As filed with the Securities and Exchange Commission on February 14, 1996
1933 Act Registration No. 33-68704
1940 Act Registration No. 811-8006
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /___/
Pre-Effective Amendment No. ___ /___/
Post-Effective Amendment No. 9 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT /___/
OF 1940 /___/
Amendment No. 11 / X /
(Check appropriate box or boxes)
MORGAN GRENFELL INVESTMENT TRUST
(Exact name of registrant as specified in Charter)
885 Third Avenue
New York, New York 10022
(Address of Principal Executive Offices)
Registrant's Telephone Number,
including Area Code: 212-230-2600
Copy to:
James E. Minnick Ernest V. Klein, Esq.
Morgan Grenfell Capital Management, Inc. Hale and Dorr
885 Third Avenue Sixty State Street
New York, New York 10022 Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
X on February 14, 1996 pursuant to paragraph (b) of Rule 485
Registrant has registered an indefinite number of shares pursuant to Rule
24f-2 under the Investment Company Act of 1940, as amended. Registrant filed a
Rule 24f-2 Notice for its fiscal year ended October 31, 1995 on November 15,
1995.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
Morgan Grenfell Investment Trust
<TABLE>
<CAPTION>
N-1A Item No. Location
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<S> <C> <C>
Part A
Item 1. Cover Page Cover Page
Item 2. Synopsis Expense Information
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Cover Page; Investment
Objectives and Policies;
Description of Securities and
Investment Techniques and
Related Risks; Additional
Investment Information;
Organization and Shares
of the Trust
Item 5. Management of the Fund Management of the Funds
Item 6. Capital Stock and Other Securities Dividends, Distributions and
Taxes; Organization and
Shares of the Trust; Purchase
of Shares
Item 7. Purchase of Securities Being Purchase of Shares; Net
Offered Asset Value
Item 8. Redemption or Repurchase Redemption of Shares
Item 9. Pending Legal Proceedings Not Applicable
Part B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not Applicable
<PAGE>
<CAPTION>
N-1A Item No. Location
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<S> <C> <C>
Item 13. Investment Objectives and Policies Additional Information on
Fund Investments and
Strategies and Related Risks;
Investment Restrictions;
Investment Advisory and Other
Services
Item 14. Management of the Fund Trustees and Officers
Item 15. Control Persons and Principal Trustees and Officers
Holders of Securities
Item 16. Investment Advisory and Investment Advisory and
Other Services Other Services; Additional
Information
Item 17. Brokerage Allocation and Other Portfolio Transactions
Practices
Item 18. Capital Stock and Other General Information About
Securities the Trust
Item 19. Purchase, Redemption and Net Asset Value
Pricing of Securities Being
Offered
Item 20. Tax Status Taxes
Item 21. Underwriters Investment Advisory and Other
Services
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
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<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
885 Third Avenue
New York, New York 10022
February 14, 1996
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, Morgan Grenfell Smaller Companies Fund and Morgan
Grenfell Large Cap Growth Fund (each a "Fund"). Information concerning
investment portfolios of the Trust that focus on international investments is
contained in a separate prospectus that may be obtained by calling
1-800-814-3401.
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 the Morgan Grenfell Smaller Companies Fund and the Morgan Grenfell Large
Cap Growth Fund (the "Equity Funds") 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.
Morgan Grenfell Large Cap Growth Fund invests primarily in equity and
equity-related securities of large capitalization U.S. companies.
===================================================
(continued on next page)
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<PAGE>
[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 amended or supplemented from time to
time, is available upon request without charge by calling 1-800-814-3401 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 1-800-814-3401 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.
-----------------------------------------------------
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Expense Information 4
Financial Highlights 6
Introduction to the Funds 8
Risk Factors 9
Investment Objectives and Policies 10
Description of Securities and Investment Techniques
and Related Risks 15
Additional Investment Information 26
Management of the Funds 27
Purchase of Shares 30
Redemption of Shares 33
Net Asset Value 35
Dividends, Distributions and Taxes 36
Organization and Shares of the Trust 38
Performance Information 39
Appendix A (Tax Certification Instructions) A-1
</TABLE>
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<PAGE>
EXPENSE INFORMATION
<TABLE>
<CAPTION>
Short-Term
Fixed Municipal Fixed Short-Term Smaller
Income Bond Income Municipal Companies Large Cap
Fund Fund Fund Bond Fund Fund Growth Fund*
------ --------- ----------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge
Imposed on Purchases....................... None None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends.................................. None None None None None None
Deferred Sales Charge
Imposed on Redemptions**................... None None None None None None
Exchange Fee............................... None 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% 0.75%
Administration fees........................ 0.12% 0.12% 0.46% 0.46% 0.38% 0.17%
Other Expenses............................. 0.11% 0.10% 0.27% 0.27% 0.28% 0.31%
Reduction of Advisory Fee `
and Expense Limitation by Adviser***....... (0.08%) (0.07%) (0.58%) (0.58%) (0.41%) (0.23%)
Net Fund Operating Expenses................ 0.55% 0.55% 0.55% 0.55% 1.25% 1.00%
</TABLE>
- ------------------------------------------------------------------------------
* Large Cap Growth Fund was not operational during the fiscal year ended
October 31, 1995.
** A fee, currently $10 will 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%, Smaller Companies Fund 1.66% and Large Cap Growth Fund 1.23%.
-4-
<PAGE>
Example:
Investors would pay the following expenses on a $1,000(1) investment
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Morgan Grenfell Fixed Income Fund $6 $18 $31 $69
Morgan Grenfell Municipal Bond Fund $6 $18 $31 $69
</TABLE>
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
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
Morgan Grenfell Large Cap Growth Fund $10 $32
</TABLE>
1 The minimum initial investment required for each Fund is $250,000.
Exchanges may be made in amounts as low as $50,000. See "Purchase of
Shares--Exchange Privilege."
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 Large Cap Growth Fund, 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 other than Large Cap Growth Fund has average net assets
of $10 million for such year; assumes Large Cap Growth Fund has average net
assets of $25 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."
-5-
<PAGE>
FINANCIAL HIGHLIGHTS
Selected audited data for an outstanding share of each Fund (other than
Morgan Grenfell Large Cap Growth 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' Statement
of Additional Information is available free of charge by calling
1-800-814-3401. No information is provided for Morgan Grenfell Large Cap
Growth Fund, which had not commenced operations prior to October 31, 1995.
-6-
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For a Share Outstanding Throughout Each Period Ended October 31
Net
Net Asset Net Realized Distributions Distributions
Value Investment and from Net from Realized Net Asset
Beginning Income/ Unrealized Investment Capital Value End
Year of Period Loss Gains/Losses Income Gains of Period
----------- ------------ ----------- ------------ -------------- ------------- -----------
<S> <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
<PAGE>
<CAPTION>
CONTINUED
Ratio of
Net
Ratio of Investment
Ratio of Expenses Income(Loss)
Ratio of Net to Average to Average
Net Assets Expenses Investment Net Assets Net Assets
End of to Income(Loss) (Excluding (Excluding Portfolio
Total Period Average to Average Expense Expense Turnover
Year Return (000) Net Assets Net Assets Limitations) Limitaions) 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%
</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.
-7-
<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 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, Morgan Grenfell Smaller Companies Fund and Morgan
Grenfell Large Cap Growth Fund (each a "Fund"). Information regarding the
Trust's other mutual funds (the "International Funds"), which invest primarily
in non-U.S. securities, is contained in a separate prospectus that may be
obtained by calling 1-800-814-3401.
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$80 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. As of the date of this
Prospectus, Morgan Grenfell Large Cap Growth Fund had not commenced operations
and, therefore, had no operating history. 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 Large Cap Growth
Fund and Smaller Companies Fund (the "Equity Funds"), the Adviser looks for
companies whose earnings it believes will grow both faster than inflation and
faster than the economy in general. An Equity 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
-8-
<PAGE>
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 their investment objectives,
both Large Cap Growth Fund and Smaller Companies Fund may purchase securities
of companies that are not expected to pay dividends in the foreseeable future.
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 Large Cap Growth
Fund and 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."
-9-
<PAGE>
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.
Each Fixed Income Fund invests primarily in fixed income securities that,
at the time of purchase, are either rated in one of the
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<PAGE>
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
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<PAGE>
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
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
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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 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.
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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 capitaliza-tion
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 11), 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.
Large Cap Growth Fund
The primary investment objective of the Large Cap Growth 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 large
capitalization U.S. companies. The Fund may invest in the same types of equity
and equity-related securities as the Smaller Companies Fund (see above).
For purposes of the Fund's investment policies, large capitalization
companies are those ranked (at time of investment) according to market
capitalization in the top 25% of the Wilshire 5000 Index, a
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broad-based index that includes nearly all U.S. public companies. The Adviser
believes that the equity and equity-related securities of many large
capitalization companies offer significant potential for capital growth, but
with less risk than investments in smaller capitalization companies.
Up to 35% of the Fund's total assets may be invested in investment grade
fixed income securities (see definition on page 11), cash equivalents and
equity and equity-related securities of small and medium 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, 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.
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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 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.
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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
Each Equity Fund and each Fixed Income Fund may invest to a limited
extent in securities of foreign issuers and supranational
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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 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 they invest in non-U.S. securities, the Equity Funds
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.
An Equity 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, an Equity 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.
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<PAGE>
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).
Options
Written Options. Each Equity Fund may write (sell) covered put and call
options on equity and 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 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 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 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.
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Purchased Options. The Equity Funds may also purchase put and call
options on securities. A put option entitles a Fund to sell, and a call option
entitles a 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.
Each Equity 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 U.S. exchanges and, to
the extent permitted by law, options traded over-the-counter. The Funds 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
The Equity Funds 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 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 an Equity 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, each of the Equity Funds may enter
into futures contracts and purchase and write options on futures
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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, including stock index futures,
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, require the Funds 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
Each Equity 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 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 "Commission"), each Fund will limit
its investments in illiquid securities to 15% of the Fund's net assets. The
Funds 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 and other economic factors. The loss that may be
incurred by a 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
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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 an Equity Fund's assets
that may be at risk with respect to futures contracts and related options. 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, 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, each Equity 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
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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 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 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
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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.
Illiquid Securities. Each Equity 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. Each Equity 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. Each Equity 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.
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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 each Equity 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, each Equity 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 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."
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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
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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 each of the Equity Funds 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 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, 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 the 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.
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<PAGE>
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:
<TABLE>
<CAPTION>
Annual Rate
-----------
<S> <C>
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%
Morgan Grenfell Large Cap Growth Fund 0.75%
</TABLE>
The advisory fees to which the Advisor is entitled for Large Cap Growth
Fund and Smaller Companies Fund are higher than the fees paid by most funds
but the Adviser believes they are 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
(other than Morgan Grenfell Large Cap Growth Fund, which was not in operation
during such period). During this period, 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 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 three other experienced
portfolio managers, Audrey M.T. Jones, Gerald M. Frey 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 and Mr. Frey have been employed by the Adviser
as portfolio managers 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 Large Cap Growth Fund is managed by a committee consisting of
investment professionals employed by the Adviser. This committee makes
investment decisions for the Fund.
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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 Administration Agreements 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 the International Funds) 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 that offers its shares 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.
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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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 Large Cap Growth Fund, 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 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 Custodian and the Transfer Agent is
provided in the Statement of Additional Information.
PURCHASE OF SHARES
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 Transfer
Agent. A "Business Day" means any day on which the New York Stock Exchange
(the "NYSE") is open. If an investor purchases shares of a Fund through a
broker, the broker must receive the investor's order before the close of
regular trading on the NYSE and transmit such order to the Transfer Agent
before such time to receive that day's net asset value. 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 who invest in a Fund through a broker may be subject to
transaction and/or account maintenance fees imposed by the 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 minimum initial investment for any record shareholder account with a
Fund is $250,000 and subsequent investments will be accepted in any amount.
The Trust reserves the right to vary the initial investment minimum and to
establish minimums for additional investments at any time. In addition, the
Trust may waive the minimum initial investment
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requirement for any investor. The Trust does not issue share certificates.
Purchases by Mail
Shares may be purchased initially by completing the Account Application
accompanying this Prospectus and mailing it, together with a check in the
amount of $250,000 or more drawn on a U.S. bank payable to the appropriate
Fund for each account an investor wishes to open, to:
By Regular Mail: By Overnight Mail:
- ---------------- ------------------
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7 Tower)
210 W. 10th Street
Kansas City, MO 64105
Subsequent investments in an existing account in any Fund may be made at
any time by sending to the Transfer Agent, at the above address, a check
payable to the appropriate Fund, along with either (i) a subsequent order form
which may be obtained from the Transfer Agent or (ii) a letter stating the
amount of the investment, the name of the Fund and the account number in which
the investment is to be made. Investors should indicate the name of the
appropriate Fund and account number on all correspondence.
Purchases by Wire
Investors having an account with a commercial bank that is a member of
the Federal Reserve System may purchase shares of any Fund by requesting their
bank to transmit funds by wire 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 investor's name and account number must be specified in the wire. In
addition, investors should be aware that some banks may charge wire fees.
Initial Purchases: Before making an initial investment by wire, an
investor must first telephone 1-800-407-7301 to be assigned an account number.
The investor may then transmit funds by wire through the wire procedures
described above. The investor's name, account number, social security or other
taxpayer identification number, and address must be specified in the wire. In
addition, investors making initial investments by wire must promptly complete
the Account Application accompanying this Prospectus and forward it to the
Transfer Agent at:
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<PAGE>
By Regular Mail: By Overnight Mail:
- ---------------- ------------------
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7 Tower)
210 W. 10th Street
Kansas City, MO 64105
Subsequent Purchases: Additional investments may be made at any time
through the wire procedures described above, which must include the investor's
name and account number.
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 Transfer Agent at the time of the transaction
and/or in monthly statements issued by the Transfer Agent. A year-to-date
statement will be provided by the Transfer Agent. Shareholders with inquiries
regarding a Fund may call Morgan Grenfell Investment Trust at 1-800-814-3401
or write to Morgan Grenfell Investment Trust at P.O. Box 419165, Kansas City,
MO 64141-6165.
Exchange Privilege
The Funds provide a telephone exchange privilege and a written exchange
privilege. Shares of a Fund may be exchanged in amounts as low as $50,000 for
shares of any other Fund or any International Fund. A shareholder should
obtain and read the prospectus relating to an International Fund and consider
its investment objective, policies and fees before making an exchange into
that fund. Exchanges will be permitted only in those states in which the
relevant fund is available for sale.
If a shareholder elects the telephone exchange privilege on the Account
Application, the shareholder will be able to effect the exchange of shares in
its account by telephone, as long as all accounts are identically registered.
A shareholder can exchange shares by telephone by calling 1-800-407-7301
before 4:00 p.m., Eastern time, on any Business Day. Shares exchanged will be
valued at their respective net asset values next determined after the
telephone exchange request is received. 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
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<PAGE>
other unauthorized telephone exchange request. The Funds reserve the right to
refuse any request made by any shareholder. Investors will receive 60 days
written notice prior to any change in a Fund's telephone exchange procedures.
In addition to using the telephone exchange privilege, shareholders in
any of the Funds may exchange their shares for shares in any other Fund by
submitting a written request, in proper form, to the Transfer Agent. Shares
exchanged in this manner will be valued at their respective net asset values
next determined after the receipt of the written 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
Shareholders may redeem shares of a Fund without charge upon request on
any Business Day by placing redemption requests with the Transfer Agent prior
to 4:00 p.m., Eastern Time. Shares are redeemed at the net asset value next
determined after receipt of the redemption request by the Transfer Agent.
Redemption requests may be made by telephoning Morgan Grenfell Investment
Trust at 1-800-407-7301 or by a written request addressed to the Transfer
Agent in accordance with the procedures set forth below. A written request
must specify the number of shares to be redeemed, the Fund from which shares
are being redeemed, the account number, payment instructions and the exact
registration on the account. Signatures must be guaranteed in accordance with
the procedures set forth below under "Payment of Redemption Proceeds." A
shareholder 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 Trust nor the Transfer Agent 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.
Shareholders may request that redemption payments be made by Federal
Reserve Wire. The Custodian will 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
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<PAGE>
wire on Federal holidays restricting wire transfers. There is no charge for
Automated Clearing House wire transactions; however, such transactions will
not be posted to a shareholder's bank account until the second Business Day
following the transaction.
Payment of a redemption request will normally be made within seven days
after receipt of the appropriate redemption request documents, including any
additional documentation that may be required by the Transfer Agent 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 calendar days or until the
check has cleared, whichever first occurs.
Payment of Redemption Proceeds
Redemption proceeds ordinarily will be wired to the bank account
designated on the Account Application, unless payment by check has been
requested. For redemption requests received by the Transfer Agent by 4:00
p.m., Eastern time, redemption proceeds ordinarily will be wired the next
Business Day. Shares subject to such requests will earn any dividends for
which the record date is the day the request is received. 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 should deal directly with such
intermediaries or bank.
A shareholder may change the bank designated to receive redemption
proceeds by providing written notice to the Transfer Agent 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. 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
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<PAGE>
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, in the case of foreign currency denominated securities,
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 the Equity Funds and the Fixed
Income Funds may be listed on foreign exchanges which trade on
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<PAGE>
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
Each Equity 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 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 the shareholder's election, in cash.
The 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 or intends to elect 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
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regardless of whether distributions are received in cash or reinvested in
shares. A portion of the dividends paid to corporate shareholders by the
Equity Funds from dividends they receive 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 development 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 witholding 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.
-37-
<PAGE>
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 eleven 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 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
-38-
<PAGE>
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 January 10, 1996, the Adviser owned 100% 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.
-39-
<PAGE>
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.
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.
Advertisements may also compare performance as reported for other investments,
indices and averages.
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.
-40-
<PAGE>
APPENDIX A - 1
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.
<PAGE>
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 - 1-800-814-3401
Telephone Exchanges - 1-800-407-7301
Share Price and Performance
Information - 1-800-814-3401
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
885 Third Avenue
New York, New York 10022
February 14, 1996
Morgan Grenfell Investment Trust (the "Trust") is an open-end management
investment company that includes eleven distinct investment portfolios that
focus on international investing (the "Funds"). 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 securities markets.
The investment objective of Morgan Grenfell International Equity Fund,
Morgan Grenfell Global Equity Fund, Morgan Grenfell European Equity Fund,
Morgan Grenfell Pacific Basin Equity Fund, Morgan Grenfell International Small
Cap Equity Fund, Morgan Grenfell Japanese Small Cap Equity Fund, Morgan
Grenfell European Small Cap Equity Fund and Morgan Grenfell Emerging Markets
Equity Fund (the "Equity Funds") is to maximize capital appreciation. The
investment objective of Morgan Grenfell Global Fixed Income Fund, Morgan
Grenfell International Fixed Income Fund and Morgan Grenfell Emerging Markets
Debt Fund (the "Fixed Income Funds") is to maximize total return.
Information concerning investment portfolios of the Trust that focus on
U.S. investments is contained in a separate prospectus that may be obtained by
calling 1-800-814-3401.
- ------------------------------------------------------------------------------
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 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
1-800-814-3401 to determine availability in a particular state.
- ------------------------------------------------------------------------------
INVESTMENTS IN EMERGING MARKETS CAN INVOLVE SIGNIFICANT RISKS, AND MORGAN
GRENFELL EMERGING MARKETS EQUITY FUND AND MORGAN GRENFELL EMERGING MARKETS
DEBT FUND ARE 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.
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.
<PAGE>
Each Fund's primary investments are summarized below:
Morgan Grenfell International Equity Fund invests primarily in equity
and equity-related securities of companies in countries other than the United
States.
Morgan Grenfell Global Equity Fund invests primarily in equity and
equity-related securities of companies throughout the world.
Morgan Grenfell European Equity Fund invests primarily in equity and
equity-related securities of companies in Europe.
Morgan Grenfell Pacific Basin Equity Fund invests primarily in equity
and equity-related securities of companies in Pacific Basin countries.
Morgan Grenfell International Small Cap Equity Fund invests primarily
in equity and equity-related securities of small capitalization companies in
countries other than the United States.
Morgan Grenfell Japanese Small Cap Equity Fund invests primarily in
equity and equity-related securities of small capitalization companies in Japan.
Morgan Grenfell European Small Cap Equity Fund invests primarily in
equity and equity-related securities of small capitalization companies in
Europe.
Morgan Grenfell Emerging Markets Equity Fund invests primarily in
equity and equity-related securities of companies in countries with emerging
securities markets.
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.
[GRAPHIC OMITTED]
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Expense Information 1
Financial Highlights 3
Introduction to the Funds 4
Investment Objectives and Policies 7
Description of Securities and Investment Techniques 13
and Related Risks
Additional Investment Information 28
Management of the Funds 29
Purchase of Shares 32
Redemption of Shares 34
Net Asset Value 36
Dividends, Distributions and Taxes 36
Organization and Shares of the Trust 38
Performance Information 39
Appendix A........................................... A-1
Appendix B........................................... B-1
Appendix C........................................... C-1
</TABLE>
iii
<PAGE>
EXPENSE INFORMATION
<TABLE>
<CAPTION>
Pacific
International Global European Basin
Equity Equity Equity Equity
FUND NAME Fund Fund* Fund* Fund*
- --------- -------- ------- ------- ----------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Shareholder Transaction
Expenses:
- -------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on
Purchases None None None None
Maximum Sales Charge Imposed on
Reinvested Dividends None None None None
Deferred Sales Charge Imposed on
Redemptions None None None None
Exchange Fee None None None None
- -------------------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets
after reduction of advisory fee)
- -------------------------------------------------------------------------------------------
Advisory fees 0.70% 0.70% 0.70% 0.70%
Administration fees 0.59% 0.15% 0.15% 0.15%
Other Expenses 0.44% 0.55% 0.55% 0.55%
Reduction of Advisory Fee and
Expense Limitation by Adviser*** (0.83)% (0.50)% (0.50)% (0.50)%
- -------------------------------------------------------------------------------------------
Net Fund Operating Expenses 0.90% 0.90% 0.90% 0.90%
- -------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
CONTINUED International Japanese European
Small Small Small Emerging Global International Emerging
Cap Cap Cap Markets Fixed Fixed Markets
Equity Equity Equity Equity Income Income Debt
FUND NAME Fund Fund* Fund Fund Fund Fund Fund
- --------- -------- ------- ------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Shareholder Transaction
Expenses:
- ------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on
Purchases None None None None None None None
Maximum Sales Charge Imposed on
Reinvested Dividends None None None None None None None
Deferred Sales Charge Imposed on
Redemptions None None None None None None None
Exchange Fee None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets
after reduction of advisory fee)
- ------------------------------------------------------------------------------------------------------------------------------
Advisory fees 1.00% 1.00% 1.00% 1.00% 0.50%** 0.50%** 1.50%**
Administration fees 0.15% 0.15% 0.63% 0.14% 0.12% 0.31% 0.14%
Other Expenses 0.33% 0.55% 0.61% 0.41% 0.22% 0.31% 0.32%
Reduction of Advisory Fee and
Expense Limitation by Adviser*** (0.23)% (0.45)% (0.99)% (0.30)% (0.09)% (0.37)% (0.46)%
- ------------------------------------------------------------------------------------------------------------------------------
Net Fund Operating Expenses 1.25% 1.25% 1.25% 1.25% 0.75% 0.75% 1.50%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Global Equity Fund, European Equity Fund, Pacific Basin Equity Fund and
Japanese Small Cap Equity Fund were not operational during the fiscal year
ended October 31, 1995.
** 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 Advisor 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 its sole discretion, the Advisor may terminate or
modify this voluntary agreement at any time although the Advisor 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
Advisor's voluntary agreement were not in effect, the Fund Operating Expenses
for each Fund would be as follows: International Equity Fund, 1.73%; Global
Equity Fund, 1.40%; European Equity Fund, 1.40%; Pacific Basin Equity Fund,
1.40%; International Small Cap Fund, 1.48%; Japanese Small Cap Equity Fund,
1.70%; European Small Cap Equity Fund, 2.24;, Emerging Markets Equity Fund,
1.55%; Global Fixed Income Fund, 0.84%; International Fixed Income Fund,
1.12% and Emerging Markets Debt Fund, 1.96%.
-1-
<PAGE>
Example:
Investors would pay the following expenses on a $1,000(1) investment
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Morgan Grenfell International Small Cap Equity Fund $13 $40 $69 $151
Morgan Grenfell European Small Cap Equity Fund $13 $40 $69 $151
Morgan Grenfell Emerging Markets Equity Fund $13 $40 $69 $151
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>
<TABLE>
<CAPTION>
1 3
Year Years
---- -----
<S> <C> <C>
Morgan Grenfell International Equity Fund $ 9 $29
Morgan Grenfell Global Equity Fund $ 9 $29
Morgan Grenfell European Equity Fund $ 9 $29
Morgan Grenfell Pacific Basin Equity Fund $ 9 $29
Morgan Grenfell Japanese Small Cap Equity Fund $13 $40
</TABLE>
1 The minimum initial investment required for each Fund is $250,000.
Exchanges may be made in amounts as low as $50,000. See "Purchase of Shares -
Exchange Privilege".
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. For Morgan Grenfell European Small Cap
Equity Fund, Morgan Grenfell International Small Cap Equity Fund, Morgan
Grenfell Global Fixed Income Fund, Morgan Grenfell Emerging Markets Equity Fund,
Morgan Grenfell International Fixed Income Fund and Morgan Grenfell Emerging
Markets Debt Fund, "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 for Global Fixed Income Fund, International
Fixed Income Fund and Emerging Markets Debt Fund assume that these Funds'
current advisory fee rates were in effect throughout the year ended October 31,
1995). For the other Funds, "Other Expenses" are based solely on estimates for
the current fiscal year ending October 31, 1996 (assumes each Fund other than
International Equity Fund has average net assets of $25 million for such year;
assumes International Equity 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."
-2-
<PAGE>
FINANCIAL HIGHLIGHTS
Set forth below are selected data for (1) an outstanding share of each of
Morgan Grenfell International Small Cap Equity Fund, Morgan Grenfell Emerging
Markets Equity Fund, 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; and (2) an outstanding share of Morgan
Grenfell International Equity Fund and Morgan Grenfell European Small Cap Fund
during the period from their respective inceptions to October 31, 1995. Selected
data for an outstanding share of each of the above Funds (other than European
Small Cap Equity Fund and International Equity Fund) 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, which contains further information about the Funds'
performance, are available free of charge by calling 1-800-814-3401. No
information is presented below for the Funds that had not commenced
operations by October 31, 1995.
<TABLE>
<CAPTION>
For a Share Outstanding Throughout Each Period Ended October 31
Net
Asset Net Distributions
Value Net Realized Distributions from
Beginning Investment and from Net Realized
of Income/ Unrealized Investment Capital
Year Period Loss Gains/Losses Income (8) Gains
---- --------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
International Equity Fund
1995(1)* $10.00 $ 0.08 $ 0.87 - -
International Small Cap Equity Fund
1995 $10.35 $ 0.03 $(0.72) (0.04) (0.22)
1994(2)* $10.00 $ 0.02 $ 0.33 - -
European Small Cap Equity Fund
1995(3) $10.00 $ 0.12 $ 1.44 (0.01) -
Emerging Markets Equity Fund
1995 $11.00 $ 0.04 $(2.29) (0.02) (0.62)
1994(4)* $10.00 $(0.01) $ 1.01 - -
Global Fixed Income Fund
1995 $ 9.85 $ 0.35 $ 0.99 (0.20) -
1994(5)* $10.00 $ 0.25 $(0.40) - -
International Fixed Income Fund
1995 $ 9.94 $ 0.42 1.03 (0.05) -
1994(6)* $10.00 $ 0.29 $(0.35) - -
Emerging Markets Debt Fund
1995 $10.19 $ 0.65 $(0.17) (0.11) (0.01)
1994(7)* $10.00 $ 0.13 $ 0.06 - -
<PAGE>
<CAPTION>
CONTINUED
Ratio
Ratio of Net
of Investment
Ratio Expenses Income(Loss)
Ratio of Net to to
Net of Investment Average Average
Asset Net Expenses Income(Loss) Net Net
Value Assets to to Assets Assets
End End of Average Average (Excluding (Excluding Portfolio
of Total Period Net Net Expense Expense Turnover
Period Return (000) Assets Assets Limitations) Limitations) Rate
------ ------ ------- -------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
International Equity Fund
$10.95 9.50% $ 2,738 0.90% 1.55% 2.73% (0.28)% 19%
International Small Cap Equity Fund
$ 9.40 (6.67)% $ 90,917 1.25% 0.41% 1.48% 0.18% 62%
$10.35 3.50% 68,798 1.25% 0.34% 1.67% (0.08)% 41%
European Small Cap Equity Fund
$11.55 15.66% $ 9,336 1.25% 1.25% 2.24% 0.26% 34%
Emerging Markets Equity Fund
$ 8.11 (21.00)% $ 93,288 1.25% 0.44% 1.55% 0.14% 49%
$11.00 10.00% $ 56,892 1.36% (0.12)% 1.79% (0.55)% 45%
Global Fixed Income Fund
$10.99 13.88% $139,337 0.78% 5.61% 0.87% 5.52% 147%
$ 9.85 (1.50)% $ 53,915 0.85% 5.71% 1.28% 5.28% 173%
International Fixed Income Fund
$11.34 14.66% $ 27,603 0.78% 5.51% 1.15% 5.14% 187%
$ 9.94 (0.60)% $ 15,238 0.85% 5.66% 1.42% 5.09% 130%
Emerging Markets Debt Fund
$10.55 4.85% $ 84,438 1.79% 10.97% 2.05% 10.71% 266%
$10.19 1.90% $ 16,248 1.90% 7.04% 2.60% 6.34% 52%
</TABLE>
(1) International Equity Fund commenced operations on 5/15/95.
(2) International Small Cap Equity Fund commenced operations on 1/3/94.
(3) European Small Cap Equity Fund commenced operations on 11/1/94.
(4) Emerging Markets Equity Fund commenced operations on 2/2/94
(5) Global Fixed Income Fund commenced operations on 1/3/94.
(6) International Fixed Income Fund commenced operations on 3/15/94
(7) Emerging Markets Debt Fund commenced operations on 8/4/94.
(8) 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.
-3-
<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 the Trust's other
mutual funds (the "Domestic Funds"), which invest primarily in U.S. securities
markets, is contained in a separate prospectus that may be obtained by calling
1-800-814-3401.
Under normal market conditions, the Funds will invest primarily in
foreign securities. Investing primarily in foreign 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 member 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 now has
over US$ 80 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 equity and fixed income markets.
Geographic and Issuer Focus
For purposes of each Fund's investment objective and policies, a company
is considered to be located in a particular country if it (1) is organized
under the laws of that country and has a principal place of business in that
country or (2) derives 50% or more of its total revenues from business in that
country.
European Equity Fund, Pacific Basin Equity Fund, Japanese Small Cap
Equity Fund and European Small Cap Equity Fund focus their respective
investments in the particular region or country reflected in their names. In
contrast, International Equity Fund, Global Equity Fund, International Small
Cap Equity Fund, Global Fixed Income Fund and International Fixed Income Fund
may spread their investments across world markets.
International Small Cap Equity Fund, Japanese Small Cap Equity Fund and
European Small Cap Equity Fund focus their investments on equity securities of
companies with market capitalizations that are small relative to the market
capitalizations of other issuers in the same market. Each of these Funds has
its own policy regarding what constitutes a small capitalization company. See
"Investment Objective and Policies." Small capitalization companies may offer
greater opportunities for capital growth than larger, more mature companies,
but investments in small capitalization companies also involve special
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risks. See "Description of Securities and Investment Techniques and Related
Risks--Small Capitalization Companies."
Emerging Markets Equity Fund and Emerging Markets Debt Fund seek to
attain their objectives 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 stock market growth.
Each of the Fixed Income Funds is non-diversified under the Investment
Company Act of 1940 (the "1940 Act") and, therefore, may be more susceptible
than the Equity Funds to developments affecting any single issuer of portfolio
securities. See "Description of Securities and Investment Techniques and
Related Risks--Diversification." Each of the Equity Funds is diversified under
the 1940 Act.
Certain of the Funds have no operating history and there can be no
assurance that a Fund will achieve its investment objective.
Selection of Portfolio Securities
Equity and Equity-Related Securities. Equity and equity-related
securities in which the Equity Funds may invest include common stock,
preferred stock, and warrants, purchased call options and other rights to
acquire stocks. See "Description of Securities and Investment Techniques and
Related Risks." In selecting equity and equity-related securities for the
Equity Funds' portfolios, the Adviser will focus on those companies which have
earnings growth that, in the Adviser's view, has not been sufficiently
reflected in the market price of the security. The Equity Funds may also
invest in equity and equity-related securities where the fundamental value of
the issuer is believed to be greater than its current market price.
Fundamental value will be 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. While individual security selection is
an important part of the investment process, macro-economic factors such as
prospects for relative economic growth among countries, regions or geographic
areas, expected levels of inflation and political policies influencing
business conditions will also be considered.
Fixed Income Securities. Fixed income securities in which the Equity
Funds and Fixed Income 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 Fixed Income 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 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 Fixed Income Fund's
weighted average maturity will vary based upon the Adviser's assessment of
economic and market conditions.
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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
investing in fixed income securities 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 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.
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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
International Equity Fund
The investment objective of the International Equity Fund is to maximize
capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies located in countries other than the United States. The Fund will
focus on securities traded in equity markets of the countries represented in
the Morgan Stanley Capital International-Europe Australia Far East Index (the
"EAFE(R) Index") but may decide, on a stock-specific basis, to make
investments in other foreign markets. The EAFE(R) Index includes the equity
markets of Australia, Austria, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Italy, Japan, Malaysia, the Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Under
normal market conditions, the Fund will invest at least 65% of its total
assets in equity and equity-related securities of companies in at least three
foreign countries.
The Fund may invest more than 25% of its total assets in each of Japan
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--Region and Country
Concentration."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity
and equity-related securities of issuers located in the United States.
Global Equity Fund
The investment objective of the Global Equity Fund is to maximize capital
appreciation. Under normal circumstances, the Fund pursues this objective by
investing at least 65% of its total assets in equity and equity-related
securities (but not less than 60% directly in stocks) of companies in at least
three countries. These countries may include Austria, Belgium, Denmark,
Finland, France, Germany, Holland, Ireland, Italy, Luxembourg, Norway,
Portugal, Spain, Sweden, Switzerland, the United Kingdom, the United States,
Canada, Mexico, Japan, Hong Kong, Singapore, Australia, Malaysia, Indonesia,
the Philippines, Thailand, and New Zealand. At the discretion of the Adviser,
the Fund may invest in equity and equity-related securities of companies
located in other countries.
The Fund may invest more than 25% of its total assets in each of Japan,
the United States 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
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"Description of Securities and Investment Techniques and Related Risks--Region
and Country Concentration."
Up to 35% of the Fund's total assets may be invested in cash equivalents
and investment grade fixed income securities (i.e., securities rated BBB, Baa,
or higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser) of issuers
located anywhere in the world.
European Equity Fund
The investment objective of the European Equity Fund is to maximize
capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies located in European countries, including Austria, Belgium, Denmark,
Finland, France, Germany, Holland, Ireland, Italy, Luxembourg, Norway,
Portugal, Spain, Sweden, Switzerland and the United Kingdom. At the discretion
of the Adviser, the Fund may invest in equity and equity-related securities of
companies located in other European countries.
The Fund may invest more than 25% of its total assets in each of France,
Germany and the United Kingdom, reflecting the dominance of these countries'
stock markets in Europe. 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--Region and Country
Concentration."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity
and equity-related securities of issuers located in non-European countries,
including the United States.
Pacific Basin Equity Fund
The investment objective of the Pacific Basin Equity Fund is to maximize
capital appreciation. Under normal circumstances, the Fund pursues this
objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies located in Pacific Basin countries, including Japan, Australia,
Malaysia, Singapore, Hong Kong, Thailand, the Philippines, Indonesia, Taiwan,
South Korea and New Zealand. At the discretion of the Adviser, the Fund may
invest in other Pacific Basin countries.
The Fund may invest more than 25% of its total assets in each of Japan
and Hong Kong, reflecting the dominance of these stock markets in the Pacific
Basin. The concentration of the Fund's investments in Japan and Hong Kong will
cause the Fund to be particularly susceptible to the effects of political and
economic developments in Japan, Hong Kong and China. See "Description of
Securities and Investment Techniques and Related Risks--Region and Country
Concentration."
Up to 35% of Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and
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equity and equity-related securities of issuers located in countries outside
the Pacific Basin, including the United States.
International Small Cap Equity Fund
The investment objective of the International Small Cap Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues
this objective 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 companies located in countries other than the United States.
Small capitalization companies are those ranked according to market
capitalization in the bottom 25% of issuers listed on a stock exchange and
companies listed on a secondary market (e.g., the Tokyo Stock Exchange Second
Section, the Singapore SESDAQ Market) or over-the-counter market.
The Fund will focus on companies located in countries represented in the
NatWest Euro Pacific Index, but may decide, on a stock-specific basis, to make
investments in companies located outside of these countries. The NatWest Euro
Pacific Index includes the equity markets of Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malasia,
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland,
Thailand and the United Kingdom. Under normal market conditions, the Fund will
invest at least 65% of its total assets in equity and equity-related
securities issued by small capitalization companies in at least three
different foreign countries.
The Fund may invest more than 25% of its total assets in each of Japan
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--Region and Country
Concentration."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity
and equity-related securities of large and medium capitalization companies
located outside the United States and companies of any size located in the
United States.
Japanese Small Cap Equity Fund
The investment objective of the Japanese Small Cap Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues
this objective 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 companies located in Japan. Small capitalization companies are
those ranked according to market capitalization in the bottom 20% of issuers
listed on the Tokyo Stock Exchange and companies listed on a Japanese
secondary market (e.g., the Tokyo Stock Exchange Second Section) or
over-the-counter market. The concentration of the Fund's investments in
Japanese companies will cause the Fund to be particularly susceptible to the
effects of social, political and economic events that occur in Japan. See
"Description of Securities and Investment Techniques and Related Risks--Region
and Country Concentration."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and
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equity and equity-related securities of large and medium capitalization
companies located in Japan and companies of any size located in countries
other than Japan, including the United States.
European Small Cap Equity Fund
The investment objective of the European Small Cap Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues
this objective 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 companies located in European countries, including Austria,
Belgium, Denmark, Finland, France, Germany, Holland, Ireland, Italy,
Luxembourg, Norway, Portugal, Spain, Sweden, Switzerland and the United
Kingdom. At the discretion of the Adviser, the Fund may invest in other
European countries. Small capitalization companies are those ranked according
to market capitalization in the bottom 25% of issuers listed on a European
stock exchange and companies listed on a European secondary market or
over-the-counter market.
The Fund may invest more than 25% of its total assets in each of Germany,
France and the United Kingdom, reflecting the dominance of these countries'
stock markets in Europe. 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--Region and Country
Concentration."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity
and equity-related securities of large and medium capitalization companies
located in European countries and companies of any size located in
non-European countries, including the United States.
Emerging Markets Equity Fund
The investment objective of the Emerging Markets Equity Fund is to
maximize capital appreciation. Under normal circumstances, the Fund pursues
this objective by investing at least 65% of its total assets in equity and
equity-related securities (but not less than 60% directly in stocks) of
companies that are located in countries with emerging securities markets; that
is, countries with securities markets that are, in the opinion of the Adviser,
emerging as investment markets but that have yet to reach a level of maturity
associated with developed foreign stock markets, especially in terms of
foreign investor participation. Countries with emerging securities markets
include: 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, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Uruguay, Venezuela and Vietnam. At the discretion of the
Adviser, the Fund may invest in other countries with emerging securities
markets.
Investments in securities of companies located in countries with emerging
securities markets may offer greater opportunities for capital growth 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."
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The Fund may invest more than 25% of its total assets in each of Brazil,
Malaysia and Mexico. 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--Region and Country
Concentration."
Up to 35% of the Fund's total assets may be invested in cash equivalents,
investment grade fixed income securities (i.e., securities rated BBB, Baa, or
higher by Standard & Poor's, Moody's or comparable rating agency, or, if
unrated, determined to be of comparable quality by the Adviser), and equity
and equity-related securities of issuers traded in developed markets,
including the U.S. securities markets.
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--Region and Country Concentration."
Up to 35% of the Fund's total assets may be invested in cash equivalents.
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
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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--Region and 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."
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
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instruments and fixed income securities and (iii) financial instruments, such
as call options, the value ofwhich 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--Region and 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 securities of foreign issuers, including U.S.
dollar-denominated and non-dollar denominated foreign equity and 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, 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
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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 American, European, Global and International Depository
Receipts. The Funds may invest in foreign securities in the form of American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global
Depository Receipts ("GDRs") or International Depository Receipts ("IDRs").
ADRs are receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and IDRs are receipts issued in Europe typically by non-U.S. banking and
trust companies that evidence ownership of either foreign or U.S. securities.
GDRs are receipts issued by either a U.S. or non-U.S. banking institution
evidencing ownership of the underlying foreign securities. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets and EDRs,
GDRs and IDRs, in bearer form, are designed for use in European securities
markets. An ADR, EDR, GDR or IDR may be denominated in a currency different
from the currency in which the underlying foreign security is denominated.
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.
Region and Country Concentration. Each Fund may concentrate its
investments in a particular region and/or in one or more foreign countries.
Concentration of a Fund's investments in a particular region or country will
subject the Fund, to a greater extent than if its investments in such
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region or country were more limited, to the risks of adverse securities
markets, exchange rates and social, political or economic developments which
may occur in that region or 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 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 Fund 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
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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 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 Fixed Income 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
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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."
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 Fixed Income
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."
Small Capitalization Companies
The Japanese Small Cap Equity Fund, the European Small Cap Equity Fund
and the International Small Cap Equity Fund each invests a significant portion
of its assets in smaller, lesser-known, foreign 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.
Options
Written Options. Each Fund may write (sell) covered put and call options
on equity and 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
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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 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.
Stock Index Options
The Funds 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
foreign stock indices are the Toronto Stock Exchange Composite 100 and the
Financial Times Stock Exchange 100. Options on stock indices are similar to
options on securities. However,
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because options on stock indices do not involve the delivery of an underlying
security, the option represents the holder's right to obtain from 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 a Fund writes an option on a stock index, it will cover the option
by depositing cash or cash equivalents 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 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, 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, including stock index futures, 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 "Commission"), 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
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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 Fixed Income 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 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
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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.
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
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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 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.
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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.
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
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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 Fixed Income 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 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
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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
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 Fixed Income 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 Fixed Income 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 Fixed Income 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
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tax diversification requirements (which also apply to the Equity Funds) apply
only at taxable quarter-ends and are subject to certain qualifications and
exceptions. To the extent that a Fixed Income 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 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
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<PAGE>
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 transactions 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.
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<PAGE>
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.
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 Equity Funds will not exceed 150%. It is estimated that,
under normal circumstances, the portfolio turnover rate of each of the Fixed
Income Funds will be higher. A high rate of portfolio turnover (i.e., 100% or
higher) will result in correspondingly higher transaction costs to a Fund and
may, under some circumstances, make it more difficult for the Fund to qualify
as a regulated investment company under
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<PAGE>
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:
<TABLE>
<CAPTION>
Annual Rate
-----------
<S> <C>
Morgan Grenfell International Equity Fund 0.70%
Morgan Grenfell Global Equity Fund 0.70%
Morgan Grenfell European Equity Fund 0.70%
Morgan Grenfell Pacific Basin Equity Fund 0.70%
Morgan Grenfell International Small Cap Equity Fund 1.00%
Morgan Grenfell Japanese Small Cap Equity Fund 1.00%
Morgan Grenfell European Small Cap Equity Fund 1.00%
Morgan Grenfell Emerging Markets Equity Fund 1.00%
Morgan Grenfell Global Fixed Income Fund 0.50%
Morgan Grenfell International Fixed Income Fund 0.50%
Morgan Grenfell Emerging Markets Debt Fund 1.50%
</TABLE>
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 International Equity Fund, Morgan Grenfell
European Small Cap Equity Fund, Morgan Grenfell International Small Cap Equity
Fund, Morgan Grenfell Emerging Markets Equity Fund, Morgan Grenfell Global
Fixed Income Fund, Morgan Grenfell International Fixed Income Fund and Morgan
Grenfell
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<PAGE>
Emerging Markets Debt Fund paid advisory fees equal to 0.00%, 0.01%, 0.77%,
0.70%, 0.44%, 0.17% and 1.33% of their respective average daily net assets
during such period. The advisory fees to which the Adviser is entitled for
International Small Cap Equity Fund, Japanese Small Cap Equity Fund, European
Small Cap Equity Fund, Emerging Markets Equity Fund and Emerging Markets Debt
Fund are higher than those for most mutual funds, but the Trustees believe that
these fees are warranted by the resources needed to evaluate and invest in the
particular markets on which these Funds focus.
Each Fund is managed by a team of MGIS investment professionals with
expertise in the region(s) and types of investments in which the Fund invests.
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 the Domestic Funds)
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 that offers its shares 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 International Small Cap Equity Fund, Morgan Grenfell
Japanese Small Cap Equity Fund, Morgan Grenfell European Small Cap Equity
Fund, Morgan Grenfell Emerging Markets Equity Fund and Morgan Grenfell
Emerging Markets Debt Fund).
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For the fiscal period ended October 31, 1995, the Administrator received
fees from Morgan Grenfell International Equity Fund, Morgan Grenfell
International Small Cap Equity Fund, Morgan Grenfell European Small Cap Equity
Fund, Morgan Grenfell Emerging Markets Equity Fund, Morgan Grenfell Global
Fixed Income Fund, Morgan Grenfell International Fixed Income Fund and Morgan
Grenfell Emerging Markets Debt Fund equal to 0.96%, 0.15%, 0.63%, 0.14%,
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.
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 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
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 Transfer
Agent. A "Business Day" means any day on which the New York Stock Exchange
(the "NYSE") is open. If an investor purchases shares of a Fund through a
broker, the broker must receive the investor's order before the close of
regular trading on the NYSE and transmit such order to the Transfer Agent
before such time to receive that day's net asset value. Shareholders will be
entitled to dividends payable with respect 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 who invest in a Fund through a broker may be subject to
transaction and/or account maintenance fees imposed by the 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.
Payments for Fund shares must be denominated in U.S. dollars. The minimum
initial investment for any record shareholder account with a Fund is US$
250,000 and subsequent investments will be accepted in any amount. The Trust
reserves the right to vary the initial investment minimum and to
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establish minimums for additional investments at any time. In addition, the
Trust may waive the minimum initial investment requirement for any investor.
The Trust does not issue share certificates.
Purchases by Mail
Shares may be purchased initially by completing the Account Application
accompanying this Prospectus and mailing it, together with a check in the
amount of $250,000 or more drawn on a U.S. bank payable to the appropriate
Fund for each account an investor wishes to open, to:
By Regular Mail: By Overnight Mail:
- ---------------- ------------------
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O. Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7 Tower)
210 W. 10th Street
Kansas City, MO 64105
Subsequent investments in an existing account in any Fund may be made at
any time by sending to the Transfer Agent, at the above address, a check
payable to the appropriate Fund, along with either (i) a subsequent order form
which may be obtained from the Transfer Agent or (ii) a letter stating the
amount of the investment, the name of the Fund and the account number in which
the investment is to be made. Investors should indicate the name of the
appropriate Fund and account number on all correspondence.
Purchases by Wire
Investors having an account with a commercial bank that is a member of
the Federal Reserve System may purchase shares of any Fund by requesting their
bank to transmit funds by wire 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 investor's name and account number must be specified in the wire. In
addition, investors should be aware that some banks may charge wire fees.
Initial Purchases: Before making an initial investment by wire, an
investor must first telephone 1-800-407-7301 to be assigned an account number.
The investor may then transmit funds by wire through the wire procedures
described above. The investor's name, account number, taxpayer identification
or social security number, and address must be specified in the wire. In
addition, investors making initial investments by wire must promptly complete
the Account Application accompanying this Prospectus and forward it to the
Transfer Agent at:
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By Regular Mail: By Overnight Mail:
- ---------------- ------------------
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O. Box 419165 c/o DST Systems, Inc.
Kansas City, MO 64141-6165 (SEI Division CT-7 Tower)
210 W. 10th Street
Kansas City, MO 64105
Subsequent Purchases: Additional investments may be made at any time
through the wire procedures described above, which must include the investor's
name and account number.
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 Transfer Agent at the time of the transaction
and/or in monthly statements issued by the Transfer Agent. A year-to-date
statement will be provided by the Transfer Agent. Shareholders with inquiries
regarding a Fund may call Morgan Grenfell Investment Trust at 1-800-814-3401
or write to Morgan Grenfell Investment Trust at P.O. Box 419165, Kansas City,
MO 64141-6165.
Exchange Privilege
The Funds provide a telephone exchange privilege and a written exchange
privilege. Shares of a Fund may be exchanged in amounts as low as $50,000 for
shares of any other Fund or any Domestic Fund. A shareholder should obtain and
read the prospectus relating to a Domestic Fund and consider its investment
objective, policies and fees before making an exchange into that Fund.
Exchanges will be permitted only in those states in which the relevant fund is
available for sale. If a shareholder elects the telephone exchange privilege
on the Account Application, the shareholder will be able to effect the
exchange of shares in its account in one Fund for shares in any other Fund
described in this Prospectus by telephone, as long as all accounts are
identically registered. A shareholder can exchange shares by telephone by
calling 1-800-407-7301 before 4:00 p.m., Eastern time, on any Business Day.
Shares exchanged will be valued at their respective net asset values next
determined after the telephone exchange request is received. 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. The Funds reserve
the right to refuse any request made by any shareholder.
In addition to using the telephone exchange privilege, shareholders in
any of the Funds may exchange their shares for shares in any other Fund by
submitting a written request, in proper form, to the Transfer Agent. Shares
exchanged in this manner will be valued at their respective net asset values
next determined after the receipt of the written 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.
-33-
<PAGE>
REDEMPTION OF SHARES
How To Redeem
Shareholders may redeem shares of a Fund without charge upon request on
any Business Day by placing redemption requests with the Transfer Agent prior
to 4:00 p.m., Eastern Time. Shares are redeemed at the net asset value next
determined after receipt of the redemption request by the Transfer Agent.
Redemption requests may be made by telephoning Morgan Grenfell Investment
Trust at 1-800-407-7301 or by a written request addressed to the Transfer
Agent in accordance with the procedures set forth below. A written request
must specify the number of shares to be redeemed, the Fund from which shares
are being redeemed, the account number, payment instructions and the exact
registration on the account. Signatures must be guaranteed in accordance with
the procedures set forth below under "Payment of Redemption Proceeds." A
shareholder 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 Trust nor the Transfer Agent 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.
Shareholders may request that redemption payments be made by Federal
Reserve Wire. The Custodian will 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 Automated Clearing House wire
transactions; however, such transactions will not be posted to a shareholder's
bank account until the second Business Day following the transaction.
Payment of a redemption request will normally be made within seven days
after receipt of the appropriate redemption request documents, including any
additional documentation that may be required by the Transfer Agent 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.
Payment of Redemption Proceeds
Redemption proceeds ordinarily will be wired to the bank account
designated on the Account Application, unless payment by check has been
requested. For redemption requests received by the Transfer Agent by 4:00
p.m., Eastern time, redemption proceeds ordinarily will be wired the next
Business Day. Shares subject to such requests will earn any dividends for
which the record date is the day the request is received. 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 should deal directly with such
intermediaries or bank.
-34-
<PAGE>
A shareholder may change the bank designated to receive redemption
proceeds by providing written notice to the Transfer Agent 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. 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."
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 foreign or U.S. securities exchange are
valued at their last sale price on the principal exchange on which they are
traded on the valuation day prior to the time of valuation or, if no sale
prior to the time of valuation occurs, at the bid price. Unlisted equity
securities for which current market quotations are readily available are
valued at their most recent bid price prior to the time of valuation. 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
-35-
<PAGE>
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 the shareholder's election, in cash. The 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 or intends to elect 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.
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.
-36-
<PAGE>
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 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
eleven Funds described in this Prospectus and six 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.
-37-
<PAGE>
As of January 31, 1996, the Allied Signal Inc. Master Pension Trust owned
beneficially 27.93% of the outstanding shares of the International Small Cap
Equity Fund, the Archdiocese of Detroit owned beneficially 33.45% of the
outstanding shares of the International Fixed Income Fund, TRW Master Trust
Retirement Plan owned beneficially 75.07% of the outstanding shares of the
European Small Cap Equity Fund, the Public Employees' Retirement Association
owned beneficially 29.98% of the outstanding shares of the Emerging Markets
Equity Fund and Morgan Grenfell Capital Management, Inc. owned beneficially
99.95% of the outstanding shares of the International Equity 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.
As of the date of this Prospectus, the Administrator owned 100% of the
outstanding shares of each Fund other than International Small Cap Equity
Fund, Global Fixed Income Fund, Emerging Markets Equity Fund, International
Fixed Income Fund, Emerging Markets Debt Fund, European Small Cap Equity Fund
and International Equity Fund.
-38-
<PAGE>
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.
Advertisements may also compare performance as reported for other investments,
indices and averages.
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.
--------------------------------------------
<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.
A-1
<PAGE>
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.
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.
A-2
<PAGE>
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*:
<TABLE>
<CAPTION>
Percentage of
Standard & Poor's (Moody's) Ratings Total Investments
- ----------------------------------- -----------------
<S> <C>
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%
--
</TABLE>
- -----------
* 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-3
<PAGE>
APPENDIX B
PORTFOLIO MANAGER INFORMATION
<TABLE>
<CAPTION>
Funds Portfolio Managers
- ----- ------------------
<S> <C>
Morgan Grenfell International Equity Fund Patrick Disney
Richard Wilson
Morgan Grenfell Global Equity Fund Patrick Disney
William Thomas
Morgan Grenfell European Equity Fund Julian Johnston
Jeremy Lodwick
Morgan Grenfell Pacific Basin Equity Fund William Thomas
Graham Bamping
Morgan Grenfell International Small Cap Equity Fund Graham Bamping
Jonathan Wild
Morgan Grenfell Japanese Small Cap Equity Fund James Pulsford
Morgan Grenfell European Small Cap Equity Fund Stewart Armer
Jonathan Wild
Morgan Grenfell Emerging Markets Equity Fund Richard Lamb
Christopher Getley
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
Antonia Brooks
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
Portfolio Manager Expertise Professional Experience
- ----------------- --------- -----------------------
<S> <C> <C>
Stewart Armer UK Equity Markets Portfolio Manager, European
Markets, MGIS (since 1994);
Portfolio Manager, Fleming
Investment Management
(1987-1994).
Graham Bamping Pacific Basin Equity Markets Director, Morgan Grenfell
Investment Services ("MGIS") (since
1987); Portfolio Manager, Pacific
Basin (since 1989); Portfolio
Manager, Singapore (1981-83);
Research, Far East (1980-81);
Research, UK (1978-80)
Antonia Brooks Fixed Income Markets Fund Manager, Emerging Markets
Debt, MGIS (since 1994); Fund
Manager, Morgan Grenfell
International Funds Management,
Ltd. (since 1989).
Patrick Disney EAFE(R) Markets Managing Director, MGIS (since
1988); Director, MGIS (1987-88);
EAFE(R) Team (since 1981).
Christopher Getley Latin American Equity Markets MGIS (since 1987); Mexican,
Portfolio Manager Brazilian and
Argentinian Team (since 1989);
Australian and Canadian Team
(1987-89).
Martin Hall European Bond Markets MGIS, Fixed Income Team
(since 1988); Bank of England
(UK monetary policy) (1982-88).
Julian Johnston European Equity Markets Director, MGIS (since 1988);
Fidelity International (1984-88);
James Capel & Co. (1979-84).
B-2
<PAGE>
<CAPTION>
Portfolio Manager Expertise Professional Experience
- ----------------- --------- -----------------------
<S> <C> <C>
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).
Richard Lamb Latin American Markets MGIS (since 1993); Rothschild Asset
Management (The Chile Fund and Five
Arrows Fund) (1988-93); Portfolio
Manager, Berkeley Govett and Samual
Montagu (1981-88).
Jeremy Lodwick European Equity Markets Director MGIS (since 1994);
Portfolio Manager MGIS (1992-1994);
Vice President MGCM (1986-1991);MIM
Britannia Ltd (1985-1986); Samuel
Montagu & Co. (1984-1985).
James Pulsford Japanese Markets Portfolio Manager, Japanese
Markets, MGIS (since 1987); UK
research (since 1984).
William Thomas Japanese Markets Director, MGIS (since 1988);
Portfolio Manager, MGIS (technology
investments) (1984-88); Director,
Extel (UK computing services
company) (1971-79).
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)
B-3
<PAGE>
<CAPTION>
Portfolio Manager Expertise Professional Experience
- ----------------- --------- -----------------------
<S> <C> <C>
Jonathan Wild International Equity Markets, Small Portfolio Manager, MGIS (since
Capitalization Companies 1996); Portfolio Manager, Finsbury
Asset Management (1993-1995);
Manager, Barclays De Zoette Wedd
(1991-1992); Manager, KPMG Peat
Marwick (1986-1991).
Richard Wilson International Equity Markets Portfolio Manager, MGIS (since
1993); Portfolio Manager, James
Capel (1992-1993); Portfolio
Manager, Midland Montagu
(1988-1992).
</TABLE>
B-4
<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.
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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 - 1-800-814-3401
Telephone Exchanges - 1-800-407-7301
Share Price and Performance
Information - 1-800-814-3401
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
885 Third Avenue
New York, New York 10022
STATEMENT OF ADDITIONAL INFORMATION
February 14, 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
(bullet) Morgan Grenfell Large Cap Growth Fund
This Statement of Additional Information is not a prospectus, and
should be read only in conjunction with the Funds' Prospectus dated February 14,
1996, as amended or supplemented from time to time (the "Prospectus"). A copy of
the Prospectus may be obtained without charge from SEI Financial Services
Company, the Trust's Distributor, by calling 1-800-814-3401 or writing to 680
East Swedesford Road, Wayne, Pennsylvania 19087-1658.
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TABLE OF CONTENTS
Page
Introduction.......................................................... 3
Additional Information on Fund Investments
and Strategies and Related Risks.................................... 4
Investment Restrictions............................................... 30
Trustees and Officers................................................. 36
Investment Advisory and Other Services................................ 40
Portfolio Transactions ............................................... 46
Net Asset Value....................................................... 49
Performance Information............................................... 50
Taxes................................................................. 54
General Information About the Trust................................... 63
Additional Information................................................ 67
Financial Statements.................................................. 68
Appendix A -- Description of Ratings.................................. A-1
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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 1-800-814-3401 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 six separate investment
portfolios of the Trust (the "Funds"):
Morgan Grenfell Large Cap Growth Fund
Morgan Grenfell Smaller Companies Fund
(collectively, the "Equity Funds")
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
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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.
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
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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
Each of the Equity 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 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, each of the Equity Funds 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 a 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 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. A 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.
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Warrants acquired by a 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
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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.
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
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"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 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
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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.
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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 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
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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.
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
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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
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will be "passed through" to investors. Government mortgage-backed securities
differ from conventional bonds in that principal is paid back to the
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.
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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, 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, the
Equity Funds and the Fixed Income Funds may invest in securities of foreign
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issuers. While the Equity Funds' 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 the Equity Funds' investments are denominated in foreign
currencies, the net asset values of such Funds 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 an Equity
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 an Equity 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 Equity 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 the Equity Funds 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 the
Equity Funds 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 issues 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
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securities issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
Forward Foreign Currency Exchange Contracts
Each of the Equity Funds 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. An Equity
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. An Equity 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 Equity 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, an Equity 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 Equity Funds may enter into forward currency contracts only for the
following hedging purposes. First, when an Equity Fund enters into a contract
for the purchase or sale of a security denominated in a foreign currency, or
when an Equity 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
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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 either Equity 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 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. 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 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 Funds' ability to
utilize forward currency contracts may be restricted. In addition, a particular
forward currency
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contract and assets used to cover such contract may be illiquid.
The Equity Funds generally will not enter into a forward currency
contract with a term of greater than one year.
While the Equity Funds will enter into forward currency contracts to
reduce currency exchange rate risks, transactions in such contracts involve
certain other risks. Thus, while the Equity 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 currency exchange loss. Forward
currency contracts may be considered derivative instruments.
Options on Securities, Securities Indices and Foreign Currencies
Each of the Equity Funds 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. The Funds 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 considered 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
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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 and the assets used
to cover such options will be deemed illiquid for purposes of each Equity 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.
An Equity 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 a Fund is covered if the
Fund owns an equal amount of the underlying currency.
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
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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.
Futures Contracts and Related Options
To hedge against changes in interest rates or securities prices and for
certain non-hedging purposes, the Equity 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 Equity Funds may also enter into closing purchase
and sale transactions with respect to any of such contracts and
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options. The futures contracts may be based on various securities (such as
U.S. Government securities), indices, currencies and other financial
instruments. The Equity 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 Equity 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, an
Equity 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, an Equity 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 Equity 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 Equity
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 a Fund or securities with
characteristics similar to those of the Fund's portfolio securities. If,
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in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for an Equity 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 Equity 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 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 Equity 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
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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 Equity
Funds' ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid market.
The Equity Funds may use options on futures contracts solely for bona
fide hedging or other non-hedging purposes as described below.
Other Considerations. The Equity Funds 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. Each Equity 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, the Equity 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 Equity 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.
As an alternative to compliance with the bona fide 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
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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."
Each Equity 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 a Fund to
purchase securities, require a 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 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 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 an Equity 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. The
Funds will attempt to minimize the risk that they 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
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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.
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.
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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
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<PAGE>
taxable to shareholders.
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, each Equity
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
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<PAGE>
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 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
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<PAGE>
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.
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 the Equity Funds
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.
(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.
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<PAGE>
(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.
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<PAGE>
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.
NonFundamental 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.
-32-
<PAGE>
(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.
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
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<PAGE>
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
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<PAGE>
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.
(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.
Nonfundamental 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
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<PAGE>
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.
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
885 Third Avenue Executive Treasurer, MGCM (since 1990).
New York, NY 10022 Officer, and
Trustee
Patrick W. W. Disney(1)* Senior Vice Director, Morgan Grenfell
20 Finsbury Circus President and Investment Services Limited
London EC2M 1NB Trustee ("MGIS")(since 1988).
ENGLAND
Paul K. Freeman(2) Trustee Chief Executive Officer,
3941 South Bellaire The Eric Group, Inc.
Englewood, CO 80110 (environmental insurance)
(since 1986).
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<PAGE>
Graham E. Jones(2) Trustee Senior Vice President, BGK
330 Garfield Street Realty Inc. (since 1995);
Santa Fe, NM 87501 Financial Manager, Practice
Management 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
5100 Foxridge Drive #2011 Officer, Sprint Corporation
Mission, KS 66202 (telecommunications) (since
1989).
Hugh G. Lynch Trustee Director, International
767 Fifth Avenue Investments, General Motors
New York, NY 10153 Investment Management
Corporation (since
September 1990).
Edward T. Tokar* Trustee Vice President--Investments,
101 Columbia Road Allied Signal Inc. (advanced
Morristown, NJ 07962 technology and manufacturer)
(since 1985).
Jeffrey A. Cohen Treasurer, Controller, Mutual Fund
680 East Swedesford Road Principal Accounting, SEI Corporation
Wayne, PA 19087-1658 Accounting (since May 1994); Director,
Officer, Chief Mutual Fund Accounting, SEI
Financial Officer Corporation (1991-1994); Audit
Manager, Price Waterhouse
(1989-1991).
Neil P. Jenkins(3) Vice President Director, MGCM (since
885 Third Avenue 1991), Morgan Grenfell
New York, NY 10022 International Funds Management,
(since 1995), and Morgan Grenfell
& Co., Ltd. (since 1985).
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<PAGE>
David W. Baldt Vice President Executive Vice President and
1435 Walnut Street Director of Fixed Income
Philadelphia, PA 19102 Investments, MGCM (since
1989).
Ian D. Kelson Vice President Director, MGIS (since 1988);
20 Finsbury Circus Chief Investment Officer,
London EC2M 1NB Fixed Income, MGIS (since England
1989).
Mark G. Arthus Secretary and Director, Compliance and
885 Third Avenue Compliance Financial Control, MGCM
New York, NY 10022 Officer (since 1992); Vice President,
Senior 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
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.
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<PAGE>
As of January 31, 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, 14.83% 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:
<TABLE>
<CAPTION>
Pension or
Retirement Benefits Aggregate
Accrued as Part of Compensation from
Name of Trustees Fund Expenses the Trust / Complex *
- ---------------- ------------- ---------------------
<S> <C> <C>
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
</TABLE>
* 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'
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.
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<PAGE>
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 the Equity Funds 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:
<TABLE>
<CAPTION>
Annual Rate
-----------
<S> <C>
Morgan Grenfell Large Cap Growth Fund............................ 0.75%
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%
</TABLE>
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,
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<PAGE>
$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. Morgan Grenfell
Large Cap Growth Fund was not in operation during any of the indicated periods
and, accordingly, paid no advisory fees during such periods.
The Management Contract between MGCM and the Trust, on behalf of the
Equity Funds, 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 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
-41-
<PAGE>
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 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.
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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. Morgan Grenfell Large Cap Growth Fund was not in operation during
any of the periods described in this paragraph and, accordingly, paid no
administration fees for such periods.
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.
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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 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
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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
Prospectus, 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.
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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.
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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 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
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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 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.
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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 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
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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;
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c = average daily number of shares out-standing 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.
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:
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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
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October 31, 1995 and for the period from September 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.
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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. 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 or
intends to elect 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, 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
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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.
For U.S. federal income tax purposes, the tax basis of shares owned
by a
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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 the Equity Funds will generally be treated as capital gains and
losses. Certain of the 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 (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 a 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 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 as its ability to
engage in short sales. Certain tax elections may be available to
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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 Equity
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 an Equity 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
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<PAGE>
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, 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
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<PAGE>
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
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<PAGE>
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 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
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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.
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
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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 individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
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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.
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As of January 31, 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:
<TABLE>
<CAPTION>
Fixed Income Fund:
- ------------------
<S> <C>
SEI Trust Company 20.25%
680 E. Swedesford Road
Wayne, PA 19087
Municipal Fire and Police Retirement System 5.08%
of Iowa
c/o The Northern Trust Company
155 Bishopsgate
London EC2M 3XS ENGLAND
BATRUS & Co. 8.79%
c/o Bankers Trust Company
PO Box 9005
Church Street Station
New York, NY 10006
The Bank of New York TTEE 5.73%
FBO Niagara Mohawk Power Corp.
Repersented Health VEBA
One Wall Street
New York, NY 10286
Municipal Bond Fund:
- --------------------
SEI Trust Company 10.31%
680 E. Swedesford Road
Wayne, PA 19087
Batrus & Co., (New York Corporation) 47.36%
c/o Bankers Trust Co.
PO Box 706 Church Street Station
New York, NY 10008
INFID & Co. 8.58%
c/o Bankers Trust Co.
PO Box 9005 Church Street Station
New York, NY 10008
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Short-Term Municipal Bond Fund:
- -------------------------------
Batrus & Co. 21.20%
c/o Bankers Trust Co.
PO Box 9005
Church Street Station
New York, NY 10008
SEI Trust Company 27.60%
680 E. Swedesford Road
Wayne, PA 19087
James E. Minnick & Nancy Minnick JTTEN 11.72%
3421 St. Davids Road
Newtown Square, PA 19073
Phyllis Kingsbury 11.25%
27 Inverness Ct.
Short Hils, NJ 07078
Emily Kingsbury 10.32%
610 New Albany Road
Moorestown, NJ 08057
John W. Kingsbury Trust B 5.18%
27 Inverness Ct.
Short Hills, NJ 07078
Short-Term Fixed Income Fund:
- -----------------------------
BATRUS & Co., (New York Corporation) 44.19%
c/o Bankers Trust
PO Box 9005 Church Street Station
New York, NY 10006
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SEI Trust Company 31.43%
680 E. Swedesford Road
Wayne, PA 19087
Infid & Co. 14.59%
c/o Bankers Trust Co.
PO Box 706 Church Street Station
New York, NY 10008
Clark & Co. 7.13%
FBO the Retirement Savings Plan
PO Box 39
Westerville, OH 43081
Smaller Companies Fund:
- -----------------------
Morgan Grenfell Capital Management, Inc. 100.00%
(Delaware Corporation)
885 Third Avenue Suite 3200
New York, NY 10022
</TABLE>
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.
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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 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.
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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.
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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 necessilarily 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-1
<PAGE>
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, ie:, 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.
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.
A-2
<PAGE>
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
forseeable 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 thest issues is generally rated "F-1+".
A: Bonds considered to be investment grade and of high crdit 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.
A-3
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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 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 (+).
A-4
<PAGE>
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-5
<PAGE>
The Registrant's financial statements will be attached to copies of
this Statement of Additional Information that are distributed to investors.
<PAGE>
MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
885 Third Avenue
New York, New York 10022
STATEMENT OF ADDITIONAL INFORMATION
February 14, 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 eleven separate investment portfolios of the Trust
(the "Funds"):
(bullet) Morgan Grenfell International Equity Fund
(bullet) Morgan Grenfell Global Equity Fund
(bullet) Morgan Grenfell European Equity Fund
(bullet) Morgan Grenfell Pacific Basin Equity Fund
(bullet) Morgan Grenfell International Small Cap Equity Fund
(bullet) Morgan Grenfell Japanese Small Cap Equity Fund
(bullet) Morgan Grenfell European Small Cap Equity Fund
(bullet) Morgan Grenfell Emerging Markets Equity Fund
(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,
1996 (the "Prospectus"). A copy of the Prospectus may be obtained without charge
from SEI Financial Services Company, the Trust's Distributor, by calling
1-800-814-3401 or writing to 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.
-1-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction......................................................... 3
Additional Information on Fund Investments
and Strategies and Related Risks................................... 4
Investment Restrictions.............................................. 21
Trustees and Officers................................................ 25
Investment Advisory and Other Services............................... 28
Portfolio Transactions .............................................. 33
Net Asset Value...................................................... 36
Performance Information.............................................. 37
Taxes................................................................ 40
General Information About the Trust.................................. 46
Additional Information............................................... 50
Financial Statements................................................. 50
</TABLE>
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 1-800-814-3401 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 eleven
series (the "Funds"):
Morgan Grenfell International Equity Fund
Morgan Grenfell Global Equity Fund
Morgan Grenfell European Equity Fund
Morgan Grenfell Pacific Basin Equity Fund
Morgan Grenfell International Small Cap Equity Fund
Morgan Grenfell Japanese Small Cap Equity Fund
Morgan Grenfell European Small Cap Equity Fund
Morgan Grenfell Emerging Markets Equity Fund
(collectively, the "Equity Funds")
Morgan Grenfell Global Fixed Income Fund
Morgan Grenfell International Fixed Income Fund
Morgan Grenfell Emerging Markets Debt Fund
(collectively, the "Fixed Income Funds").
The Emerging Markets Debt Fund, the Global Fixed Income Fund and the
International Fixed Income Fund are "non-diversified" within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act"). Each of the
remaining eight Funds is classified as "diversified" within the meaning of 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.
Options on Securities, Securities Indices 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, to various U.S. or non-U.S. stock indices 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.
An 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 (in case of a call option), or is less than (in the case of a put
option), the option's exercise price. The amount of this payment 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.
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
-6-
<PAGE>
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. For a call option
on an index, the option is covered if the Fund's 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 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.
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,
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.
-7-
<PAGE>
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 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
-8-
<PAGE>
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 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.
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<PAGE>
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.
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
-10-
<PAGE>
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 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
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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.
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
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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 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
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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 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, each of the Equity Funds 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 a 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 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. A 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
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securities exchange. Warrants acquired by a Fund in units or attached to other
securities shall not be included in determining compliance with these
percentage limitations. See "Investment Restrictions."
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.
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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 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)
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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.
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."
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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 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
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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 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.
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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
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
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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.
Accordingly, 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.
(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.
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(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, each Equity Fund will adhere to the following fundamental
investment restriction:
With respect to 75% of its total assets, an Equity 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.
-22-
<PAGE>
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.
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.
-23-
<PAGE>
(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.
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.
-24-
<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
885 Third Avenue Executive Treasurer, Morgan Grenfell
New York, NY 10022 Officer, and Capital Management, Inc.
Trustee ("MGCM") (since 1990).
Patrick W. W. Disney(1)* Senior Vice Director, MGIS
20 Finsbury Circus President and (since 1988).
London EC2M INB Trustee
ENGLAND
Paul K. Freeman(2) Trustee Chief Executive Officer,
3941 South Bellaire The Eric Group, Inc.
Englewood, CO 80110 (environmental insurance)
(since 1986).
Graham E. Jones(2) Trustee Senior Vice President, BGK Realty,
330 Garfield Street Inc. (since 1995); Financial Manager,
Santa Fe, NM 87501 Practice Management 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
5100 Foxridge Drive #2011 Officer, Sprint Corporation
Mission, KS 66202 (telecommunications) (since
1989).
-25-
<PAGE>
Hugh G. Lynch Trustee Director, International
767 5th Avenue Investments, General Motors
New York, NY 10153 Investment Management
Corporation (since September
1990).
Edward T. Tokar* Trustee Vice President--Investments,
101 Columbia Road AlliedSignal Inc. (advanced
Morristown, NJ 07962 technology and manufacturer)
(since 1985).
Jeffrey A. Cohen Treasurer, Controller, Mutual Fund
680 East Swedesford Road Principal Accounting, SEI Corporation
Wayne, PA 19087-1658 Accounting (since May 1994); Director,
Officer, Chief Mutual Fund Accouting, SEI
Financial Officer Corporation (1991-1994); Audit Manager,
Price Waterhouse (1989-1991).
Neil P. Jenkins (3) Vice President Director, MGCM (since 1991);
885 Third Avenue Morgan Grenfell & Co. Ltd. (since 1985);
New York, NY 10022 Morgan Grenfell International Funds
Management (since 1995).
David W. Baldt Vice President Executive Vice President and
1435 Walnut Street Director of Fixed Income
Philadelphia, PA 19102 Investments, MGCM (since
1989).
Ian D. Kelson Vice President Director, MGIS (since 1988);
20 Finsbury Circus Chief Investment Officer, Fixed
London EC2M 1NB Income, MGIS (since 1989).
Mark G. Arthus Secretary and Director, Compliance and
885 Third Avenue Compliance Officer Financial Control, MGCM
New York, NY 10022 (since 1992); Vice President,
Senior Compliance Officer and
other positions, Citibank, N.A.
(to 1992)
</TABLE>
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<PAGE>
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
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 January 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.
-27-
<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:
<TABLE>
<CAPTION>
Pension or
Retirement Benefits
Accrued as Part of Aggregate
Name of Trustee Fund Expenses Compensation from the Trust/Complex *
- --------------- ------------- -------------------------------------
<S> <C> <C>
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
</TABLE>
* 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.
-28-
<PAGE>
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:
<TABLE>
<CAPTION>
Annual Rate
-----------
<S> <C>
Morgan Grenfell International Equity Fund........................... 0.70%
Morgan Grenfell Global Equity Fund.................................. 0.70%
Morgan Grenfell European Equity Fund................................ 0.70%
Morgan Grenfell Pacific Basin Equity Fund........................... 0.70%
Morgan Grenfell International Small Cap Equity Fund................. 1.00%
Morgan Grenfell Japanese Small Cap Equity Fund...................... 1.00%
Morgan Grenfell European Small Cap Equity Fund...................... 1.00%
Morgan Grenfell Emerging Markets Equity Fund........................ 1.00%
Morgan Grenfell Global Fixed Income Fund............................ 0.50%
Morgan Grenfell International Fixed Income Fund..................... 0.50%
Morgan Grenfell Emerging Markets Debt Fund.......................... 1.50%
</TABLE>
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
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 International
Small Cap Equity Fund, Morgan Grenfell Emerging Markets Equity Fund, 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 $264,667, $224,489, $41,189, $2,777, and $25,848, respectively.
For the fiscal period ended October 31, 1995, Morgan Grenfell International
Equity Fund, Morgan Grenfell International Small Cap Equity Fund, Morgan
Grenfell European Small Cap Equity Fund, Morgan Grenfell Emerging Markets Equity
Fund, 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 $0, $506,065, $677, $457,521, $384,235, $36,927
and $682,004, respectively. The foregoing advisory fee payments and non-payments
reflect expense limitations that were in effect during the indicated periods.
The Funds not listed in this paragraph were not in operation during the relevant
periods and, accordingly, paid no advisory fees for such 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
-29-
<PAGE>
"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 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).
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
-30-
<PAGE>
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 International Small Cap Equity Fund, Morgan
Grenfell Emerging Markets Equity Fund, Morgan Grenfell Global Fixed Income
Fund, Morgan Grenfell International Fixed Income Fund and the Morgan Grenfell
Emerging Markets Debt Fund were 41%, 45%, 173%, 130% and 52%, respectively. For
the fiscal period ended October 31, 1995, the portfolio turnover rates for
Morgan Grenfell International Equity Fund, Morgan Grenfell International Small
Cap Equity Fund, Morgan Grenfell European Small Cap Equity Fund, Morgan
Grenfell Emerging Markets Equity Fund, Morgan Grenfell Global Fixed Income
Fund, Morgan Grenfell International Fixed Income Fund and Morgan Grenfell
Emerging Markets Debt Fund were 19%, 62%, 34%, 49%, 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.
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 that offers its shares 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 International Small Cap Equity Fund, Morgan Grenfell
Japanese Small Cap Equity Fund, Morgan Grenfell European Small Cap Equity Fund
and Morgan Grenfell Emerging Markets Debt Fund).
For the fiscal period ended October 31, 1994, Morgan Grenfell
International Small Cap Equity Fund, Morgan Grenfell Emerging Markets Equity
Fund, Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell International
Fixed Income Fund and the Morgan Grenfell Emerging Markets Debt Fund paid the
Administrator administration fees of $64,343, $45,220, $33,625, $19,556, and
$5,947, respectively. For the fiscal period ended October 31, 1995, Morgan
Grenfell International Equity Fund,
-31-
<PAGE>
Morgan Grenfell International Small Cap Equity Fund, Morgan Grenfell European
Small Cap Equity Fund, Morgan Grenfell Emerging Markets Equity Fund, 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 $11,694, $97,518, $50,000, $93,750, $105,406, $68,750
and $ 69,115, respectively. The Funds not listed in the preceding two sentences
were not in operation during the relevant periods and, accordingly, paid no
administration fees for such periods.
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.
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
-32-
<PAGE>
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.
-33-
<PAGE>
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 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. 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
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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"). 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
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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, Morgan Grenfell
International Small Cap Equity Fund, Morgan Grenfell Emerging Markets Equity
Fund, Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell International
Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund paid aggregate
brokerage commissions of $ 355,445, $ 360,408, $ 0, $ 0, and $ 0, respectively.
For the fiscal period ended October 31, 1995, Morgan Grenfell International
Equity Fund, Morgan Grenfell International Small Cap Equity Fund, Morgan
Grenfell European Small Cap Equity Fund, Morgan Grenfell Emerging Markets Equity
Fund, Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell International
Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund paid aggregate
brokerage commissions of $7,389, $363,181, $31,827, $572,550, $ 0, $ 0, and $ 0,
respectively. For each Fund that paid brokerage commissions in both fiscal
periods, the difference between the amount of commissions paid by that Fund in
each period is attributable principally to the fact that the Fund was in
operation for significantly more time during fiscal 1995 (i.e., twelve months)
than it was during fiscal 1994.
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) 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
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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 Fixed Income 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 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 out-
standing during the period, entitled
to receive dividends; and
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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.
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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 period ended October 31, 1995, the average annual total
returns of Morgan Grenfell International Equity Fund, Morgan Grenfell
International Small Cap Equity Fund, Morgan Grenfell European Small Cap Equity
Fund, Morgan Grenfell Emerging Markets Equity Fund, Morgan Grenfell Global Fixed
Income Fund, Morgan Grenfell International Fixed Income Fund and Morgan Grenfell
Emerging Markets Debt Fund were 9.50%, (6.67%), 15.66%, (21.00%), 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 International Small Cap Equity Fund, Morgan Grenfell Emerging Markets
Equity Fund, Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging Markets Debt Fund
were (1.88%), (7.73%), 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
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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.
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 or intends to
elect to be treated, and 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
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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.
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
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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 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
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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 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.
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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, International Equity
Fund, International Small Cap Equity Fund and Emerging Markets Debt Fund had
capital loss carryforwards of approximately $6,000, $2,367,000 and $526,000,
respectively, in each case 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 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.
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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.
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
-45-
<PAGE>
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.
As of January 31, 1996, the following shareholders owned the following
respective percentages of the outstanding shares of the indicated Funds:
-46-
<PAGE>
International Small Cap Equity Fund:
- ------------------------------------
Allied Signal Inc. Master Pension Trust, 101 Columbia Rd., Morristown, NJ 07962
(27.93%)
Kroger Company Master Retirement Trust, 1014 Vine Street, Cincinnati, OH 45202
(11.83%)
Black & Decker Defined Benefit Plan Master Trust, 701 East Joppa Road, Towson,
MD 21286 (7.87%)
Portland General Corporation, 121 SW Salmon Street, Portland, OR 97204
(5.87%)
Delta Airlines Inc.c/o Harris Trust & Savings, 111 W Monroe Street SE, Chicago,
IL 60603 (21.61%)
Swarthmore College, 500 College Avenue, Swarthmore, PA 19081 (5.15%)
Emerging Markets Equity Fund:
- -----------------------------
Allied Signal Inc. Master Pension Trust, 101 Columbia Rd., Morristown, NJ 07962
(20.92%)
Kroger Company Master Retirement Trust, 1014 Vine Street, Cincinatti, OH 45202
(12.40%)
Motorola Employees Savings & Profit Sharing Trust, c/o Northern Trust, 50 South
La Salle Street, Chicago, ILL 60675 (12.91%)
Motorola Pension Fund, c/o Harris Trust, 111 West Monroe, Chicago, ILL 60690
(10.50%)
Public Employees Retirement Association, 1300 Logan Street, Denver, Colorado
80203 (29.98%)
Global Fixed Income Fund:
- -------------------------
Capital Region Health Care Corporation Endowment, 250 Pleasant Street, Concord,
NH 03301 (6.68%)
The American University in Cairo, 866 United Nations Plaza, Suite 517, New
York, NY 10017 (9.10%)
-47-
<PAGE>
Macquarie Global Bond Fund, L13, 2D Bond Street, Sydney, NSW 2000
(10.64%)
New Hampshire Charitable Foundation, 37 Pleasant Street, Concord, NH 03301
(6.27%)
Toldeo Hospital c/o National City Bank Northwest Cust, PO Box 94777, Cleveland,
OH 44101 (7.63%)
Trustees of Clark University, 950 Main Street, Worcester, MA 01610-1400
(12.25%)
International Fixed Income Fund:
- --------------------------------
Gilman School Inc., 5407 Roland Avenue, Baltimore, MD 21210
(11.34%)
Harvey Wagner TTEE, FBO Wagner Family Trust, P.O. Box 7370, Incline Village, NV
89452 (24.29%)
Archdiocese of Detroit, 1234 Washington Blvd., Detroit, MI 48226
(33.45%)
NBD Bank Custodian Graphic Communications Union #2, PO Box 771072, Detroit, MI
48277 (10.27%)
Holland Hospital Endowment Fund, One Financial Center, Holland, MI 49423
(14.81%)
Emerging Markets Debt Fund
- --------------------------
IBM Retirement Plan Trust, c/o Chase Manhattan Bank, 3 Chase Metrotech Center,
Brooklyn, NY 11245 (24.90%)
TRW Master Trust, c/o Boston Safe Deposit & Trust Company, One Cabot Road,
Medford, MA 02155 (6.34%)
Hewlett Packard Deferred Profit Sharing Plan & Retirement Fund, 3000 Hanover
Street, Palo Alto, CA 94304 (8.50%)
Iowa Public Employees Retirement System, 600 E. Court Avenue, Des Moines, IA
50309 (19.99%)
Dallas Police & Fire Pension System, 2777 Stemmons Freeway, Dallas, TX 75207
(8.61%)
-48-
<PAGE>
Municipal Fire & Police Retirement System of Iowa, 950 Office Park Road Suite
321, Des Moines, IA 50265 (11.42%)
European Small Cap Equity Fund
- ------------------------------
Pitney Bowes Retirement Plan, 1 Enterprise Drive W6C, N. Quincy, MA 02171
(24.91%)
TRW Master Trust, c/o Boston Safe Deposit & Trust Company, One Cabot Road,
Medford, MA 02155 (75.07%)
International Equity Fund
- -------------------------
Morgan Grenfell Capital Management, Inc., (Delaware Corporation), 885 Third
Avenue, New York, NY 10022 (99.95%)
As of the date of this Statement of Additional Information, all of the
outstanding shares of , Morgan Grenfell Global Equity Fund, Morgan Grenfell
European Equity Fund, Morgan Grenfell Pacific Basin Equity Fund and Morgan
Grenfell Japanese Small Cap Equity Fund are owned by the Administrator.
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.
-49-
<PAGE>
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.
-50-
<PAGE>
The Registrant's financial statements will be attached to copies of
this Statement of Additional Information that are distributed to investors.
<PAGE>
FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
The financial highlights of the Registrant are included in Part A of
the Registration Statement and the financial statements of the
Registrant are included in Part B of the Registration Statement and
are incorporated therein by reference from Registrant's 1995 Annual
Report to Shareholders for the year ended October 31, 1995 (filed
electronically on December 29, 1995; file no. 811-8006; accession no.
0000950109-95-005471).
(b) Exhibits:
Except as noted, the following exhibits are being filed herewith:
1. Agreement and Declaration of Trust of Registrant dated
September 13, 1993, as amended.
2. Amended By-Laws of Registrant.
5(a). Management Contract dated January 3, 1994, as amended as of
April 25, 1994, April 1, 1995 and September 1, 1995, between
Morgan Grenfell Investment Services Limited and Registrant, on
behalf of Morgan Grenfell International Equity Fund, Morgan
Grenfell Global Equity Fund, Morgan Grenfell European Equity
Fund, Morgan Grenfell Pacific Basin Equity Fund, Morgan
Grenfell International Small Cap Equity Fund, Morgan Grenfell
Japanese Small Cap Equity Fund, Morgan Grenfell European Small
Cap Equity Fund, Morgan Grenfell Emerging Markets Equity Fund,
Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging
Markets Debt Fund.
5(b). Management Contract dated as of December 28, 1994 between
Morgan Grenfell Capital Management, Inc. and Registrant, on
behalf of Morgan Grenfell Fixed Income Fund and Morgan Grenfell
Municipal Bond Fund.
C-1
<PAGE>
5(c). Management Contract dated as of December 28, 1994 between
Morgan Grenfell Capital Management, Inc. and Registrant, on
behalf of Morgan Grenfell Large Cap Growth Fund, Morgan
Grenfell Smaller Companies Fund, Morgan Grenfell Short-Term
Fixed Income Fund and Morgan Grenfell Short-Term Municipal Bond
Fund.
*6. Distribution Agreement dated as of December 30, 1993 between
SEI Financial Services Company and Registrant, on behalf of all
of its series (previously filed with the SEC on July 7, 1994
pursuant to Post-Effective Amendment No. 1 to Registrant's
Registration Statement).
8(a). Custody Agreement dated as of December 29, 1993 between The
Northern Trust Company and Registrant, on behalf of Morgan
Grenfell International Equity Fund, Morgan Grenfell Global
Equity Fund, Morgan Grenfell European Equity Fund, Morgan
Grenfell Pacific Basin Equity Fund, Morgan Grenfell
International Small Cap Equity Fund, Morgan Grenfell Japanese
Small Cap Equity Fund, Morgan Grenfell European Small Cap
Equity Fund, Morgan Grenfell Emerging Markets Equity Fund,
Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging
Markets Fixed Income Fund, and amendment effective as
of December 28, 1994, causing Custody Agreement to apply to
Morgan Grenfell Short-Term Fixed Income Fund, Morgan Grenfell
Short-Term Municipal Bond Fund, Morgan Grenfell Large Cap
Growth Fund and Morgan Grenfell Smaller Companies Fund.
8(b). Custody Agreement dated as of December 28, 1994 between
CoreStates Bank, N.A. and Registrant, on behalf of Morgan
Grenfell Fixed Income Fund and Morgan Grenfell Municipal Bond
Fund.
C-2
<PAGE>
*9(a). Administration Agreement between SEI Financial Management
Corporation and Registrant, on behalf of Morgan Grenfell
International Equity Fund, Morgan Grenfell Global Equity Fund,
Morgan Grenfell European Equity Fund, Morgan Grenfell Pacific
Basin Equity Fund, Morgan Grenfell International Small Cap
Equity Fund, Morgan Grenfell Japanese Small Cap Equity Fund,
Morgan Grenfell European Small Cap Equity Fund, Morgan Grenfell
Emerging Markets Equity Fund, Morgan Grenfell Global Fixed
Income Fund, Morgan Grenfell International Fixed Income Fund
and Morgan Grenfell Emerging Markets Fixed Income Fund
(previously filed with the SEC on December 30, 1993 pursuant to
Pre-Effective Amendment No. 2 to Registrant's Registration
Statement).
*9(b). Transfer Agency Agreement dated as of December 30, 1993 between
Supervised Service Company, Inc. and Registrant, on behalf of
Morgan Grenfell International Equity Fund, Morgan Grenfell
Global Equity Fund, Morgan Grenfell European Equity Fund,
Morgan Grenfell Pacific Basin Equity Fund, Morgan Grenfell
International Small Cap Equity Fund, Morgan Grenfell Japanese
Small Cap Equity Fund, Morgan Grenfell European Small Cap
Equity Fund, Morgan Grenfell Emerging Markets Equity Fund,
Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging
Markets Fixed Income Fund (previously filed with the SEC on
July 7, 1994 pursuant to Post-Effective Amendment No. 1 to
Registrant's Registration Statement).
*9(c). Form of Administration Agreement dated December 28, 1994
between SEI Financial Management Corporation and Registrant, on
behalf of Morgan Grenfell Large Cap Growth Fund, Morgan
Grenfell Smaller Companies Fund, Morgan Grenfell Fixed Income
Fund, Morgan Grenfell Short-Term Fixed Income Fund, Morgan
Grenfell Municipal Bond Fund and Morgan Grenfell Short-Term
Municipal Bond Fund (previously filed with the SEC on October
14, 1994 pursuant to Post-Effective Amendment No. 3 to
Registrant's Registration Statement).
C-3
<PAGE>
*9(d). Transfer Agency Agreement dated as of December 28, 1994 between
Supervised Service Company, Inc. and Registrant, on behalf of
Morgan Grenfell Large Cap Growth Fund, Morgan Grenfell Smaller
Companies Fund, Morgan Grenfell Fixed Income Fund, Morgan
Grenfell Short-Term Fixed Income Fund, Morgan Grenfell
Municipal Bond Fund and Morgan Grenfell Short-Term Municipal
Bond Fund (previously filed with the SEC on April 4, 1995
pursuant to Post-Effective Amendment No. 6 to Registrant's
Registration Statement).
10. Not Applicable.
11(a). Consent of Price Waterhouse LLP.
11(b). Consent of Arthur Andersen LLP.
12. Not Applicable.
*13. Share Purchase Agreement dated as of December 29, 1993 between
Registrant and SEI Financial Management Corporation (previously
filed with the SEC on July 7, 1994 pursuant to Post-Effective
Amendment No. 1 to Registrant's Registration Statement).
*16. Performance Quotation Computation appearing as Exhibit 16 to
Post-Effective Amendment No. 13 to the Registration Statement
of The Advisors' Inner Circle Fund (File Nos. 33-42484 and
811-6400) is incorporated herein by reference (previously filed
with the SEC on December 28, 1994 pursuant to Post-Effective
Amendment No. 4 to Registrant's Registration Statement).
17. Powers of Attorney of Graham E. Jones, William N. Searcy, Paul
K. Freeman, Theresa M. Messina, Patrick W. Disney, James E.
Minnick, Hugh G. Lynch, Edward T. Tokar and Jeffrey A. Cohen.
27. Financial Data Schedules.
- ---------------------------
* Previously filed with the SEC on the dates indicated and incorporated by
reference herein.
C-4
<PAGE>
Item 25. Persons Controlled By or Under
Common Control With Registrant
The Registrant does not directly or indirectly control any person. On
the effective date of this Registration Statement, 100% of the shares of the
following series of the Registrant will be owned by SEI Financial Management
Corporation, a Delaware corporation: Morgan Grenfell Global Equity Fund, Morgan
Grenfell European Equity Fund, Morgan Grenfell Pacific Basin Equity Fund and
Morgan Grenfell Japanese Small Cap Equity Fund. SEI Financial Management
Corporation is a wholly-owned subsidiary of SEI Corporation, a Delaware
corporation, which also controls the distributor of the Registrant, SEI
Financial Services Company, and other corporations engaged in providing various
financial and recordkeeping services, primarily to bank trust departments,
pension plan sponsors and investment managers.
Item 26. Number of Holders of Securities
On January 10, 1996, the number of record holders of each series of
the Registrant was as follows:
<TABLE>
<CAPTION>
Number of
Fund Record Holders
- ---- --------------
<S> <C>
Morgan Grenfell International Equity Fund 7
Morgan Grenfell Global Equity Fund 1
Morgan Grenfell European Equity Fund 1
Morgan Grenfell Pacific Basin Equity Fund 1
Morgan Grenfell International Small Cap Equity Fund 19
Morgan Grenfell Japanese Small Cap Equity Fund 1
Morgan Grenfell European Small Cap Equity Fund 7
Morgan Grenfell Emerging Markets Equity Fund 20
Morgan Grenfell Global Fixed Income Fund 93
Morgan Grenfell International Fixed Income Fund 16
Morgan Grenfell Emerging Markets Debt Fund 25
Morgan Grenfell Fixed Income Fund 202
Morgan Grenfell Municipal Bond Fund 146
Morgan Grenfell Short-Term Fixed Income Fund 12
Morgan Grenfell Short-Term Municipal Bond Fund 20
Morgan Grenfell Smaller Companies Fund 5
Morgan Grenfell Large Cap Growth Fund 0
</TABLE>
Item 27. Indemnification
Article III, Section 7 and Article VII, Section 2 of the Registrant's
Agreement and Declaration of Trust and Article VI of the Registrant's By-Laws
provide for indemnification of the Registrant's trustees and officers under
certain circumstances.
C-5
<PAGE>
Item 28. Business and Other Connections of Investment Advisers
All of the information required by this item is set forth in the Form
ADV, as amended, of Morgan Grenfell Investment Services Limited (File No.
801-12880) and in the Form ADV, as amended, of Morgan Grenfell Capital
Management, Inc. (File No. 801-27291). The following sections of each such Form
ADV are incorporated herein by reference:
(a) Items 1 and 2 of Part II
(b) Section 6, Business Background, of each Schedule D.
Item 29. Principal Underwriter
(a) The Registrant's distributor is SEI Financial Services Company
("SFS"), which also acts as distributor for SEI Daily Income
Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Index
Funds, SEI Institutional Managed Trust, SEI International Trust,
Stepstone Funds, The Advisors' Inner Circle Fund, The Pillar
Funds, CUFUND, STI Classic Funds, CoreFunds, Inc., First American
Funds, Inc., First American Investment Funds, Inc., The Arbor
Fund, 1784 Funds, The PBHG Funds, Inc., Marquis Funds, Inventor
Funds, Inc., The Achievement Funds Trust, Insurance Investment
Products Trust, Bishop Street Funds, Crest Funds, Inc. and
Conestoga Family of Funds pursuant to distribution agreements
dated July 15, 1982, November 29, 1982, December 3, 1982, July
10, 1985, January 22, 1987, August 30, 1988, January 30, 1991,
November 14, 1991, February 28, 1992, May 1, 1992, May 29, 1992,
October 30, 1992, November 1, 1992, November 1, 1992, January 28,
1993, June 1, 1993, July 16, 1993, August 17, 1993, August 1,
1994, December 27, 1994, December 30, 1994, January 27, 1995,
March 1, 1995 and May 1, 1995, respectively.
(b) The following table lists, for each director and officer of SFS,
the information indicated.
C-6
<PAGE>
<TABLE>
<CAPTION>
Name and Positions and
Principal Business Position and Offices Office with
Address* with Underwriter Registrant
- ------------------ -------------------- -------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman and None
Chief Executive Officer
Henry H. Greer Director, President and None
Chief Operating Officer
Carmen V. Romeo Director, Executive Vice None
President and Treasurer
Gilbert L. Beebower Executive Vice President None
Richard B. Lieb Executive Vice President None
Charles A. Marsh Executive Vice President - None
Capital Resources Division
Leo J. Dolan, Jr. Senior Vice President None
Carl A. Guarino Senior Vice President None
Jerome Hickey Senior Vice President None
David G. Lee Senior Vice President None
William Madden Senior Vice President None
A. Keith McDowell Senior Vice President None
Dennis J. McGonigle Senior Vice President None
Hartland J. McKeown Senior Vice President None
James V. Morris Senior Vice President None
Steve Onofrio Senior Vice President None
Kevin P. Robins Senior Vice President, None
General Counsel and
Secretary
Robert Wagner Senior Vice President None
Patrick K. Walsh Senior Vice President None
Kenneth Zimmer Senior Vice President None
Robert Crudup Managing Director None
Vic Galef Managing Director None
Kim Kirk Managing Director None
John Krzeminski Managing Director None
Carolyn McLaurin Managing Director None
Barbara Moore Managing Director None
Donald Pepin Managing Director None
Mark Samuels Managing Director None
Wayne M. Withrow Managing Director None
Mick Duncan Team Leader None
Robert Ludwig Team Leader None
Vicki Malloy Team Leader None
Robert Aller Vice President None
C. Tony Baker Vice President None
Steve Bendinelli Vice President None
Cris Brookmeyer Vice President and None
Controller
Gordon W. Carpenter Vice President None
C-7
<PAGE>
Robert B. Carroll Vice President and None
Assistant Secretary
Todd Cipperman Vice President and None
Assistant Secretary
Ed Daly Vice President and None
Assistant Secretary
Jeff Drennen Vice President None
Lucinda Duncalfe Vice President None
Kathy Heilig Vice President None
Larry Hutchison Vice President None
Michael Kantor Vice President None
Samuel King Vice President None
Donald H. Korytowski Vice President None
Robert S. Ludwig Vice President None
Jack May Vice President None
Sandra K. Orlow Vice President and None
Assistant Secretary
Larry Pokora Vice President None
Kim Rainey Vice President None
Paul Sachs Vice President None
Steve Smith Vice President None
Daniel Spaventa Vice President None
Kathryn L. Stanton Vice President and None
Assistant Secretary
William Zawaski Vice President None
James Dougherty Director of Brokerage Services None
</TABLE>
- ---------------------------
* The principal business address of each of the listed persons is SEI
Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658.
(c) Not applicable.
Item 30. Location of Accounts and Records
The Agreement and Declaration of Trust, By-Laws and minute books of
the Registrant are in the physical possession of Morgan Grenfell Capital
Management, Inc., 885 Third Avenue, New York, New York 10022. All other books,
records, accounts and other documents required to be maintained under Section
31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder will be in the physical possession of the Registrant's custodians:
The Northern Trust Company, Fifty South LaSalle Street, Chicago, Illinois
60675, and CoreStates Bank, N.A., Broad and Chestnut Streets, Philadelphia,
Pennsylvania 19101, except for certain transfer agency and fund accounting
records which are in the physical possession of DST Systems, Inc., 811 Main
Street,
C-8
<PAGE>
Kansas City, Missouri 64105, the Registrant's transfer agent, and SEI
Financial Management Corporation, the Trust's administrator, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658, respectively.
Item 31. Management Services
Not Applicable.
Item 32. Undertaking
(a) Within four to six months from the later of (i) the effective date
of this Post-Effective Amendment under the Securities Act of 1933 and (ii) the
actual date that shares of a series are first sold to the public or operations
otherwise begin with respect to such series, the Registrant undertakes to file
a post-effective amendment covering each series of Registrant that has not
commenced operations prior to the effective date of this Post-Effective
Amendment, using financial statements which need not be certified.
(b) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in such Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in such Act
and will be governed by the final adjudication of such issue.
(c) The Registrant undertakes to furnish, upon request and without
charge, to each person to whom a prospectus is delivered a copy of the latest
annual report to shareholders of such series (except to the extent a series has
not by such time been required to issue an annual report).
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment No. 9 to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 9 to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York, on the 6th day of
February 1996.
MORGAN GRENFELL INVESTMENT TRUST
By:/s/ Mark G. Arthus
--------------------------------
Mark G. Arthus
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 9 to the Registrant's Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
James E. Minnick* )
James E. Minnick Chief Executive Officer )
(Principal Executive )
Officer) and Trustee )
)
)
/s/ Jeffrey A. Cohen ) February 6, 1996
Jeffrey A. Cohen Treasurer and Chief )
Financial Officer )
(Principal Financial and )
Accounting Officer) )
)
Paul K. Freeman* )
Paul K. Freeman Trustee )
)
)
Graham E. Jones* )
Graham E. Jones Trustee )
<PAGE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
William N. Searcy* )
William N. Searcy Trustee )
)
)
Patrick W. Disney* )
Patrick W. Disney Trustee )
)
)
Hugh G. Lynch* )
Hugh G. Lynch Trustee )
)
)
Edward T. Tokar* )
Edward T. Tokar Trustee )
</TABLE>
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Dated: February 6, 1996
*By:/s/ Mark G. Arthus
Mark G. Arthus, Attorney-in-Fact, pursuant to powers of attorney filed
herewith.
<PAGE>
Exhibit Index
Exhibit
Number Document Title
- ------- --------------
1. Agreement and Declaration of Trust of Registrant dated September 13,
1993, as amended.
2. Amended By-Laws of Registrant.
5(a). Management Contract dated January 3, 1994, as amended as of April 25,
1994, April 1, 1995 and September 1, 1995, between Morgan Grenfell
Investment Services Limited and Registrant, on behalf of Morgan
Grenfell International Equity Fund, Morgan Grenfell Global Equity
Fund, Morgan Grenfell European Equity Fund, Morgan Grenfell Pacific
Basin Equity Fund, Morgan Grenfell International Small Cap Equity
Fund, Morgan Grenfell Japanese Small Cap Equity Fund, Morgan Grenfell
European Small Cap Equity Fund, Morgan Grenfell Emerging Markets
Equity Fund, Morgan Grenfell Global Fixed Income Fund, Morgan
Grenfell International Fixed Income Fund and Morgan Grenfell Emerging
Markets Debt Fund.
5(b). Management Contract dated as of December 28, 1994 between Morgan
Grenfell Capital Management, Inc. and Registrant, on behalf of Morgan
Grenfell Fixed Income Fund and Morgan Grenfell Municipal Bond Fund.
5(c). Management Contract dated as of December 28, 1994 between Morgan
Grenfell Capital Management, Inc. and Registrant, on behalf of Morgan
Grenfell Large Cap Growth Fund, Morgan Grenfell Smaller Companies
Fund, Morgan Grenfell Short-Term Fixed Income Fund and Morgan
Grenfell Short-Term Municipal Bond Fund.
8(a). Custody Agreement dated as of December 29, 1993 between The Northern
Trust Company and Registrant, on behalf of Morgan Grenfell
International Equity Fund, Morgan Grenfell Global Equity Fund, Morgan
Grenfell European Equity Fund, Morgan Grenfell Pacific Basin Equity
Fund, Morgan Grenfell International Small Cap Equity Fund, Morgan
Grenfell Japanese Small Cap Equity Fund, Morgan Grenfell European
Small Cap Equity Fund, Morgan Grenfell Emerging Markets Equity Fund,
Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell
International Fixed Income Fund and Morgan Grenfell Emerging Markets
Fixed Income Fund, and amendment effective as of December 28,
1994, causing Custody Agreement to apply to Morgan Grenfell
Short-Term Fixed Income Fund, Morgan Grenfell Short-Term Municipal
<PAGE>
Exhibit
Number Document Title
- ------- --------------
Bond Fund, Morgan Grenfell Large Cap Growth Fund and Morgan Grenfell
Smaller Companies Fund.
8(b). Custody Agreement dated as of December 28, 1994 between CoreStates
Bank, N.A. and Registrant, on behalf of Morgan Grenfell Fixed Income
Fund and Morgan Grenfell Municipal Bond Fund.
11(a). Consent of Price Waterhouse LLP.
11(b). Consent of Arthur Andersen LLP.
17. Powers of Attorney of Graham E. Jones, William N. Searcy, Paul K.
Freeman, Theresa M. Messina, Patrick W. Disney, James E. Minnick,
Hugh G. Lynch, Edward T. Tokar and Jeffrey A. Cohen.
27. Financial Data Schedules.
EXHIBIT 1.
AGREEMENT AND DECLARATION OF TRUST
of
MORGAN GRENFELL INVESTMENT TRUST
a Delaware Business Trust
Principal Place of Business:
885 Third Avenue
New York, New York 10022
<PAGE>
TABLE OF CONTENTS
MORGAN GRENFELL INVESTMENT TRUST
AGREEMENT AND DECLARATION OF TRUST
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I Name and Definitions.................................................................. 1
1. Name........................................................................... 1
2. Definitions.................................................................... 1
(a) Trust..................................................................... 1
(b) Trust Property............................................................ 1
(c) Trustees.................................................................. 1
(d) Shares.................................................................... 2
(e) Shareholder............................................................... 2
(f) Person.................................................................... 2
(g) 1940 Act.................................................................. 2
(h) Commission and Principal Underwriter...................................... 2
(i) Declaration of Trust...................................................... 2
(j) By-Laws................................................................... 2
(k) Interested Person......................................................... 2
(l) Investment Manager........................................................ 2
(m) Series.................................................................... 2
ARTICLE II Purpose of Trust..................................................................... 3
ARTICLE III Shares.............................................................................. 3
1. Division of Beneficial Interest................................................ 3
2. Ownership of Shares............................................................ 4
3. Investments in the Trust....................................................... 4
4. Status of Shares and Limitation of
Personal Liability........................................................... 4
5. Power of Board of Trustees to Change
Provisions Relating to Shares................................................ 5
6. Establishment and Designation of Series........................................ 5
(a) Assets With Respect to a Particular Series............................... 6
(b) Liabilities Held With Respect to a
Particular Series....................................................... 6
(c) Dividends, Distributions, Redemptions,
and Repurchases......................................................... 7
(d) Voting.................................................................... 8
(e) Equality.................................................................. 8
(f) Fractions................................................................. 8
(g) Exchange Privilege........................................................ 8
(h) Combination of Series..................................................... 8
(i) Elimination of Series..................................................... 8
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<PAGE>
7. Indemnification of Shareholders................................................ 9
ARTICLE IV The Board of Trustees....................................................... 9
1. Number, Election and Tenure................................................ 9
2. Effect of Death, Resignation, etc.
of a Trustee............................................................. 10
3. Powers..................................................................... 10
4. Payment of Expenses by the Trust........................................... 13
5. Payment of Expenses by Shareholders........................................ 14
6. Ownership of Assets of the Trust........................................... 14
7. Service Contracts.......................................................... 14
ARTICLE V Shareholders' Voting Powers and Meetings.............................................. 16
1. Voting Powers.................................................................. 16
2. Voting Power and Meetings...................................................... 16
3. Quorum and Required Vote....................................................... 17
4. Action by Written Consent...................................................... 17
5. Record Dates................................................................... 18
6. Additional Provisions.......................................................... 18
ARTICLE VI Net Asset Value, Distributions,
and Redemptions............................................................. 18
1. Determination of Net Asset Value, Net
Income and Distributions..................................................... 18
2. Redemptions and Repurchases.................................................... 18
3. Redemptions at the Option of the Trust......................................... 19
ARTICLE VII Compensation and Limitation of
Liability of Trustees..................................................... 20
1. Compensation................................................................... 20
2. Indemnification and Limitation of Liability.................................... 20
3. Trustee's Good Faith Action, Expert
Advice, No Bond or Surety.................................................... 20
4. Insurance...................................................................... 21
ARTICLE VIII Miscellaneous...................................................................... 21
1. Liability of Third Persons Dealing
with Trustees................................................................ 21
2. Termination of Trust or Series................................................. 21
3. Merger and Consolidation....................................................... 21
4. Amendments..................................................................... 22
5. Filing of Copies, References, Headings......................................... 22
6. Applicable Law................................................................. 23
7. Provisions in Conflict with Law or Regulations................................. 23
8. Business Trust Only............................................................ 23
</TABLE>
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<PAGE>
AGREEMENT AND DECLARATION OF TRUST
OF
MORGAN GRENFELL INVESTMENT TRUST
WHEREAS, THIS DECLARATION OF TRUST is made and entered into as of the
date set forth below by the Trustees named hereunder for the purpose of forming
a Delaware business trust in accordance with the provisions set forth below;
NOW THEREFORE, the Trustees hereby direct that a Certificate of Trust
be filed with the Secretary of the State of Delaware and do hereby declare that
the Trustees hold IN TRUST all cash, securities and other assets which the Trust
now possesses or may hereafter acquire from time to time in any manner and
manage and dispose of the same upon the following terms and conditions for the
pro rata benefit of the holders of Shares in this Trust.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as MORGAN GRENFELL
INVESTMENT TRUST and the Trustees shall conduct the business of the Trust under
that name or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise
required by the context or specifically provided:
(a) The "Trust" refers to the Delaware business trust established by
this Agreement and Declaration of Trust, as amended from time to time;
(b) The "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust;
(c) "Trustees" refers to the persons who have signed this Agreement and
Declaration of Trust, so long as they continue in office in accordance with the
terms hereof, and all other persons who may from time to time be duly elected or
appointed to serve on the Board of Trustees in accordance with the provisions
hereof, and reference herein to a Trustee or the Trustees shall refer to such
person or persons in their capacity as trustees hereunder;
(d) "Shares" means the shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from
<PAGE>
time to time and includes fractions of Shares as well as whole Shares;
(e) "Shareholder" means a record owner of outstanding Shares;
(f) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, estates and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof, whether domestic or foreign;
(g) The "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations thereunder, all as amended from time to time;
(h) "Delaware Act" means Chapter 38 of Title 12 of the Delaware Code
entitled "Treatment of Delaware Business Trusts," as amended from time to time;
(i) The terms "Commission" and "Principal Underwriter" shall have the
meanings given them in the 1940 Act;
(j) "Declaration of Trust" shall mean this Agreement and Declaration
of Trust, as amended or restated from time to time;
(k) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time and incorporated herein by reference;
(i) The term "Interested Person" has the meaning given it in Section
2(a)(19) of the 1940 Act;
(m) "Investment Manager" or "Manager" means a party furnishing
services to the Trust pursuant to any contract described in Article IV, Section
7(a) hereof;
(n) "Series" refers to each Series of Shares established and designated
under or in accordance with the provisions of Article III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the
business of a management investment company registered under the 1940 Act
through one or more Series investing primarily in securities.
-2-
<PAGE>
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into an unlimited number of Shares, with
a par value of $.001 per Share. The Trustees may authorize the division of
Shares into separate Series and the division of Series into separate classes of
Shares. The different Series shall be established and designated, and the
variations in the relative rights and preferences as between the different
Series shall be fixed and determined, by the Trustees. If only one or no Series
(or classes) shall be established, the Shares shall have the rights and
preferences provided for herein and in Article III, Section 6 hereof to the
extent relevant and not otherwise provided for herein, and all references to
Series (and classes) shall be construed (as the context may require) to refer to
the Trust.
Subject to the provisions of Section 6 of this Article III, each Share
shall have voting rights as provided in Article V hereof, and holders of the
Shares of any Series shall be entitled to receive dividends, when, if and as
declared with respect thereto in the manner provided in Article VI, Section 1
hereof. No Shares shall have any priority or preference over any other Share of
the same Series with respect to dividends or distributions upon termination of
the Trust or of such Series made pursuant to Article VIII, Section 2 hereof. All
dividends and distributions shall be made ratably among all Shareholders of a
particular (class of a) particular Series from the assets held with respect to
such Series according to the number of Shares of such (class of such) Series
held of record by such Shareholder on the record date for any dividend or
distribution or on the date of termination, as the case may be. Shareholders
shall have no preemptive or other right to subscribe to any additional Shares or
other securities issued by the Trust or any Series. The Trustees may from time
to time divide or combine the Shares of any particular Series into a greater or
lesser number of Shares of that Series without thereby materially changing the
proportionate beneficial interest of the Shares of that Series in the assets
held with respect to that Series or materially affecting the rights of Shares of
any other Series.
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or a transfer or similar agent for the Trust,
which books shall be maintained separately for the Shares of each Series (or
class). No certificates certifying the ownership of Shares shall be issued
except as the Board of Trustees may otherwise determine from time to time. The
Trustees may make such rules as they consider
-3-
<PAGE>
appropriate for the transfer of Shares of each Series (or class) and similar
matters. The record books of the Trust as kept by the Trust or any transfer or
similar agent, as the case may be, shall be conclusive as to who are the
Shareholders of each Series (or class) and as to the number of Shares of each
Series (or class) held from time to time by each.
Section 3. Investments in the Trust. Investments may be accepted by the
Trust from such Persons, at such times, on such terms, and for such
consideration as the Trustees from time to time may authorize.
Section 4. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto. The death of a Shareholder during the existence of
the Trust shall not operate to terminate the Trust, nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but entitles
such representative only to the rights of said deceased Shareholder under this
Trust. Ownership of Shares shall not entitle the Shareholder to any title in or
to the whole or any part of the Trust Property or right to call for a partition
or division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders as partners. No Shareholder shall be personally
liable for the debts, liabilities, obligations and expenses incurred by,
contracted for, or otherwise existing with respect to, the Trust or any Series.
Neither the Trust nor the Trustees, nor any officer, employee or agent of the
Trust shall have any power to bind personally any Shareholders, nor, except as
specifically provided herein, to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay. Shareholders shall have the same limitation
of personal liability as is extended to Shareholders of a private corporation
for profit incorporated in the State of Delaware. Every written obligation of
the Trust or any Series shall contain a statement to the effect that such
obligation may only be enforced against the assets of the Trust or such Series;
however, the omission of such statement shall not operate to bind or create
personal liability for any Shareholder or Trustee.
Section 5. Power of Board of Trustees to Change Provisions Relating to
Shares. Notwithstanding any other provision of this Declaration of Trust and
without limiting the power of the Board of Trustees to amend the Declaration of
Trust as provided elsewhere herein, the Board of Trustees shall have the power
to
-4-
<PAGE>
amend this Declaration of Trust, at any time and from time to time, in such
manner as the Board of Trustees may determine in their sole discretion, without
the need for Shareholder action, so as to add to, delete, replace or otherwise
modify any provisions relating to the Shares contained in this Declaration of
Trust, provided that before adopting any such amendment without Shareholder
approval the Board of Trustees shall determine that it is consistent with the
fair and equitable treatment of all Shareholders or that Shareholder approval
is not otherwise required by the 1940 Act or other applicable law. If Shares
have been issued, Shareholder approval shall be required to adopt any
amendments to this Declaration of Trust which would adversely affect to a
material degree the rights and preferences of the Shares of any Series (or
class) or to increase or decrease the par value of the Shares of any Series (or
class).
Subject to the foregoing Paragraph, the Board of Trustees may amend the
Declaration of Trust to amend any of the provisions set forth in paragraphs (a)
through (i) of Section 6 of this Article III.
Section 6. Establishment and Designation of Series. The shares of
beneficial interest of the Trust are divided into eleven separate Series as
follows:
Morgan Grenfell International Equity Fund
Morgan Grenfell Global Equity Fund
Morgan Grenfell European Equity Fund
Morgan Grenfell Pacific Basin Equity Fund
Morgan Grenfell International Small Cap Equity Fund
Morgan Grenfell Japanese Small Cap Equity Fund
Morgan Grenfell European Small Cap Equity Fund
Morgan Grenfell Emerging Markets Equity Fund
Morgan Grenfell Global Fixed Income Fund
Morgan Grenfell International Fixed Income Fund
Morgan Grenfell Emerging Markets Fixed Income Fund
The establishment and designation of any additional Series (or class)
of Shares shall be effective upon the resolution by a majority of the then
Trustees, adopting a resolution which sets forth such establishment and
designation and the relative rights and preferences of such Series (or class).
Each such resolution shall be incorporated herein by reference upon adoption.
Shares of each Series (or class) established pursuant to this Section
6, unless otherwise provided in the resolution establishing such Series, shall
have the following relative rights and preferences:
-5-
<PAGE>
(a) Assets Held With Respect to a Particular Series. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably be held with respect to that Series for all purposes, subject only
to the rights of creditors, and shall be so recorded upon the books of account
of the Trust. Such consideration, assets, income, earnings, profits and proceeds
thereof, from whatever Source derived, including, without limitation, any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds, in whatever
form the same may be, are herein referred to as "assets held with respect to"
that Series. In the event that there are any assets, income, earnings, profits
and proceeds thereof, funds or payments which are not readily identifiable as
assets held with respect to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to, between or among
any one or more of the Series in such manner and on such basis as the Trustees,
in their sole discretion, deem fair and equitable, and any General Asset so
allocated to a particular Series shall be held with respect to that Series. Each
such allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes.
(b) Liabilities Held With Respect to a Particular Series. The assets of
the Trust held with respect to each particular Series shall be charged against
the liabilities of the Trust held with respect to that Series and all expenses,
costs, charges and reserves attributable to that Series, and any general
liabilities of the Trust which are not readily identifiable as being held with
respect to any particular Series shall be allocated and charged by the Trustees
to and among any one or more of the Series in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable. The liabilities,
expenses, costs, charges, and reserves so charged to a Series are herein
referred to as "Liabilities held with respect to" that Series. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all Series for all purposes. All
Persons who have extended credit which has been allocated to a particular
Series, or who have a claim or contract which has been allocated to any
particular Series, shall look, and shall be required by contract to look
exclusively, to the assets of that particular Series for payment of such credit,
claim, or contract. Notice of this contractual limitation on liabilities among
Series may, in the
-6-
<PAGE>
Trustees' discretion, be set forth in the certificate of trust of the Trust
(whether originally or by amendment) as filed or to be filed in the Office of
the Secretary of State of the State of Delaware pursuant to the Delaware Act,
and upon the giving of such notice in the certificate of trust, the statutory
provisions of Section 3804 of the Delaware Act relating to limitations on
liabilities among Series (and the statutory effect under Section 3804 of
setting forth such notice in the certificate of trust) shall become applicable
to the Trust and each Series. In the absence of an express contractual
agreement so limiting the claims of such creditors, claimants and contract
providers, each creditor, claimant and contract provider will be deemed
nevertheless to have impliedly agreed to such limitation unless an express
provision to the contrary has been incorporated in the written contract or
other document establishing the claimant relationship. No Shareholder or former
Shareholder of any Series shall have a claim on or any right to any assets
allocated or belonging to any other Series.
(c) Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration of Trust, including,
without limitation, Article VI, no dividend or distribution including, without
limitation, any distribution paid upon termination of the Trust or of any Series
(or class) with respect to, nor any redemption or repurchase of, the Shares of
any Series (or class) shall be effected by the Trust other than from the assets
held with respect to such Series, nor, except as specifically provided in
Section 7 of this Article III, shall any Shareholder of any particular Series
otherwise have any right or claim against the assets held with respect to any
other Series except to the extent that such Shareholder has such a right or
claim hereunder as a Shareholder of such other Series. The Trustees shall have
full discretion, to the extent not inconsistent with the 1940 Act, to determine
which items shall be treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon the
Shareholders.
(d) Voting. All Shares of the Trust entitled to vote on a matter shall
vote separately by Series (and, if applicable, by class): that is, the
Shareholders of each Series (or class) shall have the right to approve or
disapprove matters affecting the Trust and each respective Series (or class) as
if the Series (or classes) were separate companies. There are, however, two
exceptions to voting by separate Series (or classes). First, if the 1940 Act
permits all Shares of the Trust to be voted in the aggregate without
differentiation between the separate Series (or classes), then all the Trust's
Shares shall be entitled to vote on a one-vote-per-Share basis. Second, if any
matter affects only the interests of some but not all Series (or classes), then
only
-7-
<PAGE>
the Shareholders of such affected Series (or classes) shall be entitled to
vote on the matter.
(e) Equality. All the Shares of each particular Series shall represent
an equal proportionate interest in the assets held with respect to that Series
(subject to the liabilities held with respect to that Series and such rights and
preferences as may have been established and designated with respect to classes
of Shares within such Series), and each Share of any particular Series shall be
equal to each other Share of that Series.
(f) Fractions. Any fractional Share of a Series shall carry
proportionately all the rights and obligations of a whole share of that Series,
including rights with respect to voting, receipt of dividends and distributions,
redemption of Shares and termination of the Trust.
(g) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series shall have the right to
exchange said Shares for Shares of one or more other Series of Shares in
accordance with such requirements and procedures as may be established by the
Trustees.
(h) Combination of Series. The Trustees shall have the authority,
without the approval of the Shareholders of any Series unless otherwise required
by applicable law, to combine the assets and liabilities held with respect to
any two or more Series into assets and liabilities held with respect to a single
Series.
(i) Elimination of Series. At any time that there are no Shares
outstanding of any particular Series (or class) previously established and
designated, the Trustees may by resolution of a majority of the then Trustees
abolish that Series (or class) and rescind the establishment and designation
thereof.
Section 7. Indemnification of Shareholders. If any Shareholder or
former Shareholder shall be exposed to liability by reason of a claim or demand
relating to his or her being or having been a Shareholder, and not because of
his or her acts or omissions, the Shareholder or former Shareholder (or his or
her heirs, executors, administrators, or other legal representatives or in the
case of a corporation or other entity, its corporate or other general successor)
shall be entitled to be held harmless from and indemnified out of the assets of
the Trust against all loss and expense arising from such claim or demand.
-8-
<PAGE>
ARTICLE IV
The Board of Trustees
Section 1. Number, Election and Tenure. The number of Trustees
constituting the Board of Trustees shall be fixed from time to time by a written
instrument signed, or by resolution approved at a duly constituted meeting, by a
majority of the Board of Trustees, provided, however, that the number of
Trustees shall in no event be less than one (1) nor more than twenty- one (21).
The Board of Trustees, by action of a majority of the then Trustees at a duly
constituted meeting, may fill vacancies in the Board of Trustees or remove
Trustees with or without cause. Each Trustee shall serve during the continued
lifetime of the Trust until he or she dies, resigns, is declared bankrupt or
incompetent by a court of appropriate jurisdiction, or is removed, or, if
sooner, until the next meeting of Shareholders called for the purpose of
electing Trustees and until the election and qualification of his or her
successor. Any Trustee may resign at any time by written instrument signed by
him and delivered to any officer of the Trust or to a meeting of the Trustees.
Such resignation shall be effective upon receipt unless specified to be
effective at some other time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal. The
Shareholders may fix the number of Trustees and elect Trustees at any meeting of
Shareholders called by the Trustees for that purpose. Any Trustee may be removed
at any meeting of Shareholders by a vote of two-thirds of the outstanding Shares
of the Trust. A meeting of Shareholders for the purpose of electing or removing
one or more Trustees may be called (i) by the Trustees upon their own vote, or
(ii) upon the demand of Shareholders owning 10% or more of the Shares of the
Trust in the aggregate.
Section 2. Effect of Death, Resignation, etc. of a Trustee. The death,
declination, resignation, retirement, removal, or incapacity of one or more
Trustees, or all of them, shall not operate to annul the Trust or to revoke any
existing agency created pursuant to the terms of this Declaration of Trust.
Whenever a vacancy in the Board of Trustees shall occur, until such vacancy is
filled as provided in Article IV, Section I, the Trustees in office, regardless
of their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration of Trust.
As conclusive evidence of such vacancy, a written instrument certifying the
existence of such vacancy may be executed by an officer of the Trust or by a
majority of the Board of Trustees. In the event of the death, declination,
resignation, retirement,
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<PAGE>
removal, or incapacity of all the then Trustees within a short period of time
and without the opportunity for at least one Trustee being able to appoint
additional Trustees to fill vacancies, the Trust's Investment Manager(s) are
empowered to appoint new Trustees subject to the provisions of Section 16(a) of
the 1940 Act.
Section 3. Powers. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Board of Trustees, and
such Board shall have all powers necessary or convenient to carry out that
responsibility including the power to engage in securities transactions of all
kinds on behalf of the Trust. Without limiting the foregoing, the Trustees may:
adopt By-Laws not inconsistent with this Declaration of Trust providing for the
regulation and management of the affairs of the Trust and may amend and repeal
them to the extent that such By-Laws do not reserve that right to the
Shareholders; fill vacancies in or remove from their number, and may elect and
remove such officers and appoint and terminate such agents as they consider
appropriate; appoint from their own number and establish and terminate one or
more committees consisting of two or more Trustees which may exercise the powers
and authority of the Board of Trustees to the extent that the Trustees
determine; employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities or
with a Federal Reserve Bank, retain a transfer agent or a Shareholder servicing
agent, or both; provide for the issuance and distribution of Shares by the Trust
directly or through one or more Principal Underwriters or otherwise; redeem,
repurchase and transfer Shares pursuant to applicable law; set record dates for
the determination of Shareholders with respect to various matters; declare and
pay dividends and distributions to Shareholders of each Series from the assets
of such Series; and in general delegate such authority as they consider
desirable to any officer of the Trust, to any committee of the Trustees and to
any agent or employee of the Trust or to any such custodian, transfer or
shareholder servicing agent, or Principal Underwriter. Any determination as to
what is in the interests of the Trust made by the Trustees in good faith shall
be conclusive. In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees. Unless
otherwise specified or required by law, any action by the Board of Trustees
shall be deemed effective if approved or taken by a majority of the Trustees
then in office.
Without limiting the foregoing, the Trust shall have power and
authority:
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<PAGE>
(a) To invest and reinvest cash, to hold cash uninvested, and to
subscribe for, invest in, reinvest in, purchase or otherwise acquire, own, hold,
pledge, sell, assign, transfer, exchange, distribute, write options on, lend or
otherwise deal in or dispose of contracts for the future acquisition or delivery
of fixed income or other securities, and securities of every nature and kind,
including, without limitation, all types of bonds, debentures, stocks,
negotiable or non-negotiable instruments, obligations, evidences of
indebtedness, certificates of deposit or indebtedness, commercial paper,
repurchase agreements, bankers' acceptances, and other securities of any kind,
issued, created, guaranteed, or sponsored by any and all Persons, including,
without limitation, states, territories, and possessions of the United States
and the District of Columbia and any political subdivision, agency, or
instrumentality thereof, any foreign government or any political subdivision of
the U.S. Government or any foreign government, or any international
instrumentality, or by any bank or savings institution, or by any corporation or
organization organized under the laws of the United States or of any state,
territory, or possession thereof, or by any corporation or organization
organized under any foreign law, or in "when issued" contracts for any such
securities, to change the investments of the assets of the Trust; without
limitation, to invest all or any part of its cash and other property in
securities issued by a registered investment company or series thereof, subject
to the provisions of the 1940 Act; and to exercise any and all rights, powers,
and privileges of ownership or interest in respect of any and all such
investments of every kind and description, including, without limitation, the
right to consent and otherwise act with respect thereto, with power to designate
one or more Persons, to exercise any of said rights, powers, and privileges in
respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options with respect to or otherwise deal in any property rights relating
to any or all of the assets of the Trust or any Series;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and right of subscription or otherwise which
in any manner arise out of ownership of securities;
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(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in its own
name or in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;
(i) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(j) To borrow funds or other property in the name of the Trust
exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof;
(l) To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary or appropriate for the conduct of
the business, including, without limitation, insurance policies insuring the
assets of the Trust or payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters, or
independent contractors of the Trust, individually against all claims and
liabilities of every nature arising by reason of holding Shares, holding, being
or having held any such office or position, or by reason of any action alleged
to have been taken or omitted by any such Person as Trustee, officer, employee,
agent, investment adviser, principal underwriter, or independent contractor,
including any action taken or omitted that may be
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determined to constitute negligence, whether or not the Trust would have the
power to indemnify such Person against liability;
(m) To adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and agents of the
Trust; and
(n) To operate and carry on the business of a registered investment
company, and exercise all the powers necessary and proper to conduct such a
business.
The Trust shall not be limited to investing in obligations maturing
before the possible termination of the Trust or one or more of its Series. The
Trust shall not in any way be bound or limited by any present or future law or
custom in regard to investment by fiduciaries. The Trust shall not be required
to obtain any court order to deal with any assets of the Trust or take any other
action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Trust, or partly out of the principal and partly out of income, as they deem
fair, all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees' compensation and such expenses and
charges for the services of the Trust's officers, employees, investment adviser
or manager, principal underwriter, auditors, counsel, custodian, transfer agent,
Shareholder servicing agent, and such other agents or independent contractors
and such other expenses and charges as the Trustees may deem necessary or proper
to incur.
Section 5. Payment of Expenses by Shareholders. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, Shareholder servicing
or similar agent, an amount fixed from time to time by the Trustees, by setting
off such charges due from such Shareholder from declared but unpaid dividends
owed such Shareholder and/or by reducing the number of shares in the account of
such Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such charges due from such Shareholder.
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Section 6. Ownership of Assets of the Trust. Title to all of the assets
of the Trust shall at all times be considered as vested in the Trust, except
that the Trustees shall have power to cause legal title to any Trust Property to
be held by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine. The right, title and interest of the Trustees in the
Trust Property shall vest automatically in each Person who may hereafter become
a Trustee. Upon the resignation, removal or death of a Trustee he or she shall
automatically cease to have any right, title or interest in any of the Trust
Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be set forth
in the By-Laws, the Trustees may, at any time and from time to time, contract
for exclusive or nonexclusive advisory, management and/or administrative
services for the Trust or for any Series with any corporation, trust,
association or other organization; and any such contract may contain such other
terms as the Trustees may determine, including without limitation, authority for
the Investment Manager or administrator to determine from time to time without
prior consultation with the Trustees what investments shall be purchased, held,
sold or exchanged and what portion, if any, of the assets of the Trust shall be
held uninvested and to make changes in the Trust's investments, or such other
activities as may specifically be delegated to such party.
(b) The Trustees may also, at any time and from time to time, contract
with any corporation, trust, association or other organization, appointing it
exclusive or nonexclusive distributor or Principal Underwriter for the Shares of
one or more of the Series (or classes) or other securities to be issued by the
Trust. Every such contract shall comply with such requirements and restrictions
as may be set forth in the By-Laws; and any such contract may contain such other
terms as the Trustees may determine.
(c) The Trustees are also empowered, at any time and from time to time,
to contract with any corporations, trusts, associations or other organizations,
appointing it or them the custodian, transfer agent and/or shareholder servicing
agent for the Trust or one or more of its Series. Every such contract shall
comply with such requirements and restrictions as may be set forth in the
By-Laws or stipulated by resolution of the Trustees.
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(d) The Trustees are further empowered, at any time and from time to
time, to contract with any entity to provide such other services to the Trust or
one or more of the Series, as the Trustees determine to be in the best interests
of the Trust and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of the
Trust is a shareholder, director, officer, partner, trustee, employee,
Manager, adviser, Principal Underwriter, distributor, or affiliate or
agent of or for any corporation, trust, association, or other
organization, or for any parent or affiliate of any organization with
which an advisory, management or administration contract, or principal
underwriter's or distributor's contract, or transfer, shareholder
servicing or other type of service contract may have been or may
hereafter be made, or that any such organization, or any parent or
affiliate thereof, is a Shareholder or has an interest in the Trust, or
that
(ii) any corporation, trust, association or other organization
with which an advisory, management or administration contract or
principal underwriter's or distributor's contract, or transfer,
shareholder servicing or other type of service contract may have been
or may hereafter be made also has an advisory, management or
administration contract, or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other service contract
with one or more other corporations, trusts, associations, or other
organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same, or create any liability or accountability to the Trust or its
Shareholders, provided approval of each such contract is made pursuant to the
requirements of the 1940 Act.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. Subject to the provisions of Article III,
Section 6(d), the Shareholders shall have power to vote only (i) for the
election or removal of Trustees as provided in Article IV, Section 1, and (ii)
with respect to such additional matters relating to the Trust as may be required
by this Declaration of Trust, the By-Laws or any registration of the Trust with
the Commission (or any successor agency) or any state, or as
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the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote. There
shall be no cumulative voting in the election of Trustees. Shares may be voted
in person or by proxy. A proxy with respect to Shares held in the name of two
or more persons shall be valid if executed by any one of them unless at or
prior to exercise of the proxy the Trust receives a specific written notice to
the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the challenger.
The By-Laws may provide that proxies may be given by any electronic or
telecommunications device or in any other manner, but if a proposal by anyone
other than the officers or Trustees is submitted to a vote of the Shareholders
of any Series or Class, or if there is a proxy contest or proxy solicitation or
proposal in opposition to any proposal by the officers or Trustees, Shares may
be voted only in person or by written proxy. Until Shares of a Series are
issued, as to that Series the Trustees may exercise all rights of Shareholders
and may take any action required or permitted to be taken by Shareholders by
law, this Declaration of Trust or the By-Laws.
Section 2. Voting Power and Meetings. Meetings of the Shareholders may
be called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 and for such other purposes as may be prescribed by law,
by this Declaration of Trust or by the By-Laws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or caused
to be given by the Trustees by mailing such notice at least seven (7) days
before such meeting, postage prepaid, stating the time and place of the meeting,
to each Shareholder at the Shareholder's address as it appears on the records of
the Trust. Whenever notice of a meeting is required to be given to a Shareholder
under this Declaration of Trust or the By-Laws, a written waiver thereof,
executed before or after the meeting by such Shareholder or his or her attorney
thereunto authorized and filed with the records of the meeting, shall be deemed
equivalent to such notice.
Section 3. Quorum and Required Vote. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
forty percent (40%) of the Shares entitled to vote shall constitute a quorum at
a Shareholders' meeting. When any one or more Series (or classes) is to vote as
a single
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class separate from any other Shares, forty percent (40%) of the Shares
of each such Series (or classes) entitled to vote shall constitute a quorum at a
Shareholder's meeting of that Series. Any meeting of Shareholders may be
adjourned from time to time by a majority of the votes properly cast upon the
question of adjourning a meeting to another date and time, whether or not a
quorum is present, and the meeting may be held as adjourned within a reasonable
time after the date set for the original meeting without further notice. Subject
to the provisions of Article III, Section 6(d), when a quorum is present at any
meeting, a majority of the Shares voted shall decide any questions and a
plurality shall elect a Trustee, except when a larger vote is required by any
provision of this Declaration of Trust or the By-Laws or by applicable law.
Section 4. Action by Written Consent. Any action taken by Shareholders
may be taken without a meeting if Shareholders holding a majority of the Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or by the
By-Laws) and holding a majority (or such larger proportion as aforesaid) of the
Shares of any Series (or class) entitled to vote separately on the matter
consent to the action in writing and such written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the
Shareholders of any Series (or class) who are entitled to vote or act at any
meeting or any adjournment thereof, the Trustees may from time to time fix a
time, which shall be not more than ninety (90) days before the date of any
meeting of Shareholders, as the record date for determining the Shareholders of
such Series (or class) having the right to notice of and to vote at such meeting
and any adjournment thereof, and in such case only Shareholders of record on
such record date shall have such right, notwithstanding any transfer of shares
on the books of the Trust after the record date. For the purpose of determining
the Shareholders of any Series (or class) who are entitled to receive payment of
any dividend or of any other distribution, the Trustees may from time to time
fix a date, which shall be before the date for the payment of such dividend or
such other payment, as the record date for determining the Shareholders of such
Series (or class) having the right to receive such dividend or distribution.
Without fixing a record date the Trustees may for voting and/or distribution
purposes close the register or transfer books for one or more Series for all or
any part of the period between a record date and a meeting of Shareholders or
the payment of a distribution. Nothing in this Section shall be construed as
precluding the
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Trustees from setting different record dates for different Series (or classes).
Section 6. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Net Asset Value, Distributions, and Redemptions
Section 1. Determination of Net Asset Value, Net Income, and
Distributions. Subject to Article III, Section 6 hereof, the Trustees, in their
absolute discretion, may prescribe and shall set forth in the By-Laws or in a
duly adopted vote of the Trustees such bases and time for determining the per
Share or net asset value of the Shares of any Series or net income attributable
to the Shares of any Series, or the declaration and payment of dividends and
distributions on the Shares of any Series, as they may deem necessary or
desirable.
Section 2. Redemptions and Repurchases. The Trust shall purchase such
Shares as are offered by any Shareholder for redemption, upon the presentation
of a proper instrument of transfer together with a request directed to the Trust
or a Person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Trust will pay therefor the net asset value
thereof, in accordance with the By-Laws and applicable law. Payment for said
Shares shall be made by the Trust to the Shareholder within seven days after the
date on which the request is made in proper form. The obligation set forth in
this Section 2 is subject to the provision that in the event that any time the
New York Stock Exchange (the "Exchange") is closed for other than weekends or
holidays, or if permitted by the Rules of the Commission during periods when
trading on the Exchange is restricted or during any emergency which makes it
impracticable for the Trust to dispose of the investments of the applicable
Series or to determine fairly the value of the net assets held with respect to
such Series or during any other period permitted by order of the Commission for
the protection of investors, such obligations may be suspended or postponed by
the Trustees.
The redemption price may in any case or cases be paid wholly or partly
in kind if the Trustees determine that such payment is advisable in the interest
of the remaining Shareholders of the Series for which the Shares are being
redeemed. Subject to the foregoing, the fair value, selection and quantity of
securities or other property so paid or delivered as all or part of the
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redemption price may be determined by or under authority of the Trustees. In no
case shall the Trust be liable for any delay of any corporation or other Person
in transferring securities selected for delivery as all or part of any payment
in kind.
Section 3. Redemptions at the Option of the Trust. The Trust shall have
the right at its option and at any time to redeem Shares of any Shareholder at
the net asset value thereof as described in Section 1 of this Article VI: (i) if
at such time such Shareholder owns Shares of any Series having an aggregate net
asset value of less than an amount determined from time to time by the Trustees
prior to the acquisition of said Shares; or (ii) to the extent that such
Shareholder owns Shares of a particular Series equal to or in excess of a
percentage of the outstanding Shares of that Series determined from time to time
by the Trustees; or (iii) to the extent that such Shareholder owns Shares equal
to or in excess of a percentage, determined from time to time by the Trustees,
of the outstanding Shares of the Trust or of any Series; or (iv) to the extent
that such shareholder falls to supply or supplies incorrectly to the Trust
information required to be obtained by the Trust and/or reported by the Trust to
federal or state taxing authorities.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be entitled to
reasonable compensation from the Trust, and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Indemnification and Limitation of Liability. The Trustees
shall not be responsible or liable in any event for any neglect or wrongdoing of
any officer, agent, employee, Manager or Principal Underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee,
and the Trust out of its assets shall indemnify and hold harmless each and every
Trustee from and against any and all claims and demands whatsoever arising out
of or related to each Trustee's performance of his or her duties as a Trustee of
the Trust; provided that nothing herein contained shall indemnify, hold harmless
or protect any Trustee from or against any liability to the Trust or any
Shareholder to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
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Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. A Trustee shall be liable to the
Trust and to any Shareholder solely for his or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee, and shall not be liable for errors of judgment
or mistakes of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of Trust,
and shall be under no liability for any act or omission in accordance with such
advice nor for falling to follow such advice. The Trustees shall not be required
to give any bond as such, nor any surety if a bond is required.
Section 4. Insurance. The Trustees shall be entitled and empowered to
the fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee or officer in connection with any claim, action, suit or
proceeding in which he or she becomes involved by virtue of his or her capacity
or former capacity with the Trust.
ARTICLE VIII
Miscellaneous
Section 1. Liability of Third Persons Dealing with Trustees. No Person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 2. Termination of Trust or Series. Unless terminated as
provided herein, the Trust shall continue without limitation of time. The Trust
may be terminated at any time by vote of a majority of the Shares of each Series
entitled to vote, voting separately by Series, or by the Trustees by written
notice to the Shareholders. Any Series may be terminated at any time by vote of
a majority of the Shares of that Series or by the Trustees by written notice to
the Shareholders of that Series.
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Upon termination of the Trust (or any Series, as the case may be),
after paying or otherwise providing for all charges, taxes, expenses and
liabilities held, severally, with respect to each Series (or the applicable
Series, as the case may be), whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall, in accordance with such procedures
as the Trustees consider appropriate, reduce the remaining assets held,
severally, with respect to each Series (or the applicable Series, as the case
maybe), to distributable form in cash or shares or other securities, or any
combination thereof, and distribute the proceeds held with respect to each
Series (or the applicable Series, as the case may be), to the Shareholders of
that Series, as a Series, ratably according to the number of Shares of that
Series held by the several Shareholders on the date of termination.
Section 3. Merger and Consolidation. The Trustees may cause (i) the
Trust or one or more of its Series to the extent consistent with applicable law
to be merged into or consolidated with another Trust or company, (ii) the Shares
of the Trust or any Series to be converted into beneficial interests in another
business trust (or series thereof) created pursuant to this Section 3 of Article
VIII, or (iii) the Shares to be exchanged under or pursuant to any state or
federal statute to the extent permitted by law. Such merger or consolidation,
Share conversion or Share exchange must be authorized by the Shareholders of the
Trust, as a whole, or any affected Series, as may be applicable in accordance
with Article V, Section 3 hereof; provided that in all respects not governed by
statute or applicable law, the Trustees shall have power to prescribe the
procedure necessary or appropriate to accomplish a sale of assets, merger or
consolidation including the power to create one or more separate business trusts
to which all or any part of the assets, liabilities, profits or losses of the
Trust may be transferred and to provide for the conversion of Shares of the
Trust or any Series into beneficial interests in such separate business trust or
trusts (or series thereof).
Section 4. Amendments. This Declaration of Trust may be restated and/or
amended at any time by an instrument in writing signed by a majority of the then
Trustees and, if required, by approval of such amendment by Shareholders in
accordance with Article V, Section 3 hereof. Any such restatement and/or
amendment hereto shall be effective immediately upon execution and approval. The
Certificate of Trust of the Trust may be restated and/or amended by a similar
procedure, and any such restatement and/or amendment shall be effective
immediately upon filing with the Office of the Secretary of State of the State
of Delaware or upon such future date as may be stated therein.
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Section 5. Filing of Copies, References, Headings. The original or a
copy of this instrument and of each restatement and/or amendment hereto shall be
kept at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any such restatements and/or amendments have been
made and as to any matters in connection with the Trust hereunder; and, with the
same effect as if it were the original, may rely on a copy certified by an
officer of the Trust to be a copy of this instrument or of any such restatements
and/or amendments. In this instrument and in any such restatements and/or
amendment, references to this instrument, and all expressions like herein,
"hereof" and hereunder, shall be deemed to refer to this instrument as amended
or affected by any such restatements and/or amendments. Headings are placed
herein for convenience of reference only and shall not be taken as a part hereof
or control or affect the meaning, construction or effect of this instrument.
Whenever the singular number is used herein, the same shall include the plural;
and the neuter, masculine and feminine genders shall include each other, as
applicable. This instrument may be executed in any number of counterparts each
of which shall be deemed an original.
Section 6. Applicable Law. This Agreement and Declaration of Trust is
created under and is to be governed by and construed and administered according
to the laws of the State of Delaware and the Delaware Business Trust Act, as
amended from time to time (the "Act"). The Trust shall be a Delaware business
trust pursuant to such Act, and without limiting the provisions hereof, the
Trust may exercise all powers which are ordinarily exercised by such a business
trust.
Section 7. Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration of Trust are severable, and if
the Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of the Declaration of Trust; provided, however, that such determination
shall not effect any of the remaining provisions of the Declaration of Trust or
render invalid or improper any action taken or omitted prior to such
determination.
(b) If any provision of the Declaration of Trust shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in
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any other jurisdiction or any other provision of the Declaration of Trust in
any jurisdiction.
Section 8. Business Trust Only. It is the intention of the Trustees to
create a business trust pursuant to the Delaware Business Trust Act, as amended
from time to time (the "Act"), and thereby to create only the relationship of
trustee and beneficial owners within the meaning of such Act between the
Trustees and each Shareholder. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment, or any form of legal relationship other than a business
trust pursuant to such Act. Nothing in this Declaration of Trust shall be
construed to make the Shareholders, either by themselves or with the Trustees,
partners or members of a joint stock association.
IN WITNESS WHEREOF, the Trustees named below do hereby enter into and
execute in duplicate original counterparts this Declaration of Trust as of the
13th day of September, 1993.
/s/ James E. Minnick
--------------------------------
James E. Minnick
--------------------------------
Patrick W. Disney
--------------------------------
Michael Bullock
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IN WITNESS WHEREOF, the Trustees named below do hereby enter into and
execute in duplicate original counterparts this Declaration of Trust as of the
13th day of September, 1993.
--------------------------------
James E. Minnick
/s/ Patrick W. Disney
--------------------------------
Patrick W. Disney
/s/ Michael Bullock
--------------------------------
Michael Bullock
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MORGAN GRENFELL INVESTMENT TRUST
Written Action of Trustees
The undersigned, being a majority of the Trustees of Morgan Grenfell
Investment Trust, a Delaware business trust (the "Trust"), and acting in
accordance with Article VIII, Section 4 and Article IV, Section 3 of the Trust's
Agreement and Declaration of Trust, dated as of September 13, 1995 (the
"Declaration"), and Article IX, Section 2 and Article IV, Section 2 of the
Trust's By-Laws (the "By-Laws"), do hereby consent to the adoption of the
following votes:
VOTED: That the Declaration be, and it hereby is, amended by: (a) deleting
the words "from their own number" from the thirteenth line of Article
IV, Section 3; and (b) inserting the words "or officers of the Trust"
immediately after the word "Trustees" that currently appears in the
fifteenth line of Article IV, Section 3;
FURTHER
VOTED: That the By-Laws be, and they hereby are, amended by inserting the
words "or officers of the Trust" immediately after the word
"Trustees," that currently appears in the fourth line of Article IV,
Section 1; and
FURTHER
VOTED: That Neil P. Jenkins be, and he hereby is, appointed a member of the
Trust's Dividend Committee, to serve in such capacity until his
successor shall be elected and shall qualify, or until his earlier
resignation or removal.
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<PAGE>
EXECUTED in duplicate original counterparts as of the eleventh day of
December, 1995.
/s/James E. Minnick /s/Patrick Disney
- ------------------------------------ -----------------------------------
James E. Minnick, as Trustee Patrick W. Disney, as Trustee
and not individually and not individually
/s/Paul K. Freeman /s/Graham E. Jones
- ------------------------------------ -----------------------------------
Paul K. Freeman, as Trustee Graham E. Jones, as Trustee
and not individually and not individually
/s/William N. Searcy /s/Edward T. Tokar
- ------------------------------------ -----------------------------------
William N. Searcy, as Trustee Edward T. Tokar, as Trustee
and not individually and not individually
/s/Hugh G. Lynch
- ------------------------------------
Hugh G. Lynch, as Trustee
and not individually
-26-
EXHIBIT 2.
AMENDED BY-LAWS
for the regulation, except as
otherwise provided by statute or
the Agreement
and Declaration of Trust of
MORGAN GRENFELL INVESTMENT TRUST
a Delaware Business Trust
<PAGE>
TABLE OF CONTENTS
BY-LAWS
MORGAN GRENFELL INVESTMENT TRUST
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Offices...................................................................................... 1
1. Principal Office...................................................................... 1
2. Delaware Office....................................................................... l
3. Other Offices......................................................................... 1
ARTICLE I Meetings of Shareholders..................................................................... 1
1. Place of Meetings..................................................................... 1
2. Call of Meeting....................................................................... 1
3. Notice of Shareholders' Meeting....................................................... 1
4. Manner of Giving Notice; Affidavit of Notice.......................................... 2
5. Adjourned Meeting; Notice............................................................. 2
6. Voting................................................................................ 3
7. Waiver of Notice of Consent by
Absent Shareholders................................................................... 3
8. Shareholder Action by Written Consent
without a Meeting..................................................................... 4
9. Record Date for Shareholder Notice,
Voting and Giving Consents............................................................ 4
10. Proxies............................................................................... 5
11. Inspectors of Election................................................................ 5
ARTICLE III Trustees................................................................................... 6
1. Powers................................................................................ 6
2. Number of Trustees.................................................................... 6
3. Vacancies............................................................................. 6
4. Place of Meetings and Meetings by Telephone........................................... 7
S. Regular Meetings...................................................................... 7
6. Special Meetings...................................................................... 7
7. Quorum................................................................................ 7
8. Waiver of Notice...................................................................... 8
9. Adjournment........................................................................... 8
10. Notice of Adjournment................................................................. 8
11. Action Without a Meeting.............................................................. 8
12. Fees and Compensation of Trustees..................................................... 8
13. Delegation of Power to Other Trustee.................................................. 8
<PAGE>
ARTICLE IV Committees.................................................................................. 9
1. Committees of Trustees................................................................ 9
2. Meetings and Action of Committees..................................................... 9
ARTICLE V Officers..................................................................................... 10
1. Officers.............................................................................. 10
2. Election of Officers.................................................................. 10
3. Subordinate Officers.................................................................. 10
4. Removal and Resignation of Officers................................................... 10
5. Vacancies in Offices.................................................................. 11
6. Chairman of the Board................................................................. 11
7. President............................................................................. 11
8. Vice President........................................................................ 11
9. Secretary............................................................................. 12
10 Treasurer............................................................................. 12
ARTICLE VI Indemnification of Trustees, Officers
Employees and Other Agents..................................................................... 13
1. Agents, Proceedings and Expenses...................................................... 13
2. Actions Other than by Trust........................................................... 13
3. Actions by the Trust.................................................................. 13
4. Exclusion and Indemnification......................................................... 14
5. Successful Defense by Agent........................................................... 14
6. Required Approval..................................................................... 15
7. Advance of Expenses................................................................... 15
8. Other Contractual Rights.............................................................. 15
9. Limitations........................................................................... 15
10. Insurance............................................................................. 16
11. Fiduciaries of Corporate Employee Benefit Plan........................................ 16
ARTICLE VII Records and Reports........................................................................ 16
1. Maintenance and Inspection of Share Register.......................................... 16
2. Maintenance and Inspection of By-laws................................................. 16
3. Maintenance and Inspection of Other Records........................................... 16
4. Inspection by Trustees................................................................ 17
ARTICLE VIII General Matters........................................................................... 17
1. Checks, Drafts, Evidence of Indebtedness.............................................. 17
2. Contracts and Instruments; How Executed............................................... 17
3. Certificate of Shares................................................................. 17
4. Lost Certificates..................................................................... 18
5. Representation of Shares of Other Entities............................................ 18
6. Fiscal Year........................................................................... 18
<PAGE>
ARTICLE IX Amendments.................................................................................. 18
1. Amendment by Shareholders............................................................. 18
2. Amendment by Trustees................................................................. 18
3. Incorporation by Reference into Agreement
and Declaration of Trust of the Trust................................................. 19
</TABLE>
<PAGE>
AMENDED BY-LAWS
OF
MORGAN GRENFELL INVESTMENT TRUST
A Delaware Business Trust
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The Board of Trustees shall fix and, from
time to time, may change the location of the principal executive office of the
Morgan Grenfell Investment Trust (the "Trust") at any place within or outside
the State of Delaware.
Section 2. DELAWARE OFFICE. The Board of Trustees shall establish a
registered office in the State of Delaware and shall appoint as the Trust's
registered agent for service of process in the State of Delaware an individual
resident of the State of Delaware or a Delaware corporation or a corporation
authorized to transact business in the State of Delaware; in each case the
business office of such registered agent for service of process shall be
identical with the registered Delaware office of the Trust.
Section 3. OTHER OFFICES. The Board of Trustees may at any time
establish branch or subordinate offices at any place or places where the Trust
intends to do business.
ARTICLE II
MEETING OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held
at any place designated by the Board of Trustees. In the absence of any such
designation, shareholders' meetings shall be held at the principal executive
office of the Trust.
Section 2. CALL OF MEETING. A meeting of the shareholders may be
called at any time by the Board of Trustees or by the Chairman of the Board or
by the President.
Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 4 of
this Article II not less than seven (7) nor more than seventy-five (75) days
before the date of the meeting. The notice shall specify (i) the place, date and
hour of
<PAGE>
the meeting, and (ii) the general nature of the business to be transacted. The
notice of any meeting at which Trustees are to be elected also shall include
the name of any nominee or nominees whom at the time of the notice are intended
to be presented for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a Trustee has a direct or indirect financial
interest, (ii) an amendment of the Agreement and Declaration of Trust of the
Trust, (iii) a reorganization of the Trust, or (iv) a voluntary dissolution of
the Trust, the notice shall also state the general nature of that proposal.
Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by U.S. mail or
telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the books of the
Trust or its transfer agent or given by the shareholder to the Trust for the
purpose of notice. If no such address appears on the Trust's books or is given,
notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the Trust's
principal executive office, or if published at least once in a newspaper of
general circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the Trust is returned to the Trust by the
United States Postal Service marked to indicate that the Postal Service is
unable to deliver the notice to the shareholder at that address, all future
notices or reports shall be deemed to have been duly given without further
mailing if these shall be available to the shareholder on written demand of the
shareholder at the principal executive office of the Trust for a period of one
year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholder's meeting shall be executed by the Secretary, Assistant Secretary or
any transfer agent of the Trust giving the notice and shall be filed and
maintained in the minute book of the Trust.
Section 5. ADJOURNED MEETING; NOTICE. Any Shareholder's meeting,
whether or not a quorum is present, may be adjourned from time to time by the
vote of the majority of the shares represented at that meeting, either in person
or by proxy.
-2-
<PAGE>
When any meeting of shareholders is adjourned to another time or place,
notice need not be given of the adjourned meeting at which the adjournment is
taken, unless a new record date of the adjourned meeting is fixed or unless the
adjournment is for more than sixty (60) days from the date set for the original
meeting, in which case the Board of Trustees shall set a new record date. Notice
of any such adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the provisions of
Sections 3 and 4 of this Article II. At any adjourned meeting, the Trust may
transact any business which might have been transacted at the original meeting.
Section 6. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of the
Agreement and Declaration of Trust of the Trust, as in effect at such time. The
shareholders' vote may be by voice vote or by ballot, provided, however, that
any election for Trustees must be by ballot if demanded by any shareholder
before the voting has begun. On any matter other than elections of Trustees, any
shareholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal, but if the
shareholder fails to specify the number of shares which the shareholder is
voting affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to the total shares that the shareholder is
entitled to vote on such proposal.
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of the meeting of Shareholders, however called and noticed and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice if a quorum be present either in person or by proxy and
if either before or after the meeting, each person entitled to vote who was not
present in person or by proxy signs a written waiver of notice or a consent to a
holding of the meeting or an approval of the minutes. The waiver of notice or
consent need not specify either the business to be transacted or the purpose of
any meeting of shareholders.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the beginning of the
meeting.
-3-
<PAGE>
Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken at any meeting of shareholders may be taken without a
meeting and without prior notice if a consent in writing setting forth the
action so taken is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
that action at a meeting at which all shares entitled to vote on that action
were present and voted. All such consents shall be filed with the Secretary of
the Trust and shall be maintained in the Trust's records. Any shareholder giving
a written consent or the shareholder's proxy holders or a transferee of the
shares or a personal representative of the shareholder or their respective proxy
holders may revoke the consent by a writing received by the Secretary of the
Trust before written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the action approved by the shareholders without a meeting. This notice
shall be given in the manner specified in Section 4 of this Article II. In the
case of approval of (i) contracts or transactions in which a Trustee has a
direct or indirect financial interest, (ii) indemnification of agents of the
Trust, and (iii) a reorganization of the Trust, the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.
Section 9. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of any
meeting or to vote or entitled to give consent to action without a meeting, the
Board of Trustees may fix in advance a record date which shall not be more than
ninety (90) days nor less than seven (7) days before the date of any such
meeting as provided in the Agreement and Declaration of Trust of the Trust.
If the Board of Trustees does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which
notice is given or if notice is waived, at the close of business
on the business day next preceding the day on which the meeting is
held.
(b) The record date for determining shareholders entitled to give
consent to action in writing without a meeting, (i) when no prior
action by the Board of Trustees has
-4-
<PAGE>
been taken, shall be the day on which the first written consent
is given, or (ii) when prior action of the Board of Trustees has
been taken, shall be at the close of business on the day on which
the Board of Trustees adopt the resolution relating to that
action or the seventy-fifth day before the date of such other
action, whichever is later.
Section 10. PROXIES. Every person entitled to vote for Trustees or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the Secretary of the Trust. A proxy shall be deemed signed if the shareholder's
name is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) revoked by the
person executing it before the vote pursuant to that proxy by a writing
delivered to the Trust stating that the proxy is revoked or by a subsequent
proxy executed by or attendance at the meeting and voting in person by the
person executing that proxy; or (ii) written notice of the death or incapacity
of the maker of that proxy is received by the Trust before the vote pursuant to
that proxy is counted; provided however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy unless otherwise
provided in the proxy. Proxies may be given by any electronic or
telecommunications device.
Section 11. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Trustees may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request of
one or more shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the Chairman of the meeting may and on the
request of any shareholder or a shareholder's proxy shall, appoint a person to
fill the vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power
of each, the shares represented at the
-5-
<PAGE>
meeting, the existence of a quorum and the authenticity, validity
and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
TRUSTEES
Section 1. POWERS. Subject to the applicable provisions of the
Agreement and Declaration of Trust of the Trust and these By-Laws relating to
action required to be approved by the shareholders or by the outstanding shares,
the business and affairs of the Trust shall be managed and all powers shall be
exercised by or under the direction of the Board of Trustees.
Section 2. NUMBER OF TRUSTEES. The exact number of Trustees within the
limits specified in the Agreement and Declaration of Trust of the Trust shall be
fixed from time to time by a written instrument signed or a resolution approved
at a duly constituted meeting by a majority of the Board of Trustees.
Section 3. VACANCIES. Vacancies in the Board of Trustees may be filled
by a majority of the remaining Trustees, though less than a quorum, or by a sole
remaining Trustee, unless the Board of Trustees calls a meeting of shareholders
for the purposes of electing Trustees. In the event that at any time less than a
majority of the Trustees holding office at that time were so elected by the
holders of the outstanding voting securities of the Trust, the Board of Trustees
shall forthwith cause to be held as promptly as possible a meeting of such
holders for the purpose of electing Trustees to fill any existing vacancies in
the Board of Trustees.
Notwithstanding the above, whenever and for so long as the Trust is a
participant in or otherwise has in effect a Plan under which the Trust may be
deemed to bear expenses of distributing its shares as that practice is described
in Rule 12b-1 under the
-6-
<PAGE>
Investment Company Act of 1940, then the selection and nomination of the
Trustees who are not interested persons of the Trust (as that term is defined
in the Investment Company Act of 1940) shall be, and is, committed to the
discretion of such disinterested Trustees.
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of
the Board of Trustees may be held at any place that has been designated from
time to time by resolution of the Board. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the Trust.
Any meeting, regular or special, may be held by conference telephone or similar
communication equipment, so long as all Trustees participating in the meeting
can hear one another and all such Trustees shall be deemed to be present in
person at the meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Trustees
shall be held without call at such time as shall from time to time be fixed by
the Board of Trustees. Such regular meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Trustees
for any purpose or purposes may be called at any time by the Chairman of the
Board or the President or any Vice President or the Secretary or any two (2)
Trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Trustee or sent by first-class mail or
telegram, charges prepaid, addressed to each Trustee at that Trustee's address
as it is shown on the records of the Trust. In case the notice is mailed, it
shall be deposited in the United States mail at least seven (7) calendar days
before the time of the holding of the meeting. In case the notice is delivered
personally or by telephone or to the telegraph company or by express mail or
similar service, it shall be given at least forty-eight (48) hours before the
time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the Trustee or to a person at the office
of the Trustee who the person giving the notice has reason to believe will
promptly communicate it to the Trustee. The notice need not specify the purpose
of the meeting or the place if the meeting is to be held at the principal
executive office of the Trust.
Section 7. QUORUM. A majority of the authorized number of Trustees
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 10 of this Article III. Every act or decision done or made
by a majority of the Trustees present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Trustees, subject to the
provisions of the Agreement and Declaration of
-7-
<PAGE>
Trust of the Trust. A meeting at which a quorum is initially present may
continue to transact business notwithstanding the withdrawal of Trustees if any
action taken is approved by at least a majority of the required quorum for that
meeting.
Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given to
any Trustee who either before or after the meeting signs a written waiver of
notice, a consent to holding the meeting, or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the records of the
Trust or made a part of the minutes of the meeting. Notice of a meeting shall
also be deemed given to any Trustee who attends the meeting without protesting
before or at its commencement the lack of notice to that Trustee.
Section 9. ADJOURNMENT. A majority of the Trustees present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
Section 10. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given unless the meeting is adjourned
for more than forty-eight (48) hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting in the manner specified
in Section 7 of this Article III to the Trustees who were present at the time of
the adjournment.
Section 11. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by the Board of Trustees may be taken without a meeting if a
majority of the members of the Board of Trustees shall individually or
collectively consent in writing to that action. Such action by written consent
shall have the same force and effect as a majority vote of the Board of
Trustees. Such written consent or consents shall be filed with the minutes of
the proceedings of the Board of Trustees.
Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Trustees. This Section 12 shall not be construed to preclude any
Trustee from serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those services.
Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
fewer than two (2)
-8-
<PAGE>
Trustees personally exercise the powers granted to the Trustees under this
Agreement and Declaration of Trust of the Trust except as otherwise expressly
provided herein or by resolution of the Board of Trustees. Except where
applicable law may require a Trustee to be present in person, a Trustee
represented by another Trustee pursuant to such power of attorney shall be
deemed to be present for purposes of establishing a quorum and satisfying the
required majority vote.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may by
resolution adopted by a majority of the authorized number of Trustees designate
one or more committees, each consisting of two (2) or more Trustees or officers
of the Trust, to serve at the pleasure of the Board. The Board may designate one
or more Trustees as alternate members of any committee who may replace any
absent member at any meeting of the committee. Any committee to the extent
provided in the resolution of the Board, shall have the authority of the Board,
except with respect to:
(a) the approval of any action which under applicable law also
requires shareholders' approval or approval of the outstanding
shares, or requires approval by a majority of the entire Board or
certain members of said Board;
(b) the filling of vacancies on the Board of Trustees or in any
committee;
(c) the fixing of compensation of the Trustees for serving on the
Board of Trustees or on any committee;
(d) the amendment or repeal of the Agreement and Declaration of Trust
of the Trust or of the By-Laws or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board of
Trustees which by its express terms is not so amendable or
repealable;
(f) the appointment of any other committees of the Board of Trustees
or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by and held and taken in accordance with the
provisions of Article III of these By-Laws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Trustees
-9-
<PAGE>
and its members, except that the time of regular meetings of committees may be
determined either by resolution of the Board of Trustees or by resolution of
the committee. Special meetings of committees may also be called by resolution
of the Board of Trustees. Alternate members shall be given notice of meetings
of committees and shall have the right to attend all meetings of committees.
The Board of Trustees may adopt rules for the government of any committee not
inconsistent with the provisions of these By-Laws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Trust shall be a President, a
Secretary, and a Treasurer. The Trust may also have, at the discretion of the
Board of Trustees, a Chairman of the Board, one or more Vice Presidents, one or
more Assistant Secretaries, one or more Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article V. Any number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the Trust, except such
officers as may appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the Board of Trustees, and each
shall serve at the pleasure of the Board of Trustees, subject to the rights, if
any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint and
may empower the President to appoint such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights,
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Trustees at any regular
or special meeting of the Board of Trustees or by the principal executive
officer or by such other officer upon whom such power of removal may be
conferred by the Board of Trustees.
Any officer may resign at any time by giving written notice to the
Trust. Any resignation shall take effect at the date of the receipt of that
notice or at any later time specified in that notice; and unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it
-10-
<PAGE>
effective. Any resignation is without prejudice to the rights, if any, of the
Trust under any contract to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or other cause shall be filled in
the manner prescribed in these By-Laws for regular appointment to that office.
The President may make temporary appointments to a vacant office pending action
by the Board of Trustees.
Section 6. CHAIRMAN OF THE BOARD. The Board of Trustees may elect a
Chairman of the Board and may designate the Chairman of the Board as Chief
Executive Officer. The Chairman of the Board, if such an Officer is elected,
shall if present preside at meetings of the Board of Trustees and shall, subject
to the control of the Board of Trustees, have general supervision, direction and
control of the business and the Officers of the Trust and exercise and perform
such other powers and duties as may be from time to time assigned to him by the
Board of Trustees or prescribed by the By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Trustees to the Chairman of the Board, if there be
such an officer, the President shall, subject to the control of the Board of
Trustees and the Chairman of the Board, have general supervision, direction and
control of the business and the officers of the Trust. He shall preside at all
meetings of the shareholders and in the absence of the Chairman of the Board or
if there be none, at all meetings of the Board of Trustees. He shall have the
general powers and duties of management usually vested in the office of
President of a corporation and shall have such other powers and duties as may be
prescribed by the Board of Trustees or these By-Laws. Unless the Board of
Trustees has designated the Chairman of the Board or another officer as Chief
Executive Officer, the President shall be the Chief Executive Officer of the
Corporation.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Trustees or if not ranked, the Executive Vice President (who shall be
considered first ranked) and such other Vice Presidents as shall be designated
by the Board of Trustees, shall perform all the duties of the President and when
so acting shall have all powers of and be subject to all the restrictions upon
the President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Trustees or the President or the Chairman of the Board or by these
By-Law.
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<PAGE>
Section 9. SECRETARY. The Secretary shall keep or cause to be kept at
the principal executive office of the Trust or such other place as the Board of
Trustees may direct a book of minutes of all meetings and actions of Trustees,
committees of Trustees and shareholders with the time and place of holding,
whether regular or special, and if special, how authorized, the notice given,
the names of those present at Trustees' meetings or committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings.
The Secretary shall keep or cause to be kept at the principal executive
office of the Trust or at the office of the Trust's transfer agent or registrar,
a share register or a duplicate share register showing the names of all
shareholders and their addresses, the number and classes of shares held by each,
the number and date of certificates issued for the same and the number and date
of cancellation of every certificate surrendered for cancellation.
The Secretary shall give or cause to be given notice of all meetings of
the shareholders and of the Board of Trustees required to be given by these
ByLaws or by applicable law and shall have such other powers and perform such
other duties as may be prescribed by the Board of Trustees or by these By-Laws.
Section 10. TREASURER. The Treasurer shall be the Chief Financial
Officer and Chief Accounting Officer of the Trust and shall keep and maintain or
cause to be kept and maintained adequate and correct books and records of
accounts of the properties and business transactions of the Trust, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, retained earnings and shares. The books of account shall at all
reasonable times be open to inspection by any Trustee.
The Treasurer shall deposit all monies and other valuables in the name
and to the credit of the Trust with such depositaries as may be designated by
the Board of Trustees. He shall disburse the funds of the Trust as may be
ordered by the Board of Trustees, shall render to the President and Trustees,
whenever they request it, an account of all of his transactions as chief
financial officer and of the financial condition of the Trust and shall have
other powers and perform such other duties as may be prescribed by the Board of
Trustees or these By-Laws.
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<PAGE>
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a Trustee, officer, employee or
other agent of this Trust or is or was serving at the request of this Trust as a
Trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
Trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorney's fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the right of this Trust) by reason of
the fact that such person is or was an agent of this Trust, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceeding, if it is determined that person acted in
good faith and reasonably believed: (a) in the case of conduct in his official
capacity as a Trustee of the Trust, that his conduct was in the Trust's best
interests and (b), in all other cases, that his conduct was at least not opposed
to the Trust's best interests and (c) in the case of a criminal proceeding, that
he had no reasonable cause to believe the conduct of that person was unlawful.
The termination of any proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in the best interests of this Trust or that the
person had reasonable cause to believe that the person's conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action by or in the right of this Trust to procure a
judgment in its favor by reason of the fact that person is or was an agent of
this Trust, against expenses actually and reasonably incurred by that person in
connection with the defense or settlement of that action if that person acted in
good faith, in a manner that person believed to be
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<PAGE>
in the best interests of this Trust and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would use under
similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision
to the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue, or matter as to which that person
shall have been adjudged to be liable on the basis that personal
benefit was improperly received by him, whether or not the
benefit resulted from an action taken in the person's official
capacity; or
(b) In respect of any claim, issue or matter as to which that person
shall have been adjudged to be liable in the performance of that
person's duty to this Trust, unless and only to the extent that
the court in which that action was brought shall determine upon
application that in view of all the circumstances of the case,
that person was not liable by reason of the disabling conduct set
forth in the preceding paragraph and is fairly and reasonably
entitled to indemnity for the expenses which the court shall
determine; or
(c) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval, or
of expenses incurred in defending a threatened or pending action
which is settled or otherwise disposed of without court approval,
unless the required approval set forth in Section 6 of this
Article is obtained.
Section 5 SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
this Trust has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article or in defense of any claim, issue
or matter therein, before the court or other body before whom the proceeding was
brought, the agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith, provided that the Board of
Trustees, including a majority who are disinterested, non-party Trustees, also
determines that based upon a review of the facts, the agent was not liable by
reason of the disabling conduct referred to in Section 4 of this Article.
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Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of Trustees who are not
parties to the proceeding and are not interested persons of the
Trust (as defined in the Investment Company Act of 1940); or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSE. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding (a) receipt of a written affirmation by the Trustee of his good faith
belief that he has met the standard of conduct necessary for indemnification
under this Article and a written undertaking by or on behalf of the agent, such
undertaking being an unlimited general obligation to repay the amount of the
advance if it is ultimately determined that he has not met those requirements,
and (b) a determination that the facts then known to those making the
determination would not preclude indemnification under this Article.
Determinations and authorizations of payments under this Section must be made in
the manner specified in Section 6 of this Article for determining that the
indemnification is permissible.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than Trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Sections 5 or 6 in any circumstances
where it appears:
(a) That it would be inconsistent with a provision of the Agreement
and Declaration of Trust of the Trust, a resolution of the
shareholders, or an agreement in effect at the time of accrual of
the alleged cause of action asserted in the proceeding in which
the expenses were incurred or other amounts were paid which
prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
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<PAGE>
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article and the Agreement and Declaration of Trust of the
Trust.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any Trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. This Trust
shall keep at its principal executive office or at the office of its transfer
agent or registrar, if either be appointed and as determined by resolution of
the Board of Trustees, a record of its shareholders, giving the names and
addresses of all shareholders and the number and series of shares held by each
shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust shall keep
at its principal executive office the original or a copy of these By-Laws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting
books and records and minutes of proceedings of the shareholders and the Board
of Trustees and any committee or committees of the Board of Trustees shall be
kept at such place or places designated by the Board of Trustees or in the
absence of such designation, at the principal executive office of the Trust. The
minutes and accounting books and records shall be kept either in written form or
in any other form capable of being converted into written form. The minutes and
accounting books and records shall be open to inspection upon the written demand
of any shareholder or holder of a voting trust certificate at any
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<PAGE>
reasonable time during usual business hours for a purpose reasonably related to
the holder's interests as a shareholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or attorney
and shall include the right to copy and make extracts.
Section 4. INSPECTION BY TRUSTEES. Every Trustee shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the Trust. This
inspection by a Trustee may be made in person or by an agent or attorney and the
right of inspection includes the right to copy and make extracts of documents.
ARTICLE VIII
GENERAL MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes or other evidences of
indebtedness issued in the name of or payable to the Trust shall be signed or
endorsed in such manner and by such person or persons as shall be designated
from time to time in accordance with the resolution of the Board of Trustees.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of
Trustees, except as otherwise provided in these By-Laws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the Trust and this authority may be
general or confined to specific instances; and unless so authorized or ratified
by the Board of Trustees or within the agency power of an officer, no officer,
agent, or employee shall have any power or authority to bind the Trust by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of beneficial interest in any series of the Trust may be issued to a
shareholder upon his request when such shares are fully paid. All certificates
shall be signed in the name of the Trust by the Chairman of the Board or the
President or Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or any Assistant Secretary, certifying the number of shares and
the series of shares owned by the shareholders. Any or all of the signatures on
the certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed on a
certificate shall have ceased to be that officer, transfer agent, or registrar
before that certificate is issued, it may be issued by the Trust with the same
effect as if that person were an officer, transfer agent or registrar at the
date of issue.
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<PAGE>
Notwithstanding the foregoing, the Trust may adopt and use a system of
issuance, recordation and transfer of its shares by electronic or other means.
Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no
new certificates for shares shall be issued to replace an old certificate unless
the latter is surrendered to the Trust and cancelled at the same time. The Board
of Trustees may in case any share certificate or certificate for any other
security is lost, stolen, or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the Board of Trustees may require,
including a provision for indemnification of the Trust secured by a bond or
other adequate security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on account of the
alleged loss, theft, or destruction of the certificate or the issuance of the
replacement certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITLES HELD BY TRUST.
The Chairman of the Board, the President or any Vice President or any other
person authorized by resolution of the Board of Trustees or by any of the
foregoing designated officers, is authorized to vote or represent on behalf of
the Trust any and all shares of any corporation, partnership, trusts, or other
entities, foreign or domestic, standing in the name of the Trust. The authority
granted may be exercised in person or by a proxy duly executed by such
designated person.
Section 6. FISCAL YEAR. The fiscal year of the Trust shall be fixed and
refixed or changed from time to time by resolution of the Trustees. The fiscal
year of the Trust shall be the taxable year of each Series of the Trust.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. These By-Laws may be amended or
repealed by the affirmative vote or written consent of a majority of the
outstanding shares entitled to vote, except as otherwise provided by applicable
law or by the Agreement and Declaration of Trust of the Trust or these By-Laws.
Section 2. AMENDMENT BY TRUSTEES. Subject to the right of shareholders
as provided in Section 1 of this Article to adopt, amend or repeal By-Laws, and
except as otherwise provided by applicable law or by the Agreement and
Declaration of Trust of the Trust, these By-Laws may be adopted, amended, or
repealed by the Board of Trustees.
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<PAGE>
Section 3. INCORPORATION BY REFERENCE INTO AGREEMENT AND DECLARATION OF
TRUST OF THE TRUST. These By-Laws and any amendments thereto shall be
incorporated by reference to the Agreement and Declaration of Trust of the
Trust.
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EXHIBIT 5(A)
MANAGEMENT CONTRACT
AGREEMENT dated this 3rd day of January, 1994 between Morgan Grenfell
Investment Services Limited, a limited company incorporated in England and Wales
(the "Manager") and Morgan Grenfell Investment Trust, a Delaware business trust
(the "Trust") on behalf of Morgan Grenfell International Equity Fund, Morgan
Grenfell Global Equity Fund, Morgan Grenfell European Equity Fund, Morgan
Grenfell Pacific Basin Equity Fund, Morgan Grenfell International Small Cap
Equity Fund, Morgan Grenfell Japanese Small Cap Equity Fund, Morgan Grenfell
European Small Cap Equity Fund, Morgan Grenfell Emerging Markets Equity Fund,
Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell International Fixed
Income Fund and Morgan Grenfell Emerging Markets Fixed Income Fund.
W I T N E S S E T H
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and has filed with the Securities and Exchange Commission (the "Commission) a
registration statement (the "Registration Statement") for the purpose of
registering its shares for public offering under the Securities Act of 1933, as
amended,
WHEREAS, the Trust currently issues eleven series of shares
representing interests in the following portfolios (individually, a "Portfolio"
and collectively, the "Portfolios":
Morgan Grenfell International Equity Fund
Morgan Grenfell Global Equity Fund
Morgan Grenfell European Equity Fund
Morgan Grenfell Pacific Basin Equity Fund
Morgan Grenfell International Small Cap Equity Fund
Morgan Grenfell Japanese Small Cap Equity Fund
Morgan Grenfell European Small Cap Equity Fund
Morgan Grenfell Emerging Markets Equity Fund
Morgan Grenfell Global Fixed Income Fund
Morgan Grenfell International Fixed Income Fund
Morgan Grenfell Emerging Markets Fixed Income Fund
WHEREAS, the parties hereto deem it mutually advantageous that the
Manager should be engaged, subject to the supervision and direction of the
Trust's Board of Trustees and officers, to manage the Portfolios,
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and benefits
set forth herein, the Trust and the Manager do hereby agree as follows:
1. (a) The Manager will regularly provide each Portfolio with
investment research, advice and supervision and will furnish continuously an
investment program for each Portfolio consistent with the investment objectives
and policies of each Portfolio. The Manager will determine from time to time
what securities shall be purchased for each Portfolio, what securities shall be
held or sold by each Portfolio and what portion of each Portfolio's assets shall
be held uninvested as cash, subject always to the provisions of the Trust's
Agreement and Declaration of Trust, By-Laws and its registration statements
under the 1940 Act and under the Securities Act of 1933 covering the Trust's
shares, as filed with the Securities and Exchange Commission, and to the
investment objectives, policies and restrictions of each Portfolio, as each of
the same shall be from time to time in effect, and subject, further, to such
policies and instructions as the Board of Trustees of the Trust may from time to
time establish. To carry out such determinations, the Manager will exercise,
subject to the foregoing, full discretion and act for each Portfolio in the same
manner and with the same force and effect as the Trust itself might or could do
with respect to purchases, sales or other transactions, as well as with respect
to all other things necessary or incidental to the furtherance or conduct of
such purchases, sales or other transactions.
(b) The Manager will, to the extent reasonably required in the
conduct of the business of each Portfolio and upon the Trust's request, furnish
to each Portfolio research, statistical and advisory reports upon the
industries, businesses, corporations or securities as to which such requests
shall be made, whether or not a Portfolio shall at the time have any investment
in such industries, businesses, corporations or securities. The Manager will
use its best efforts in the preparation of such reports and will endeavor to
consult the persons and sources believed by it to have information available
with respect to such industries, businesses, corporations or entities.
(c) The Manager will maintain all books and records with respect to
each Portfolio's securities transactions required by subparagraphs (b)(5), (6),
(9) and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other than
those records being maintained by any administrator, custodian or transfer
agent appointed by the Trust with respect to each Portfolio) and preserve such
records for the periods prescribed therefor by Rule 31a-2 of the 1940 Act. The
Manager will also provide to the Board of Trustees such periodic and special
reports as the Board may reasonably request.
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<PAGE>
2. The Manager recognizes that the Trust may from time to time create
additional portfolios of the Trust, that this agreement relates only to the
management of the assets of the eleven existing Portfolios of the Trust, and
that the management of the assets of any additional portfolio of the Trust will
be subject to one or more separate investment management agreements.
3. (a) Except as otherwise provided herein, the Manager, at its own
expense, shall be responsible for furnishing its own office space, facilities,
equipment and personnel for managing the investments of each Portfolio, and
shall arrange, if desired by the Trust, for members of the Manager's
organization to serve as officers or agents of the Trust or any of the
Portfolios.
(b) The Manager shall pay directly or reimburse the Trust for: (i)
the compensation (if any) of the Trustees and officers of the Trust who are
affiliated with, or interested persons of, the Manager; and (ii) all expenses
not hereinafter specifically assumed by the Trust or the Portfolios where such
expenses are incurred by the Manager or by the Trust or the Portfolios in
connection with the management of the investment and reinvestment of the assets
of, the Portfolios.
(c) Each Portfolio shall assume and shall pay: (i) charges and
expenses, allocable to the Portfolio, for fund accounting, pricing and
appraisal services and related overhead, including, to the extent such services
are performed by personnel of the Manager or its affiliates, office space and
facilities and personnel compensation, training and benefits; (ii) the charges
and expenses of the Portfolio's auditors; (iii) the charges and expenses,
allocable to the Portfolio, of any administrator, custodian, transfer agent,
plan agent, dividend disbursing agent and registrar appointed by the Trust on
behalf of the Portfolio; (iv) brokers' commissions, and issue and transfer
taxes, allocable to the Portfolio, in connection with securities transactions
to which the Portfolio is a party; (v) insurance premiums, interest charges,
dues and fees for membership in trade associations and all taxes and corporate
fees payable by the Trust, on behalf of the Portfolio, to federal, state or
other governmental agencies; (vi) fees and expenses, allocable to the
Portfolio, involved in registering and maintaining registrations of the Trust
and/or its shares with the Commission, state or blue sky securities agencies
and foreign countries, including the preparation of Prospectuses and Statements
of Additional Information for filing with the Commission; (vii) all expenses,
allocable to the Portfolio, of shareholders' and Trustees' meetings and of
preparing, printing and distributing prospectuses, notices, proxy statements
and all reports to shareholders and to governmental agencies; (viii) charges
and expenses, allocable to the Portfolio, of legal counsel to the Trust and the
Trustees; (ix) distribution fees paid by the
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Portfolio in accordance with Rule 12b-1 promulgated by the Commission pursuant
to the 1940 Act; (x) compensation, allocable to the Portfolio, of those
Trustees of the Trust or the Portfolio who are not affiliated with or
interested persons of the Manager, the Trust or the Portfolio (other than as
Trustees); (xi) the cost, allocable to the Portfolio, of preparing and printing
share certificates; (xii) interest on borrowed money, if any; and (xii)
organizational expenses, allocable to the Portfolio, of the Trust or the
Portfolio.
4. It is understood that the Manager, on behalf of each Portfolio, may
employ one or more sub-investment advisers (each a "Subadviser") under written
agreements with each such Subadviser, provided that any such agreement is first
approved by the vote of a majority of the Trustees, including a majority of the
Trustees who are not "interested persons" (as the term "interested person" is
defined in the 1940 Act) of the Trust, the Manager or any such Subadviser, at a
meeting of Trustees called for the purpose of voting on such approval and by a
vote of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the affected Portfolio. The authorization given to the Manager in
Sections 1 and 7 hereof may be delegated by it under any such agreement to any
of the Subadvisers, provided that the Subadvisers shall be subject to the same
restrictions and limitations on the investments and brokerage discretion as the
Manager.
5. (a) The Trust, on behalf of each Portfolio, shall pay to the
Manager, as compensation for the Manager's services hereunder, a fee at an
annual rate of each Portfolio's average daily net assets as follows:
<TABLE>
<CAPTION>
Annual Rate
-----------
<S> <C>
Morgan Grenfell International Equity Fund 0.70%
Morgan Grenfell Global Equity Fund 0.70%
Morgan Grenfell European Equity Fund 0.70%
Morgan Grenfell Pacific Basin Equity Fund 0.70%
Morgan Grenfell International Small Cap Equity Fund 1.00%
Morgan Grenfell Japanese Small Cap Equity Fund 1.00%
Morgan Grenfell European Small Cap Equity Fund 1.00%
Morgan Grenfell Emerging Markets Equity Fund 1.25%
Morgan Grenfell Global Fixed Income Fund 0.60%
Morgan Grenfell International Fixed Income Fund 0.60%
Morgan Grenfell Emerging Markets Fixed Income Fund 1.60%
</TABLE>
The management fee payable hereunder shall be computed monthly and paid
monthly in arrears. In the event of termination of this Agreement, the fee
provided in this Section shall be computed on the basis of the period ending on
the last business day on which this Agreement is in effect subject to a pro rata
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adjustment based on the number of days elapsed in the current month as a
percentage of the total number of days in such month.
(b) If the operating expenses of any Portfolio in any year exceed
the limits set by state securities laws or regulations in states in which
shares of such Portfolio are sold, the amount payable to the Manager under
subsection (a) above will be reduced (but not below $0), and the Manager shall
make other arrangements concerning expenses but, in each instance, only as and
to the extent required by such laws or regulation. If amounts have already been
advanced to the Manager under this Agreement, the Manager will return such
amounts to the Trust to the extent required by the preceding sentence.
(c) In addition to the foregoing, the Manager may from time to time
agree not to impose all or a portion of its fee otherwise payable hereunder (in
advance of the time such fee or a portion thereof would otherwise accrue)
and/or undertake to pay or reimburse the Trust for all or a portion of expenses
related to its operations not otherwise required to be borne or reimbursed by
the Manager. Any such fee reduction or undertaking may be discontinued or
modified by the Manager at any time.
6. The Manager will not be liable for any error of judgment or mistake
of law or for any loss sustained by reason of the adoption of any investment
policy or the purchase, sale, or retention of any security on the recommendation
of the Manager, whether or not such recommendation shall have been based upon
its own investigation and research or upon investigation and research made by
any other individual, firm or corporation, but nothing contained herein will be
construed to protect the Manager against any liability to the Trust, a Portfolio
or a Portfolio's shareholders by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement.
7. (a) Nothing in this Agreement will in any way limit or restrict the
Manager or any of its officers, directors, or employees from buying, selling or
trading in any securities for its or their own accounts or other accounts. The
Manager may act as an investment advisor to any other person, firm or
corporation, and may perform management and any other services for any other
person, association, corporation, firm or other entity pursuant to any contract
or otherwise, and take any action or do any thing in connection therewith or
related thereto; and no such performance of management or other services or
taking of any such action or doing of any such thing shall be in any manner
restricted or otherwise affected by any aspect of any relationship of the
Manager to or with the Trust or deemed to violate or give rise to
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any duty or obligation of the Manager to the Trust except as otherwise imposed
by law. The Trust recognizes that the Manager, in effecting transactions for
its various accounts, may not always be able to take or liquidate investment
positions in the same security at the same time and at the same price.
(b) In connection with purchases or sales of portfolio securities
for the account of each Portfolio, neither the Manager nor any of its
Directors, officers or employees will act as a principal or agent or receive
any commission except as permitted by the 1940 Act. The Manager shall arrange
for the placing of all orders for the purchase and sale of portfolio securities
for each Portfolio's account with brokers or dealers selected by the Manager.
In the selection of such brokers or dealers and the placing of such orders, the
Manager is directed at all times to seek for each Portfolio the most favorable
execution and net price available except as described herein. It is also
understood that it is desirable for each Portfolio that the Manager have access
to supplemental investment and market research and security and economic
analyses provided by brokers who may execute brokerage transactions at a higher
cost to a Portfolio than may result when allocating brokerage to other brokers
on the basis of seeking the most favorable price and efficient execution.
Therefore, the Manager is authorized to place orders for the purchase and sale
of securities for each Portfolio with such brokers, subject to review by the
Trust's Trustees from time to time with respect to the extent and continuation
of this practice. It is understood that the services provided by such brokers
may be useful to the Manager in connection with its or its affiliates services
to other clients.
(c) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of a Portfolio as well as other clients,
the Manager, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be sold or purchased in order to obtain the best
execution and lower brokerage commissions, if any. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Manager in the manner it considers to be the
most equitable and consistent with its fiduciary obligations to such Portfolio
and to such clients.
8. This Agreement shall become effective on the date hereof and shall
remain in force until December 31, 1995 and from year to year thereafter, with
respect to each Portfolio, but only so long as its continuance is approved
annually by a vote of the Trustees of the Trust voting in person, including a
majority of its Trustees who are not parties to this Agreement or interested
persons (as the term "interested persons" is defined in the 1940 Act) of any
such parties, at a meeting of Trustees called for the
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purpose of voting on such approval or by a vote of a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of the affected
Portfolio, subject to the right of the Trust and the Manager to terminate this
contract as provided in Section 9 hereof.
9. Either party hereto may, without penalty, terminate this Agreement,
with respect to one or more Portfolios, by vote of its Board of Directors or its
Board of Trustees, as the case may be, or by vote of a "majority of its
outstanding voting securities" (as defined in the 1940 Act) of the affected
Portfolio and the giving of 60 days' written notice to the other party.
10. This Agreement shall automatically terminate in the event of its
assignment. For purposes of this Agreement, the term "assignment" shall have the
meaning given it by Section 2(a)(4) of the 1940 Act.
11. The Trust agrees that in the event that neither the Manager nor any
of its affiliates acts as an investment adviser to the Trust, the name of the
Trust, and of any portfolio thereof, will be changed to one that does not
contain the name "Morgan Grenfell" or otherwise suggest an affiliation with the
Manager.
12. The Manager is an independent contractor and not an employee of the
Trust or the Portfolios for any purpose. If any occasion should arise in which
the Manager gives any advice to its clients concerning the shares of a
Portfolio, the Manager will act solely as investment counsel for such clients
and not in any way on behalf of the Trust or such Portfolio.
13. This Agreement states the entire agreement of the parties hereto,
and is intended to be the complete and exclusive statement of the terms hereof.
It may not be added to or changed orally, and may not be modified or rescinded
except by a writing signed by the parties hereto and in accordance with the 1940
Act, when applicable.
14. This Agreement and all performance hereunder shall be governed by
the laws of The State of New York, which apply to contracts made and to be
performed in The State of New York.
15. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms or provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
-7-
<PAGE>
16. The parties to this Agreement acknowledge and agree that all
liabilities arising hereunder, whether direct or indirect, and of any and every
nature whatsoever shall be satisfied solely out of the assets of the portfolio
affected thereby and that no Trustee, officer or holder of shares of beneficial
interest of the Trust shall be personally liable for any of the foregoing
liabilities. The Trust's Agreement and Declaration of Trust, as amended from
time to time, is in the physical possession of the Manager and describes in
detail the respective responsibilities and limitations on liability of the
Trustees, officers, and holders of shares of beneficial interest.
17. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers and their seal to be hereto affixed
as of the day and year first above written.
ATTEST: MORGAN GRENFELL INVESTMENT TRUST
/s/ Mark G. Arthus By: /s/ James E. Minnick
- ----------------------------------- -----------------------------------
Mark Arthus James E. Minnick
Secretary President and Chief Executive
Officer
ATTEST: MORGAN GRENFELL INVESTMENT
SERVICES LIMITED
/s/ L. B. Hacking By: /s/Patrick Disney/A.M. Wheatley
- ----------------------------------- -----------------------------------
Name: L. B. Hacking Name: Patrick Disney/Alan
Title: Compliance Officer Michael Wheatley
Title: Managing Director/
Director
-8-
<PAGE>
AMENDMENT TO MANAGEMENT CONTRACT
DATED AS OF APRIL 25, 1994
In consideration of the mutual promises hereinafter set forth and other
good and valuable consideration, Morgan Grenfell Investment Trust, a Delaware
business trust (the "Trust"), and Morgan Grenfell Investment Services Limited
(the "Manager") agree to amend the Management Contract dated January 3, 1994
between the Trust and the Manager to reduce the annual rate of compensation
payable thereunder by the Trust, on behalf of Morgan Grenfell Emerging Markets
Equity Fund (the "Fund"), to the Manager from 1.25% of the Fund's average daily
net assets to 1.00% of such net assets.
The Trust and the Manager agree that this amendment shall be effective as
of the date first set forth above.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed by their duly authorized officers as of the date first set forth above.
ATTEST: MORGAN GRENFELL INVESTMENT TRUST
/s/ Mark Arthus By: /s/ James E. Minnick
- ----------------------------------- -----------------------------------
Mark Arthus James E. Minnick
Secretary President and Chief Executive
Officer
ATTEST: MORGAN GRENFELL INVESTMENT
SERVICES LIMITED
/s/ Patrick Disney By: /s/ L. B. Hacking
- ----------------------------------- -----------------------------------
Name: P. W. W. Disney Name: L. B. Hacking
Title: Managing Director Title: Compliance Officer
-9-
<PAGE>
AMENDMENT TO MANAGEMENT CONTRACT
DATED AS OF APRIL 1, 1995
In consideration of the mutual promises hereinafter set forth and other
good and valuable consideration, Morgan Grenfell Investment Trust, a Delaware
business trust (the "Trust"), and Morgan Grenfell Investment Services Limited
(the "Manager") agree to amend the Management Contract dated January 3, 1994, as
amended April 25, 1994, between the Trust and the Manager to reduce the annual
rate of compensation payable thereunder by the Trust, on behalf of each of
Morgan Grenfell Global Fixed Income Fund and Morgan Grenfell International Fixed
Income Fund (each a "Fund"), to the Manager from 0.60% of such Fund's average
daily net assets to 0.50% of such net assets.
The Trust and the Manager agree that this amendment shall be effective
as of the date first set forth above.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed by their duly authorized officers and their seals to be affixed hereto
as of the date first set forth above.
ATTEST: MORGAN GRENFELL INVESTMENT TRUST
/s/ Robert Frederick By: /s/ Mark G. Arthus
- ----------------------------------- -----------------------------------
Name: Robert Frederick Mark G. Arthus
Title: Funds Compliance Officer Secretary
ATTEST: MORGAN GRENFELL INVESTMENT
SERVICES LIMITED
/s/ A. M. Wheatley By: /s/ M. Bullock
- ----------------------------------- -----------------------------------
Name: A. M. Wheatley Name: M. Bullock
Title: Director Title: Chairman
-10-
<PAGE>
AMENDMENT TO MANAGEMENT CONTRACT
DATED AS OF SEPTEMBER 1, 1995
In consideration of the mutual promises hereinafter set forth and other
good and valuable consideration, Morgan Grenfell Investment Trust, a Delaware
business trust (the "Trust"), and Morgan Grenfell Investment Services Limited
(the "Manager") agree to amend the Management Contract dated January 3, 1994, as
amended April 25, 1994 and April 1, 1995, between the Trust and the Manager to
reduce the annual rate of compensation payable thereunder by the Trust, on
behalf of Morgan Grenfell Emerging Markets Debt Fund (referred to in such
Contract by its previous name, "Morgan Grenfell Emerging Markets Fixed Income
Fund") (the "Fund"), to the Manager from 1.60% of the Fund's average daily net
assets to 1.50% of such net assets.
The Trust and the Manager agree that this amendment shall be effective
as of the date first set forth above.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to
be executed by their duly authorized officers as of the date first set forth
above.
ATTEST: MORGAN GRENFELL INVESTMENT TRUST
/s/ Robert Frederick By: /s/ Mark G. Arthus
- ----------------------------------- -----------------------------------
Name: Robert Frederick Mark G. Arthus
Title: Funds Compliance Officer Secretary
ATTEST: MORGAN GRENFELL INVESTMENT
SERVICES LIMITED
/s/ Jeremy Lodwick By: /s/ Patrick Disney
- ----------------------------------- -----------------------------------
Name: Jeremy Lodwick Name: Patrick Disney
Title: Director, MGIS Title:
-11-
EXHIBIT 5(B)
MANAGEMENT CONTRACT
AGREEMENT made as of the 28th day of December, 1994, by and between
Morgan Grenfell Investment Trust (the "Trust"), on behalf of Morgan Grenfell
Fixed Income Fund and Morgan Grenfell Municipal Bond Fund (the "Portfolios"),
and Morgan Grenfell Capital Management, Incorporated (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended,
consisting of several series of shares, each having its own investment policies;
and
WHEREAS, the Trust has retained SEI Financial Management Corporation
(the "Administrator") to provide administration of the Trust's operations,
subject to the control of the Board of Trustees;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to the Portfolios and the Adviser is willing to
render such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained,
the parties hereto agree as follows:
1 Duties of Adviser. The Trust employs the Adviser to manage the
investment and reinvestment of the assets, and to continuously
review, supervise, and administer the investment programs of the
Portfolios, to determine in its discretion the securities to be
purchased or sold, to provide the Administrator and the Trust
with records concerning the Adviser's activities which the Trust
is required to maintain, and to render regular reports to the
Administrator and to the Trust's officers and trustees concerning
the Adviser's discharge of the foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities
subject to the control of the Board of Trustees of the Trust and
in compliance with such policies as the Trustees may from time to
time establish, and in compliance with the objectives, policies,
and limitations for each such Portfolio set forth in the
Portfolio's prospectus and statement of additional information,
as amended from time to time, and applicable laws and
regulations.
-1-
<PAGE>
The Adviser accepts such employment and agrees, at its own
expense, to render the services and to provide the office space,
furnishings and equipment and the personnel required by it to
perform the services on the terms and for the compensation
provided herein.
2. Portfolio Transactions. The Adviser is authorized to select the
brokers or dealers that will execute the purchases and sales of
portfolio securities for the Portfolios and is directed to use
its best efforts to obtain the best net results as described from
time to time in the Portfolios' Prospectus and Statement of
Additional Information. The Adviser will promptly communicate to
the Administrator and to the officers and the Trustees of the
Trust such information relating to portfolio transactions as they
may reasonably request.
It is understood that the Adviser will not be deemed to have
acted unlawfully, or to have breached a fiduciary duty to the
Trust or be in breach of any obligation owing to the Trust under
this Agreement, or otherwise, solely by reason of its having
directed a securities transaction on behalf of the Trust to a
broker-dealer in compliance with the provisions of Section 28(e)
of the Securities Exchange Act of 1934 or as otherwise permitted
from time to time by the Portfolios' Prospectus and Statement of
Additional Information.
3. Compensation of the Adviser. For the services to be rendered by
the Adviser as provided in Sections 1 and 2 of this Agreement,
the Trust shall pay to the Adviser compensation at the rates
specified in the Schedule(s) which are attached hereto and made a
part of this Agreement. Such compensation shall be paid to the
Adviser at the end of each month, and calculated by applying a
daily rate, based on the annual percentage rates as specified in
the attached Schedule(s), to the assets of each Portfolio. The
fee shall be based on the average daily net assets for the month
involved (less any assets of such Portfolios held in non-interest
bearing special deposits with a Federal Reserve Bank).
All rights of compensation under this Agreement for services
performed as of the termination date shall survive the
termination of this Agreement.
4. Other Expenses. The Adviser shall pay all expenses of printing
and mailing reports, prospectuses, statements of additional
information, and sales literature relating to its efforts to
solicit prospective clients.
-2-
<PAGE>
5. Excess Expenses. If the expenses for either Portfolio for any
fiscal year (including fees and other amounts payable to the
Adviser, but excluding interest, taxes, brokerage costs,
litigation, and other extraordinary costs) as calculated every
business day would exceed the expense limitations imposed on
investment companies by any applicable statute or regulatory
authority of any jurisdiction in which shares of a Portfolio are
qualified for offer and sale, the Adviser shall bear such excess
cost.
However, the Adviser will not bear expenses of a Portfolio which
would result in the Portfolio's inability to qualify as a
regulated investment company under provisions of the Internal
Revenue Code of 1986, as amended. Payment of expenses by the
Adviser pursuant to this Section 5 shall be settled on a monthly
basis (subject to fiscal year end reconciliation) by a reduction
in the fee payable to the Adviser for such month pursuant to
Section 3 and, if such reduction shall be insufficient to offset
such expenses, by reimbursing the Trust.
6. Reports. The Trust and the Adviser agree to furnish to each
other, if applicable, current prospectuses, proxy statements,
reports to Shareholders, certified copies of their financial
statements, and such other information with regard to their
affairs as each may reasonably request.
7. Status of Adviser. The services of the Adviser to the Trust are
not to be deemed exclusive, and the Adviser shall be free to
render similar services to others so long as its services to the
Trust are not impaired thereby. The Adviser shall be deemed to be
an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent
the Trust in any way or otherwise be deemed an agent of the
Trust.
8. Certain Records. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2
promulgated under the Investment Company Act of 1940 which are
prepared or maintained by the Adviser on behalf of the Trust are
the property of the Trust and will be surrendered promptly to the
Trust on request.
-3-
<PAGE>
9. Limitation of Liability of Adviser. The duties of the Adviser
shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the
Adviser hereunder. The Adviser shall not be liable for any error
of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in carrying out its duties
hereunder, except a loss resulting from willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by
reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under provisions
of applicable state law or Federal securities law which cannot be
waived or modified hereby. (As used in this Paragraph 9, the term
"Adviser" shall include directors, officers, employees and other
corporate agents of the Adviser as well as that corporation
itself).
10. Permissible Interests. Trustees, agents, and shareholders of the
Trust are or may be interested in the Adviser (or any successor
thereof) as directors, partners, officers, or shareholders, or
otherwise; directors, partners, officers, agents, and
shareholders of the Adviser are or may be interested in the Trust
as Trustees, shareholders or otherwise; and the Adviser (or any
Successor) is or may be interested in the Trust as a Shareholder
or otherwise. In addition, brokerage transactions for the
Portfolios may be effected through affiliates of the Adviser if
approved by the Board of Trustees, subject to the rules and
regulations of the Securities and Exchange Commission.
11. License of Adviser's Name. The Adviser hereby agrees to grant a
license to the Trust for use of its name in the names of the
Portfolios for the term of this Agreement and such license shall
terminate upon termination of this Agreement.
12. Duration and Termination. This Agreement, unless sooner
terminated as provided herein, shall remain in effect with
respect to a Portfolio until two years from the date first set
forth above, and thereafter, for periods of one year so long as
such continuance thereafter is specifically approved at least
annually (a) by the vote of a majority of those Trustees of the
Trust who are not parties to this Agreement or interested persons
of any such party, cast in person at a meeting called for the
purpose of voting on such approval, and (b) by the Trustees of
the Trust or by vote of a majority of the outstanding voting
securities of the Portfolio;
-4-
<PAGE>
provided, however, that if the shareholders of either Portfolio
fail to approve the Agreement as provided herein, the Adviser may
continue to serve hereunder in the manner and to the extent
permitted by the Investment Company Act of 1940 and rules and
regulations thereunder. The foregoing requirement that
continuance of this Agreement be "specifically approved at least
annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the rules and regulations
thereunder.
This Agreement may be terminated as to either Portfolio at any
time, without the payment of any penalty by vote of a majority of
the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Portfolio on not less than
30 days nor more than 60 days written notice to the Adviser, or
by the Adviser at any time without the payment of any penalty, on
90 days written notice to the Trust. This Agreement will
automatically and immediately terminate in the event of its
assignment. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, to the
other party at any office of such party.
As used in this Section 12, the terms "assignment", "interested
persons", and a "vote of a majority of the outstanding voting
securities" shall have the respective meanings set forth in the
Investment Company Act of 1940 and the rules and regulations
thereunder, subject to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
13. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by
registered or certified mail, postage prepaid, addressed by the
party giving notice to the other party at the last address
furnished by the other party to the party giving notice: if to
the Trust, at 885 Third Avenue, New York, NY 10022 and if to the
Adviser at 885 Third Avenue, New York, NY 10022.
14. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
A copy of the Certificate of Trust of the Trust is on file with the Secretary of
State of the State of Delaware, and notice is hereby given that this instrument
is executed on behalf of the
-5-
<PAGE>
Trustees of the Trust as Trustees, and is not binding upon any of the Trustees,
officers, or shareholders of the Trust individually but binding only upon the
assets and property of the Trust.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first written above.
MORGAN GRENFELL INVESTMENT TRUST
on behalf of
Morgan Grenfell Fixed Income Fund
Morgan Grenfell Municipal Bond Fund
By: /s/ Mark G. Arthus
- -----------------------------------------
Mark G. Arthus
Secretary
Attest: /s/ Robert Frederick
- -----------------------------------------
MORGAN GRENFELL CAPITAL MANAGEMENT INCORPORATED
By: /s/ James E. Minnick
- -----------------------------------------
James E. Minnick
President
Attest: /s/ Robert Frederick
- -----------------------------------------
-6-
<PAGE>
Schedule
to the
Investment Advisory Agreement
between
Morgan Grenfell Investment Trust
on behalf of Morgan Grenfell Fixed Income
Fund and Morgan Grenfell Municipal Bond Fund
and
Morgan Grenfell Capital Management Incorporated
Pursuant to Article 3, the Trust, on behalf of each Portfolio, shall pay the
Adviser compensation at an annual rate as follows:
Portfolio Fee
- ---------------------------------- ----------------------------------
Morgan Grenfell Municipal .40% of the average
Bond Fund daily net assets
Morgan Grenfell Fixed .40% of the average
Income Fund daily net assets
-7-
EXHIBIT 5(C)
MANAGEMENT CONTRACT
AGREEMENT made as of the 28th day of December, 1994, by and between
Morgan Grenfell Investment Trust (the "Trust"), on behalf of Morgan Grenfell
Large Cap Growth Fund, Morgan Grenfell Smaller Companies Fund, Morgan Grenfell
Short-Term Fixed Income Fund and Morgan Grenfell Short-Term Municipal Bond Fund
(the "Portfolios"), and Morgan Grenfell Capital Management Incorporated (the
"Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended,
consisting of several series of shares, each having its own investment policies;
and
WHEREAS, the Trust has retained SEI Financial Management Corporation
(the "Administrator") to provide administration of the Trust's operations,
subject to the control of the Board of Trustees;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to the Portfolios, and the Adviser is willing
to render such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained,
the parties hereto agree as follows:
1 Duties of Adviser. The Trust employs the Adviser to manage the
investment and reinvestment of the assets, and to continuously
review, supervise, and administer the investment programs of the
Portfolios, to determine in its discretion the securities to be
purchased or sold, to provide the Administrator and the Trust
with records concerning the Adviser's activities which the Trust
is required to maintain, and to render regular reports to the
Administrator and to the Trust's officers and trustees concerning
the Adviser's discharge of the foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities
subject to the control of the Board of Trustees of the Trust and
in compliance with such policies as the Trustees may from time to
time establish, and in compliance with the objectives, policies,
and limitations for each such Portfolio set forth in the
Portfolio's prospectus and statement of additional information,
as amended from time to time, and applicable laws and
regulations.
-1-
<PAGE>
The Adviser accepts such employment and agrees, at its own
expense, to render the services and to provide the office space,
furnishings and equipment and the personnel required by it to
perform the services on the terms and for the compensation
provided herein.
2. Portfolio Transactions. The Adviser is authorized to select the
brokers or dealers that will execute the purchases and sales of
portfolio securities for the Portfolios and is directed to use
its best efforts to obtain the best net results as described from
time to time in the Portfolios' Prospectus and Statement of
Additional Information. The Adviser will promptly communicate to
the Administrator and to the officers and the Trustees of the
Trust such information relating to portfolio transactions as they
may reasonably request.
It is understood that the Adviser will not be deemed to have
acted unlawfully, or to have breached a fiduciary duty to the
Trust or be in breach of any obligation owing to the Trust under
this Agreement, or otherwise, solely by reason of its having
directed a securities transaction on behalf of the Trust to a
broker-dealer in compliance with the provisions of Section 28(e)
of the Securities Exchange Act of 1934 or as otherwise permitted
from time to time by the Portfolios' Prospectus and Statement of
Additional Information.
3. Compensation of the Adviser. For the services to be rendered by
the Adviser as provided in Sections 1 and 2 of this Agreement,
the Trust shall pay to the Adviser compensation at the rate
specified in the Schedule(s) which are attached hereto and made a
part of this Agreement. Such compensation shall be paid to the
Adviser at the end of each month, and calculated by applying a
daily rate, based on the annual percentage rates as specified in
the attached Schedule(s), to the assets of each Portfolio. The
fee shall be based on the average daily net assets for the month
involved (less any assets of such Portfolios held in non-interest
bearing special deposits with a Federal Reserve Bank).
All rights of compensation under this Agreement for services
performed as of the termination date shall survive the
termination of this Agreement.
4. Other Expenses. The Adviser shall pay all expenses of printing
and mailing reports, prospectuses, statements of additional
information, and sales literature relating to its efforts to
solicit prospective clients.
-2-
<PAGE>
5. Excess Expenses. If the expenses for any Portfolio for any fiscal
year (including fees and other amounts payable to the Adviser,
but excluding interest, taxes, brokerage costs, litigation, and
other extraordinary costs) as calculated every business day would
exceed the expense limitations imposed on investment companies by
any applicable statute or regulatory authority of any
jurisdiction in which shares of a Portfolio are qualified for
offer and sale, the Adviser shall bear such excess cost.
However, the Adviser will not bear expenses of a Portfolio which
would result in the Portfolio's inability to qualify as a
regulated investment company under provisions of the Internal
Revenue Code of 1986, as amended. Payment of expenses by the
Adviser pursuant to this Section 5 shall be settled on a monthly
basis (subject to fiscal year end reconciliation) by a reduction
in the fee payable to the Adviser for such month pursuant to
Section 3 and, if such reduction shall be insufficient to offset
such expenses, by reimbursing the Trust.
6. Reports. The Trust and the Adviser agree to furnish to each
other, if applicable, current prospectuses, proxy statements,
reports to Shareholders, certified copies of their financial
statements, and such other information with regard to their
affairs as each may reasonably request.
7. Status of Adviser. The services of the Adviser to the Trust are
not to be deemed exclusive, and the Adviser shall be free to
render similar services to others so long as its services to the
Trust are not impaired thereby. The Adviser shall be deemed to be
an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent
the Trust in any way or otherwise be deemed an agent of the
Trust.
8. Certain Records. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2
promulgated under the Investment Company Act of 1940 which are
prepared or maintained by the Adviser on behalf of the Trust are
the property of the Trust and will be surrendered promptly to the
Trust on request.
-3-
<PAGE>
9. Limitation of Liability of Adviser. The duties of the Adviser
shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the
Adviser hereunder. The Adviser shall not be liable for any error
of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in carrying out its duties
hereunder, except a loss resulting from willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by
reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under provisions
of applicable state law or Federal securities law which cannot be
waived or modified hereby. (As used in this Paragraph 9, the term
"Adviser" shall include directors, officers, employees and other
corporate agents of the Adviser as well as that corporation
itself).
10. Permissible Interests. Trustees, agents, and shareholders of the
Trust are or may be interested in the Adviser (or any successor
thereof) as directors, partners, officers, or shareholders, or
otherwise; directors, partners, officers, agents, and
shareholders of the Adviser are or may be interested in the Trust
as Trustees, shareholders or otherwise; and the Adviser (or any
Successor) is or may be interested in the Trust as a Shareholder
or otherwise. In addition, brokerage transactions for the
Portfolios may be effected through affiliates of the Adviser if
approved by the Board of Trustees, subject to the rules and
regulations of the Securities and Exchange Commission.
11. License of Adviser's Name. The Adviser hereby agrees to grant a
license to the Trust for use of its name in the names of the
Portfolios for the term of this Agreement and such license shall
terminate upon termination of this Agreement.
12. Duration and Termination. This Agreement, unless sooner
terminated as provided herein, shall remain in effect with
respect to a Portfolio until two years from the date first set
forth above, and thereafter, for periods of one year so long as
such continuance thereafter is specifically approved at least
annually (a) by the vote of a majority of those Trustees of the
Trust who are not parties to this Agreement or interested persons
of any such party, cast in person at a meeting called for the
purpose of voting on such approval, and (b) by the Trustees of
the Trust or by vote of a majority of the outstanding voting
securities of each Portfolio;
-4-
<PAGE>
provided, however, that if the shareholders of any Portfolio fail
to approve the Agreement as provided herein, the Adviser may
continue to serve hereunder in the manner and to the extent
permitted by the Investment Company Act of 1940 and rules and
regulations thereunder. The foregoing requirement that
continuance of this Agreement be "specifically approved at least
annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the rules and regulations
thereunder.
This Agreement may be terminated as to any Portfolio at any time,
without the payment of any penalty by vote of a majority of the
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Portfolio on not less than 30 days nor
more than 60 days written notice to the Adviser, or by the
Adviser at any time without the payment of any penalty, on 90
days written notice to the Trust. This Agreement will
automatically and immediately terminate in the event of its
assignment. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, to the
other party at any office of such party.
As used in this Section 12, the terms "assignment", "interested
persons", and a "vote of a majority of the outstanding voting
securities" shall have the respective meanings set forth in the
Investment Company Act of 1940 and the rules and regulations
thereunder, subject to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
13. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by
registered or certified mail, postage prepaid, addressed by the
party giving notice to the other party at the last address
furnished by the other party to the party giving notice: if to
the Trust, at 885 Third Avenue, New York, NY 10022 and if to the
Adviser, at 885 Third Avenue, New York, NY 10022.
14. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
A copy of the Certificate of Trust of the Trust is on file with the Secretary of
State of the State of Delaware, and notice is hereby given that this instrument
is executed on behalf of the
-5-
<PAGE>
Trustees of the Trust as Trustees, and is not binding upon any of the Trustees,
officers, or shareholders of the Trust individually but binding only upon the
assets and property of the Trust.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first written above.
MORGAN GRENFELL INVESTMENT TRUST
on behalf of
Morgan Grenfell Large Cap Growth Fund
Morgan Grenfell Smaller Companies Fund
Morgan Grenfell Short-Term Fixed Income Fund
Morgan Grenfell Short-Term Municipal Bond Fund
By: /s/ Mark G. Arthus
- -----------------------------------------
Mark G. Arthus
Secretary
Attest: /s/ Robert Frederick
MORGAN GRENFELL CAPITAL MANAGEMENT INCORPORATED
By: /s/ James E. Minnick
- -----------------------------------------
James E. Minnick
President
Attest: /s/ Robert Frederick
- -----------------------------------------
-6-
<PAGE>
Schedule
to the
Investment Advisory Agreement
between
Morgan Grenfell Investment Trust
on behalf of
Morgan Grenfell Large Cap Growth Fund
Morgan Grenfell Smaller Companies Fund
Morgan Grenfell Short-Term Fixed Income Fund
Morgan Grenfell Short-Term Municipal Bond Fund
and
Morgan Grenfell Capital Management Incorporated
Pursuant to Article 3, the Trust, on behalf of each Portfolio, shall pay the
Adviser compensation at an annual rate as follows:
<TABLE>
<CAPTION>
Portfolio Fee (in basis points)
- ----------------------------------- -----------------------------------
<S> <C>
Morgan Grenfell Large .75% of the average
Cap Growth Fund daily net assets
Morgan Grenfell Smaller 1.00% of the average
Companies Fund daily net assets
Morgan Grenfell Short-Term .40% of the average
Fixed Income Fund daily net assets
Morgan Grenfell Short-Term .40% of the average
Municipal Bond Fund daily net assets
</TABLE>
-7-
EXHIBIT 8(A)
CUSTODY AGREEMENT
AGREEMENT dated as of December 29, 1993, between MORGAN GRENFELL
INVESTMENT TRUST, a business trust organized under the laws of the State of
Delaware, having its principal office and place of business at 885 Third Avenue,
New York, New York 10022 (the "Trust"), and THE NORTHERN TRUST COMPANY (the
"Custodian"), an Illinois trust company with its principal place of business at
50 South LaSalle Street, Chicago, Illinois 60675.
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set
forth, the Trust and the Custodian agree as follows:
1. Definitions.
Whenever used in this Agreement or in any Schedules to this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings:
(a) "Administrator" shall mean the person which performs the
administration functions for the Trust.
(b) "Authorized Person" shall be deemed to include the Chairman of the
Board of Trustees, the President, and any Vice President, the
Secretary, the Treasurer or any other person, whether or not any such
person is an officer or employee of the Trust, duly authorized by the
Board of Trustees to give Oral Instructions and Written Instructions on
behalf of the Trust and listed in the certification annexed hereto as
Appendix A or such other certification as may be received by the
Custodian from time to time.
(c) "Board of Trustees" shall mean the Board of Trustees of the Trust.
(d) "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency Securities, its
successor or successors and its nominee or nominees.
(e) "Certificate" shall mean any notice, instruction or other
instrument in writing, authorized or required by this Agreement to be
given to the Custodian, which is actually received by the Custodian and
signed on behalf of the Trust by any two Authorized Persons or any two
officers thereof.
<PAGE>
(f) "Master Trust Agreement" shall mean the Agreement and Declaration
of Trust of the Trust dated September 13, 1993, as the same may be
amended from time to time.
(g) "Depository" shall mean The Depository Trust Company, a clearing
agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended, its
successor or successors and its nominee or nominees, in which the
Custodian is hereby specifically authorized to make deposits. The term
"Depository" shall further mean and include any other person to be
named in a Certificate authorized to act as a depository under the 1940
Act, its successor or successors and its nominee or nominees.
(h) "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and
principal by the Government of the United States or agencies or
instrumentalities thereof, commercial paper, bank certificates of
deposit, bankers' acceptances and short-term corporate obligations,
where the purchase or sale of such securities normally requires
settlement in federal funds on the same day as such purchase or sale,
and repurchase and reverse repurchase agreements with respect to any of
the foregoing types of securities.
(i) "Oral Instructions" shall mean an oral communication actually
received by the Custodian from a person reasonably believed by the
Custodian to be an Authorized Person.
(j) "Portfolio" refers to each of the Morgan Grenfell International
Equity Fund, Morgan Grenfell Global Equity Fund, Morgan Grenfell
European Equity Fund, Morgan Grenfell Pacific Basin Equity Fund, Morgan
Grenfell International Small Cap Equity Fund, Morgan Grenfell Japanese
Small Cap Equity Fund, Morgan Grenfell Emerging Markets Equity Fund,
Morgan Grenfell Global Fixed Income Fund, Morgan Grenfell International
Fixed Income Fund and Morgan Grenfell Emerging Markets Fixed Income
Fund or any such other separate and distinct investment portfolio as
may from time to time be created and designated by the Trust in
accordance with the provisions of the Master Trust Agreement and which
the Trust and the Custodian shall have agreed in writing shall be
subject to this Agreement pursuant to the provisions of Section 5(b).
(k) "Prospectus" shall mean the Trust's current prospectus and
statement of additional information relating to the registration of the
Trust's Shares under the Securities Act of 1933, as amended.
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<PAGE>
(l) "Shares" refers to the shares of beneficial interest of the Trust.
(m) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and other
securities, commodity interests and investments from time to time owned
by the Trust.
(n) "Sub-Custodian" shall mean and include (i) any branch of the
Custodian, (ii) any branch of a "qualified U.S. bank," as that term is
defined in Rule 17f-5 under the 1940 Act, and (iii) any "eligible
foreign custodian," as that term is defined in Rule 17f-5 under the
1940 Act, approved by the Board of Trustees and having a contract with
the Custodian which contract has been approved by the Board of Trustees
and (iv) any securities depository or clearing agency, incorporated or
organized under the laws of a country other than the United States,
which operates the central system for handling of securities or
equivalent book-entries in that country or a transnational system for
the central handling of securities or equivalent book- entries, which
securities depository or clearing agency has been approved by the Board
of Trustees; provided, that the Custodian or a Sub-Custodian has
entered into an agreement with such securities depository or clearing
agency.
(o) "Transfer Agent" shall mean the person which performs as the
transfer agent, dividend disbursing agent and shareholder servicing
agent for the Trust.
(p) "Written Instructions" shall mean a written communication actually
received by the Custodian from a person reasonably believed by the
Custodian to be an Authorized Person by any system whereby the receiver
of such communication is able to verify through codes or otherwise with
a reasonable degree of certainty the authenticity of the sender of such
communication; however, "Written Instructions" from the Administrator
to the Custodian shall mean an electronic communication transmitted by
fund accountants and their managers (who have been provided an access
code by the Administrator) and actually received by the Custodian.
(q) The "1940 Act" shall mean the Investment Company Act of 1940, and
the Rules and Regulations thereunder, all as amended from time to time.
2. Appointment of Custodian.
(a) The Trust hereby constitutes and appoints the Custodian as
custodian of all the Securities and monies owned by or in
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<PAGE>
the possession of the Trust during the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
3. Appointment and Removal of Sub-Custodians.
(a) The Custodian may appoint one or more Sub-Custodians to act as
Depository or Depositories or as sub-custodian or subcustodians of
Securities and moneys at any time owned by any Portfolio, upon terms
and conditions as are specified in this Agreement. The Custodian shall
oversee the maintenance of any Securities or moneys of any Portfolio by
any Sub-Custodian.
(b) If, after the initial approval of Sub-Custodians by the Board of
Trustees in connection with this Agreement, the Custodian wishes to
appoint other Sub-Custodians to hold property of the Portfolios, it
will so notify the Trust and provide it with information reasonably
necessary to determine any such new Sub-Custodian's eligibility under
Rule 17f-5 under the 1940 Act, including a copy of the proposed
agreement with such Sub-Custodian. The Trust shall within 30 days after
receipt of such notice and information give a written approval or
disapproval of the proposed action.
(c) If the Custodian intends to remove any Sub-Custodian previously
approved by the Board of Trustees, it shall so notify the Trust and
move the property of the Portfolios deposited with such Sub-Custodian
to another Sub-Custodian previously approved by the Board of Trustees.
The Custodian shall take such steps as may be required to remove any
Sub-Custodian that has ceased to meet the requirements of Rule 17f-5
under the 1940 Act.
(d) The Custodian hereby warrants to the Trust that in its opinion,
after due inquiry, the established procedures to be followed by each
Sub-Custodian (that is not being used as a foreign securities
depository or clearing agency) holding property of a Portfolio pursuant
to this Agreement afford protection for such property not materially
different from that afforded by the Custodian's established procedures
with respect to similar property held by it (and its securities
depositories) in Chicago, Illinois.
-4-
<PAGE>
4. Use of Sub-Custodians.
With respect to property of a Portfolio which is maintained by the
Custodian in the physical custody of a Sub-Custodian pursuant to
Section 3:
(a) The Custodian will identify on its books as belonging to the
particular Portfolio any property held by such Sub-Custodian.
(b) In the event that a Sub-Custodian permits any of the Securities
placed in its care to be held in an eligible foreign securities
depository, such Sub-Custodian will be required by its agreement with
the Custodian to identify on its books such Securities as being held
for the account of the Custodian as a custodian for its customers.
(c) Any Securities held by a Sub-Custodian will be subject only to the
instructions of the Custodian or its agents; and any Securities held in
an eligible foreign securities depository for the account of a
Sub-Custodian will be subject only to the instructions of such
Sub-Custodian.
(d) The Custodian will only deposit property of a Portfolio in an
account with a Sub-Custodian which includes exclusively the assets held
by the Custodian for its customers, and will cause such account to be
designated by such Sub-Custodian as a special custody account for the
exclusive benefit of customers of the Custodian.
5. Compensation.
(a) The Trust will compensate the Custodian for its services rendered
under this Agreement in accordance with the fees set forth in the Fee
Schedule annexed hereto as Schedule A and incorporated herein for the
existing Portfolios. Such Fee Schedule does not include out-of-pocket
disbursements of the Custodian for which the Custodian shall be
entitled to bill separately. Out-of-pocket disbursements may include
only the items specified in the Schedule of Out-of-Pocket charges
annexed hereto as Schedule B and incorporated herein, which Schedule
may be modified by the Custodian if the Trust consents in writing to
the modification.
(b) The parties hereto will agree upon the compensation for acting as
Custodian for any Portfolio hereafter established and designated, and
at the time that the Custodian commences serving as such for said
Portfolio, such agreement shall be reflected in a Fee Schedule for that
Portfolio, dated and
-5-
<PAGE>
signed by an officer of each party hereto, which shall be attached to
Schedule A of this Agreement.
(c) Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule A of this Agreement a revised Fee
Schedule, dated and signed by an officer of each party hereto.
(d) The Custodian will bill the Trust for its services to each
Portfolio hereunder as soon as practicable after the end of each
calendar quarter, and said billings will be detailed in accordance with
the Fee Schedule for the Trust. The Trust will promptly pay to the
Custodian the amount of such billing. The Custodian shall have a lien
on the property in each Portfolio for any compensation or expense
amount owing to the Custodian in connection with such Portfolio from
time to time under this Agreement.
(e) The Custodian (not the Trust) will be responsible for the payment
of the compensation of each Sub-Custodian.
6. Custody of Cash and Securities.
(a) Receipt and Holding of Assets. The Trust will deliver or cause to
be delivered to the Custodian and the Sub-Custodians all Securities and
monies owned by the Trust at any time during the period of this
Agreement and shall specify the Portfolio to which the Securities and
monies are to be specifically allocated. The Custodian will not be
responsible for such Securities and monies until actually received by
it or by a Sub-Custodian. The Trust shall instruct the Custodian from
time to time in its sole discretion, by means of Written Instructions,
or, in connection with the purchase or sale of Money Market Securities,
by means of Oral Instructions or Written Instructions, as to the manner
in which and in what amounts Securities and monies of a Portfolio are
to be deposited on behalf of such Portfolio in the Book-Entry System or
the Depository; provided, however, that prior to the deposit of
Securities of a Portfolio in the Book-Entry System or the Depository,
including a deposit in connection with the settlement of a purchase or
sale, the Custodian shall have received a Certificate specifically
approving such deposits by the Custodian or a Sub-Custodian in the
Book-Entry System or the Depository. Securities and monies of a
Portfolio deposited in the Book-Entry System or the Depository will be
represented in accounts which include only assets held by the Custodian
for its customers.
-6-
<PAGE>
(b) Accounts and Disbursements. The Custodian shall establish and
maintain a separate account for each Portfolio and shall credit to the
separate account all monies received by it or a Sub-Custodian for the
account of such Portfolio and shall disburse, or cause a Sub-Custodian
to disburse, the same only:
1. In payment for Securities purchased for the Portfolio, as
provided in Section 7 hereof;
2. In payment of dividends or distributions with respect to the
Shares of such Portfolio, as provided in Section 9 hereof;
3. In payment of original issue or other taxes with respect to
the Shares of such Portfolio, as provided in Section 10(c)
hereof;
4. In payment for Shares which have been redeemed by such
Portfolio, as provided in Section 10 hereof;
5. In payment of fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to the Trust, as
provided in Sections 5 and 14(h) hereof.
6. Pursuant to Written Instructions setting forth the name of
the Portfolio and the name and address of the person to whom the
payment is to be made, the amount to be paid and the purpose for
which payment is to be made.
(c) Fail Float. In the event that any payment made for a Portfolio
under this Section 6 exceeds the funds available in that Portfolio's
account, the Custodian or relevant Sub-Custodian, as the case may be,
may, in its discretion, advance the Trust on behalf of that Portfolio
an amount equal to such excess and such advance shall be deemed an
overdraft from the Custodian or such Sub-Custodian to that Portfolio
payable on demand, bearing interest at the rate of interest customarily
charged by the Custodian or such Sub-Custodian on similar overdrafts.
(d) Confirmation and Statements. Promptly after the close of business
on each business day, the Custodian shall furnish the Trust with
confirmations and a summary of all transfers to or from the account of
each Portfolio during said day. Such summary shall include without
limitation, as to property acquired for a Portfolio, the identity of
the entity having physical possession of such property. Where
securities purchased by a Portfolio are in a fungible bulk of
securities
-7-
<PAGE>
registered in the name of the Custodian (or its nominee) or shown on
the Custodian's account on the books of the Depository, the Book-Entry
System or a Sub-Custodian, the Custodian shall by book entry or
otherwise identify the quantity of those securities belonging to such
Portfolio. At least monthly, the Custodian shall furnish the Trust
with a detailed statement of the Securities and monies held by it and
all Sub- Custodians for each Portfolio. In the absence of the filing
in writing with the Custodian by the Trust of exceptions or objections
to any such statement within 60 days of the Trust's receipt of such
statement, or within 60 days after the date that a material defect is
reasonably discoverable, the Trust shall be deemed to have approved
such statement; and in such case or upon written approval of the Trust
of any such statement the Custodian shall, to the extent permitted by
law and provided the Custodian has met the standard of care in Section
14 hereof, be released, relieved and discharged with respect to all
matters and things set forth in such statement as though such
statement had been settled by the decree of a court of competent
jurisdiction in an action in which the Trust and all persons having
any equity interest in the Trust were parties.
(e) Registration of Securities and Physical Separation. All Securities
held for a Portfolio which are issued or issuable only in bearer form,
except such Securities as are held in the Book-Entry System, shall be
held by the Custodian or a Sub-Custodian in that form; all other
Securities held for a Portfolio may be registered in the name of that
Portfolio, in the name of any duly appointed registered nominee of the
Custodian or a Sub-Custodian as the Custodian or such Sub-Custodian may
from time to time determine, or in the name of the Book-Entry System or
the Depository or their successor or successors, or their nominee or
nominees. The Trust reserves the right to instruct the Custodian as to
the method of registration and safekeeping of the Securities. The Trust
agrees to furnish to the Custodian appropriate instruments to enable
the Custodian or any Sub-Custodian to hold or deliver in proper form
for transfer, or to register in the name of its registered nominee or
in the name of the Book-Entry System or the Depository, any Securities
which the Custodian or a Sub-Custodian may hold for the account of a
Portfolio and which may from time to time be registered in the name of
a Portfolio. The Custodian shall hold all such Securities specifically
allocated to a Portfolio which are not held in the Book-Entry System or
the Depository in a separate account for such Portfolio in the name of
such Portfolio physically segregated at all times from those of any
other person or persons.
-8-
<PAGE>
(f) Segregated Accounts. Upon receipt of a Written Instruction, the
Custodian will establish segregated accounts on behalf of a Portfolio
to hold liquid or other assets as it shall be directed by a Written
Instruction and shall increase or decrease the assets in such
Segregated Accounts only as it shall be directed by subsequent Written
Instruction.
(g) Collection of Income and Other Matters Affecting Securities. Unless
otherwise instructed to the contrary by a Written Instruction, the
Custodian, by itself or through the use of the Book-Entry System or the
Depository with respect to Securities therein deposited, shall, or
shall instruct the relevant Sub-Custodian to:
1. Collect all income due or payable with respect to Securities
held for a Portfolio in accordance with this Agreement;
2. Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed or retired,
or otherwise become payable;
3. Surrender Securities in temporary form for definitive
Securities;
4. Execute any necessary declarations or certificates of
ownership under the federal income tax laws or the laws or
regulations of any other taxing authority now or hereafter in
effect; and
5. Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the
account of each Portfolio all rights and similar Securities
issued with respect to any Securities held by the Custodian or
relevant Sub-Custodian for each Portfolio.
If the Custodian or any Sub-Custodian causes the account of a
Portfolio to be credited on the payable date for interest,
dividends or redemptions, the particular Portfolio involved will
promptly return to the Custodian any such amount or property so
credited upon Oral or written notification that neither the
Custodian nor the relevant Sub-Custodian can collect such amount
or property in the ordinary course of business. The Custodian or
such Sub-Custodian, as the case may be, shall have no duty or
obligation to institute legal proceedings, file a claim or proof
of claim in any insolvency proceeding or take any other action
with
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<PAGE>
respect to the collection of such amount or property beyond its
ordinary collection procedures.
(h) Delivery of Securities and Evidence of Authority. Upon receipt of a
Written Instruction and not otherwise, except for subparagraphs 5, 6,
7, and 8 of this section 6(h) which may be effected by Oral or Written
Instructions, the Custodian, directly or through the use of the
Book-Entry System or the Depository, shall, or shall instruct the
relevant Sub-Custodian to:
1. Execute and deliver or cause to be executed and delivered to
such persons as may be designated in such Written Instructions,
proxies, consents, authorizations, and any other instruments
whereby the authority of the Trust as owner of any Securities
may be exercised;
2. Deliver or cause to be delivered any Securities held for a
Portfolio in exchange for other Securities or cash issued or
paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
3. Deliver or cause to be delivered any Securities held for a
Portfolio to any protective committee, reorganization committee
or other person in connection with the reorganization,
refinancing, merger, consolidation or recapitalization or sale
of assets of any corporation, and receive and hold under the
terms of this Agreement in the separate account for each such
Portfolio certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence such
delivery;
4. Make or cause to be made such transfers or exchanges of the
assets specifically allocated to the separate account of a
Portfolio and take such other steps as shall be stated in
Written Instructions to be for the purpose of effectuating any
duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Trust;
5. Deliver Securities upon sale of such Securities for the
account of a Portfolio pursuant to Section 7;
6. Deliver Securities upon the receipt of payment in connection
with any repurchase agreement related to such Securities entered
into by a Portfolio;
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<PAGE>
7. Deliver Securities owned by a Portfolio to the issuer thereof
or its agent when such Securities are called, redeemed, retired
or otherwise become payable; provided, however, that in any such
case the cash or other consideration is to be delivered to the
Custodian or Sub-Custodian, as the case may be;
8. Deliver Securities for delivery in connection with any loans
of securities made by a Portfolio but only against receipt of
adequate collateral as agreed upon from time to time by the
Custodian and the Trust which may be in the form of cash or
obligations issued by the United States Government, its agencies
or instrumentalities;
9. Deliver Securities for delivery as security in connection
with any borrowings by a Portfolio requiring a pledge of
Portfolio assets, but only against receipt of amounts borrowed;
10. Deliver Securities to the Transfer Agent or to the holders
of Shares in connection with distributions in kind, as may be
described from time to time in the Prospectus, in satisfaction
of requests by holders of Shares for repurchase or redemption;
11. Deliver Securities owned by any Portfolio as collateral in
connection with short sales by such Portfolio of common stock
for which such Portfolio owns the stock or owns preferred stocks
or debt securities convertible or exchangeable, without payment
of further consideration, into shares of the common stock sold
short;
12. Deliver Securities owned by any Portfolio for any purpose
expressly permitted by and in accordance with procedures
described in the Prospectus; and
13. Deliver Securities owned by any Portfolio for any other
proper business purpose, but only upon receipt of, in addition
to Written Instructions, a certified copy of a resolution of the
Board of Trustees signed by an Authorized Person and certified
by the Secretary of the Trust, specifying the Securities to be
delivered, setting forth the purpose for which such delivery is
to be made, declaring such purpose to be a proper business
purpose, and naming the person or persons to whom delivery of
such Securities shall be made.
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<PAGE>
(i) Endorsement and Collection of Checks, Etc. The Custodian is hereby
authorized to endorse and collect all checks, drafts or other orders
for the payment of money received by the Custodian for the account of
a Portfolio.
7. Purchase and Sale of Investments of a Portfolio.
(a) Promptly after each purchase of Securities for a Portfolio, the
Trust shall deliver to the Custodian (i) with respect to each purchase
of Securities which are not Money Market Securities, a Written
Instruction and (ii) with respect to each purchase of Money Market
Securities, either a Written Instruction or Oral Instruction, in either
case specifying with respect to each purchase: (i) the name of the
Portfolio to which such Securities are to be specifically allocated;
(2) the name of the issuer and the title of the Securities; (3) the
number of shares or the principal amount purchased and accrued
interest, if any; (4) the date of purchase and settlement; (5) the
purchase price per unit; (6) the total amount payable upon such
purchase; (7) the name of the person from whom or the broker through
whom the purchase was made, if any; (8) whether or not such purchase is
to be settled through the Book-Entry System or the Depository; and (9)
the Sub-Custodian to hold such Securities (if not the Custodian) or
whether the Securities purchased are to be deposited in the Book- Entry
System or the Depository. The Custodian or specified Sub-Custodian
shall receive the Securities purchased by or for a Portfolio and upon
receipt thereof shall pay to the broker or other person designated by
the Trust out of the monies held for the account of such Portfolio the
total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Written or
Oral Instruction.
(b) Promptly after each sale of Securities of a Portfolio, the Trust
shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, a Written
Instruction, and (ii) with respect to each sale of Money Market
Securities, either Written Instructions or Oral Instructions, in either
case specifying with respect to such sale: (i) the name of the
Portfolio to which the Securities sold were specifically allocated; (2)
the name of the issuer and the title of the Securities; (3) the number
of shares or principal amount sold, and accrued interest, if any; (4)
the date of sale; (5) the sale price per unit; (6) the total amount
payable to the Portfolio upon such sale; (7) the name of the broker
through whom or the person to whom the sale was made; and (8) whether
or not such sale is to be settled through the Book-Entry System or the
Depository. The Custodian or relevant Sub-Custodian
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<PAGE>
shall deliver or cause to be delivered the Securities to the broker or
other person designated by the Trust upon receipt of the total amount
payable to such Portfolio upon such sale, provided that the same
conforms to the total amount payable to such Portfolio as set forth in
such Written or Oral Instruction. Subject to the foregoing, the
Custodian or relevant Sub-Custodian may accept payment in such form as
shall be satisfactory to it, and may deliver Securities and arrange
for payment in accordance with the customs prevailing among dealers in
Securities.
8. Lending of Securities.
If any Portfolio is permitted by the terms of the Master Trust
Agreement and the Prospectus to lend Securities, then the Board of
Trustees may approve a separate written agreement between the Trust and
the Custodian authorizing the Custodian to lend such Securities. Such
agreement may provide for the payment of additional reasonable
compensation to the Custodian.
9. Payment of Dividends or Distributions.
(a) The Trust shall furnish to the Custodian the vote of the Board of
Trustees or the Dividend Committee thereof, as the case may be,
certified by the Secretary of the Trust (i) authorizing the declaration
of distributions with respect to a Portfolio on a specified periodic
basis and authorizing the Custodian to rely on Oral or Written
Instructions specifying the date of the declaration of such
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount
payable per Share to the shareholders of record as of the record date
and the total amount payable to the Transfer Agent on the payment date,
or (ii) setting forth the date of declaration of any distribution by a
Portfolio, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount
payable per share to the shareholders of record as of the record date
and the total amount payable to the Transfer Agent on the payment date.
(b) Upon the payment date specified in such vote, Oral Instructions, or
Written Instructions, as the case may be, the Custodian shall pay the
total amount payable to the Transfer Agent out of the monies
specifically allocated to and held for the account of the appropriate
Portfolio.
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<PAGE>
10. Sale and Redemption of Shares of the Trust.
(a) Whenever the Trust shall sell any Shares of a Portfolio, the Trust
shall deliver or cause to be delivered to the Custodian a Written
Instruction duly specifying:
1. The name of the Portfolio whose Shares were sold;
2. The number of Shares sold, trade date, and price; and
3. The amount of money to be received by the Custodian for the
sale of such Shares.
The Custodian understands and agrees that Written Instructions may be
furnished subsequent to the purchase of Shares of a Portfolio and that the
information contained therein will be derived from the sales of Shares as
reported to the Trust by the Transfer Agent.
(b) Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account of the Portfolio
specified in (a)(1) above.
(c) Upon issuance of any Shares of a Portfolio in accordance with the
foregoing provisions of this Section 10, the Custodian shall pay all
original issue or other taxes required to be paid in connection with
such issuance upon the receipt of a Written Instruction specifying the
amount to be paid.
(d) Except as provided hereafter, whenever any Shares of a Portfolio
are redeemed, the Trust shall cause the Transfer Agent to promptly
furnish to the Custodian Written Instructions specifying:
1. The name of the Portfolio whose Shares were redeemed;
2. The number of Shares redeemed; and
3. The amount to be paid for the Shares redeemed.
The Custodian further understands that the information
contained in such Written Instructions will be derived from the
redemption of Shares as reported to the Trust by the Transfer Agent.
(e) Upon receipt from the Transfer Agent of advice setting forth the
number of Shares of a Portfolio being redeemed
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pursuant to valid instructions as described in the Prospectus, the
Custodian shall make payment to the Transfer Agent out of the monies
specifically allocated to and held for the account of the Portfolio
specified in (d)(1) above of the total amount specified in a Written
Instruction issued pursuant to paragraph (d) of this Section 10.
11. Indebtedness.
(a) The Trust will cause to be delivered to the Custodian by any bank
(excluding the Custodian) from which the Trust borrows money, using
Securities as collateral, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such bank will
loan to the Trust against delivery of a stated amount of collateral.
The Trust shall promptly deliver to the Custodian Written Instructions
stating with respect to each such borrowing: (1) the name of the
Portfolio for which the borrowing is to be made; (2) the name of the
bank; (3) the amount and terms of the borrowing, which may be set forth
by incorporating by reference an attached promissory note, duly
endorsed by the Trust, or other loan agreement; (4) the time and date,
if known on which the loan is to be entered into (the "borrowing
date"); (5) the date on which the loan becomes due and payable; (6) the
total amount payable to the Trust for the separate account of the
Portfolio on the borrowing date; (7) the market value of Securities to
be delivered as collateral for such loan, including the name of the
issuer, the title and the number of shares or the principal amount of
any particular Securities; (8) whether the Custodian is to deliver such
collateral through the Book- Entry System or the Depository; and (9) a
statement that such loan is in conformance with the 1940 Act and the
Prospectus.
(b) Upon receipt of the Written Instruction referred to in paragraph
(a) above, the Custodian shall deliver on the borrowing date the
specified collateral and the executed promissory note, if any, against
delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set
forth in the Written Instruction. The Custodian may, at the option of
the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending
bank by virtue of any promissory note or loan agreement. The Custodian
shall deliver as additional collateral in the manner directed by the
Trust from time to time such Securities specifically allocated to such
Portfolio as may be specified in Written Instruction to collateralize
further any transaction described in this Section 11. The Trust shall
cause all Securities released from collateral
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status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be
tendered to it. In the event that the Trust fails to specify in
Written Instruction all of the information required by this Section
11, the Custodian shall not be under any obligation to deliver any
Securities. Collateral returned to the Custodian shall be held
hereunder as it was prior to being used as collateral.
12. Corporate Actions.
Whenever the Custodian or any Sub-Custodian (other than a foreign
securities depository or clearing agency) receives information
concerning Securities held for a Portfolio which requires discretionary
action by the beneficial owner of the Securities (other than a proxy),
such as subscription rights, bond issues, stock repurchase plans and
rights offerings, or legal notices or other material intended to be
transmitted to Securities holders ("Corporate Actions"), the Custodian
will give the Trust notice of such Corporate Actions to the extent that
the Custodian's central corporate actions department has actual
knowledge of a Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action
is received which bears an expiration date, the Custodian will endeavor
to obtain Written or Oral Instructions from the Trust, but if such
Instructions are not received in time for the Custodian to take timely
action, or actual notice of such Corporate Action was received too late
to seek such Instructions, the Custodian is authorized to sell, or
cause a Sub-Custodian to sell, such rights entitlement or fractional
interest and to credit the applicable account with the proceeds and to
take any other action it deems, in good faith, to be appropriate, in
which case, provided it has met the standard of care in Section 14
hereof, it shall be held harmless by the particular Portfolio involved
for any such action.
The Custodian will deliver proxies to the Trust or its designated agent
pursuant to special arrangements which may have been agreed to in
writing between the parties hereto. Such proxies shall be executed in
the appropriate nominee name relating to Securities registered in the
name of such nominee but without indicating the manner in which such
proxies are to be voted; and where bearer Securities are involved,
proxies will be delivered in accordance with Written or Oral
Instructions from Authorized Persons.
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13. Persons Having Access to Assets of the Portfolios.
(a) No trustee or agent of the Trust, and no officer, director,
employee or agent of the Trust's investment adviser, of any
sub-investment adviser of the Trust, or of the Administrator, shall
have physical access to the assets of the Trust held by the Custodian
or any Sub-Custodian or be authorized or permitted to withdraw any
investments of the Trust, nor shall the Custodian or any Sub-Custodian
deliver any assets of the Trust to any such person. No officer,
director, employee or agent of the Custodian who holds any similar
position with the Trust's investment adviser, with any sub-investment
adviser of the Trust or with the Administrator shall have access to the
assets of the Trust.
(b) Nothing in this Section 13 shall prohibit any officer, employee or
agent of the Trust, or any officer, director, employee or agent of the
investment adviser, of any subinvestment adviser of the Trust or of the
Administrator, from giving Oral Instructions or Written Instructions to
the Custodian or executing a Certificate so long as it does not result
in delivery of or access to assets of the Trust prohibited by paragraph
(a) of this Section 13.
(c) The Custodian represents that it maintains a system that is
reasonably designed to prevent unauthorized persons from having access
to the assets that it holds (by any means) for its customers.
14. Concerning the Custodian.
(a) Scope of Services. The Custodian shall be obligated to perform only
such services as are set forth in this Agreement or expressly contained
in a Certificate, Written Instructions or Oral Instructions given to
the Custodian which are not contrary to the provisions of this
Agreement.
(b) Standard of Care.
1. The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of property
of the Portfolios. The Custodian shall be liable to the Trust
for any loss which shall occur as the result of the failure of
the Custodian or a Sub-Custodian (other than a foreign
securities depository or clearing agency) to exercise reasonable
care with respect to the safekeeping of such property. The
determination of whether the Custodian or Sub-Custodian has
exercised reasonable care shall be made in light of prevailing
standards applicable to
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professional custodians in the jurisdiction in which such
custodian services are performed. In the event of any loss to
the Trust by reason of the failure of the Custodian or a
Sub-Custodian (other than a foreign securities depository or
clearing agency) to exercise reasonable care, the Custodian
shall be liable to the Trust only to the extent of the Trust's
direct damages and expenses, which damages, for purposes of
property only, shall be determined based on the market value of
the property which is the subject of the loss at the date of
discovery of such loss and without reference to any special
condition or circumstances.
2. The Custodian will not be responsible for any act, omission,
default or for the solvency of any foreign securities depository
or clearing agency approved by the Board of Trustees pursuant to
Section (1)(n) or Section 3 hereof.
3. The Custodian will not be responsible for any act, omission,
default or for the solvency of any broker or agent (not referred
to in paragraph (b)(2) above) which it or a Sub-Custodian
appoints and uses unless such appointment and use is made or
done negligently or in bad faith. In the event such an
appointment and use is made or done negligently or in bad faith,
the Custodian shall be liable to the Trust only for direct
damages and expenses (determined in the manner described in
paragraph (b)(1) above) resulting from such appointment and use
and, in the case of any loss due to an act, omission or default
of such agent or broker, only to the extent that such loss
occurs as a result of the failure of the agent or broker to
exercise reasonable care.
4. The Custodian shall be entitled to rely, and may act upon the
advice of counsel (who may be counsel for the Trust) on all
matters and shall be without liability for any action reasonably
taken or omitted in good faith and without negligence pursuant
to such advice.
5. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian
and reasonably believed by the Custodian to be genuine and to be
signed by two officers of the Trust. The Custodian shall be
entitled to rely upon any Written Instructions or Oral
Instructions actually received by the Custodian pursuant to the
applicable Sections of this Agreement and reasonably believed by
the Custodian to be genuine and to be given by an Authorized
Person. The Trust agrees to forward to
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the Custodian Written Instructions from an Authorized Person
confirming such Oral Instructions in such manner so that such
Written Instructions are received by the Custodian whether by
hand delivery, telex or otherwise, by the close of business on
the same day that such Oral Instructions are given to the
Custodian. The Trust agrees that the fact that such confirming
instructions are not received by the Custodian shall in no way
affect the validity of the transactions or enforceability of the
transactions hereby authorized by the Trust. The Trust agrees
that the Custodian shall incur no liability to the Trust in (i)
acting upon Oral Instructions given to the Custodian hereunder
concerning such transactions provided such instructions
reasonably appear to have been received from a duly Authorized
Person or (ii) deciding not to act solely upon Oral
Instructions, provided that the Custodian shall be required to
contact the giver of such Oral Instructions and request written
confirmation immediately following any such decision not to act.
6. The Custodian shall supply the Administrator with such daily
information regarding the cash and securities positions and
activity of each Portfolio as the Custodian and the
Administrator shall from time to time agree. It is understood
that such information will not be audited by Custodian and
Custodian represents that such information will be the best
information then available to the Custodian. The Custodian shall
have no responsibility whatsoever for the pricing of Portfolio
Securities or for the failure of the Administrator to reconcile
differences between the information supplied by the Custodian
and information obtained by the Administrator from other
sources, including but not limited to pricing vendors and the
Trust's investment adviser. Subject to the foregoing, to the
extent that any miscalculation by the Administrator of a
Portfolio's net asset value is attributable to the willful
misfeasance, bad faith or negligence of the Custodian (including
any Sub-Custodian other than a foreign securities depository or
clearing agency) in supplying or omitting to supply the
Administrator with information as aforesaid, the Custodian shall
be liable to the Trust for any resulting loss (subject to such
de minimis rule of change in value as the Board of Trustees may
from time to time adopt).
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(c) Limit of Duties. Without limiting the generality of the foregoing,
the Custodian shall be under no duty or obligation to inquire into,
and shall not be liable for:
1. The validity of the issue of any Securities purchased by any
Portfolio, the legality of the purchase thereof, or the
propriety of the amount specified by the Trust for payment
therefor;
2. The legality of the sale of any Securities by any Portfolio
or the propriety of the amount of consideration for which the
same are sold;
3. The legality of the issue or sale of any Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor;
5. The legality of the declaration or payment of any
distribution of any Portfolio;
6. The legality of any borrowing.
(d) The Custodian need not maintain any insurance for the exclusive
benefit of the Trust, but hereby warrants that as of the date of this
Agreement it is maintaining a Bankers Blanket Bond and hereby agrees to
notify the Trust in the event that such bond is cancelled or otherwise
lapses.
(e) Consistent with and without limiting the language contained in
Section 14(b), it is specifically acknowledged that the Custodian shall
have no duty or responsibility to:
1. Question Written Instructions or Oral Instructions or make
any suggestions to the Trust or an Authorized Person regarding
such Instructions;
2. Supervise or make recommendations with respect to investments
or the retention of Securities;
3. Subject to Section 14(b)(3) hereof, evaluate or report to the
Trust or an Authorized Person regarding the financial condition
of any broker, agent or other party to which Securities are
delivered or payments are made pursuant to this Agreement; or
4. Review or reconcile trade confirmations received from
brokers.
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<PAGE>
(f) Amounts Due from Transfer Agent. The Custodian shall not be under
any duty or obligation to take action to effect collection of any
amount due to any Portfolio from the Transfer Agent nor to take any
action to effect payment or distribution by the Transfer Agent of any
amount paid by the Custodian to the Transfer Agent in accordance with
this Agreement.
(g) No Duty to Ascertain Authority. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any time
delivered to or held by it for the Trust and specifically allocated to
a Portfolio are such as may properly be held by the Trust under the
provisions of the Master Trust Agreement and the Prospectus.
(h) Indemnification. The Trust agrees to indemnify and hold the
Custodian harmless from all loss, cost, taxes, charges, assessments,
claims, and liabilities (including, without limitation, liabilities
arising under the Securities Act of 1933, the Securities Exchange Act
of 1934 and the 1940 Act and state or foreign securities laws) and
expenses (including reasonable attorneys fees and disbursements)
arising directly or indirectly from any action taken or omitted by the
Custodian (i) at the request or on the direction of or in reliance on
the advice of the Trust or in reasonable reliance upon the Prospectus
or (ii) upon a Certificate or Oral or Written Instructions; provided,
that the foregoing indemnity shall not apply to any loss, cost, tax,
charge, assessment, claim, liability or expense to the extent the same
is attributable to the Custodian's or any Sub-Custodian's (other than a
foreign securities depository or clearing agency) negligence, willful
misconduct, bad faith or reckless disregard of duties and obligations
under this Agreement or any other agreement relating to the custody of
Trust property.
(i) The Trust on behalf of the particular Portfolio involved agrees to
hold the Custodian harmless from any liability or loss resulting from
the imposition or assessment of any taxes or other governmental charges
on a Portfolio.
(j) Without limiting the foregoing, the Custodian shall not be liable
for any loss which results from:
1. the general risk of investing, or
2. subject to Section 14(b) hereof, investing or holding
property in a particular country including, but not limited to,
losses resulting from nationalization, expropriation or other
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governmental actions; regulation of the banking or securities
industry; currency restrictions, devaluations or fluctuations;
and market conditions which prevent the orderly execution of
securities transactions or affect the value of property held
pursuant to this Agreement.
(k) No party shall be liable to the other for any loss due to forces
beyond their control including but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear
fusion, fission or radiation, or acts of God.
(l) Inspection of Books and Records. The books and records of the
Custodian shall be open to inspection and audit at reasonable times by
officers and auditors employed by the Trust and by the appropriate
employees of the Securities and Exchange Commission.
(m) Accounting Control Reports. The Custodian shall provide the Trust
with any report obtained by the Custodian on the system of internal
accounting control of the Book-Entry System or the Depository and with
such reports on its own systems of internal accounting control as the
Trust may reasonably request from time to time.
15. Term and Termination.
(a) This Agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter as
the parties may mutually agree.
(b) Either of the parties hereto may terminate this Agreement with
respect to any Portfolio by giving to the other party a notice in
writing specifying the date of such termination, which, in case the
Trust is the terminating party, shall be not less than 60 days after
the date of receipt of such notice or, in case the Custodian is the
terminating party, shall be not less than 90 days after the date of
receipt of such notice. In the event such notice is given by the Trust,
it shall be accompanied by a certified vote of the Board of Trustees,
electing to terminate this Agreement with respect to any Portfolio and
designating a successor custodian or custodians, which shall be a
person qualified to so act under the 1940 Act.
In the event such notice is given by the Custodian, the Trust
shall, on or before the termination date, deliver to the Custodian a
certified vote of the Board of Trustees, designating a successor
custodian or custodians. In the
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absence of such designation by the Trust, the Custodian may designate
a successor custodian, which shall be a person qualified to so act
under the 1940 Act. If the Trust fails to designate a successor
custodian with respect to any Portfolio, the Trust shall upon the date
specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities
held in the Book-Entry System which cannot be delivered to the Trust)
and monies then owned by such Portfolio, be deemed to be its own
custodian and the Custodian shall thereby be relieved of all duties
and responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book-Entry System which cannot
be delivered to the Trust.
(c) Upon the date set forth in such notice under paragraph (b) of this
Section 15, this Agreement shall terminate to the extent specified in
such notice, and the Custodian shall upon receipt of a notice of
acceptance by the successor custodian on that date deliver directly to
the successor custodian all Securities and monies then held by the
Custodian and specifically allocated to the Portfolio or Portfolios
specified, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled with
respect to such Portfolio or Portfolios.
16. Limitation of Liability.
The Trust and the Custodian agree that the obligations of the
Trust under this Agreement shall not be binding upon any of the
Trustees, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Trust individually, but are
binding only upon the assets and property of the Trust or of the
appropriate Portfolio(s) thereof, as provided in the Master Trust
Agreement. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust, and signed by an authorized
officer of the Trust, acting as such, and neither such authorization by
such Trustees nor such execution and delivery by such officer shall be
deemed to have been made by any of them or any shareholder of the Trust
individually or to impose any liability on any of them or any
shareholder of the Trust personally, but shall bind only the assets and
property of the Trust or of the appropriate Portfolio(s) thereof as
provided in the Master Trust Agreement.
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17. Miscellaneous.
(a) Annexed hereto as Appendix A is a certification signed by two of
the present officers of the Trust setting forth the names and the
signatures of the present Authorized Persons. The Trust agrees to
furnish to the Custodian a new certification in similar form in the
event that any such present Authorized Person ceases to be such an
Authorized Person or in the event that other or additional Authorized
Persons are elected or appointed. Until such new certification shall be
received, the Custodian shall be fully protected in acting under the
provisions of this Agreement upon Oral Instructions or signatures of
the present Authorized Persons as set forth in the last delivered
certification.
(b) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at
its offices at its address stated on the first page hereof or at such
other place as the Custodian may from time to time designate in
writing.
(c) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Trust, shall be sufficiently given
if addressed to the Trust and mailed or delivered to it at its offices
at its address shown on the first page hereof or at such other place as
the Trust may from time to time designate in writing, with a copy to:
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attention: Ernest V. Klein, Esq.
(d) This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality
as this Agreement, (i) authorized and approved by a vote of the Board
of Trustees including a majority of the members of the Board of
Trustees who are not "interested persons" of the Trust (as defined in
the 1940 Act), or (ii) authorized and approved by such other procedures
as may be permitted or required by the 1940 Act.
(e) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Trust
without the written consent of the Custodian, or by the Custodian
without the written consent of the Trust authorized or approved by a
vote of the Board of
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Trustees, and any attempted assignment without such written consent
shall be null and void.
(f) This Agreement shall be construed in accordance with the laws of
the State of Illinois.
(g) The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(h) This agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective representatives duly authorized as of the day and
year first above written
MORGAN GRENFELL INVESTMENT TRUST
By: /s/James E. Minnick
-------------------------------
Name: James E. Minnick
Title: President
THE NORTHERN TRUST COMPANY
By: /s/Jeanne Vondrak
-------------------------------
Name: Jeanne Vondrak
Title: Second Vice President
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APPENDIX A
The undersigned officers of the Trust certify that each of the
individuals listed below is an Authorized Person:
Category 'A'
J.C. Armitage
G.D. Bamping
M. Bullock (Chairman)
P.W.W. Disney (Managing Director)
M.A. Hall
J.R. Johnston
I.D. Kelson
R. Lamb
W.G.M. Thomas
P.N.C. Walker
A.M. Wheatley
J.C. Williams
Category `B'
Fund Managers Financial Unit
J. Anderson J.D. Burns
P. Berriman K. Cooke
G. Blanning M.J. Kearney
D. Cock S. Tryner
C. Coysh
R. Curling Administration
C. Ekins
G. Fisher L. Andrews
A. Fraser C. Batchelor
C. Getley H. Burley
N. Jenkins S. Carter
O.R.C. Larminie L. Custance
J. Lodwick D. Craggy
P. Luke K. Francis
P. May C. Hirst
B. Ng L. Howlett
S. Peck M. Hunt
Lim Ser Mui C. Iveson
R. Whitteno K. Kates
R. Wilson D. Kightly
G. Lang
A-1
<PAGE>
Other R. Larner
Mo Littlefield
L.B. Hacking Do McConkey
C. Hofbeck Ro Moxham
G.V. Hough Io Muller
Mo.Pope So Parker
C. Sandford Jo Porcel
A.V.P. Stitt Eo Protheroe
C. Sutton Mo Walshe
No Warner
Jo Willder
S.J. Wright
Dealers
A.N. Gharagozlou Company Secretary
D. Jessop
S.A.J. Ward J.C. Thornhill
/s/James E. Minnick /s/ Mark G. Arthus
- ----------------------------------- -----------------------------------
James E. Minnick Mark Arthus
President and Secretary and
Chief Executive Officer Compliance Officer,
A-2
<PAGE>
Schedule A
Custody Fees
for the
MGIT Mutual Fund Complex
Services Provided
(bullet) Safekeeping of assets
(bullet) Settlement of trades
(bullet) Foreign exchange
(bullet) Excess cash investment and management
(bullet) Income collection
(bullet) Tax withholding and reclamation
(bullet) Corporate action processing
(bullet) Proxy handling
(bullet) Fully audited month-end multicurrency reporting
(bullet) Daily on-line investment manager/fund administrator
reporting package
All sections/portfolios in the complex will be charged a base fee of $1,500 per
annum.
Emerging Market Equity Fund and
Emerging Markets Fixed Income Fund
20.0 Basis points on the first $25 million
16.0 Basis points on the next $25 million
15.0 Basis points on the next $50 million
10.0 Basis points on over $100 million
International Small Cap Equity Fund,
Japanese Small Cap Equity Fund and
European Small Cap Equity Fund
16.0 Basis points on the first $50 million
12.0 Basis points on the next $50 million
8.0 Basis points on over $100 million
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International Equity Fund, Global Equity Fund,
European Equity Fund and Pacific Basin Equity Fund
14.0 Basis points on the first $50 million
9.0 Basis points on the next $50 million
6.0 Basis points on over $100 million
Global Fixed Income Fund and
International Fixed Income Fund
11.0 Basis points on the first $50 million
8.0 Basis points on the next $50 million
4.0 Basis points on over $100 million
Short-Term Fixed Income Fund and
Short-Term Municipal Bond Fund
4.0 Basis points on the first $100 million
3.0 Basis points on over $100 million
Large Cap Growth Fund
5.0 Basis points on the first $100 million
4.0 Basis points on the next $100 million
3.0 Basis points on over $200 million
Smaller Companies Fund
5.0 Basis points on the first $100 million
4.0 Basis points on the next $100 million
3.0 Basis points on over $200 million
Any non-U.S. futures/option transactions incur a charge of $120 per roundtrip.
U.S. futures/option transactions incur a charge of $60 per roundtrip.
We do not impose additional charges for facsimile, telex, income collection, tax
reclamation, administration or other "miscellaneous" activities. Execution
costs, such as stamp duty, re-registration and delivery/receipt charges would be
passed through at cost if and as applicable.
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Full access to The Northern Trust's on-line, customized reporting system, the
Electronic Delivery System (EDS), will be made available to both Morgan Grenfell
U.K. and N.Y. as well as SEI. In recognition of our commitment to the success of
our partnership with SEI in creating an accurate daily NAV and with Morgan
Grenfell in assuring compliance and daily monitoring capabilities, we are
waiving our standard charge of $100 per hour for staff consultative and
development time.
The only charge associated with the use of EDS will be based upon actual
computer usage of $20 per Computer Resource Unit (CRU). A CRU is based on the
time used to process data by our computers as well as the amount of computer
storage used to hold your data records and reports as well as connect time.
Telecommunication charges, however, do apply. We provide a toll-free number in
the U.S. and in the U.K. EDS is accessed via a local telephone number.
As we conveyed in our presentation, Morgan Grenfell presently receives an
abbreviated form of EDS to facilitate trade communication. This service will
continue to be available and free of charge.
Morgan Grenfell Investment Trust and The Northern Trust Company agree to the
foregoing fees pursuant to Section 5(a) of the Custody Agreement between them
dated as of December 29, 1993. Morgan Grenfell Investment Trust and The Northern
Trust Company further agree that, pursuant to Section 1(j) of such Agreement and
effective as of December 28, 1994, Morgan Grenfell Short-Term Fixed Income Fund,
Morgan Grenfell Short-Term Municipal Bond Fund, Morgan Grenfell Large Cap Growth
Fund and Morgan Grenfell Smaller Companies Fund (each a series of Morgan
Grenfell Investment Trust) are each subject to the terms of such Agreement.
Morgan Grenfell Investment Trust
By: /s/ Mark G. Arthus
---------------------------------
Name: Mark G. Arthus
---------------------------------
Title: Secretary
---------------------------------
The Northern Trust Company
By: /s/ Sheldon W. Woldt
---------------------------------
Name: Sheldon W. Woldt
---------------------------------
Title: Vice President
---------------------------------
A-5
EXHIBIT 8(B)
CUSTODY AGREEMENT
This Agreement, dated as of the 28th day of December, 1994 by and
between CoreStates Bank, N.A. and Morgan Grenfell Investment Trust (the
"Trust"), on behalf of Morgan Grenfell Fixed Income Fund, Morgan Grenfell
Municipal Bond Fund and such other series of the Trust as may be agreed to in
the future (each, a "Portfolio");
WITNESSETH:
WHEREAS, the Trust desires to deposit cash and securities with
CoreStates Bank N.A. as custodian; and
WHEREAS, CoreStates Bank N.A. is qualified and authorized to act as
custodian for the cash and securities of an open-end investment company and is
willing to act in such capacity upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
SECTION 1. The terms as defined in this Section wherever used in this Agreement,
or in any amendment or supplement hereto, shall have the meanings herein
specified unless the context otherwise requires.
CUSTODIAN: The term Custodian shall mean CoreStates Bank N.A. in its capacity
as Custodian of the Portfolios under this Agreement.
PROPER INSTRUCTIONS: For purposes of this Agreement the Custodian shall be
deemed to have received Proper Instructions upon receipt of written (including
instructions received by means of computer terminals), telephone or telegraphic
instructions from a person or persons authorized from time to time by the
Trustees of the Trust to give the particular class of instructions. Telephone or
telegraphic instructions shall be confirmed in writing by such person or persons
as said Trustees shall have from time to time authorized to give the particular
class of instructions in question. The Custodian may act upon telephone or
telegraphic instructions without awaiting receipt of written confirmation, and
shall not be liable for the Trust's, the Trust's investment adviser's or any
other authorized person's failure to confirm such instructions in writing.
<PAGE>
SHAREHOLDERS: The term Shareholders shall mean the registered owners from time
to time of the Shares of the Trust in accordance with the registry records
maintained by the Trust or agents on its behalf.
SHARES: The term Shares of the Trust shall mean the shares of beneficial
interest of the Trust.
SECTION 2. The Trust shall from time to time file with the Custodian a certified
copy of each resolution of its Board of Trustees authorizing the person or
persons to give Proper Instructions (as defined in Section 1) and specifying the
class of instructions that may be given by each person to the Custodian under
this Agreement, together with certified signatures of such persons authorized to
sign, which shall constitute conclusive evidence of the authority of the
officers and signatories designated therein to act, and shall be considered in
full force and effect with the Custodian fully protected in acting in reliance
thereon until it receives written notice to the contrary; provided, however,
that if the certifying officer is authorized to give Proper Instructions, the
certification shall be also signed by a second officer of the Trust.
SECTION 3. The Trust hereby appoints the Custodian as custodian of cash and
securities from time to time on deposit hereunder, to be held by the Custodian
and applied as provided in this Agreement. The Custodian hereby accepts such
appointment subject to the terms and conditions hereinafter provided. Such cash
and securities shall, however, be segregated from the assets of others and shall
be and remain the sole property of the Trust and the Custodian shall have only
the bare custody thereof.
The Custodian may perform some or all of its duties hereunder through a
subcustodian.
The Custodian may deposit a Portfolio's portfolio securities with a U.S.
securities depository or in U.S. Federal book-entry systems pursuant to rules
and regulations of the Securities and Exchange Commission.
SECTION 4. The Trust will make an initial deposit of cash to be held and applied
by the Custodian hereunder. Thereafter the Trust will cause to be deposited with
the Custodian hereunder the applicable net asset value of Shares sold from time
to time whether representing initial issue, other stock or reinvestments of
dividends and/or distributions payable to Shareholders.
-2-
<PAGE>
SECTION 5. The Custodian is hereby authorized and directed to disburse cash from
time to time upon receipt of and in accordance with Proper Instructions.
SECTION 6. The Custodian's compensation shall be as set forth in Schedule A
hereto attached, or as shall be set forth in amendments to such schedule
approved by the Trust and the Custodian.
SECTION 7. In connection with its functions under this Agreement, the Custodian
shall:
(a) render to the Trust a daily report of all monies received or paid on
behalf of the Trust.
(b) create, maintain and retain all records relating to its activities
and obligations under this Agreement in such manner as will meet the
obligations of the Trust with respect to said Custodian's activities in
accordance with generally accepted accounting principles. All records
maintained by the Custodian in connection with the performance of its
duties under this Agreement will remain the property of the Trust and in
the event of termination of this Agreement will be relinquished to the
Trust.
SECTION 8. No liability of any kind shall be attached to or incurred by the
Custodian by reason of its custody of the assets held by it from time to time
under this Agreement, or otherwise by reason of its position as Custodian
hereunder except only for its own negligence, bad faith, or willful misconduct
in the performance of its duties as specifically set forth in the Agreement.
Without limiting the generality of the foregoing sentence, the Custodian:
(a) may rely upon the advice of counsel, who may be counsel for the Trust
or for the Custodian, and upon statements of accountants, brokers and
other persons believed by it in good faith to be expert in the matters
upon which they are consulted; and for any action taken or suffered in
good faith based upon such advice or statements the Custodian shall not be
liable to anyone;
(b) shall not be liable for anything done or suffered to be done in good
faith in accordance with any request or advice of, or based upon
information furnished by, the Trust or its authorized officers or agents;
-3-
<PAGE>
(c) is authorized to accept a certificate of the Secretary or Assistant
Secretary of the Trust, or Proper Instructions, to the effect that a
resolution in the form submitted has been duly adopted by its Board of
Trustees or by the Shareholders, as conclusive evidence that such
resolution has been duly adopted and is in full force and effect;
(d) may rely and shall be protected in acting upon any signature, written
(including telegraph or other mechanical) instructions, request, letter of
transmittal, certificate, Opinion of counsel, statement, instrument,
report, notice, consent, order, or other paper or document reasonably
believed by it to be genuine and to have been signed, forwarded or
presented by the purchaser, Trust or other proper party or parties.
SECTION 9. The Trust, its successors and assigns hereby indemnify and hold
harmless the Custodian, its successors and assigns, of and from any and all
liability whatsoever arising out of or in connection with the Custodian's
status, acts, or omissions under this Agreement, except only for liability
arising out of the Custodian's own negligence, bad faith, or willful misconduct
in the performance of its duties specifically set forth in this Agreement.
Without limiting the generality of the foregoing, the Trust, its successors and
assigns do hereby fully indemnify and hold harmless the Custodian its successors
and assigns, from any and all loss, liability, claims, demand, actions, suits
and expenses of any nature as the same may arise from the failure of the Trust
to comply with any law, rule, regulation or order of the United States, any
state or any other jurisdiction, governmental authority, body, or board relating
to the sale, registration, qualification of shares of beneficial interest in the
Trust, or from the failure of the Trust to perform any duty or obligation under
this Agreement.
Upon written request of the Custodian, the Trust shall assume the entire defense
of any claim subject to the foregoing indemnity, or the joint defense with the
Custodian of such claim, as the Custodian shall request. The indemnities and
defense provisions of this Section 9 shall indefinitely survive termination of
this Agreement.
-4-
<PAGE>
SECTION 10. This Agreement may be amended from time to time without notice to or
approval of the Shareholders by a supplemental agreement executed by the Trust
and the Custodian and amending and supplementing this Agreement in the manner
mutually agreed.
SECTION 11. Either the Trust or the Custodian may give forty-five (45) days'
written notice to the other of the termination of this Agreement, such
termination to take effect at the time specified in the notice. In case such
notice of termination is given either by the Trust or by the Custodian, the
Trustees of the Trust shall, by resolution duly adopted, promptly appoint a
Successor Custodian which Successor Custodian shall be a bank, trust company, or
a bank and trust company in good standing, with legal capacity to accept custody
of the cash and securities of a mutual fund.
Upon receipt of written notice from the Trust of the appointment of such
successor and upon receipt of Proper Instructions, the Custodian shall deliver
such cash and securities as it may then be holding hereunder directly and only
to the Successor Custodian. Unless or until a Successor Custodian has been
appointed as above provided, the Custodian then acting shall continue to act as
Custodian under this Agreement.
Every Successor Custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the rights, powers, obligations and custody of its predecessor
Custodian. The Custodian ceasing to act shall nevertheless, upon request of the
Trust and the Successor Custodian and upon payment of its charges and
disbursements, execute an instrument in form approved by its counsel
transferring to the Successor Custodian all the predecessor Custodian's rights,
duties, obligations and custody.
In case the Custodian shall consolidate with or merge into any other
corporation, the corporation remaining after or resulting from such
consolidation or merger shall ipso facto without the execution or filing of any
papers or other documents, succeed to and be substituted for the Custodian with
like effect as though Originally named as such.
SECTION 12. This Agreement shall take effect when assets of the Trust are first
delivered to the Custodian.
-5-
<PAGE>
SECTION 13. This Agreement may be executed in two or more counterparts, each of
which when so executed shall be deemed to be an original, but such counterparts
shall together constitute but one and the same instrument.
SECTION 14. A copy of the Certificate of Trust of the Trust is on file with the
Secretary of State of the State of Delaware, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Trust as Trustees
and not individually and that the obligations of this instrument are not binding
upon any of the Trustees, officers or Shareholders of the Trust individually,
but binding only upon the assets and property of the Trust.
SECTION 15. The Custodian shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Trust under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable Federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Trust.
Subject to security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian and such
regulations as to the conduct of such monitors as may be reasonably imposed by
the Custodian after prior consultation with an officer of the Trust the books
and records of the Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at any reasonable times by officers of,
attorneys for, and auditors employed by, the Trust.
SECTION 16. Nothing contained in this Agreement is intended to or shall require
the Custodian in any capacity hereunder to perform any functions or duties on
any holiday or other day of special Observance on which the Custodian is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next business day the Custodian is open.
SECTION 17. This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Trust without the written consent of
the Custodian, or by the Custodian without the written consent of the Trust,
authorized or approved by a resolution of its Board of Trustees.
-6-
<PAGE>
IN WITNESS WHEREOF, the Trust and the Custodian have caused this Agreement to be
signed by their respective officers as of the day and year first above written.
MORGAN GRENFELL INVESTMENT TRUST
on behalf of
Morgan Grenfell Fixed Income Fund
Morgan Grenfell Municipal Bond Fund
ATTEST:
/s/Mark G. Arthus By: /s/James E. Minnick
- --------------------------------- ---------------------------------
Mark G. Arthus James E. Minnick
Secretary President and Chief Executive
Officer
ATTEST: CORESTATES BANK, N.A.
By: /s/Rebecca B. Ley
- --------------------------------- ---------------------------------
-7-
<PAGE>
SCHEDULE A
Fee Schedule
1.00 basis points on the first $2.5 billion
.75 basis points on the next $2.5 billion
.50 basis points on amounts over $5 billion
Transactions billed separately by portfolio at the now current rates. Asset
level charges billed as one invoice covering all Morgan Grenfell Investment
Trust portfolios custodied at CoreStates. SEI will allocate charges back to
individual portfolios. Transaction charges are subject to change.
-8-
<PAGE>
SCHEDULE B
Custody Services
<TABLE>
<CAPTION>
Transaction Fees
<S> <C>
$4.00 Per trade clearing through Depository Trust Company or
the U.S. Treasury book-entry systems of the Philadelphia
Federal Reserve.
$15.00 Per trade for assets requiring physical settlement or
settlement at the N.Y. Federal Reserve.
$9.00 Mortgage backed securities-paydowns.
$3.00 Fed wire on collateral.
$5.50/$7.50 Other wire transfers in/out.
</TABLE>
-9-
EXHIBIT 11(A)
Consent of Independent Accountants
We hereby consent to the use in the Statements of Additional Information
constituting parts of this Post-Effective Amendment No. 9 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
December 11, 1995 relating to the financial statements and financial highlights
of Municipal Bond Fund, Fixed Income Fund, 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, Emerging Markets Debt Fund, Global Equity Fund, European Equity
Fund, Pacific Basin Equity Fund and Japanese Small Cap Equity Fund (comprising
Morgan Grenfell Investment Trust), which appears in such Statements of
Additional Information, and to the incorporation by reference of our report
into the Prospectuses which constitute parts of this Registration Statement. We
also consent to the references to us under the headings "Financial Statements"
and "Independent Accountants" in such Statements of Additional Information and
to the reference to us under the heading "Financial Highlights" in such
Prospectuses.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 6, 1996
EXHIBIT 11(B)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to all references to our
firm included in Post-Effective Amendment No. 9 to the Registration Statement
on Form N-1A of Morgan Grenfell Investment Trust (File No. 33-68704).
/s/ Arthur Andersen LLP
Philadelphia, PA
February 5, 1996
POWER OF ATTORNEY
I, the undersigned trustee of Morgan Grenfell Investment Trust, a
Delaware business trust, do hereby constitute and appoint James E. Minnick and
Mark Arthus and each of them acting singly, to be my true, sufficient and
lawful attorneys, with full power to each of them, and each of them acting
singly, to sign for me, in my name and in my capacity as trustee, the
Registration Statement on Form N-1A of Morgan Grenfell Investment Trust and any
and all amendments to said Registration Statement to be filed by Morgan
Grenfell Investment Trust under the Investment Company Act of 1940, as amended,
and under the Securities Act of 1933, as amended, with respect to the offering
of its shares of beneficial interest, and any and all other documents and
papers relating thereto, and generally to do all such things in my name and on
my behalf in my capacity as trustee to enable Morgan Grenfell Investment Trust
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by said attorneys or each of them to any and all amendments to
said Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on this 29th day of June 1994.
/s/ Edward T. Tokar
----------------------------------
Edward T. Tokar
Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned trustee of Morgan Grenfell Investment Trust, a
Delaware business trust, do hereby constitute and appoint James E. Minnick and
Mark Arthus and each of them acting singly, to be my true, sufficient and
lawful attorneys, with full power to each of them, and each of them acting
singly, to sign for me, in my name and in my capacity as trustee, the
Registration Statement on Form N-1A of Morgan Grenfell Investment Trust and any
and all amendments to said Registration Statement to be filed by Morgan
Grenfell Investment Trust under the Investment Company Act of 1940, as amended,
and under the Securities Act of 1933, as amended, with respect to the offering
of its shares of beneficial interest, and any and all other documents and
papers relating thereto, and generally to do all such things in my name and on
my behalf in my capacity as trustee to enable Morgan Grenfell Investment Trust
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by said attorneys or each of them to any and all amendments to
said Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on this 5th day of July 1994.
/s/ Hugh G. Lynch
----------------------------------
Hugh G. Lynch
Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned trustee of Morgan Grenfell Investment Trust, a
Delaware business trust, do hereby constitute and appoint James E. Minnick and
Mark Arthus and each of them acting singly, to be my true, sufficient and
lawful attorneys, with full power to each of them, and each of them acting
singly, to sign for me, in my name and in my capacity as trustee, the
Registration Statement on Form N-1A of Morgan Grenfell Investment Trust and any
and all amendments to said Registration Statement to be filed by Morgan
Grenfell Investment Trust under the Investment Company Act of 1940, as amended,
and under the Securities Act of 1933, as amended, with respect to the offering
of its shares of beneficial interest, and any and all other documents and
papers relating thereto, and generally to do all such things in my name and on
my behalf in my capacity as trustee to enable Morgan Grenfell Investment Trust
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by said attorneys or each of them to any and all amendments to
said Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on this 29th day of December,
1993.
/s/ Patrick W. Disney
----------------------------------
Patrick W. Disney
Trustee
<PAGE>
POWER OF ATTORNEY
We, the undersigned trustees of Morgan Grenfell Investment Trust, a
Delaware business trust, do hereby severally constitute and appoint James E.
Minnick and Mark Arthus and each of them acting singly, to be my true,
sufficient and lawful attorneys, with full power to each of them, and each of
them acting singly, to sign for each of us, in the name of each of us and in
the capacity as trustee, the Registration Statement on Form N-1A of Morgan
Grenfell Investment Trust and any and all amendments to said Registration
Statement to be filed by Morgan Grenfell Investment Trust under the Investment
Company Act of 1940, as amended, and under the Securities Act of 1933, as
amended, with respect to the offering of its shares of beneficial interest, and
any and all other documents and papers relating thereto, and generally to do
all such things in the name of each of us and on behalf of each of us in the
capacity as trustee to enable Morgan Grenfell Investment Trust to comply with
the Investment Company Act of 1940, as amended, and the Securities Act of 1933,
as amended, and all requirements of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming the signature of each of us as it
may be signed by said attorneys or each of them to any and all amendments to
said Registration Statement.
IN WITNESS WHEREOF, we have hereunto set our hands on this 29th day of December,
1993.
/s/ Graham E. Jones
----------------------------------
Graham E. Jones
Trustee
/s/ William N. Searcy
----------------------------------
William N. Searcy
Trustee
/s/ Paul K. Freeman
----------------------------------
Paul K. Freeman
Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned officer of Morgan Grenfell Investment Trust, a
Delaware business trust, do hereby constitute and appoint James E. Minnick and
Mark Arthus and each of them acting singly, to be my true, sufficient and
lawful attorneys, with full power to each of them, and each of them acting
singly, to sign for me, in my name and in the capacities indicated below, the
Registration Statement on Form N-1A of Morgan Grenfell Investment Trust and any
and all amendments to said Registration Statement to be filed by Morgan
Grenfell Investment Trust under the Investment Company Act of 1940, as amended,
and under the Securities Act of 1933, as amended, with respect to the offering
of its shares of beneficial interest, and any and all other documents and
papers relating thereto, and generally to do all such things in my name and on
my behalf in the capacities indicated to enable Morgan Grenfell Investment Trust
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by said attorneys or each of them to any and all amendments to
said Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on this 1st day of July 1994.
/s/ Jeffrey A. Cohen
----------------------------------
Jeffrey A. Cohen
Treasurer and
Chief Financial Officer
<PAGE>
POWER OF ATTORNEY
I, the undersigned Officer of Morgan Grenfell Investment Trust, a
Delaware business trust, do hereby constitute and appoint James E. Minnick and
Mark Arthus and each of them acting singly, to be my true, sufficient and
lawful attorneys, with full power to each of them, and each of them acting
singly, to sign for me, in my name and in the capacities indicated below, the
Registration Statement on Form N-1A of Morgan Grenfell Investment Trust and any
and all amendments to said Registration Statement to be filed by Morgan
Grenfell Investment Trust under the Investment Company Act of 1940, as amended,
and under the Securities Act of 1933, as amended, with respect to the offering
of its shares of beneficial interest, and any and all other documents and
papers relating thereto, and generally to do all such things in my name and on
my behalf in the capacities indicated as trustee to enable Morgan Grenfell
Investment Trust to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended, and all requirements of the
Securities and Exchange Commission thereunder, hereby ratifying and confirming
my signature as it may be signed by said attorneys or each of them to any and
all amendments to said Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on this 29th day of December,
1993.
/s/ Theresa M. Messina
----------------------------------
Theresa M. Messina
Chief Financial Officer and
Treasurer
<PAGE>
POWER OF ATTORNEY
I, the undersigned trustee of Morgan Grenfell Investment Trust, a
Delaware business trust, do hereby constitute and appoint Patrick W. W. Disney
and Mark G. Arthus and each of them acting singly, to be my true, sufficient
and lawful attorneys, with full power to each of them, and each of them acting
singly, to sign for me, in my name and in my capacity as trustee, the
Registration Statement on Form N-1A of Morgan Grenfell Investment Trust and any
and all amendments to said Registration Statement to be filed by Morgan
Grenfell Investment Trust under the Investment Company Act of 1940, as amended,
and under the Securities Act of 1933, as amended, with respect to the offering
of its shares of beneficial interest, and any and all other documents and
papers relating thereto, and generally to do all such things in my name and on
my behalf in my capacity as trustee to enable Morgan Grenfell Investment Trust
to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by said attorneys or each of them to any and all amendments to
said Registration Statement.
IN WITNESS WHEREOF, I have hereunto set my hand on this 6th day of February,
1996.
/s/ James E. Minnick
----------------------------------
James E. Minnick
Trustee
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000912035
<NAME> MORGAN GRENFELL INVESTMENT TRUST
<SERIES>
<NUMBER> 1
<NAME> INTERNATIONAL EQUITY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> MAY-01-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 2508
<INVESTMENTS-AT-VALUE> 2643
<RECEIVABLES> 3
<ASSETS-OTHER> 156
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2802
<PAYABLE-FOR-SECURITIES> 53
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11
<TOTAL-LIABILITIES> 64
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2502
<SHARES-COMMON-STOCK> 250
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 19
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 73
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 144
<NET-ASSETS> 236
<DIVIDEND-INCOME> 26
<INTEREST-INCOME> 4
<OTHER-INCOME> 0
<EXPENSES-NET> (11)
<NET-INVESTMENT-INCOME> 19
<REALIZED-GAINS-CURRENT> 73
<APPREC-INCREASE-CURRENT> 144
<NET-CHANGE-FROM-OPS> 236
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 9
<NUMBER-OF-SHARES-SOLD> 2502
<NUMBER-OF-SHARES-REDEEMED> (1)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2737
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 33
<AVERAGE-NET-ASSETS> 2659
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> .87
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.95
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000912035
<NAME> MORGAN GRENFELL INVESTMENT TRUST
<SERIES>
<NUMBER> 5
<NAME> INTERNATIONAL SMALL CAP EQUITY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 79090
<INVESTMENTS-AT-VALUE> 80760
<RECEIVABLES> 117
<ASSETS-OTHER> 11541
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 92418
<PAYABLE-FOR-SECURITIES> 1372
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 129
<TOTAL-LIABILITIES> 1501
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 91504
<SHARES-COMMON-STOCK> 9672
<SHARES-COMMON-PRIOR> 6647
<ACCUMULATED-NII-CURRENT> 254
<OVERDISTRIBUTION-NII> 0
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