixed Income Fund:
Foreign Currency Sales:
11/07/95 CH (580) $ 505 $ (6)
11/07/95-11/20/95 DM (2,770) 1,971 2
$ (4)
--------
Foreign Currency Purchases:
11/20/95 DM 570 $ 407 $ (2)
$ (6)
========
Currency Legend
CA Canadian Legend FF French Franc
CH Swiss Franc IL Italian Lira
DM German Mark JY Japanese Yen
DK Danish Kroner UK British Pound Sterling
68
<PAGE>
At October 31, 1995, the Global Fixed Income Fund and International Fixed
Income Fund had unrealized gains on closed but unsettled forward foreign
currency contracts of $74,391 and $17,383, respectively, scheduled to settle
between November 20, 1995 and January 25, 1996.
5. Investment Transactions
The cost of security purchases and the proceeds from the sale of securities,
other than short-term investments and U.S. Government securities, during the
period ended October 31, 1995, were as follows:
Purchases Sales
(000) (000)
-------- --------
Municipal Bond Fund $164,644 $115,462
Fixed Income Fund 362,412 188,171
Short-Term Municipal Bond Fund 4,652 1,640
Short-Term Fixed Income Fund 1,777 221
Smaller Companies Fund 2,492 382
International Equity Fund 2,974 489
International Small Cap Equity Fund 62,325 38,751
European Small Cap Equity Fund 10,234 2,478
Emerging Markets Equity Fund 75,556 30,462
Global Fixed Income Fund 144,774 102,095
International Fixed Income Fund 47,251 38,244
Emerging Markets Debt Fund 175,680 113,062
The cost of U.S. Government security purchases and the proceeds from the
sale of U.S. Government securities, during the period ended October 31, 1995,
were as follows:
Purchases Sales
(000) (000)
----- -------
Fixed Income Fund $499,593 $433,441
Short-Term Fixed Income Fund 671 240
Global Fixed Income Fund 34,835 12,887
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For Federal income tax purposes, the cost of securities owned at October 31,
1995 and the net realized gains or losses on securities sold for the period then
ended was not materially different from the amounts reported for financial
reporting purposes. The aggregate gross unrealized appreciation and depreciation
at October 31, 1995, for each Fund is as follows:
Net
Unrealized
Appreciated Depreciated Appreciation/
Securities Securities (Depreciation)
(000) (000) (000)
--------- --------- --------------
Municipal Bond Fund $6,357 $585) $5,772
Fixed Income Fund 12,716 (776) 11,940
Short-Term Municipal Bond Fund 28 (3) 25
Short-Term Fixed Income Fund 8 (1) 7
Smaller Companies Fund 187 (51) 136
International Equity Fund 213 (78) 135
International Small Cap Equity Fund 9,173 (7,503) 1,670
European Small Cap Equity Fund 1,444 (365) 1,079
Emerging Markets Equity Fund 7,021 (9,851) (2,830)
Global Fixed Income Fund 5,433 (821) 4,612
International Fixed Income Fund 1,426 (199) 1,227
Emerging Markets Debt Fund 1,282 (1,405) (123)
At October 31, 1995 the following Funds had available realized capital losses
to offset future net capital gains through the fiscal year ended 2003:
(000)
-----
Municipal Bond Fund $1,556
Smaller Companies Fund 6
International Equity Fund 6
International Small Cap
Fund 2,367
Emerging Markets Debt Fund 526
6. Loan Participations/Assignments
The Emerging Markets Debt Fund (the "Fund") invests in U.S.
dollar-denominated fixed and floating rate loans ("Loans") arranged through
private negotiations between a foreign sovereign entity and one or more
financial institutions ("Lenders"). The Fund invests in such Loans in the form
of participations in Loans ("Participations") or assignments of all or a portion
of loans from third parties ("Assignments"). Participations typically result in
the Fund having a contractual relationship only with the Lender, not with the
sovereign borrower. The Fund has the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
borrower. In connection with purchasing Participations, the Fund generally has
no right to enforce compliance by the borrower with the terms of the loan
agreement relating to the Loan, nor any rights of set-off against the borrower,
and the Fund will not benefit directly from any collateral supporting the Loan
in which it has purchased the Participation. As a result, the Fund assumes the
credit risk of both the borrower and the Lender that is selling the
Participation. The Fund may have difficulty disposing of Participations and
Assignments because the market for such instruments is not highly liquid.
70
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7. Concentration of Risks
The Municipal Bond Fund and Short-Term Municipal Bond Fund invest primarily
in a diversified portfolio of municipal securities, including municipal bonds
and debentures, rated Baa or better by Moody's Investors Service, Inc.
("Moody's") or BBB or better by Standard & Poor's Ratings Group ("S&P"), or, if
not rated, determined by the Advisor to be of comparable quality. Although the
Municipal Bond Fund and Short-Term Municipal Bond Fund maintain diversified
portfolios, the municipal bond issuers' abilities to meet their obligations may
be affected by economic developments in a specific state or region.
The Fixed Income Fund and Short-Term Fixed Income Fund invest primarily in
fixed income securities rated Baa or better by Moody's or BBB or better by S&P
or, if not rated, determined by the Advisor to be of comparable quality.
Although the Fixed Income Fund and Short-Term Fixed Income Fund maintain
diversified portfolios, the ability of the issuers of the Fund's portfolio
securities to meet their obligations may be affected by changing business and
economic conditions.
Each International Fund invests in securities of foreign issuers in various
countries. These investments may involve certain considerations and risks not
typically associated with investments in the United States, as a result of,
among other factors, the possibility of future political and economic
developments and the level of governmental supervision and regulation of
securities markets in the respective countries. Global Fixed Income,
International Fixed Income and Emerging Markets Debt Fund invest in debt
securities, the market value of which may change in response to interest rate
changes. Also, the ability of the issuers of debt securities held by the Funds
to meet their obligations may be affected by economic and political developments
in a specific country, industry, or region.
71
<PAGE>
(LOGO) Account Application Form
MORGAN GRENFELL INVESTMENT TRUST
INTERNATIONAL MUTUAL FUNDS
<TABLE>
<CAPTION>
<S> <C>
A| REGISTRATION (Please Print All Items Except Signatures)
- - (Complete One)
Corporations, 1. _________________________________________________________________________ ______________________________
Partnerships, Name of Corporation or Entity. If a trust, include Name(s) of Trustee(s) Tax I.D. Number
Trusts & Others _ _
Lines 1 & 2 2. Type of Registration |_| Individual |_| Joint Account
_ _
|_| Trust |_| Individual Retirement Account ("IRA")
INDIVIDUAL
Use Line 3 3. Individual ______________________________________________________ ______________________________
First Name Initial Last Name Social Security Number
_ _
U.S. Citizen? Yes |_| No |_|
JOINT ACCOUNT 4. Joint Names ______________________________________________________ ______________________________
(Lines 3 & 4) First Name Initial Last Name Social Security Number
_ _
U.S. Citizen? Yes |_| No |_|
GIFT/TRANSFER 5. Uniform Gift/Transfer to Minor _________________________ as custodian for
TO MINOR ______________________________
Lines 5, 6 & 7 6. _________________________________________________________ under the Minor's Social Security Number
Minor's Name
7. _________________________________Uniform Gift/Transfer to Minors Act
State
___________________________________________________________________________________________________________________________________
B| MAILING Street or P.O. Box
- - ADDRESS _______________________________________________________________________________________________________________
City State | Zip Code | Home Telephone | Daytime Telephone
_________________________________________|__________________|_______________________|__________________________
Duplicate Street or P.O. Box
Confirmation/ _______________________________________________________________________________________________________________
Statement sent to: City State | Zip Code | Home Telephone | Daytime Telephone
_____________________________________________________________|__________________|_______________________|__________________________
C| FUND For each Fund in which you wish to invest, please enter the amount of your investment and check the
- - SELECTION corresponding line.
INITIAL MINIMUM INVESTMENT: $250,000 PER FUND. AMOUNT
INVESTMENT -------
_
(355) |_| Morgan Grenfell Global Fixed Income Fund $______
_
(356) |_| Morgan Grenfell Emerging Markets Debt Fund $______
_
(357) |_| Morgan Grenfell International Fixed Income Fund $______
Total $
=======
_
|_| Enclosed is my check (payable to the appropriate Fund name)
_
|_| In order to obtain wiring instructions - (Please call 1-800-550-MGAM prior to sending)*
* An account number is necessary prior to wiring money and must be included in instructions and below.
Account Number: _______________
___________________________________________________________________________________________________________________________________
_
D| FED WIRE Check one only, |_| All redemption proceeds will be sent by Fed wire net of wire charges unless Morgan Grenfell
- - & AUTOMATED if none are Investment Trust, P.O. Box 419165, Kansas City, MO 64141-6165 is notified in writing to
CLEARING HOUSE checked all execute redemptions by ACH transaction.
("ACH) redemptions
INFORMATION will be sent by an
ACH transaction.
_
|_| All redemption proceeds will be executed by an ACH transaction unless FED wire is requested
by either calling 1-800-500-MGAM or by notifying Morgan Grenfell Investment Trust, P.O.
Box 419165, Kansas City, MO 64141-6165 in writing. There is no charge for ACH
transactions.
___________________________________________________________________________________________________________________________________
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
D| (continued) Automated Clearing House (ACH) redemptions must be executed by telephone authorization by calling
- - FED WIRE 1-800-550-MGAM. Generally the proceeds of redemptions will be deposited in your bank account within three
& AUTOMATED business days after your call.
CLEARING HOUSE
("ACH") Shareholders purchasing shares of the Portfolio(s) by Fed wire must request their bank to transmit the
INFORMATION funds to: United Missouri Bank of Kansas City, N.A.; ABA #10-10-00695; For Account Number 98-7052-395-7;
Further Credit [appropriate Fund name]. The shareholder's name and account number must be specified in the wire.
All Fed wire and ACH transactions will be sent as indicated below. There will be no charge for ACH redemptions.
Fed wire redemptions will be sent net of wire charges. Any changes in Fed wire or ACH transactions must be made
in writing to Morgan Grenfell Investment Trust, P.O. Box 419165, Kansas City, MO 64141-6165.
Please allow one month for ACH instructions to be effective. All activity prior to ACH instructions being
effective will be done by Fed wire.
(Notify your bank of your intent to establish this option on your bank account.)
___________________________________________________________________________________________________________________
Bank Name |Branch Office (if applicable)
Voided Personal ____________________________________________________|____________________________________________________________
Check Must Be Bank Address (Do not use P.O. Box) | City | State |Zip Code
Attached ______________________________________________|_____________________________|____________________|_______________
Bank Wire Routing Number | Name(s) on Your Bank Account| Your Bank Account Number
________________________________________________________________|_____________________________|____________________________________
_
E| DIVIDENDS Check one only; if none are checked all |_| All dividend income and capital gains reinvested
- - AND dividend income and capital gains, _
CAPITAL GAINS if any, will be reinvested. |_| All dividend income and capital gains paid by ACH transaction
DISTRIBUTIONS _
|_| Capital gains paid by ACH transaction and dividend income reinvested
_
|_| Dividend income paid by ACH transaction and capital gains reinvested
___________________________________________________________________________________________________________________________________
F| TELEPHONE I (We) authorize DST Systems, Inc. to act upon instructions received by telephone from me (us) to redeem shares
- - PRIVILEGE or to exchange for shares of other available series of Morgan Grenfell Investment Trust. I (We) understand an
Redemptions; exchange is made by redeeming shares of one Fund and using the proceeds to buy shares of another fund. If there
Exchanges is an exchange, the account registration for the other Fund automatically will be the same as set forth above.
Between Redemptions proceeds will be sent via ACH transaction, unless I (we) have elected the Fed wire redemption
Portfolios privilege (Item D).
___________________________________________________________________________________________________________________________________
G| SHAREHOLDER 1. I (We) have full right, power, authority and legal capacity, and am (are) of legal age in my (our) state of
- - AGREEMENT residence to purchase shares of the Fund. I (We) affirm that I (we) have received and read the current
prospectus of the fund and agree to its terms. I (We) understand the investment objectives and program, and have
determined that the Fund is a suitable investment, based upon my (our) investment needs and financial situation.
I (We) agree that DST Systems, Inc. or any of their affiliate officers, directors or employees will not be liable
for any loss, expense or cost for acting upon any instructions or inquires believed genuine.
2. I (We) understand that the authorization(s), with respect to Wire Redemptions are subject to the conditions
and limitations set forth in the current prospectus. I (We) ratify any instructions given, pursuant to the above
authorization(s) and agree that DST Systems, Inc. or any of their affiliate officers, directors or employees will
not be liable for any loss liability, cost or expense for acting upon instructions believed to be genuine.
3. I (We) understand and acknowledge that a return on the Morgan Grenfell Investment Trust Portfolio(s) is(are)
not guaranteed.
4. This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
5. Morgan Grenfell Capital Management has full authority to purchase and redeem shares of the mutual fund
portfolios if full investment discretion has been provided to Morgan Grenfell by a separate agreement.
_
|_| Check this box if full investment discretion has been provided to Morgan Grenfell by a separate agreement.
___________________________________________________________________________________________________________________________________
H| SIGNATURES Taxpayer Identification Number Certification (Please See Appendices to Prospectus for Instructions).
- - Under the penalties of perjury, I (we) certify the following:
And Back-up 1. I (We) certify that the number shown on this form in my (our) correct taxpayer identification number.
Withholding 2. I (We) am not (are not) exempt from back-up withholding or as a result of receiving notice from the Internal
Certification Revenue Service (IRS) that such withholding applies due to a failure to report all interest and dividends, or
the IRS has notified me (us) that I (we) am (are) no longer subject to back-up withholding.
The Internal Revenue Service does not require your consent to any provision of this document other than the
certifications required to avoid backup withholding.
__________________________________________ ________ _______________________________________
Individual (or Custodian) Date Joint Registration, if any
__________________________________________ ________ _______________________________________
Corporate Officer, Partner, Trustee, etc. Date Title
* You must cross out item 2 above if you have been notified by the IRS that you are currently subject to back-up
withholding.
___________________________________________________________________________________________________________________________________
BROKER USE ONLY: DEALER NAME:_______________________________ DEALER NUMBER:_______________
DEALER ADDRESS:____________________________________
____________________________________
REPRESENTATIVE NAME:____________________ REPRESENTATIVE BRANCH:_______
REPRESENTATIVE SIGNATURE:________________________________________
___________________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
<PAGE>
<CAPTION>
<S> <C>
MAIL COMPLETED APPLICATION FORM TO: FOR ASSISTANCE CALL:
Morgan Grenfell Investment Trust 1-800-500-MGAM
P.O. BOX 419165 Before Investing, Please Read Prospectus Carefully
Kansas City, MO 64141-6165
</TABLE>
