MORGAN GRENFELL INVESTMENT TRUST
No-Load Open-End Funds
Institutional Shares
885 Third Avenue
New York, New York 10022
January 16, 1997
as revised March 18, 1997
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 1-800-550-6426.
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This Prospectus provides information about the Trust and each of the
Funds that investors should know before investing in institutional shares of 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 January 16, 1997, 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, 1 Freedom Valley Drive, Oaks, Pennsylvania 19456-0100. The Statement of
Additional Information, which is incorporated by reference into this Prospectus,
has been filed with the Securities and Exchange Commission. Not all of the Funds
are available in certain states. Please call 1-800-550-6426 to determine
availability in a particular state.
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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.
INSTITUTIONAL 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 OF ANY OTHER GOVERNMENT AGENCY.
<PAGE>
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.
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
Page
Expense Information 4
Financial Highlights 6
Introduction to the Funds 8
Investment Objectives and Policies 11
Description of Securities and Investment Techniques 18
and Related Risks
Additional Investment Information 32
Management of the Funds 33
Purchase of Institutional Shares 36
Redemption of Institutional Shares 38
Net Asset Value 40
Dividends, Distributions and Taxes 40
Organization and Shares of the Trust 42
Performance Information 43
Appendix A........................................... 45
Appendix B........................................... 48
Appendix C........................................... 52
iii
<PAGE>
EXPENSE INFORMATION
<TABLE>
<CAPTION>
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FUND NAME International Global European Pacific Basin
Equity Fund Equity Fund* Equity Fund Equity Fund*
-------------- -------------- -------------- --------------
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<S> <C> <C> <C> <C>
Shareholder Transaction
Expenses:
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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
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Annual Fund Operating Expenses
(as a percentage of average net assets
after reduction of advisory fee)
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Advisory fees ...................................0.70% 0.70% 0.70% 0.70%
Other Expenses...................................3.18% 0.70% 0.61% 0.70%
Reduction of Advisory Fee
and Expense Limitation by Adviser **............(2.98)% (0.50)% (0.41)% (0.50)%
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Net Fund Operating
Expenses......................................0.90% 0.90% 0.90% 0.90%
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</TABLE>
<TABLE>
<CAPTION>
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International Japanese European Emerging
FUND NAME Small Cap Small Cap Small Cap Markets
Equity Fund Equity Fund* Equity Fund Equity Fund
--------------- -------------- -------------- --------------
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<S> <C> <C> <C> <C>
Shareholder Transaction
Expenses:
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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
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Annual Fund Operating Expenses
(as a percentage of average net assets
after reduction of advisory fee)
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Advisory fees ............................... 1.00% 1.00% 1.00% 1.00%
Other Expenses............................... 0.40% 0.70% 1.30% 0.44%
Reduction of Advisory Fee
and Expense Limitation by Adviser **......... (0.15)% (0.45)% (1.05)% (0.19)%
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Net Fund Operating
Expenses.................................. 1.25% 1.25% 1.25% 1.25%
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</TABLE>
<TABLE>
<CAPTION>
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International Emerging
FUND NAME Global Fixed Fixed Markets
Income Fund Income Fund Debt Fund
-------------- -------------- --------------
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<S> <C> <C> <C>
Shareholder Transaction
Expenses:
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Maximum Sales Charge
Imposed on Purchases........................ None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends................................... None None None
Deferred Sales Charge
Imposed on Redemptions...................... None None None
Exchange Fee................................ None None None
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Annual Fund Operating Expenses
(as a percentage of average net assets
after reduction of advisory fee)
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Advisory fees .............................. 0.50% 0.50% 1.00%
Other Expenses.............................. 0.29% 0.63% 0.47%
Reduction of Advisory Fee
and Expense Limitation by Adviser **........ (0.14)% (0.48)% (0.22)%
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Net Fund Operating
Expenses................................. 0.65% 0.65% 1.25%
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</TABLE>
* Global Equity Fund, Pacific Basin Equity Fund and Japanese Small Cap Equity
Fund were not operational during the fiscal year ended October 31, 1996.
** The Adviser has agreed to reduce its advisory fee and to make arrangements
to limit certain other expenses to the extent necessary to limit Fund
Operating Expenses of each Fund, on an annual basis, to the specified
percentage of each Fund's assets shown in the above table as Net Fund
Operating Expenses. The above table and the following Example reflect this
voluntary agreement. In it sole discretion, the Adviser may terminate or
modify this voluntary agreement at any time after October 31, 1997. 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. After giving effect to the
Adviser's voluntary agreement, each Fund's advisory fee is as follows:
International Equity Fund 0%, Global Equity Fund 0.20%, European Equity
Fund 0.29%, Pacific Basin Equity Fund 0.20%, International Small Cap Equity
Fund 0.85%, Japanese Small Cap Equity Fund 0.55%, European Small Cap Equity
Fund 0%, Emerging Markets Equity Fund 0.81%, Global Fixed Income Fund
0.36%, International Fixed Income Fund 0.02% and Emerging Markets Debt Fund
0.78%, and the Other Expenses of International Equity Fund and European
Small Cap Equity Fund are equal to the respective amounts shown in the above
table as Net Fund Operating Expenses. If the Adviser's voluntary agreement
were not in effect, the Fund Operating Expenses for institutional shares of
each Fund would be as follows: International Equity Fund 3.88%, Global
Equity Fund 1.40%, European Equity Fund 1.31%, Pacific Basin Equity Fund
1.40%, International Small Cap Equity Fund 1.40%, Japanese Small Cap
Equity Fund 1.70%, European Small Cap Equity Fund 2.30%, Emerging Markets
Equity Fund 1.44%, Global Fixed Income Fund 0.79%, International Fixed
Income Fund 1.13% and Emerging Markets Debt Fund 1.47%.
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<PAGE>
Example:
Investors in institutional shares 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 Equity Fund $ 9 $29 $50 $111
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 $ 7 $21 $36 $ 81
Morgan Grenfell International Fixed Income Fund $ 7 $21 $36 $ 81
Morgan Grenfell Emerging Markets Debt Fund $13 $40 $69 $151
</TABLE>
<TABLE>
<CAPTION>
1 3
Year Years
---- -----
<S> <C> <C>
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 institutional shares of each
Fund is $250,000. Exchanges may be made in amounts as low as $50,000. See
"Purchase of Institutional 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 institutional shares of a Fund will bear. For each Fund
other than Morgan Grenfell Global Equity Fund, Morgan Grenfell European Equity
Fund, Morgan Grenfell Pacific Basin Equity Fund and Morgan Grenfell Japanese
Small Cap Equity Fund, "Other Expenses" included in the Expense Information
Table and Example are estimates for the fiscal year ending October 31, 1997 that
are based on actual expenses incurred during the fiscal year ended October 31,
1996, except that the figures shown (including figures shown for the other
Funds) assume that new administration and transfer agency fees were in effect
throughout the year ended October 31, 1996. Additionally, the figures shown for
Global Fixed Income Fund, International Fixed Income Fund and Emerging Markets
Debt Fund reflect the Adviser's voluntary agreement, effective as of October 31,
1996 (March 1, 1997 in the case of Emerging Markets Debt Fund), to limit Fund
Operating Expenses for institutional shares of these Funds to 0.65%, 0.65% and
1.25%, respectively, of average net assets. For Morgan Grenfell Global Equity
Fund, Morgan Grenfell European Equity Fund, Morgan Grenfell Pacific Basin Equity
Fund and Morgan Grenfell Japanese Small Cap Equity Fund, "Other Expenses" are
based on estimated average net assets for the current fiscal year ending October
31, 1997. If the average net assets of any of these Funds exceeds the applicable
estimate 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 applicable estimate
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 fees and other
expenses of the Funds, see "Management of the Funds."
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<PAGE>
FINANCIAL HIGHLIGHTS
Set forth below are selected data for an outstanding institutional share
of each of Morgan Grenfell International Equity Fund, Morgan Grenfell European
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 for the fiscal
periods ended October 31, 1996 and (with the exception of Morgan Grenfell
European Equity Fund) October 31, 1995. Selected data for an outstanding
institutional share of each of the above Funds (other than Morgan Grenfell
European Equity Fund and Morgan Grenfell European Small Cap Equity Fund) during
the period from its inception to October 31, 1994 are also set forth below. The
data set forth below have 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 1-800-550-6426. No information is
presented below for the Funds that had not commenced operations by October 31,
1996.
For an Institutional Share Outstanding Throughout Each Period Ended October 31
<TABLE>
<CAPTION>
Net
Net Asset Net Realized Distributions Distributions
Value Investment and from Net from Realized Net Asset Net Assets
Beginning Income / Unrealized Investment Capital Value End Total End of
Year of Period (Loss) Gains/(Losses) Income Gains of Period Return Period (000)
- ---- --------- ---------- -------------- ------------- ------------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
International Equity Fund
1996 $ 10.95 $ 0.11 $ 1.25 $(0.43) - $ 11.88 12.70% $ 3,423
1995 (1)* $ 10.00 $ 0.08 $ 0.87 - - $ 10.95 9.50% $ 2,738
European Equity Fund
1996 (2)* $ 10.00 $ - $ 0.60 - - $ 10.60 6.00% $ 17,902
International Small Cap Equity Fund
1996 $ 9.40 $ 0.03 $ 0.57 $(0.04) - $ 9.96 6.43% $ 106,709
1995 $ 10.35 $ 0.03 $(0.72) $(0.04) $(0.22) $ 9.40 (6.67)% $ 90,917
1994 (3)* $ 10.00 $ 0.02 $ 0.33 - - $ 10.35 3.50% $ 68,798
European Small Cap Equity Fund
1996 $ 11.55 $ 0.12 $ 1.03 $(0.12) $(0.04) $ 12.54 10.06% $ 9,856
1995 (4)* $ 10.00 $ 0.12 $ 1.44 $(0.01) - $ 11.55 15.66% $ 9,336
Emerging Markets Equity Fund
1996 $ 8.11 $ 0.06 $ 0.75 $(0.03) $(0.09) $ 8.80 10.02% $ 88,279
1995 $ 11.00 $ 0.04 $(2.29) $(0.02) $(0.62) $ 8.11 (21.00)% $ 93,288
1994 (5)* $ 10.00 $(0.01) $ 1.01 - - $ 11.00 10.00% $ 56,892
Global Fixed Income Fund
1996 $ 10.99 $ 0.59 $ 0.12 $(0.37) $(0.07) $ 11.26 6.60% $ 149,917
1995 $ 9.85 $ 0.35 $ 0.99 $(0.20) - $ 10.99 13.88% $ 139,337
1994 (6)* $ 10.00 $ 0.25 $(0.40) - - $ 9.85 (1.50)% $ 53,915
International Fixed Income Fund
1996 $ 11.34 $ 0.86 $(0.12) $(0.66) $(0.12) $ 11.30 6.82% $ 21,155
1995 $ 9.94 $ 0.42 $ 1.03 $(0.05) - $ 11.34 14.66% $ 27,603
1994 (7)* $ 10.00 $ 0.29 $(0.35) - - $ 9.94 (0.60)% $ 15,238
Emerging Markets Debt Fund
1996 $ 10.55 $ 1.21 $ 2.60 $(1.00) - $ 13.36 38.42% $ 102,431
1995 $ 10.19 $ 0.65 $(0.17) $(0.11) $(0.01) $ 10.55 4.85% $ 84,438
1994 (8)* $ 10.00 $ 0.13 $ 0.06 - - $ 10.19 1.90% $ 16,248
</TABLE>
<TABLE>
<CAPTION>
Ratio of Investment
Expenses Income(Loss)
Ratio of Net to Average to Average
Ratio of Investment Net Assets Net Assets
Expenses to Income(Loss) (Excluding (Excluding Portfolio Average
Average to Average Expense Expense Turnover Commission
Year Net Assets Net Assets Limitations) Limitations) Rate Rate**
- ---- ----------- ------------ ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
International Equity Fund
1996 0.90% 0.72% 3.59% (1.97)% 39% $0.0221
1995 (1)* 0.90% 1.55% 2.73% (0.28)% 19% N/A
European Equity Fund
1996 (2)* 0.90% (0.41)% 1.40% (0.91)% 5% $0.0324
International Small Cap Equity Fund
1996 1.25% 0.35% 1.38% 0.22% 47% $0.0170
1995 1.25% 0.41% 1.48% 0.18% 62% N/A
1994 (3)* 1.25% 0.34% 1.67% (0.08)% 41% N/A
European Small Cap Equity Fund
1996 1.25% 0.96% 2.50% (0.29)% 49% $0.0327
1995 (4) 1.25% 1.25% 2.24% 0.26% 34% N/A
Emerging Markets Equity Fund
1996 1.25% 0.63% 1.52% 0.36% 69% $0.0003
1995 1.25% 0.44% 1.55% 0.14% 49% N/A
1994 (5)* 1.36% (0.12)% 1.79% (0.55)% 45% N/A
Global Fixed Income Fund
1996 0.75% 5.39% 0.79% 5.35% 223% N/A
1995 0.78% 5.61% 0.87% 5.52% 147% N/A
1994 (6)* 0.85% 5.71% 1.28% 5.28% 173% N/A
International Fixed Income Fund
1996 0.75% 5.41% 1.03% 5.13% 235% N/A
1995 0.78% 5.51% 1.15% 5.14% 187% N/A
1994 (7)* 0.85% 5.66% 1.42% 5.09% 130% N/A
Emerging Markets Debt Fund
1996 1.50% 10.15% 1.92% 9.73% 227% N/A
1995 1.79% 10.97% 2.05% 10.71% 266% N/A
1994 (8)* 1.90% 7.04% 2.60% 6.34% 52% N/A
</TABLE>
(1) International Equity Fund commenced operations on 5/15/95.
(2) European Equity Fund commenced operations on 9/3/96.
(3) International Small Cap Equity Fund commenced operations on 1/3/94.
(4) European Small Cap Equity Fund commenced operations on 11/1/94.
(5) Emerging Markets Equity Fund commenced operations on 2/2/94.
(6) Global Fixed Income Fund commenced operations on 1/3/94.
(7) International Fixed Income Fund commenced operations on 3/15/94.
(8) Emerging Markets Debt Fund commenced operations on 8/4/94.
* All ratios, excluding total return and portfolio turnover rate for the
period, are annualized.
** Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal
years beginning after September 1, 1995.
Page 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 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
1-800-550-6426.
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$ 107 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.
This prospectus relates solely to institutional shares of the Funds.
The Funds offer another class of shares (service shares), which is subject to
different expenses and therefore has different performance than institutional
shares. Information regarding service shares may be obtained by calling
1-800-550-6426.
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
-4-
<PAGE>
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 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.
-5-
<PAGE>
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.
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
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(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 "Description of Securities and Investment Techniques and Related
Risks--Region and Country Concentration."
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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 equity and
equity-related securities of issuers located in countries outside the Pacific
Basin, including the United States.
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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 Nat West
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
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.
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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."
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
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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 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,
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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, Croatia, Cyprus, Czech Republic, Ecuador, Egypt, Greece,
Hungary, India, Indonesia, Ivory Coast, Jordan, Kazakhstan, Malaysia, Mexico,
Morocco, Pakistan, Panama, Peru, the Philippines, Poland, Portugal, Russia,
South Africa, 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
instruments and fixed income securities and (iii) financial instruments, such as
call options, the value of which are dependent on the prices of such loans, debt
instruments and fixed income securities. The loans and debt instruments in which
the Fund may invest may be denominated in a major currency, such as the U.S.
dollar or the German Deutschemark, or in the local currency. The price of loans
and debt instruments
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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, Panama, the
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 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.
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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 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
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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 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
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denominated or quoted portfolio securities, or a decline in the value of
anticipated dividends or interest 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
securities in a segregated account, which will be marked to market daily, in an
amount equal to the value of the total assets committed to the consummation of
the forward currency contract. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the
account so that the value of the account will equal the amount of the Fund's
commitment with respect to the contract.
Forward currency contracts are subject to the risk that the
counterparty to such contract will default on its obligations. Since a forward
currency contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive a Fund of unrealized profits, transaction costs or
the benefits of a currency hedge or force a Fund to cover its purchase or sale
commitments, if any, at the current market price. The Funds will not enter into
forward currency contracts unless the credit quality of the unsecured senior
debt or the claims-paying ability of the counterparty is determined to be
investment grade by the Adviser. The Adviser will monitor the claims-paying
ability of the counterparty on an ongoing basis.
A Fund may also utilize forward foreign currency contracts to establish
a synthetic investment position designed to change the currency characteristics
of a particular security without the need to sell such security. For example, a
Fund wishing to acquire a particular security that is denominated in French
Francs, but wishing to seek exposure to a second currency and not the Franc, may
simultaneously enter into a forward contract to sell an equivalent value of
Francs in exchange for such foreign currency. Synthetic investment positions
will typically involve the purchase of U.S. dollar-denominated securities
together with a forward contract to purchase the currency to which the Fund
seeks exposure and to sell U.S. dollars. This may be done because the range of
highly liquid short-term instruments available in the U.S. may provide greater
liquidity to a Fund than actual purchases of foreign currency-denominated
securities in addition to providing superior returns in some cases. Depending on
(a) each Fund's liquidity needs, (b) the relative yields of securities
denominated in different currencies and (c) spot and forward currency rates, a
significant portion of a Fund's assets may be invested in synthetic investment
positions, subject to compliance with the tax requirements for qualification as
a regulated investment company. See "Taxes."
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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 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
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to the written option. In the case of a put option, this means that the Fund
will deposit cash or liquid securities 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 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 liquid securities 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, 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 liquid securities 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.
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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
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.
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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. 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 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
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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 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, Panama,
Poland, the Philippines, Uruguay and Venezuela and may be issued by other
countries. Over $130 billion in principal amount of Brady Bonds have been
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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 December 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.
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
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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
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
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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 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 liquid 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 liquid 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.
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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 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
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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.
When-Issued Securities and Forward Commitments. Each Fund may purchase
securities on a when-issued, delayed delivery or forward commitment basis. When
these transactions are negotiated, the price of the securities is fixed at the
time of the commitment, but delivery and payment may take place up to 90 days
after the date of the commitment to purchase. When-issued securities or forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date. When a Fund purchases securities on a
forward commitment or when-issued basis, the Fund's custodian will maintain in a
segregated account liquid 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 liquid securities or a
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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.
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.
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.
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
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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 approximately 200% or higher. A high rate of
portfolio turnover (i.e., 100% or higher) will result in correspondingly higher
transaction costs to a Fund. However, these costs generally are lower for funds
that invest in fixed income securities than for funds that invest in equity
securities. A high rate of portfolio turnover also may, under some
circumstances, make it more difficult for the Fund to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended. See
"Financial Highlights" for each Fund's portfolio turnover for the fiscal period
ended October 31, 1996.
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"),
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which is a wholly-owned subsidiary of Deutsche Bank AG, an international
commercial and investment banking group. As of September 30, 1996, MGIS managed
approximately $14.7 billion in assets.
Under its Advisory Agreement with the Trust, the Adviser manages each
Fund's business and investment affairs. For these services, the Adviser is
entitled to a monthly fee at an annual rate of each Fund's average daily net
assets as follows:
Annual Rate
-----------
Morgan Grenfell 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 1.00%
* Prior to March 1, 1997, Morgan Grenfell Emerging Markets Debt Fund's advisory
fee rate was 1.50% of average daily net assets.
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, 1996, this voluntary agreement was in effect,
and Morgan Grenfell International Equity Fund, Morgan Grenfell European 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 Emerging Markets Debt Fund paid advisory
fees equal to 0.00%, 0.20%, 0.87%, 0.00%, 0.73%, 0.46%, 0.22% and 1.08% 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 that has commenced operations 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
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agreed, under certain circumstances, to reduce or not impose its advisory fee as
described under "Expense Information."
Administrator and Distributor
The Trust has entered into an Administration Agreement with SEI
Financial Management Corporation ("SEI Financial Management" or the
"Administrator"), 1 Freedom Valley Drive, Oaks, Pennsylvania 19456-0100. 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:
0.12% of aggregate assets under $1 billion
0.08% of next $500 million of aggregate assets
0.06% of next $1 billion of aggregate assets
0.04% of aggregate assets exceeding $2.5 billion
Each Fund that offers its shares pays the Administrator a minimum
annual fee that equals $60,000.
SEI Financial Services Company (the "Distributor"), 1 Freedom Valley
Drive, Oaks, Pennsylvania 19456-0100, serves as the distributor of institutional
shares of the Funds pursuant to a Distribution Agreement with the Trust and
assists in the sale of institutional 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"), 1004 Baltimore, Kansas City ,
Missouri 64105, serves as the transfer agent of the Funds. The Transfer Agent
maintains the records of each record shareholder's account, processes purchases
and redemptions of the Funds' shares, acts as dividend and distribution
disbursing agent and performs other shareholder servicing functions.
Additional information regarding the services performed by the
Administrator, Distributor, Custodian and Transfer Agent is provided in the
Statement of Additional Information.
PURCHASE OF INSTITUTIONAL SHARES
Institutional shares of any Fund may be purchased by an investor on any
Business Day at the net asset value next determined after receipt of the
investor's 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. Shareholders will
be entitled to dividends payable with respect their shares of a Fund if they are
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shareholders of the Fund on the record date for such dividend. There is no sales
charge in connection with purchases of institutional shares. The Trust reserves
the right, in its sole discretion, to reject any purchase offer and to suspend
the offering of shares.
Payments for institutional 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 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
Institutional 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:
<TABLE>
<CAPTION>
By Regular Mail: By Overnight Mail:
<S> <C>
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O. Box 419165 c/o DST Systems, Inc. (SEI Division CT-7 Tower)
Kansas City, MO 64141-6165 1004 Baltimore
Kansas City, MO 64105
</TABLE>
Third party checks, credit card checks and cash will not be accepted.
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 institutional shares of any Fund by
requesting their bank to transmit funds by wire to:
United Missouri Bank, 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
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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:
<TABLE>
<CAPTION>
By Regular Mail: By Overnight Mail:
<S> <C>
Morgan Grenfell Investment Trust Morgan Grenfell Investment Trust
P.O. Box 419165 c/o DST Systems, Inc. (SEI Division CT-7 Tower)
Kansas City, MO 64141-6165 1004 Baltimore
Kansas City, MO 64105
</TABLE>
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 institutional
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 1-800-550-6426 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. Institutional shares of a Fund may be exchanged in amounts as low as
$50,000 for institutional shares of any other Fund or institutional shares of
any Domestic Fund. A shareholder should obtain and read the prospectus relating
to institutional shares of 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
institutional shares in its account in one Fund for institutional shares in any
other Fund described in this Prospectus by telephone, as long as all accounts
are identically registered. A shareholder can exchange institutional shares by
telephone by calling 1-800-407-7301 before 4:00 p.m., Eastern time, on any
Business Day. Institutional 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 institutional shares for institutional
shares in any other Fund by submitting a written
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request, in proper form, to the Transfer Agent. Institutional 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 INSTITUTIONAL SHARES
How To Redeem
Shareholders may redeem institutional 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. Institutional shares are
redeemed at the net asset value next determined after receipt of the redemption
request by the Transfer Agent. Institutional shares subject to a redemption
request will earn any dividends for which the record date is the day the request
is received.
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 institutional shares to be redeemed, the Fund
from which institutional 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.
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 often will be wired the next Business Day.
Normally, redemption proceeds will be wired within seven days after the Transfer
Agent receives the appropriate redemption request documents, 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 institutional shares of a Fund recently
purchased by check may be delayed for up to 15 calendar days from the purchase
date. 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.
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Shareholders may request that redemption payments be made by Federal
Reserve wire or Automated Clearing House (ACH) wire. The Custodian may deduct a
wire charge (currently $10) from redemption payments made by Federal Reserve
wire. REDEMPTION PAYMENTS MADE BY FEDERAL RESERVE WIRE CANNOT BE MADE ON FEDERAL
HOLIDAYS RESTRICTING WIRE TRANSFERS. There is no charge for ACH wire
transactions; however, such transactions will not be posted to a shareholder's
bank account until the second Business Day following the transaction.
A shareholder 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 class of a Fund's shares is
determined by adding the value of all securities, cash and other assets of the
Fund attributable to such class, subtracting liabilities (including accrued
expenses and dividends payable) attributable to such class and dividing the
result by the total number of outstanding shares of such class.
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
-34-
<PAGE>
agents, which prices reflect broker-dealer supplied valuations and electronic
data processing techniques. Short-term obligations maturing in sixty days or
less may be valued at amortized cost, which does not take into account
unrealized gains or losses on portfolio securities. Amortized cost valuation
involves initially valuing a security at its cost, and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the security's market value. While this
method provides certainty in valuation, it may result in periods in which the
value of the security, as determined by the amortized cost method, may be higher
or lower than the price a Fund would receive if the Fund sold the security.
Other assets and assets whose market value does not, in the opinion of the
Adviser, reflect fair value are valued at fair value using methods determined in
good faith by the Board of Trustees.
Certain portfolio securities held by each Fund are listed on foreign
exchanges which trade at times and on days when the NYSE is closed. As a result,
the net asset value of each class 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
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 institutional 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 and other requirements of the
Code.
Dividends paid by a Fund from its net investment income, certain net
realized foreign exchange gains, and the excess of net short-term capital
gain over net long-term capital loss 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.
-35-
<PAGE>
Shareholders will be informed annually about the amount and character of
distributions received from a Fund for federal income tax purposes and foreign
taxes, if any, passed through to shareholders, as described below.
Individuals and certain other classes of shareholders may be subject to
31% backup withholding of federal income tax on dividends, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications or if they are otherwise subject to backup
withholding. Individuals, corporations and other shareholders that are not U.S.
persons under the Code are subject to different tax rules and may be subject to
non-resident alien withholding at the rate of 30% (or a lower rate provided by
an applicable tax treaty) on amounts treated as ordinary dividends from a Fund
and, unless a current IRS Form W-8 or acceptable substitute for Form W-8 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 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 dividends and distributions)
his or her proportionate share of the amount of qualified foreign 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 institutional
shares immediately prior to a distribution. Investors who purchase institutional
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 institutional 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
intangible property 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
-36-
<PAGE>
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 seven
additional series. The Declaration of Trust further authorizes the Trust to
classify or reclassify any series or portfolio of shares into one or more
classes. As of the date hereof, the Trustees have established two classes of
shares: institutional shares and service shares.
The shares of each class represent an interest in the same portfolio of
investments of a Fund. Each class has equal rights to voting, redemption,
dividends and liquidation , except that only service shares bear service fees
and each class may bear other expenses properly attributable to the particular
class. Also, holders of service shares of each Fund have exclusive voting rights
with respect to the service plan adopted by their 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.
As of December 17, 1996, the Wagner Family Trust owned beneficially
33.72% of the outstanding shares of the International Fixed Income Fund, TRW
Master Trust Retirement Plan owned beneficially 69.89% and Pitney Bowes
Retirement Plan owned beneficially 30.09% of the outstanding shares of the
European Small Cap Equity Fund, the Public Employees' Retirement Association
owned beneficially 25.57% and Michelin North America owned beneficially 27.61%
of the outstanding shares of the Emerging Markets Equity Fund, Louisiana
Municipal Police Employees Retirement System owned beneficially 99.99% of the
outstanding shares of the European Equity Fund and Morgan Grenfell Capital
Management, Inc. owned beneficially 97.63% of the outstanding shares of the
International Equity Fund.
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.
-37-
<PAGE>
As of the date of this Prospectus, the Administrator owned 100% of the
outstanding shares of each Fund other than International Equity Fund, European
Equity Fund, International Small Cap Equity Fund, European Small Cap Equity
Fund, Emerging Markets Equity Fund, Global Fixed Income Fund, Emerging Markets
Equity Fund, International Fixed Income Fund and Emerging Markets Debt Fund.
PERFORMANCE INFORMATION
From time to time, performance information, such as total return and
yield for a institutional shares of 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 institutional shares of 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
institutional shares. A Fund's yield reflects a Fund's overall rate of income on
portfolio investments as a percentage of the institutional share price. Yield is
computed by annualizing the result of dividing the net investment income per
institutional share over a 30-day period by the net asset value per
institutional share on the last day of that period.
To help investors better evaluate how an investment in a Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss performance as reported by various financial publications. The
performance of a Fund may be compared in publications to the performance of
various indices and investments for which reliable performance data is
available. In addition, the performance of a Fund may be compared in
publications to averages, performance rankings or other information prepared by
recognized mutual fund statistical services.
Performance quotations of a Fund represent the Fund's past performance
and, consequently, should not be considered representative of the future
performance of the Fund. The value of institutional 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 institutional 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.
--------------------------------------------
-38-
<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, 1996, 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 and/or Moody's were, on a weighted average basis, as follows*:
Percentage of
Standard & Poor's (Moody's) Ratings Total Investments
- ----------------------------------- -----------------
Not Rated.......................................................29.3%**
Rated by Standard & Poor's (Moody's):
BBB+, BBB, BBB-................................................ 6.9%
BB+, BB, BB-, (Ba)............................................. 38.8%
B+, B, B- (B).................................................. 23.0%
Cash........................................................... 2.0%
* Based on the average of month-end portfolio holdings during the fiscal year
ended October 31, 1996. Asset composition does not represent actual holdings on
October 31, 1996; 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: 18.6%, B+, B, B- (B); and 10.7%, CCC+, CCC, CCC- (Caa).
A - 3
<PAGE>
APPENDIX B
PORTFOLIO MANAGER INFORMATION
Funds Portfolio Managers
- ----- ------------------
Morgan Grenfell International Equity Fund Patrick Disney
Patrick Deane
Alex Tedder
Graham Bamping
William Thomas
Christopher Getley
Morgan Grenfell Global Equity Fund Patrick Disney
Patrick Deane
Alex Tedder
Graham Bamping
William Thomas
Christopher Getley
David Heape
Morgan Grenfell European Equity Fund Richard Wilson
Julian Johnston
Morgan Grenfell Pacific Basin Equity Fund Graham Bamping
William Thomas
Morgan Grenfell International Small Cap Equity Fund Jonathan Wild
Julian Johnston
Lim Ser Mui
James Pulsford
Christopher Getley
Morgan Grenfell Japanese Small Cap Equity Fund James Pulsford
Atsuhiko Masuda
Morgan Grenfell European Small Cap Equity Fund Julian Johnston
Jonathan Wild
Morgan Grenfell Emerging Markets Equity Fund Richard Lamb
Christopher Getley
Stephanie Scofield
Christopher Turner
Morgan Grenfell Global Fixed Income Fund Ian Kelson
Neil Jenkins
Annette Fraser
Morgan Grenfell International Fixed Income Fund Ian Kelson
Neil Jenkins
Annette Fraser
Morgan Grenfell Emerging Markets Debt Fund Ian Kelson
Simon Treacher
David Dowsett
B - 1
<PAGE>
<TABLE>
<CAPTION>
Portfolio Manager Expertise Professional Experience
- ----------------- --------- -----------------------
<S> <C> <C>
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)
Patrick Deane UK Equities Fund Manager, MGIS (since 1994)
Fund Manager, HSBC Asset
Management (1992-1994) Fund
Manager, Midland Montague Asset
Management (1990-92).
Patrick Disney EAFE(R) Markets Managing Director, MGIS (since
1988); Director, MGIS (1987-88);
EAFE(R) Team (since 1981).
David Dowsett Emerging Markets Debt Portfolio Manager, Emerging Markets
Debt, MGIS (since 1995); Portfolio
Manager, Emerging Markets Debt, Morgan
Grenfell International Funds Management
Ltd. ("MGIFM") (since 1995); BA, Durham
University (1991-1994).
Annette Fraser Global Fixed Income Fund Manager, Fixed Income Team,
MGIS (since 1992); Fund Manager,
MGIFM (since 1990).
Christopher Getley Latin American, African Portfolio Manager, Latin America and
and Australian Equity Markets Resource Markets, MGIS (since 1987).
David Heape US Equities Director, MGIFM (since 1994); Fund
Manager, US Equities, MGIS & MGIFM (since
1989); Analyst, UK Equities, Morgan
Grenfell & Co., London (1986-1989).
B - 2
<PAGE>
Neil Jenkins, CFA Fixed Income Director Global and Emerging Markets
Fixed Income Portfolio Manager, MGIS
(since 1996); Director, MGIFM (since 1995);
Vice President, the Trust (since 1993);
Director, MGCM (1991-1996); Morgan Grenfell,
Moscow Office (1988-1990); Morgan
Grenfell & Company Ltd. (since 1985).
B - 3
<PAGE>
Portfolio Manager Expertise Professional Experience
- ----------------- --------- -----------------------
Julian Johnston European Equity Markets Director, MGIS (since 1988);
Fidelity International (1984-88);
James Capel & Co. (1979-84).
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 Global Emerging Markets Equities Portfolio Manager, MGIS (since 1993);
Portfolio Manager, Rothschild Asset
Management (The Chile Fund and Five
Arrows Fund) (1988-93); Portfolio
Manager, Berkeley Govett and Samual
Montagu (1981-88).
Atsuhiko Masuda Japanese Equities Fund Manager, DB Morgan Grenfell Asset
Management Limited, Tokyo (since 1995);
MBA, University of Pennsylvania (1993-
1995); Analyst, Morgan Grenfell, Tokyo
(1990-1993); Analyst, Morgan Grenfell,
London (1988-1990).
Lim Ser Mui Asia Ex Japan Small Cap Portfolio Manager, Morgan Grenfell
Investment Management (Asia) Limited,
Singapore (since 1991); Manager, Deutsche
Bank Private Banking (1988-1991); Investment
Manager, First City Investments Pte Ltd.
(1986-1988); Assistant Manager Investments,
Paribas South East Asia (1985-1986);
Assistant Manager, United Overseas Bank,
Investment Division (1980-1985); Senior
Auditor, Arthur Young (1978-1980).
James Pulsford Japanese Markets Portfolio Manager, Japanese
Markets, MGIS (since 1987); UK
research (since 1984).
B - 4
<PAGE>
Portfolio Manager Expertise Professional Experience
- ----------------- --------- -----------------------
Stephanie Scofield Pacific Basin & Portfolio Manager, Emerging Markets, MGIS
Emerging Market Equities (since 1993); Portfolio Manager, Pacific
Basin, MGIS (since 1992); Analyst,
Japanese equities, MGIS (1990-1992).
Alex Tedder European Equities Portfolio Manager, Europe, MGIS (since 1994);
Analyst/Portfolio Manager, Schroder Investment
Management (1990-1994).
William Thomas Japanese Markets Director, MGIS (since 1988); Portfolio
Manager, MGIS (technology investments) (1984-
1988); Director, Extel (UK computing services
company) (1971-1979).
Simon Treacher Emerging Markets Debt Portfolio Manager, 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).
Christopher Turner European Emerging Portfolio Manager, European Emerging Markets,
Markets Equities MGIS (since 1993); Portfolio Manager,
European Markets, MGIFM (since 1990);
Analyst/Portfolio Manager, Equity and Law Life
Assurance Society (1986-1990).
Jonathan Wild International Equity Markets, Portfolio Manager, MGIS (since
Small 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 UK Equities Director, MGIS (since 1996); Portfolio
Manager, UK, MGIS (since 1993); Portfolio
Manager, HSBC Asset Management (1992-1993);
Portfolio Manager, Midland Montagu Asset
Management (1988-1992).
</TABLE>
B - 5
<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, 1442 and 3406 and/or consult your tax adviser.
C - 1
<PAGE>
Morgan Grenfell Investment Trust
885 Third Avenue
New York, New York 10022
Investment Adviser
Morgan Grenfell Investment Services Limited
20 Finsbury Circus
London, England EC2M 1NB
Administrator and Shareholder
Servicing Agent
SEI Financial Management Corporation
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
Distributor
SEI Financial Services Company
1 Freedom Valley Drive
Oaks, Pennsylvania 19456-0100
Custodian
The Northern Trust Company
Fifty South LaSalle Street
Chicago, Illinois 60675
Transfer Agent
DST Systems, Inc.
SEI Division CT-7 Tower
1004 Baltimore
Kansas City, Missouri 64105
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Legal Counsel
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Service Information
Existing accounts, new accounts, prospectuses,
Statements of Additional Information
applications, and service forms -
1-800-550-6426
Telephone Exchanges - 1-800-407-7301
Share Price and Performance
Information - 1-800-550-6426
<PAGE>
SUPPLEMENT DATED MARCH 18, 1997
TO STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 16, 1997 FOR INSTITUTIONAL SHARES OF
THE FOLLOWING FUNDS:
Morgan Grenfell International Equity Fund
Morgan Grenfell Global Equity Fund
Morgan Grenfell European Equity Fund
Morgan Grenfell Pacific Basin Equity Fund to
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 Debt Fund
Effective March 1, 1997, Morgan Grenfell Investment Services Ltd. agreed to
reduce its management fee for Morgan Grenfell Emerging Markets Debt Fund to an
annual rate of 1.00% of that Fund's average daily net assets. Accordingly, the
description of this Fund's management fee rate as 1.50% (the Fund's prior
management fee rate) in the Statement of Additional Information should be
disregarded.
The Trustees of Morgan Grenfell Investment Trust have approved the removal
of the nonfundamental investment restrictions shown as restrictions (b), (d),
(f), (g), (h), (j) and (k) on pages 21 and 22 of the Statement of Additional
Information. Accordingly, these restrictions no longer apply to the Funds.
<PAGE>
SUPPLEMENT DATED MARCH 18, 1997
TO PR0SPECTUS DATED JANUARY 16, 1997
FOR INSTITUTIONAL SHARES OF THE FOLLOWING FUNDS:
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
Morgan Grenfell Smaller Companies Fund is no longer prohibited from
investing more than 5% of its total assets in purchased options other than
protective put options. However, for the remainder of the current fiscal year,
the Fund does not intend to exceed this 5% limit other than on a temporary
basis.
<PAGE>
SUPPLEMENT DATED MARCH 18, 1997
TO STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 16, 1997 FOR INSTITUTIONAL SHARES OF
THE FOLLOWING FUNDS:
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
The Trustees of Morgan Grenfell Investment Trust have approved the
removal of the nonfundamental investment restrictions shown as:
(i) restrictions (b), (d), (f), (g), (h), (j) and (k) on pages 24 and
25 of the Statement of Additional Information for each Fund other
than Morgan Grenfell Fixed Income Fund and Morgan Grenfell
Municipal Bond Fund; and
(ii) restriction (2) on page 26 of the Statement of Additional
Information for Morgan Grenfell Fixed Income Fund and Morgan
Grenfell Municipal Bond Fund.
Accordingly, these restrictions no longer apply to the Funds.
<PAGE>
SUPPLEMENT DATED MARCH 18, 1997
TO PROSPECTUS DATED JANUARY 16, 1997
FOR INSTITUTIONAL SHARES OF THE FOLLOWING FUNDS:
Morgan Grenfell Global Fixed Income Fund
Morgan Grenfell International Fixed Income Fund
Morgan Grenfell Emerging Markets Debt Fund
Effective March 1, 1997, Morgan Grenfell Investment Services Ltd. agreed to
reduce: (1) its management fee for Morgan Grenfell Emerging Markets Debt Fund
from an annual rate of 1.50% to 1.00% of the Fund's average daily net assets and
(2) its management fee and make arrangements to the extent necessary to limit
Net Operating Expenses for institutional shares of the Fund to 1.25% of the
Fund's average daily net assets. Previously, the expense cap for institutional
shares of the Fund had been 1.50%.
Based upon Morgan Grenfell Emerging Markets Debt Fund's new management fee
rate and expense cap and assuming a 5% annual return, an investor in
institutional shares of the Fund would pay the following expenses on a $1,000
investment over the following periods:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$15 $47 $82 $179
Each Fund is no longer prohibited from investing more than 5% of its total
assets in purchased options other than protective put options. However, for the
remainder of the current fiscal year, no Fund intends to exceed this 5% limit
other than on a temporary basis.
Each Fund is no longer prohibited from investing more than 5% of its net
assets in restricted securities (i.e., securities that are subject to
restrictions on resale because they are not registered in reliance on the
exemption for non-public offerings under the Securities Act of 1933 (excluding
Rule 144A and Regulation S securities)). Most restricted securities are also
illiquid, and each Fund will continue to limit its investments in illiquid
securities to 15% of its net assets.
David Dowsett is a member of the portfolio management team that manages
Morgan Grenfell Emerging Markets Debt Fund's investments. Mr. Dowsett's
professional experience is as follows:
Portfolio Manager, Emerging Markets Debt,
MGIS (since 1995); Portfolio Manager, Morgan
Grenfell International Funds Management Ltd.
(since 1994); BA, Durham University (1991-1994).
<PAGE>
SUPPLEMENT DATED MARCH 18, 1997
TO STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 7, 1997 FOR INSTITUTIONAL SHARES
OF THE FOLLOWING FUNDS
Morgan Grenfell Global Fixed Income Fund
Morgan Grenfell International Fixed Income Fund
Morgan Grenfell Emerging Markets Debt Fund
Effective March 1, 1997, Morgan Grenfell Investment Services Ltd.
agreed to reduce its management fee for Morgan Grenfell Emerging Markets Debt
Fund to an annual rate of 1.00% of that Fund's average daily net assets.
Accordingly, the description of this Fund's management fee rate as 1.50% (the
Fund's prior management fee rate) in the Statement of Additional Information
should be disregarded.
The Trustees of Morgan Grenfell Investment Trust have approved the
removal of the nonfundamental investment restrictions shown as restrictions (b),
(d), (f), (g), (h), (j) and (k) on pages 20 and 21 of the Statement of
Additional Information. Accordingly, these restrictions no longer apply to the
Funds.
